Axos Financial Inc (AX) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by. Welcome to BofI Holdings, Inc.'s First Quarter Fiscal 2015 Earnings Conference Call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the call will be opened for questions. (Operator Instructions) This conference is being recorded today, Tuesday, November 4, 2014.

Now I would like to turn the conference over to Mr. Johnny Lai, Vice President of Investor Relations. Please go ahead, sir.

Thank you and good afternoon everyone. Joining us today for Bofi Holdings, Inc.'s first quarter 2015 financial results conference call are the Company's President and Chief Executive Officer, Greg Garrabrants; and Executive Vice President and Chief Financial Officer, Andy Micheletti. Greg and Andy will review and comment on financial and operational results for the first quarter and they will be available to answer questions after the prepared remarks.

Now, before we begin, I would like to remind our listeners that on this call, prepared remarks may contain forward-looking statements that are subject to risks and uncertainties and that management may make additional statements for any response your questions. Therefore the Company claims the protection from the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements related to the business of BofI Holding, Inc. and its subsidiaries can be identified by common-use forward-looking terminology, and those statements involve unknown risks and uncertainties, including all business-related risks that are more detailed in the Company's filings on Form 10-K, 10-Q and 8-K with the SEC.

This call is being webcast, and there will be an audio replay available in the Company's Investor Relations website located at www.bofiholdings.com. All the details of this call were provided on the conference call announcement and in the press release today.

At this time, I would like to turn the call over to Mr. Greg Garrabrants, who will provide opening remarks. Greg, the floor is yours.

Thank you, Johnny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to BofI Holding's conference call for the first quarter of fiscal 2015 ended September 30 2014. I thank you for your interest in BofI Holding and BofI Federal Bank. BofI announced record net income for its first quarter ended 2015, of $17,841,000, up 46.5% when compared to the $12,182,000 earned in the first quarter ended September 30, 2013, and up 11.4% when compared to the 16,010,000 earned last quarter. Earnings attributable to be advised common stockholders were $17,764,000 or $1.20 per diluted share for the quarter ended September 30, 2014, compared to $0.85 per diluted share for the quarter ended September 30th, 2013 and $1.09 per diluted share for the quarter ended June 30, 2014.

Excluding the after-tax impact of net gains related to investment securities, core earnings for the first quarter ended September 30, 2014, increased $6,460,000 or 53.7% compared to the quarter ended September 30th, 2013. Other highlights for the first quarter include total assets reached $4.825 billion at September 30, 2014, up $422 million compared to June 30th, 2014 and up $1.5 billion from the first quarter in 2014.

Total deposits reached $3.262 billion, up $220 million compared to June 30, 2014. Return on equity reached 18.61% for the first quarter. Our net interest margin was 3.98% for the quarter ended September 30th, 2014, a 4 basis point decrease over the quarter ended June 30th, 2014, and a 12 basis point improvement over the quarter ended September 30th, 2013. The efficiency ratio was 34.81% for the first quarter of fiscal 2015, down from 41.37% for the first quarter of fiscal 2014 and 34.87% in the fourth quarter of 2014.

Our loan units had another great quarter with $1.005 billion in gross loans originated in the first quarter. As a result, the Bank achieved good quarterly loan growth with loan balances growing 12.1% linked quarter at an 84.4% annualized rate. The excellent performance of our lending group is reflected in $426.3 million of net loan growth this quarter, a 62.7% increase over the first quarter of 2014. The $1.005 billion in production consisted of $88 million of single family agency eligible gain on sale production, $17 million of single family non-agency eligible gain on sale production, $452 million of single family jumbo portfolio production, $149 million of multi-family portfolio production, $300 million of C&I and specialty asset production.

Additionally, our warehouse lending division originated $387 million of single family production in the first quarter. Taken together, the bank originated $790 million of loans in single-family, multi-family and C&I lending, an increase of $119 million over the prior quarter. Our C&I lending business continued to show strong results with production of $190 million.

Our outlook for loan growth remains positive with record loan pipelines of approximately $939 million at October 31, 2014, consisting of $481 million in jumbo loans, $156 million of multi-family loans and $217 million of C&I loans. We've seen our single-family agency and warehouse lending pipelines increase so far in October and November. Our centralized mortgage operations allows us to efficiently deploy resources between single family agency and single-family jumbo lending quickly, take advantage of shifts in the marketplace. We are pleased with the risk adjusted returns we are earning on our jumbo mortgage production and demand remains strong. We also remain committed to growing our single-family agency mortgage production. The diversity of our asset generation model continues to serve us well. We have infrastructure and expertise to sell our portfolio, our single-family and jumbo mortgages, multi-family and specialty finance production as well as our C&I loan origination.

