Atlantic Union Bankshares Corp (AUB) 2015 Q3 法說會逐字稿

Good morning. My name is Jonathan, and I will be your conference operator today. I would like to welcome everyone to the Union Bankshares third quarter earnings conference call.

(Operator Instructions)

Thank you. Mr. Bill Cimino, you may begin your conference.

Thank you, Jonathan, and good morning everyone. We have Union President and CEO, Billy Beale, and Executive Vice President and CFO, Rob Gorman, with us today. Also joining us for the question-and-answer period are Tony Peay, EVP and Chief Banking Officer; Dave Bilko, EVP and Chief Risk Officer; and Jeff Farrar, EVP of Wealth Management, Insurance and Mortgage. Please note that today's earnings release is available to download on our investor website, www.investors.bankatunion.com.

Before I turn the call over to Billy I would like to remind everyone that we will make forward-looking statements on today's call which are subject to risks and uncertainties. A full discussion of the Company's risk factors are included in our SEC filings. At the end of the call will take questions from the research analyst community. And now I'll turn the call over to Billy Beale.

Thank you, Bill, and good morning everyone. Thank you for joining us today. During the third quarter we continued our solid progress toward delivering on the strategic objectives that will enable Union to deliver top-tier financial performance to our shareholders. We are working diligently on several fronts to capitalize on the organic growth opportunities we see in our market. And one area where we are keenly focused is on building deeper relationships with our existing retail commercial and wealth customers and mortgage customers to better cross sell within our lines of business but also across our lines of business.

In addition, we are making significant investments in our technology platform and reengineering several of our internal processes to support our growth goals and to help us become a more efficient Company. All of this work is being built on a foundation of a high-performing culture that remains focused on delivering an outstanding customer experience.

With that as a backdrop, I want to take a few minutes to comment on the rationale behind this decision to sell our credit card portfolios, [$26 million in loans] and enter into an outsourced partnership solution with Elan Financial Services. As I noted earlier one of our strategic goals is to deepen our relationship with our customers and increase our share of wallet.

In order to accomplish this Union must offer competitive financial services, products and solutions to our clientele. A little history. In the 1980s, Union made the decision to enter into a partnership agent relationship with the Independent Community Bankers Association credit card program which partnered with what is now today FIS, or Fidelity information Systems. In the 1980s the ICBA plan offered us differentiation from our community bank competitors. Over the last two decades as cards have evolved our partners frankly have not kept up. And as we looked across the competitive landscape related to credit cards we determined that our credit card product offerings were not as robust as others and, therefore, we were not as competitive as we needed to be in this space.

By partnering with Elan, we are able to immediately offer our customers a more market competitive suite of products and services including a menu of credit card types and solutions for the variety of cash, travel and merchandise reward options designed to meet the needs of our key customer segments. I would say very much like what you would see from any of the other large issuer of credit cards. And it will also speed up our planned deployment of EMV cards and Apple Pay to our customers and these additional offerings combined with our recent introduction of Visa Checkout allows Union to provide market competitive product offerings that should help us deepen existing relationships and increase our share of wallet.

As those of you who are familiar with Elan, they do offer a private label. Our customers will carry a Union Bank and Trust credit card.

One of the advantages of this relationship is that in our last two acquisitions First Market had made the decision to sell their credit card portfolio to Elan, and StellarOne had made a decision to sell their credit card portfolio to Elan. We will be able to if you will rebrand about 9,000 former First Market and former StellarOne credit cards back to Union Bank and Trust as part of this. We think that is a real advantage. And as Rob will talk to later, we will continue to participate and interchange fee sharing with Elan as well as sharing in the interest income off of the portfolio.

So now that I've talked about the rationale for Elan, let's look back at our third quarter. Adjusted for pending sale of credit cards our total loans for the quarter grew 4.3% annualized for the quarter. And average loans increased 5.7% in the second quarter. Our loan growth was in line with our expectation as we were aware of a number if non-contractual payoffs from several seasoned commercial real estate relationships as well as one large medical practice that sold to a hospital organization. And overall, our quarterly production levels remain steady and broad-based, and we continue to project mid-single loan growth for the full-year.

