Bancorp Inc (TBBK) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2014 The Bancorp, Inc., earnings conference call. My name is Adrian, and I will be your operator for today. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over now to Andres Viroslav. Please go ahead.

Thank you, Adrian. Good morning and thank you for joining us today to review The Bancorp's second-quarter 2014 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 1 PM Eastern time today. The dial-in for the replay is 888-286-8010 with a confirmation code of 81705798.

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 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 hereof. 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 hereof or to reflect occurrence of unanticipated events.

Now I would like to turn the call over to Betsy Cohen. Betsy?

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

I am going to cover three major items in my introduction and overview today -- credit issues, the impact of the BSA order, since those are two of the drivers of our loss this quarter, and the third will be capital/balance sheet management and the flexibility that we have with regard to that.

But before I start addressing those three definitive issues, I would like to just remind us all why we think as management and as the Company that the long-term prospects of The Bancorp are significant and the work that we've done in the last 14 years has put us in a very good position as a long-term player in a very important field, despite what we hope to be short-term setbacks.

Over the 14 years that we have been in business, we have built a series of businesses. We first had the insight, I think, that community banks over the course of the years following our beginning were going to change, that consumer patterns were changing, and that we needed to find a model for operating that was different from that which had been in place before. I think that has been recently supported by the fact that today, community banks hold only 30% of the nation's deposits, whereas they held 70% some 10 or 15 years ago. So we were right in making that prediction.

The way in which we chose was based on our insights and skill sets, which were based on technology, and we found ways to introduce programs in the areas of prepaid issuance -- and Frank will give you more metrics around these; I will just speak about them generally -- prepaid issuance, where we have achieved a position of leadership by a significant margin in that field, as well as in healthcare, debit card issuances, HSA accounts, institutional banking, as we call it, the SBLOC and deposit account private-label business, and have taken the approach on a private-label basis, which has been our full focus and we hope and think that it is part of the reason that we have been successful in building a substantial stable of customers with great retention over a long period of time.

We think that this will put us in a position over the next several years of significant impact in our industry.

On the asset side, we have -- we began with what we thought that we knew and which we are now -- an area in which we are experiencing loss, which is community banking, with customers that we knew, which we thought was in fact the appropriate approach. Over the course of the last maybe 8 to 10 years, we believe the community bank lending has in fact changed, and so, as we discussed over many calls, we had concerns about our community bank portfolio in terms of credit quality, but we were shifting the shift, so to speak, to focus on a series of targeted lending opportunities that we felt were more programmatic and of a lower risk profile.

And I will talk about the growth in those areas and our success in being able to do that and over time having the impact of those businesses which we have identified and built over the last several years, and those which we have in our sights will, in fact, become more prominent.

Let me start with loans, which caused a significant loss this quarter. We are -- we have been talking about over -- again, over several calls and in certainly many other areas when we speak about credit -- about the reassessment of our portfolio, both internal and external. We have been working at that very hard and continue to believe that we will have that completed within the third quarter and be able to provide to you a plan in conjunction with the end of the third quarter.

Net charge-offs for this quarter totaled $15 million, comprised of several large situations, which made up about $13 million of it. The first is a $6.4 million charge-off related to a series of receivables from a group of hospitals. Having been unsuccessful in collecting those receivables, although we continue to work at it and hope to be making progress, we felt it was important to write them off since we had met resistance in terms of the collection process, and so we did that this quarter.

We had wrote off the balance of a loan against which we had reserved in the past, which related to a series of properties in Atlantic City where our information, as we were gathering it, that the development plan, which originally had been being pursued, was for municipal reasons no longer viable. We charged that off as well.

The same reasoning applied to a third property, which again we had reserved, partially reserved against, where we decided that rather than pursue a sale which required us to do further support in terms of development, that we would try to pursue, and we are pursuing an as-is sale without that.

Of these $6.9 million of the charge-off of the $15 million was not previously -- so $7 million of the $15 million was not previously reserved. Another way to look at it is $8 million of the $15 million was previously reserved, but there was an additional impact, which occurs from write-offs on the historical loss averages, which added in excess of $3 million to the reserve requirement, and we classified new loans nonaccrual in the amount of approximately $3 million and substandard in the amount of approximately $10 million, resulting in a reserve requirement of about $5 million.

