Bancorp Inc (TBBK) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Bancorp, Inc.

third-quarter 2013 earnings conference call.

My name is Dave; I'll be your operator for today.

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

We will conduct a question-and-answer session toward the end of this conference.

(Operator Instructions).

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

I'd now like to turn the call over to Mr. Andres Viroslav, Director of Communications.

Please proceed, Sir.

Thank you, Dave.

Good morning, and thank you for joining us today to review The Bancorp's third-quarter 2013 financial results.

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

This morning's call is being webcast on our website at www.thebancorp.com.

There will be a replay of the call beginning at approximately 12.30 PM.

Eastern Time today.

The dial-in for the replay is 888-286-8010, with a confirmation code of 659-165-85.

Before I turn the call over to Betsy, I would like to remind everyone that when used in 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 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 the date hereof.

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

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

Betsy?

Thank you, Andres, and thank you all for joining us.

The third quarter was a quarter in which we continued to move forward in our core businesses in a very impressive way.

It was a solid quarter from the standpoint of revenues, which increased 34% adjusted operating earnings -- excuse me, 30% of adjusted operating earnings increased 34%.

And on the level of earnings per share, the third quarter of 2013 versus the third quarter of 2012 -- despite an increase in the number of shares outstanding -- weighted number of shares outstanding of 15% increased by 19%; and on a nine-months to nine-months basis, by 38%.

We're going to discuss other aspects of income and expense and our targeted growth areas, and then we will return after that to a more complete discussion of the credit metrics.

And so, moving forward with the highlights of income and expense, there was, in fact, a 76% increase in quarterly noninterest income.

I think it's important to note that it represents not only a significant growth year-over-year, but it represents a diversification of our noninterest income sources.

Prepaid, which has always driven the institution very strongly within the noninterest income category, increased what we consider on our current base an impressive 36%.

But we have added to that other sources of noninterest income, and so the total was a 76% increase.

And we even experienced a 12% increase in quarterly net interest income from the prior year's third quarter.

On the expense side, we look at expense a little bit differently than some.

And I think we've shared with you that our goal has been to move the ratio of noninterest income, particularly during the period of low net interest margin as a percentage of noninterest expense, up from what it was maybe two or three years ago; maybe 25% and up to 35%, moving that up what our goal is, of 80%.

And we're moving in that direction.

This quarter, 2013 -- third quarter of 2013 -- that number was 68%, showing significant progress over the third quarter of 2012 when that percentage was 51%.

Expenses were higher than had been anticipated this quarter for several reasons.

Among the increases was a significant increase in legal expense, primarily due to our investment in building out the infrastructure of our European operation, which, as you know from prior conversations, we anticipate to be fully operational in the first quarter of 2014.

There was an additional increase in commissions attributable to increases in noninterest income.

So as noninterest income grows, you will see some increase in the noninterest expense because those two things are linked in the commission-based areas.

We continue to focus on our targeted asset growth within the loan portfolio.

So SBA loans grew by 85%; and security backed lines of credit, 27%; and small fleet leasing by 21%.

Another area of asset growth is in the securities area.

And I'm going to let Paul talk about that.

Sure.

So we continued -- in spite of some concerns about tapering, we did continue our securities purchases.

We do actually have a significant amount of settlements in October.

And what we are most focused on is actually the income -- securities income, and the growth in securities income, which was good over a linked quarter basis.

So we are continuing those purchases, and we see that as a very important part of our strategy in terms of deploying our low-cost deposits.

Thank you, Paul.

Speaking of low-cost deposits, I'm going to ask Frank to speak about those lines of business on the -- both prepaid and other lines of business on the liability side.

Frank?

Thank you, Betsy.

Pretty typical quarter for us in Q3 2013; year-over-year deposit growth standing at about 26%.

Q3 is typically a quarter where we'll run off deposits in our prepaid unit, while some other business lines continue to build.

That typically leads to a relatively flat quarter from Q2, and that's really what this quarter looked like.

