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Bancorp Inc  (NASDAQ:TBBK)
Q1 2019 Earnings Call
April 26, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Bancorp First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host Mr. Andres Viroslav. Sir, you may begin.

Andres Viroslav -- Investor Relations

Thank you, Bridget. Good morning and thank you for joining us today for the Bancorp's first quarter 2019 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 PM Eastern Time today. The dial-in for the replay is 855-859-2056 with a confirmation code of 1496107.

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 results of any revisions to the 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 The Bancorp's Chief Executive Officer, Damian Kozlowski. Damian?

Damian Kozlowski -- Chief Executive Officer and President

Thank you, Andres. Good morning and thank you for joining us today. For the first quarter of 2019, The Bancorp earned $0.32 a share on revenue of $64 million and expenses of $39 million. Per share earnings grew 27% over the first quarter of 2018 reflecting an increase in revenue of 9%, while expenses remained approximately flat. Net interest income improved to $34 million from $30 million year-over-year. Reflecting this increase the net interest margin improved to 3.41% from 3.12% year-over-year and 3.32% quarter-over-quarter. Annualized ROE for the quarter was 17.3%, while the Tier 1 leverage ratio was maintained at approximately 10%.

In 2018, we sold our Safe Harbor IRA business that generated approximately $1.5 million in fees in the first quarter of 2018. Excluding that impact, revenue was up 12% year-over-year with non-interest income climbing 10%. Non-interest income reflected a significant improvement year-over-year GDV growth from our payments business. Year-over-year GDV grew 26% and prepaid fees increased 13%. Volume increases came not only from our prepaid and debit programs, but also our Rapid Funds push to card partners. ACH card and other payment processing fees increased 36% to $2.3 million reflecting rapid funds growth.

In addition, net interest income growth was led by our CRE securitization business, for which average quarterly balances grew 51% year-over-year. Our non-purpose securities lending activities and SBA period-end balances grew 4% and 16% year-over-year respectively and also contributed significantly to net interest income growth. We also realized an approximate $11 million gain on a first quarter securitization of approximately $518 million of CRE floating rate assets. This was our largest securitization to date and the significant gain was driven by better deal economics due to size offsetting some deterioration in market spreads.

Looking forward, our strategic agenda for 2019 encompasses nine items that should further position our institution for revenue growth and profitability. Most of the initiatives focus on new products or the reengineering of our platform to be best in class and highly efficient. Our other strategic initiatives include finishing our remediation process with our regulators and building a stronger community with all our Bancorp partners. Impact from these initiatives should mostly be felt in increased revenue growth, as expenses remain rigorously managed, while reengineering has improved productivity and reduced unit costs in many areas.

I now turn the call over to Paul Frenkiel, our CFO, who will detail more about the first quarter.

Paul Frenkiel -- Executive Vice President, Chief Financial Officer and Secretary

Thank you, Damian. A 27% increase in year-over-year net income to $17.9 million from $14.1 million reflected an increase of $3.9 million in net interest income. The increase reflected continuing growth in Bancorp's largest lending line -- lending lines including CRE loans originated for securitization. Average CRE loan balances, which peak in the quarter they are securitized increased approximately $184 million or 51% to $546 million.

As a result of the related increase in originations, Bancorp securitized $518 million of loans in Q1 2019 compared to $304 million in Q1 2018. The 2019 securitization gains were approximately $11 million were slightly exceeded in 2018 as a result of higher spreads at that time. Growth in other lending lines reflected respective 4% and 16% increases over prior year balances for SBLOC and SBA loans.

The $3.9 million or 13% increase in net interest income to $34 million reflected an increase in interest income on commercial real estate loans for securitization of $3.3 million to $8.6 million. Interest on SBLOCs increased $2.2 million to $8.6 million and interest on SBA loans increased $1.4 million to $6.6 million.

We anticipate that second quarter 2019 will show a decrease in CRE interest income as securitized loans are replaced with new originations for the next securitization. That securitization is planned for September 2019. In addition for loan growth, the increase in net interest income reflected the impact of the Federal Reserve rate increases in 2018, approximately -- approximate yields on the loan portfolios were 4.4% for SBLOC, 5.6% for SBA and 6.3% for leasing, while the yields on CRE loans originated for securitization has recently approximated 5.9% that yield varies with market spreads and timing of securitizations. These lines of businesses -- these lines of business have historically had low charge offs.

