Axos Financial Inc (AX) 2010 Q4 法說會逐字稿

Good afternoon, and welcome to BofI Holdings earnings conference call for the fourth quarter and fiscal year ended June 30, 2010. Just a reminder, today's call is being recorded. With us today are BofI's CEO, Gregory Garrabrants, and CFO, Andrew Micheletti.

Today's 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 then provide a more detailed discussion of BofI's financial results. Following Mr. Garrabrants will make some closing remarks and open the call 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 that management may make additional forward-looking statements in response to your question. Before 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 and may cause actual results to differ materially from those discussed today including risks and uncertainties related to, among other things -- the economic environment, particularly in the market areas in which BofI operates; competitive products and pricing; fiscal and monetary policies of the US government; changes in law and government regulations affecting financial institutions including regulatory fees and capital requirements and the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act; 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 availability of and cost associated with sources 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 such as one efficiency ratio and a return on liquidity.

We'd like to encourage all of our listeners to review a more detailed discussion of the risks and uncertainties related to those forward-looking statements that is contained in the Company's filings with the US Securities and Exchange Commission. Any forward-looking statement as to the Company's future or financial performance represents management's estimates as of August 12, 2010.

BofI assumes no obligation to update these forward-looking statements in the future due to changes in market conditions or otherwise. With those cautionary statements, it's my pleasure to turn the call over to BofI's CEO, Gregory Garrabrants. Please go ahead.

Thank you. I'd 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 its fiscal year ended June 30, 2010. For the ninth consecutive year BofI increased its annual earnings reaching $21,128,000 for the year ended June 30, 2010, up 195.8% over the year ended June 30, 2009. Earnings attributable to BofI's common stockholders were $20,517,000 or $2.22 per diluted share, up from the $6,452,000 or $0.77 per diluted share for the year ended June 30, 2009.

Fiscal 2010 diluted earnings per share increased 188.3% over last year. The increase in earnings for the year ended June 30, 2010 was the result of an increase of approximately $127 million in average balances of interest earning assets including investment securities and loans, an increase in net interest margin from 3.04% to 3.83%, and an increase in non-interest income from sales of investment securities.

Excluding the after-tax impact of gains and losses associated with our securities portfolio, net income would have been $17,618,000 for the year ended June 30, 2010, up 43.97% from the $12,237,000 of adjusted net income for fiscal 2009.

Other highlights for the year include total assets reached $1,421,000,000 at June 30, 2010, up 9.1% compared to the end of last fiscal year. Total deposits reached $978 million at June 30, 2010, up 49.3% compared to the end of last fiscal year. Our efficiency ratio improved to 29.33% this year compared to 43.46% for the last fiscal year.

Net income for the fourth quarter was $4,697,000, up 30.3% compared to the $3,604,000 earned in the fourth quarter of fiscal 2009. Earnings attributable to BofI's common stockholders for the fourth quarter fiscal 2010 were $4,605,000 or $0.44 per diluted share, up from $3,431,000 or $0.40 per diluted share.

Excluding the after tax impact of gains and losses associated with our security portfolio net income would have been $4,411,000 for the quarter ended June 30, 2010, up 22.3% year over year from the $3,606,000 of adjusted net income for the fourth quarter of fiscal 2009 and up from the $4,348,000 in adjusted net income for the last quarter ended March 31, 2010.

Our non-performing assets were $14.4 million or 1.01% of assets at the end of the fiscal year and included in $11.7 million of non-performing loans and $2.7 million of repossessed assets. Of our non-performing loans at June 30, 2010, 26% are considered troubled debt restructurings that are currently paying and will likely move back to accrual status within six months of modification.

For example, we modified a $2.2 million multi-family loan that had some issues due to storm damage starting in June. And even though the borrower has been timely on all payments, the loan is on non-accrual based upon financial reporting for troubled debt restructurings. If the borrower's payment remains timely it is likely that the $2.2 million multi-family loan will return to accrual status by the end of November.

Another group representing 37% of the Bank's non-performing loans are single-family first mortgages already written down to 52% of the original appraised value of the underlying properties. These loans are currently serviced by Countrywide.

We believe that the additional losses on these loans will not be significant, but we have been challenged by Countrywide's extremely poor servicing practices to liquidate these loans. We are directly addressing this issue with Countrywide BofA and we believe that we will be able to do a much better job liquidating these assets on our own if we can resolve the servicing issues.

Our REO of $2.7 million consists primarily of one commercial, one multi-family and seven single-family mortgages marked on the books at fair value based on recent appraisals or other third-party valuations. Currently 41% of the REO and repossessed vehicles on hand at June 30, 2010 have either been sold or are currently under contract to be sold.

Although I'm very pleased with the financial results the Company achieved this year I'm even more excited about what we've done to prepare our bank for future profitable growth. Not only did our recent equity raise of $15 million give us the capital needed to continue to grow the balance sheet, but it also gave us the confidence to truly commence development of our portfolio origination capability without concerns that we would have to limit it due to growth in capital -- due to capital constraints.

During the depths of the credit crisis with our share price below book value it was clear that allocating our scarce capital to wholesale banking operations for the purchase of whole loans and securities generated higher returns than allocating our capital to other asset origination businesses.

Although we recently closed several wholesale loan transactions and still have a robust whole loan purchase pipeline, our capital raise has allowed us to pursue all available wholesale loan purchase opportunities of appropriate credit quality and other origination opportunities as well.

Both our multi-family and single-family origination groups are originating loans that on a match funded basis are projected to provide the Bank at least 15% return on equity. To the extent the Bank takes any interest rate risk to fund these loans the returns will be higher. I believe this is a very positive development because it should allow us, if we execute strategy properly, to maintain at least a 15% return on equity as we grow.

Our multi-family group continues to grow nicely with a current committed pipeline of about $40 million. The loans are very high-quality with an average LTV of 58% and an average jet service coverage ratio of 1.55. This pipeline has been generated by less than half the number of sales people we currently have employed as of today. We've recently made a number of strong additions to our team and as of today we have 10 industry veterans who have on average approximately 15 years of experience as multi-family originators.

This team of originators is a top notch group that is really accelerating its production volume, as can be seen from our number of LOIs we're receiving. I'm very confident in the team's ability to grow our multi-family loan portfolio within our credit quality parameters. This loan product has always been the foundation of the Bank's portfolio and should continue to be so.

