Axos Financial Inc (AX) 2011 Q1 法說會逐字稿

Please stand by we are about to begin. Good afternoon, and welcome to the BofI Holdings earnings conference call for the first quarter ended September 30, 2010. 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 then he will then turn the call over to Mr. Micheletti who will then 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 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 the 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 laws 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 the availability of costs 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 efficiency ratio, regulatory capital ratios, 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 US Securities and Exchange Commission.

Any forward-looking statement as to the Company's future financial performance represents management's estimates as of November 4, 2010. BofI assumes no obligation to update these forward-looking statements in the future due to changing market conditions or otherwise.

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

Thank you. I'd like to welcome everyone at BofI Holdings' first-quarter conference call for the fiscal year ended June 30, 2011. I thank you for your interest in BofI Holdings and Bank of Internet USA.

Net income for the first quarter ended September 30, 2010 was $4,832,000, up 30.3% over the $3,708,000 earned for the three months ended September 30, 2009. Earnings attributable to BofI's common stockholders were $4,755,000, or $0.45 per diluted share for the quarter ended September 30, 2010; up from the $3,535,000, or $0.41 per diluted share for the quarter ended September 30, 2009.

Excluding the after-tax impact of gains and losses associated with our security portfolio, net income increased to $5,068,000 for the quarter ended September 30, 2010, compared to $4,600,000 of adjusted net income for the quarter ended September 30, 2009.

The increase in earnings for the quarter ended September 30, 2010 was primarily the result of increased non-interest income and partially the result of increased net interest income. Non-interest income was $2,122,000 for the first quarter of fiscal 2010 (sic - see Press Release), compared to a loss of $1,009,000 for the first quarter last year. The increase was mostly the result of growth in the mortgage banking business unit and higher prepayment penalty income.

I would like to congratulate our single-family mortgage banking unit for achieving record gross income this quarter, reaching $1.4 million on a loan origination volume of $60.6 million, up 147.3% over the $24.5 million originated for sale last quarter, the fourth quarter of fiscal 2010.

This quarter we also achieved strong net growth in the Bank's loan portfolio with an increase of $102 million or 13.2% of our loan portfolio as a result of significant contributions from the single-family mortgage unit which originated $33.3 million of jumbo family -- of multifamily jumbo loans. The multifamily unit which originated $26.1 million in new mortgages and the wholesale acquisition group which purchased $82.3 million in mortgages. Together, the three units originated or purchased $141.7 million in new mortgages in the first quarter of fiscal 2011.

Other highlights of the quarter include total assets reaching $1,517,933,000 at September 30, 2010, up 14.6% compared to September 30, 2009. Total deposits reached $991 million at September 30, 2010, up 29.9% compared to September 30, 2009. Our efficiency ratio for the quarter ended September 30, 2010 was 35%. Our net interest margin was 3.55% for the quarter ended September 30, 2010. Our non-performing assets were $18.1 million or 1.19% of assets at the end of the quarter and included $14.5 million of non-performing loans and $3.6 million of repossessed assets.

Of our non-performing loans at September 30, 2010, 20% of the total amount is the result of one multifamily loan for $2.9 million, which was added to non-performing this quarter. Approximately 21% of the non-performing loans are considered troubled debt restructurings and will likely move back to accrual status within six months of modification.

Another group representing 30% of the -- 37% of the Bank's non-performing loans are single-family first mortgages already written down to 57% of the original appraised value of the underlying properties. We believe that additional losses on these loans will not be significant, but we have been challenged by certain servicers to liquidate these loans on a timely basis.

With respect to our repossessed loan collateral, our REO of $2.7 million consists primarily of eight single-family and three multifamily properties marked on the books at fair value based on recent appraisals or other third-party valuations. In addition, there are 29 recreational vehicles valued at $900,000 at September 30, 2010, most of which we expect to sell within the next 60 days.

We believe that the weighted average LTV of our real estate loans at origination for our entire real estate portfolio is lower and more conservative than most banks. And as a result, we expect to continue to have lower write-offs per dollar of loans than most banks.