Overall cost of funds increased 46 basis points to 98 basis points in Q1 2019 compared to 52 basis points in Q1 2018 and 87 basis points in Q4 2018. The increase reflected the impact of the Federal Reserve's 2018 rate increases. Prepaid card deposit accounts are our largest funding source and should continue to adjust only a portion of future increases in market rates.

The net interest margin was 3.41% for the quarter compared to 3.12% in Q1 2018 and 3.32% for fourth quarter 2018. Compared to Q1 2018, the yield on interest earning assets and continuing operations increased 74 basis points while as noted the cost of funds increased 46 basis points. Prepaid card accounts, our largest funding source are also the primary driver of non-interest income. Fee income on prepaid cards was $16.2 million in Q1 2019 compared to $14.3 million in Q1 2018. Card payment and ACH processing fees include rapid funds revenue and increased 36% to $2.3 million.

Non-interest expense for first quarter 2019 was $39.2 million, which approximated first quarter 2018. Salary expense was $2.8 million higher during the quarter and reflected higher BSA in compliance, commercial real estate, institutional and incentive compensation expense compared to Q1 2018. That increase was largely offset by reductions in legal, data processing, and other expenses.

Our goal for 2019 is to keep non-interest expense relatively flat to current levels and below $40 million per quarter. Additional expense reduction opportunities in other categories continue to be pursued, book value per share increased to $7.70 primarily reflecting the $0.32 of earnings per share and the increased value of investment securities resulting from lower longer term market interest rates. The consolidated leverage ratio was maintained at approximately 10% notwithstanding seasonal balance sheet increases from first quarter tax refund and gift card balances. Our increased capital provides a solid base from which to conduct our operations and take advantage of opportunities in our lending and payment space.

Our goal for 2019 is to significantly increase loan balances over 2018 levels through initiatives, which are specific to each lending line. Our goal for payments revenue is to achieve at least mid single digit growth. The overall goal for 2019 non-interest expense is to keep those expenses in total relatively flat. The combination of flat non-interest expense, higher loan interest from lending lines with historically low losses and growing payments revenue will be key in achieving our return on asset goals.

Our short term return on asset goal is 1.2% with a multi-year objective of 1.75% as presented on Bancorp's website. Q1 2019 return on assets was 1.65% reflecting the impact of CRE loans originated for securitization. Their impact on net interest income and non-interest income is greatest in the quarter. These loans are securitized as average balances peak and any gains are recognized. These securitizations have occurred in the first and third quarters of the year with the next securitization planned for September 2019.

That concludes my comments, and I will turn the call back to Damian for questions.

Damian Kozlowski -- Chief Executive Officer and President

Okay. Thanks a lot, Paul. Operator, could you open the line for questions?

Questions and Answers:

Operator

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

Frank Schiraldi -- Sandler O'Neill -- Analyst

Good morning.

Damian Kozlowski -- Chief Executive Officer and President

Good morning, Frank.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Just want to ask about the -- couple of things, first on the Rapid Funds product, obviously, very strong growth year-over-year. Is that more seasonal in nature or have we just reached sort of a level where, kind of a more mature level of, with the current partners you have in terms of revenue?

Damian Kozlowski -- Chief Executive Officer and President

Yeah, we do have one new partner but the indirect Rapid Funds product really can only be done by very large institutions that can't integrate into networks -- the credit card networks, but the big news for that is direct Rapid Funds, which I've noted before which we're building out and should have this -- we don't know what that impact will be, but that market is many multiples the size and that's when we are the -- with a partner, we are the people integrating to the network.

And so we, right now, have beta test going on. We think that's going to be a significant growing product set for us that will far in surpass what we do with on the indirect, but we don't have any guidance yet. We're still in the -- we're trying to get five use cases. We have four partners now. We have beta testing going on. And we think that will -- we don't have any guidance for it, but we think that will be increased growth in that area. But the indirect is correct.

You're seeing now that we have several big partners, you're having normal growth from them instead of explosive growth we've experienced two years ago. We have one additional partner that we've added. So you'll see growth, but you won't see it, you know, 5000% because it's off a much larger base. But once again that's just the drop in a -- that's one drop in a very large bucket for the Rapid Funds product once you go to the direct side.