I discussed last quarter how we augmented our team on the jumbo mortgage side by bringing on board the head underwriter for Thornburg Mortgage's wholesale lending group and started qualifying mortgage brokers for that group. The product launch this quarter has been very well received and I'm very pleased with the credit quality of our loans.

The average LTV of the jumbo portfolio loans in the pipeline is 56% with an average credit score of 743. There are approximately $30 million of originations in the pipeline and that volume is growing rapidly every day.

Our gain on sale first mortgage origination group has begun to hit its stride this quarter. I expect it to be a meaningful contributor in the first quarter of our 2011 fiscal year by generating at least $1 million in revenue on only a slightly increased cost base over the prior quarter ended June 30, 2010. If the bank achieves this revenue goal it would represent an increase of approximately $700,000 over the prior quarter.

The increased revenue is related primarily -- and the gain on sale business is related primarily to an increased volume of assets originated which resulted from more than doubling our sales force and from the increased profitability per loan. The growth of our sales force is made possible by adding space for the mortgage bank's operation. The increase in fee income made it a more important part of the Bank's -- makes it a more important part of the Bank's overall growth.

We've also added several top-quality executives to our management team this quarter. First we added a new Chief Operating Officer, Adriaan van Zyl. Adriaan has a great background. He was a Chief Executive Officer of a Utah-based industrial bank and is a very hands-on executive. He's going to be a big part of ensuring that our infrastructure is strong as we continue to expand.

We also added a head of our multi-family origination group, Morgan Ferris. Morgan has over 15 years experience in the multi-family origination business at Commercial Capital, Washington Mutual and other lenders and allows me to step away from the development of that Group and allows him to bring the Group to the next level.

Additionally we added [Tom Constantine] as our Chief Credit Officer and Head of Regulatory Affairs. Tom was a senior examiner and a 16-year veteran of the Office of Thrift Supervision. He has also served as the Chief Credit Officer of a multi-family and commercial focused shop and in his early years worked as a loan officer.

Ensuring that we maintain our credit quality, manage risk and that we're keeping up on all the regulatory matters that continue to cascade from Washington is a very important part of our business and Tom will be a great asset to the Bank as we pursue our aggressive growth plans.

Although we made significant investments in our management team, most of this investment is showing up in our current costs. These investments are acquired to allow us to grow as rapidly as we would like in an environment where both business necessity and regulatory requirements mandate that growth only comes with appropriate controls and procedures to ensure that it can be done safely.

I'll address more one more topic before I turn the call over to Andy and then take questions after that. I receive a lot of questions regarding how regulatory reform will impact the Bank. Clearly with a greater number of rules and regulations we expect to have increased compliance costs. But there are a number of benefits as well and these benefits may be quite substantial.

There are quite a few, but let me just highlight three -- first, paying interest on business checking will be allowed sometime in the next year. This provides a significant benefit that we can offer business accounts that were previously -- that was previously available only and directly through sweep type products; second, the licensing requirement for loan officers in making a national banking platform the preferred place for loan officers; and third, the quality standards implemented related to mortgages will hopefully allow the Bank to offer a more competitive credit offering because other institutions will be forced to adhere to our higher credit quality standards.

I'll talk about that more if anyone has any questions after the call. But now I'll turn the call over to Andy who will provide detailed results of our financials.

Thanks, Greg. First I wanted 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 at our website which is BofIHolding.com. First I will discuss our quarterly results on a year-over-year basis as well as this quarter ended June 30 versus the third quarter, March 31, 2010; then I will briefly discuss the results for the year.

For the quarter ended June 30, 2010 net income totaled $4,697,000, up 30.3% from the fourth quarter of fiscal 2009. Diluted earnings were $0.44 per share this quarter, up $0.04 or 10% compared to the fourth quarter of fiscal 2009. Net income decreased compared to the third quarter ended March 31 which was $7,175,000 and included significant securities gains.

Excluding the after-tax impact of gains and losses associated with our securities portfolio, net income would have been $4,411,000 for the quarter ended June 30, 2010, up 22.3% year over year from the $3,606,000 of adjusted net income for the fourth quarter of fiscal 2009, and up from the $4,348,000 in adjusted net income for last quarter ended March 31, 2010.

Moving to net interest income. Net interest income increased $1.2 million during the fourth quarter ended June 30, 2010 compared to the fourth quarter of 2009, and it decreased $140,000 compared to the third quarter of March 2010. This was a result of increases in average interest earning assets and average interest-bearing liabilities as well as a decrease in the cost of funds.

The net interest margin increased to 363 basis points, up 1 basis point over the fourth quarter in 2009 and down 18 basis points compared to the quarter ended March 2010. The cost of funds decreased to 259 basis points, down 54 basis points over the fourth quarter in 2009 and down 19 basis points compared to the quarter ended March 2010.

Provisions for loan loss were $925,000 this quarter versus $1.9 million in the fourth quarter of fiscal 2009 and versus $1,250,000 for the third quarter of fiscal 2010. The decrease in our loan loss provision this quarter reflects a smaller increase in allowance requirements and a decrease in our loan write-offs, particularly with respect to our recreational vehicles, during this quarter June 30, 2010.

Non-interest income for the fourth quarter of fiscal 2010 with a gain of $899,000 compared to a gain of $923,000 in the fourth quarter of fiscal 2009 and compared to a gain of $5,675,000 in the third quarter of fiscal 2010. The gain in the third quarter was primarily due to realized gains on the sale of mortgage-backed securities which totaled $5,947,000.

Moving now to operating costs. Our non-interest expense or operating cost for the fourth quarter ended June 30, 2010 was $4,809,000, 14% higher than the $4,219,000 in operating costs for the quarter ended in June 2009 and higher than the $4,705,000 in operating costs for the third quarter of 2010.

The increase in operating expense in the fourth quarter of 2010 compared to the same quarter ended in 2009 was primarily the result of increased compensation expense related to additional staffing, an increase in REO expense and increases in other general and administrative costs associated with loan pool underwriting and processing, telephone supplies and other costs which were partially offset by a decrease in regulatory fees.

The regulatory fees in the quarter ended June 30, 2009 included the one-time special assessment the FDIC charged all banks causing a favorable variance this year. The increase in operating expense in the fourth quarter of 2010 compared to last quarter ended March 2010 was primarily the result of increased compensation expense related to additional staffing, offset by some reduction in REO expense.