At June 30, 2010, our weighted average LTV for the entire loan portfolio was 53%. After adding $141.7 million of new loans this quarter and after receiving $42.6 million in loan repayments, our weighted average LTV for the entire loan portfolio was still about 53% at the end of this quarter.

As we grow our loan portfolio, we continue to look to add loans which have the best combination of yield and acceptable credit risk. The weighted average LTV in the multifamily loans originated in the quarter was 56%, and the average DSCR was 153%. The weighted average LTV of the single-family portfolio jumbo originations was 60%, and the average FICO was 744.

The weighted average LTV of the single-family gain on sale loans was 56%, and the average FICO score was 777. Our investors have never had a delinquent loan that we've originated for the single-family gain on sale book. There's just not one delinquency in that entire portfolio for the life of the origination group.

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

Our multifamily and our jumbo single-family group continued to grow nicely. Our single-family pipeline of mortgage is approximately $100 million currently. That's split about 50/50 between portfolio and gain on sale, and our multifamily pipeline with money up or deposits taken is about $65 million.

Although the pipeline in both these groups saw strong success, there are other early significant indicators of even future greater success. For example, the single-family portfolio business volume this quarter was almost entirely originated by two commission-only sales representatives. The Bank added seven more commission-only representatives this quarter in key markets where the Bank has not yet penetrated. These representatives are not yet producing given the relatively short time that they have been here, but they have initiated a great number of high-quality broker and correspondent relationships that I believe will be quite significant contributors to growth in the future. These relationships tend to take a quarter to really get going and several quarters to reach their potential, but the desire to work with us and the desire for our product is there.

On the multifamily side, we added two salespeople this quarter who will obviously add to the pipeline, and a number of our salespeople added last quarter are continuing to ramp up their production levels.

Our wholesale banking group continues to see opportunity and has a reasonable pipeline of transactions in process. We continue to build the foundation of the Bank for the growth we are experiencing.

For those of you who listened to my remarks at the shareholder meeting, I'll turn briefly to some technology updates.

At the shareholder meeting, I provided an overview of our new Internet banking customer interface. This interface is superior in functionality, look and feel to what our customers currently experience. The system will allow the bank to provide a highly sophisticated money management portal where customers can aggregate information from their bank accounts and credit cards across institutions to see where they are spending their money, compare their spending to budgets, and generate sophisticated customized reports.

The system will also allow the bank to utilize the data obtained from the transactional record to target to the extent permitted by our customers, other banking products, and special offers that are targeted to the spending patterns demonstrated by the transactional data we have.

We believe that the system will provide a competitive advantage to the Bank by providing more tools and functionality than are available at other online banks and at a minimum close any competitive gaps that may have opened with certain money center banks' online banking platforms.

In addition to our customer-facing technology, we are spending a significant amount of time ensuring that our financial and risk management systems are keeping pace with our growth. For example, we are rolling out a flexible data warehouse project that allows managers to gain much better access to the metrics and reports required to run their business and manage risk.

We have recently hired another senior compliance executive to ensure that we continue to keep pace with the rapidly changing regulations that flow from Washington.

I am very optimistic about working with the team we have in place to develop and grow our business and our ability to put our capital to work at attractive returns.

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

Thanks, Greg. First, I want to note that in addition to our press release today, we filed quarterly results on Form 8-K. They are both available online through EDGAR or through our website at BofIholding.com.

First, I will discuss our quarterly results on a year-over-year basis as well as this first quarter ended September 30, 2010 versus the fourth quarter ended June 30, 2010.

During the quarter ended September 30, 2010, BofI earned $4,832,000 or $0.45 per diluted share, compared to $3,708,000 or $0.41 per diluted share for the three months ended September 30, 2009.

Excluding the after-tax impact of gains and losses associated with our securities portfolio, net income would have increased to $5,068,000 for the quarter ended September 30, 2010, compared to $4,600,000 year over year and compared to $4,411,000 in adjusted net income for the last quarter ended June 30, 2010.

Net interest income was slightly higher in the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010. Average earning assets grew year over year by $132 million, and this benefit was partially offset by a decrease in the net interest margin.

The net interest margin was 3.55% compared to 3.88% for the quarters ended September 30, 2010 and 2009, respectively. The net interest margin for the first quarter of fiscal 2011 decreased by 8 basis points compared to the fourth quarter of fiscal 2010.