Average deposits increased by 7.3% and continue to keep pace with loan growth. We remain focused on growing core deposit households during the quarter, and you can see this continue to reflect our success there. We're also pleased to report that the mortgage Company was profitable again this quarter, demonstrating the progress the team has made in restructuring its business model and rebuilding the operating platform in the past year. Now it is time for us to continue to pursue our strategy of adding mortgage loan officers to generate additional loan production that will lead to improved operating leverage and enhance bottom line performance for the mortgage segment.

Asset quality continued to improve during the third quarter. Combined past dues and nonaccrual loan balances decreased by $2.5 million or 5.8% from the previous quarter and past-due and nonperforming assets are down significantly versus prior-year levels. In addition, we have a approximately $4 million in OREO currently under contract to sell the bulk of which we expect to close in the fourth quarter. We also closed seven branches during the quarter which will reduce our annual expenses by $1.9 million starting in the fourth quarter.

Let me summarize. I believe we turned in solid operating results in the third quarter as our growth strategy continues to take hold evidenced by broad-based loan production and deposit balance growth during the quarter. Credit quality continued to improve, and the mortgage Company remains profitable. Our third quarter operating performance demonstrates that we're well-positioned to realize the long-term and potential value of our franchise and to generate the earnings growth and top-tier financial performance that our shareholders expect. With that, I am going to turn it over to Rob Gorman.

Thank you, Billy, and good morning, everyone. Thanks for joining us this morning. I would now like to take a few minutes to walk you through details of our financial results for the quarter. Please note that all comparisons to prior-year period (technical difficulty) operating earnings or operating ratios to exclude after tax expenses associated with our StellarOne acquisition that we incurred in 2014.

Earnings for the third quarter were $18.2 million or $0.40 per share up approximately 18% from $15.3 million or $0.34 per share in the second quarter. The community bank segment earned $18.2 million in the third quarter while the mortgage segment reported net income of $59,000. Our return on tangible common equity increased 10.7% up from 9.2% in the second quarter and also up from 9.8% from the same period last year. Return on assets came in at 96 basis points this quarter up 13 basis points from the prior quarter and an increase of 9 basis points from the third quarter in 2014. Our efficiency ratio declined to 64.7% which is down from 67.1% in the second quarter and down 69.7% in the prior-year third quarter. Excluding the impact of the branch closure costs incurred during this year's second quarter our efficiency ratio declined approximately 9 basis points.

Turning to the major components of our income statement, tax equivalent net interest income was $65.7 million. That's down $400,000 from the second quarter driven by lower earning asset yields. The current quarter reported net interest margin decreased by 11 basis points to 3.86% as compared to 3.9% in the previous quarter.

Accretion of purchase accounting adjustments for loans, CDs and borrowings related to the StellarOne acquisition added 9 basis points to the net interest margin during the third quarter. And for your reference actual and remaining estimated net accretion impacts are reflected in the table included in our earnings release this morning.

The core net interest margin which does not include the impact of the acquisition accounting accretion was 3.77% in the third quarter, a decline of 9 basis points on a linked quarter basis. The core margin decline was driven by lower earning asset yield of 10 basis points during the quarter and a 1 basis point decline in our cost of funds. The core loan portfolio yield increased by 13 basis points to 4.41% in the quarter while the average investment portfolio yield actually increased 2 basis points to 3.19%. The decline in the loan portfolio yields during the quarter was primarily driven by lower loan fees, the negative impact of elevated higher-yielding loan paydowns during the quarter and lower yields on new and renewed loans. The lower cost of funds from the prior quarter was driven by more favorable deposit mix as we saw growth in low-cost deposits to offset the net runoff in our higher cost CD balance.

