Bancorp Inc (TBBK) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen and thank you for standing by. Welcome to Q3 2014 The Bancorp, Inc. Earnings Conference Call. My name is Mary, and I'll be operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference is being recorded.

But now, I'd like to hand the call over to Andres. Please proceed.

Thank you, Mary. Good morning and thank you for joining us today to review The Bancorp's third 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 12:00 pm Eastern Time today. The dial-in for the replay is 888-286-8010 with a confirmation code of 19205886.

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 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 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 today for what was a noisy but we believe productive quarter.

I guess the headline for the quarter is that, from a strategic -- after a strategic evaluation and significant work on the commercial lending portfolio, The Bancorp has decided to exit that line of business. In cooperation with an outside firm and expert which validated our own internal marks, we have marked the portfolio to fair value and are proceeding, although we have just begun the process of sale of the portfolio. Paul Frenkiel, our Chief Executive Officer, will take you through the reconciliation of the marks in the loss and that computation in just a few minutes. I'm going to provide an overview however of the quarter as a whole.

We will -- as we have been discussing over the last several quarters, we have been emphasizing the growth of four portfolios within our asset allocation; SBA, SBLOC or security backed lines of credit, CMBS and our leasing program -- small fleet leasing program. The aggregate yield on those portfolios is approximately 4%, 4.01% versus the yield on the aggregate commercial lending portfolio, which was 4.13%. We therefore feel comfortable that, over time, we will be able to replace the yield currently being experienced by the commercial loan portfolio.

Additionally, there are several characteristics of the remaining portfolios. One is that they're primarily floating rate in interest rate in nature. They are granular, and on a risk adjusted basis, they have performed admirably over the course that they're live. We have been in these businesses for a very long period of time; CMBS being the most recent entry to the portfolio list and that has been approximately a 2.5 year period. Over the course of the last 24 months, on an annual basis, this portfolio of $871 million -- excuse me, almost $1 billion has experienced a loss of less than $250,000 a year.

We think that we have a significant opportunity to expand various components of the portfolio. Frank will talk to the addition of senior leadership in some areas. We have an opportunity to purchase small portfolios within the leasing area. And so, as liquidity opens up with the sale of the commercial loan portfolios, we will in fact execute on all those elements. As you can see the bank remains well capitalized, we did not access our ATM offering. We don't think that any capital is needed, and on a tangible book value basis, tangible book has increased on a year-to-year basis.

As the commercial loan portfolio is sold and there is tremendous interest -- we've just begun the process, but there appears to be tremendous interest, we will have a reduction in expenses both personnel and cost of collection as well as of course as the pure credit costs. We believe that the reduction in the cost of personnel and cost of collection will offset what we discussed last time to be an increase in regulatory personnel, so to speak, in connection with BSA and compliance. And Paul will speak to the -- what we have absorbed already during this quarter as part of that ongoing increase -- operating increase in -- by the hiring of additional personnel for regulatory monitoring.

With that, I'm going to ask Paul first to take us through the reconciliation and description of the accounting items for this quarter and to share with you the reconciliation of those items with the loss shown of $0.45 a share. Paul?

Sure. I'll keep this as simple as possible and try to focus on the three big numbers.

The first is that in addition to our existing allowance for loan losses, the bank recognized $38 million charge as a result of the fair value adjustment required by discontinued operations that was performed by the third party. That reconciles the loss of $18.3 million, primarily due to the significant tax benefit that was afforded by the municipal bond portfolio, the tax exempt income. So the overall tax rate benefit was at a rate, slightly over 50%. So that basically decreased to $38 million charge for fair value to approximately half of that, which is approximately the loss for the quarter. (multiple speakers). Go ahead.

I was just going to say that if you want to go on speak about expenses.

Actually, I think -- I had actually planned to touch on capital right now (multiple speakers) loss.

And not withstanding that mark down in that loss, both the Company and the bank's capital ratios continue to exceed well capitalized requirements for a tier 1 capital average assets the holding company and the bank capital exceeded 8% and 7.5% respectively compared to the 5% well capitalized requirement. The tier 1 capital to risk assets for both the holding company and the bank are more than double the well capitalized requirement. And the last ratio did in fact decreased because discontinued operations and the elimination of the allowance, which was rolled into the fair value computation reduced the allowance significantly and the allowance is part of that total capital numerator in that ratio. So that ratio decreased, but it's still in excess of 13% at the holding company and 12% at the bank compared to 10%, which is the requirement for well capitalized banks. However, as the commercial loans are sold and replaced with lower risk based loans and capital securities, we anticipate that that ratio would increase.

