Valley National Bancorp (VLY) 2016 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the third-quarter earnings release. (Operator Instructions). As a reminder, this conference is being recorded.

I'd now like to turn the conference over to Marc Piro. Please go ahead.

Good morning. Welcome to Valley's third-quarter 2016 earnings conference call. If you've not read the third-quarter 2016 earnings release that we issued earlier this morning, you may access it from our website at valleynationalBank.com.

Comments made during this call may contain forward-looking statements relating to Valley National Bancorp and the banking industry. Valley encourages participants to refer to our SEC filings, including those found on Forms 8-K, 10-Q and 10-K for a complete discussion of forward-looking statements.

Now I would like to turn the call over to Valley's Chairman, President and CEO, Gerald Lipkin.

Thank you, Mark. Good morning and welcome to our third-quarter 2016 earnings conference call. We are excited to review Valley's third-quarter operating results and provide an update on our previously announced strategic initiatives.

For the quarter, Valley generated net income of $42.8 million, an increase of over 10% when compared to the prior linked quarter, and 19% when compared to the same period one year ago. Top-line revenue growth, excluding the provision for credit losses, coupled with a material contraction in noninterest expense, provided the foundation for the solid results and increased net income. Furthermore, the continuing restructure of our funding base continues to produce strong benefits to our net income.

During the quarter, through a debt modification, we reduced our rate on an additional $405 million of debt from 3.70% to 2.51%. As a result, Valley's financial performance metrics continue to improve as the Bank's return on average assets increased to 78 basis points for the third quarter, our return on average tangible equity equaled 11.29%, and the efficiency ratio dropped to 63.3%. However, when adjusted for the amortization of tax credit investments, the number comes in below 60%.

The improved operating performance is a function of Valley's diversified balance sheet, combined with the continued execution of the Bank's previously announced strategic initiatives to expand noninterest income while simultaneously reducing expenses. In fact, the third-quarter's core operating efficiency ratio was the best Valley has produced in over five years.

Also, third-quarter noninterest expense as a percent of total assets was 2.03% on an annualized basis, placing Valley among the best performing midsized Banks by this measure. Starting in the fourth quarter of 2015, Valley began the implementation of an aggressive branch consolidation program, coupled with a Bank-wide cost reduction program, which when completed was expected to reduce annual operating expenses nearly $20 million.

To date the results of this effort have been favorable as core quarterly operating expenses have declined approximately $5 million since the beginning of the year. While we are pleased with the results, we understand more must be accomplished to achieve a financial performance to which Valley has historically achieved.

We continue to implement technological technology improvements throughout the organization, aimed at streamlining processes and operations while at the same time improving the customer experience. In implementing many of the cost-saving initiatives, we are mindful of the delicate balance between improving earnings through cost reductions and maintaining excellent customer service.

During the quarter, Valley's full-time equivalent employee level declined to 2,845. The current headcount not only compares favorably with the prior quarter, but for the same period one year ago when the Bank had 2,846 full-time equivalent employees.

Keep in mind, we have been able to stabilize our staff while simultaneously nearly doubling the Bank's Florida presence to 31 offices and adding approximately $2.8 billion in assets. The expense reductions and associated maintenance and staff level is no small accomplishment as Valley continues to expand its investment in customer-served facing business lines such as wealth management and residential mortgage, while simultaneously enhancing technology and risk management support functions which are critical to the Bank's ability to meet its strategic goals and regulatory requirements.

The Bank has approximately 150 employees, which equates to over 5% of the entire workforce currently conducting risk management activities. The risk management programs implemented by Valley over the past few years, while extensive, when engaged in conjunction with our strict underwriting criteria, have enabled Valley to carefully expand loan originations in categories, which others have either been forced to or elected to scale back.

In that regard, we have a full in-house staff of credit analytics professionals focused solely on segmenting and assessing the risks of our loan portfolio. While we understand this level of infrastructure is expensive and may be considered excessive to some, we believe it prudent to maintain the Bank's internal risk profile and to meet regulatory expectations.

During the quarter, organic loan originations, excluding purchase loan participations, exceeded $900 million, a significant increase from the same period one year ago. For the first nine months of 2016, Valley organically originated over $2.7 billion of loans, which on an annualized basis equals over 20% of the aggregate loan portfolio.

