Bancorp Inc (TBBK) 2010 Q3 法說會逐字稿

完整原文

使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主

  • Operator

  • Good day ladies and gentlemen and welcome to the third-quarter 2010 The Bancorp, Inc.

  • earnings conference call.

  • My name is Francis and I will be your coordinator for today.

  • At this time, all participants are in a listen-only mode.

  • (Operator Instructions)

  • As a reminder, this conference is being recorded for replay purposes.

  • I would now like to turn the presentation over to your host for today's call, Andres Viroslav, s.

  • You may proceed.

  • Andres Viroslav - Director, Corporate Communications

  • Thank you, Francis.

  • Good morning and thank you for joining us today to review The Bancorp's third-quarter 2010 financial results.

  • On the call with me today are Betsy Cohen, Chief Executive Officer; Frank Mastrangelo, President; and Paul Frenkiel, our Chief Financial Officer.

  • 30 AM Eastern time today.

  • The dial-in for the replay is 888-286-8010 with a confirmation code of 49608171.

  • Before I turn the call over to Betsy, I would like to remind everyone that when using this conference call, the words believes, anticipates, expects and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

  • Such statements are subject to risks and uncertainties which could cause actual results to differ materially from those anticipated or suggested by such statements.

  • For a further discussion of these risks and uncertainties, please see the Bancorp's filings with the SEC.

  • Listeners are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date herof.

  • The Bancorp undertakes no obligation to publicly release the results of any revisions to forward-looking statements which may be made to reflect events or circumstances after the date thereof or to reflect the occurrence of unanticipated events.

  • Now I'd like to turn the call over to Betsy Cohen.

  • Betsy?

  • Betsy Cohen - CEO

  • Thank you very much, Andres, and good morning to all of you.

  • Thank you for joining us today.

  • Generally we at Bancorp lead off with deposits as a description of the progress of the quarter.

  • But today I would like to deviate from that old deposit story to talk first about what we think is an improvement in our credit profile and maybe a reflection of what we've been working so hard for and to discuss non-interest income which is again moving forward subject to our having identified it as a growth area about one year ago.

  • On the credit side, I think the first meaningful statistic to focus on is that all delinquent loans and non-accruals which were in aggregate on a linked-quarter basis $36 million in June are for the September quarter $26 million, a significant reduction.

  • And I think when you take into account that of that $26 million, $2.5 million is in the 30 to 89 day category and that in that category for the June quarter, the category of 30 to 89 days and 90 days which is still accruing aggregated about $18.7 million and that $18.7 million has been reduced in the 9/30 quarter to $6.7 million.

  • The improvement in the portfolio came about almost in equal parts through write-off and recognition of loss and through paid off loans, either through sales or financings away from us.

  • And I think the last piece of the puzzle so to speak is that the provision for June 30 was $5.8 million reduced from the 9/30 quarter to $5.1 million.

  • In the non-accrual component -- non-performing component which is the bulk of the number, I have to point out that we have $5 million to $7 million in residential loans that are subject to agreements of sale but located in [safe flight] New Jersey where the foreclosure process is a 24-month commitment and we hope that we are now coming toward the end of it and we will be able to realize the benefit of moving those off our books by completing that process and activating the agreements of sale.

  • So we think we've made progress there, still is a world in which the economy is not greatly improved nationally, but where we happen to be in an area where the depreciation in home value over the course of the last year has been modest and even over the course of the last two to three years, as you measure it against the rest of the country.

  • So, we think that we're being helped by our geography which represents the 12-county area around Philadelphia, represents the bulk of our portfolio which is in the community bank portfolio and so we're delighted were not in other parts of the country.

  • But on a going forward basis, we continue to generate new loans.

  • I think the net new loan number masks the real activity because there are continued paydowns whether it be to the reduction of construction loans portfolios or other elements.

  • And so we are generating in excess of that -- new loans in excess of that net loan growth.

  • I guess the other component of the forward-looking loan strategy we have been discussing with you and we're beginning to see the greenshoots so to speak of the strategy and that is in our SBA (inaudible) effort where you should see the first of those loans come to the balance sheet during the fourth quarter.

  • It's always hard to estimate when one is dealing with guaranteed loans what the exact closing date is, so I'm reticent about making an estimate as to the amount.