Our efficiency ratio was 35.97% for the fourth quarter of 2010 compared to 34.51% compared to the fourth quarter of 2009 and compared to 25% for the third quarter of fiscal 2010. The efficiency ratio is calculated by dividing our operating expenses by the sum of our net interest income and our non-interest income.

Now turning to our annual results, as Greg mentioned, net income for the fiscal year 2010 was a record $21,128,000 or $2.22 per diluted share compared to the $7,142,000 or $0.77 per diluted share for the year ended June 30, 2009. The fiscal 2010 net income increased 195.8% and diluted earnings per share increased 188.3% when compared to our results for fiscal 2009.

The increase in net income for 2010 fiscal year was driven by higher net interest income partially offset by increased provisions for loan losses and increased non-interest expense or operating expenses. Net interest income increased 39.2% in fiscal 2010 compared to fiscal 2009 due primarily to the purchases of mortgage-backed securities and loans which increased average interest earning assets in fiscal 2010 by 10.6%.

The average yield on assets for fiscal 2010 held steady at 6.47% compared to the 6.51% in the last year ended June 2009. In addition, the cost of funds for fiscal 2010 was 2.83%, down 85 basis points compared to our last year ended June 2009 as the average interest bearing liabilities increased 9.6%.

The decrease was the result of maturing high rate borrowings and CDs 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 3.83% for fiscal 2010, up 79 basis points from the net interest margin of 3.04% posted for fiscal 2009.

Our loan loss provisions were $5,775,000 for fiscal 2010 compared to a provision of $4,730,000 for fiscal 2009, the increase in our loan loss provision year over year was primarily the result of a general decline in housing values and increased charge-offs.

Our operating expenses were $17,283,000 in fiscal 2010, up $4,389,000 or 34% compared to fiscal 2009. Approximately 45% of the increase in operating expense year over year related to the increase in real estate owned and repossessed vehicle expense. Another 41% of the increase related to compensation expense for additional staffing. The balance of the increase in operating expense related to other general and administrative costs.

Moving to the balance sheet. Total assets increased to $4,421,100,000, up 9.1% from total assets of $1,302,000,000 as of June 30, 2009. The increase in total assets was the result of loan pool purchases and originations of loans. The asset growth since June 30, 2009 was funded by an increase in deposits totaling $319.7 offset by net repayments of borrowings of $240 million.

For fiscal 2010 stockholder's equity increased $40.9 to $129.8 million, up 46% from the $88.9 million at June 30, 2009. The growth was primarily due to earnings of $21.1 million, proceeds from our common stock offering of $15.1 million, and an increase in comprehensive income of 21 -- I'm sorry, $2.1 million, and stock compensation of $3.1 million.

At June 30, 2010 our Tier 1 core capital ratio for the Bank was 8.79% with $53.8 million of capital in excess of the regulatory definition of well capitalized. With that I'll turn the call back over to Greg.

Thanks, Andy. Operator, please open the call to questions.

(Operator Instructions). Gregg Hillman, First Wilshire Securities.

Yes, it seems like your ability to generate good-quality loans is outstripping -- will outstrip your capital base in two or three years. I was wondering whether you'll be able to create more value by taking over another bank with more like non-interest-bearing deposits or doing some sort of syndication for other banks. Could you talk about that as a strategy?

Yes, absolutely. So just addressing the first part of your question which stated that our -- that we'll outstrip our ability to generate organic capital through our earnings or -- and then through the excess capital we're currently carrying on our books. I certainly hope that happens sooner than two to three years. But I guess that will remain to be seen how well we execute.

I think with regard to your second question, whether or not it's a viable or a good strategy for us to acquire a bank with a good core deposit franchise that is sort of branch based is kind of a complex one, but let me answer it this way. If you think about M&A strategy, there's really a couple ways to go, right?

One way is that you think about it primarily as an asset generation strategy and the asset generation strategy would probably focus on banks that you could get for a relatively low price. Because the deposit franchises that have the type of deposits that you're discussing often trade to local institutions at relatively high premiums, they wouldn't be the natural focus of an asset -- of an M&A strategy that would be focused on asset growth.

Now, that being said, I will say that having looked at a lot of banks that have small, relatively small branch networks, I don't truly believe those branch networks, unless they have a very specific focus and a very specific demographic, are necessarily that better at generating the type of deposits that you would view as the most attractive than we will be by executing our core strategies and our deposit group.

So and I think if you look at it empirically and you look at the cost of funds of different institutions you'll find that a lot of the guys that have these relatively small branch networks are really not getting the benefit from that. I'm not saying Wells doesn't.

So it's a complex question, I don't want to take up too much time related to it, but I think that it's -- I don't -- is it possible that we would go out and look for branch based acquisitions and focus primarily on the sort Miss McGillicuddy branch type deposits? I think that's relatively unlikely. I think our acquisition strategy would probably more focus on executing our deposit strategy and bolting on asset based acquisitions that wouldn't come with a lot of infrastructure that we believe isn't really the way the industry is ultimately going to go.

Okay. And then finally, doing more syndications and getting fees for that, does that make sense later on?

I think that selling assets that we generate in some form I believe will be in the cards as we grow and we think that we can become a very -- we are and will become more of an efficient asset generator. Whether or not syndications necessarily of loans that are the size that we have are the most efficient way to go, I think generally probably they're not.

We tend to get loans that are in a range, given our size, that we're very capable of taking on the full amount. But that being said, we're seeing a lot of asset hungry banks out there who are starting to bid up assets. So, is there an opportunity for us to sell assets that we generate to others, I think the answer over time will be yes.

Clearly we're doing that through the Fannie and Freddie and whatnot. But I think over time you can see, particularly a group of smaller banks that are in the $300 million to $500 million range or around there that don't really want to develop an asset origination capability but would like the quality loans that we produce. And I could see that being a channel if we ran out of balance sheet capacity.

Okay. And then finally, Andy, you mentioned the excess cost of salaries for all the management you've added, it was 40% up the difference. What was that dollar amount?

On a quarter-over-quarter basis?

Yes.

Yes. The difference is $425,000 in June quarter versus the March quarter.

Okay. Thank you.

(Operator Instructions). Edward Hemmelgarn, Shaker Investments.