Excess tax refund deposits continued to flow out in the quarter.

Other business units contributed, as prepaid deposits pulled back a little bit.

And we ended up with a net -- almost $25 million increase in total deposits.

Q1 and Q4, of course, being the strong -- and now Q2, with the tax refund business, the quarters that typically build low-cost liabilities.

Beyond that, noninterest income continued to grow very nicely, being propelled by not only the prepaid group -- which grew noninterest income 36% year-over-year -- but also the CMBS team, which continued to perform very, very, well.

And loan sales contributed significantly to noninterest income growth.

Betsy already mentioned the majority of the loan growth in the quarter; or new loan bookings were really generated by leasing, SBA, and a nice increase in our securities-backed lines of credit, coming from our wealth management team.

Thank you, Frank.

Now I'm going to turn my attention to the credit metrics.

I suppose the good news in terms of credit is that the inbound indicator of troubled loans, which is the 30- to 89-day category, was reduced from $18.5 million at the end of the second quarter to $5.4 million at the end of the third quarter.

We've been very aggressive in trying to move these troubled loan situations through the system on a very proactive way.

And that has resulted in 90 days plus of being only roughly $200,000, so I don't know what that loan was -- but, anyway -- essentially cleaned that category out.

We have experienced a couple of significant losses in the commercial area.

Of the aggregate of $5.3 million, roughly $4 million in total is represented by two credits.

One was a Michelin-starred restaurant that had been in the Philadelphia area for some 30 years, and had a dispute with the landlord and a sudden closing, and resulted in about $1.7 million in loss.

The second was a chain of coffee shops that you find in railroad stations, and office buildings, and that kind of thing -- that filed bankruptcy.

Whether there will be recovery of that, we don't know.

But this is our best guess of the bankruptcy result.

And we may be overstating it; we may not.

We've continue to move construction -- residential construction loans that were connected to properties that had some kind of restriction on them -- whether that be it be rental, or age restriction, or whatever have you -- through the process into nonaccrual, and did so again this quarter.

On the rest of that construction portfolio, I can report that we have a little higher than usual, 38 sales that are pending for the third quarter for a total of about $6 million.

So the rest of the properties seem to be moving out.

We made a further decision which resulted in about a $1 million charge to reduce the loan-to-value as a result of very, very, current appraisals; so the loan to value on OREO properties from the traditional 90% to 80%, and that charge went through this quarter as well.

That is the general shape of what happened (technical difficulty) this quarter.

And I'm certainly happy to take any questions.

Dave, do you want to open the floor to questions now -- or open the line?

Thank you, ma'am.

Yes.

(Operator Instructions).

Frank Schiraldi, Sandler O'Neill.

Good morning.

On the -- I just want to start with credit, and then move over to the revenue side.

Betsy, you mentioned the construction -- residential construction.

In the NPAs, the flow in quarter into nonperformers -- I think there was about $20 million -- NPAs were $20 million higher in this quarter than they were in the previous quarter.

Does that mostly reflect construction?

In that movement, 5 point -- sorry, a little more than -- let's call it roughly $6 million of that was residential construction, and the balance of it was commercial.

Now is that written down?

I know there was $9 million in charge-offs in the quarter.

And you --

Yes.

I thought you were asking about the gross numbers (multiple speakers).

Yes.

Yes.

In rough terms, the NPA that came onto the books, were those written down by, say, 25% through charge-offs as they went to into nonaccrual status?

What's that number?

Give me a second, and I'll come back to you on that, Frank; okay?

Sure.

Well, let me ask a little bit about revenue side while you're looking for that, Betsy.

Frank, you mentioned that CMBS securitization was strong again this quarter.

I thought it was $5.5 million of revenue, about that, last quarter.

I don't know if you mentioned it -- what was it in this quarter?

I think it tallied up to about $4.7 million this quarter, Frank.