  • The other element which is part of our strategic focus and -- forward-looking presence and forward-looking focus is really our reconfiguring to some extent our emphasis on one business line over another in order to address the issue of net interest margin compression in this interest-rate environment and that is to generate non-interest income on an ongoing basis.

  • You began to see the benefits of that I think.

  • We began to see them in a demonstrable way at the beginning of this year.

  • But if we look because our business is seasonal to compare the 9/30/09 quarter with the 9/30/10 quarter, we see an increase from approximately $3 million in non-interest income to approximately $5 million in non-interest income.

  • We're very focused on this.

  • We have internal measurements that are driving it.

  • It takes time for that portfolio to come to the fore and mature because as you know, there are often long leadtimes on customer relationships.

  • But we think investing in our market position or market share within these lines of business is a very worthwhile thing to do and we are continuing to do that kind of investment.

  • But it would not be a quarter at Bancorp without having deposit growth and this certainly is a quarter in which we can reflect favorably upon that and I would ask Frank to pick up now and review for you the significant growth in the various lines of business.

  • Frank?

  • Frank Mastrangelo - President

  • Thank you, Betsy.

  • As many of you know, the third quarter is always our strongest quarter from a deposit generation standpoint including the generation of some seasonal deposits that we expect to flow off balance sheet in the fourth quarter.

  • At the same time, we do retain a significant portion of the third-quarter growth, grow again in the first quarter and then reach what is typically our annual low in the second quarter of the year.

  • Third-quarter deposit growth continued to be very strong, driven from our private client unit and our merchant and prepaid units.

  • The growth rates in each of those business lines continues to be strong.

  • As we look at them on a year-over-year basis, so taking into account any seasonality, private client has grown deposits over 120% year over year.

  • Our prepaid business has grown deposits over 57% year over year with merchant up a little over 22% year over year.

  • If business lines continue to generate low-cost stable deposits for the institution, it would help drive down the bank's total cost of funds.

  • Betsy Cohen - CEO

  • Thank you, Frank.

  • We're having success in the marketplace through the work of Frank and the team that he leads in deposits, the acquisition of deposit contracts.

  • Those contracts remain in the three to five and mostly five-year range with renewals being on a five-year basis.

  • We look forward to providing continued service levels which will make us a ready choice for new customers across our business lines.

  • I think one area that has grown significantly and represents a new opportunity that we introduced -- that was introduced to the balance sheet I believe about a year ago is in the private client area, not all of private client, we've been doing that for a while.

  • But we had the opportunity to design the methodology for and oversee the growth of an aggregation program within money market accounts and we think that's something that we'll be able to apply to additional businesses and look forward to that growing significantly.

  • It grew over 100% this year on a year-over-year basis.

  • And although those are high numbers to promise which we don't, we do anticipate working very hard on that line of business which we sometimes don't talk about.

  • I am going to pause now and ask Francis if she would open up the phones to questions.

  • Operator

  • (Operator Instructions) John Hecht, JMP Securities.

  • John Hecht - Analyst

  • Can you give us some information about the loan originations and your composition, maybe there's new spreads on the new loans, and maybe characterize your pipeline at this point?

  • Betsy Cohen - CEO

  • Yes, I think we continue to have inbound loan requests from our very deep community bank customer base.

  • We have been [cherry] about because we ourselves feel not unlike the rest of the federal government I guess with certain -- a lack of certainty about various areas within the economic sphere.

  • But we continue to do what we have done over a long period of time.

  • In addition to that, as you know, we spent significant time building the infrastructure to originate and absorb SBA USDA loans primarily focused on franchisors that we have underwritten and to whom we could assign a series of guidelines.

  • And we have been busy building our portfolio of those referring sources.

  • It's the model, the business model that we use for deposits and we think it's a good model for us in the loan area as well.

  • The SBA yields are approximately 2.75 over prime and we haven't closed enough of them yet to tell you whether that's a real yield or not, but that is in fact a stated deal.

  • John Hecht - Analyst

  • I was just going to say, this quarter of the gross originations, it seems like an increasing component or percentage might have been from SBA and maybe direct financing leases as well.

  • Is that fair?

  • Betsy Cohen - CEO

  • No, I don't think we see the SBA in this component.

  • Maybe $1 million or $2 million, but really nothing significant.