As a result of this, we added $10 million beyond that which we had reserved.

But on the positive side of credit, if we can find our way there, the growth in the targeted lending areas was significant. Growth in both the SBA and the SBLOC portfolios was 69% and 53%, respectively. Leasing grew at a more modest rate. I think we had a large payoff there, reducing the rate of growth to about 8%, and those portfolios now approximate $750 million.

Net -- interest income with respect to those portfolios grew about $1.7 million, but was offset by a 700 million -- a $700,000 decrease in interest income from the community bank portfolio -- or the balance of the community bank portfolio.

Additional income was generated by investment income, and so, the total increase in interest income was $4.3 million over the second quarter of 2013.

On the prepaid side or on the processing -- electronic processing side of the business, we have continued to increase during what we consider to be our least -- our quarter of least growth. We continued to increase that income. Frank will again give you specific metrics, but some of the increase was offset by our intensified risk measures, which allowed us to or caused us to return a greater number of items than we otherwise would have on a normal basis. Whether they will come back into earnings or not in another quarter, Frank will speak to in just a moment.

We're in the process of complying with the BSA order, which was prescriptive in nature and spoke to the fact that we had grown our portfolio at a significant pace and that infrastructure to support that growth had not kept up. It probably was something that -- it was something that we were working on and that we had begun to build, but not as quickly as would have been desired.

And so, we are now in the process of investing in, and that's what the $9.2 million number represents -- services contracted for, but estimated costs, which we determined would be best to be reflected all in a single quarter because the work will go on, but the services have been contracted for, building out a substantial infrastructure, both electronic and a human personnel base.

We're building a BSA center in Tampa, Florida. We hope to be in a position in January or February to invite you all to visit us for an investor day there and to see the impact of both our new -- what will be newly installed and completed implementation of software, together with our personnel, who we are gathering at the location for this purpose in a reorganization which we think will give us better control over the BSA review issues and therefore allow the policies and procedures, which we have in place, to have a sharper execution. We have been -- as we have said before, we have been addressing these issues, but not at this pace.

The third issue I would like to address is capital or balance-sheet management. When we filed our at-the-market offering or ATM offering, many of you asked whether we would need new capital, and I continued to say that I believed that we would not. Part of the reason is that we have enormous flexibility in our balance sheet. You can see just the beginning of that impact in this quarter as a result of pulling in a bit net interest margin moved on a year-to-year basis to 2.69% from 2.46% and on a linked-quarter basis to 2.69% from 2.30%, both of which are a result of the accordion nature of the investment portfolio, as well as the reduction in excess deposits that we always experience in the first quarter.

We think we have a number of tools in place to manage capital adequacy and appropriateness, deposit sales runoff of short-term investment securities, loan sales, security sales, a whole range of tools that are in our toolbox, to which we added for our own precautionary thinking the at-the-market offering, because we wanted to have a full toolbox in the event that we had need for its use.

Among the businesses that continues to add to our ongoing both interest income and non-interest income, and which is right on track today and I didn't mention, is the CMBS business, which is on track in terms of the continuing non-interest income that it generates, and it upticked about $0.5 million over the 2013 quarter in terms of interest income.

So all of these new businesses and many of the businesses that have been in development are making their contributions.

The last new business that I would like to mention in that regard is Europe, which continues to make progress. We have customers ready to go live with us in the fourth quarter, as we have spoken about before, and that will enable us to have a run rate of breakeven, as opposed to a drag of somewhere supporting operations of somewhere between $1 million to $1.5 million a quarter.

So all of these are elements that we have discussed before -- regulatory risk, credit quality, investment in Europe, and as a result of -- and the investment in infrastructure, as well as the use of excess deposits, being the deposit sale program. And so, we are now showing you that they all are coming together, hopefully, to good effect in the third and fourth quarter.

Going to turn the call over to Frank Mastrangelo, who is going to put some metrics around the electronic processing businesses. Frank?

Yes, thank you, Betsy, and good morning, everyone.

The prepaid business continued to achieve relatively good growth. It is 12% year over year. Increase in non-interest income, as we talked about last quarter. We did see the typical seasonal rebound on the relationship between non-interest income and gross dollar volume bounce back to roughly 13 basis points, and we should see continued strength there, we believe, through the remainder of the year.

