摩根士丹利 (MS) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Saxon Capital first quarter earnings conference call. [OPERATOR INSTRUCTIONS]

At this time then I'd like to turn the conference over to Ms. Bobbi Roberts.

Please go ahead.

Thank you, Ken, and good morning and welcome to Saxon Capital's 2006 first quarter conference call.

Joining me this morning is Mike Sawyer, our Chief Executive Officer, and Rob Eastep, our Chief Financial Officer.

We issued a press release yesterday evening, which is available, along with our summary of financial data, on our web page at saxonmortgage.com.

As is customary, I'd like to begin with the following information on forward-looking statements.

Statements in this discussion reflecting our future plans and strategies are forward-looking statements that are based on current expectations and assumptions.

These expectations and assumptions are subject to risks and uncertainties, which could effect our future plans.

Saxon's actual results and the timing and occurrence of expected events could differ materially from our plans and expectations due to a number of factors.

We refer you to the press release issued yesterday, as well as our annual report on Form 10-K for the year-ended December 31, 2005, for more information about factors that could effect our business and results.

You should be aware that all information in this discussion is as of May 8, 2006, and e -- excuse me, May 9, 2006, and we undertake no duty to update any forward-looking statements.

I'd now like to turn the call over to Mike Sawyer.

Thank you, Bobbi.

Good morning everyone and welcome to our first quarter conference call.

During the first quarter, Saxon remained focused on our strategy of growing our portfolio profitably, improving our operational efficiencies, and lowering our net cost to produce, all the while maintaining our disciplines of credit, pricing, and servicing.

We did see the normal seasonal trends that have historically occurred in the first quarter, lower delinquencies and lower production.

Our total delinquencies were down 18% from the fourth quarter of 2005, which drove the decline in our provision for mortgage loan losses.

Delinquencies compared to first quarter a year ago increased only 4%, while the portfolio grew by over 7%.

Production did decline by 18% in the fourth quarter -- in the first quarter from the fourth quarter and 7% from the first quarter of 2005.

Our net cost to produce was a very stable 246 basis points compared to 245 basis points in the fourth quarter, and we saw dramatic decrease from 327 basis points in the first quarter of 2005.

Our strategy of shifting to a more centralized operations and sales strategy and the hard work of our production group are becoming evident in our improved operational numbers that we are reporting today.

Saxon has continued to focus on insuring that the loans we put on our books today are profitable.

Our average weighted average coupons on our production were 8.4% for the first quarter, an increase of 50 basis points from the fourth quarter and a 140 basis point increase from a year ago.

We completed the purchase of $3.8 billion in third-party servicing rights during the quarter and we are committed to continuing to grow this business.

Because these purchases were made during the quarter, we did not realize the full benefit in the quarter, but will see this income in the second quarter.

The average price paid of 80 basis points was driven by two large pools that made up 66% of the purchases.

These pools contained higher FIFO scores, larger average balances, and a higher portion of fixed-rate product with a longer average life compared to previous pools.

We expect this level of pricing to remain stable for the year, and this is consistent with our investment projections for 2006.

We have future purchase commitments today of approximately $900 million.

Since March 31, we have closed a $150 million senior unsecured note offering.

This note offering provides us with a long-term financing vehicle for our growth in the third-party servicing business, allowing us to leverage our servicing portfolio and, thereby, enhancing our returns for our shareholders in this business.

With that overview, I would like to turn the call over to Rob Eastep to discuss the first quarter financial results.

Thanks, Mike.

For the quarter, Saxon reported GAAP net income of $26.4 million or $0.52 per share compared to $17.8 million or $0.35 per share for the fourth quarter of 2005 and $54 million or $1.07 per share for first quarter 2005.

This GAAP net income includes all activities related to our hedging program.

In the first quarter we paid out our regular $0,50 dividend.

We did see our core net interest margin, before provision, decline in the first quarter, which is a result of the 44 basis point increase in one month LIBOR during the quarter and a decline in prepayment penalty income.

This increase in cost of funds was partially offset by the net cash settlements received during the quarter from our hedging activity.

Our core net interest margin, after provision, did increase in the quarter, which is due to a lower provision requirement.

It is important to note that, while not included as core, we did see a $5 million or 35 basis point gain in our hedges due to an increase in the fair value of our out-of-the-money positions.

These hedges do provide economic protection to our men.

As Mike mentioned earlier, our total delinquencies did decline in the first quarter.