  • That's why I was saying I think you'll begin to see it in the fourth quarter.

  • On the lease -- small fleet leasing business that we have done, we grew I think year over year by a significant amount, from about $80 million to a little bit over -- from about $80 million to a little over $100 million, $103 million in that component.

  • And even on a linked-quarter basis, the growth in that area was from about $96 million to $103 million.

  • The yields on those loans are in the 8.5% range.

  • So obviously, consistent with good credit practice, we're trying to increase those loans.

  • On less yield but also less management intensive, we have originated -- we continue to originate through our private client relationships security-backed lines of credit.

  • And those yields in the area of 3.5 and on an outstanding basis, moved from about $170 million to about $195 million -- these are round numbers -- year to year and up a couple million dollars on a linked-quarter basis, about $3 million on a linked-quarter basis.

  • So we're trying to -- those are loans -- we've just recently announced a new relationship and, Frank, do you want to talk a little bit about [NADCO]?

  • Frank Mastrangelo - President

  • Sure, so the relationship Betsy is mentioning, National Advisors Trust, is an expanding private client relationship where we will be providing something more like the solutions set we provide to SEI, integrating both cash management services and lending services in the form of the securities-backed line of credit.

  • So it will allow [NADCO] to hold out a product set that looks similar to Merrill CMA.

  • It's a large (inaudible) co-op, non-bank, lender purpose trust company owned by its members and represents -- we have a pretty significant opportunity for growth.

  • Betsy Cohen - CEO

  • So those are three components, one of which in the securities-backed line of credit, you see our natural and continuing growth which is for a product that's been with us for a couple of years and we continue to grow.

  • You see the introduction after a significant period of -- involved with infrastructure controls building for SBA USDA loans.

  • And you see again a continuing line of business which was on pause so to speak when there was so much turmoil within the automobile sphere and which we feel comfortable growing once again.

  • So I think it's a mix of things.

  • John, does that answer your question?

  • John Hecht - Analyst

  • Very well, a lot of detail there.

  • Thank you very much.

  • The second question is related to credit.

  • It sounds like you're characterizing it as you're seeing I guess NPA or early-stage delinquency formulation slow and you're working through some of the non-accruals.

  • At this point, do you feel comfortable saying that credit is improving in the portfolio or are you still a little hesitant to make that call just given the lack of (multiple speakers)

  • Betsy Cohen - CEO

  • You know me, I am hesitant about everything and cautious.

  • But I can say that we did see a significant improvement in this quarter.

  • John Hecht - Analyst

  • One quarter doesn't make a trend.

  • Do you want wait a few more before --

  • Betsy Cohen - CEO

  • Well, I could tell you that I think we're over the hump, and all the rest of those words that people use.

  • But being the cautious person I am, I would like to say to you that we saw a lot of improvement in this quarter and we're very hopeful that we will see continuing improvement.

  • John Hecht - Analyst

  • Okay and last question is just on the non-interest expense.

  • A little over $16 million, does that bear all the costs of some of the new loan origination teams you brought in or would that bump up a little bit if you kind of quarterize or bring in the full cost of the [new teams]?

  • I'm just wondering what a right base is there?

  • Betsy Cohen - CEO

  • I think that we continue to try to be more efficient within our organization, and so that means we find new ways to do things.

  • We bring on originators, we will be bringing on -- within our deposit gathering, we think we have a big opportunity just at this moment to grow our portfolio.

  • And so we will be bringing on, but you may not see it for a quarter or two some new folks, not a lot, in that area.

  • And so it's -- but the salary line is fairly flat.

  • So up a little bit, but not that much.

  • But it absorbs everything and in everything we are doing.

  • I'm sorry, I think I misunderstood your question which is just dawning on me.

  • If you're asking whether it reflects the building of infrastructure for the SBA USDA team, it does.

  • That began to come in maybe a year ago and has been [seeding in] but it reflects that whole team.

  • Operator

  • Bob Ramsay, FBR Capital Markets.

  • Bob Ramsey - Analyst

  • I was a little bit surprised by the margin compression this quarter.

  • Could you sort of talk about that a little bit?

  • Was it mostly due to the growth in interest-bearing deposits and kind of what is the outlook from here?

  • Betsy Cohen - CEO

  • Paul Frenkiel is here and he is an expert.