As noted in our earnings release we continue to expect that the core net interest margin will decline over the next several quarters as decreases in earning asset yields are [projected throughout] the declines in interest-bearing liabilities -- liability rates as well as by the impact of the credit portfolio's [tail on] net interest income which I will talk about in a moment.

Our provision for loan losses was $2 million for the quarter. That's 14 basis points down $1.5 million or 12 basis points from the second quarter. For the quarter net charge offs were $1 million or 7 basis points down approximately $1.2 million or 9 basis points from the prior quarter. The decrease in provision for loan losses in the third quarter compared to the prior quarter was driven by lower levels of net charge-offs, lower quarterly loan growth and continued improvement in asset quality.

Non-interest income in the third quarter was $16.7 million which is up a little over $500,000 or 3% from $16.2 million in the prior quarter primarily driven by a seasonally higher overdraft fee and other non interest income which was driven by gains on the resolution of a [long held] problem credit partially offset by lower gains on sales of securities and another and temporary impairment lost recognized in the third quarter on [municipal] securities.

Third quarter non interest expenses were $53.3 a $1.9 million decline from the second quarter. Excluding the $1.3 million branch closing cost incurred in the quarter, the decrease in non interest expenses was $600,000 or 1.2% from the prior quarter. OREO and credit related costs declined by $702,000 related to lower legal related fees, seasonal real estate taxes, valuation adjustments as well as net gains on sales of OREO in the current quarter as compared to net losses in the prior quarter. Marketing expenses decreased as expected by $590,000 related to the timing of advertising campaigns. The overall fee increases were partially offset by increased technology expenses of $333,000 primarily due to higher data processing fees and higher professional and consulting fees of $322,000. Just as a reminder as Billy mentioned, we closed seven branches in the third quarter, and we expect to realize annual expense savings of $1.9 million on a run rate basis beginning in the fourth quarter.

Let me take a minute to provide some comments on the financial impact of selling our credit card loan portfolio to Elan and the ongoing outsourced partnerships we entered into with them. The transaction closed yesterday and resulted in approximately $26 million in credit card loans being sold to Elan. We will record a pretax net benefit from the sale of approximately $1.2 million during the fourth quarter.

Also beginning in the fourth quarter we will share the ongoing revenue stream from the [sole] credit card account as well as on new accounts we generate going forward. We expect a material increase in our new account [opening] and usage as a result of the new Elan partnership. In addition we will also be able to reduce compensation provision expense, marketing and credit card reward expense levels as a result of the partnership again beginning in the fourth quarter. While we estimate that the impact of the loan sale will lower our net interest margin by approximately 3 basis points to 5 basis points due to reduced levels of interest income, we expect that the combination of shared non interest revenue, cost savings and income from reinvested proceeds will be accretive to earnings beginning in the fourth quarter.

Now turning to the balance sheet. Total assets stood at $37.6 billion at September 30, an increase of $97 million from June 30 level. The quarterly increase in assets was driven by net loan growth. Adjusted for the pending sale of the credit card portfolio loans, net of preferred fees were $5.5 billion at quarter end up $60 million or 4.3% on an annualized basis while average loans increased by $77 million or 5.7% annualized from the second quarter. Loan balances are now up 5.6% on a year-to-date basis and have increased 7.7% since September 30, 2014. As noted we continue to project mid-single-digit loan growth during -- for the full-year of 2015.

Also at September 30, total deposits were $5.8 billion an increase of $34 million or 2.4% annualized from the prior quarter as growth in low-cost deposit balances outpaced net runoff -- the net run off in higher cost [to bead]. Our average deposits increased $104 million or 7.3% on an annualized basis from the prior quarter. Asset quality continued to improve during the quarter. Nonperforming assets totaled $35.1 million at quarter end. That's comprised of $13 million in non accruing loans and $22.1 million in OREO balances. This represents an increase of $3.3 million from the second quarter and a decline of $23 million or 40% from the prior year level.