The other things I'd like to point out that when you look at the income from continuing operations, if you look within our summary income [statement], you'll see that that third quarter pre-tax income of $1.5 million is net of the $2.7 million of special charges for BSA and look back consulting expenses. And those consulting expenses are -- will be -- we're working through those in satisfying the regulators, and so those should be non-recurring is what we expect, although we have more to absorb in the fourth quarter.

And the other major adjustment as Betsy alluded to is that while the continuing operations of $1.5 million excludes the loan interest income on discontinued operations, it obviously can't include the interest income on the reinvestment of loan proceeds. So we'll use, as Betsy said, the securities as a placeholder initially and due to the growth rates of the other loan components, the SBLOC, the SBA, the leases and the CMBS, we'll be finding those as quickly as we can.

Thank you, Paul. The other side of our business, which is the processing business, also experienced a very significant growth. As you could see from the highlights of continuing operations, there is a 21% increase in prepaid and a 33% increase in card processing and ACH fees. We think that these are above market growth rates and Frank is going to take you through the more granular exploration of this growth.

Thank you, Betsy.

As Betsy just noted, we continue to demonstrate greater than industry -- average industry growth in the prepaid segment. Non-interest income grew 21%, Q3 2013 to Q3 2014 gross dollar volume grew 30% over that period. The relationship between non-interest income and GDV was on about our average of 13.2 basis points. And just as important, where the growth came from, the GPR segment, one of the segments affected of course by the BSA order actually grew 35% over that period of time. So, stronger growth rate than even the average of the unit as a whole.

Betsy also noted the merchant group, another group that I think as we've talked through in detail in the past, some overhang from the BSA order grew beyond the interest income 33% over that period. That was propelled by 72% year-over-year increase in card volume, 17% increase year-over-year in ACH volume.

Deposits grew Q3 2013 to Q3 2014, a net of $247 million, again propelled by our typical categories that have demonstrated growth primarily prepaid merchant and our private client business. But one thing that's masked a bit in that number though is that, over that time period, we exited deposit-heavy, fee-light, loan-light relationships in excess of $400 million as we typically pair the portfolio and move out of those types of relationships as we manage the balance sheet as we've noted in the past that we do.

Our target areas of lending, just to reiterate what Betsy noted, our SBA outstandings were 65% Q3 2013 to Q3 2014. Our securities backed lines of credit grew 44% over that time period. As Betsy noted, we do have new senior leadership in that group and we believe that that will provide us a faster pathway to penetration of our large client base and segments there and that will continue to be core unit over our ongoing lending strategy.

Leasing portfolio grew 14% over that time period. Again, important statistic there related to that though is that, in the quarter in Q3 2014, the unit actually originated gross leases of almost $56 million, almost 2,000 unique leases. So the average life there -- well, that is the one primarily fixed rate product we have still in the loan mix, the average life of those leases is relatively low being between 2 years to 2.5 years. So having relatively short duration. As Betsy noted, we do have the ability to increase our geography there. That's part of the growth strategy continuing to look at acquisitions of both small leasing companies and small teams that we can add and continue to step the footprint primarily on -- which is primarily focused on the eastern seaboard today, west.

Thank you, Frank.

I think just the only other line of business that we haven't discussed is the CMBS. And this quarter, the income from gain on sale was lower than the average. I think that we manage that portfolio not on a quarter-by-quarter basis, but really on an annual basis since this quarter, we pulled back a bit in terms of origination in order to respect the pullback in spreads and we are doing the opposite, we expanding during the fourth quarter because we think there is an opportunity. So, it's something that's really difficult to look at on a quarter-by-quarter basis, since it's not that kind of a startup.

I think that being said, I would be -- I think we can open the floor to questions.

Mary?

(Operator Instructions) Frank Schiraldi, Sandler O'Neill.

Just a few questions. I wanted to ask first on, now the fair value analysis by the external third party is completed. I assume separate buckets will get sold two separate entities perhaps, but I just wanted your thoughts on potential timing of a sale or sales of the loan book.

I think that we will roll out sale, you're right Frank, that we are trying to determine the best way to sell it either in aggregate or by either geography or size or whatever have you. And so that we'll take a little bit of time in terms of the response of interested parties in order to make that determination. But we do anticipate those sales being completed within the next 120 days.