Yes, Greg, I was wondering, you spoke about some of the successes that you seem to be having right now in terms of loan generation. But can you give a little bit perhaps more of some guidelines or something that you're hoping to achieve in terms of asset generation. Because you look at it this year, I mean you grew equity by roughly 40% and comp by about 45% year over year. But interest earning assets grew by about 8%.

I mean, I would hope then is it your plan this year is to somewhat reverse that and get to be more efficient. And how long do you think it might take you to really get back down to say an 8% equity to assets range?

That's a great question, Ed, thanks for asking that question. So let me answer it by telling you a little bit about what the groups are doing and how we're doing it. As you know, when you do originations obviously the team has to really come, at least to some extent, before the originations and so I think that's what was happening this year.

We have the ability to get to -- with regard to getting to 8%, the issue is that we obviously -- the more equity we generate organically the more difficult it will be to do that. So we have a lot of things that we think are going to boost our earnings. So to get to that ratio I would think hopefully within the year that would be there.

But I think you've got to remember too, related to what regulators are thinking about capital, it's very unclear where they want people to be. So, I think the important thing is obviously to focus on, given the lines of business that were in our rapid growth, we need to continue to make sure that they're comfortable where we are. So, let me talk a little bit about where we are from -- in our development.

On the multi-family side we had two salespeople that were hired in that December late November timeframe. They were two really good guys and they were starting the group. As of today we have 10. And every single one of these guys are guys who were $100 million a year plus producers in their former roles. And so they're guys who have done -- did $1 billion over the last three years.

Now, the market is completely and totally changed, right. So, our max is 65% LTV, we've got a 30%-40% price reduction. Transactions are harder to come by. And so, without compromising quality it's difficult to say. Now that being said, if you just take a simple way of looking at this and you say that we have $40 million in the pipe and you close it in 45 days, you take that and you look and you say you're going to turn those assets eight, nine times, you multiply the 40 times eight to nine times, that could be a way to look at it.

But I think that's -- obviously being too optimistic can be a downfall, but my view is that that pipeline doesn't even begin to represent what's going to happen when these guys actually get going, get in the market, get known, get known for execution on time, getting yourself out in that market and letting people know you're there. That takes some time and it takes some consistency. So with the people we have it's going to be a lot lower in time because they bring the credibility, frankly, and they can bring the credibility of the Bank with them.

On the wholesale -- first, on the wholesale jumbo side, that product, having only been out with it and the team for really a couple of months and then having spent -- you have to spend time getting the brokers because it's a -- right now that wholesale business is entirely broker based, you've got to go through and you've got to sign up all the brokers.

We've got some great brokers in our network who are getting very comfortable with us. We only have two salespeople on that side and we're focused entirely on California. Eventually that product will be rolled out to other high-end market areas in New York and Connecticut and Washington, DC and others and that geographic expansion will represent something as well.

I think the other question -- the question that you asked, which it sort of begs the question is if I wanted to fill up the balance sheet within a quarter I could. What we're doing is we're holding tight on not only credit but also on pricing. So, we're very disciplined pricers, we are ensuring that the assets that we bring on will yield us at least our 15% return on a match funded basis.

So, obviously you can get to an asset target quickly, but you can suffer then from a yield perspective for a long time because those assets sit on your books. So, all those things come into consideration. I also think -- the one other thing I didn't discuss is the gain on sale business. With our additional space and ability to expand we really were space constrained. It probably took us a little bit longer than it should have given how inherently cheap we are to go out and get more space.

But with that we had a doubling of the sales force ready to go and we see significantly enhanced revenue coming through this quarter there. So, that also is revenue that is very capital efficient because it doesn't take a ton of capital to generate it. And so to the extent that a gain on sale mortgage bank is in the offing and it actually becomes a significant contributor, that could generate a lot of return with relatively limited capital dedicated to it.

Okay, I wasn't disagreeing with your strategy at all about doing any assets (multiple speakers) well thought out profitable strategy. I just wanted to get a little bit better feel for what the strategy was going to be in terms of the magnitude going forward.

Right. I think the other thing to think about, right, is that wholesale asset acquisitions are still a big part of what we're doing. However, there's been a big tightening in that market. And the pricing that we see is now much closer to the pricing for good assets and it's not -- there are still bargains out there, but the bargains are certainly fewer than they were.

So what that means is obviously that is the most efficient of businesses, right, if you're buying a lot and involved that requires your people than actually going out and originating in marketing and doing all of those things. So, obviously one is more certain than the other, but one is more efficient.

So as that mix changes we're counting -- we still believe that's going to be a very significant contributor and we see deals in the pipeline that are committed and we've gone through diligence and they're good and they're going to fund. It's just that as we grow, even keeping that level of originations there through that wholesale channel at what it was in a market that is getting tighter just isn't enough given our new capital and frankly it's tougher to deploy $20 million plus of earnings than it was $5 million, right?

Yes. Okay, thanks.

Jeremy Zhu, Wedbush.

Hi, guys, a couple of questions. One is what percentage of loans originated is particularly in the one-to-four family residence has sold versus kept on your balance sheet?

Sure, for the quarter? For (multiple speakers).

Yes, for the quarter and also going forward, I guess.

Well, go ahead and answer for that (multiple speakers).

Yes, let me give you it for the quarter. For the last quarter we originated $26.1 million of loans for sale. But as Greg mentioned, we expect that number to be significantly higher, probably more than a 200% or 300% increase next quarter. Of that $2.3 million was originated for single families on the books for the quarter. However, we have a very large pipe headed up --.

And that, since you really wanted to know about the future, that is not reflective of the jumbo business, the jumbo wholesale business coming online. So the jumbo wholesale business really with brokers being signed up in the latter six weeks of the prior quarter and really launching that program towards the very end of that quarter you don't see that.

So what -- we expect that the wholesale jumbo group will mostly be in on balance sheet product. And so right now we've got about 30 in the pipe, but it's growing rapidly every day. So, I -- the Chief Credit Officer, new Chief Credit Officer, thankfully I'm not doing that job anymore -- we're seeing multiple loans every day coming through and we're getting them. So, the pipe is growing very rapidly.

It's hard for me to say exactly what's going to happen because there's a lot of demand for that product, brokers are coming to us and we have geographic expansion plans with people designated to do those expansion plans.

So, it is difficult to actually predict what that's going to be, but I will say that that mix will move. There will be more going towards the balance sheet. Whether the percentage changes or not is going to be difficult to say; it will clearly go above -- it will go above 10%, but both groups are going to be expanding rapidly. But if the question is are we going to be having more single-family originated assets -- jumbo mortgages on our balance sheet, the answer is absolutely yes.