  • Paul Frenkiel - CFO

  • Okay, one of the reasons for the decrease in net interest margin was the point that Frank alluded to earlier which was that we have seasonal deposits, and so we have inflated the deposits which we maintain at the Federal Reserve Bank for short-term investments.

  • So if you normalize for those seasonal deposits, we're in the $3.40 to $3.50 range for the margin.

  • That is lower than the same quarter last year and we do have some lower yields, lower asset yields.

  • But we are still looking at the deposit base and as we speak literally today and in the coming weeks, we're looking at additional interest-rate reductions.

  • So that should have a positive effect.

  • Bob Ramsey - Analyst

  • Okay, so going forward if you kind of normalize out the flows of the deposits, your -- as you say, sort of the core margin you would expect to expand from here or just with asset yields continuing to fall, does the funding benefit mitigate it but maybe not completely offset it?

  • Paul Frenkiel - CFO

  • I think going forward, you can use a normalized of about $3.40, $3.45.

  • I would hesitate to say that to look at increases, we will benefit obviously as interest rates increase.

  • But we're not looking for that to happen obviously in the next couple quarters.

  • So until that happens, I would say the current adjusted net interest margin of about $3.40 is what we're looking at.

  • Betsy Cohen - CEO

  • I think one of the difficulties we have in saying to you that there will be expansion is that it's very hard for us to predict at this time the growth in our targeted asset classes, the exact timing of it.

  • Not that we will have growth, we believe that, but the timing of that growth.

  • And certainly if we were for example to double our small fleet leasing business next quarter which is unlikely, we would then benefit greatly on the yield side.

  • So I think it's a timing issue as how those asset allocation strategies play out over the course of the next couple of quarters.

  • Bob Ramsey - Analyst

  • Okay, thank you.

  • And then I guess the next question I have got for you has to do with the deposits.

  • I know you ran through the numbers.

  • But I'm not sure I caught them all.

  • I think you said that prepaid deposits were up year over year 57% and merchant was up 22%.

  • Could you give me the numbers for the HSA business and and the private client, community bank?

  • You may have given them, I think I just missed them.

  • Paul Frenkiel - CFO

  • Sure, I actually didn't give the specific numbers, Bob, but if you're interested, healthcare was $400.5 million, private client was $403.3 million, merchant was $65 million.

  • Betsy Cohen - CEO

  • No, I think he is asking what was the percentage of growth year over year?

  • Bob Ramsey - Analyst

  • Either way, it gets me to the same point.

  • Paul Frenkiel - CFO

  • So the healthcare growth was actually 44.8% year over year.

  • And which other one did you need?

  • Bob Ramsey - Analyst

  • The private client and community bank, please.

  • Paul Frenkiel - CFO

  • Private client was 121% and the community bank deposits ended at $230 million in the quarter.

  • Bob Ramsey - Analyst

  • Great, thank you.

  • Maybe last question, could you just give a little bit of update on the municipal securities portfolio and what you were able to do this quarter in that portfolio and what your plans are going forward?

  • Betsy Cohen - CEO

  • Sure, I just want to say one thing before I turn it over to Paul to answer that question and that relates to the growth in merchant deposits which Frank said was 22%.

  • Not only is this a mature business for us, but it is a business where the benefit of the business is not all in the deposit gathering.

  • A lot of it is in the non-interest component.

  • So the deposits themselves which sometimes will be in the line of business for a deposit are not the driver, but non-interest income.

  • So, Paul, on the municipal?

  • Paul Frenkiel - CFO

  • Sure, we actually are now breaking that out separately in the press release on the average balance sheet.

  • So you can see that we had nontaxable securities on average of about $55 million in the three months ended September 30 on average and we are continuing to very carefully with great care and with an outside adviser who in addition to our own credit analysis performs their own, we continue to add to that portfolio.

  • We currently have about $90 million in total in the municipal securities.

  • Bob Ramsey - Analyst

  • Okay, so the average for the quarter was 55 and change and end of period was 90, is that correct?

  • Paul Frenkiel - CFO

  • Correct.

  • Bob Ramsey - Analyst

  • And what was the average in the second quarter since I don't think it was broken out in that period?

  • Paul Frenkiel - CFO

  • I can track that down.

