Bancorp Inc (TBBK) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Bancorp Second Quarter 2017 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Andres Viroslav.

Sir, you may begin.

Thank you, Kaylie.

Good morning, and thank you for joining us today for The Bancorp's Second Quarter 2017 Financial Results Conference Call.

On the call with me today are Damian Kozlowski, Chief Executive Officer; 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 p.m.

Eastern time today.

The dial-in for the replay is (855) 859-2056, with a confirmation code of 51244121.

Before I turn the call over to Damian, 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 Bancorp's Chief Executive Officer, Damian Kozlowski.

Damian?

Thank you, Andres.

Good morning, and thank you for joining us today.

My name is Damian Kozlowski.

I'm CEO of Bancorp and the President of The Bancorp Bank.

I've been in these positions since June 1, 2016.

I welcome you to our second quarter earnings call.

The first quarter of 2017 was a turning point for our company.

Our second quarter demonstrates that we have turned the corner on our financial performance.

We believe our performance will continue to improve and is sustainable.

In this quarter, The Bancorp earned $18.9 million in net income or $0.34 a share, off of $45.4 million of total net revenue.

Earnings were net of restructuring charge of $0.06 per share, which reduced the operating net income.

And in this quarter, we recognized $0.22 per share of tax benefit, comprised of both the deferred tax asset and a Delaware tax state refund.

Our run rate earnings continue to improve, reflecting continued revenue momentum and the impact of continued expense cuts and restructuring.

Here are some of the highlights from the second quarter that drove our performance.

As we have discussed previously, our integrated business plan has been completed, and we are now in full execution stage.

Our version of this plan is on our website, and we will update this presentation during the third quarter of 2017.

In the second quarter, we exceeded our own internal budget and are tracking well with all our key initiatives.

We see opportunity on the upside for our financial targets with the disposal of certain assets such as the Orlando mall and the potential for increased loan and gross dollar volume growth over our initial estimates.

Past interest rate increases in December, March and June are having a positive impact on our operating revenue run rate.

We forecast approximately $2 million short term yearly run rate increase per 25 basis point rise from the Fed.

Our expenses continue to show improvement.

Our cost reduction effort has identified approximately $20 million in operating cost savings from -- for 2017 over 2016.

European operations will no longer impact our financials, as all costs have been terminated.

The restructuring charge we took in the second quarter of $3.4 million will be nonrecurring.

This will -- this was partially offset by a $2.5 million gain on the sale of substantially all of our remaining HSA business.

All other cost savings are on target with about 75% completion of our phase 2 cost restructuring implemented.

Expenses should continue to show improvement throughout 2017.

Phase 3 cost reengineering will begin in the third quarter of this year.

This will focus on creating a more rational, efficient and productive operating platform to support innovative growth.

Cost savings are hard to determine, but an additional savings of approximately 10% to 20% of operating cost is possible after full implementation in 2018.

Core revenue continued to grow, both quarter-over-quarter and year-over-year.

Year-over-year business growth was led by leasing balances, which grew 18%.

Quarter-over-quarter business growth was led by SBLOC balances, which grew 9%.

Notwithstanding the loss of some volume due to program shutdowns and an acquisition, gross dollar volume of prepaid transactions increased 4% over Q2 2016.

We're continuing to make real progress concerning our regulatory situation.

We have implemented our first draft of our integrated compliance plan, and we will significantly enhance our compliance management process and BSA/AML, third-party risk and consumer compliance.

In connection with this program, the bank has made substantial progress in addressing many aspects of our regulatory issues and validating our actions to meet regulatory expectations during our next full scope exam.

We also announced this week our new operating team that is comprised of seasoned executives from JPMorgan, Citibank, Bank of America, AIG and the Federal Reserve.

These experts significantly improve our knowledge base and experience in operations, technology, BSA/AML, third-party risk and consumer compliance.

In summary, I believe in the second quarter, we turned the corner on our financial performance, prospectively validated by a recognition of the deferred tax asset.