Okay. And then secondly, I'm just trying to get to an estimate of core earnings going forward and I understand that the reinvestment of the commercial loan book is not in the number of continuing ops in the quarter. I'm just wondering if that 1.75% reinvestment rate that's given in the release, is that really the best guess of where at least in the short term securities will be put back on the books, say we're doing it today or would you expect that to be higher as maybe taking a little more duration [pressure], risking the securities portfolio?

I believe that, I now pass it back to Paul in a minute, but I do believe that [a source] number, so to speak, that since the time that we put the number in the release, interest rates have gone up, and we would be able to achieve a better rate than that even on the same configuration of a portfolio. So I do think it's a matter of timing of this will be a placeholder and so we would skew ourselves toward a shorter duration the portfolio as a whole yield to that 2.6%. So as we see that, and it's a matter of really judgment. If we see that it is taking us longer to -- that the sales occur sooner and it's taking us longer to replace that income we may increase the duration or do a barbell, so that we can have some additional income. But I think it's really something that we can't predict at this moment, because there are a number of external factors, which will determine our decision.

Okay, great. And then just lastly, in the last 10-Q, you talked about a potential risk being some deposits general reloadable deposits could be designated as brokered. I wonder if you could just give us an update on the thinking there and then how it could potentially affect growth, especially as you're under the written agreement currently.

Yes. Frank do you want to talk to that?

Sure. I think as we might have spoken about, Frank, the inquiry by the FDIC is one that dates back in number of years. It's -- we don't expect to be singled out to do this alone if the regulators decided these deposits should be categorized differently, but rather would expect an announcement to the industry that would mandate them to be carried differently or reported differently than they are today. This is an idea and dialog that's been bouncing around, I think, in the FDIC for quite some time and it's unclear as to where, if still, ever applying on the subject. So first of all -- secondly, the quarter itself has -- really doesn't have any effect on whether we would carry the deposits as brokered or really wouldn't affect the growth rate whatsoever.

I was on the impression that you have broker deposits and if you have a written agreement in place, it might be more difficult to grow those deposits or use as part of funding, but --.

Only if an institution was to become not well capitalized, so would require another trigger and that is the institution to become not well capitalized only in that instance, could there be a cap placed on the level of brokered deposits and institution could hold.

Okay, great. I appreciate it. Thank you.

Matthew Kelley, Sterne Agee.

Question on the carrying value of these loans. So the $38 million fair value charge, is that in addition to -- I think there is about $40 million provision that was associated with the portfolio that's now for sale. So are those separate -- walk us through that reconciliation on what happened to that reserve attached to that portfolio for sale.

Sure. Paul, would you like to do that, please?

Sure. Yes, those actually are separate. So maybe the easiest, I think, the way you're trying to look at it was that at the end of second quarter, we had a reserve of about $46 million. We had some activity during the quarter. So we ended up with the reserve of about $44 million and $38 million was basically in addition to that this allowance.

Got you. So we can really think about it as an $82 million write-down or 7% or 8% of the unpaid principal balance? Is that the right way to think about it?

It was $38 million in addition to the $44 million that had accumulated over period of many years.

Okay. And then going forward, you had $30 million, call it, $30.5 million of operating expenses that's put on an annualized run rate of $122 million. Where would you see kind of your operating expense levels going over the next couple of quarters one this portfolio was sold and you're operating on a standalone basis?

Paul, you want to continue.

We have, as Betsy mentioned earlier, we'll have significant reductions in salary expense, but to offset that we'll have significant increases in salary expenses relating to the compliance requirements BSA/AML in addition to that additional compliance headcount. So we're working through those, we're going to obviously do our best to manage the cost and control expenses the best we can. But we will have those two factors.

So if we go back and look at the September 2013 operating expense number of $26.4 million, that's $2.5 million less than what you originally reported. Is that the right number for the operating expenses associated with the loan portfolio for sale that will see reductions that's about $2.5 million to $3 million a quarter?

Yes. I think that that's the only the personnel cost and so you really have to look behind that. It's harder to be visible, but in the cost of collecting it at the portfolio, there is -- still there is significant legal expenses and other expenses as we roll off the loans in the OREO and etcetera and we'll have help -- we'll engage upon the disposition of any loans in the process of collection. Those numbers will go down and so it's our best estimate that that [raw] personnel number together with associated expenses, not the credit loss system sales, but associated expenses should approximately equal the increase at the time in the compliance and BSA/AML personnel costs.