This decrease is the main driver behind the reduction in our provision requirement comparative in the fourth quarter.

Even though we normally expect the first quarter delinquencies to decrease, the decline in delinquencies for Q1 '06 was unusually high.

We do expect that delinquencies will increase in second quarter of 2006.

From a charge-off perspective we are very pleased with our results, as our portfolio continues to perform well within our expectations.

Our GAAP charge outs were $10.3 million in first quarter of 2006 compared to $10.9 million in fourth quarter 2005 and $8.5 million for the first quarter 2005.

On third-party servicing income, declined in the first quarter by $1.7 million or 8% from the fourth quarter of 2005.

The three factors driving the decrease from first quarter servicing income are as follows: As you may recall, Saxon's third-party balance declined in the fourth quarter, as we purchased only approximately $745 million in the third-party portfolio.

Second, the third-party portfolio purchased in the first quarter of this year were not all done on January 1.

There is a timing of when you purchase a portfolio and when you receive the servicing fee collected.

In this instance, most of the $3.8 billion we have only received approximately one month of servicing fee related to these purchases.

As Mike mentioned, we expect to fully realize the first quarter purchases income in the second quarter.

And thirdly, an increased amortization expense, which is related to the growth of the portfolio.

Now let me turn our attention to operating expenses.

Total operating expenses decreased by 11% from the fourth quarter and 16% from the first quarter of 2005.

During the first quarter of 2006 we continue to see some of the financial benefits of our origination platform changes that we have been working on through 2005.

Our net cost to produce for the first quarter was 246 basis points, which was a very stable compared to 245 basis points in the fourth quarter.

Net cost to produce had a significant 25% decrease from the 327 basis points in the first quarter of 2005, even with a 7% decline in volume in 2006.

Because Saxon operates an origination servicing businesses, one metric that is useful in measuring total efficiency of our business is operating expenses as a percentage of average assets.

We have seen a 25% decline in this measurement year-over-year, as we have seen improved efficiencies throughout all business segments.

We continue to see a decline in operating expenses related to our production segments and shared service segment.

As expected, our servicing segment operating expenses increased as we grew the total servicing portfolio.

We are also seeing a decline in our FAS 91, or deferred loan origination cost, because of greater efficiencies in our origination process, which is reducing our standard cost per loan used in our FAS 91 deferral calculation.

In summary we saw continued margin compression offset by our lower provision requirements, lower G&A expenses and a recognition of hedging gains.

We are seeing our efforts to combat the difficult pricing environment over the past 18 months now begin to fall to the bottom line.

Before I turn the call back to Mike, I would like to discuss the estimated taxable income for the first quarter.

As you recall, for the year-ended December 31, 2005, we reported an estimated carry over of 2005 taxable income into 2006 for approximately $9 million or roughly $0.18 per share.

This carry over must be distributed prior to the filing of our tax return that is due in September of this year.

I would also like to take this opportunity to reiterate the redistribution of an annual test, and that's dividends based on our estimate of taxable REIT income, including any carry overs for the entire year, not just looking at each quarter on a stand alone basis.

With that I'd like to turn the call back over to Mike.

Thank you, Rob.

Before we open the call up to Q&A from our listeners I'd like to summarize the first quarter.

While the pricing prissur -- pressure still exists in our marketplace, we continue to enhance the economics and scalability of our production and servicing platforms.

I would now like to turn the call over to our operator and we can take any questions from our listeners.

Great.

Thank you very much. [OPERATOR INSTRUCTIONS] And our first question this morning comes from the line of David West with Davenport & Company.

Please go ahead.

Good morning.

Good morning, David.

Wondering if you could just have some general comments on the general health of the cash out refi market?

That still remains your predominant source of originations and I think last quarter you talked a little bit that you felt fairly optimistic about various adjustable products that will be-- that were originated two or three years ago and the repricing of those products.

Could you just update on the feelings about that?

Yes.

We have seen a decline in overall demand across all of the originators in the first quarter.

A lot of that I still believe is seasonal.

We still have over $1.5 trillion of two and three year product that was originated over the last two and a half years that will be repricing in the next 18 months.

I expect that that demand will not only increase, but with the recent downsizing of several of the largest competitors in the marketplace, I believe that there is excess -- there'll be additional capacity in the marketplace to allow for market share growth at the smaller originators like Saxon.