We still have considerable work to fully implement our integrated compliance plan, but we are on track to deliver progressively better results for all the constituencies that comprise The Bancorp community.

Now, I'm turning over the call to Paul Frenkiel, our CFO.

He will review the financial results in more detail.

Thank you, Damian.

Consistent with our business plan and budget, Bancorp increased its profitability in the second quarter of 2017.

Net income was $18.9 million for the quarter, which included an approximate $12 million net reversal of deferred tax valuation allowances.

Future additional reversals will be largely dependent upon recoveries in the Walnut Street instrument.

Net income also reflected revenue growth and progress in expense reduction.

On a linked quarter basis, loan interest income increased in excess of 10%, while additional cost reductions were realized and while other cost reductions continue to be pursued.

A 30% increase in Q2 2017 versus Q2 2016 net interest income reflected growth in leasing, SBA and SBLOC loans as well as commercial loans held for sale and securitization on which interest is earned through the sale date.

The increase in net interest income also reflects the impact of the 25 basis point rate increases in December 2016 and March 2017.

Since the second quarter of 2017 rate increase occurred in mid-June, the full quarter positive impact will not be realized until the third quarter.

Linked quarter net interest income grew by net 9%, reflecting these factors.

Our largest percentage increase in loan balances was in leases, which grew organically 18% over the year.

The leasing portfolio continues to yield in excess of 6%.

Loan balances, excluding loans held for sale, grew 16% year-over-year.

These lines of business -- the lines of business comprising those totals have historically had low charge-offs.

Our cost of funds grew minimally, reflecting only a partial adjustment of rates on our prepaid deposits to changes in market interest rates.

Prepaid card deposits are our largest funding source and rates thereon should continue to adjust to only a portion of future increases in market interest rates.

The interest margin should benefit accordingly as rates on variable-rate SBLOC and SBA loans and variable-rate investments adjust more fully to higher market rates.

Prepaid cards, in addition to being our largest funding source, are also the primary driver of noninterest income.

Compared to the prior year's second quarter, prepaid fees were relatively flat, reflecting the impact of a client that exited as a result of its sale.

Notwithstanding that factor and the decision of several other clients to terminate their prepaid card programs altogether, the total amount spent on prepaid cards or gross dollar volume increased 4%.

Growth in other programs significantly offset the impact of those changes, resulting in net volume increase.

Reductions in noninterest expenses also contributed to second quarter results.

Noninterest expense of $37.4 million for the second quarter was lower than 2016 quarters and reflected significant progress in implementing expense reductions in several areas.

As Damian noted, additional reductions have been identified and should be realized throughout 2017.

Net interest margin for the quarter was 3.10% compared to 2.73% in Q2 2016 and 2.7% for the linked quarter.

The improvement in net interest margin over Q2 2016 reflected the impact of the rate increases in December 2016 and March 2017, which resulted in higher asset yields versus a lesser increase in deposit costs as discussed earlier.

The $1.3 million net income from discontinued operations reflects the results of the discontinued Philadelphia commercial division.

In addition to the interest, which continues to be earned on those loans, the second quarter benefited from modest amounts of loan recoveries.

Primarily as a result of the $18.9 million of second quarter earnings and lower average assets, the leverage ratio at the bank and holding company were respectively, 7.6% and 7.75% at quarter end.

Risk-based ratios, already at elevated levels as a result of weightings based upon the lower risk profile of certain loans and investments, also benefited from the increased capital.

All risk-based capital ratios exceeded 15% at quarter end.

That concludes my comments.

And I will return the call back to Damian for questions.

Okay, let's open the line for anyone who would like to ask us a question.

(Operator Instructions) Our first question comes from the line of Frank Schiraldi with Sandler O'Neill.

Just have a few questions, if I could.

I wondered, first on the valuation allowance of the reversal.

Paul, you noted further reversals are dependent upon Walnut Street.

So I guess the -- you would expect that -- or I guess you're not expecting more necessarily to come back this year.

And I'm just wondering if that -- or how that impacts your expectation to get to a Tier 1 capital ratio at the bank of 8.5%?