The flexibility allows us to maintain a high return on equity through various competitive and market cycles without taking any outsized interest rate of credit risk. Additionally, we continue to invest in resources to expand our expertise and production capabilities across a broader range of lending categories in preparation for future opportunities that may emerge. We continue to be pleased with the credit quality at the bank. Our non-performing assets as a percentage of total assets were down slightly from 55 basis points at the end of September 2013 quarter to 52 basis points at the end of the quarter ended September 2014.

We are often seeing gains on the sale of our OREOs versus first our portfolio mark in the relatively few non-performing assets, we have given the significant recovery in the housing market. We continue to have an unwavering focus on credit quality of the bank and have not sacrificed credit quality to increase origination. For the first fiscal quarter's originations, the average cycle for single-family agency eligible production was 762 on an average loan to value ratio of 64%. The average cycle for the single-family jumbo production was [7 to 16] with an average loan to value ratio of 62%. The average loan to value ratio of the originated multi-family loans was 62% and the debt service coverage ratio was 1.38.

Our strong credit discipline and low loan to value ratio of portfolio had resulted in consistently low credit losses and servicing costs. At September 30, 2014, the weighted average loan to value ratio of our entire portfolio of real estate loans was 55%.

Turning to the liability side of our balance sheet, I'm pleased with the progress we have made in growing and enhancing our deposit franchise. Our goal is to increase our share of transaction accounts and develop deeper customer relationships. Over the past 2 years, we have successfully shifting our deposit mix to become more transaction focused. We grew checking and savings deposits by over $1.1 billion from September 30, 2013, representing growth of 91.1%. Transaction accounts now make up 77.7% of our deposit base, up from only 44.6% from a year ago. The diversity and quality of our deposit base position us well to fund our future growth in a variety of interest rate environment.

Our Business Banking Group had another solid quarter growing deposits by almost $300 million linked quarter to $1.7 billion at September 30, 2014. The business bank has over 3,000 accounts with 75% of balances comprised of checking account. Our core value proposition of saving business is 30% or more on a monthly fees and providing good customer service is resonating with a growing base of clients who are very comfortable working with the (inaudible) bank. Through our internal research group, we continue to identify businesses nationwide with the high propensity towards utilization of our treasury and cash management services.

We're also investing in our infrastructure to upgrade systems and services to compete for larger account. All of these factors combined make us optimistic about our opportunities to continue to grow our business deposits. I am equally excited about our consumer deposit franchise given the strong value proposition we offer. Our structural cost advantage, allows us to offer a value proposition that's not economical to our higher cost competitors. We have been aggressively improving our organizational capabilities to grow our consumer deposit adding senior talent in data analytics, digital marketing and customer experience management. We are building customized software that will allow us to further optimize our application funnel and deliver better real-time targeted cross sell offers to our customers.

We recently separated our direct banker customer service function from our outbound sales function and expanded the outbound sales function to allow us to better -- to get better consumer deposit penetration from the customer contacts generated throughout the organization and from third parties.

On the loan side, I believe we'll be able to sustain our loan yields. Our jumbo pipeline are at or near records and pricing remains consistent with levels we have seen over the past quarters. As we continue to expand the size and quality of our distribution network, and enhance our inside sales capabilities, we continue to see opportunities to make low loan to value jumbo mortgages nationwide in strong markets to credit-worthy borrowers.

While the multi-family market has been more competitive, we are not seeing meaningful degradation in our loan yield. Our focus on smaller dollar and multi-family loans that larger competitors have less interest in has allowed us to grow our multi-family loan book opportunistically without compromising on credit structure returns.

Lastly, I feel good about our C&I lending capability. Our C&I lending group has extensive experience across a variety of loan types, including lender finance, factoring, leverage lending, equipment finance and leasing. We have deliberately chosen to focus the majority of our attention on lender finance because it provides the best risk adjusted returns today providing yields that are accretive to our overall loan yields. However, we have the infrastructure and expertise to enter C&I lending categories if and when the credit markets [turn] and provide more attractive risk-adjusted returns.