Nonperforming assets as a percentage of total outstanding loans was 63 basis points at quarter end, a decline of 49 basis points from the prior year and a modest increase of 5 basis points from the prior quarter. Nonaccrual loan balances increased by $3.4 million in the quarter driven by the transfer of pass-through loans to nonaccrual status during the quarter. OREO balances declined slightly during the quarter, but as Billy mentioned we currently have approximately $4 million in OREO under contract for sale the bulk of which we expect will close by year-end.

The allowance for loan losses increased by $945,000 from June 30 to $33.3 million as of September 30 primarily driven by loan growth during the quarter. Allowance as a percentage of the total loan portfolio adjusted for purchase accounting was 1.01% at September 30, down one basis points from June 30 level, while the nonaccrual loan coverage ratio was at 257% at quarter end, up materially from 158% in the third quarter of the prior year.

Tangible common equity to tangible asset ratio at quarter end was 9.29%. That's down 1 basis point from June 30. Excess capital at quarter end amounts to approximately $94 million, with excess being defined as balances above an 8% common -- annual common equity ratio. We repurchased approximately [165,000] (corrected by company after the call) shares during the quarter, and to date we have purchased approximately $61 million and have $3.7 million remaining under the current board repurchase authorization. Management and the Board of Directors continue to evaluate all capital management options including dividend payout levels, share repurchases and acquisitions as the deployment of our capital for the enhancement of long-term shareholder value remains one of our highest priorities.

In summary, in this third quarter results demonstrated steady progress toward our strategic growth objectives. Of note, loans grew at 4.3% annualized for the quarter despite the higher than normal paydowns, and we are tracking to mid-single-digit loan growth for the full-year. Core deposit growth remain in sync with loan growth, and the mortgage Company remained profitable during the quarter. In addition, we closed 5% of our current branches during the quarter resulting in $1.9 million of run rate expense savings.

Also want to leave you -- let you know that we remain steadfastly focused on leveraging Union franchise to generate sustainable and profitable growth and remain committed to delivering top-tier financial performance to building long-term value for our shareholders. With that I will turn it back over to Bill Cimino to open it up for questions from analysts.

Thanks, Rob. Jonathan, we are ready for some questions now.

(Operator Instructions)

Catherine Mealor with KBW.

Thanks. Good morning everyone.

Good morning, Catherine.

Wonder if we could dig into the margin just a little bit and outside of the credit card portfolio coming out, help us think about the direction of the loan yields moving forward. Can you talk a little bit about where new loan yields are coming on where they're coming off, and is that gap narrowing, or do see that gap widening as it remains really competitive in the Richmond market?

Catherine, this is Rob. We are projecting -- we've been suggesting two to four basis points on a quarterly basis. Obviously, this quarter was more than that. Going forward we continue to see compression and we think of that on the higher end of the 4% -- four basis point level going forward on a quarterly basis.

We have seen loans coming in on new loans, renewed loans coming in at about the 415 range. Obviously, portfolio yield was 454 before this quarter, 441 in the current quarter. Our projection is to be on the high-end of margin depression going forward unless we see some rate movement prior rates going forward which we don't project at this point.

All else equal, next quarter we should probably see another four bips decline in the margin and then another three bips to take into account the credit card portfolio. Seven total.

That's right. My comments primarily on the -- excluded the impact of the credit cards, but yes, add three points or so on the margin

But on the credit card portfolio ought to be because of non interest expense. So it ought to be net (multiple speakers)

If you look at it from a net income perspective on credit card it will be accretive or positive. But on the margin itself (technical difficulty).

Got it, okay. Great. One thing on the mortgage side, mortgage expenses declined is about 7% linked quarter. Are you done with the expense initiatives you had in place in the mortgage Company? From here is improving profitability in the mortgage Company more about hiring more originators and really getting more operating leverage or do you have additional cost savings left to take in that segment?