Strong activity was realized across all of Valley's geographies and most of its asset classes. Residential mortgage banking was strong during the third quarter as total originations increased from approximately $175 million in the second quarter to over $250 million in the third quarter.

The increased activity drove the linked quarter growth in net gains on sales of loans by approximately $1.7 million. Residential mortgage application volume remains strong, and as long as the interest rate environment remains accommodative, we expect continued strong mortgage banking revenue in the fourth quarter. Supplementing the fourth quarter organic mortgage banking revenue was the transfer in the third quarter of approximately $175 million of performing lower yielding 30-year residential mortgages to loans held for sale. We anticipate an incremental $7 million gain on the sale in the fourth quarter as a result of the transfer.

A large portion of Valley's mortgage banking revenue continues to be a function of refinance activity, which from a macro perspective is largely contingent upon the extremely low interest rate environment.

To diversify this income stream, we are in the process of expanding and refocusing our activities to the purchase market. While we do not anticipate a significant revenue benefit in the short run, the enhanced emphasis should reduce the Bank's sensitivity to an increase in market rates.

Consumer lending results for the quarter varied as direct to consumer collateralized personal lines and credit increased over 25% annualized from the prior quarter, while Valley's indirect automobile lending portfolio declined approximately 7% on an annualized basis. The automobile lending portfolio continues to be negatively impacted by the revised indirect dealer loan level pricing guidelines recommended by the CFPB and adopted by Valley.

For the quarter, Valley originated a little over $90 million, an increase from the prior quarter, but significantly lower than historical origination volumes. We continue to implement technology-based improvements to enhance the efficiencies within the department, which we believe will provide sustainable long-term benefits supporting improved profitability metrics.

That being said, we continually assess the returns of all of our lines of business, and when appropriate, we will make the necessary decisions to ensure each earns its cost of capital and achieves the Bank's desired long-term profitability metrics.

Commercial lending was strong across all categories as both traditional C&I and CRE organic originations, excluding purchase participations, exceeded over $600 million in the aggregate for the quarter.

Specifically, the C&I loan portfolio grew nearly 5% annualized, in spite of a contraction in purchased credit impaired loans, resulting from both normal principal amortization and a decline in balances principally by design as certain developer and warehouse relationships were encouraged to obtain alternative banking sources as those business lines, although profitable, were inconsistent with Valley's desired credit profile.

CRE activity was brisk for the quarter as organic originations of nearly $300 million were supplemented with purchased multifamily participations of $100 million. The majority of CRE growth in the current quarter was realized in Valley's New Jersey and New York market places. Competition for this product remains intense, in spite of recent regulatory commentary. We have witnessed a few institutions scaling back activity within this segment, yet many banks still remain aggressive in both pricing and term.

Through our comprehensive due diligence procedures, we have demonstrated capacity to expand Valley's CRE portfolio, and while we fully expect to generate increased loan outstandings, we do not waiver on Valley's internal credit standards and return expectations.

At Valley, as we have said many times before, our goal -- that our goal -- that growth is a goal and not an obsession.

In conclusion, I would like to reiterate our focus on improving the operating performance of the Bank. The external conditions remain challenging both from an economic and interest rate perspective. With a benign credit environment, it is easy for an organization to stretch for return and enter new business lines based on pro forma returns. It is our experience that a well diversified, appropriately underwritten balance sheet provides the best avenue for building long-term, sustainable shareholder wealth. Valley's performance metrics are improving, and we intend to execute on the strategic initiatives by diversifying revenue while continuing to reduce operating expenses. However, these objectives will not come at the cost of changing back the Bank's risk appetite. We have never reported a losing quarter and intend to thoroughly achieve the Bank's strategic initiatives within appropriate parameters.

At this point, I would like to turn the microphone over to Rudy Schupp who will comment on some of our activities this quarter in Florida.

Just a couple of remarks. Valley Florida is having a good year and had a good quarter. We are achieving our core double-digit growth plan for C&I, CRE and consumer loans and deposits, both commercial and consumer. In the consumer business, we introduced the indirect automobile line of business and already boast more than 125 automobile dealership relationships across our Florida footprint. The nine-month-old merger integration of the $1.6 billion asset CNLBank has been an excellent experience. Best of all, the teams have gelled and together are focused on quality growth in the major markets here in Florida.