Provisions for loan loss were $1,600,000 for the quarter ended September 30, 2010, compared to $2 million for the quarter ended September 30, 2009, and $925,000 for the fourth quarter of fiscal 2010. The changes in loan loss provisions between the quarters are primarily due to increases or decreases in the level of write-offs in our portfolio of recreational vehicles.

Moving now to non-interest income. Non-interest income for the first quarter ended September 30, 2010 was $2,122,000 compared to a loss of $1,009,000 for the first three months of September 30, 2009, and compared to a gain of $899,000 for the fourth quarter of fiscal 2010. The increase was primarily due to a gain of $1,393,000 in first mortgages originated for sale and prepayment penalty fee income of $1 million for the three months ended September 30, 2010, compared to an unrealized loss on securities of $1,511,000 for the quarter ended September 30, 2009. The increase in mortgage banking gains was due to an increase in the origination volume of loans held for sale. The increase in prepayment penalty income was attributable to one specialty loan which the commercial borrower elected to repay early.

Non-interest expense or operating expense increased $1,922,000 to $5,199,000 for the first quarter of fiscal 2011, compared to $3,277,000 for the first quarter last year, and increased $390,000 compared to the fourth quarter of fiscal 2010. The increases were mainly the result of increases in compensation expense related to additional staffing added during each of the quarters. Year over year, professional fees increased $150,000 related to legal fees of collection costs; advertising increased $73,000, primarily due to increase in lead acquisitions of our single-family loan origination program and additional advertising for our multifamily origination program; and other general and administrative costs increased $220,000 due to increased costs associated with loan pool underwriting/processing, as well as telephone, supplies and other costs, due to increased account volume and additional employees.

Our efficiency ratio was 35.14% for the first quarter of 2011, compared to 35.97% recorded in the first quarter at 2010, and compared to 25.73% for the fourth quarter of fiscal 2010. The efficiency ratio was calculated by dividing our operating expenses by the sum of our net interest income and our non-interest income.

At September 30, 2010, our Tier 1 core capital ratio for the Bank was 8.57% with $54 million of capital in excess of the regulatory definition of well-capitalized.

With that quick summary, I'll turn the call back over to Greg.

Thanks. Operator, that concludes our prepared remarks. If you could open the call up for questions, we will be happy to take them.

Thank you, Sir. (Operator Instructions). Gregg Hillman, First Wilshire Securities Management.

Good afternoon, gentlemen. Greg, could you talk about deposits going forward for interest-bearing checking accounts and also for other deposits, what is going to happen and how will your average cost of deposits change over time -- in the long term, but also the near-term in the next couple of months or the next couple of quarters?

Andy, why don't you talk a little bit about deposit rolls that you expect on the CD side. I know we are having some repricing, how far are we through that?

Sure. Yes, we have about $50 million of repricing over the next 30 days in CDs. That repricing is coming in at right around 2.24%, so it's clearly repricing lower -- (multiple speakers).

Yes, it's about probably 100 bps gain roughly from -- (multiple speakers).

100 bps gain going forward -- (multiple speakers).

Yes, and that will also allow us to extend a bit as well even with that 100 bps gain because obviously -- those CDs are obviously have short duration now, right.

Going forward from that in the next quarter for Q3, we have $34 million repricing at 2.22%, and then $56 million repricing at 1.81%. So we've got -- the rates continue to stay lower longer, we've got some good repricing room built into our CDs.

Okay. And what's your strategy to bring in a large amount like more than -- hundreds of millions of interest-bearing checking accounts?

We have a variety of partners that we work with on the Internet and our advertising allows us to control volume. So there is obviously a component of advertising, there is a component of rate, and so we turn those on and off when we need to. We also have an outbound call center that can sell not only to our current customers, but former customers and a large database of other clients of online banks that we have access to. So all of those enable us to expand our deposit base when we need to. I'll use your opportunity even though you weren't kind of quite getting to this question, but I think it's an important thing to talk about.

We believe that our new online banking system is going to enable us to have much more success with our outbound call center to cross sell our checking products and savings products to folks who have maybe CDs or just savings accounts with us.