The businesses, of course, are impacted somewhat by the BSA order that Betsy spoke about earlier. As we've discussed with a number of you, the order itself impacts primarily three businesses -- prepaid, with the majority of that impact. Betsy touched on the one-time costs of about $9.2 million, which will -- we are charging this quarter. The ongoing incremental operating costs related to the investment in BSA infrastructure to allow us to continue to exercise the big lead we have in this particular area should be in the ballpark of $3.5 million annually.

We believe that we will have, just in organic growth in calendar-year 2015, more than a 50% margin actually on that incremental cost increase. We believe it is an infrastructure investment that is well worth making and that we will be able to leverage for continued growth in these areas.

The lead we have in this particular business line is, just in using pre-paid alone, almost 2X our next nearest competitor, and when you overlay debit programs on top of that, it comes closer to 2.5 times. So, there is a significant opportunity for continued organic growth in these portfolios to not only pay for, but achieve significant margin for these infrastructure investments that we are making.

Frank, did you want to discuss healthcare and et cetera, the growth in those businesses as well?

Sure, absolutely, Betsy. So, other businesses continued to achieve decent year-over-year growth rates.

Our HSA business, Q2 is typically not the strong quarter for growth. Q1 and Q4 are the strong quarters there, yet we continue to add accounts. We continue to add non-interest income in that business.

Our merchant processing business, which both encompasses ACH origination and merchant acquiring, grew 26% year over year. All these businesses continued to be good contributors to low-cost, stable deposits. Do remember that from Q1 to Q2, we have seasonal runoffs of deposits because of big build in tax refund processing in Q1 that rolls off with relatively significant velocity in Q2.

As Betsy mentioned, the number of balance-sheet management tools on top of that, seasonality of deposits led to the rebound of -- increase in net interest margin in the quarter and we do have many tools available to us to manage that.

But Betsy did touch just on the credit side for one moment. The focus lines of business -- leasing, the SBA business, the institutional banking business that generates the securities back lines of credit -- generated north of $75 million in outstanding loans this particular quarter, with very healthy year-over-year growth rates. We have got good traction in these businesses and the ability, of course, to absorb some of those excess deposits.

Thank you, Frank. Some of you -- touching for a moment on the BSA order, some of you have asked us how long we think the order will be outstanding and questions of that sort.

There are things that we do in fact control, which is how fast we can move through our building of infrastructure, in which we have made tremendous progress, I believe, and things that we cannot control, which are decisions made by others. And so, we can tell you that we are doing as much as we can do as quickly as we can do it in order to put ourselves in a situation or a position in which we can, one, submit a report for the review of our processes in certain areas and, two, have in fact a tested program.

We don't control the decision-making timeline, and so it would be, I think, disingenuous for us to provide an estimate in terms of time. We just don't control it, and so we -- and I think the statistics or the averages that come out of how long does an order stay in place are really so order specific and bank specific that it is really, I think, very, very hard to find a meaningful pattern.

We continue to do what we think are the things we should be doing in the marketplace, providing opportunities for us to be in contact with all of our customers, understanding their needs and touching them in ways that we think are helpful. We have gotten a very positive response, we can tell you.

We think that, and maybe I will pass this back to Frank for further information, the question has come up how much of the new product or new customer pipeline is affected by restrictions. And Frank, I will just ask you to answer that and the question of how we meet the growth needs of our existing customers.

Sure, absolutely, Betsy. So first of all, the order restricted us from signing new clients and launching new programs in certain businesses. The order itself is relatively unimpactful to our acquiring businesses, as the restrictions really weren't relevant to drivers of our growth strategy in the merchant acquiring business.

The prepaid business, the area that is primarily affected is reloadable -- general-purpose reloadable cards. That comprises roughly 35% of our prepaid portfolio today. 65% of that portfolio, which is benefit cards, gift incentive, non-reloadable, some reloadable payroll, which was carved out and defined as benefit, are unrestricted and can continue to grow at normal year-over-year growth rates. But 35% of the portfolio will likely grow organically at something close to the year-over-year national averages, we believe.

Thank you. I would now like to ask for questions.

(Operator Instructions). William Wallace, Raymond James.

Betsy, as you look at the community bank portfolio, it looks like it's about $1.3 billion right now, I know you have got -- it sounds like you have got external review and internal review ongoing right now?