Because we have a robust asset generation engine and a diverse high quality deposit base, I believe we'll be able to maintain our net interest margin of 3.80% to 4% range. We continue to invest in our marketing and data analytics infrastructure to further enhance our ability to grow deposits through our low cost channel.

We recently signed an extension of exclusivity for our transaction of H&R Block. Several weeks ago, we announced the regulatory approval of our purchasing assumption agreement of certain deposits from H&R Block Bank will not be completed in time for the 2015 tax season.

Our expected relationship with H&R Block consist of two components, only one of which requires regulatory approval. The first, which requires regulatory approval, is the assumption of deposit liabilities of H&R Block Bank. These deposit liabilities consist of individual retirement accounts and continuing [AML] prepaid card deposit and cards issued prior to BofI becoming the custodial bank over the terms and conditions of the AML card deposit agreement.

The second of the program management agreement under which we will provide H&R Block branded financial services products, specifically AML prepaid cards, refund transfers and AML advanced lines of credit through H&R Block's retail and digital channel. This agreement does not require regulatory approval and the Bank and H&R Blocks are free to enter this agreement at their discretion. These exact products have been offered under an OTS or OCC charter for the last seven years and we are not changing any aspect of these products under the program management agreement. The program management agreement has three primary components; first, the bank will be serving as the sole issuer and depository institution for H&R Block's Emerald Card, one of the largest prepaid card programs in the country with approximate 3 million active cards.

Second, the bank will (inaudible) processing Bank for H&R Block's refund transfers. Third, we will originate all Emerald's advance loans and retain a percentage of the Emerald's advance loans that we originate through H&R Block Bank each year. Although the bank and H&R Block are free to enter into the program management agreement at any time independently of the assumption of the deposits, we expected that we would execute the program management agreement concurrently with the closing of the deposit assumption transaction.

The benefit of the concurrent execution from BofI's perspective was to provide regulators an opportunity to comment and gain a deeper understanding of the program management agreement. Unfortunately I did not add further specific updates on timing of the approval of the deposit assumption transaction.

I'm proud of our 34.81% efficiency ratio we attained this quarter, a 34.81% efficiency ratio despite our investment in our management team, data analytics capabilities and our technology and compliance infrastructure as a testament to our culture of continuous improvement and ongoing efficiency initiatives.

The majority of the incremental expense associated with the pending H&R Block transaction has been incurred and should stay relatively flat for the next few quarters. As I mentioned previously, we had expected these additional expenses to push our efficiency ratio closer to 37% to 38% in the short-term. We will continue to work hard to become more efficient across our entire bank while making the appropriate investments in future growth initiatives.

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

Thanks, Greg. First, I wanted to note that in addition to our press release, our 10-Q was filed with the SEC today and is available online through EDGAR or through our website at bofiholding.com. Second, I will discuss our quarterly results on a year-over-year basis, meaning fiscal 2015 versus fiscal 2014 as well as this quarter ended September 2014 versus the fourth quarter ended June 30, 2014.

For the quarter ended September 30, 2014 net income totaled 17,841,000, up 46.5% from the first quarter of fiscal 2014. Diluted earnings were $1.20 per share this quarter, up $0.35 or 41.2% compared to the first quarter of fiscal 2014. Net income increased 11.4% compared to the fourth quarter ended June 30, 2014.

Excluding the after tax impact of gains and losses associated with our securities portfolio, core earnings were $18,485,000 for the quarter ended September 30, 2014, up 53.7% year-over-year from the 12,025,000 in core earnings for the first quarter of fiscal 2014 and up 14.7% from $16,111,000 in core earnings for the last quarter ended June 30, 2014.

Net interest income increased 16,765,000 during the first quarter ended September 30, 2014 compared to the first quarter of fiscal 2014 and increased $4,379,000 compared to the fourth quarter ended June 30, 2014. This was a result of increases in average interest earning assets, combined with a decrease in the cost of funds resulting in a net interest margin of 3.98% this quarter compared to 3.86% in the first quarter of fiscal 2014. The cost of funds decreased to 1.01%, down 25 basis points over the first quarter of fiscal 2014 and down 8 basis points compared to the quarter ended June 30, 2014. Provisions for loan losses were $2,500,000 this quarter and $500,000 for the first quarter of last fiscal year as well as $2,250,000 for the fourth quarter ended June 30, 2014. The increase this quarter compared to last quarter was the result of higher charge-offs and growth in the loan portfolio,