Are originations so far into 4Q, thus, that you would expect you could see that sort of stable from here, or expectations for that to fall?

It's hard to tell, given how new of a business it is.

I think we've noted in the past, the goal is certainly to get to two sustained securitizations per quarter.

It's hard to tell whether we're there yet or not; we certainly were in Q3.

We are able to sell into -- sell twice into two securitizations.

We might be there, but it's difficult to tell whether that's the case or not right now.

Okay.

I would agree with Frank, that that's a little bit lumpy income because we don't control the timing of the securitizations, Frank.

So we may have big pipeline, but it may not result in income in quite as even a way.

I guess there's no reason to assume, in this quarter, that it was significantly lumpy -- a lot higher than what your goals are, quarter-over-quarter.

You could see this income in 4Q.

It wouldn't be that surprising.

Well, I don't think we know that at the moment, whether we know that we'll have to -- will have an aggregate of this amount closing in the fourth quarter.

It's not yet knowable.

Right.

Okay.

And then on the prepaid -- Frank, I don't know if you could talk a little bit about gross dollar volumes and what the margins were in the quarter.

And maybe if we can look out into 4Q, and if it's late enough to think about how that might shape out.

Yeah, sure.

GDV for the quarter was just at $7.2 billion.

It's a 23.5% increase year-over-year.

Noninterest income to gross dollar volume was in at a little over 14 basis points; so about 1 basis point above our traditional average; about 1 basis point below Q2.

As we discussed last quarter, we didn't think the 15 from last quarter would be sustained; although we believed that we should be able to sustain something above the 13 that we had traditionally been delivering.

So we're right at the midpoint between the two, for Q3.

And I know you haven't, in the past, wanted to hazard a guess at GDV for the full year.

Are you in a position now to think about disclosing that?

All I'd say is, Q4 is traditionally a strong quarter for us and for the prepaid business.

And we would expect to continue to outperform market growth.

And then, market growth is sort of 20%, 25%?

Yes, somewhere in the ballpark; probably closer to 20%.

I do think that there is some indication that at least GPR market growth in the US has actually slowed a bit this year.

So when you say ahead of market growth at 20%, you are talking year-over-year?

Yeah, that's right.

Yes.

Exactly.

Okay.

Okay.

We've always asked you to look at quarter-to-quarter, because the quarters are so variable.

Right.

Yes, the seasonality is consistent year to year.

But quarter to quarter, as Betsy mentioned -- a high degree of variability.

Okay.

And then just back credit -- I don't know if you're able to answer that, Betsy, but (multiple speakers).

Yes.

Without adding up each and every number, 25% is a good estimate.

And you mentioned that the 30- to 89-day bucket has obviously fallen significantly.

Is anything else that has been added to classified loans in the quarter that might not necessarily be delinquent, but is added to classified; and then you expect there could be a potential for that to be added -- to fall into nonaccrual in the future.

No, I think that the 30- to 89-day number is a good forward indicator, without talking about specific classifications.

Okay.

I don't if you have it, but I guess a better way to ask that question -- my question -- would be, what did classified assets, or classified loans balances, do quarter-over-quarter?

I don't have that number in front of me, and I certainly can give it to you off-line if you'd like.

Yes.

Thank you.

Sort of a broad question on credit.

Would you say, Betsy, do you think about this quarter as the proverbial kitchen-sink quarter for credit?

Do you expect that this could free you up for much lower provisioning and lower charge-offs going forward?

Or are you still very concerned on the credit side?

Well, as I have shared with you on an ongoing basis, I have had some concerns on the credit side.

We're trying to proactively, vigorously, and aggressively approach those issues, as you've seen in the last two quarters.

We're very hopeful that we'll have our arms around them very shortly.

Okay.

And then this $6 million you mentioned the construction properties that are perhaps moving off the balance sheet -- those would be coming out of nonaccrual status?

No, I thought your question to me -- and maybe I answered the wrong question -- was of the gross amount of $21 million which was added to nonaccrual, what was represented by residential construction properties; I thought that was question.