Okay, all right. If you were to sell the loan portfolio, let's just say November 30, how quickly would you anticipate going from cash to a [full $1 billion] securities book, how quickly will you buy the securities with the cash once the transaction is completed?

Yes, Paul, if you want to talk to that.

Sure. We have an independent advisor and we've basically been discussing that question with him. And when he structured this somewhere between 1.75% and 2% yield that would -- assuming that we would be able to invest primarily in mortgage-backed securities, but actually a mix of other securities and that could be done relatively quickly within weeks.

Yes Matt, I think that we are trying to avoid higher yielding but not totally liquid or quickly liquidatable securities. So entry and exit should be relatively quick, because we're only a teeny-tiny car with a very, very large market.

Sure, yes. Okay, got it. And then what should we be using for -- will there be any change in your tax rate going forward once you have the bigger securities portfolio, will there be some additional munis that will reduce your tax rate or should we stick around that 35%, 36%?

Yes, I think yes. For model -- for purposes of modeling, you're best off with the statutory rates. We do have the benefit of municipals, but the way accounting conventions require and we work very closely with our outside auditors on this, you have to compute an annualized tax rate. So, in any given quarter, you might have a fluctuation. But if you use 35%, it should ease now.

Okay. And then the reserve coverage on the continuing loan portfolio of about (technical difficulty), where would you like to see that over time, what's the right number there?

Of course, it always depends on what the loss experiences and that's why I shared with you earlier, Matt, the fact that over the last 24 months and these are businesses we could trace it back significantly further than that leasing we've been in one way or another for 40 years and in the SBLOC for 10 years and whatever have you. So we experienced less than [$50,000] a year in losses. So we think that we will try to take the opportunity to build this reserve, but that we're choosing portfolios where our experience has been extremely low loss experience.

Right, got it. And then, Frank, can you give us an update on Europe and how that's tracking for revenue generation and breakeven?

Frank?

It seems we've lost Frank. I'm going to get him back for you, just bear with me.

I mean, I will fill in the gap, although not nearly as flawless as Frank could. But we have been boarding clients at a significant rate. We also have a very large pipeline, but the boarding is more important. If you don't mind just waiting on that question, I'll let Frank answer.

We can wait till Frank comes on, but thank you very much. Yes.

Hello?

Yes. I'm all set, Betsy. Thank you.

Oh, no. I was waiting -- I certainly would want to answer really your question, but I was waiting for Mary to ask for another question.

I think she is calling after Frank.

Yes.

William Wallace, Raymond James.

Hello, Betsy, while we wait for Frank, maybe you could give us an update on where you guys are in the process of addressing the order related to BSA and putting together that report that you need to present in order to get the restrictions lifted.

Sure. We're making, I think, significant progress with the BSA order itself. We're a bit ahead of schedule on some items and a bit behind on others, as is always the case with this kind of implementation. We believe that the software that we have been working on and writing the rules for that we anticipated would be available at the end of January now should be available about 30 days ahead of that. The look back, I think, is maybe 30 days behind or maybe 45 days behind, because of the amount of data that has to be accumulated. We are about 70% of the way -- no, we're about 85% of the way through the hiring of personnel and probably, Paul, maybe you can help me on this, what percentage of the personnel payroll for BSA was reflected in the third quarter?

Actually Frank was updating that to get the most recent information with the HR (multiple speakers).

Yes.

You are back and better than ever, okay.

I am. I apologize for that and I don't know what happened there with the -- some blip. But, Betsy there was almost 60% of the expense impact was felt in the quarter, although the run rate at the end of the quarter, we did have 85% of the personnel hired by the end of the quarter, [about 60%] was felt from an expense standpoint in Q3.

And I guess the other question was how is the report coming, the external report that we were having done on procedures and progress.

Yes. [Ongoing] process related to that and there are components of it. While the [Tampa] team is and that's the team that was brought on to -- and broadly the hires that were brought on to do transactional monitoring, fully staffed, fully operational, fully contributing. There are still components that they were working through to get to that full report. That full report I think we've been talking about bringing the group into have it completed sometime early in 2015, I think we're still on target for that.

You said sometime in 2015 with your target, I mean could you maybe -- first half of the year, second half of the year?

Yes. I did say early 2015. So (multiple speakers).

First quarter, I think is early.

And Frank, the prior question was how is the European investment going and what's the anticipation to breakeven.

Frank, I gave an overview saying that we were boarding clients and had a substantial pipeline, but then I would like you talk to the rest.