Non-interest income for the first quarter of fiscal 2015 was $5,249,000 compared to $6,976,000 in the first quarter of fiscal 2014 and compared to $4,723,000 for the fourth quarter ended June 30, 2014. The declines in the first quarter of fiscal 2014 is primarily the result of lower gains on sales of other assets, partially offset by higher mortgage banking income and banking services fees. Non-interest expense or operating costs for the first quarter ended September 30, 2014 was $17,446,000 compared to $14,514,000 in operating costs for the first quarter of fiscal 2014 and compared to $15,766,000 in operating costs for the fourth quarter of 2014.

For the first quarter, year-over-year salaries and related costs were up $1,915,000 related to additional staffing. Advertising and promotional increased to $717,000; data processing and internet expenses were 300 -- up $329,000; and other general and administrative costs increased $462,000.

These increases were primarily due to the growth of the banks' lending and deposit operations. For the first quarter ended September 30, 2014 compared to the fourth quarter ended June 30, 2014 salaries and related costs were up $921,000 due to additional staffing. Data processing and internet expenses were up $209,000 and other general and administrative expenses increased $512,000 primarily as a result of the improvement in mortgage-banking related activities.

Our efficiency ratio was 34.81% for the first quarter of fiscal 2015, compared to 41.37% recorded in the first quarter of fiscal 2014 and compared to 34.87% for the fourth quarter of fiscal 2014. The efficiency ratio is calculated by dividing our operating expenses by the sum of our net interest income and our non-interest income.

Shifting to the balance sheet. Our total assets increased $421.9 million, or 9.6%, to $4.825 billion as of September 30, 2014, up from $4.403 billion at June 30, 2014. The increase in total assets rose primarily due to an increase of $426.3 million in loans held for investment. Total liabilities increased $380.5 million, primarily due to an increase in demand and savings deposits of $281.1 million, partially offset by a decrease in time deposits of $60.9 million and the maturity of $10 million of reversed repurchase agreements.

Stockholders' equity increased by $41.3 million or 11.1% to $412.1 million at September 30, 2014, up from $370.8 million, at June 30, 2014. The increase was primarily the result of our net income for the three months ended September 30, 2014 of $17.8 million as well as the sale of common stock of a net $20.6 million, vesting and issuance of RSU's added $0.7 million and $2.3 million was added as a result of unrealized gains or losses in comprehensive income. We have a decrease of $0.1 million in dividends associated with preferred stock. At September 30, 2014, our Tier 1 core capital ratio for the bank was 8.72% with $241.7 million of capital in excess of the regulatory definition of well capitalized.

With that, I'll turn the call back over to Johnny.

Thanks, Andy. Operator we are ready to take questions.

Thank you. (Operator Instructions) Andrew Liesch, Sandler O'Neill Partners.

Hi, can you hear me?

Yes, Andrew.

Good afternoon. Okay. So, just want to take a look at the securities yield here, it looked like it did fell by over 100 basis points, just kind of curious what drove that.

What I think you need to go back Andrew is look at the way we broke out the FHLB stock. I think if you look at our 8-K we merged that FHLB stock with the yield and then we split it back out this period. So that's -- so I think that's what's throwing you off a little bit. Now that said, I am very happy that we're invested in FHLB stock because an 8% dividend is pretty darn nice. But I think it's simply the way it got compiled. If you go back and look at whether with the last quarter's rate on the 8-K was blended with that and then we stripped it out.

Okay. I apologize. Thank you. And then, I'm curious with the loss looked like in the 10-Q that you're now screening liability sensitive. Just curious, what sorts of actions you are taking to maybe make it more neutral or asset sensitive?

Well, sure, I led (inaudible) and Greg will catch anything that I go through. I think our basing was looking to continue to grow our deposits, as you know, we were planning on adding the core deposits from the H&R Block transaction, which was being planned through [9-30] in October. Subsequently, we learned that that transaction was potentially going to be delayed. So, we're looking at increasing to backfill for those deposits.

Okay, thank you. And then just one last one. Greg, I think you said that the originations for the commercial loans are around $300 million for the quarter, is that correct. And if so, I am just curious where that shows up in the loan breakouts, by category?