And my answer to that question was approximately $6 million.

But if you asked a different question, please rephrase it so I understand it better.

No, that was the right answer.

That was the question.

But, then, in your prepared comments before the Q&A, I thought you had mentioned you had talked about another $6 million number for residential construction.

I thought you had talked about $6 million in residential construction perhaps being sold off the balance sheet; maybe I'm wrong.

No, no, no.

I'm sorry, what I said -- you're absolutely right.

What I said was that we generally have, in the balance of the residential construction portfolio, we estimate the amount that will be sold off that number -- not net, but on a gross basis -- represented by the agreements of sale that we have in hand to close in the next quarter.

So, we have 38 agreements of sale aggregating approximately $6 million, which will close in the fourth quarter.

Okay.

I'm sorry.

I still don't -- that $6 million, right now, is in nonaccrual status?

Or that is in a --?

No.

That's in the accrual status.

Because (technical difficulty).

Okay.

Okay.

And then, finally, I just want to ask about if there's any -- given the last couple of quarters has really been this big increase in NPAs.

If there was some other impetus for moving these NPAs -- for moving these loans from accrual to nonaccrual status, it could be involving a regulatory review.

And that's maybe (multiple speakers).

No, absolutely not.

This is our decision.

We've been very proactive in this area.

Okay.

All right.

Thank you.

Matthew Kelley, Sterne, Agee.

Hi, good morning.

I want to keep on the same subject area, because I think it's important to flush all of this out.

In very simple terms, the $20 million of other real estate owned -- what's in there, and where is it carried?

And when will it be gone?

Sure.

It's carried at about 80%, maybe 79%, of very recent appraisals that were done in June, July, August, so -- I don't know exactly what month -- but very current appraisals.

Of that, about $7 million is represented by a property as to which we've received an offer of significantly higher than that, but where the sale has to be effectuated by the US Marshal.

So we're waiting for that to happen, but we're very much well protected, and may have a slight recovery.

Another $4 million, roughly, is represented by a property that is in the process of sale, and as to which we took a couple hundred thousand dollar additional charge to represent a movement from that 90% that I spoke about to 80%.

Those are the two significant properties.

The rest of the properties, we sold about $2 million in properties this quarter.

And other things are in process, but those are two significant pieces.

Yes, but these remaining -- so the 7 and 4 gets you 11.

The remaining 9 is carried at that same 80%, 90%?

80%.

So you feel like the 20 is marked appropriately today?

Yes.

Okay.

Got you.

And then just looking at the sequential increase in nonaccrual loans, up $7 million.

Help us reconcile what those were.

Was that the restaurant?

Sure.

Yes, I thought that I had, but okay.

Let me go back again.

And I think we can't talk about it too often, so I do agree with you.

I spoke about moving in this high-end restaurant.

It get moved in -- that's why, if you're talking about gross, it got moved in at about 2.7.

And then there was a loss, a charge that was associated with that, so the net of those numbers remains in the net.

There was an aggregate of several properties, residential construction properties with a common developer -- someone, again, we've done business with over a 25-year period -- that were properties that either had zoning that had an age or youth restriction; although, at the time that those are put on they were appropriate, they were no longer appropriate to the market.

So we moved that group in at about a $8.5 million.

I spoke about, there was -- we moved into nonaccrual a commercial component of a relationship -- began a very long-term relationship where the business was in a tailspin, as we saw it, and so we moved that part in.

So I think that takes care of most of it, Matt.

That last one -- is that the coffee shop business you referenced in your opening comments?

No, no.

The coffee shop business, we went directly to charge-off once he filed bankruptcy.

And then just following up on the big picture views on credit that Frank touched upon.

Why, after three quarters of pretty significant charge-offs, pretty significant growth in NPAs; big provisions; a drag on earnings; why are we not more confident, nine months into this, than you sound today?

I think I'm confident.