  • Betsy Cohen - CEO

  • Bob, maybe we can come back to that number which Paul is leafing through a very large book to find.

  • Bob Ramsey - Analyst

  • That would be great.

  • That's all I have.

  • Thank you.

  • Betsy Cohen - CEO

  • Matthew Kelley, Sterne Agee.

  • Matthew Kelley - Analyst

  • I was wondering if you might be able to just give us a little bit of commentary on what you think will come out in terms of the outflow rates on deposits and the seasonality in the fourth quarter, help us quantify that a little better.

  • Looking back to Q3 of last year, deposits went up 20% and then came down 7% in the fourth quarter.

  • Is it that same type of relationship, about half the growth is reversed in the fourth quarter?

  • Betsy Cohen - CEO

  • I think we think it's in the nature of that but not maybe quite as severe.

  • Frank, do you have a different view?

  • Frank Schiraldi - Analyst

  • No, I think that's absolutely accurate.

  • I think it should mirror pretty closely to last year but maybe not quite as severe, less than half, maybe closer to 40%.

  • Matthew Kelley - Analyst

  • Gotcha.

  • Just a question on -- you have got this really significant deposit growth.

  • I mean, period end, you're up like 600 or $700 million year over year.

  • But the overall securities portfolio is only up modestly.

  • So you have this massive liquidity position.

  • Is there anything besides the municipals that we are going to see in the quarters ahead to kind of draw that liquidity down and then help the overall spread income?

  • Betsy Cohen - CEO

  • Paul is going to answer that.

  • Paul Frenkiel - CFO

  • We're also buying some short-term agency CMOs, fairly predictable.

  • The yield isn't terrific because again, we're very risk-averse.

  • But in line with your comment, we are trying to take money out of -- 25 basis points out of reserve bank balances and getting into something higher than that.

  • So we should yield in the area of perhaps 0.8% on those investments, but we're being very careful because there is a little bit of prepayment risk there.

  • So we will deploy some of those balances very carefully.

  • Matthew Kelley - Analyst

  • Can you help us kind of quantify where you think the securities to asset ratio will drift over time over kind of full year time horizons so we get a better understanding of the composition of earning assets?

  • Paul Frenkiel - CFO

  • If you look at the industry, it's generally 15% of the balance sheet or somewhat higher.

  • So I think 15% on $2 billion would be at least $300 million.

  • And in line with your previous question, to the extent we can feel very safe with short-term investments, it may be higher than that on a short-term basis.

  • Matthew Kelley - Analyst

  • The short-term going to be in the municipals and those agency CMOs, you said?

  • Paul Frenkiel - CFO

  • Yes, we're actually able to find some short-term municipals but it's hard, it's difficult to get our yield bogey.

  • So we're looking at other things that we can buy in larger quantities.

  • But it really depends on our assessment of the value of the CMOs we bought.

  • We purchased about $60 million of them with average lives of about six to nine months.

  • But it's a very thinly traded market and we don't really see the value in there right now.

  • If we see value again, we will purchase more.

  • There are other short-term investments we're looking at.

  • But the pickup over the 25 at the Federal Reserve Bank is not great.

  • So it really depends if we're able to find something that's a decent spread that's very safe, we will do more.

  • Betsy Cohen - CEO

  • We're looking all the time.

  • Matthew Kelley - Analyst

  • Gotcha.

  • And then I was wondering if you can just talk about the net spend opportunity.

  • Obviously some public documents out there indicating that you have a letter of intent to do business with them.

  • Help us understand what that opportunity could look like for you folks.

  • I look at gross dollar volume of transactions.

  • And give us a sense of the type of fee income and deposit balances.

  • I'm just -- pick a hypothetical number of $1 billion of gross dollar volume of transactions.

  • Betsy Cohen - CEO

  • Well, I will -- I'd turn this over to Frank but I do want to caution and say that we always see opportunity, but it's hard sometimes to size it exactly.

  • Because one never knows whether a letter of intent will translate at all, will translate into 100% of the business, will translate into 20% of the business.

  • You know, it's very hard for us to be predictive on that basis at this stage of our discussions or in any contract until it's signed.

  • And I think you know that, I'm just like reading Frank (inaudible) so to speak.

  • But, Frank, go ahead.

  • Frank Mastrangelo - President

  • Yes, sure, sure.

