Axos Financial Inc (AX) 2009 Q4 法說會逐字稿

Good afternoon, and welcome to the BofI Holdings conference call and for the fourth quarter and fiscal year ended June 30, 2009. With us today are BofI CEO, Gregory Garrabrants and CFO, Andrew Micheletti.

This call will have the following format. Mr. Garrabrants will provide an overview of the highlights for the quarter and for the fiscal year. He will then turn the call over to Mr. Micheletti, who will provide a more detailed discussion of BofI's financial results. Finally, Mr. Garrabrants will make some closing remarks and open the call up to any questions you may have.

Before I turn the call over to them, please remember that in this call management's remarks contain forward-looking statements which are subject to risks and uncertainties, and that management may make additional forward-looking statements in response to your questions. Therefore, the Company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

These statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today, including risks and uncertainties related to the economic environment, particularly in the market areas in which the BofI operates; competitor products and pricing; fiscal and monetary policies of the U.S. government; changes in government regulations affecting financial institutions, including regulatory fees and capital requirements; changes in prevailing interest rates; risks associated with the conduct of the Company's business over the Internet; credit risk management; asset liability management; the financial and securities markets; and the availability and costs associated with portions of liquidity.

Examples of forward-looking statements include statements related to BofI's anticipated or projected asset size, net interest income, net interest margin, projections of future delinquencies and impairment charges, loan originations, deposits, and performance ratios, like efficiency and return on equity.

We would like to encourage all our listeners to review a more detailed discussion of the risks and uncertainties related to these forward-looking statements that is contained in the Company's filings with the Securities and Exchange Commission. Any forward-looking statements as to the Company's future financial performance represents management's estimates as of September 1, 2009. BofI assumes no obligation to update these forward-looking statements in the future due to change in the market conditions or otherwise.

With these cautionary statements -- with those cautionary statements, it is my pleasure to turn the call over to BofI's CEO, Gregory Garrabrants.

Thank you. I would like to welcome everyone to BofI Holdings' fourth-quarter conference call and I thank you for your interest in Bank of Internet USA.

I'm pleased to report that BofI achieved record earnings for both its quarter and for its fiscal year ended June 30, 2009. For the eighth consecutive year, BofI increased its annual earnings, reaching $7,142,000 for the year ended June 30, 2009, up 70.2% over the year ended June 30, 2008.

Earnings attributable to BofI's common stockholders were $6,453,000, or $0.78 per diluted share, up from $3,884,000, or $0.46, for the year ended June 30, 2008. Fiscal 2009 diluted earnings per share increased 69.6% over last year.

Net income for the fourth quarter increased to $3,604,000, up 102.5% compared to the $1,780,000 earned in the fourth quarter of fiscal 2008 and up 38.9% compared to the $2,594,000 earned in its last quarter ended March 31, 2009.

Earnings attributable to BofI's common stockholders for the fourth quarter of fiscal 2009 were $3,431,000, up from the $1.7 million earned in the fourth quarter of fiscal 2008 and up 41.7% compared to the $2,421,000 earned in the last quarter ended March 31, 2009.

Diluted earnings per share for the fourth quarter of fiscal 2009 were $0.41 per share, up 105% from the $0.20 per share earned in the fourth quarter of fiscal 2008 and up 36.7% compared to the $0.30 per share earned in the last quarter ended March 31, 2009.

Our record fourth-quarter earnings were driven primarily by significant improvement in our net interest margin, which grew to 3.62%, up 80 basis points, or 28.4%, from the 2.82% at the end of the third quarter and up 120 basis points from the 2.42% at the end of the fourth quarter of fiscal 2008.

Our improved margin and strong cost control enabled us to reduce our efficiency ratio to 34.5% from 36.4% in the prior quarter.

Our record quarterly earnings were achieved despite a reserve build to find as provisions exceeding charge-offs of $798,000 and over $600,000 of special FDIC assessment.