I don't think I'm willing to give you the precise numbers that you're looking for.

So I think I tried to say that we believe that we're very close to having our arms around the issues.

But I know you would like to press me for more specifics, and I just don't feel comfortable giving them to you at this time.

And that's different from not being comfortable with the credit.

Switching gears, on the securities purchases, what was the average yield?

And there was a slowdown in the pace of buying versus the first two quarters this year.

Where is that going?

Yes.

The slowdown in the pace -- and I thought Paul articulated the reason, but maybe I'll say it again -- we have been short as a result of our concern that tapering was closer than maybe it appears to be now, but the market was not far off in terms of where we were.

And so we had a number of maturities in September.

We bought into what was a slightly rising market there, but the settlements are not until October.

So you see the runoff as of the end of 9/30.

But you'll see, in the fourth quarter, an increase in the balance sheet.

Okay.

Got you.

On the CMBS sales, were there any SBA loan sales or Go-market adjustments in that $4.7 million?

No.

Oh, yes?

No.

There are mark-to market -- there's some small mark-to-market.

But the vast majority was CMBS sales.

Okay (multiple speakers).

Got you.

It's a small number, then.

Okay.

Sorry.

Question for Frank -- from the time that you made the initial investments in the license to bring you into the European market, how much have you spent on the expense line item?

And when will that expense be offset, and that operation be breakeven, in your view?

I'd have to get back to you on what the total is that we've invested over the last year.

What I can tell you is that most of the ongoing investment we're making now -- Betsy mentioned that we're continuing to bolster the quote, unquote, infrastructure there.

That's primarily the licensing of our entity across all 31 countries in the EEA zone.

Just to provide an update there, we're licensed across 18 today, with 13 more still to go.

We anticipate that we'll have those completed, rounded out, by probably sometime in Q1, and that the whole European operation is moving along nicely sometime by mid-2014.

By mid-2014, you expect to break even?

Is that what you're saying, Frank?

Yes, in not so many words.

You have signed some US program managers to take them across the pond.

Yes, we have some US program managers signed to come across the pond.

We have verbal commitments from others.

And we've actually won some substantial European deals.

To date, there some things that are actually moving forward very nicely from a business development standpoint.

Okay.

I think, Matt, this is not unlike the US business.

And we've provided you with charts in the past showing when we actually sign an agreement, and when we begin to see income.

But the expense is lodged prior to the date of signing the agreement.

And the European business is much the same way.

There's a lump of expense now, because it's an infrastructure investment that -- from an accounting point of view, unlike a branch, we're not able to amortize it over a period of time.

So the expense is lodged ahead of the pipeline being able to produce income.

Last follow-up question for Paul.

On the series purchases in 3Q that settled, have not quite settled yet in October -- what was the average coupon?

They vary, but to the extent that we bought some longer securities, so they were in the 10-year range.

As Betsy noted, we took advantage of some of the higher rates, so the tax equivalent yield on those municipals were in the 4% range.

Some of them -- they range, like, between 3% and 4%.

Okay, thank you.

Jeff Bernstein, AH Lisanti.

Hello.

Yes, sorry to go back to credit, but I just wanted to follow up on the specific credit you guys talked about last quarter.

I guess you had a multi-loan borrower with real estate and receivables relationship -- I think it was a $10 million plus relationship in total.

I think you had provisioned maybe $3 million against the receivables, and that you were working on that.

Can you just give us an update on what's happened there?

I don't know that there is any reportable news, Jeff.

I think that we continue to make good progress in that area.

But litigation is not a quarter-to-quarter result -- not litigation, but this kind of movement in terms of collection.

We think we're making good progress.

We're positioned to correct out the balance, but it hasn't happened yet.

Do you feel like there are any other kind of -- and this is one, and we've talked about the scenario over time, largely because the area down there -- it has just lagged economically, that guys who were holding on multiple properties that were cross-collateralized, and paying cash out of one to support the other type of thing; and then just finally couldn't do it anymore.