And then, there was a particular decline in some of your correspondent business, both bulk and flow.

Was that -- just what you touched on, was that some of the reasons for that?

Yes.

Flow actually was fairly flat and up from last year.

Bulk business, however, we chose to exit that business.While pricing had remained very stable, we only had a couple of consistent customers, and the costs involved in remaining in that business didn't justify it for the volumes that we're in, so part of our restructuring last year was to exit the mini bulk market.

That consisted of almost 100% of the decline that you saw, David.

The flow business is actually been very pleasing to us.

We did significantly raise our pricing and our coupons in that business, and we were expecting a much larger decline than we saw.

And we're very pleased with the results in that business in the first quarter and the business has not just grown, but it's growing faster than we anticipated.

Okay very good.

And then kind of shifting subjects, relative to the debt you just issued, I know this is always a little difficult to guesstimate, but over what time frame do you think it'll take to leverage those funds in the way that you'd like to?

And, particularly, if you could put a little color, you mentioned that you may buy bulk loans as part of that leveraging process.

If you could give a little color on what you're intending to purchase?

Well, primarily, we lo -- we intend the use of the funds is to grow the servicing business.

Now, whether we buy the whole loans as bulk or we buy the servicing rights is purely an economic calculation.

If the premium and the coupon and the pricing are right to buy the loans as whole loans, we will do that.

If the economics are correct but not to own the loans but simply to service them, that's where we'll apply the capital.

Our long term plan goals for the investment of the capital is over an 18-month investment period, give or take a quarter on either side, and we feel very confident in our ability to put those funds in there.

I would like to talk a little bit about it, because we did get a lot of questions when the deal was finally announced.

And while the bonds themselves were issued buy the REIT and the bond holders look at it as a total company, when you're managing the balance sheet as Rob and I do, you really look at the use of these funds.

It was a unique opportunity for us to enhance the return on equity in our servicing business.

There really is no long term stable financing option out there for that particular asset, and in effect, what this bond offering allowed us to do is to create a fixed rate, eight year stable financing facility that allowed us to lever that book of business on about a two-to-one leverage ratio, which effectively allowed us to increase our internal return on investment by about just under 50%.

In other words, we doubled it.

Thanks very much.

Thank you.

Thanks David.

Thanks.

And we have a question now from the line of Scott Valentine with FBR.

Please go ahead.

Thanks for taking my question.

Hey, Scott.

Hi, Mike.

On the credit performance --specifically the provision I guess -- I guess if you can go a little more into the provision, a lot of volatility from the fourth to the first quarter.

I know credit metrics improved from the fourth quarter both loses and delinquencies , but year-over-year delinquencies are up a little bit, and I guess I'm just trying to figure out on a go forward bases how we should try and model provisioning going forward, given the volatility from quarter-to-quarter?

Well, delinquencies are actually down year-over-year.

The portfolio grew by 7%.

Delinquencies are down 4%.

In terms of total dollar amounts, they're down -- they're up, you're right.

What I would say is we saw a tremendous performance by the servicing operation in the month of March.

Part of that was due to calendar business days available to collect plus the month ending on a Friday.

My expectation is, if you were to follow the portfolio delinquency over the last 18 months, you would see it being very stable, you know, dropping down around 7% in the first quarter to topping off about 8.5% in the fourth quarter.

Given that our portfolio is relatively mature for this type of asset class, I don't expect to see a lot of variation in that seasonal trending and if you go over last five to six to seven years, actually less than I've been here, it's very consistently been lower delinquencies in the spring, when customers receive their annual bonuses and tax refunds, and then slowly trending upwards during the year, peeking in December and then dropping in the first quarter.

And I don't expect that that will -- that performance level will change.

Okay.

But -- so you're actually seeing good performance on the line of credits in your portfolio then as --

Yes.

Actually our loss and charge-offs are coming in well under what we modeled when we originally priced the securitizations.

Part of that, obviously, has been appreciation in the marketplace over the last couple of years.

Part of it has simply been, you know, we have a very good servicing team.

But we're very, very happy with where actual credit performance has been for the last year and a half.

Just another question on operating expense, very impressive quarter-to-quarter decline in G&A, given the volume was down linked-quarter, as well.

Is this kind of a run rate you see going forward or do you think there's a lot more opportunity for improvement?

I think that you'll see us to continue to improve in terms of basis points.