While dramatically increasing the core profitability of the bank in the last several quarters, we have maintained a strong focus on credit quality. We have maintained or tightened our credit standards on our pool purchases and retail originations. Our nonperforming loans were approximately $2.8 million at the end of the quarter, equal to 45 basis points of total loans, and nonperforming assets were approximately $8.5 million, equal to 65 basis points of total assets at the end of the quarter.

The majority of the $2.8 million in nonperforming loans are nine single-family mortgages and one multifamily mortgage. These $2.8 million of loans are valued on the bank's balance sheet at approximately 65% of their original appraised value.

In addition to the $2.8 million in nonperforming loans, the bank had $5.4 million in REO and $0.3 million in repossessed RVs at June 30, 2009. The REO consisted of one commercial building, two multifamily properties, and four single-family mortgages marked on the books at fair value based on recent appraisals or other third-party valuations.

Subsequent to the end of the quarter, approximately $1 million of the REOs at June 30, 2009, were sold without any additional write-downs.

The bank holds its loan portfolio at a discount of $8.4 million, roughly equal to the entire portfolio of nonperforming loans and real estate owned. Additionally, our allowance for loan loss at the end of fiscal year -- at the end of the fiscal year was 167.4% of our nonperforming loans.

With our credit quality and capital position strong, the market environment continues to be favorable for the bank's strategy of acquiring and originating assets that have strong risk return characteristics, and we foresee continued opportunity, particularly in the whole loan market.

Credit and liquidity spreads continue to be wide and are more attractive -- and more adequately priced for risk, allowing us to purchase and originate assets at attractive risk-adjusted spreads.

Other highlights in the quarter include total assets reaching 1 million 300 -- $1.302 billion at June 30, 2009, up 9% compared to the fourth quarter last year. Total deposits reaching $649 million at June 30, 2009, up 13.6% compared to the fourth quarter last year.

Our efficiency ratio improved to 34.5% this quarter, compared to 37.7% for the fourth quarter of 2008, despite the incremental FDIC assessment. Our bank's capital position at June 30, 2009, is strong with 39.7% more Tier 1 capital than the amount required to be considered well-capitalized under government regulations.

Finishing our financial highlights and moving on to some of the recent progress on our business initiatives. We have been making good progress on our retail first mortgage and multifamily origination group development. On the first-mortgage side, we are funding about 50 million first-mortgage units per month on a run rate basis for about $15 million of funding each month.

We are selling all these loans delivered on a best-efforts-flow basis to our correspondents for delivery to Fannie Mae. As this platform develops, we will begin to deliver into mandatory commitments, which should increase the profitability of this platform.

This quarter, the single-family platform added more than $798,000 in gross gains on sale, up from $528,000 last quarter. This $798,000 gain was not a run rate gain for the quarter, however, given the continued development and increased volume achieved by the platform over this quarter.

As of the last quarter, we are now up and running on our new mortgage loan origination system, which has added efficiency to our process. We implemented a new lead management tool that is allowing us to convert our Internet leads more cost-effectively.

Our funding in the first-mortgage group is exceptionally high quality. For example, this quarter the average loan-to-value ratio was 53.9%, average FICO was equal to 790, and the average DTI was 28.19%.

We've had no repurchase requests on these loan sales to date.

As we perfect our infrastructure and attain the efficiencies that are available to us in the process, including, for example, image delivery of loan files to investors, we will continue to expand this group both through our direct-to-consumer channels as well as through affiliate relationships with other organizations.

Although low interest rates make placing even high-quality conforming first-mortgage loans on the balance sheet less desirable at this time, I think it is important that the bank have retail asset generation platforms that will allow us to sustain our asset growth, even if opportunities in our wholesale banking platform recede.

We are also developing and will launch early next quarter a conservative jumbo mortgage product, focused on serving a market that continues to suffer from illiquidity.