We see a clear path to 8%, just based on earnings and on balance sheet management.

And our plan shows us getting there this year to 8% and if we don't get to 8.5%, it may take us a quarter more or so to do that.

But just on the basis of earnings and our relatively low loan-to-deposit ratio and investments that we could sell and replace with loans, we think we can easily get there.

Yes.

And one thing, the 8.5% is our own target that we set for ourselves based on a risk-based analysis that we used to set our capital minimum.

That was set in June of last year.

Obviously, we are in the process -- we don't know if that will -- our own target will change as our minimum, as our self-prescribed minimum, but we set that target last year in a very different situation.

And I think you can say a year now that we're going to review that target whether that's a reasonable target.

We still think it's probably reasonable, but that was the target we set.

We think 8% is a number that the -- that a lot -- a broad audience of constituencies think is a good near-term target.

Got you, okay.

And then just in terms of the continued improvement on the expense side.

Is there a new target you have for where you want to be or where you think you can get to by the end of 2017?

And then that 10% to 20% sounded like it was just kind of a soft expectation of what could be possible.

Is that coming off of current levels?

Yes, but the -- we're about 75% -- not all of them have been realized inside the income statement, but we've identified and acted on 75% of the $20 million.

And we have visibility to probably 20% over that number too, so we do have an ability to go above the 20.

They're soft numbers right now, and this is just on the phase 2 cost -- operating cost restructuring.

The reengineering, now that we've put this whole team in place that we announced, that starts in the third quarter.

And what we're basically doing is taking a white sheet of paper, getting rid of redundancies and upgrading our technology and information systems and everything.

We don't -- that's very undetermined right now.

It's just pure experience when you do that, it can have a dramatic impact on your productivity and efficiency.

But 10% or 20% is probably a good target to keep in mind, thinking about 2018, once it's fully implemented.

However, depending on our revenue growth, which has been continuing even in bad situations, as we come out of these -- some of the headwinds that we have and they're turning into tailwinds, we might have increased growth going into the end of 2017 and '18.

That does affect our cost structure.

Right, okay.

But I guess for '17, it sounds like you still got $5 million left total, so maybe like $1 million run rate a quarter would be a reasonable expectation?

You have to look -- yes, you have to look at year-over-year, right?

So you have to look at what we were doing last year and then I think you're right, I think you just look at the trends.

We do think -- you know it's bumpy.

You take costs in each quarter.

You know it's bumpy, but the trend should be -- continue to be -- it should be down press run on the cost structure over the next couple of quarters.

Okay, great.

And then just finally on the order, and you mentioned, Damian, the first draft of the compliance plan.

I'm just wondering if -- I don't know what the time line is here, if you can share at all what you expect the time line -- potential time line is to getting this in front of regulators and then ultimately obviously, getting the order lifted?

Well, I'll get in front of everybody right this second.

If you go on our website, into our News section, there is a video that we created that will take you through what the integrated compliance plan is.

I think it'll be very informative.

The regulators have been lockstep with us in the development of this plan.

They're coming in for their safety and soundness exam in September.

We're well prepared for it, and we've remediated, I would say, a ton of the base issues that we believe are holding us back in their view.

So -- but we've gone much further than that, we're just not resolving issues with this plan, what we're getting to is root causes.

So what are the root causes that at the end of the day, resulted in these consent orders?

And that's what we're really doing with the integrated compliance plan.

Once again, go to our website, see the video.

I think it'll make it very clear exactly the approach we're taking in order to reengineer the compliance and regulatory environment at the bank.

(Operator Instructions) Our next question comes from the line of William Wallace with Raymond James.

Maybe just a real quick follow-up on the DTA valuation allowance.

How much is left that could be recovered depending on the Walnut Street?

There is a specific number, but I hesitate to give it because it's hypothetical, so I don't want to create an expectation now that we've got more clarity into its recognition.

I can talk to you off-line.

It's actually a very complex tax situation with several issues involved that we're still working on that are relatively complex, so I can talk to you about it off-line, if you'd like.