  • As I know you know, Matt, we would never also really comment on one particular client's business in any business line.

  • Sort of making this hypothetical what would $1 billion of gross dollar volume in a general-purpose reloadable program typically mean for Bancorp, just using some back-of-the-envelope ballpark type estimates, I would say average deposits of a program that look like that might be in the $20 million range plus or minus and non-interest income -- non-interest income would probably be in the -- it's tough to say.

  • But I would say maybe $600,000 to $800,000.

  • Matthew Kelley - Analyst

  • That is your share of the fees?

  • Frank Mastrangelo - President

  • That is Bancorp's share of a general-purpose reloadable program with GDV of about $1 billion in year one, yes.

  • Matthew Kelley - Analyst

  • Gotcha, and where are you running on on GDV in the third quarter in your entire stored value business?

  • Frank Mastrangelo - President

  • Sure, our gross dollar volume of the prepaid business in Q3 was just shy of $1.6 billion.

  • Matthew Kelley - Analyst

  • Versus year ago, do you have that?

  • Frank Mastrangelo - President

  • Yes, Q3 last year was $828 million.

  • That's up almost 93% year over year.

  • Matthew Kelley - Analyst

  • What was the actual stored value revenue in the quarter, fee income?

  • Frank Mastrangelo - President

  • Third quarter -- you know what, Matt?

  • I don't have that number right in front of me.

  • Matthew Kelley - Analyst

  • How did it -- up from -- the last quarter, it was 2.5, just as a reference point.

  • I'm just trying to --

  • Betsy Cohen - CEO

  • We will get that to you, Matt, offline.

  • Matthew Kelley - Analyst

  • Okay.

  • Alright, great.

  • One other question, just wanted to follow up (multiple speakers)

  • Frank Mastrangelo - President

  • I'm sorry, Matt.

  • So for the third quarter 2010, it was just shy of $2.8 million and that was just shy of $2 million in the third quarter 2009.

  • So 42% year over year.

  • Matthew Kelley - Analyst

  • Got it, got it.

  • And following up on the expense question that kind of started the call here, what is an appropriate longer-term expense growth rate that we should be looking at as you continue to build all of these business lines?

  • Is it going to grow north of 10% or do you think we will see some operative leverage here and drift closer to single digit, high single digit type expense growth rates for the overall operation?

  • Frank Mastrangelo - President

  • Paul?

  • Paul Frenkiel - CFO

  • Sure, I think they will be lower going forward.

  • And bear in mind that our current non-interest expense includes elevated credit cost expenses, legal and other expenses that at some point should be lower.

  • We also are working on other expenses in terms of controlling them.

  • But I think it would be a couple of quarters before we normalize.

  • But I would expect it would be certainly single digits.

  • Betsy Cohen - CEO

  • I think, Matt, if you look at the salary line alone, you'll see the last four quarters the low was 6,238,000 and the high was 6,468,000.

  • So I think you see relative flatness there.

  • There are some expenses we cannot control, non-interest expenses.

  • The FDIC in the last four quarters almost doubled.

  • There are non-controllable components as well as controllable components.

  • Matthew Kelley - Analyst

  • Understood.

  • Last question I would add is you had this massive kind of growth trajectory, but it's a little bit disappointing in terms of what's dropped to the bottom line.

  • It appears that we are finally at an inflection point where in 2011, we're going to start to see some of that drop to the bottom line with leverage points around the income statement and the growth rates being pretty significant.

  • Is that a fair characterization?

  • I look at the last eight quarters and you've hovered around $0.02 to $0.05, $0.06, $0.07 and the overall profitability has been modest.

  • But would you agree with the assessment that we are reaching an inflection point here now where the overall growth of the balance sheet is going to produce more significant bottom line net income?

  • Betsy Cohen - CEO

  • I think that's a fair assessment.

  • Obviously we don't make estimates forward looking or guidance or those kinds of things.

  • The best answer would be that we're hopeful you are right and we are working toward it.

  • Operator

  • Andy Stapp, B.

  • Riley & Co.

  • Andy Stapp - Analyst

  • Just a couple of clarifications.

  • The $6.7 million you talked about in delinquencies, was that total to delinquencies or 30 to 89?