The new products, the new tools are very sophisticated. They are very good. In addition, the industry is obviously moving away from free checking. It's moving towards trying to compensate for the lost overdraft fees. Many of you have been with us a long time know we don't charge any overdraft fees. We have overdraft lines of credit, so we don't have any dollars at risk there unlike traditional banks. So we think that there's a whole market dynamic that is going to move along with our online platform that will allow us to be better at cross-selling to customers that have maybe fewer products with us than we would like.

Sounds good. And in terms of -- do you think your affiliate relationships will bring in large amounts of checking account deposits going forward?

We do. We have been focused on that area. We obviously have the BofI advisor program that has been successful with a relatively small investment. We view that as a growth avenue and an opportunity, and we're exploring quite a few opportunities there, and we actually have certain centers that are technologically in-process and it takes a while to get those up and running because they actually mimic the look and feel of a branded Internet bank, but they are in-process now and so those will be coming forward in the next number of months although it will take a while.

Okay, thanks. I'll get back in queue.

Joe Gladue, B. Riley & Co.

Hi, Greg and Andy.

Hi Joe, how you doing?

All right. I have a couple of questions about asset quality. I guess -- end of the fourth quarter on the conference call, you mentioned that about 41% of the REO had either been sold or was under contract for sale, and of course, REO ended up, up a little bit this quarter. Was some of those sales delayed or was there just an equal amount of inflow into REO this quarter?

We added a number of RVs into repossessed property this quarter in the neighborhood of about 600,000, which was a larger number than what we had done before. What we've found is that seasonally, it seems like this quarter is a larger quarter than average compared to the prior quarters. So I think that is the number one reason why it came up a little bit.

Andy's theory is that elsewhere in the country where it is not beautiful all-year around that people are using them for the summer and then dumping them, but we can't -- there does seem to be a little seasonal variation there.

And I guess I will refer back to another comment from there -- from last quarter. I guess there was one, and I think you may have referred to it in your remarks, but there was one large multifamily TDR that you expected to return to performing maybe in November, at some point in this quarter. Is that still on track?

That is correct. As we mentioned we have a TDR and once that becomes -- goes beyond six months and has performed adequately, we will recapture all the interest income that frankly we have been getting paid over the last six months, so just because it is on non-accrual doesn't mean we haven't been getting paid. So we will be able to recapture all of that income when it comes off.

I guess the loans serviced by Countrywide, could you update us on -- are you making any progress on solving that problem?

Well, we are having a lot of discussions to where it is right now is they have agreed to release the servicing, but for that they would like us to waive every representation and warranty on all the loans. So that is not acceptable. So we have some fairly defined and aggressive options. We obviously don't need their permission to declare a servicing default, so we are reviewing the impact of those sorts of options, and we'll be pursuing something aggressive related to that.

Okay. On the net interest margin side, I guess a lot of the decline in asset yields came on mortgage-backed security yields, and just wondering is that just all related to prepayments on those?

Yes, Joe. That's primarily the factor. The higher rate fixed are paying off and that's a significant factor.

All right. That is all I have for now. Thanks.

Sure.

(Operator instructions). Edward Hemmelgarn, Shaker Investments.

Hi, Greg and Andy. A few questions. Can you talk a little bit about the pace of origins in loans -- loan origins this quarter? Where do you think it's going to be relative to last quarter?

We're very, very positive. It's up across the Board. I said that the pipeline we had closed, we had only -- I believe, we had $30 million of single-family jumbo originations in the quarter. We have $50 million in the pipeline now and that really is still only generated by two or three people. So we added seven from the two so the pipeline is bigger than it ever has been. There's $50 million in the pipe on the gain on sale side, which is -- I'd say maybe 30% over where we were from the last quarter on that side, and then the average volume on the single-family jumbo side is probably up another 30%, 35%, and then multifamily is probably up 20% from a pipeline perspective.

So we, we're very positive about those groups. The wholesale group is looking at a number of transactions and we always get a lot of looks and there's always big numbers there, but we're always continually surprised by how bad a lot of the loans that other banks hold are. So we have deals there, but I don't ever forecast that group because it's much more difficult to be able to pin it down.