Is some of that stuff still lurking out there?

Or is that what we've basically scrubbed through, and feel pretty good about having that all under our understanding?

We never say that we have all in under our understanding, because it's always subject to ongoing movement.

But we think we're making very good progress.

Great.

And then just on the prepay market, can you talk a little bit about developments in the health savings account area, and the private exchanges, and what you see developing in that market, and any update on timeframes there?

We could tell you that we would have tested more, but anyway.

Go ahead.

(laughter)

We would've definitely tested more.

No question.

But seriously, I think the reality is for this calendar year, with all of the changes coming into effect, even the advent of private exchanges, we don't have big expectations beyond what has occurred in previous years for high-deductible health policies and health savings accounts.

Our belief is that this is probably going to be based on how other years have unfolded, where there has been massive change, and even far less change than I think this particular calendar year and next year.

Our expectation is for about the same 20% year-over-year growth we've seen in the past.

I think that that is potentially different come benefit enrollment time 2015, where we really believe that there has to be the year here for consumers to get educated, even consumers coming to private exchanges from larger employers.

We think that they're more likely to buy health policies they've traditionally had access to from those employers this year, while they get adjusted to private exchanges where they begin to understand the different types of policies that are there and available to them.

The forward basis, I have a lot more enthusiasm for the private exchanges than I do the public exchanges, related to high-deductible health policies.

While I believe in both situations consumers are likely to buy the least expense policies on the exchange from a premium standpoint, I think that the individuals coming at that from private exchanges are more likely to open health savings accounts attached to those high-deductible health policies.

That's just what my gut read of the situation is.

I know what we're suggesting for this calendar year is probably a bit different than some others in the industry are suggesting.

But like I said, based on our previous experience as to how these things unfold, I just don't think this is the year that those big spike curves for high deductible health policies.

I think in addition to what Frank has said about the consumer behavior -- you have to remember that a very significant percentage of the people who could buy at the private exchanges already have employer insurance.

And so you really have to wait for the employers to be educated as well; to see whether, in fact, they provide a cash payment to the employees for them to go out and buy on the exchanges, as we have seen some large corporations doing already -- or whether that trend does not eventuate.

So I think it's not only consumer education.

It's also employer response.

I agree with everything that you guys have said.

And I guess what I'm a little more interested in at this stage is really with which players have you guys become aligned?

There's a handful, 4 or 5 guys, in the kind of insurance brokerage area or benefits management area who are looking like they're going to be the main sponsors of the private exchanges.

And can you give us any color on what your relationships are with those folks?

Sure.

We actually have product on the majority of the major private exchanges we believe will evolve.

There's a number of other large- to mid-tier brokers that I think are looking to develop their own exchanges, and we're also very focused on having product on those private exchanges as they develop.

I think there will be far more private exchanges one to two years out than actually there even are today, with the 3 to 5 majors that exist.

So, again, we are very, very, focused on having product on all of those private exchanges.

That's great.

I appreciate it.

Andrew Wessel, Sterling Capital.

Hello.

Thanks for taking my questions.

To get back to credit -- because obviously I think that's the focus of the last six months -- just trying to take another stab at this.

So, MPLs are up 90 bps this year.

MPAs are up 80 bps this year.

And reserves are up 20 bps this year.

Are you relying on the fact that that 30 to 89 bucket has dropped enough that that of much slower increase in the reserves is going to offset the much faster increase in your nonperforming loans and assets?

Yes, remember that we've been very aggressive in the charge-offs and additions, so the balance of the difference, the delta there, is partly absorbed by that.

So we've moved everything through that through the mark-to-market, in essence, issue.

So I do think so.

Okay.

And then just from that standpoint, I think that would get back to what Matt was talking about, and I think Frank was talking about as well -- is just a comfort factor of you have been putting some pretty substantial charge-offs through, and now are getting to a point where really your reserves as a percentage of loans have inverted versus your MPL [versus] percentages of loans.