Catherine, it is Jeff. Good morning. I would say that for the most part it is the latter. It is a case of leveraging backup the lo base on an infrastructure that we worked hard to get our arms around.

There are still some opportunities from cost standpoint. The biggest one is on the lease cost. We still have some facilities that aren't significant in terms of costs to us that we are trying to sublease, one in particular which is the old operations center in Anondale. So there are still some opportunities there. They are more one-offs.

I think in terms of just the operating -- the operations we are still fine-tuning, if you will, metrics around fulfillment. We have added a number of underwriters who are still developing, if you will, their ability to be efficient in terms of how we underwrite credit. It is a little bit of a culture shift given where we hired some of these underwriters from, so we are still seeing some inefficiencies with respect to the underwriter group.

And there is still some pockets for opportunity around cost savings and efficiency. But by and large, it is a top line strategy to add lo's and add leverage to what we have.

Great. Thank you for the color.

Let me ask Jeff a question while he is there. Do want to go into -- as long as we're about mortgage. Do want to go into any of the impacts of TRID and what we have seen so far both from an acceleration of apps prior to October and then some of the processes of moving things through?

Sure. I would tell you this. I think what we have experienced is not unlike what the industry has experienced. Certainly saw a ramp-up in application activity prior to TRID implementation.

We have also experienced a dampened or distorted activity around applications post TRID. We, like a lot of folks, have moved our lock period out so we are at 45 days on our lock minimum, and again I think the industry has traveled that trail as well. So far so good on TRID. I think we have had a good initial implementation.

We're doing a lot of accessing right now to make sure we feel good about the conversion. I think there are still -- still have to get loans sold to the secondary market that are under the TRID disclosure requirements, so I think we are still in a wait and see mode relative to the implementation and won't really know how well we did until we have sold loans to each of our investors. We have certainly seen some impact on application.

We are down -- if you look at average apps end of last quarter versus this quarter, some of it's seasonality, but we think some of it's TRID related. We are down probably 20% on average application. That will have some impact, if you will, for production in the fourth quarter if that holds. So all in all, that's what we have experienced with TRID.

Thank you, Jeff. Jonathan, we are ready for our next question.

William Wallace, Raymond James.

Good morning. While we are on the subject of mortgage, Jeff, maybe I could ask a couple follow up questions. You, in the press release, there's mentioned some losses related to mortgage banking derivatives. Is that related to hedges?

No, it is simply the interest-rate lock derivative. So as we measure the fair value of our a locked portfolio, as volumes come down, I think you will see a lot of banks have to pull back on these fair value functions, fair value calculations, with interest-rate lock derivatives.

Margins are also component of that so the extent you start moving from a refi market to a purchase money market, we would expect some pressure on margins, and that also is a major assumption to that lock derivative. So, it's a non-cash item, obviously, a fair value adjustment, it certainly has earnings impact, and when you are operating at, in essence, at breakeven like we have the last couple of quarters any move that has some impact to absorb what we did this quarter felt pretty good about frankly, where we are. We could see more impact in the fourth quarter from the interest-rate lock derivatives than what we're seeing in volumes right now, but I don't think it will be material to overall performance.

It could put us in a loss for the fourth quarter if the interest rate lock derivative pulls back, but we don't again, think it will be material and it will be much improved over where we were at this time last year.

Thanks. And a follow-up, if I was reading the text correctly, it sounds like there was some increase to the reserves for the reps and warrants. Did I read that correctly?

Could you repeat that?

Reading the text on the segment in the release it sounded like you were increasing the reserves for the reps and warrants?

Wally, this is Rob. We actually had pulled back a bit in the second quarter, so when we looked at a quarter to quarter it was an increase in terms of debt reserving so I think that's how you should read it. There is nothing unusual going on there.

It wasn't for any specific credits or anything, just production related.

Yes.

Can you tell us about the muni that you guys impaired?