In addition to our retail first-mortgage origination group, we are continuing to make progress on our multifamily origination group development. We recently launched our revised apartmentbank.com website and have developed relationships with several national correspondent lenders.

Our Apartment Bank website is routinely ranked as one of the top organic search results on Google for terms such as apartment loans, and we have had strong traction getting both borrowers and retail brokers to engage with the website's enhanced content and provide us leads.

As valuations normalize and credit terms return to more traditional standards, we will be placing more of our multifamily originations in our portfolio.

The challenging market environment, although improved, continues to create substantial opportunity in our wholesale business to purchase attractively priced and high credit quality whole loans and securities. We continue to have great traction in attracting deposits and believe we can continue to grow our deposits when we need to do so.

We balance our borrowings against our deposit marketing campaigns to create the lowest cost liability infrastructure for the bank.

Deposit gathering going forward will be more costly, given that the FDIC assessments have increased, but we continue to feel good about our ability to attract depositors.

In summary, we have a high-quality consumer franchise with 10-plus years of stable operating history. Our credit quality has remained strong. We are attractively valued. We have strong core profitability, excellent sources of liquidity, and our business is highly scalable, so our efficiency ratio will improve as we grow.

Now I'll turn the call over to Andy, who will provide additional details on our financial results.

Thanks, Greg. First, I want to note that in addition to our press release, financial schedules were filed with the SEC on Form 8-K today and are available online through EDGAR or through our website at BofIHolding.com.

First, I would -- I will discuss our quarterly results on a year-over-year basis, as well as this quarter ended June 30, 2009, versus the third quarter ended March 31, 2009. Then I will briefly discuss the results for the year.

For the quarter ended June 30, 2009, net income totaled $3,604,000, up 102.5% from the fourth quarter of fiscal 2008 and up 38.9% from the third quarter of fiscal 2009. Diluted earnings per share were $0.41 this quarter, up $0.21 or 105% compared to the fourth quarter of fiscal 2008 and up 36.7% compared to the third quarter of fiscal 2009.

Net interest income increased $4.3 million during the fourth quarter of 2009, compared to the fourth quarter of 2008, and it increased $2.8 million compared to the third quarter ended March 2009.

The increases in net interest income are due to both a higher net interest margin, resulting primarily from decreases in deposit rates and increases in loan and investment security rates, and due to a higher level of interest-earning assets. The net interest margin increased to 3.62%, up 120 basis points over the fourth quarter in 2008 and up 80 basis points compared to the quarter ended March 2009.

Provisions for loan loss were $1.9 million this quarter versus $1.122 million in the fourth quarter of 2008 and $1.2 million for the third quarter of fiscal 2009. The increase in our loan loss provision this quarter was primarily based upon the nationwide decline in housing values and higher unemployment, which has negatively impacted consumer credit.

Non-interest income for the fourth quarter of fiscal 2009 was a gain of $923,000, compared to a loss of $425,000 in the fourth quarter of fiscal 2008 and compared to a gain of $300,000 for the third quarter of fiscal 2009.

The increase this quarter was primarily due to the sale of $89 million of agency mortgage-backed securities for a gain of $2.8 million and mortgage banking income of $798,000, offset by an unrealized loss of $1.5 million associated with an other-than-temporary impairment on mortgage-backed securities and a fair-value adjustment of $1.4 million on our trust preferred collateralized debt.

Moving to operating expenses, our non-interest expense or operating cost for the fourth quarter of 2009 were $4,219,000, 71.2% higher than the $2,464,000 in operating costs for the quarter ended June 2008 and higher than the $3,190,000 in operating costs for the third quarter of 2009.

The increase in operating expense in the fourth quarter compared to the quarter ended June of 2008 was primarily the result of increased FDIC premiums, REO expenses and increased salary and benefits related to staffing changes in the lending business. The increase in operating expense in the fourth quarter of 2009 compared to last quarter March of 2009 was primarily the result of increased FDIC premiums and increased salaries and benefits and professional fees.