Yes, and that's exactly right. I think as I have mentioned on previous calls, we're in that tweener period right now where we actually have clients signed committed boarding and once they're -- once that integration is completed and they're boarded there will be a ramp to volume. I think we are on target to have a number of those clients fully boarded and integrated in Q4 as we anticipated.

I do think that the -- and then we believe that there is enough GDV associated with those clients to push the European business to breakeven. I do believe that where we've been talking in the past about the potential of a breakeven run rate by the end of Q4, I believe that that probably is off another quarter or two just because these things can take longer than you would ever anticipate with clients. Beyond that, beyond what we have inked and boarding and integrating and launching, still this year there is an exceptionally strong pipeline of client dialog in the European business.

Thanks, Frank. And then if can just circle back, just -- think I'm a little bit dance on the non-interest expense question, but if I look at the expense that was reported from continuing operations in the third quarter and I back out the -- exclude the consulting related spend, I get about $30.4 million. Is the commentary that you guys offered to suggest that the relief from the personnel side that will be offset from the BSA related investments, that $30.4 million is the right number to use as the base?

Paul, can you answer that?

It's a little bit complicated because one of the factors you have to adjust for is the significant non-interest expense that results from the CMBS depending on production.

Okay, right. So assuming CMBS production is flat to third quarter levels, that's the right number to use and then as the production increases, your variable comp portion will increase (multiple speakers).

Exactly, exactly.

You may remember I like that we have an upsurge in Q2 with the refund business right.

Okay. And then my last question. Frank, this one is probably for you, but you mentioned in your prepared remarks the GPR trends year-over-year were up more than the total GDV. What about on a linked quarter basis? Is that the same trend that you saw from second quarter to third quarter of this year?

Second quarter to third quarter? Let me put my fingers on that number. GDV Q2 to Q3 increased about 2.6%, Q2 to Q3 usually are relatively flat quarters.

Because you may remember, Willy, that we have an upsurge in Q2 with the tax refund business.

Right. But the GPR portion increased 2%.

Correct.

The total GDV was down 7%. So the trend held.

Right. Total GDV down 7%, but GPR up 2.6%. That's correct.

Okay. Thank you, guys. I appreciate your time. And thanks for the additional clarity on the loan marks etcetera.

Frank Schiraldi, Sandler O'Neill.

Yes, I don't want to get to [since we've done] expenses, but I just wanted to check a couple of things there. The $2.7 million BSA related expense, so that is not inclusive of the run rate, the 60% run rate that's in expenses in 3Q?

No. That's strictly the consulting expenses.

Yes, in fact we were allowed to call them non-recurring, we would do that, but we're not.

Okay. And then, so is there any change to the expectation I believe I have this right, that you expected after -- for the back half the year you expected $7 million in consulting fees and you got [$2.7 million] out of the way in the third quarter, is that the right math and is that still hold true?

Paul?

Yes. We are working with compliance, rather complex type of management because we basically are -- need to satisfy the regulators, we have multiple compliance people now who are working with multiple different consultants. So I would say you that's materially still the amount, but it may -- I know that there was one consultant who was supposed to end October 15 that looks like it's going to be extended a month or so. So they may -- they appear to be somewhat higher than that, but that is the vast majority -- that should be the vast majority of the consulting expenses.

Okay. And then I believe that the expected run rate -- continuing run rate for personnel builds in BSA was around $3.5 million annually and if that's the case and 60% is already in, then it would seem like you only have about another $500,000 a quarter in higher personnel costs associated with BSA that's not in the 3Q numbers, is that around the right number to be thinking about?

Paul?

Yes. For BSA that's true. But since we had the last call in working with the regulators they've requested more staffing for non-BSA compliance. So there will be some additional costs for that. I'm not ready yet, we're still working with the audit committee who will ultimately decide on those positions and budget them. So, we're not really ready, but obviously it will be significantly, if there is, it will be significantly less than the $3.5 million.

I would think that we anticipate and this is our very rough numbers, Frank. If we anticipate that expenses save between the two categories that I gave you on the commercial loan portfolio might be [$4.5 million, $5 million], we think roughly there will be that's -- the offset to the increased expenses. But remember in the third quarter we have both the expenses from the commercial loan portfolio and the additional 60% of the expenses from BSA.

Okay. So I guess when you're discontinuing operations and moving -- setting some stuff aside and putting in a lot of revenue aside, you don't set aside the expenses, at least not the personnel expenses, they're still in continuing ops until you [shutter] the business or shelve the business.