Frank Schiraldi -- Sandler O'Neill -- Analyst

And for that business do you guys have the barrier to entry of Durbin, I mean, is it based on interchange rates, the direct transfer?

Damian Kozlowski -- Chief Executive Officer and President

No, it's not.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Okay.

Damian Kozlowski -- Chief Executive Officer and President

It's a push. It's literally a product that was developed really by the networks themselves, where the use case was just not accepted until very recently two years ago. But it was -- it existed for multiple years at places like MasterCard. But it wasn't -- these push to cards weren't accepted by the banking institutions. So now this is more of a standard product. So there isn't a barrier to entry, but obviously as a first mover in the space and having the largest partners, there really is a value in that, as people add -- people don't want to experiment with somebody. Obviously if someone is going to join push to card, they're going to want people with experience who understand how to do that. So it's the direct side though that has a real large potential for the future.

Frank Schiraldi -- Sandler O'Neill -- Analyst

And that's more of a -- in terms of revenues more of a 2020 or is that a 2019 story?

Damian Kozlowski -- Chief Executive Officer and President

I think we'll start seeing some of that revenue. I just really don't have guidance. I think we'll see some of that revenue at the end of 2019, but that's more of a '20. I think we'll have more guidance in 2019 about it at the end of the year once we develop all the use cases and we'll understand better the pricing. The pricing is much higher on the direct side because we really control, the disbursements can be very, very large. If you're looking at a Venmo product fee, the push to card might be $5. But with disbursements -- corporate disbursements and stuff you could be paying $1 million bill, $10,000 bill. So the pricing of these transactions are very different. And so, we -- once again that's a great, we don't have an outlook but we have a lot of encouragement that this will be a good source of revenue for the future.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Okay, good. And then do you guys have handy the expenses that were tied to the securitization in terms of the variable comp?

Damian Kozlowski -- Chief Executive Officer and President

Yeah, so we -- it depends on -- we have a formula and we've said this before based on two parts of these transactions. It's a market base spread based on the loans we hold. But then there is a calculation that we do. It's a subjective calculation. It's quantitative, but it's within our discretion and it's based on the gain. And we accrue fully for that as we go through the year. So we put in approximately -- relating to that, we put about $3 million additionally into our bonus accrual for the first quarter.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Okay. But that $3 million -- OK, so that $3 million was expensed in the first quarter or it will go through the year?

Damian Kozlowski -- Chief Executive Officer and President

No, it was -- we have in a bonus accrual that runs the entire year. But we put $3 million extra into the bonus accrual related to the securitization activities in the first quarter.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Got you. Okay. And then -- then just finally, I know there can be some disconnect. There seem like a pretty -- a really big disconnect this quarter between GD -- gross dollar volume growth year-over-year and prepaid card growth year-over-year. So is there any, sort of color you can give on that front and just given the how outsized the differences were?

Damian Kozlowski -- Chief Executive Officer and President

Well, we had -- we also had good growth in the -- we're getting a lot of growth. So even in -- I could give you some insight for the first 20 days of April even we're still having 20-plus percent growth. So fees are very bumpy. So it's very good that the GDP is growing. But it depends on which programs at what times, and there's not only interchange fees, there's things like incentive fees that get paid, some of those might go over a quarter because they have to be trued up, we try to accrue for but that's not always the case.

So once again, our guidance is that this market, if you look at the market in aggregate, it's growing -- the prepaid market is growing around 11%, 12% in total use. And fees, we think long term is still in the 7% to 9% range. So we're getting an outsized portion of that right now. And to be honest, our pipeline right now is probably from what my team is telling me, we've got the strongest pipeline we've had in the last five years.

So what you're seeing is really what's happening. There's only a few large prepaid players, three dominate the market. You've got a lot of program -- new programs coming on or people who want to develop these type of either debit or prepaid card products and they're going to a few providers, so some of those providers including ourselves are getting the majority of the volume. And that's what we had said before, but as a market we may get, if we're competitively advantaged obviously, we might get more of that market volume. We think we will, but the market is growing around 11%, 12% a year.

And if you look at sources like Nilson that'll be validated by what their statistics are for the marketplace.