Our efficiency ratio was 34.5% this quarter, compared to 37.7% recorded in the fourth quarter of 2008 and compared to 36.4% for the third quarter of fiscal 2009. The efficiency ratio is calculated by dividing our operating expenses by the sum of our net interest income and our noninterest income. This quarter improved due to higher net interest income and higher noninterest income compared to the fourth quarter of 2008 and the third quarter of 2009.

Now turning to our annual results, as Greg mentioned net income for the year was a record $7,142,000, or $0.78 per diluted share, compared to $4,196,000, or $0.46 per diluted share, for the year ended June 30, 2008.

For fiscal 2009, net income increased 70.2% and diluted earnings per share increased 69.6% when compared to our results for fiscal 2008. The increase in net income for the 2009 fiscal year was driven by higher net interest income, partially offset by increased provisions for loan loss and increased noninterest expense or operating expenses.

Net interest income increased 102.2% in fiscal 2009 compared to fiscal 2008, due primarily to purchases of mortgage-backed securities and loans, which increased our average interest-earning assets in fiscal 2009 by 14.1%. As a result of the purchases, the average yield on investments in loans and mortgage-backed securities increased to 6.51%, up 47 basis points compared to our last year-end in June 2008.

In addition, the cost of funds for fiscal 2009 was 3.68%, down 96 basis points compared to our last year-end in June 2008. The decrease was the result of declines in market interest rates during the year, as well as a shift in our deposit mix toward checking and savings accounts and short-term borrowings. These improvements led to an overall increase in our net interest margin, which was 3.04% for fiscal 2009, up 132 basis points from the net interest margin of 1.72% posted for fiscal 2008.

Our provision for loan losses was $4,730,000 for fiscal 2009, compared to a provision of $2,226,000 for fiscal 2008. The increase in our loan loss provision year over year was primarily the result of the general decline in housing values and increased charge-offs of RV loans.

Since June 30, 2008, the bank has increased its allowance for loss on RV loans by 162% and increased its allowance for loan loss on all loans by 75%.

Our operating expenses were $12,894,000 in fiscal 2009, up $2,732,000 from fiscal 2008. Operating expense increased 26.9% compared to fiscal 2008. Approximately 33% of the increase in operating expense year over year related to the increase in the FDIC premium. Another 28% of the increase related to higher professional fees, mainly due to consultants used to build our loan programs and legal fees related to the resecuritization of our securities and our loan collection efforts.

The balance of the increase in operating expense related to salaries and benefits, some systems expense, and other general and administrative costs.

Shifting to the balance sheet, total assets increased to $1.3 billion, up 9% from total assets of $1.194 billion at June 30, 2008. The increase in total assets was the result of purchases of single-family and multifamily mortgage loans, and the purchases of agency debt and AAA non-agency mortgage-backed securities.

The asset growth since June 30, 2008, was funded by a net increase in deposits totaling $77.8 million and an increase in short-term borrowings of $24 million. For fiscal 2009, stockholders' equity increased $5.8 million, primarily due to earnings of $7.1 million and unrealized gain of $0.9 million on our available-for-sale mortgage-backed securities, offset by charges of $2.1 million for the cumulative effect adjustment of our election to adopt statement of financial accounting standards number 59 for investments in trust preferred collateral debt, and a $1 million charge from the repurchase of our common stock.

At June 30, 2009, our Tier 1 core capital ratio for the bank was 6.98% with $25.7 million of capital in excess of the well-capitalized limit.

With that summary, I'll turn it back to Greg.

Thanks, Andy. Thank you all for joining us this afternoon. That concludes our prepared remarks.

We will now move to the question-and-answer session. Operator, please open it up for questions.

(Operator Instructions). [Mitchell Sacks], Grand Slam Capital Partners.