So that would indicate the way you're looking at the market, or they way you're looking at your inflows are going to be a lot lower.

So we should be kind of closer to the end of the whole pigs in the python analogy that we were all using back in 2009 at 2010; here we are in 2013 using it again.

Is that a fair way to characterize it?

I really don't have any comment on that.

I think I've said what I can say.

And I appreciate your asking that way.

And I can only say, God willing; okay?

Yes.

Okay.

And then, Frank, I think Matt may have asked it and I got kicked off the call, so I had to come back on.

The line item with non-interest income, I think the way you guys break it out in the Q is really helpful.

The way we get it in the press release is pretty vague.

Could I just get a couple of numbers?

The actual prepaid card fee number that will be -- that's there.

I mean, you give GDV and you gave the C amount --

Yes, of course.

The stored value income for the quarter was a little shy of $10.2 million (multiple speakers) 36% increase year-over-year.

And then the gain on sale of loans; what was that number, was it 4.7?

4.7.

4.7.

I heard that when I just got back on.

Okay.

Thanks.

And then the merchant credit card processing ACH fees, those seem to have been kind of driving a little bit higher in terms of growth aspect of that.

Has that number gone up a lot?

Yes, so that's increased 39% year-over-year.

It was $1 million for the quarter.

Just keep in mind, much like the prepaid market, Q3 is a traditional weak quarter for that business.

Q1, Q4 lineup is the strongest.

Right.

Okay.

Great.

And then all gets to this idea around disclosure.

Obviously, so many different parts of your business have a lot of different -- have a very different multiple, obviously, applied to them by the market.

I think when you come out with a quarter, especially in quarter like this where credit is again on the front burner; and really the strength of your revenue is getting, I think, pushed aside a little bit in the overall discussion.

I thought you'd never say it here (laughter).

But now we look at it, and it is like, we have to ask -- I would think that you would want to put out your [GDV].

I think you'd want to put out your prepaid card fee.

Give those actual numbers, so people can see --

I think we've been walking a narrow line, in which we don't want to provide guidance in a growing business where the growth percentage can vary -- which doesn't mean that the business is not growing, and not extremely healthy.

But where the absolute growth number is derivative to us of other businesses, we're in a third-party business, not driving our own customer base.

So it's a little bit harder to know.

And we're cautious, therefore, about perhaps being -- giving numbers which appear to be predictive.

Right.

In terms of any sort of guidance -- but I think just in terms of the actual hard number itself that you are going to report in your Q.

All right.

Well, I think that that takes -- I absolutely agree with you.

We should -- we'll look at the format and (multiple speakers).

Absolutely.

Absolutely.

Okay.

Great.

Well, thank you.

Appreciate the time.

Matthew Kelley, Sterne, Agee.

Any update on your secondary marketing platform to sell funds and limit the size of the balance sheet?

Matt, we've said that we're in testing now, and we're not going to take it live until the first or second quarter of next year.

Okay.

And then when you think about businesses like HSA and prepaid, they're all very deposit-heavy.

And so how do you feel about your ability to manage the size of the balance sheet, the capital constraints of each of those businesses -- the capital intensity of each of those businesses, I should say.

So do you feel like that's going to ramp up in time to be able to really take advantage of some of these fast-growing deposit business lines, and have the ability to turn this into a higher ROE, less capital-intensive business?

You know that that is what we have told you is our goal.

And we intend to pursue it.

It's the reason that we've spent the last year or so in the development of a deposit sale program.

Our goal is to keep the Company between the $4 billion and $6 million range.

Over a period of time, you see capital aggregating and we hope that we'll be able to meet our needs in that way.

It doesn't mean that we won't take advantage of market opportunities.

We certainly feel that we should do housekeeping things like taking ourself back up from -- it's $55 million after last year's sale -- to $100 million.

But that's really just putting tools in our toolbox.