Okay. What about in terms of -- do you expect to originate more loans for sale this month or this quarter than last quarter? (multiple speakers).

Yes we do.

Your pricing was very attractive on the gain on sale this quarter. How does that look for the third quarter?

Margins are hanging in there. I think we felt a little slowness around the election time as people were thinking about the effect of QE2, but I think it's good and I think we don't have a significant change there. There may be little movements here and there, but we wouldn't expect them to be significant, at least not right now.

Okay, the loans that you haven't sold yet, you have not recognized a gain on that?

No, the loans are -- (multiple speakers).

They are marked to the market. We use fair value accounting for the portfolio, but that marks everything to the market, which would include hedge costs and all other commitment costs as well.

Does that flow through other -- well, I guess, because they are for sale. So you just -- you've recognized that currently?

We do recognize it currently.

Okay. In terms of expenses, you've dramatically ramped up expenses, appropriately so in the last year, and especially in the last quarter. What kind of a rate of growth would you expect to see now, obviously, because it's beginning to put some pressure on your ability to generate earnings growth?

Yes, I don't really think that's -- I think the latter comment I wouldn't say is right. I think the -- clearly what we do is -- I'll give you a broader sense of that then I'll talk about it in specifics.

The management team and the upgrades we've made there are -- I think that we don't have a ton of more folks to add there. There will be a few from a revenue-generating perspective as we start new businesses, but I think that's largely complete and I think that team is in place to grow the Bank significantly. So I think that that component of the cost and expenses is at least at a temporary plateau. I think the cost related to mortgage banking and others will grow with the revenue generated. So those businesses just have very different looking business models because they are very -- they are not capital intensive, so they just have very different looks. But what is certainly the case is that mortgage banking neither constrains the balance sheet when the loans are sold nor does it utilize capital. And so what you end up having is you often have larger fixed costs and as long as you're making the fee gain then it certainly is a profitable business. And we monitor each of those businesses. So I would say that obviously the cost structure that we had previously was an investing strategy where whole loans were much more available, and securities are much more available and that obviously is a less expensive thing --.

Sorry about that. I am not criticizing your investment -- (multiple speakers).

No, I am just --

Right, I think it was the right strategy.

Well, look, I mean, obviously, right, those opportunities aren't there anymore. If you can get things much more cheaply, it's always better to do that, but that strategy really is much less available. There's still opportunities, but they're just much less attractive than they were. But what I would say is this, there is a scale element to all the things we're doing, and so if you look for example at, let's say, the jumbo portfolio business, you have to have several management -- several members of management in that group, and we had two salespeople. We expanded that to nine salespeople and the members of management didn't change and those seven are all commission only.

So you might see compensation expense go through to the roof because those seven people do incredibly well but when they're getting paid 10 bps for every loan they originate and those loans make us a lot of money, it is hard to complain about it. And so I don't think you are complaining, but I just think it's important to recognize the shift in the business and what's going on there.

Okay. Do you expect then over -- let's say the next 12 months to see an improvement in the efficiency ratio?

I think it's possible. I think we still have a lot of -- we still have a lot of business growth that is going to occur, so I think that I wouldn't forecast a dramatic improvement there, but what I would say is that over time that we will be -- continue to be able to sustain where we are. I think where we are is a pretty reasonable place right now, and there maybe some bumps up and down a little bit but I wouldn't expect to be much better than where we are right now.

And lastly, Andy, can you walk us through and I know it's in your filings, but just when your high cost repos and your advances from the FHLB arena, when those high cost -- what are the maturities on those, when you would expect to roll of and what types of new rates that you would expect to get?

Sure. Well, let me just give you a flavor. On the reverse repos there's a total of $130 million that are there. The first repricing we have is $10 million and that's in Q3 of 2012, so that's still a ways out there and that's 4.55%. And then everything else there is beyond that. So we have a couple of -- more than a couple of years between two to four years between all or before all the reverse repos roll off. And again, those rates are in the low to mid-4s.

In the case of the FHLB advances, we actually have about $20 million rolling off in Q3 of this year, so that is going to be March at 4.11%. We have $5 million at 5.59%, that's Q4; and then Q1 of 2012, we've got $23 million at 4.68%.