So I think the biggest component I think, Andrew, If you lie the loan component side by side, is in the factoring increase. So that's -- that 300 include that factoring number.

Okay. I guess just look at that number [it looks to go up] to 132 from 119.

Right. So that's from the as well as the other increase in [CI]. So, we will also strip out the multi-family increase as far as structured lender payments for you. We'll take it offline and I will break those pieces.

Okay. Thank you.

Julianna Balicka, KBW.

Hi, good afternoon.

Good afternoon, Julianna.

Good afternoon. I have a couple of follow up questions; one, in terms of your loan to deposit ratio being elevated from the H&R Bank deal closes, does that mean that we should be thinking about expecting or (inaudible) kick down in the next couple of calendar quarters until the deal actually does come through.

We are expanding our marketing on the deposit side, adding additional individuals on our outbound consumer side, and really continuing to aggressively push our deposit production volume up. So, we're already seeing quite a nice increase this quarter as a result of a lot of those sales efforts. And so we're really spending a lot more time on scaling the outbound sales team and other things that we have a lot of control over. We have a pretty good formulaic method of understanding how much each bound -- outbound sales person can produce.

And so we feel good we'll be able to grow our deposits. And so we do intend to bring that ratio down and we had a nice, a very set plan on the H&R Block side, but given the fact that's delayed, we're taking other significant action in order to ensure that it doesn't say any but the deposit growth supports our asset growth.

So theoretically once the H&R Block Bank deal closes you could very quickly (technical difficulty) 100% if you are already (inaudible).

Right. That's possible. I mean that is very possible and I just think though it's prudent from the perspective of just making sure that we want to get the, that -- the right amount of deposit growth in place and so that could occur. But that's okay. At our growth rate, that will quickly come back in the balance.

Sure. And then, in terms of your business banking that grew very nicely linked quarter to $1.7 billion. So, is that growth curve maturing or it's just a kind of linked quarter increase that you should be thinking about for several more quarters. I mean it's been growing strongly linked quarter for several quarters already, so I mean at what point do we think about maturity there?

I don't think we're anywhere close to maturity there and in fact, we have some great and interesting opportunities on that side. We have a new cash management system that should be installed, probably in another three months and that's going to really open up a lot of opportunities for us for some larger accounts. What I've been just so pleasantly surprised by the fact that business customers are not having any discussion really at all or for the segments that we're targeting about need for branches.

And they are solely focused on the service component and the technology component. And I think our cash management technology is good, it does not in every respect up to speed in certain small areas and there has been certain elements of things that when we've come up competition in some larger accounts where we found some holes in our cash management platform that we're filling with this upgraded software.

So we don't think that it's mature at all. And we're continuing to grow that book and add personnel and focus there. So, we think that's going to be a big important part of our growth going forward. And we really are -- I'm even more pleasantly surprised than I thought I would be about the response that we get from businesses. There really like the value proposition, they like the model of having energetic in place representatives who aren't taking them out for lunch, but are rather just there for them and are really responsive to their needs.

And I think that all of that's working well with our fee structure there, we're saving people a lot of money and they're pretty happy about it.

That is good. And then the other side of that is that your cost of funds decreased (technical difficulty) that could decrease with the growth initiatives you have in place, assuming no rise to short-term interest rates.

Yes, I think they are probably modeling out something that's relatively flat. There is probably the right approach right now. I mean from my perspective, we have a great and profitable growth franchise going. And over the longer term, obviously, we do believe that a trade-off that we can really continue to work on our service element and continue to push our deposit pricing down, which is what we've done over the last couple of years. I think that if the Block deal had happened, I think that it would have been easier for us to continue that downward trajectory.

And I think right now, I just need to make sure that I'm continuing to be able to fund our growth. So I think it's probably more of a leveling off would be more appropriate right now.

Okay. And then switching to a couple of questions on the expense side and I'll step back, and in your remarks you had said that that cost incurred, that you are anticipating incurring (technical difficulty) H&R Block already in the run rate but then you also seems to have some further optimization on your existing cost. But should we be thinking about downward bias towards expenses from here, because of cost savings measures?