Valley Florida today has a surgical presence, I'll call it, in Florida's major urban markets. In saying this, we believe in a minimal but visible core branch footprint, and to that end, this year we merged four offices and closed one to contribute to Valley's omnibus and ongoing cost savings and efficiency effort.

Deposit growth has been focused on meeting our funding needs and creating a low-cost sustainable base of deposits. In keeping with this goal, Valley Florida sustains an over 40% non-interest-bearing deposit mix, which we believe makes us among the best-of-breed banks in the state of Florida.

We are also proud of our CRA commitment, activity and projects to date. Valley Florida also formed a CRA advisory committee this year comprised of men and women who operate entities in the state of Florida serving communities that are in need.

So, thanks, again, Gerry, and let me turn the program over to our Chief Financial Officer, Alan Eskow.

Thank you, Rudy. For the quarter, total pre-provision net revenue expanded approximately 7.5% on an annualized basis as strong loan growth, coupled with reduction -- a reduction in excess liquidity, provided the catalyst for increased net interest income, while enhanced mortgage banking revenue led to the growth in noninterest income. Valley's net interest margin remained flat for the second quarter at 3.14%. For the period, the yield on loans contracted 4 basis points from 4.17% to 4.13%, largely a function of new volume yields in combination with a decline in interest recoveries on purchased credit impaired loans.

For the quarter, the blended new volume loan rate was approximately 3.5%, which has remained relatively consistent for over the last 12 months. The yield is largely driven by the composition of assets originated and the Bank's duration target. We believe in maintaining a well diversified loan portfolio comprised of consumer and commercial asset classes as each uniquely reacts to varying economic and interest rate environments.

Further, the rate repricing attributes of each portfolio is important and a succinct area of focus for Valley in establishing concentration targets. The total cost of funds declined from 78 basis points to 76 basis points from the linked second quarter, largely due to the modification of $405 million in federal home loan bank borrowings, coupled with the maturity of approximately $75 million of high cost debt in July. We recognized approximately 2 months of benefit for each in the third quarter and expect a full benefit for the fourth quarter.

Although there is a general perception of excess liquidity within the market, it is our experience that as a result of increased competition, the cost of retail deposits has begun to increase. Consumer accounts are expensive on the margin, and we typically emphasize significant depository relationships from the majority of our commercial lending customers. Approximately 30% of our entire deposit base is comprised of non-interest-bearing deposits, many of which have loan covenants requiring the deposit relationship. While the true benefit of each account is marginalized in today's interest rate environment, we believe the $5 billion of non-interest-bearing deposits on our balance sheet to be of great significance to our funding structure, both today and in the future, should short-term market interest rates increase.

In general, absent an increase in interest rates, we expect net interest margin compression of approximately 2 basis points in future periods based on the continued impact of Valley's new loan -- new volume loan yield, and increased market competition for retail deposits. We attempt to mitigate the contraction by assessing alternative funding sources and identifying alternative fee sources, which would positively impact the margin. Some of these items may be infrequent in nature, and as a result, the net interest margin may fluctuate slightly as a result.

Current, originated and previously held for sale residential mortgage loans sold in the secondary market equaled $149 million, an increase of approximately $21 million from the prior quarter. As a result, net gains on sales of loans increased by $1.7 million, driving the net $600,000 increase in total noninterest income.

Origination volume remains vibrant, and we anticipate continued strong residential mortgage gain on sale revenue for the remainder of the year should mortgage interest rates remain at or near their current levels.

Additionally, we transferred approximately $175 million in mortgage loans to held for sale at the end of September. We elected to sell the mortgage loans to reduce Valley's long-term interest rate exposure and expect to recognize a gain in the fourth quarter equal to approximately $7 million, which is independent of the normal and anticipated gain on sale of current period production.

Noninterest expense in the third quarter was $113.3 million, a considerable decrease from the prior quarter. Many of the infrequent items identified and incurred in the second quarter did not materialize in the third quarter as we anticipated. Gerry highlighted many of the efforts underway to reduce the Bank's operating expenses, and while we are pleased with the improvements instituted to date, we recognize there is still more work to be accomplished. We anticipate noninterest expense may vacillate a little as we move into the next couple of quarters as this is a dynamic and growing organization.

Certain items such as incentive compensation, amortization of tax credits, and other occupancy-related items attributable to branch consolidation efforts, may impact future period expenses.

From a core perspective, we believe the $113.3 million expense number recognized in the quarter is close to the current expected quarterly run rate, exclusive of the aforementioned items.