Yes, that's right.

Of the entire portfolio, correct?

That's correct. Well, of the -- that $1.3 billion, right.

Right, yes. And your expectation is that you will -- that will be completed at some point this quarter, and then you will tell us what your plan with that portfolio is when you report third-quarter results or as soon as you determine (multiple speakers)

I would think that as soon as we make a decision, we will communicate that to you, but we want to have a firm plan in place.

Okay. And is the potential for the entire portfolio to be sold? Is that a potential that would be considered?

Probably not the entire portfolio. I would think that there are a few areas that might have some -- for example, 1-to-4 family construction is now $38 million, or $38 million to $40 million, it's an approximation, but has some future funding, modest future funding needs in it. Rather than take a discount on future funding, we might keep that portfolio and just work it down, as we have been.

Just by way of example, all portfolios are not the same. There are potentially a core customer base, a small, very small core customer base that we might decide to retain. So, we're still looking at all the components.

Okay, and have you started to get any feedback from the external review or will they wait until they are entirely done to give you any report (multiple speakers)

I think that we are trying to wait until we are entirely done, since it's not such a long period of time. There may be information that we get which helps us with our thinking through a plan, obviously, but we won't have it completed. We won't have the plan completed until probably toward the end of the third quarter.

You said in your prepared remarks that you classified, I think, new substandards of about $10 million, another $3 million into nonaccrual. Was any of that as a result of (multiple speakers)

No.

(multiple speakers) you're getting from external? That was all from internal?

Yes, that was all internal. Sorry if I was unclear about that.

And then, as we think about the potential for moving some of the noise from a credit perspective out of the bank, I would expect that if you were to do some sort of bulk loan sale, there would be a discount associated with that, above whatever the potential credit mark would be.

How do you think about what level of hit you are willing to take? You did say that you do not think there is any potential credit need, but -- I mean, capital need to fill any hole that might arise, but how would you think about weighing the decision to issue new capital to support moving a bulk sale of loans off your balance sheet versus (multiple speakers)

I hear you and I know you are asking about thinking, and not about numbers, but I think until we have all the numbers, it is really hard to articulate the plan, and that's why I was differentiating the review from the plan and telling you that I thought that we could give you better information about that toward the end of the third quarter.

Okay, but you did say in your commentary that you don't think there is any need -- there would be any need for capital?

I said that I believe that's the case, and I pointed out several balance-sheet tools that we have, from deposit sales to short-term runoff to et cetera, to manage the size of the balance sheet.

Okay. And then, so, if we think about maybe your capital ratios, maybe your TCE or your leverage ratio, what is a level that management is comfortable with and the regulators are comfortable with?

We continue to, if you look at this quarter, to be comfortable where we are and would anticipate meeting all the regulatory capital expectations that we have met in the past.

Okay, so if you were to move loans, you would manage the balance sheet through your other tools that you discussed around the 7.5% to 8% TCE ratio, where you have been the past couple of quarters?

Correct.

Okay, I will hop off and let somebody else ask questions.

Thank you for your good questions.

Frank Schiraldi, Sandler O'Neill.

Just wanted to ask about the internal loan review. I believe last quarter, Betsy, you said you were about 90% of the way through, and on the construction book, about 95% of the way through. So just wondering if -- it sounded like that's not completed yet. Is that right? And then, where you are in terms of maybe percentages at this point.

I think that we are re-reviewing, Frank Schiraldi, of -- we are re-reviewing -- we were starting again from scratch and re-reviewing, so the whole process, I would think we're about halfway through on the internal re-review, and I don't know what the percentage is on the external.

Okay, could you just talk about why the need to go back and re-review this stuff if -- I think the internal review was certainly ongoing over the last couple -- few quarters, so it seems like it is fairly new appraisal, updated appraisals and the like. So what is the need to go back and do a second (multiple speakers) over here.

We are concerned that maybe we missed something. We're concerned that maybe external factors -- external facts, in effect, have changed from our prior review. We're just trying to be thorough.

Okay, so (multiple speakers)

We don't want surprises for you and we don't want them for ourselves. When we are finished, we want to be finished.