Frank Schiraldi -- Sandler O'Neill -- Analyst

All right. Great. Thank you for all the color.

Damian Kozlowski -- Chief Executive Officer and President

Okay, thank you.

Operator

And our next question comes from the line of Matthew Breese with Piper Jaffray. Your line is open.

Matthew Breese -- Piper Jaffray -- Analyst

Good morning.

Damian Kozlowski -- Chief Executive Officer and President

Good morning, Matt.

Matthew Breese -- Piper Jaffray -- Analyst

I just wanted to get a little bit of color around the positive flows this quarter. You know in the last couple of years, we've seen the first quarter actually be a down year for your deposits. This year it was up quite a bit. And so, I just wanted to get some insight as to how the seasonal aspects of your deposit flows are or might be changing?

Damian Kozlowski -- Chief Executive Officer and President

Yeah, well the first quarter is usually the quarter where we get significant gift card and then tax related deposit flows. So I'm not sure that -- that usually our balance sheet balloons a bit with deposits and they go out of the bank during the latter part of the quarter and then in the second quarter, OK. This year because of the GDV growth, we had a lot of deposit growth. It's that simple. And so, that was great because, we lost $400 million of Safe Harbor deposits and we were growing our securitization business $300 million.

So we had a $700 million deposit funding gap that we were, you know, we -- the reason that in some cases, we didn't grow some of our lending businesses aggressively if you look at our average assets is because we had that funding gap and we wanted -- we've managed the bank in aggregate and we didn't want to balloon certain businesses. The good thing is things like SBLOC, we could take the throttle off a bit through the integration process of the Talea platform. So you'll see huge growth I think, you know, double digit growth over the next year and the SBLOC business probably 20% or more. But we couldn't really add all those assets at once. So that's kind of the color around that.

Matthew Breese -- Piper Jaffray -- Analyst

Yeah. And I was looking at period-end deposits not average balances.

Damian Kozlowski -- Chief Executive Officer and President

Yeah.

Matthew Breese -- Piper Jaffray -- Analyst

The other question I had was just on the securitization, I understand the next one is in September, but as we think about the balances held for sale, it's quite a bit higher than you usually do post a securitization. And the most recent one you noted was the largest one you've had to date. So just wanted to get a sense for the trend in size of super securitizations and with that, should we expect more robust fees as it seems like these things are getting larger.

Damian Kozlowski -- Chief Executive Officer and President

So what's happened in the market place, first of all, our securitizations were not at the right size. So when we started this business, our capital base was much lower as you know, we've had a lot of good capital accretion events earnings plus the sale of the Safe Harbor. So we really -- we want to be in that market is above 600, but more like 700 or 800 because of institutional investors and rating agencies like a lot of deals, right. And they like them put in and they like diversity. And so, our decision in the latter part of 2018 was to now that we had more capital was to get to the size that's necessary to run that business correctly. So our average balances will be double -- up to double they were in 2018 and 2019.

In fact, giving you some guidance in April, we already sit on $300-plus million of floating rate loans in April already because we had $90 million of loans that weren't quite ready to go into the securitization in the first quarter. So it was that 518, but we were targeting 6. We just didn't close them in time. So those sit on our balance sheet with those other loans, so it will be much higher. We're targeting for the second securitization at least 6 and hopefully $700 million, which we think is the sweet spot in the market.

As for the gain, that's a lot to do with how market spreads behave. Now, we had a very outsized gain in the first quarter of 2018 based on market movements. We did not expect and 2019 even with the larger size. But we did get very good levels from the rating agencies because of the deal economics that was somewhat offset by spreads compression.

Matthew Breese -- Piper Jaffray -- Analyst

Okay. So in other words, you're telling me, there's other dynamics here and size does not correlate. The size and securitization does not correlate to the size of the fee?

Damian Kozlowski -- Chief Executive Officer and President

Well, everything, if you had -- obviously if it's 600 versus 300, it does, but the fees move around based on a whole bunch of dynamics including market spreads, levels set by regular -- except (ph) by rating agencies. And then what people purchase our bonds for depending on market conditions. So all those things get fed into that model, which values the security that we hold on our balance sheet, which creates that fee. So the guidance for -- a good guidance for the third quarter, once again is the guidance we gave you for the first quarter, we think it will be around $7 million, $8 million, potentially $9 million for the third quarter, but it could be less and it could be more depending on how the market moves.