Credit quality for the quarter remains sound as total nonaccrual loans as a percentage of loans declined from 0.29% to 0.23%. As of September 30, the Bank's total nonaccrual loan portfolio equaled only $38.4 million, a decline of nearly $21 million from the same period one year ago. Net charge-offs for the quarter were $3.3 million and largely the function of a $3.7 million write-down of one Chicago-based taxi medallion relationship. Exclusive of this one relationship, we have approximately $150 million in taxi medallion loans, of which all are currently performing, and $9.5 million are from Chicago.

Within the New York taxi medallion portfolio, the median loan per medallion is $409,000, and we have only one loan with a principal balance per medallion greater than $600,000. All of the New York medallion loans are currently performing, and for the majority, Valley maintains personal guarantees and where possible other forms of collateral. While we are disappointed with the current quarter net charge-off, we do not believe this is an indication of anything systemic within the portfolio.

The allowance for credit losses as of September 30 was $112.9 million, an increase of $2.5 million from June 30. The increase is largely a function of larger loan volume and associated mix, coupled with the Bank's normal annual update to the loan loss emergency emergent analysis.

The provision for credit losses for the quarter was $5.8 million compared to $1.4 million in the prior linked quarter. As I mentioned earlier, total net charge-offs in the period were $3.3 million, of which $3.7 million were attributable to one taxi medallion relationship. The net charge-off ratio for the quarter was 0.08%, marking the 10th consecutive quarter the ratio has been below 0.20%. In fact, only one quarter since 2011 has the ratio exceeded 0.50%. We are proud of Valley's strong underwriting standards and associated credit profile.

This concludes my prepared remarks, and we will now open the conference call to questions.

(Operator Instructions). Steven Alexopoulos, JPMorgan.

Good morning, everybody. I want to start out with a few questions on the loan side. Could you guys give more color on the strong growth in the commercial real estate loans really focusing on the organic growth, and do you see that as an area where you could take better advantage because we are hearing of others pulling out of the market?

We have seen strong growth in all of our regions -- New York, New Jersey and Florida -- in CRE. We continue to underwrite using our stress testing metrics, which may be a little bit tougher than the marketplace, but we have had strong demand. I think there are some banks -- and I'm hearing this from some of our clients -- that have been pulling back on their commercial real estate, which gives us an opportunity.

But, as I mentioned in my remarks, it is still a very competitive market, and while some banks have pulled out, it doesn't open up the field for us to charge as much as we would like.

I do think that there will be continued emphasis on commercial real estate, and Valley has always felt very comfortable with its commercial real estate portfolio, largely because of how we underwrite it. But, remember, with commercial real estate, you always have an asset. You always have something to fall back on. And appropriately underwritten, conservatively underwritten, that collateral can pull you out of a lot of problems. (multiple speakers)

I want to follow up on one thing you said. What is the total loan growth that came from Florida in the quarter across all loan categories?

So for -- in terms of year-to-date, about $360 million on the commercial front year-to-date from Florida, for example. And then I don't have committed to memory for residential, though I am taking a look here -- let's see -- in the third quarter for example, auto another $12 million and residential another $18 million, for example.

So that's the mix. We tend to do -- we are privileged that we've earned the ability to continue to participate in the CRE market. I think to amplify on Jerry's comment, what's terrific I think is we have a discipline. We have discouraged sectors for CRE, and we stick to our knitting on that. And then in the encouraged areas, Jerry says we conservatively underwrite and the like, and I think that it allows us to continue to perform in those areas. And yes, from time to time, we can take advantage of a select participant. But to my surprise, I think in (inaudible) and others, there's still been no lack of competition in CRE.

Here in Florida, since you nested down to Florida, I would tell you, too, that by numbers of loans in select -- I look month to month this year, 20% to 40% by number of loans of our loans are C&I. So we've got we think a healthy mix of new loan generation here in one of the three states for Valley.

And then one of the pressure points on loans continues to be the indirect auto. Can you talk about the new strategies you are implementing? Do you think those will be enough to at least hold those balances flat, or do you still expect contraction?

It's really hard to say at this point. We are looking at using some different metrics so that we can get a little bit better yield on some of our portfolio. We are still a conservative auto lender, while some institutions we are told and from what I'm hearing from the regulators, are lending 175% to 200% on the cost of the automobile, we still hold our metrics way down, which actually in some cases acts as a barrier to our growing the portfolio as rapidly as we would like. But, again, we are just so risk-averse in this area that we are not going to start changing our appetite for automobile loans.