Yes, that's an interesting question. So when we think about cost savings, we really have -- there is three primary ways we think about it right, and then we bucket them up into a call that's a set of all kinds of miscellaneous stuff and those are everything from how we deal with expense accounts to the ordering of supplies and all that kind of stuff and then there's a vendor side of it which is really looking at the larger vendor regularly occurring items that we have from a cost perspective. And the next component of it is really personnel. And when we look at -- we've gone through a very substantive initiative to document and to really hone in on every process that exists at the bank, and we've got about 1,600 processes that we've gone through and we've done a lot of work on our triage in those processes to make sure that we're, we know exactly how many times they are occurring and whether there is efficiency opportunities and what those efficiency opportunities are in each process.

And the amazing thing is that despite how efficient we are, there's still lots of things that could not only be made more automated and also I think therefore more safe and more likely to be correct from a regulatory and compliance perspective, but also more efficient.

Now that being said, I think it's always a balance between investing in the future and optimizing short-term earnings. And so we've been spending a lot of money on enhancements to our management team, enhancements to our compliance infrastructure, our data management capabilities, our research teams to continue to make sure that we're staying ahead of our growth from a infrastructure perspective. So you know we've been continually kind of guiding into that 37, 38 efficiency ratio range and that we -- I just unfortunately haven't been able to hit it and we keep on coming up at 35. But we're still investing a lot in our business and we're going to continue to do so. So, I think that it, I wouldn't want to see you kind of start trying to push that efficiency ratio down. But I think the reality of our business model is without all those substantive investments and looking at a lot of the new things that we look at and are continuing, those investments and growth I think our business model is really quite amazingly efficient. And it could run below there but I just wouldn't expect that for a while because we're going to really invest in our future capabilities. So, to make sure that we have the continued growth.

That makes sense. And then could you at least touch on when the H&R Block Bank deal actually closes, what will be the expense number that will flow on to your income statement from the people that you can transition over or is there going to be a direct expense increase related to H&RB.

From the people perspective, there may be a few more folks that are brought on in particular capacities based on work load balancing around BSA alert monitoring and things like that. But we've really decided that we really bulked up our compliance team, IT team and others over the last year. And we really decided that those folks given the regulatory environment that exists and all the opportunities that we have as a bank and how quickly we're growing that we're committed to those individuals and obviously we expect our deal to close, but whether we do or not, whether that deal closes or not we believe that those folks are valuable parts of our organization.

We don't think that we're going to really need to add much in the way of personnel expense. There is some expense associated with the retention of 10% of the Emerald advance loans. And that's simply because there is interest expense and then loan loss associated with that. But I would say it would be reasonably fair to say that economically modeling from the standpoint of H&R Block revenue, I don't really think there's going to be substantial additional cost associated with it. I mean, there may be some, but it's not going to be significant. It will be very small.

Okay, that makes sense. I have final question on your setback. We (technical difficulty) is up this quarter, so could you comment on that whether or not there is anything to comment about or rather it's just a matter of temporary [funding].

Yes, we had a -- there is a couple of loans, mostly single family that are very low loan-to-value ratios. One is in Manhattan, one is in Malibu. They are both around 50% on our original appraisal values. They're pretty new loans and one of the guys has had the tax line issue and some other things. I don't think there is any -- I think that in one of those case that loan will go back to performing, unfortunately at that nice 50% loan to value and Malibu, always looking for a second home up there -- but. And then the other one I think we're well protected on it and it -- I don't know if it will cycle through or not, but I think it would be highly unlikely that there would be any loss associated with that. And I think it's just -- it's just really a one-off and (inaudible) any pattern there.

Okay, very good. That makes sense. And I'll step back now. Thank you very much. Great quarter.

Thank you.

(Operator Instructions) Edward Hemmelgarn, Shaker Investments.

Yes, still you have a bit of a decrease in your originations of non-agency loans for gain on sale, I think it's like the multi-family and your jumbo. Is that a change in mix or is it just that you basically haven't needed, you're trying to decrease the number of that you sell.

Yes, there is -- and those are two really kind of different markets and so let me go through each one specifically. The single-family non-agency jumbo market was primarily a securitization market with us selling into a number of securitization conduits. And that market has gotten quite choppy and in a lot of respects, what's happened is that market has become inferior from an execution perspective to bank balance sheet lending. And so while overall that's very beneficial to us, it kind of has resulted in a shift to more of an arms structure for the loans that we have retained on the balance sheet, the [5-1] ARMs. So that's what's going on with that market

Now frankly, we have the ability to sell those loans too, although there -- we think they're very good risk-adjusted return. So we, in general, keep the majority of them. However, we would be selling those more to smaller banks, regional banks, things like that, maybe an insurance company if you wouldn't be really selling them through to securitization conduits. So that's really the difference on the single-family side. In a multi-family side, the multi-family loans really are of a fairly homogenous, they're all 5-1 ARMs, there really is no securitization on portfolio product and we just we sell those loans to a variety of banks and other buyers, not for the securitization market and that really, so there really isn't a separate set of originations. There we have it, we have some that are categorized as per sale, but they really are the same product set.