We probably could file an at-the-market offering which would allow us, on an as-needed basis or as-determined basis, to take little bits on an ongoing basis on sales not disturbing the market at all.

And so we think that there are tools that we should put in our toolbox -- our capital toolbox.

But we see ourselves generating adequate retained earnings and size-confining mechanisms to be able to increase the ROE by being able to control the asset size.

Okay.

The first quarter of 2014, that's the big surge quarter in deposits and pressures on capital ratios.

Do you feel like you're in good shape going into that quarter, from a capital perspective (multiple speakers)?

We do.

We do.

We absolutely do.

If we didn't, we would do an offering.

The $4 million to $6 million asset range, however long that takes, where do you see the securities to asset ratio going?

In the past, I think you've always indicated you want that to be a much higher percentage and reduce the credit risk profile.

Is that still the plan?

And where you see that ratio going as a percentage of assets?

It depends upon the variables of growth in our targeted markets.

And you've seen -- although on low denominators -- you've seen a significant growth in SBA, in leasing, in security backed lines of credit; so that if we can continue to achieve significant growth in those areas, it will offset our need to grow the securities portfolio beyond what we think would be ideal.

But it's really -- I think there are a couple of interactive pieces.

One is the deposit piece, which forces the asset size side up.

And we've shared with you our program to keep that within boundaries.

There is the absolute growth in dollar number on the targeted asset areas.

You see that, historically, we're trying to continue that kind of growth.

And then there's just the delta between those two will be the growth in the securities portfolio, which recognizes the fact that it is very easy within our categories of securities to reduce that at any time that we have higher-yielding opportunities.

Is that an answer to your question?

I think so.

I think what the Street wants is clearly -- reduce credit risk to allow everybody to focus on the payment (multiple speakers).

Absolutely.

You and me both.

Okay.

Thanks.

Patrick O'Brien, Fox Assets.

Hello, Betsy and Frank.

Question about the prepaid fees and the seasonality there.

I'm looking at the last eight or so quarters, and I don't see much of a pattern except that it's erratic; nice growth, but --.

I don't know if you're looking at it -- we try to help people to look at it in seasonal patterns, because that's really what the underlying businesses represent.

So you really have to look at the growth first-quarter 2013 to first-quarter 2012, or second-quarter 2013.

That's where the pattern emerges.

Okay.

Just year-to-year, rather than sequential?

Absolutely.

Just as a for instance -- I see in Q2 of last year that it declined from $9 million to $7 million.

You don't see the same seasonal pattern this year -- actually I guess there is a slight decline, but not (multiple speakers).

Yes, but that really represents the maturity of certain lines of business, such as tax refunds and things of that sort, within the current year that we are just beginning to -- not beginning, but we're in there at a less developed stage in 2012.

So, you do see businesses mature that had a second-quarter seasonal element.

The other thing that I think was a little bit odd this year was that the tax refunds were delayed -- Frank, was it two weeks, three weeks?

Two, three weeks this year pushed further into Q2 than the previous year.

And interestingly enough, on that topic, the IRS has actually already announced that there will be at delay in refund processing in 2014 as a result of the government shutdown.

We'll see that same pattern.

We are forewarned that the same will pattern probably emerge.

And I think we haven't talked about the impact on the bank in terms of the government shutdown.

It was very minimal.

But there were, for example, SBA loans that could not get completely processed during that period of time.

We think they'll catch up, but you never know.

And we have about $5 million in leases of vehicles to a variety of Army bases and federal units.

And so you may see those go into a -- they may make all their [cashed-out] payments, but we may not see them all this quarter.

So that's the other element of impact that we might have from the government shutdown.

Okay.

Thanks a lot, guys.

Thank you.

I would now like to turn the call back to Mrs.

Betsy Cohen for closing remarks.

As always, I'm very grateful for your complete, and probing, and very good questions.

And we look forward to talking with you at the end of -- with respect to the end of the fourth quarter.

Thank you again.

Thank you, ma'am.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a great day.