Can I shift direction for one minute and talk about M&A? Are you seeing opportunities in the market? Maybe can you comment on price expectations? Thank you.

Yes. We are seeing some opportunities. We have been looking at some. Our particular focus has been and continues to be to expand our Florida franchise. We do not exclude doing something outside of Florida because, if the right opportunity were to present itself, we certainly would want to consider it. But here in Florida, Rudy has been very active. He spearheads all of the Florida acquisitions for us, and Rudy, do you want to -- ?

Sure. We have target institutions that our board has agreed we have interest in. Of course, you have to wait until those processes -- until the potential seller is ready. We have participated in various stages of a process for four institutions year-to-date.

Candidly, in all cases, we took it to a level where we could express by indicative bid our interests or verbalize our levels of interest and so on, and we found that pricing is still robust in our view for those institutions. Good for the seller, but again we have a discipline there, too, both in the mix of business, the quality of the business, the ability to retain team and the markets that they serve.

So we -- fortunately, again, Valley has earned the ability to be invited to processes. In addition to that, as I think Gerry was indicating, I spent a little bit of time in my car around the state calling on what tend to be larger institutions that I think we could have an interest in. And, as we always say, we really don't know until we get under the hood to look at the institutions.

So that would be I guess what I would add to Gerry's comments.

Great. Thanks for all the color.

Brody Preston, Piper Jaffray.

I'm filling in for Matt Breese this morning. I just want to go back and touch on --

You need to speak up a little bit. We are having a hard time hearing you.

Sorry about that. I just wanted to go back and touch on CRE competition. Typically what you are hearing from the regulators, and I know you said that maybe some smaller institutions are pulling back, but on and off sort of the balance of the growth if it's going to shift more to Florida versus New Jersey or what you are seeing there?

Our growth isn't focused as far as loan growth is concerned to any one market. It's wherever we can get the best loans, that's where we are going to be making them.

We hear from the regulators that they are not happy with some of the cap rates they have been seeing banks accepting. As I mentioned in my remarks a few minutes ago, we stress test all of our commercial real estate in all of our markets using what we believe is an appropriate cap rate, irrespective of the cap rate the appraiser used.

So very often we will find a party will come in here and say, well, it's only a 50% loan-to-value, but they are using what we consider a ridiculous cap rate. When we put a realistic cap rate on it, okay, they're really looking to borrow 100% of the value of the property. It's those cases where we have made adjustments in what we would be willing to lend that sometimes takes us out of the market. Sometimes we are able to preserve our situation within the market, but I think it's that type of an approach that the OCC is comfortable with.

We also look for a debt service coverage that is realistic, and that when rates go up, we are still going to be able to -- the borrower is still going to be able to carry the project. Again, these are numbers that the OCC is looking at, and we -- one of the things that we avoid doing that some of our competitors do is we really restrict interest only situations.

Now we understand obviously if someone is purchasing an apartment house and they want to stabilize it and they need interest only for a period of six months or a year maybe, that portion of the loan can go interest only. But it is a rare case where we would make a commercial real estate loan where we would extend the interest only for beyond the year.

So those are the type of metrics I think the OCC and the other regulators are all looking to hear, and I think it's appropriate. Having been a regulator at one time in my career, the last thing we want to do is make loans that are going to keep us up at night.

Okay. Great. And then staying on sort of the CRE topic, I know you can't be specific with this, but from your conversation with regulators, is there any sense as to how appropriate your back office infrastructure is and your ability to sort of grow this portfolio moving forward in their eyes?

We have a very strong back office doing the analytics. It is not being done by one person. We have a single loan policy throughout the bank, and we emphasize that policy to all of our lenders. Like I said before, or said many times before, it's the return of the capital, not the return on the capital that matters.

Great. And then shifting gears, I wanted to know if you could talk a little bit about the updated annual loss emergent study and what it was that you found and what sort of caused you to increase it, and what that would mean for your overall reserve level moving forward?

Basically we do this once a year. We go back and we look at how long it takes from the time a loan first starts to exhibit a problem until the time it gets charged off. As a result of the economy that we are in at this time, that period is extending further and further out to be able to find how long it takes for these losses to occur. They are taking longer.