Second thing then is, is the -- when you look at what you've accomplished so far in 2014, what are the, I guess the signatures that are new areas that are driving growth that you've, kind of gotten into [shipment in] say in 2013 and earlier.

Right. So, I'll talk about that in several ways. First, I'll talk about the distribution side of the business and then I'll talk about product side. So on the distribution side, there is a lot we're spending time on to refine our model. So we're much better at being able to take the data and customer contacts that we have and do a much better job of selling customers on products they need at the right point in time. Obviously every time if you walk into a branch and someone tries to sell you a mortgage, that's not a good experience, but if you know from a data perspective that you can save somebody money on a mortgage and you get him at the time that's relevant. That makes a big difference.

So we're spending a lot of time on thinking about how to continue to improve our distribution and that includes lots of effort on the digital marketing side vastly improving our infrastructure there implementing a global CRM that. We have a CRM now crossed, but it doesn't work perfectly across business units, all those kind of things and so that's improving the distribution side of the business. And obviously, the H&R Block ideas and emblematic of components of that because there's lots of opportunity to expand product sets and cross sell in there and that sort of thing. On the -- and then on the product side, the idea the C&I lending business is that it is built out from an infrastructure perspective, as a very much of a full service C&I lending business.

And although we may focus on particular sectors at any one time, we have great ability to generate asset volume through shared national credits and things like that, it's just that those -- currently, those markets is really and aren't very attractive from a risk adjusted return.

So the C&I side covers a wide thwart of commercial lending opportunities. On the single-family side, we have a product, a home equity product that's up, it's on COSTCO. We've always had a home equity product and frankly, I would say, it hasn't -- we've always had a very conservative stance on the risk adjusted return we need there and the reality of that product is that we believe that single-family jumbo mortgages right now are just simply a better risk adjusted return.

However, that doesn't mean that we don't have the product available and we certainly could originate it more aggressively if we wanted to, but the reality of where we are from a business with the loan growth that we have is we're picking spots that we feel really, really good about growth. And those are the areas with best risk adjusted return and so we're balancing out making sure that we have all the capabilities to do other products. And at the same time are not necessarily focusing on products that we think are not best risk adjusted returns. On the business banking side, and on the deposit side, it's a little bit different in the sense that we do have, and we do have some very interesting things we're doing there.

We've been continually experimenting with moving around what I would call the level of customer service versus -- a personalize customer service versus a more automated model and playing with different elements there both on the business banking and the consumer side.

And what we're seeing is that increasingly customers are caring less and less about branches in any respect but for certain types of customers they have more need to feel a very -- a personalized relationship with bankers. And so, we're working through what I would say is a little bit more of a personal relationship model for higher end customers that we're going to break out from a branding perspective and focus a little bit more on that. And we have plenty of those customers in our queue. And what we really need to do is just think about the right way of approaching their -- their customer service because if you looked at a bank like First Republic and you look at what their value proposition as to their customer, it actually isn't as strong as what we believe we can offer over time.

So we think that playing with those elements are there on the debit reward side, our current rewards checking account is very good and it's growing dramatically. (Technical difficulty) We also think that given our interchange advantage of cash back rewards product there might be something that will work and we're working on some of those things.

So, as far as new lending products like any other consumer products. I'll say that we have teams of people that we've hired and continue to look at those different types of products and work on what those would look like with us what our value proposition would be, how would we differentiate ourselves and those sorts of things.

And so we are investing in those things. But realistically, where we are right now as we just have such incredibly good loan growth in segments that are very, very attractive that it's a little bit tough to really push too much on things that aren't as profitable.

Okay. Thanks.

(Operator Instructions)

Alright. Operator is anybody else.

No.

Okay, all right, thank you very much everyone and we will talk to you next quarter. Thank you.

Thank you. Bye.

That does conclude today's conference. Thank you for your participation.