On multi-family, we originated 14 and then we have 39 in the pipe.

And that's with money up and there's probably double that in LOIs out. But those deals are committed to us. So again, those are deals that were either -- the area they're going to come or will lose or in a competitive situation. But whatever those are, the number of LOIs and the indications that we're getting with the new sales folks are quite positive.

The rest of our growth for our quarter is purchases.

Right. So if I'm understanding you correctly, most of the jumbo mortgage you originate yourself, you plan to keep that on your balance sheet. What about the Fannie, Freddie qualified loans? Do sell those off or do you keep those as well?

If they're Fannie/Freddie qualified -- I mean when you're thinking about this product don't think jumbo $600,000, think this is a Thornburg Group sales groups, so think house right on the water in Malibu, a $7.5 million purchase, $2.5 million loan, stuff like that, got $8 million liquid assets, that type of borrower.

Don't think -- I mean there are some of the $800,000 loan on a one-four purchase, that's something like that. But the loans that we're talking about are -- they're different than a type that would go -- they're different in a lot of different ways. The borrowers are a very different character than the loans that you'll typically see going to Fannie and Freddie, they're often five-ones, very we don't have a 30-year fixed product for -- we may end up with doing that, but it's just not something that's generally sought out by these types of buyers.

But anything that we obviously can send to Fannie given the execution that you can get there is likely to go. We also are a correspondent through -- with other buyers of jumbo product and if a loan fits within some of their parameters and they'll actually go to higher LTVs than we will.

But they have just interesting provisions like they'll take a guy, a good example, there was a guy who got refused -- I won't name names from a correspondent lender, but the guy had -- he was buying a condo in Hollywood, he had about one-five of income that went down to one-four, one-three and it was sort of steady at one-three. And I said well, he has declining income, but his DTI was like 15%, but that declining income was enough. So there's all kind of oddities associated with guidelines now that are capable of being parsed and taking advantage of.

Right. What are typical terms? You said they're not 30 year loans (multiple speakers)?

They're almost all -- the most typical, the products that I say represent 70% of the pipe is 51 ARMs. We have some 71 sometimes but that keeps the weighted average life in check and given where we are -- it also is -- it enables you to offer quite an attractive rate and to match fund it at a nice spread.

What's the typical rate you're getting on those? What type of yield -- asset yield (multiple speakers)?

It depends. I'd say mid fives, stuff like that, sometimes can be lower, depends. There are different ads for different things. Sometimes you'll find second homes, a Tahoe-based residence or something like that. Even if it's a low LTV you may end up getting a little bit more out of that. So there are different ads. But if you're looking for a mortgage I'll have somebody call you.

(inaudible). I'm just wondering, given your average yield right now is much higher than that and you're increasing the proportion of jumbo loans and residential loans, can we expect a lower yield on the asset going forward?

Well, I think the question is not the yield on the assets, it's the spread, right? And so obviously we have a lot of CDs and everything else that were done at higher times. So, what I was saying when I said that we are generating and pricing these assets to a 15% return, what I meant by that, to just be very clear, is that we've taken and modeled our ability to raise deposits at an exactly match funded basis.

So in other words, if that 51 is a weighted average life of 3.1 we're saying, okay, for us to generate liabilities of 3.1 what does it cost us? Then we're taking -- and looking at the pricing on that and generating a 15% return without taking interest rate risk. So, now is that something obviously we can guarantee that we're able to do from a competitive perspective going forward? And the answer is, no.

But that's where we are now and we're actually a little bit better than that now. And we're more like 18 now, but will we have to go in a little bit? We have seen some pretty, particularly Union has come in and really hit rates hard, but that also has been commensurate with a reduction in the cost of funds. So, I think you've got to look at it that way. But in short obviously spread is what matters and obviously with what's been going on liability costs are coming down.

Yes, okay, understood. And second question, trends. Historically you have a lot more purchase loans and purchased securities where going forward it sounds like you plan to originate more -- originations are going to be a bigger portion? What do you think a normalized efficiency ratio would be for your new business model, I guess?

That's a -- I think that the -- the wholesale business and the businesses that we're in an allow us to be very efficient. And so I would think that when we get these businesses running in the right manner and getting the productivity that we need out of folks, I think that a 35 range is very doable. Actually I think that it could even be better than that. But I think 35 is definitely doable.

What worries me is not really the origination cost that will come into it because that will work itself out with -- it actually ends up honestly -- what's really funny, I mean this is just anecdotal, but this is sort of an interesting example.

We had a deal come in and it was a little bit of a different type deal, but it was one that the Bank was familiar with and it was one loan. And we were looking at it and we were talking with the loan committee about it and they said how do you really make something on this? And the funny thing is from the one loan we made enough money to cover the entire cost of the group for the year.

So, it's sort of useful to focus on those things sort of. But really growth is what powers this engine because there's so much fixed cost associated with it. What I worry more about and what I'm having to really spend more time and money on is the fact that the regulatory environment is becoming increasingly complex and there's a lot of defensive medicine, for lack of a better word, that has to go on now.

Because you can have a mistake, right? Regulators are just -- with a bank -- as one of the few banks that's for profitable, growing fast, doing mortgage banking, they expect you to be really good in compliance, reg and all these issues. And what happens is you have to continue as you grow your business to keep on really making sure that you are really buttoned up. And that is the cost that I think is the cost that you say, well, gee, it's difficult to make sure that that stays in line because how many compliance people should a $1.5 billion bank have? Right?

And how many external audits should you have to make sure that you're happy with that. And I think we've always been a bank that's been so focused on cost, but with everything that's going on and with all the opportunities we have, some of the infrastructure build that has to occur from a systems and process perspective can get a little expensive.

And I think that even though it may be -- it's sort of one time'ish in nature and also it also really not -- it doesn't scale. In other words it will be part of that fixed cost infrastructure of sorts to some extent, it's still going to be there.

And I think if you ask, when I talk to other CEOs of institutions, that is their number one concern that regulatory costs are going up a lot just given a relatively unforgiving nature. I mean in the old days you missed something maybe they would have said hey, listen, fix this next time, please. Now the answer may be your growth is limited unless you fix that. And so you're really doing a lot of preventative work there. So that's really where my biggest concern lies and I think we are going to end up -- we are spending some money there I think we are going to have to and up having to spend more.