So, is the way to characterize it, then, is you went through -- you completed the initial loan review. You're going through a second time, and can you describe in this second passthrough how much has -- is the $10 million into classified and the $3 million into nonperforming, is that the result of this second look-through?

I can't -- I think that all the -- that these reviews are not so easily divided into first and second; it's an ongoing process. We are taking -- going back and doing what I would call a re-scrub. I think the $10 million in substandard is a result of ongoing factors, which caused increased weakness in that $10 million in loans.

So (multiple speakers)

They could have been reviewed a year ago or two years ago and there could have been no indication of weakness. But loans are not static, they are dynamic, and circumstances are dynamic, and something may have occurred in those loans, in that $10 million, which caused a higher level of concern.

Right, so it wouldn't be an issue of --

It's not a difference in underwriting standards, if that's -- I am just trying to put this in a way that I think answers your question, although I may not be doing a good job. But it's not a difference in underwriting standards, but a difference in the facts surrounding the particular transaction.

And you wouldn't expect to see different appraisals at this point, right, from the first (multiple speakers)

No, appraisals are done on an ongoing basis as loans either are renewed or extended.

If there is a problem that we see from external information or a lower loan review rating, and at the occurrence of an event that would -- might indicate that appraised values, even though done a year ago, might be in jeopardy, such as the large -- the loss of a large employer in the area, et cetera. They are both external and internal.

But, so, the inflows into the quarter into nonaccrual was $3 million? Is that right?

That's correct.

Okay. And then, just on the charge-offs, the $7 million that you described that had not previously been reserved for, it sounded like that's more reflective of charges taken in credits that were already in nonaccrual status. Is that the case or (multiple speakers)

Yes, but they hadn't -- the level of write-off had not been reserved for.

Right, okay. And actually, it sounded like there was just one really large group of receivables there (multiple speakers) $6.4 million, that was already in nonaccrual?

Right.

Okay. And then (multiple speakers)

But we thought it was collectible when we determined -- from external sources. When we had resistance there, then we wrote it off.

Okay, and just one question on the consent order and expenses from here. So, I just want to make sure I understand this. So it is $9 million accrued upfront for consulting, basically, and then that should fall off, I guess, completely next quarter, right? That is just one time in nature, and then we will have this (multiple speakers)

We have contract -- yes, we have contracted for the services, which is why we took the charge, but they cover work that will be performed over time.

Okay, and I guess it's possible, certainly, that there could be greater consulting fees needed, but do you feel in the short term here that this is the bulk of the one-time items associated with BSA (multiple speakers)

We do, we do, we do. There could be more, there could be less, but we are trying, for example, to replace consultants by having our own personnel in place. That takes time. It could go faster, it could go slower, so just by way of example.

Got you. And then, could you just go through the -- just wondering what the total headcount is right now in the risk management compliance area and where you believe that has to go to -- maybe where it is now and where it was at, let's say, not a specific -- not specific dates, but where it was a few years ago and where you think it has to go to?

I would just, before I turn this over to either Frank or Paul, I would just say that you can see across the industry, the banking industry, that there has been a growth in hires to support BSA functions.

In the newspaper, you can read that JPMorgan is hiring 13,000 people and somebody else is hiring 7,000 people. We don't have aspirations to that level, nor do we have needs. But it is certainly a trend in the industry.

As to the specific numbers currently, and that may not be a helpful piece of information, Frank, because I think that we are in the process of building out the department, so it might be that the buildout should be complete by the end of the third quarter, so giving you that information when we have the final buildout would be more helpful. But I pass this to Frank or Paul.

Sure, I have some of the numbers related to this, Betsy.

Frank, let's take a period roughly a year ago. We had ballpark 25 people dedicated to BSA at that moment in time. I believe at the end of the process, the current plan, which again may change as we continue to build out the infrastructure here, we would have somewhere closer to 55 people, 55 to 60 people probably in this area, primarily -- the primary adds dedicated to transactional monitoring and other like functions in the BSA area.

Many of those new adds, as Betsy noted, being made in a market where there is significant talent available, trained by larger institutions specific to this function, the Tampa, Florida, market.

So, that's the -- the entire risk management compliance and a big chunk of that is specific to BSA?

No, actually, that's all BSA. Our BSA team will be larger than virtually every other bank's end-to-end prepaid team, inclusive of all these other things. That is just our BSA function.