So we saw a little longer period on the commercial side than we had seen previously. We did not see a lot of change in some of the areas, mostly on the consumer side. So I would say the period has extended a number of months, but not dramatically changing it.

Okay. Great. And then last one from me. I know you said that absent a rate hike, you would expect about 2 basis points of margin compression each quarter. What would your outlook be with a Fed hike in December?

I don't think it's going to make a lot of change depending, again, on when exactly -- if we are talking about a December hike, you're not going to see anything occur until the first quarter. And I think that it really will depend a lot more on the long end of the curve than the short end of the curve.

Thank you very much, guys.

(Operator Instructions). Collyn Gilbert, KBW.

Thanks. Good morning, everyone. I just wanted to touch on the expense color that you provided. So it sounds like if we see the fourth-quarter expenses at a run rate comparable to what we saw in the third quarter. That would suggest, I think you guys had said last quarter, that you are thinking more of like a $455 million annual expense number.

Right. That's the number we expect to stabilize at.

Okay. But then I guess that would suggest a much lower expense number then in the fourth quarter of 2016 to get to that $455 million.

It is kind of an annual run rate going forward.

Okay. So starting in the fourth quarter, annual run rate --

You can't take the cost savings that we didn't get in the first and second and assume that that brings everything down much lower. No. What we are talking about is a ballpark $450-odd million run rate going forward.

Got it. Okay. That's helpful.

And then just on the deposit side, can you just give a little bit more color as to what you're thinking about in terms of maybe funding strategies or how you're going to price deposits? It seems like there would be room -- or you wouldn't necessarily have to stretch on the pricing of some of the CDs or whatever the case might be. But just kind of walk through how you're thinking about an environment where we are seeing increased deposit pricing pressure and how you will participate in that?

I think a lot of it really has to do with the market competition on the consumer side. We are seeing enhanced rates on some of the CD products. We are seeing a little bit more market competition on the market-based retail products. That being said, we have a very large commercial base of deposits within our organization largely tied to compensating down to the positive for us I think as there may be surge deposits in other organizations. Nothing we don't have any here, but I think to the level as to what may be in other banks, it's definitely a smaller number.

We are looking at other forms of funding sources whether it be brokered CDs, wholesale funding, opportunities that we have, but we're really trying to look at it more holistically as to opportunities we have to make sure that we can manage the overall funding costs down.

So that's the objective or -- is to try to -- you think you can get funding costs lower, despite what's going on in the market?

I think because of our large commercial base and not just a function of a CRE base, that yes, we can continue to work on driving that overall funding cost down. That being said, the retail deposits are getting much more competitive based on what we are seeing from some of the larger banks.

Okay. That's helpful. And then Gerry, just a question for you, or curious to get your comments on it. With the growth that you guys are seeing on the C&I side, is that a function? You said forever that it seems like the C&I borrower is just not really -- excited to be borrowing or investing in the business. Have you seen any change yet in that traditional C&I customer as to how they are thinking about their business or how they are thinking about the use of increased lines or kind of gross prospects for kind of the organic channels of C&I growth?

We really haven't seen much of a change. I think there's a lot of caution in the marketplace with an election coming up for the presidency and Congress, and uncertainty I think a lot of companies hold back until they see which way the country is going.

So I don't see any big surge taking place at this point. We are certainly not budgeting for a big surge, although we have been sending more and more lenders out into the field looking for opportunities.

It's interesting. We have a higher percentage of C&I to total borrowing in Florida than we do up north, which is maybe a little bit surprising, but we are seeing it down here.

Okay. That's helpful. And then just one last question. You indicated that the originations I think you said in the third quarter for indirect auto was $90 million lower than what you guys had done in prior years. What had -- maybe in the year ago period, what did those origination volumes look like?

Last year the same quarter we had about $150 million in indirect auto, and I think, as Gerry mentioned on the indirect auto, the solution isn't just increasing the volume there; it's increasing the yield within the portfolio, as well as streamlining and reducing the overall expenses until we are able to get a number that not only provides increased volume and increased profitability, we are going to still continue to assess that portfolio and make sure that makes sense with our cost of capital and that it's a revenue line that we can be comfortable with as we move forward.

Okay. That's helpful. Thanks, guys.

There are no further questions.

Thank you for joining us on our third-quarter conference call. Have a good day.

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