You'll disclose in the Q what the actual amount of the allowance is, I assume, because it's an equity account?

Yes.

I'll have the disclosure in -- yes, we'll have the disclosure in there and it'll be documented in the Q.

Okay, but as far as our models go, we shouldn't be thinking about recovery moving forward in any one quarter having it being lumpy?

It would just -- it'll be very dependent on recovery...

Yes, we don't -- if this is a definitive statement, we do not have visibility, and we're trying to be as transparent about everything here.

We do not have visibility on that.

I'm taking the rest of it in.

There's too many other actions that have to take place in order to realize that number.

They may happen, but they're -- we don't have visibility to those things right now.

Okay.

So assuming -- without assuming any credits or anything related to allowance reversals, what kind of tax rates should we be looking at moving forward?

What's your quarterly tax rate?

It's going to be a normal tax rate, so federal and state, around 36%.

Okay.

Any updates on the mall property in Florida?

Yes, we're in the marketing stage.

The marketing proposals have been sent out and it's -- you're going through -- it started about 2 weeks ago, so there's a lot of interest in the mall.

We don't have any visibility right now what we might ultimately realize from the mall.

So one thing is for sure though, we're actually running the mall at a profit now, so we did take in some income into the second quarter.

What was the total?

Around $250,000.

Yes, so that we actually have a bank account with more in there, but we took a $0.25 million in the second quarter and we probably will take that or more in the third quarter.

So we're running the mall profitably.

It's not a drain on Bancorp, and I think there's a market for the asset.

We currently have it on the books for $18 million.

The initial marketing assessment was $25 million, but we would like to have more, but we have no idea of what the final disposition number will be.

Okay.

And then just as it relates to -- go ahead.

I'm sorry, was somebody trying to say something?

No, we didn't hear anything.

I'm sorry.

As it relates to the accounting around the discontinued assets that are held for sale, it seems like those are more kind of in a run-off or liquidating mode.

Is there -- I mean, might we see those come back into the -- onto the balance sheet as -- I mean, continued -- continuing operations?

Is there a chance we'll see an accounting change for all these assets and for that part of the...

Yes, it's a possibility.

The rules for discontinue -- for taking -- when discontinued goes back to continued are not -- are somewhat subjective.

We continue to dispose of the assets and as of right now, it appears they still should be in discontinued.

But yes, it is possible after a certain point in time that they come back to continued.

We are aggressively working it down.

We didn't have a big move in discontinued quarter-over-quarter, but we expect third quarter to -- the pace to be picked up substantially.

We do know -- we can tell you that there are 4 properties that we're disposing off over the next few weeks alone, and so we'll be probably down at least $25 million or $30 million in discontinued in the third quarter.

But it will probably be more.

So as you know, the loans are getting worked down aggressively.

We're taking the opportunities to make sure that when we have an opportunity to dispose of the assets that we do it quickly, and we continue to work that down aggressively.

And did you just say you've got 4 properties under contract?

Have they closed already?

There are 4 dispositions we know of that will come in the third quarter, most of them over the next few weeks.

There's some -- there's 2 sales.

There was 1 repayment -- 2 repayments, so we're working it down.

There just wasn't a lot of movement in the first quarter, but there'll be a -- second quarter, excuse me, but there'll be movement in the third quarter on the discontinued -- number of discontinued -- the total number.

And then with the visibility that you have on those have sold and are under contract, you're feeling pretty comfortable with the marks, I assume?

Oh, yes -- no, we didn't lose any, actually there are some gains in there, so we'll -- we have visibility to gains.

Remember, some of these are really marked down, so if you actually get back the loan amount, you going to take gain.

So we're -- right now, we're really comfortable.

We're -- I think we're managing very tightly, discontinued.

Then there's the Walnut Street, we put the kind of the defense lines in.

If we do get an opportunity to get a big payoff, we'd have to weigh that in either Walnut Street or discontinued.

We'd have to weigh the value of that.