Part of the decline -- relative decline in [terrant] with an 18% decrease in volume was the elimination of some historical costs that we had to take when we let people go, closed leases, and all of that stuff last year.

And most of those historical trailing costs are pretty much gone.

However, the platform that we have today, along with the new systems that we have in place today, would allow us to very, very easily have the capacity to increase production without seeing relative increases in cost.

And my expectation for the year is you will continue to see a drop in basis point cost to produce, simply because of the difference in how we now process loans through the system.

Okay.

And one final question, I'll get back in queue.

But on the margin it looked like it took a pretty sharp drop linked-quarter and I guess part of it was due to prepayment penalties, the decline of prepaids.

And one of the things you referenced, I believe, was a lower amount of loans that have prepays in them in your portfolio.

Do you know what maybe the percentage has gone to and is that stabilizing at current levels or do you see more -- less prepaids?

Yes.

It was a lower percentage that paid off.

Our percentage of prepayment penalties is very stable.

But what you see is when rates rise, the incentive for the customer to refinance those go down somewhat and so, people that were willing to pay a prepay to get a lower payment are more willing to wait until the prepay expires before they refinance, and I believe that that's what you're seeing there.

But you know, while we do report core versus net income, you know, you can not run this business without hedges, and because we have now gone off FAS 133 for hedging, there will be timing differentials on when our hedging contracts expire and we take cash and then we rein -- you know, reup with optional coverage, because we do use a lot of option out of the money options.

And so what I'd like to do -- because this is an important number, I'd like to ask Rob to go through the comparison.

Rob, do you want to take them through the five components?

Sure.

Scott, when you look at our core margin, our fourth quarter core margin was 3.1% and what I'm going to do is kind of walk you through to get to the first quarter of 2005 number, is LIBOR was up approximately 44 basis points, so obviously that's a negative.

About ten basis points have left prepayment penalty income, which is negative to the margin.

And then, from just looking at the cash settlements, we have lower cash settlements the first quarter, which was about ten basis points.

Now the thing that you have to take into consideration is, because of our increase in the fair value of our hedges, we had about a 35 basis point increase in the fair value of our hedges.

And that's related to -- exactly Mike was saying -- as we change our positions, you know, from quarter to quarter, you have timing differences of when is out-of-the-money cash -- or out-of-the-money options when they start cash [inaudible] while you're picking up fair value on it.

So we had about a 35 basis point increase in the fair value of our hedges.

So if you look at it, really the difference between our NIM, if you look at it on a total hedged basis, and what our fourth quarter number was, was really the prepayment penalty income into the extent that we do not hedge, because we hedge about 80-90% of our exposure, so we protected about 90% of that change in LIBOR.

That's very helpful.

I appreciate it.

Thank you.

Okay.

[OPERATOR INSTRUCTIONS] And our next question comes from the line of Chris Brendler with Stifel Nicolaus.

Please go ahead.

Good morning, Chris.

Morning, Mike.

Thanks Good morning.

I guess on the margin real quick just to follow-up on that a little bit -- just correct me if I'm wrong here -- but doesn't the fair value that you're talking about, doesn't that just protect you from where LIBOR is today, so you;ll continue to recognize those hedges and reduce your funding costs, whereas where LIBOR is today, if LIBOR continues to increase, we may see some additional margin pressure?

Well, basically what we target on our hedging program is to protect at least 90% of the future value of the cash flows, and we've been very, very efficient at achieving that goal over the last several years.

So what I would tell you is that, given where our position is today, in general, we generally protect -- we're exposed to about 10% of any future increases in LIBOR, so what happens is, where our fair value position is today on the value of the options, should LIBOR increase, the fair value of those hedges would also increase.

And they actually -- the higher that LIBOR goes up, the greater the gain in the hedge position because of the fact that, when we do cash in, we generally buyout of the money option.

So where the 10% loss we get is in before they come into the money, and then after they come into the money, it's a one-for-one almost match.

Okay, maybe I'll say it a different way, then.

If LIBOR -- if the fed were to stop -- wished it would -- but if it were to stop, would you see some margin increase, you know, sort of --

Yes, yes.

And here's what would happen.

While our fair values would not increase, what you would see is, most of our portfolio consist of variable rate loans and there's a lag there, which we call a basis risk, but the loans generally reprice six months later, so once the fed stops and LIBOR curve then starts to drop at the short end, our portfolio continues to rise in terms of coupons.