Okay. Thanks, guys.

Thanks.

Mitchell Saks, Grand Slam.

Hey, guys, congratulations on a good quarter and a great year. A question on -- two things. One is NIM. And I guess along with that question would be -- the second part is in listening to you about the loan origination pipeline that you guys have, it sounds to me like you guys are going to be able to deploy the capital that you raised in the offering sometime maybe by the end of this calendar year. If that's the case would you guys look to possibly increase equity again or how would you think about approaching growth?

Yes, I'm not sure that with our -- I think by the end of the next fiscal year we may be faced with that. I think it's going to be -- obviously what we hope is that we hope that earnings, well we believe that earnings are going to be a lot higher, that the share price is going to be a lot higher.

I think with our organic growth, if you push it through your model, Mitch, I think you'll find that even with optimistic estimates of quite rapid growth, given -- remember, our portfolio, we also, as we get bigger it gets tougher to maintain because the interesting thing about our loans is that they actually are good. And that means that they can pay off.

And so you obviously -- unlike most folks whose people can't go anywhere else because their LTVs are all underwater, ours aren't. And so we're always fighting a battle of attrition as well. So, I don't foresee deploying the capital to a ratio that we feel comfortable with in six months.

I think it's more -- probably given our strong earnings and I think our earnings are going to continue to grow and you look through all that I think it's more like the end of the fiscal year. So, at that point we'll see where we are. But -- obviously we would expect to grow. But in that time obviously a lot can happen. And even more importantly, hopefully the stock price will be up a lot higher based on higher earnings.

Can you talk a little about NIM in terms of how you see that trending over the (multiple speakers)?

Sure. I think with regard to -- with regard to the NIM, partly we have sacrificed some NIM for interest rate protection as the yield curve started to steepen up, as the economy looked like it was getting better and you started to see pressure on the long bond, we were really concerned about that. And as a result we went out, and we kind of got ahead of ourselves and were running some real -- much longer term liabilities against some short assets and things like that.

We've reversed a lot of that this quarter given that -- from what's been happening we think we've got -- we had a lower for longer strategy in general, now it's sort of lower for longer-longer strategy. So, what you're going to see is that there is a benefit associated with just that reversal of some of that excess liquidity.

The other thing that's happening is that some of that excess liquidity and deposit gathering, which has obviously been robust given how much in deposits we've raised, is simply going away because we're growing. And so as that goes away it's going to get better. I'm not going to make a prediction about where it is. I do think that clearly spreads are in on wholesale loan purchases.

They're also in on securities to the point where we've been -- obviously you know we've been some net sellers of some securities, yield is definitely at a premium in the market. And we see a lot of liquidity in the market. So I would not be surprised that given all of those things that you see a continued fight for yield.

Now, that being said, I think we've got a great strategy to go get it. But I think we're going to have to make sure that we're focused on asset growth as well as defending our net interest margin to ensure that we're continually profitable and we're continuing to grow.

I know you want a prediction, I'm not going to do that. I will say that there are some positive headwinds related to DD roll-offs that are -- some high rate CD roll-offs that are pretty substantial coming up in the next couple of months, reduced excess liquidity, which was frankly unnecessary but it was a rate play that we probably were a little bit aggressive on that we didn't get right.

And then there will be -- there is the pressure in the market though in the reduction and ability to get the sort of yields that we did on the wholesale side before. So that's all coming in in the mix. But I still think obviously from given historically where we were it's very good.

And you have to remember, in the quarter when we got up to a four we were running a very strong liquidity test with the Fed and we had a huge amount of overnight borrowing with them. And that helped juice the margin as well. So, I think that if you're going to put a number on it I'd say obviously having a 350 spread would be a great number if we can keep that and continue to grow.

Super, thank you very much. It was a great quarter.

Sure.

George Levan, Smith Street Capital.

Actually, hi, it's Duncan Frearson. I just had a quick question for you, Greg. It looked like a pretty good quarter. The employees that you've taken on obviously is an investment in the future to develop these businesses and that's where the growth is going to come from and obviously a multiple for the stock price. But can you give us a sense of sort of where you are right now in cost to originate?

I sort of like the specialty in multi-family, that's obviously where you can really gain some traction to continue to drive the business there. These newer lines, I want to get a sense of where you are on cost to originate vis-a-vis your competition on this business and where you need to get to to make it into a real new line of business for Bank of Internet?

Right, sure. Well, okay, so on the multi-family side, if we -- we have about $700,000 in cost in that group. We'll probably need to add a few folks, but that group can do a ton of volume. There are efficiencies that are still being built into that process through our system development. But given the relatively large size of loans that's less -- that's less of an issue. I mean it clearly is an ongoing issue and we obviously want to optimize it.

On the single-family side, the cost to originate is probably around a point, where we are now. I think the difficult thing about giving you a number like that though is the following and that is that I'd say of the costs that we currently have, probably about 60% of it is fixed. And when we doubled the sales force literally three weeks ago we got our new space, production went up over 200%.

We're doubling that sales force again and we're going to fill that space. The number of management team that we have, we may have to add another person but it won't increase. So to some extent the numbers that we currently have are virtually meaningless because they move so quickly. But those groups are profitable where they are. And so that's really where it's a little bit difficult. It's just that the infrastructure is there and the sales force has to come.

I'll give you another simple example. We've been adding to lead sources a new -- we recently -- Google is running this new test pilot with a number of lenders and we're on that. And if you type in mortgage you get a set of their fine lenders and Google, because obviously they own the search engine, is sort of taking over the space. And that has been a very efficient source of leads.

We're also finding other efficient sources of leads that are doing a lot better. So, I think there's just a lot of opportunity to reduce that cost and continue to make profit there. So, there is big -- there's frankly big swings, the best efforts to mandatory spread, sometimes comes in at 20, sometimes it comes in at 60 or 70.

So for folks who are in the single-family group other -- they know that those margins kind of move around. But we are not quite at a stable trajectory just given our rapid growth and our substantial fixed cost there. So, I think it's going to be very good. We'll have to see exactly where it shakes out. We have some goals but I'm going to wait to see if we can achieve them.

What sort of signs of the single-family and the jumbo portfolio would it be where you really reach that sort of optimal efficiency and you're at that sort of very competitive level in the marketplace?