That does not include compliance, third-party risk management, or those in the business lines themselves, because remember what we're doing here is, and one of the changes that we have made, is centralizing the BSA function and operation, rather than have it decentralized and inside of business units.

So, that has allowed us to elevate the infrastructure and platforms and thinking around the function. The original theory was closer to the business line, then they could be more intuitive about specific things in that business line. New structure completely centralized and broad bank-wide view, end-to-end view.

All right, I will hop back out. Thank you.

Matthew Kelley, Sterne, Agee.

Just to continue on the credit discussion here, so I am looking at $33 million of provisions year to date and $67 million of provisions since 2012. And so, my question is it sounds like a lot of the credits that you're taking write-downs and that are moving from performing to nonperforming are actually more recent. Is that true, or are these charge-offs and provisions related to loans originated prior to 2010/2011?

They are primarily, Matt, loans where credit decisions were made 2009 and backward. The loan itself may have gone on in 2010, but the credit decision was 2009 and backward.

So if you go back to 2011, year-end 2011, your community bank portfolio was $1.42 billion, and again, over the last 10 quarters, you have now charged off $67 million, so you have written that down 5%. Can you give us a breakdown of where the carrying values are on your community bank performing and your nonperforming community bank loans so we understand where you are carrying those loans relative to unpaid principal balance? It has been a 5% markdown on everything, given the fact that it is all legacy loans, but break it down between performing and nonperforming.

Matt, I have to say that I don't have those figures in front of me on the breakdown, but I will get them to you.

Okay, all right. And then, the $3.5 million increase in annual ongoing expenses related to the order, how much of that is already in the 2Q run rate or how much build has come in to get to the $3.5 million left?

I think that we believe that very little is in Q2 and that you will see this increase to that level over the next two quarters.

Okay, and then the $9 million, the one-time charge related to consulting fees and legal, et cetera, who exactly are you paying? What types of consultants have you hired and what are they doing for you?

I think they have a variety of expertise, from infrastructure building, since we didn't want to wait for -- analysis of the current infrastructure and infrastructure building since we didn't want to wait for the staffing up of that group to do this, to the lookback provisions in the order, which is a different -- a Big Data skill set. They have different skill sets.

Frank, would you like to add to that?

No, I think that's absolutely right. Part of it is audit oversight function. There is, as Betsy mentioned, a firm that has a Big Data skill set. There is a lot of analytical skill necessary to look at the level of transactions that we process and hone in on, behavioral patterns that fall out of norm, and there is just the overall framework of BSA. So, different firms and helping us with those various aspects of the remediation process.

As we said before, certain of those things will be -- we will do at a lesser expense as we staff up, but we did not want to be penny wise and pound foolish, so to speak, in not accelerating the process, because in the interim it would cost more.

Got you. Now it is a pretty quick timeframe -- the order came down mid-June, so it has only been five or six weeks here -- to make the assessment, hire the people, sign the contracts. Were you planning to do a lot of that work (multiple speakers)

Absolutely, Matt.

-- before the order? Was that --

Absolutely, Matt. We have said and I think in our last call that we had been working on building the infrastructure and planning the building of the infrastructure. This accelerates the process. We might have done it over a two- to three-year period. We didn't have that luxury.

Got you. How much of the $9 million is actually just buying and building out a new location in Tampa?

Very little.

Okay.

Penny.

Got you. The $9 million charge that happened this quarter, that was going to happen even without the order?

No, I think that some portion -- yes and no. We would have needed help to look at and systematically build what we think will be the best-in-class BSA center. We would have needed help. You always need help doing that kind of thing because you -- so a portion of it, would we have -- in order to implement -- write the rules and implement the software, which will automate many of these functions, we may have needed the analytic work, but maybe not to the extent that we are doing it now.

Okay, got you. Then one last one, the $1.4 billion community bank portfolio, how does that break down between commercial real estate, C&I, single family? Give us a breakdown of that commercial bank -- the community bank portfolio.

I think you have it in your information, Matt. If you wait a minute, I will get to it and I can recite it, but I think it is in the press release and material and in the last -- nothing much has changed since the last 10-K. Last 10-Q. Since the 10-K, sorry.