(multiple speakers). They are in discontinued like the commercial expenses are in fact in discontinued right now within these statements.

Including the personnel?

Yes.

Okay. So expenses will ramp up then because those are not in continuing expense, those loan --.

If you just -- but if you take the bank as a whole, because at some point, they will not be discontinuing operations, or discontinued operations like we'll have this discontinued.

Okay. I guess, I'm just going back to the -- that if you take out the [$2.7 million] out of the $33 million and you get to around $30 million expense, you've already taken out of that number the community bank related expenses and you have to add back into that number over time some more BSA and non-BSA compliance expenses.

We've taken that are continuing, but remember, this will all collapse within in six months and you'll only have continuing operations and they won't be burdened with the expense of discontinued operations.

Okay, maybe I'll continue offline, kind of a little confused on the front of (inaudible) expenses related to community bank lending is still in that $33 million number or not.

No, it's not in that number.

Okay. And then just finally, just Frank, I wondered if -- prepaid grew and obviously the car business grew very strong, good growth numbers year-over-year. I mean, just what are your thoughts in general on growth expectations? I mean I'd seen sort of 12%, 13% prepaid fee income growth before this and we talked about that maybe being about what the industry was putting up as a whole. Just maybe if you could talk a little bit about the industry growth and then growth expectations for Bancorp.

Sure. The growth expectations for the industry, we still believe we're in the 12% to 13% range for the year and 2015 also, probably a 12% benchmark for 2015. We did note in the past that we believed we would outpace the overall growth rate in the industry just and being able to grow -- our programs growing organically. We are seeing our larger program managers continue to take market share, having advantages of scale and I think that's certainly one of the reasons why we see [30%] growth in GDV equating to 21% growth in non-interest income.

Got you. Okay, all right, that's all I have. Thank you.

Thank you, Frank.

Matthew Kelley, Sterne Agee.

What was the FDIC insurance premiums paid during the month -- during the quarter?

If you -- bear with me for a second, I will get you that number.

Do you have anything else?

Yes. So getting back to expenses, I know there is a lot of questions on that piece. I mean all that we see in the P&L here is a net income from discontinued operations, obviously that has its own P&L to generate that bottom line net number after the tax benefits you referenced earlier. So my question would be in that P&L for discontinued operations, what was the dollar amount of expenses included in that amount for the commercial bank operation?

That's basically discontinued operations. Basically that's what it is.

No, I understand that, but it has -- to get to that bottom line net number after tax, I mean, you had spread income that's outlined in the average balance sheet. There are some fees -- fee income and then there is operating expenses for the people, the buildings, locations of that operation. What was that operating expense number in that P&L for discontinued operations because all the expenses associated with that loan portfolio are baked into that line item, correct?

Correct. So that includes -- the markdown includes the expense. I'll have to look at the work papers for the analysis on that. This is actually required creating a new accounting system which because we had to separate that out. So I'll have to look -- I don't believe actually the way the accounting works interestingly on this is that you don't actually report it, it all gets reported in one line. So I don't believe we're actually going to speak to this, but I can look at that and I can dig through the work papers for that with you. The FDIC insurance expense has to, your other question was, was $1.5 million for the quarter.

Okay. Got you. And then obviously a lot of questions around expenses. Could you give us just a range within a $1 million or $2 million a way to think expenses will be for the fourth quarter operating expenses excluding the consulting charges?

We don't actually -- I don't think we've ever projected on that. I can tell you where we're all focused on that area, and we'll try to manage them as best we can. But we really don't -- have never really projected, and I don't think we're going to give guidance to that, but we are very focused and we realize that given the new structure that has to be emphasized.

Right, okay. And then question for Frank, in April you guys had an 8-K, a relationship that you were terminating. Is that still on track to be terminated in the timeframe outlined in that 8-K?

It is. We anticipate that occurring sometime in Q4, Matt.

Okay, thank you.

Thank you. And now I'd like to turn the call over to Betsy for closing remarks.

Thank you, Mary and thank you all very much for, as always, your good and probing questions. As I said at the beginning of this call, this was a noisy but we believe very productive quarter and we look forward to significant growth rates within our continuing operations, a much more predictable and appropriately risk adjusted income stream, and we are eager to move forward. So thank you again, and we look forward to talking with you next quarter.

Thank you, ladies and gentlemen. And that concludes your conference call for today. Thank you for joining us. You may now disconnect. Thank you.