The near-term value of actually disposing of the asset at maybe a discount versus -- and getting rid of the ambiguity versus the cash flow value over the term to the shareholders.

But right now, I think the only word we can say is stability.

Yes.

And then looking in the second half, just kind of the overall balance sheet, you made a lot of moves in the second quarter with the sale of HSA, the sale of the European business.

Do -- is there anything coming in the second half that would shrink the size of the balance sheet?

Or do you think kind of $4.3 billion is just -- is the right size?

We -- Wally, we actually averaged $4.2 billion during the quarter.

And we're obviously managing it for capital ratios and so forth.

I think $4.2 billion, $4.3 billion is probably realistic.

Yes, we've got some businesses, like our ACH business, which has payroll components and stuff to it that we -- that sometimes distorts -- we're now running that business internally, we think profitably.

So we -- and because of increased volumes, so we -- there's some -- we're a bank, so in some cases, we have to have a larger balance sheet to do business.

So that's one of the areas.

But we think, we can manage around $4.2 billion and probably maybe a little bit higher at the end of the year, but then in the -- probably $4.4 billion, $4.5-ish billion when you run into the first quarter always and then get back down to the $4.2 billion level.

We think we're pretty comfortable with that number for the next 1.5, 2 years.

We want to stay in this $4 billion to $4.5 billion range and not back grow the balance sheet too much.

And then, I just want to make sure I understand the Philadelphia -- the commercial mortgage business that you -- I thought you had changed the nature of the loans that you were originating, but then in the prepared remarks, it sounded like Paul said that you had shut it down.

Yes, that goes back to discontinued -- that's a discontinued operation.

Oh, oh, okay, okay.

Got you.

So the commercial mortgage business, you're still originating now, you're doing the variable rate C&I loans that you're originating.

Right.

No, not C&I.

Not C&I.

Only (inaudible), only -- we shut down the commercial mortgage at fixed rate business at the end of last year, and we did that because the market had changed so much.

There really wasn't room for mid-tier players anymore, and you had to take a risk strip.

So we had already created a floating rate business, which has a lot more transitional loans.

It's a national platform.

We had done asset sales to large institutions in the past.

And in November, December of last year, we created our first branded Bancorp CLO-type of structure, which was well received in the marketplace.

We saw those earnings in the first quarter of 2017, and we've been very successful at continuing that platform and we will see securitizations in the future and those will obviously impact the revenue line.

Last time, we took about a $5 million gain on the security, but we don't know what that's going to be in the future.

It changes, spreads and all those things changes, but that's how -- we don't expect to have long-tail exposure to commercial real estate in that area.

We expect to originate the loans and securitize them.

Okay.

So the gains out of that business will continue to be lumpy, but then in the quarter, there was $750,000 booked on that line item.

What's that coming from?

Is that like SBA loan sales or something?

No.

We had -- we actually disposed of some of the fixed rate.

Yes, we had 100 -- yes, so we had a lump of loans when we closed down the business, so it was about $140 million that went into a CMBS structure of a partner of ours.

And so we have a little bit left, and we're just disposing of those loans.

So that will be it for the fixed rate exposure to real estate, but it's small.

Okay, okay.

I appreciate that color.

And then my last question, I've asked too many, but the -- you made the announcement of the big kind of risk management team.

A lot of pedigree on that team, yet you're still expecting costs to come down.

Is that -- are those costs -- is that coming from the cost saves out of the shutdown of Europe and HSA?

Is that how you're funding that team?

I imagine that's a real -- I mean, that's got to be a meaningful number with that many employees with that kind of background?

Yes.

Well, the great thing is they replaced the people that were here, so I'll be honest with you, the cost structure hasn't changed.

We -- you can pay -- the pay is the market sometimes and maybe you have to pay a little bit more for a special person, but we attracted (inaudible).

So they're replacing -- they're replacing a team?

Yes, pretty much.

And to be honest, the -- and we may -- we don't -- through the integrated compliance plan, I don't think we're going to be -- what's come to light is that there are gaps in our organization, no doubt about it.