Right, but a lot of the commercial loans there, I assume, are part of your ongoing -- you have $480 million of commercial loans, but that includes community bank C&I loans and the ongoing SBA (multiple speakers)

No, no. I think, and Paul, you might enter the categorization issue, we have subsumed under the regulatory category of consumer loans, we may have subsumed SBLOC loans, but Paul, do you want to talk to those categories?

Yes, sure. The SBLOC loans are actually in the consumer loan total in the press release and comprise the vast majority of those.

The SBA loans, they are both in the commercial and commercial mortgage classifications, and we don't actually report those -- break those out separately. Actually, this is the first time I ever got the question, Matt, but I would be happy to get that to you.

Okay.

I think that's why, Matt, we aggregated the -- what we consider to be the targeted growth areas.

Yes.

And gave you an aggregate number, which we thought was helpful, but --

Yes, okay. Thank you.

Frank Schiraldi, Sandler O'Neill.

Just one follow-up on prepaid fees year over year. So growth was 12%. We saw similar growth last quarter, year over year, and GDV is obviously -- growth year over year is a lot higher, so we have seen thinner margins year over year, both 1Q and 2Q. Just wondering where you anticipate margins could come in?

Should we assume -- now that we are in the back half of the year and the tax business is fully out of the numbers for 3Q, should we assume that margins hold up year over year for 2014, the basis-point margin in this quarter, and so prepaid fee growth could better track GDV growth, or how should we think about that?

Yes, sure. I think it is definitely a safe assumption that the tax business has been -- has now been wrung out of the prepaid business. The deposit runoff happens with pretty high velocity in Q2. We're past the impact of that for Q3, Q4. It will obviously spike back up in Q1.

We did see normal seasonal rebound, not as strong as last year from Q1 to Q2, as you note. At the same time, there has always been movement in the relationship between non-interest income and GDV. If you look back over history, the difference between the [13] we have traditionally averaged and, let's say, the [15] peak that we are managed in certain quarters as related to non-interest income from non-transactional activities, some of those third-party services that we have overlaid on certain programs and are paid fees for providing on an integrated basis, those can be inconsistent from -- in any given quarter, and that's primarily the difference between what you are seeing this quarter, 13, versus 15 last year. The margin on the transactional component has actually been relatively stable year over year.

Okay, so it sounds like maybe the 12% growth year over year for a prepaid fee income is a reasonable place to be, then, going forward?

Yes, I think that's a reasonable place. Yes.

Okay. So, would you characterize that at this point -- it seems like that has come down a bit. I know industry growth has come down as well, off of -- as we always knew it would, but is that industry growth now? And I know there is different measures, but what are your thoughts there? Are you guys basically able to match industry growth at this point?

I think we are probably doing better than matching industry growth, and I think industry growth is probably lower than was expected this calendar year. I do still think that we are outperforming the general industry.

Okay, and then, just finally, my last question was on the yields in the securities book. It looked like yields ticked up pretty significantly in what looks like the muni securities book quarter over quarter, if I am reading them correctly, so just wondering if you could maybe talk about what went into the book at what sort of average yields in 2Q?

Paul.

Sure. We actually -- there were a couple reasons for the uptick in the yield. One reason is that we took advantage of some increases in yields in 8- to 12-year municipal securities, so we bought a modest amount of those and that helped out.

And we also added -- or, excuse me, let lower yielding shorter municipals run off, so we replaced longer, higher-yielding, and especially higher-yielding since we were fortunate enough to hit the market at the right time, because we watch the market continually. So they contributed to that higher yield.

Okay, so basically an extending out of that portfolio, then, to a degree?

Yes, we have very, very low interest rate risk profile, I would say one of the top among our peer groups, because we make -- in our loan portfolio, we make either loans that we price in fairly short periods and a very large percentage is variable rate. So, we have never incurred a lot of interest rate risk, but occasionally and as part of our strategy, we are -- we do want to protect ourselves in rate environments like this when rates are so low, so we want to protect the margin and so forth. So it's a prudent thing to do.

Okay, thank you.

Ma'am, you have no more questions at this time. I would now like to hand the call over to Betsy for closing remarks.

Thank you, Adrian, and thank all of you for, as always, your good questions, to which I hope you have found adequate answers. And we look forward to providing you additional information as we understand it and have it in hand, and welcome any further questions from you individually. Thank you again.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.