Every quarter we look at our investment portfolio for other than temporary impairments and do analysis regarding that. We did have one municipal security identified based on our analysis and the pricing in the market, there is a general fund negative -- various analysis but those components that went into it we needed to think about it -- ended up being about 30% haircut on that and decided it was other than temporary, it was credit related, and we took that loss

Was this a Virginia municipality or is it out-of-state?

It's out-of-state. It's actually an Ohio based municipality.

It had been on our, if you will, watch list for a while.

It was put on for negative watch and looked at pricing of that. It wasn't going to come back and it was a loss.

One last question. Billy, if you could talk a bit about what you're seeing in the loan portfolio. There's some moving parts going on. So if you just maybe look at the production levels during the quarter. Are you seeing any change in any of your markets or across all of your markets?

Tony, do want to take that or would (inaudible) take it?

I will take it. I will tell you that we are fairly consistent across our footprint within. Richmond is clearly the most competitive of our markets right now with the other banks coming to town. But all of our markets are very competitive. We're seeing improvement in the Southwest. We're seeing a lot of activity in Hampton.

I would also tell you that virtually every deal we look at, despite the length of relationships, is getting other banks looking at it as well. And I think we are seeing some of the discussions we had earlier about the loan -- the margin being impacted by banks giving on rate and probably more importantly we're seeing banks giving on structure. I think rate we can live with a little bit easier, but I think the structure side does cause me some pause. So, we're trying to make sure we are mitigating all of our risk and making the decisions and -- but virtually all of our marketplace, at the moment (inaudible) can be a fairly slow market, but the others are showing improved activity I would say.

When you say on structure is it going longer? Is that you mean?

I think things like reducing guarantees and limiting. We do limit some guarantees but only in certain cases and I think some of that give up and some of the structure, not so much the term, but the deal structure itself.

Wally, let me add a little postscript to that. We are seeing some pressure as well -- extend maturities. Our preference is 5 and we're seeing a lot of push to 5 into 10.

And we are not that far behind where we thought we would be at this point in time, as far as net loan volume, and if you will, where we are behind is spread pretty evenly across all of our markets, but the pipeline looks good. It looks as good as it did coming into June or coming into third quarter.

But we do not have looming out there some of the expected elevated levels of non contractual paydowns that we knew were coming in the third quarter. We think we are going to hit single-digit loan growth for the year. And that's where we expect to be.

Great. Thanks Billy, thanks Tony. I'll step out.

Thank you, Wally.

Laurie Hunsicker, Compass Point.

Yes, hi. Good morning, gentlemen.

Good morning, Laurie.

If we could jump over to credit for just a minute. Your OREOs finished the quarter at $22.1 million, and you mentioned $4 million under contract coming out likely in the fourth quarter. How does that split between your shutter branches and just your regular OREO?

Laurie, the $4 million under contract is primarily foreclose property. Not the --

Not be federal -- the shutter branches are still right about $3 million or so?

Yes, little over $3 million hasn't moved at all this quarter. We do have some progress being made on that, and at this point don't have anything to mention in terms of [tracktual] contracts to sell at this point.

Laurie, I think we've got one former branch under contract that I don't know because of the due diligence period that the buyer has. We will get that closed in the fourth quarter.

Laurie, this is Dave Bilko. I would say what we have under contract is primarily none of it is really branch related. But it is mostly residential including the Lake Watch OREO. The exception is one commercial property which was some condominiums. That's about $700,000, I think.

Can you tell me what is the Lake Watch OREO piece?

Those were residential -- not in Lake development, that was part of the OREO transferred in or migrated in from the StellarOne deal.

There was also some in nonaccrual as well, wasn't there?

A small amount in nonaccrual.

What's the size balance of what is in the $19 million piece then? Exing out the branches? I can follow-up with you off-line. Just the Lake --

I don't have that number.

I can follow-up with you later. King Carter, was there any change in that, or does that still sit at $5.6 million?

No change in King Carter.