There's things that we're creating so that we can be more responsive banks to our regulators, but there's a lot here -- sometimes you're inefficient as an institution, and you can reorganize yourself to better support your business.

The general -- what's happened with better resourcing, better people, is they understand how to do it in better ways.

And that reduces -- increases your productivity, while also increasing your efficiency.

Well then, so shouldn't we see a pretty -- I mean, a relatively meaningful reduction in operating expense in the third quarter then without the European and now that the HSA support staff move off the op?

Well, I think it'd work, we don't know exactly.

We can't predict that number.

We think there's going to be downward pressure.

We're obviously managing a lot of different streams of activities here at the bank.

But if you look year-over-year, where we are right now in the continuing side of $75 million, so if you can -- if you look at our financials and compare that to last year, that's just -- it's almost an enormous -- that's $150 million run rate.

And we have talked I guess on this call before about us wanting to be under -- in the maybe mid or under $160 million.

I mean, we're really dead on with our focus on the cost side of the business.

Yes, you're right.

There may be -- like we said, we can't give you any more clarity than we think it'll trail, will continue to show improvement.

And it could be a little or it could be a little bit more than that.

Our next question comes from the line of Matthew Breese with Piper Jaffray.

Just staying on that expense topic, I want to make sure I have a better handle on all the nuts and bolts.

It sounds like the current expense initiatives still has some legs to it.

I think you said maybe $5 million.

And then on -- once that's completed, closer to the end of the year, there's a phase 3 component, another expense initiative.

So I just wanted to get a sense for maybe longer term, 2018, 2019, what do you think the annual expense rate could trend to?

Well, there's also some other nuts in here that we don't account for, like FDIC insurance, things like that, that might be -- that are elevated because of our regulatory situation.

There is -- if -- let's put it this way, if we -- because our jaws have opened up so substantially and that's what's created this improvement in our financial productivity.

If we simply -- I -- if we simply keep our -- at the end of 2017, you got that expense nut.

If we continue our revenue growth and it was to stay the same, if we were able to contain the expenses for another year, say 2018, we would be extraordinarily happy.

I just don't have visibility to it right now.

You remember, when you create growth, you create expenses too, so -- and we've got a lot going on here and a lot of revenue momentum, and I wouldn't want to dampen that.

I just want to have a good jaws.

The one thing I -- we could have easily high single-digit revenue or more revenue growth with 0% expense growth.

I can guarantee you though, if we do have expense growth, it will be small and it will only be at the expense of even higher revenue growth.

We are absolutely not going to accept this idea that we need to invest ahead of revenue.

That's not something -- that's not the stage of business we're in right now.

We think we don't need to do that right now.

We have enough expenses within the business to support productive growth of the business and a lot more inefficiencies to get out.

And that's as much color as I can give.

But once again, if we, as a business -- I'd be very happy as the CEO to keep our expense base flat year-over-year for 2018.

Not saying that's our internal target, that's -- I'm just spit balling with you -- and continue our revenue growth, that would substantially increase our profitability.

Okay.

And then maybe switching to the revenue side of the equation, the margin improvement this quarter was substantial, and I want to get a sense for what that could look like next quarter as you continue to grow the loan book and potentially shrink the securities portfolio.

So could you give me an idea of the loan growth outlook and the margin outlook for the next quarter or 2?

Yes, I'm going to give it to Paul right after I say, that's really difficult, because it's timings of securitizations and stuff that we might have in the pipeline, so -- but over time, over time -- and I think on this call last time what we said was, we were hoping to get to 3% by the end of this year.

Obviously, 3.10% is a lot higher than 3% and it's the middle of the year, so do we think it's going to -- it depends on interest rate increases also from the Fed.

It depends on a lot of things, but I'll kick it to Paul.

Thank you.

So Damian's first point, if you look at the loans that we sell under the secure -- and do the securitizations into, they're relatively high yield close to -- in the 6% range.