Hey, guys, congratulations on a really, really fabulous quarter in a tough year. I've got a couple of questions. First, on the mortgage banking. Can you talk a little bit about where you see that going over the next just 12 months, I mean in terms of scale? Right now, you are running at somewhere around call a -- call it a $4 million annual number. Is that scalable from there or is that -- is it better to look at it more along that line?

No, we do think it's scalable. We have plans along our sales and product channels. I will talk about the product first.

We are spending a lot of time working on a jumbo mortgage product that's thoughtful and utilizes other collateral and assets of the potential borrowers to offset any potential risk of the loans. So, we are going to be rolling something out on the jumbo mortgage side.

Some of that may be a portfolio product -- or some of it will be a portfolio product, but other components of that will go through different correspondent relationships that we are developing on the -- for jumbo products as well as our conforming product. I think you will also see us expand that product offering over the intermediate term into FHA lending and other areas.

As those products expand, what you will also see is our ability to serve a more diverse market from a lending standpoint. Now clearly, we are always going to keep the type of credit -- high credit quality, but frankly, right now you're not really in the purchase business game unless you have a strong FHA purchase product, and obviously in a lot of California jumbo products. Although more and more homes qualify for conforming as we speak, by the day, we still have a lot of that market that is precluded from you if you don't have a strong jumbo product.

So we are absolutely going to focus on that. To some extent, we've been focusing on creating a system that would be thoughtfully cost controlled, getting our IT systems in place so we could go into a more of a replication mode and expand it. Clearly, there's also been a little bit of market timing involved with this because, despite the credit quality that we do have in our mortgages, which I ran through those numbers, the fiftyish LTVs, the 790 average FICOs, which I put up against anybody's.

There is still, obviously, representation and warranty risk associated with those loans. So I would like to make sure that we see at least some stabilization in housing prices before you're really going into some of the products that do carry a bit of higher risk, and even though FHA is ensured, there are risks associated with the execution of that.

So we're approaching it cautiously. But we do see strong upside from it and we think that, over time, it will be a good product for us from a portfolio perspective as well as a gain-on-sale perspective.

Super. Can you talk a little bit about the net interest margin? Obviously, it took a nice widening this year. Is that sustainable? Where do you see that kind of going, just assuming rates stay where they are right now?

I do think that it is roughly sustainable, and what I mean by that is you will have some movement but you will see continued increases.

I think -- we continue to have deposit product repricing which we think will be favorable to us. We obviously use our borrowing relationships in consonant with our deposit relationships to lower our cost of funds and at different times, those relationships need to be adjusted.

We are in a bit of an odd time right now in the sense that wholesale funding is cheaper than retail funding. But as we grow, I think you'll continue to see strong spreads and I think that -- it's difficult for me to predict, but I think that the 3.62% that we had in the last quarter, I think that may be under a little bit of pressure, frankly, because we -- in the last several months, we've raised a significant amount of deposits for our next phase of growth, and some of those deposits are employed, frankly, in assets that aren't highly earning.

And as we go forward and deploy those assets, you will see that spread build back up. But you are obviously going to see sustained growth and I think that's important.

I will get back in the queue. Thank you very much. Great quarter.

Hugh Miller, Sidoti & Company.

I had a question with regards to -- I guess from the deposit side. In looking -- you guys on a sequential basis had a contraction in the checking and savings accounts from roughly maybe about $12,800 to, like, $10,600, $10,700. Was wondering kind of what you guys were seeing and experiencing there, whether or not it was kind of planned in any way, and obviously you did see a rise in the timed accounts. But what's going on with the dynamics there on the deposit side?

Candidly, we had -- until the last minute, it was generally going to be -- it was generally assumed by everyone and announced that the FDIC would assess premiums on deposits.

So, chasing deposits towards the end of last year, if you think about it on an average cost basis, right, you put on deposits at the end of the quarter and you get assessed a 20-to-10 basis-point hit on those. On an annualized basis, it was a little disconcerting.