  • Betsy Cohen - CEO

  • No, it's 30 to 89 plus 90 day (multiple speakers)

  • Andy Stapp - Analyst

  • Do you have just the 30 to 89 day component?

  • Betsy Cohen - CEO

  • It's about $2.5 million, give or take a few (inaudible)

  • Andy Stapp - Analyst

  • And, what was driving your large increase in net charge-offs?

  • And also looking at the provision down with the charge-offs being up, is it just a function of these charge-offs were applied against -- or a bulk of these charge-offs were applied against existing reserves?

  • Betsy Cohen - CEO

  • Yes, it was.

  • And I think we thought that the write-offs were required by our valuations.

  • I think that's -- either some event occurred or some other element which made it clear that this was the appropriate time for the write-off.

  • If there's more to your question, I'm happy to answer it.

  • But that's what I understand you to be asking.

  • Andy Stapp - Analyst

  • Yes, I'm just wondering why the charges are up substantially but the provision was down.

  • Just trying to reconcile that.

  • Betsy Cohen - CEO

  • Well remember that we also had about $9 million in sales, financings, whatever have you.

  • So that too took a bite out of [without loss] or that component took a bite out of the less attractive end of the loan portfolio.

  • Andy Stapp - Analyst

  • Okay, and just another clarification.

  • When you were talking about the $3.40 margin, that was a full-year run rate, correct?

  • Paul Frenkiel - CFO

  • That was the normalized for this quarter and our goal clearly is to maintain it at that level.

  • There are a couple of things supporting that.

  • One is the municipal securities purchases.

  • And to answer the question that was raised earlier, in the last quarter, we averaged about $31 million in municipals.

  • So those long-term municipals at 6% are clearly supportive of the margin.

  • As Betsy said, the growth in the 8.5% yielding directly financing is supportive and our fixed-rate loans, the ones we're currently making, are also -- to the extent they're higher than the $3.40 are also contributing to the margin as well.

  • So that's our goal going forward to at least maintain that.

  • Andy Stapp - Analyst

  • And there's been some chatter about banning prepaid cards due to money laundering concerns.

  • Just curious what your thoughts are on this matter?

  • Betsy Cohen - CEO

  • Frank, you think about money laundering?

  • Frank Mastrangelo - President

  • Andy, we have a very, very significant investment and platform in infrastructure related to AML and BSA monitoring.

  • But I don't know that I've heard any chatter about banning prepaid cards, but certainly -- they're certainly aware of new rules, regulations and oversight requirements that [FinReg] and some of the other regulators have been contemplating.

  • And what I can tell you is that looking at the new slate of rules that are being proposed, we believe that it's just another opportunity to cause great disruption in the space and will likely raise the bar for those that can afford to sponsor a program.

  • In essence, it will continue to increase the cost for some in a manner where if you don't have scale, you won't be able to play in the industry at all.

  • Betsy Cohen - CEO

  • And I think that's a very important point that Frank has made in answer to your question because we continue to talk about growth in deposits and growth in non-interest income and whatever have you.

  • But it's really a strategy which is geared to having the scale to be able to do these businesses effectively, safely and profitably.

  • Andy Stapp - Analyst

  • Okay, thank you.

  • Operator

  • Frank Schiraldi, Sandler O'Neill.

  • Frank Schiraldi - Analyst

  • Just a question on credit.

  • I think I safely know the answer to this, but given what credit did linked quarter, obviously you saw some improvement I would say at the bank level.

  • I mean, anecdotally and just what you're seeing elsewhere and sort of your everyday -- in the economy, the actual local economy, are you seeing the signs of improvement in credit?

  • Are you seeing signs of stabilization in appraisals?

  • If we could just get a little color there?

  • Betsy Cohen - CEO

  • Yes, I don't think in our particular area, the area into which we lend, that stabilization or lack of stabilization of appraisals has really been the issue.

  • You know, they may go up or down 10% or wherever they have been, but I think over the last couple of quarters, that's not absolutely the driving issue.

  • I think anecdotally in the 12-county area, we think that there is a certain amount of acceptance of the new norms of the level of activity.

  • So if you want to call that stabilization -- and people are now planning within their businesses for that kind of level of activity.

  • They have gone through that attitudinal or mental change and in a way, that's an improvement because they can then plan their businesses on a going forward basis.

  • They've benefited as individual businesses to the extent that they are doing more with fewer employees, but is that benefiting the whole MSA?