In the gain on sale group I'd say you need to get to $300 million, $400 million of annual originations. And obviously -- but even there the scale -- you can always get some scale benefits from that. On the wholesale side -- gee, I think you're at $300 million, I think you're really at a scale that's pretty good. There's always more scale to be had in that business, but it's not -- I think it's not the most important.

The wholesale business tends to be a very efficient business though and as a component of the wholesale business we're also doing correspondent prior approval, which is like wholesale except the mortgage banks get to draw docs in their own names, they sometimes prefer that. The same quality control process is used. And that business is also very efficient though.

So, retail is the least efficient and correspondent and wholesale are quite efficient groups and it really -- the cost of the actual employees is actually not a significant factor. I mean, to give you an example, right, the sales force makes 10 or 15 bps on a loan, you've got a couple of people doing the processing, that's not really what drives it.

It really is driven -- what's going to drive it more is it's going to be driven by where spreads go and how many people decide that they're going to try to jump in and mimic what you're doing and then -- and I think that competitive dynamic -- particularly on the wholesale and correspondent. Retail is much more a personnel driven business.

Where are you at now relative to those numbers that you just gave out?

Well, so, and I appreciate the questions. Six weeks into it we have $30 million of pipe, you turn it every 30 days so multiply that by 12 you're basically at a point where if we continue to do what we're doing we're there. But obviously that's not -- that's not anywhere near where we're going because it's growing so rapidly that it's difficult to say.

But just as an example, I've got a guy who wants to join as a correspondent and I know the CEO there, he's a friend of mine, it's a 1,500 person retail shop. And we're one little contract issue away from getting his correspondent agreement. What's that going to do for us? Well, we don't really know. But now we have 1,500 people running around able to sell our niche product, right. And it doesn't cost us anything if they don't do it.

So, what's that going to do? It could do a ton, right. If it's not going to work then I'm going to sit down with them and say, hey, you've got 1,500 people, why aren't you sending me more stuff. And we're going to figure it out and it's going to get big.

There are so many opportunities out there now it's just amazing. And the enthusiasm for the product and the enthusiasm really for the people to get that Thornburg team back together has been incredible. The people who did business there want to do business again. It's sort of wind up out the door and it's just our ability to get more BD's and all these other sorts of things. The cost of that person is nothing in comparison with what you can do if you can actually get that relationship to work, right, it becomes rounding error, it's not that important.

Well, the reason I ask, because now obviously is the window of opportunity to do this kind of business building. So I wanted to get a sense of how long we've got to make this work.

The other question I had is on the savings side. You've done a great job of building a lower-cost deposit base and moving away from some of the higher cost stuff, obviously it's not at a level of the big banks. But how stable do you think that is? And do you think there's perhaps a sense of Bank of Internet being a safe place to put your money so these assets will end up being or these deposits rather will end up being more stable than perhaps they were when you guys were a newer bank?

I think there's definitely that. We do hear that. I think there are other things going on as well. I believe that is important. But we are also -- we have a very clear deposit strategy that is focused on a development of more relationship and customer service focused than we had previously. And candidly, if I think about the things that I wish I had moved on more quickly, some of the customer service cultural issues that we had here are things that I probably should have moved on more quickly.

We have a great new head of deposit operations, just to give you a little sense of what we're doing here. We used to have -- it was supposedly for efficiency, but it really wasn't any more efficient. In fact, it's more efficient the way we're doing it now. We've separated operations and customer service.

Those customer service folks are now going to be salespeople and they're going to act like real salespeople, be compensated as salespeople, serve people and get graded on their customer service and all those sorts of things and not be trying to put holds on checks at the same time they're talking to somebody on the phone because it's efficient. It isn't, it's just a waste of time and it doesn't allow for good customer service.

So, we have a very clear strategy of improving our interaction on our front end through account aggregation, through great products that are simply products that will beat others. And then our ability to get those out to the market and make them sticky through the various features that other banks use. We think we can mimic a lot of those benefits of retail banking without having that branch network and get that stickiness.

And one of the ways will be to have that savings account at a certain level bundled and associated with a checking product that a sales force is sort of pounding on folks to actually get them to switch and change.

Now, I always look for the Holy Grail, right, can I find a bill pay scraper or something that would just come in and rip those guys out. But there are all sorts of things that we can do that we're working on that will enhance the stickiness of our depositors. That, you're right, we've done a good job of actually getting savings accounts -- those savings accounts are paying a nice yield, but that's certainly not the highest yield in the market and they've been pretty darn sticky.

I think that is partly the result of some of the service-related initiatives, but we're just scratching the surface there. The other thing that we are doing is with the BofI Advisor and the other -- that other channel is we're affiliating with folks who need banks. And there are a lot of folks out there that need banks.

And they need to be able to -- these independent financial planners do not want to send a guy with a $50,000 checking account on a regular basis to BFA because Merrill is going to be all over that guy. So they want to deal with us. [Aldridge] consolidates their statements, they're getting a great yield, those guys are going through a financial planner that gets comfortable with us, that deposit is unlikely to move in the same manner. That is not a huge part of our base yet, but it's been a great -- it's been a great way of getting us into that business.

So, there are a lot of things that we have planned in that area as well to improve -- to improve stickiness. And we think we have an opportunity to really do that now because people are more willing than ever to switch, they do feel -- we get a lot of comments about the safety of the institution and they like that. And also banks are going to start really moving away, right, from the free checking.

You're already seeing all these rumblings of this. All the money was made there on overdraft fees and as that goes away there's going to be a real opportunity for us to come in and say, hey, we've got a great checking account and look at all the wonderful things it does. And by the way, it actually pays you and all this. But you've got to commit to us through direct deposits and other things. So we're moving in that direction and I think that it will ultimately be successful, although it will take a while.

Okay, great. Thanks, guys. Good quarter.

Thank you.

David Johnston, M3 Funds.

Thanks for taking my call. I just had a quick question, I wanted to turn -- we talked a lot about the loan side of the business on this call and I wanted to talk about securities just a little bit. And I noticed that in looking at the cash flow statement on your website that it looks like for the year 2010 you accreted $24 million, just over $24 million from discounts on securities, which just struck me because it just means that your cash earnings as a percentage of total earnings or non-cash, however you want to look at it, is lower than most banks which isn't necessarily a bad thing.

