Valley National Bancorp (VLY) Q3 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Third Quarter Earnings Release. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions given at that time. [Operator Instructions] And as a reminder, this conference is being recorded. I would 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 have 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, Marc. Good morning and welcome to our third quarter 2016 earnings conference call. We're 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 credits 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 midsize 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 the financial performance through 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 presents to 31 offices and adding approximately $2.8 million in assets. The expense reductions and associated maintenance in 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 expensive, when engaged in conjunction with our strict underwriting criteria have enabled Valley to carefully expand loan originations in categories, which 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's prudent to maintain the bank's internal risk profile and to meet regulatory expectations. During the quarter, organic loan originations, excluding purchase loan participation 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 remained 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 of 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 of 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 marketplace. 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 CRE portfolio and while we fully expect to generate increased loan outstandings, we do not waver on Valley's internal credit standards and return expectations. At Valley as we have said many times before that our goal is -- 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 expense. 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'd like to turn the microphone over to Rudy Schupp who will comment on some of our activities this quarter in Florida

Thanks Jerry. 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. A nine-month-old merger integration of the $1.6 billion asset CNL bank has been an excellent experience. Rest of all the teams have jelled 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 and same as 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 deposit and 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're 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 Jerry 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 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 four 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 throughout the last 12 months. The yield is largely driven by the composition of assets originated in 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 re-pricing 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 two 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 is 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 noninterest-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 two basis points in future periods based on the continued impact of Valley's loan -- new volume loan yield and increased market competition for retail deposits. We intend 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 a $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 for 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. Jerry 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 quarter perspective we believe the $113.3 million expense number recognized in the quarter was close to the current expected quarterly run rate, exclusive of the aforementioned items. Credit quality for the quarter remained sound. This 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 $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, but 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 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 for the period were $3.3 million of which $3.7 were attributable to one taxi medallion relationship. The net charge-off ratio for the quarter was 0.08% marking the tenth 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 will now open the conference call to questions.

[Operator Instructions] We do now go to Steven Alexopoulos from JPMorgan. Please go ahead.

Hey. Good morning, everybody.

Good morning, Steven.

I wanted 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've 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 pull back on. And it's appropriately underwritten, conservatively underwritten, that collateral can pull you out of a lot of problems. So I hope it will continue.

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?

Rudy?

Yeah, so in 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'm taking the look here let's see in the third quarter for example auto and another 12 in the residential another 18 for example. So that's the mix we tend to do and we are privileged that we've earn the ability to continue to participate in the CRE market. I think to amplify in 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 area as 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 time advances and others, there has still been no lack of competition in CRE. Here in Florida since you nest it down to Florida, I would tell you too that by numbers of loans in select and when 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.

Okay. 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're still a conservative lender while some institutions were told and from what I am 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 time -- in some cases act as a barrier to our growing the portfolio as rapidly as we would like, but again, we're just so risk-averse in this area that we're not going to start changing our appetite for automobile loans.

Jerry, 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.

We're seeing some opportunities. We've 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 of the right opportunity where to present itself, we certainly want to consider it, but here in Florida Rudy has been very active. He spearheads all of the Florida acquisitions for us and Rudy you want to.

Sure. We have institutions that our Board has agreed. We have interested and of course you have to wait until those processes until the potential seller is ready. We've participated in various stages of a process for four institutions year-to-date candidly and in all cases we took to a level where we could express by indicative bid our interest 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 to quality of the business, ability to retain team in the markets that they serve. So we fortunately again Valley has earned the ability to be invited to processes. In addition to that is I think Jerry was indicating I spent a little bit of time in my car around the state calling on what tend to be largest 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 institution. So that would be I guess what I would add to Jerry's comments.

Great. Thanks for all the color.

And the next question is from Brody Preston at Piper Jaffray. Please go ahead.

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

Will you please speak up a little bit. I have 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 far as loan growth is concerned to any one market. It's wherever we can get the best loans that's where we're going to be making them. We hear from the regulators that they are not happy with some of the cap rates they had 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'll find a party will come in here and say well it's a 50% loan-to-value, but they're using every what we consider a ridiculous cap rate when we put a realistic cap rate on it and 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're 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 debt service coverage that is realistic estate and that when rates go up, we're 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 one of the things that we avoid doing that some of our competitors do was we really restrict interest-only situations. We understand obviously if someone is purchasing an apartment house, they want to stabilize it and they need interest-only for a period of six months or a year or 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 a 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 the 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 and I've said many times it's return of the capital, not the return on the capital that matters.

Okay. 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?

Yeah basically we do this once a year. We go back and we look at how long it takes from the time when a loan first starts to exhibit a problem until the time it gets charged-off. As a result of the economy that we're 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're 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.

Okay. Great. And then last one from me. I know you said that absent a rate hike, you would expect about two 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 examined. If we're 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 moving.

Thank you very much guys.

You're welcome.

[Operator Instructions] And our next question is from Collyn Gilbert from KBW. Please go ahead.

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.

That's the number we expect to stabilize it.

Okay. But then I guess that would suggest a much lower expense number then in the fourth quarter of '16 to get to that $455 million.

It's better than the annual run rate going forward.

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

You can't take the core stages that we didn't get in the first and second and assume that that brings everything down much lower. No, what we're talking about is a ballpark $450 million odd 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.

Hey Collyn, this is Alan. I think a lot of it is really has to do with the market competition on the consumer side and we're seeing enhanced rates on some of the CD products. We're seeing all the more market competition on the market base retail products and that being said, we have a very large commercial base of deposit within our organization, largely tied to compensating balances which is a positive for us I think as there maybe surged deposits in other organizations. We don't have any here back to the level as to what they may be in other banks. It's definitely a smaller number. We're looking at other forms of funding sources whether it be brokered CDs, wholesale funding opportunities that we have but which I look at more holistically as to what opportunities we have to make sure that we can manage the overall funding cost down.

Okay. 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 function of the CRE base that yes, I think 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're 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 that there's a lot of caution in the marketplace with an election coming up for the Presidency in 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're certainly not budgeting for a big surge, although we have been sending more and more lenders out into the field looking for opportunities, but it's interesting. A, we have a higher percentage of C&I to total borrowing in Florida than we do up North, which was might be 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 were about $150 million of indirect auto and I think as Jerry mentioned on the indirect, 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 and until we're able to get a number that not only provides increased volume, but increased profitability then we're going to still continue to assess that portfolio and make sense -- and make sure that it makes sense with our cost of capital and that knowing that it's a revenue line that we can be comfortable with as we move forward.

Okay. That's helpful. All right. Thanks, guys.

All right. Thanks Collyn.

And there are no further questions.

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