And so, just as you saw three years ago, last time we were in a declining rate environment, our margins quickly expand once the fed stabilizes and then goes into an ease mode.

So it wouldn't be unthinkable to see a 3% margin at some point later this year?

No that would not be unthinkable, but who knows.

Exactly.

Along those lines, on the top line yield, I know the prepays are effecting that, but it's been almost dead flat now for the last six or seven quarters.

Yet you have see -- you should've seen some of your book reprice at higher rates.

You're also raising your coupons and your production.

Help me think about the top-line yield at 7.5%.

Is there a timing difference there, also, that you just mentioned it's -- to restrain the growth a little bit in the top-line yield?

Yes, Rob, you want to talk --

Yes.

Chris, I mean what you also got in that is you run-off of older production, '01, '02, '03.

Right.

That was at the -- I mean, the wax on that production was like 9% to 10%, so while you're booking them, you know, 50 basis points higher, you're also running off production that is significantly higher.

So you've got a point now where the amount that we're putting on the books is stabilizing the wax and as that percentage of '01, '02, and '03 securitizations become smaller and smaller, then you'll see the full impact of those rate increases on our arm product, plus the new production you see that starting taking a much bigger impact to the top line.

I would also say that the pricing environment, which has not gotten better as we had hoped in the first quarter, given the relative earnings reports and some of the downsizing by some of our larger competitors that were responsible for the pricing pressure, I expect that sooner or later, their boards and their stockholders are going to expect them to start doing profitable business, instead of break even to loss business, and that should ease some of the pressure on margins in the marketplace.

Along those lines, can we talk about your retail business for a second?

I guess I don't know if you can share this just where you see, you know, post-restructuring and your move to direct model, how you feel about the first quarter numbers?

And in the Ameriquest news, they specifically blamed the branch model.

The retail direct model is not as [profitable] as it once was, they went, sort of, what you went to last year.

Right.

Where do you think you stand there and is there a competitive opportunity, as they deal with some issues?

I'm obviously not pleased with the first quarter retail numbers.

We were expecting greater growth; however part of that is related to a delay in a couple of the branches that we did restructure into, the larger centers and staffing them.

We've, just in the last several weeks, had a lot of success in fulfilling those staffing levels.

We were at about, I think, 100 loan officers at year-end and I think we're at about 145 as of close of business last month.

So we have been able to add about -- just in the last 30 to 45 days about 40 loan officers within the new telecenter areas, so I expect that production on the retail side will see a much larger increase proportionally than the others.

On the other hand we were very very happy with our correspondent flow business.

We restructured it in the fourth quarter.

We changed our pricing routines and greatly increased the coupon and the profitability of that business; however, we did not see it decline in the business, and we were expecting about a 25% decline.

So we were happy with how that business responded.

And wholesale continues.

It's a very steady growth quarter-over-quarter, as it has for almost the last two years.

Chris, one other point on the retail, when you look at our net cost to produce, first quarter of 2005 we had 397 basis points.

First quarter of 2006, 245 basis points, which is a 38% decrease in net cost to produce, and that's with, you know, quarter-over-quarter volume down on retail.

So we're seeing where the strategy is providing us with the efficiencies and now, as Mike was saying, that we're building in that scale, so with that lower fixed cost infrastructure we would expect to see much stronger results in our retail business.

Okay, one last quick one.

The $1.4 million loss on sale of loans sold, can you give us a little color there?

That was simply -- we had rapid prepayments on the second mortgages that we passed through -- because we don't really keep our seconds, we pass them through to an investor -- and that was the repurchase of early payments.

Early payment default or --

No, just early prepays as refund of premium.

Okay, thanks so much.

Thank you.

And we're showing a follow-up question from the line of Scott Valentine with FBR.

Please go ahead.

Thanks for taking my follow-up question.

Can you go through more a little bit of the servicing?

Looked like the cost of service went up a little bit linked-quarter.

I don't know if that was because you boarded more loans during the quarter or if it's being driven by -- [inaudible] were down, so I would assume cost would not go up --

It's really driven by the portfolio strength slightly.

However, we didn't let people go, because we knew we were going to be continue to growing it.

You know, we slowed down purchase in the fourth quarter of last year, and so the relative level size of the portfolio had gone down.

We already knew we had commitments of $3.8 billion coming in in the quarter, so it's really directly related to that.

Okay, so the average balance as lower.

Right.