I just wanted to get a sense of what assumptions you're using, especially on the private label CMO book in terms of ultimate value and how you accrete that back in because obviously there's some assumption made -- you buy it at a discount, you're assuming it's worth something and then you're accreting that back over the life of the font and I realize it's a bond by bond issue.

But just within that bucket, not necessarily any of the other securities you might have bought at a discount, because I'm assuming that the private label CMOs is where you bought the most securities at the greatest discount. And so if you had to do a weighted average for the whole portfolio I guess what kind of a assumptions are you making in terms of sort of ultimate value of those securities?

Sure. Let me answer it in this way. So in the book there are -- let's talk about the re-REMIC securities. So, in most cases these securities are re-REMIC securities. So, when you talk about the value from an accretion perspective you have to remember that if a security is bought at a discount, what you're doing is you're taking and re-securitizing that. So then you have a AAA rated security, which is then -- will be at a discount but that discount will be lower because you may have put 40% additional credit enhancement on that based on the discount value of the bond.

So, when you're thinking about the accretion you have to think about -- you're thinking about these as a bond bought at ex-cents on the dollar and you're accreting it over time up to the ultimate value. You have to think about it a little differently than that. You have to think about buying that bond, taking it, creating the residual, going back, getting the AAA rating on it and then you've got that bond and then you're accreting it from there.

So, I think that that makes the -- what you're saying, you have to keep that in that context. So let me tell you the basic methodology by with which this is done. So, we run [Intech] in-house and every quarter what we're doing is we're evaluating the path associated with each bond. What happens is that path is run based on the actual performance of the bond. If the bond in any one quarter demonstrates that it will not pay at par or at another value then that bond is -- OTTI is taken on that bond equal to the entire amount of the value that you would not get in any one quarter.

So, I think the key thing to remember about this is to the extent that there is any consumption that you've made -- you can make a large mistake and it comes back, that certainly is extremely mitigated by the fact that if you see underperformance, that underperformance is in fact projected out and then brought back and taken as an adjustment in that quarter. So, all of that comes into play. And that is really what you're trying to do. So, --

Okay, that makes sense, that makes sense to me. I guess maybe walk me through how you get the -- create the residual and are able to get the AAA rating for one of those bonds?

Sure, so -- well, let's just say -- let's just take an example. Obviously these bonds are really traded through this, so this opportunity is really gone. So we'll just take a simple example, all right? Let's say you bought a bond and you bought it at $0.50 on the dollar and it had 10% organic support, right.

So it had 10% original support of which there were delinquencies coming through and all of that. You bought it at $0.50 on the dollar. So what you do is you say -- you take that bond, you bring it to the rating agency and you say, look, I'm going to put -- of that discount I'm going to take 80% of it and I'm going to put it into a residual BP, so I'm going to create a new AP.

And all the cash from let's say -- so you've got $100 million of -- this is just an example, right -- let's just say you have $100 million of loans beneath it, all the cash is going to flow to in essence a 50% piece and that 50% piece is going to get the AAA rating. That bond is then -- is going to be amortized and it's going to have a much higher rate of payment because what's going to happen is all that cash gets shoved through.

Subsequent to that bond being paid off at par the residual will get paid off. That's why when I talk to people about the indication of quality on the book, when we're selling the residuals, which are last pay cash flows off of the APs, what you're literally saying is we're selling for -- we sold these -- a lot of these residuals for $0.20 on the dollar, when they don't get paid and let's say the A bond is on at $0.90 on the books, that A bond has to get -- it gets all the cash until it's absolutely not only paid back to our book value, but paid off to par, then could be eight years later that residual starts to get (multiple speakers).

Okay, (multiple speakers) an income note.

(multiple speakers) you think about the fact that it was sold for $0.20. What that means is that it has to have had a significant amount of the cash coming back to that bond. So, what really happened, right, is you had this real distortion in the market. Unfortunately it's great to pick up money -- to pick these things up because they're great yields. But over time that just traded through and you were no longer going to be able to go back to the agency and get the AAA rating because the price of the underlying traded through what you needed to do from a credit support perspective.

Okay, that makes a lot of sense. Thanks for the clarity on that. And so you guys have sold most of the residual pieces then of what I'll call an income note of the B pieces?

Yes, we have some left. But we've sold a lot of them.

Okay, thanks a lot, guys. I appreciate it.

No problem.

I'm sorry, Jim, it looks like we have one more question. Do you have time to take that?

Yes, that's fine.

Hugh Miller, Sidoti.

Just a real quick question. You guys talked about the match funding and right now your cost of funds is roughly about 260 basis points in the quarter. I was wondering if you could talk about the marginal cost of funds. Obviously you should see a reduction with some of the legacy CDs that are still on the balance sheet. But looking at the strategy of match funding what's the marginal cost of funds for you right now?

Yes, let me give you a little color. We have about $134 million in CDs that -- and this is just one snippet, but I think it's a great example of how things will reprice. We have about over $250 million which will reprice in a year, but about $130 million which will reprice in the roughly November quarter. That's on the books at around 259 on a weighted average.

So, that could come in -- if you went to overnight, that obviously is going from 259 to 15 basis points. If you go into more of a one-year space you could be grabbing at least 50 bps and more depending on where things are. So that's the kind of color of the improvement you would get from the deposit side.

(multiple speakers) I'm sorry, go ahead.

And the 50 bps, you're talking about a 50 basis point reduction off of that 260?

Yes.

Okay.

Yes, yes. (multiple speakers).

(multiple speakers) that's conservative. That's Andy's conservative CFO nature talking there. But we'll let that stand. I think just more broadly though, if you think about the rate environment, obviously -- we obviously have had a lot of floating-rate assets, are we asset sensitive? Yes. So we're asset sensitive which is certainly a nice place to be for a thrift, it gives you obviously opportunity to take a little duration.

But, the interest rate environment is very positive for us right now. That's absolutely correct. It's probably positive for most banks, but it's really quite positive for us and lower for longer is great for us.

Thank you.

Gentlemen, no further questions at this time.

All right. Thanks, everybody, and look forward to talking next quarter and then I'm going to be out at the Rodman and Renshaw conference, I think that's the next one that I'm speaking at, that's in September. So, if any of you guys are there come by and say hello and I'd love to meet you in person. Thanks.

Again, that does conclude today's conference call. We'd like to thank you all for joining us. We wish you all a great afternoon. Thanks again. Goodbye.