Matthew Breese -- Piper Jaffray -- Analyst

Understood. Okay. Last question. Just around the margin trajectory or the change in margin trajectory given the change in stance from the Fed. Your bank is quite asset sensitive. Does the pace of margin expansion change with the change in Fed stance here?

Damian Kozlowski -- Chief Executive Officer and President

Well, we still -- we have the opposite, you know, banks who have -- we're kind of an opposite bank, so that we have the interest rates for our deposits reprice immediately and then our assets reprice in the future. You usually have the opposite happen where you can lag the deposit rates. So you'll see a continued spread NIM expansion over this year as the lag occurs and we do more of the CRE securitization loans. So I believe that you'll see that go through 350. We had talked about this last year, we did a little bit better than we thought we were going to do.

And I know that the analysts on the phone also predicted a lower NIM for us and we -- but we did too. But we've got some good conditions for -- and we're seeing repricing in our loan portfolio. So you'll see a drift up, if there's no interest rates by the Fed hikes and that should go through 350 throughout the year and hopefully you'll settle above the market average, I think we're about at the NIM average for the banking industry and I think we'll be above it, which is historic for this bank because we've traditionally been much lower than it.

Matthew Breese -- Piper Jaffray -- Analyst

Understood. Okay. That's all I had. Thanks for taking my questions.

Damian Kozlowski -- Chief Executive Officer and President

Thank you, Matt.

Operator

And our next question comes from the line of William Wallace with Raymond James. Your line is open.

William Wallace -- Raymond James -- Analyst

Thanks. Good morning, guys.

Damian Kozlowski -- Chief Executive Officer and President

Good morning. How's everything?

William Wallace -- Raymond James -- Analyst

Very good. Thank you. Quick follow-up on the securitization. Paul, you said in the prepared remarks, but I couldn't write fast enough. What was the interest income on the loans that were sold in the quarter for the yield or however you...

Paul Frenkiel -- Executive Vice President, Chief Financial Officer and Secretary

Wally in total, in total the CRE loans, the increase over the last year was $3.3 million,

Damian Kozlowski -- Chief Executive Officer and President

It's $10.5 million. It was around $10.5 million, wasn't it?

Paul Frenkiel -- Executive Vice President, Chief Financial Officer and Secretary

No. He's asking about the interest. Not the gain.

Damian Kozlowski -- Chief Executive Officer and President

No. no, (inaudible) we had 2.5, did we actually give that number up?

William Wallace -- Raymond James -- Analyst

I think you gave the yield.

Paul Frenkiel -- Executive Vice President, Chief Financial Officer and Secretary

I gave the yield and if you look at -- also I mentioned the interest, the increase in interest on each of the loan segments...

Damian Kozlowski -- Chief Executive Officer and President

$8.6 million.

Paul Frenkiel -- Executive Vice President, Chief Financial Officer and Secretary

Yeah. It was...

Damian Kozlowski -- Chief Executive Officer and President

It's about $8.6 million, Wally.

William Wallace -- Raymond James -- Analyst

Okay. Okay.

Damian Kozlowski -- Chief Executive Officer and President

For the interest part. And then the gain was about $10 million.

Paul Frenkiel -- Executive Vice President, Chief Financial Officer and Secretary

$11 million.

Damian Kozlowski -- Chief Executive Officer and President

$11 million.

William Wallace -- Raymond James -- Analyst

And then if -- with -- you're talking about how when you securitize these, the fees are going to vary depending on a bunch of different stuff. Does the variable comp associated with that also vary based on whatever the fees are that you collect.

Damian Kozlowski -- Chief Executive Officer and President

Yes.

William Wallace -- Raymond James -- Analyst

Okay.

Damian Kozlowski -- Chief Executive Officer and President

So, but I think a good estimate to put in is kind of what our guidance was (inaudible) maybe a little bit higher than that but we keep on saying this, we've been surprised in the positive side for the last four securitizations. So I guess, we're going to be surprised negative at some point, but the deal -- are -- we still have an advantage in the way we issue our securities. They've been very well received in the market and we had five in the last go around for our securities there, we had five tightenings with our partners who bought the bonds. So the spread came in substantially and which really increased our gain. So our bonds are being very well received by the investors who buy them.