A large portion of the roughly $250 million that's on the balance sheet is overnight. Right now, it's about $85 million. So you can take that out as --

Sure, I understand. I was aware that some of the FHLB stuff was variable and was overnight, I mean, I was mainly looking at the --.

I guess the point is that we have over the next two years a significant amount of repricing of higher cost, longer-term debt.

Yes, okay. Thanks a lot.

Mitchell Saks, Grand Slam.

Hi, guys. I got on the call a little bit late, so I may have missed this. Can you talk a little bit about NIM for sort of the near future, and things that are affecting it positively or negatively?

Absolutely. So on the positive side, we clearly have a repricing of some of the certificates of deposits that we discussed and that is obviously beneficial on that and that hopefully will continue.

On the negative side, particularly on the multifamily side, there's a significant competitive pressure on rates. They've dropped a lot. And so that is something that we haven't had to follow all the way down for a number of reasons, but there will be a reduction in the yield on our originated multifamily over time.

On the single-family side, we have been able to hold those pretty well. Obviously, in any portfolio as it ages, particularly as the portfolio on the multifamily side, most of them have step-down prepays. I know most of you know how this works but most of them were 5-1 hybrids and they have prepays that will be 5% in the first year, declining to 1% in that last year, and at some point in time many of those were originated at higher yields than exist in the market right now, so those will also reprice. So you have a series of pressures going back and forth and then finally securities yields, as Andy mentioned, are dependent on prepayments. And what you all know is that discounts, the prepayments can move yields back and forth.

So we have targeted a $350 million net interest spread and a 15% ROE on our originations. We've been able to hold that and we foresee being able to hold that into -- and through the next quarter. Obviously, I just cannot predict where the market goes from there, but we're able to hold that as we stand now and grow. So I think that's very positive, but we do see some competitive pressure in certain of our product areas.

On the wholesale side, is that an area where you can pick up yield or has that market tightened also?

It has tightened a lot, but there certainly is opportunity to pick up yield, and then we also have specialty products and specialty products groups that we're still working on and they are producing well for us and those have yields that are quite a bit higher, so when those are mixed in, they obviously help the overall spread.

And then wholesale is still continuing to do that and we expect it to continue to do so, but there is certainly a lot more competitive pressure in that market, a lot more folks who are out there bidding but we have a very good and well-known reputation in the business. We have people who really -- we're in front of pretty much everything that's out there, so we miss very few things and we have a reputation for being able to deliver and that makes a big difference as well. So that has been helpful in continuing to allow us to get deals.

Okay, thank you.

(Operator instructions). Gregg Hillman, First Wilshire Securities Management.

Andy, can you talk about jumbo? You talked about loan originations in the quarter for jumbo. What were the jumbo originations for last fiscal year ending June for the whole year?

Yes, bear with me just a second.

And then while you're doing that, where were the originations in multi-family?

Yes, the answer is --.

It will be almost nothing.

It's almost nothing.

So because I mean look the fact is, is that group didn't really start until maybe two months into the end of that year so it will be --

So here is the number. We did $12 million all year last year.

Gregg Hillman Okay.

If you have a low enough number, the growth rates look really good.

And then for multi-family, what were loan originations for the quarter and what's the pipeline currently? And where was it for last year?

Okay. So multifamily originations this quarter were $26.1 million, for last quarter they were $14 million flat.

And the pipeline is $65 million for this quarter, and you could think about that closing in 45 days. So we have a 45-day turn to get an accurate view -- if you take the 60, take 360, divide by 45, multiply that times 65, that gives you a reasonable estimate of a no-growth scenario for loan originations in that group.

And what was it for just single-family over the Internet, what did you do in the quarter?

As far as originations for sale, we did $60.6 million in originations for sale. That compares with $26 million, $26.1 million last quarter and compares with $116 million all-year last year.

And all-year last year for multi-family was what?

All-year last year for multi-family was to $21.3 million, but we did more in multifamily this last quarter than we did all year.

Okay, and Greg, when would you expect the jumbo to exceed multifamily?