And, Scott, also because we did purchase such a large amount in the first quarter as compared to the fourth quarter, you're absolutely right; there is a variable cost component to the boarding of the loans.

So, obviously, we have one quarter that has a small amount of purchases versus one that has a large amount, so you're going to see a little bit of swing in the cost to board those loans.

Okay and then on the -- with the cost to acquire's been creeping up, I guess people are changing their prepay assumptions to assuming the longer life of the asset.

Could you talk about maybe where you see that going?

Is it --

Yes.

No, the economics, Scott, were ver -- the economics haven't really changed.

It wasn't so much that people are changing assumptions on prepay speeds, although they were down.

It was more a factor of a higher level of fixed rate loans and larger average balances, both of which tend to depress your prepayment speeds in your pricing model.

So that's really what drove the price.

The economics, however, were still extremely favorable.

And we haven't really seen any change -- if you look at the primary things that drive your assumption of price, which is, you know, the length, the maturity of the cash flows and that drives the premium that you're willing to pay for them, as rates go up, fixed rate loans tend to become a larger portion of people's portfolios just as they have with us.

And I think that you'll see that that going forward, while the relative raw dollar premium we pay might be slightly higher -- and we have factored that in into our assumptions -- that the economics on the transactions remain very stable.

Scott, just as a follow-up to what Mike was talking about, is as Mike said in the presentation, we had two large acquisitions, which I think made up 66% of our first quarter.

If you pull those out, our average bid price was about 73 basis points, and when you compare that to the first quarter of 2005, we had an average price of about 71 basis points, so it's maybe two basis points higher year-over-year.

Okay okay that's helpful.

And then, one final question.

Looking at your FICO score to your production, they crept down a little bit from the first quarter of 05.

We've been hearing in the market that the lower FICO score, lower quality product has seen a weaker bid price.

Are you seeing some of the players move away -- people that sell more loans moving away from that market providing you guys more opportunity?

No, no, it's actually -- I wish that was the case, but it's really directly attributable to retail as a percentage of our production.

Retail historically has had about 20 FICO score -- 20 FICO score points higher level of production, because of how we generally get it through the internet.

A higher balance, higher credit quality customer, and as retail as a percentage of our business has gone down, our weighted average FICO on production has gone down.

The credit quality measurement of FICO within our wholesale and correspondent divisions has been extremely stable.

So I don't think that it's so much what else is going on in the marketplace, because we always tend to be a maverick.

It's really a function of the mix of business from our different channels.

Okay.

Thank you.

Thanks, and our next question comes from the line of Martin Pearlman with Pearlman Associates.

Please go ahead.

Hello, Martin.

Hi.

The answer to this may be obvious, but I'm looking at your retaxable income for the first quarter, and I understand that, at the end of the quarter, your run rate was probably higher because you had servicing income for only one month.

But am I correct that in the REIT income in the first quarter was about $0.47 and, therefore, we used up maybe close to $0.03 of the $0.18 carry forward?

That is correct, and you know, when we look at what our dividend policy is going to be, we always look on a go-forward basis and we're not looking at any individual quarter, because we're looking to make sure that, without having some huge carry over or special dividend in the fourth quarter, we want to maintain a relatively level regular dividend payment.

And so, as we look through our forecast at the end of the last year, we felt that maintaining the $0.50 a quarter dividend was fully justified, given our expectation of taxable income in the REIT for the year, along with the carry over that we are required to distribute by September.

So your analysis is correct, and we expect to continue our $0.50 dividend.

Thanks a lot.

Great, thank you.

Did you have any further questions, sir?

No.

All right, thank you.

And Mr. Sawyer, Mr. Eastep, we're showing no further questions in queue.

I'd like to turn the conference back over to you for any closing remarks.

Thank you very much.

And then I would just like to thank everyone for joining us on the call this morning.

We were extremely pleased with the efforts we've taken to increase our efficiencies on our cost to produce.

We were very pleased with both delinquency and actual loss performance of the portfolio for the quarter, and we see improvements occurring in the marketplace with both our ability to grow the business and our ability to increase our weighted average coupon on the portfolio.

So I would like to thank you all again.

If you have any questions or need further information, please contact Bobbi Roberts at the numbers provided.

Have a great day.

Great, thank you.

And ladies and gentlemen, that does conclude our conference for today.

Thanks for your participation and for using AT&T's executive teleconference.

You may now disconnect.