So we pulled back a lot on marketing and other items from a deposit perspective and allowed our borrowings to go up a little bit. Obviously, in retrospect, the small -- the average small bank prevailed in the sense that the premium was assessed on assets, and so that strategy which would've lowered our cost ended up not really lowering our cost.

But nevertheless, we've -- over the last month, we've mounted quite a deposit campaign, and the results have been extraordinarily good at extremely low cost, and we definitely are not down on our deposits, if you're looking at it as of right now.

So I think that really there was a bit of a strategy there, and it was a strategy designed to ensure that the deposit that came in on June 29 didn't cost us an annualized -- I don't know, what's 20 basis points divided by -- multiplied by 360 or something like that. But it's a lot.

But it didn't end up working out that way. But that was a strategy that we were pursuing.

Okay, so I could certainly see how pulling back on the advertising would -- given that you were anticipating that the adjustment was on the deposit side would make sense. I guess I'd just -- strategy alone, I guess, and that's going to account for that big of a reduction on a sequential basis in the number of checking and savings accounts?

I really don't -- candidly, I don't really see reduction that you are talking about. I'm looking at -- Andy just handed me some numbers. I don't -- I mean, there was a reduction in deposits but I don't really know what (multiple speakers)

Let me just give you an example from April to -- on a savings account side. This number of money market and savings accounts in April 2009 were 6,551 for $180 million, and then in June, it was 6,586 at $193 million. So it went up $13 million, $14 million, and account growth was only about 30.

But it's hard to -- and then, time deposits were what was down, and so, we've also mounted a new campaign -- what's the amount on our advantage savings? That's mostly from June.

The total -- the total growth (multiple speakers). I don't have total growth.

It's well over $100 million. So, I just think that -- I guess I'm honestly not seeing what you are talking about.

(Multiple speakers) been you. I mean, we did have a count -- negative count change. That is absolutely true. But I think when you look at our averages, on a per-account basis, you are really not seeing a significant change in the business.

Well, yes, one of the aspects that we did do is we did look at our checking account and found that we had customers who, frankly, had very low balances but were costly in terms of everything. From a perspective of the resources they utilized, and our account has been more focused with minimum service fees for under $5,000 of deposits and those sort of things on getting higher balance accounts. And that has, in fact, occurred. Andy, you've got some numbers on that.

Well, the total average for our checking and savings now is up to $23,900. So that's up from -- for example, at the end of last year, we were at $13,000 per new account or per account, period.

So we've really tried to get a larger account balances and a more efficient account mix, and while the numbers of accounts have declined both year over year and quarter to quarter, we are actually more happy with the mix now than we were before, and like Greg said, we've been running a very strong campaign. Those numbers are probably going to go through the roof in the next quarter. So (multiple speakers)

Frankly, the campaign was a bit too successful. In the sense that we candidly overran some of our goals a little bit and that might impact net interest margin.

So I think that -- we're looking -- what we always do is we look at our accounts, we are segmenting them, we're looking for profitable areas, we're looking for areas that are not profitable, and continually trying to adjust our product to make sure that we're getting more profitable accounts and not getting unprofitable accounts.

And there's all sorts of benefits to having accounts that are high dollar -- higher dollar volume. I'm not saying you have to have $100,000 average checking account size, but if you have a bunch of $3,000 accounts, that's not necessarily productive, either.

Yes, that makes a lot of sense. I appreciate the insight and the color there, and I certainly agree with you that trying to get rid of the lower balanced accounts that necessarily are a strain on your resources would make a lot of sense.

One other question with regards on the deposit side, obviously seeing here that the wholesale market from a CD standpoint and the yields on those are below that of the retail, but I was wondering if you guys are seeing CDs that should be maturing in the near term that you'd see a repricing benefit on that? Any type of material maturities on the horizon that could be an additional benefit to the margin?