I would never pick winners like that. I'd have each of my business unit heads being very angry. I think that they should both compete for that without bias. In all seriousness, I would say that the single-family group, given the size of that market and the transaction opportunity out there, it is hard to say when it should exceed it, but we're very optimistic that we're going to have some very strong growth in that business. We're seeing it in the looks, we're seeing it in the pipeline, we're seeing it in the relationships, and many of these relationships are incredibly large.

So they're relationships with people who do tens of billions of dollars of conforming and have no outlet for jumbos whatsoever. So it really is a matter of getting agreement, getting the processes in place and things like that. There's not an issue of market, it is an issue of just getting these through the process and in place.

So there is a lot of opportunity there, but I'm not going to make that prediction -- we've got multifamily, we expect to grow very well also.

And do you have the right computer system in place to interface with large mortgage brokers and serve them properly, and also a process in place to do good underwriting for jumbo on a large scale?

The answer to the systems' question is, yes, we do. The one important thing to note about the interaction that we have with brokers and other correspondents is that there's no delegated underwriting. So the underwriting is the same whether it would be for a single-family, retail loan, or a jumbo retail loan, or one through the wholesaler correspondent channel. There is no delegation whatsoever and I don't intend to do any delegating.

So the process is really utilization of those individuals for attraction of the customer and gathering certain information. They can't order appraisals; they do not have any authority to do underwriting, so it's simply a facilitative role.

And you have your own process in-house, do you think it's adequate to handle large volume and not have deteriorating underwriting standards?

Well, let me put it this way. I'll only take the volume that I can, and in fact it is funny you say that; it's exactly the opposite, right? The more looks we get at deals, the fewer we have to take. So I think, obviously there is a balance, but we will continue to have to add infrastructure, underwriters and personnel to accommodate the growth we expect in these businesses. But the challenge, you are correct, is one of just continuing to make sure that the operations are there. Now the person who is running that group is incredibly experienced, has managed very large organizations and really knows what he is doing in this exact arena.

So we really have -- this is a group of the Thornburgh folks. They have been there and done this and so it's just a matter of getting them the resources and making sure that they are there. The only difference is really is that our credit standards are much more conservative on a much better value of collateral given the decrease in market values of the collateral that we're lending on. So there is a very favorable competitive dynamic there. There is favorable valuations and we always have to continue to make sure that, and partly, it's been my concern that we don't go too full bore into some of these relationships until we do have everything settled that has stopped us from pushing even more aggressively there, but I believe we are really getting to the point and proving this out where we're able to expand it.

Okay. Are you going to get -- have lower capital requirements in the jumbo or is that considered to be more risky by the FDIC that you have like a higher capital requirements to support that type of loan?

There is no differentiation based on loan size on either risk-based capital or core capital related to this. I believe that based on the statistics we have given you and on the safety of the loans we are doing that the regulators will be highly pleased about these loans. We have been keeping them in constant communication about our business plan and so there is no additional capital requirement for single-family loans. The only difference is that, as you know, probably know, single-family loans are 50% risk weighted, commercial are 100%, qualifying multifamily which has a certain meaning are also 50%. So what that does mean is that from a risk-weighting perspective, these are two divisions that are very desirable risk weightings and the only ones that are better are AAA bonds and stuff which have 20%.

Okay. I think that is fine. And Andy, just finally, in terms of just the net income when it's the $4.8 million versus the $5 million, what is the difference between those two?

Yes, if you look on the income statement we put in the 8-K and you look at the loss on securities for that period, it is $391,000. So that is simply added back on a pretax and then we tax effect that and that pushes it up. So if you take 60% of $391,000 and add it back to net income, you will come up with the $5 million figure.

And Gregg, one more thing, when you ask this many questions on a call there's a requirement, you have to buy stock finally.

Okay. And just so I'm clear, so that was a loss on securities, the $392,000?

Yes, yes. So that's why it's increasing.

And if you keep on waiting, it is only going to get more expensive for you.

Okay, thanks very much.

And there are no further questions in the queue at this time.

All right, thanks everybody. I appreciate your time, and I look forward to talking next quarter.

Thanks guys. Bye.

That does conclude today's presentation. We thank you for your participation.