Okay, one last question here on credit. As we look at your TDRs, specifically your performing TDRs, they had a massive improvement this quarter. They are very low now, but huge improvement going from $20 million down to $9.5 million. Was that a few properties or what were the types or any color you can give on that? Thanks.

I don't think it was any specific types necessarily. I think it was more and better collection efforts around the TDRs. But nothing more than that really.

This is Rob. I don't have the (inaudible) on the details of that, but basically we would be moving on TDRs if there was -- at a market interest-rate, we restructured [that] and it's been performing for at least 12 months. That's just our common policy, so it would be moving out of that but expected to be good positive collections on that point.

Okay, great and to that point in terms of how we think about the OREO expense running through your income statement line, obviously, was $2 million in June down to $1.3 million in September. At what point are we going to see that, particularly with this $4 million coming off in the fourth quarter, at what point do we see that number then drop below $1 million? Are we basically close?

I would like to say that we are getting very close, Laurie. The think if you look at the details of OREO, the real issue is valuation adjustment. So we took about another $500,000 in valuation adjustments, so to the extent we can get more stable there, as you know, we get new appraisals every year or so there is some potential for that to continue. Hopefully we can get some stabilized values for the appraisal process.

That is really the wild card. Getting it below the $1 million mark. As we said previously, we are looking to get down to about a $750,000 quarterly run rate and we did make some progress. Valuations were less this quarter. But as we get new appraisals, and that could change, some positive or potentially be a little higher.

What was the $500,000 valuation adjustment on?

There were a number of various properties I don't know exactly how many, five or six, or I think it was about seven properties where we got new appraisals and took some additional write-downs, if you will, based on those properties

It was mostly appraisal updates and there were some reduced [lifting] amounts to encourage sales. I think it was a mix.

Ex that you are at a $750,000 run rate then?

That's right. That's kind of the wealth idea.

Okay. One last question on the income statement, the other other line other other operating income of $1.9 million. Was there some nonrecurring items in that?

Yes, we did record a little over $1 million in that line that related to resolution of a problem credit; long-held

Previously charged off

Long held restructured credit that we had exhaustive the recoveries on that and booked that as a non interest income gain, if you well, on sales.

Okay, perfect. Very helpful. Thanks. I will let somebody else jump on.

(Operator Instructions)

David West, Davenport & Company.

Good morning.

Good morning, David.

Just a couple quick questions. I guess we are turning back to Jeff on mortgage. You are entering the seasonally slower time, particularly in residential originations. Do you think you can maintain break even results or better in Q4, Q1?

I think we are going to see some pressure on results here for the next two quarters as we previously provided guidance on. To the extent it is breakeven or modestly negative or positive I don't really see it significantly up or down one way or the other. I think we'll be [groundbreaking] (technical difficulty) where we are today (technical difficulty) continue to try to ramp back up at lo platform (inaudible) and adding lo and getting leverage back up.

A couple more quarters I think. Obviously, seasonality has a lot to do with that. And as I mentioned earlier I think TRID's is having some impact on that as well. Got some good activity right now with lo hiring, got some good folks in the queue. Really like the quality of individuals that we're bringing on. That all bodes well for 2016, and our early modeling for 2016 shows significantly improved profitability. So, if we can just get through the next quarter we'll be in good shape.

Very good. Thanks for that color. And lastly, your deposit numbers are holding up really well. I know the branches you closed were mostly in store branches. Could you comment a little bit about client retention post those closings?

We have not noticed any significant drop off yet. David, usually our rule of thumb is to wait about a quarter to do that comparison. So it would probably be better to comment on that in January than it is -- we closed in early August, so it's been about 60 days now. It usually takes about 90 if there is going to be any significant runoff or to show up. To date we have not seen any. We weren't expecting any because of the close proximity of brick and mortar branches to all of the in stores that we have.

Very good. Thanks so much.

Thanks everyone for dialing in today. As a reminder today's investor call will be posted on our website a little bit later once the replay (technical difficulty). Thank you for your time.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.