I do think there is. We do have a sizable amount of CDs maturing over the next 12 months. Those CDs are at fairly high rates, and I do think that we're going to see some benefit associated with those.

I will say that the retail market for longer-dated CDs is suffering from a severe lack of demand, just in the sense that -- and you can say, well, it's just because they are not priced highly enough. I just think that a lot of people are very nervous about locking in yields over the longer term because I do think that there is a decent amount of inflation going on.

So, here is the exact number. Within 12 months, out of the $393 million of timed deposits, 237 -- $238 million of those deposits are maturing. So I think that you will see some benefit associated with those because many of those were, frankly, five-year CDs that were put on in times when rates were higher. So I think that's going to be a positive for us.

Yes, I would agree with you that that's great. And I guess one other question, I'll get back into queue, is just with regard to -- you made a comment about the potential benefit on the margin with regards to when you have mandatory commitments in place on the mortgage business. The resale side. I was wondering if you might be able to just quantify that a little bit or give us a sense as to what type of enhancement that might be.

Yes. I will. I will say that it has moved around a decent bit and, frankly, because of the credit quality we deliver, we have certain of our correspondents who are very aggressive in pricing on a best-efforts basis to us.

We think that probably a conservative number would be 30 basis points. But we've seen that spread -- that mandatory -- to best-efforts spread very high at 80-plus more sometimes, and then sometimes it's 50. And then, when you are -- by the time you are done with hedge costs and, frankly, some of the benefits that we get from our best-efforts basis, it may be more around the 30 area.

But we think that -- obviously, that's still pretty significant and it's all margin. So, that's -- we have a hedge service provider set up that we are happy with. We've gone through all that. So the work is done and that should -- we're going to obviously pull the trigger when we are comfortable there, but I think that will be some additional benefit.

Thank you so much for answering the questions. Great quarter.

[John Lucas], Wedbush Morgan Securities Inc..

Greg and Andy, thank you there for a wonderful report. When we consider that 80-some banks have been taken over this year and about 500 of them are reported in some type of trouble, this is a wonderful reading report.

Am I correct if we would add back in the losses on the Fannie Mae and Freddie Mac preferreds, your earnings would be around $1.35, give or take a few cents?

That's about right.

That's about right. It was worth $0.50 some odd. So yes.

One other question. I noticed there is some change here, your advances from the Federal Home Loan Board are down about $130 million and they're up about $160 million from the FRB. Is there something in -- some major change there or some reason -- ?

No, there's nothing that -- what it was, and it wasn't anything about collateral at the FHLB or concern about that or anything, what it was really more is that -- I think it's always prudent to test your liquidity sources, and as a bank we've established a large line with the Federal Reserve and -- as an emergency source of liquidity.

We drew that down in one of the auctions and simply reduced our FHLB line of credit. I would expect that -- that to change over time as well. That's not necessarily something that we're going to do on a permanent basis but it's a good test of our liquidity. It's a good test of our relationship. Make sure everything is set from a documentation collateral perspective and those sort of things.

(Operator Instructions). Joe Gladue, B. Riley & Co..

Your asset qualities continues to remain very good, but just wondering if you could give us any color on what's happening with the early-stage delinquencies, you know, 30 days to 89 days. What the trend is there or what the numbers are?

Sure. Sure. As far as the 30-day count, as of June 30, we have about one -- or 0.73% of our portfolio -- 28 loans -- that are in the 30-day to 59-day bucket. So that's one payment behind.

So as far as the trend, compared to last quarter, what that is, it's up just a little bit. We were at 70 bps last quarter, and now we are 73 bps. But actually on a loan count basis, it was actually the same number of loans, 28 loans. So, I think that that gives you some color.

Thanks, that's all I had.

(Operator Instructions). Gentlemen, we have no further questions in our queue at this time.

Thank you, everybody, for taking the time to listen to the conference call, and we will look forward to speaking with you next quarter.

Thank you, again, ladies and gentlemen. That does conclude today's conference.