William Wallace -- Raymond James -- Analyst

Yeah, that's certainly -- that's great. So in the prepared remarks, you talked about a goal for keeping expenses flat from where they were in the first quarter, but shouldn't they come down by the $3 million and whatever you said the $3 million -- the $3 million that you had for the additional bonus accrual associated with the loan sales. And then they'll jump back up in the third quarter when you do the next one, and then come back down for maybe $3 million less, not flat to $39 million.

Damian Kozlowski -- Chief Executive Officer and President

On a run rate basis, yes. However, we've got a bunch of initiatives supporting new product sets that we're building and reengineering that we're doing, so it may not be a one-to-one but you're correct when you said that.

William Wallace -- Raymond James -- Analyst

Okay. So it will be somewhat...

Damian Kozlowski -- Chief Executive Officer and President

It should be on a run rate basis our expenses were -- were more like $37 million than they were $40 million or $36 million if you look at the run rate expenses on the continuing side.

William Wallace -- Raymond James -- Analyst

Okay. Right. But you continue to invest in the franchise?

Damian Kozlowski -- Chief Executive Officer and President

Yeah, and we got a lot going on here because we're trying to build out -- we're finishing our remediations, we're totally restructuring our payments business to look at what the market should be in five years. We're building out new products in SBLOC, we have an IBLOC product now based on insurance backed loans. We're creating a card for the SBLOC product much like a debit card that will be based on the collateral held in IBLOCs. There's just a lot of investment going into the business. And now that we have the capital and the people to do it and running through the remediation, there is a lot of growth opportunities out there for us and we don't want to -- we could harvest, but we really want to plant right now. So we might spend a few million dollars really planting new seeds.

William Wallace -- Raymond James -- Analyst

Understood. Damian, you said something about being able to take your foot off the gas on the SBLOC and then you think that with the implementation of Talea that you can -- a 20% growth in SBLOC loans, is that -- it was a two different things?

Damian Kozlowski -- Chief Executive Officer and President

Yes, we're targeting double digit growth in the SBLOC products. Talea has...

William Wallace -- Raymond James -- Analyst

(inaudible)

Damian Kozlowski -- Chief Executive Officer and President

This year. So you'll see balances go up I think pretty aggressively during the year and that we have a great pipeline. If you think about the bank as a whole though, we did when we saw, we had a softer quarter in the fourth quarter and that's partly year-over-year because we lost those fees and deposits. We've already -- we were worried about not having. We didn't want to borrow a lot of money to grow our businesses at the wrong time. We look at the bank as an aggregate.

And so if you take that SBLOC deposits we lost and you take the fact that we needed to get our average assets up in the securitization business, we timed the investment in new sales force and everything to go with Talea to really start being realized in the second quarter of 2019 not the first quarter because of the liquidity issues. And it worked out very, very well. So I think we've got the right pipeline right now to grow the business and high teens 20% plus for the next year. We have very aggressive plans, new product sets going into the SBLOC platform. So we think it's going to be -- this is once again this is, our opinion but we think we're going to show good growth in that business over the next year. Well over next three years, but we'll see -- make that claim next year and it won't be as believable. But I think we really -- we'll see balances start to go up nicely.

William Wallace -- Raymond James -- Analyst

Okay. And then on the provision expense, looks like you guys built your reserve relatively meaningfully, do anything drive that decision. I don't see any -- what was the...

Damian Kozlowski -- Chief Executive Officer and President

Yes. Unfortunately we're still dealing with a couple of little issues from the past. In 2015 and early 2016, a lot of our SBA business was franchise lending to small franchises. So, they are franchise -- though we have a guarantee, the problem is that, when you take some of these franchises back, you get basically a meat slice or a (inaudible) share and we don't do these now. But we had to, once you -- it's in the seasons part of the portfolio. So we adjust there were some loss factors that had to be adjusted. That's why you've got that extra bit. We probably won't have that again in the next couple of quarters. But we had to adjust those loss factors to account for higher losses in that franchise lending, which we don't do anymore. But I don't think it will be a long term impact to our reserve.