So depending on when you sell those, they'll have a negative impact on the margin because that first -- until we rebuild that portfolio to sell it again, it will go into Fed funds at 1%.

It's difficult to predict the timing of that and that in itself has a significant impact.

However, the trend, because there was another Fed increase at the end of March and that we didn't get that much benefit out of, that's clearly a positive.

And because our cost of funds is only going to increase for a fraction of that, that will also help the margin.

So it's very difficult to predict.

And...

And our overall size of the loan book is growing, so SBA loans are higher yield, leasing is higher yield, that's what's driving the number.

Our SBLOC businesses are very low risk, they're lower yield.

So as you get this proportionate growth from those 2 other businesses versus the SBLOC business, you do get higher net interest margin.

But the trends that we're looking at are all positive, so you should -- depending on the securitization timing, you should see increased NIM going into the end of the year.

Okay.

I mean, maybe just thinking about the net interest income line, this quarter you've firmly broken the $100 million a year mark.

Should we model out from this level to $105 million, $110 million for the next 12 months?

That kind of level?

I think you can look -- I mean, I think it's very -- during a very difficult time with this bank, you think about the last year, there's been good focus on these businesses growing the revenue and I expect the historic revenue growth to continue.

If anything, we're in a much stronger competitive position than we've ever been.

We've taken a hard look at our competitive and operating strategies of each of these businesses, everything about who our clients are and how we compensate our employees.

And if anything, we're seeing increased growth because of those moves.

So if you were to model in historical growth alone, you would see that happen.

And if you think about enhancements that we're making to the businesses, there -- you should see increased growth.

We don't know what that's not going to be, obviously, but historic growth, just the historic baseline is I think a starting point to think about how the businesses are going to play out.

Okay.

And then my last one is really around the prepaid card business.

Could you just give us an update there?

What you expect for gross dollar volume over the next 12 months?

How the margins are holding up and the fees?

Just like some more color on the business there.

Yes.

The -- now that's a difficult one.

That's bumpy over quarter-over-quarter.

And you saw that in this quarter, our GDV grew 4% but our fees were basically flat, down a little.

What's happened -- what you're going to get over the next couple of quarters is we're working out -- you'll see the GDV growth continue, most likely, and fees will be a little bit bumpy, but you're going to start getting over these drags that we had on the business.

By this time next year, you're going to have a very different -- what we think is a very different growth level, because what we've done is we've launched these programs, we had this acquisition and we've been replacing the revenue with new programs and new initiatives.

We think that this is something that's going to work its way out quite quickly.

By the first quarter of next year, you're going to see just a very different GDV fee growth level, and it's going to be a super kicker for us because you're going to get -- you're going to have this balance sheet at a wholly different level because the balance sheet always doesn't just give once, it gives every quarter.

And then you'll see the fee year-over-year impact, because our fee had the stress -- the fee business had the stress on it from the first quarter and the first couple of quarters of this year.

So it's all -- it's very accretive.

So we still think we will have historic GDV growth, high single-digit, low double-digit, even growth into the future, we cannot predict that.

And fee growth will be -- will trail that a bit, a few percentage points, and we've said that in the past.

But we got to get back to the run rate we were and that will happen as we close this year out and get to the next year and then you'll see the impact of all the initiatives we had to replace the revenue.

It's never -- when you always get dislocations in these -- we don't have huge concentrations in any one client, but we just so happen to have changes in the marketplace that we -- some of our biggest providers decided to shut a few things done and then there was an acquisition.

That really hasn't happened over the last couple of years.

We don't think that's going to happen over the next couple of years, to be honest with you.

We think we've got the right mix of business going forward, so we don't have these dislocations.

And I think you'll see it prove out over the next couple of quarters.

And I'm showing no further questions at this time.

I'd like to turn the call back to Mr. Kozlowski for closing remarks.

So I'd like to thank everybody for joining us today.

We're really looking forward to continuing to manage the business tightly and show progress to everyone on this call.

I want to thank everyone for joining us, and have a nice day.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program, and you may all disconnect.

Everyone, have a wonderful day.