  • You know, that's really a hard thing to say.

  • We are in an area in which we do have drivers of growth.

  • We have education to a great extent.

  • We have healthcare in one form or another to a very significant extent.

  • We have public projects, so to speak -- hospitals and research labs and that kind of thing -- which help in the construction area.

  • So all of these are drivers of the stabilized economy but maybe at a lower level than it was five years ago or three years ago.

  • I'm not sure, does that answer your question?

  • Frank Schiraldi - Analyst

  • That's helpful thank you.

  • And then, you know, we saw the release a couple days ago concerning net spend.

  • Just stepping away from that specific business, is reloadable prepaid cards, reloadable debit prepaid, is that the strongest potential for growth here?

  • Betsy Cohen - CEO

  • Frank, would you like to (multiple speakers)

  • Frank Mastrangelo - President

  • Sure, I think it probably is for a number of reasons, Frank.

  • First of all, there are many new and emerging potential partners focused on that particular niche of the industry, first of all.

  • Secondly, when we acquired the Sioux Falls stored value footprint back in 2007, that was actually a fairly small component of the overall business.

  • So it's represented a pretty substantial growth opportunity almost from the moment we made the acquisition and we have grown that segment of the business very significantly over the last couple of years.

  • Frank Schiraldi - Analyst

  • And if you just pull out -- I don't think your whole prepaid -- your whole prepaid deposit balances I think are like what?

  • 40% or so of total deposits?

  • That's not all what you would characterize as a reloadable prepaid debit card that's sort of to the underbanked market.

  • Is that --

  • Frank Mastrangelo - President

  • Correct, there are other types of programs in that line item also.

  • Corporate incentive programs, benefit programs, so our FSA, travel, some HSA card issuing actually in the line item, gift cards, other types of programs like that are all encompassed in that line item.

  • Frank Schiraldi - Analyst

  • So what would you say the percentage of total assets is reloadable prepaid debit?

  • Frank Mastrangelo - President

  • I don't have that right off hand.

  • Betsy Cohen - CEO

  • Percentage of deposits that that represents, is that what you are asking?

  • Frank Schiraldi - Analyst

  • Yes.

  • Betsy Cohen - CEO

  • Well we don't have it right here front of us.

  • It's certainly something that we may not have that granularity right in front of us, but that we will certainly get back to you with.

  • Frank Schiraldi - Analyst

  • I would assume that it helps in terms of -- it would help -- to grow that business, it would help in terms of the deposit seasonality issue if those were less seasonal.

  • Frank Mastrangelo - President

  • They are less seasonal to some degree.

  • So it definitely can help there.

  • Those programs typically tend to be -- although they do drive deposits, deposits compared to gross dollar volume is actually smaller.

  • What those programs do though is drive very nice non-interest income for the institutions.

  • Betsy Cohen - CEO

  • It relates back to what we were discussing earlier in the call which is that we're trying to weight business lines to drive non-interest income.

  • I'm sorry, Frank, I interrupted you.

  • Frank Schiraldi - Analyst

  • Okay, great.

  • Thanks for that.

  • Then just finally, Frank, you had mentioned about -- in response to another question about the -- if you had a gross dollar volume I think of $1 billion, you gave what the average deposits falling off that would be or coming off that would be, around the $20 million range.

  • That gross dollar volume of $1 billion, what would that imply in terms of like amount of cards?

  • I'm trying to get sort of -- what I'm trying to do is get sort of an average deposit balance of your average reloadable prepaid debit card.

  • Frank Mastrangelo - President

  • So let's see -- and I don't know if you want to do this offline, Frank.

  • I can sit here in front of a calculator (multiple speakers)

  • Frank Schiraldi - Analyst

  • I'll give you a call (multiple speakers) I don't want to take up time.

  • Operator

  • At this time there are no other questions in the queue.

  • I would like to turn the call over to Betsy Cohen for closing remarks.

  • Betsy Cohen - CEO

  • Thank you, Francis, and thank you all.

  • You always challenge us to think about our business deeply and in appropriate ways and we're grateful to your joining with us on this call.

  • Thank you.

  • Operator

  • Ladies and gentlemen, thank you all for your participation in today's conference call.

  • This concludes the presentation and you may now disconnect.