William Wallace -- Raymond James -- Analyst

How big is -- what's the balance of those franchise once on the books?

Damian Kozlowski -- Chief Executive Officer and President

It's not high, I think date (ph) and this is -- I think it's around $70 million. But most of them are good. We're talking about certain types of franchises and stuff, so, we made the proper adjustments, I don't make those adjustments myself. I'm one of those people who approve those, the reserves. But I let our modelers have great independence with our auditors and stuff in setting our reserve correctly. And so, when they believe that's the lost norms have changed and regardless whether it's a increasing or decreasing part of the portfolio, I am a very conservative person, as you know, when it comes to credit risk.

William Wallace -- Raymond James -- Analyst

Okay. Thank you. Any updates on the Florida mall property and I believe there was the lawsuit around the Fort Lauderdale Hotel?

Damian Kozlowski -- Chief Executive Officer and President

Yeah, well that -- yeah, well there was a -- we really believe there won't be anything coming out of the Florida Hotel thing. That was -- that's got to do with the EB5 money, which we're not -- it's not our -- we didn't take the money. The money was taken by the sponsors, we believe there's no basis whatsoever, legal basis to claim that we would owe anybody any money in that area. So we don't think that's an impact at all.

The mall is in negotiations. We believe we have a path now. It includes the -- remember the mall has a ground lease, and so it's all -- there is four parties involved trying to get this thing done. But it includes the ground lease. That was the sticking point, before was, people own the ground lease, didn't want to sell it or didn't have a price in mind of how they would sell it. We believe that's been solved. So we think we have a path over the next six months to sell the mall without any investment from ours at par.

William Wallace -- Raymond James -- Analyst

Okay. And when you say par, are you talking about the par -- the new par that you're carrying into that at today, right?

Damian Kozlowski -- Chief Executive Officer and President

Correct. It's an OREO, so whatever the value of OREO is, we think we'll get that back right now.

William Wallace -- Raymond James -- Analyst

Okay.

Damian Kozlowski -- Chief Executive Officer and President

And the mall is still income producing even though -- might be the only mall in America income producing, but it's still income producing, so it's not a drag on us. So we should -- we'll continue to run it and hopefully we'll be able to -- I think the property is a massive property that really should be developed by somebody who really understands the market. I think there's real value there. Somebody can get the ground lease plus our property, I think they've got a great deal and they could have quite a -- quite of a -- quite a good project. But getting all these disparate parties together with the ground lease and terminating that ground lease is always a tough thing to do in a real estate transaction.

William Wallace -- Raymond James -- Analyst

Yeah. All right. Damian. I think I might be last, so I'll just ask a question, if you could update on the order, where you stand, where you feel like you stand, any kind of updates that you can provide us around the orders?

Damian Kozlowski -- Chief Executive Officer and President

Okay. So we have made, I would say and I don't think I'm disclosing anything the regulators would disagree with, great progress in building a best in class BSA capability and an appropriate and best in -- future best in class consumer class compliance capability. The BSA center of excellence that we developed here in Wilmington, I believe it's been extremely well received.

There is a few things we need to finish up on. We had some conversions and stuff, we still need to finish and certain areas, where we have to -- we're talking about, I would say and this is a pure estimate, we're talking about, of the total sum of the universe that needed to get done, converted, changed, we're down to the last 3% or 5% of things we need to get done. I think that's been recognized by our partners and that we have a clear path over the next year to be removed from the order on the BSA side.

William Wallace -- Raymond James -- Analyst

Thank you very much for that update. I'll hop out.

Operator

Thank you. And I'm not showing any further questions, so I'll now turn the call back over to Mr. Damian Kozlowski for closing remarks.

Damian Kozlowski -- Chief Executive Officer and President

Okay. Thank you everyone for joining us today. Have a good weekend. Thank you operator.

Operator

You are welcome. Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone have a great day.

Duration: 39 minutes

Call participants:

Andres Viroslav -- Investor Relations

Damian Kozlowski -- Chief Executive Officer and President

Paul Frenkiel -- Executive Vice President, Chief Financial Officer and Secretary

Frank Schiraldi -- Sandler O'Neill -- Analyst

Matthew Breese -- Piper Jaffray -- Analyst

William Wallace -- Raymond James -- Analyst

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