Axos Financial, Inc. (AX) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to BofI Holding Inc. Second Quarter Fiscal 2013 Earnings Conference. [Operator Instructions] This conference is being recorded today, Wednesday, February 6, 2013. And I would now like to turn the conference over to Mark McPartland from MZ Group. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Joining us today for BofI Holding's Second Quarter Financial Results Conference Call are the company's President and Chief Executive Officer, Greg Garrabrants; and Chief Financial Officer and Executive Vice President, Andy Micheletti. Greg and Andy will review and comment on the financial and operational results for the second quarter, and they will be available for questions and answers after their prepared presentation. Before we begin the call, I'd like to remind our listeners that on this call, prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties, and that management may make additional 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. Forward-looking statements related to the business of BofI Holdings and its subsidiaries can be identified by common used 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. For those of you who are unable to listen to the entire call today, there will be an audio replay available, and the call is also being webcast, so you can log in via the Internet to review at a later time. All details were provided on the conference call announcements out last week and earlier this week, as well as in the press release that was issued this morning. You may also find more information on the company's website located at bofiholding.com. Now at this time, I'd like to turn the call over to Mr. Greg Garrabrants, who'll provide opening remarks. Greg, the floor is yours.

Thank you, Mark. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to BofI Holding's conference call for the second quarter ended December 31, 2012. I thank you for your interest in BofI Holding and BofI Federal Bank. BofI announced record net income for its second quarter ended December 31, 2012 of $9,768,000, up 8.7% when compared to the $8,989,000 earned last quarter, and up 46.7% when compared to the $6,660,000 earned in the second quarter of 2012. Earnings attributable to BofI's common stockholders were $9,436,000, or $0.70 per diluted share, for the quarter ended December 31, 2012 compared to $0.67 per diluted share for the quarter ended September 30, 2012, and $0.54 per diluted share for the quarter ended December 31, 2011. Excluding the after-tax impact of net gains related to investment securities, core earnings for the second quarter ended December 31, 2012 increased $3,252,000 or 47.6% when compared to the quarter ended December 31, 2011. Other highlights for the second quarter included total assets reaching $2,874,000,000 at December 31, 2012, up $487 million compared to June 30, 2012 and up $651 million from the second quarter ended 2012. Return on equity reached 17.32% for the second quarter. Our net interest margin was 3.81% for the quarter ended December 31, 2012, a 21 basis point improvement over the quarter ended December 31, 2011. Total deposits reached $1.97 billion this quarter, up from $1.6 billion in the prior year second quarter. Our loan units had another great quarter with $613 million in gross loans originated, and the $613 million of production consisted of the following: $166 million of single-family, agency-eligible gain on sale production; $67 million of single-family nonagency eligible gain on sale production; $175 million of single-family jumbo portfolio production; $81 million of single-family jumbo portfolio production by warehouse lending division; $40 million of multifamily, nonagency eligible gain on sale production; $53 million of multifamily portfolio production; and $32 million of C&I and specialty asset production. We continue to make progress in enhancing the value of our multifaceted deposit franchise. We believe our BIN sponsor business will, in the fiscal fourth quarter of 2013, start to lower our average deposit costs. This business takes a relatively long time to build, given its complexity, the criticality of the relationships we established with our potential partners, and the nature of the long-term contracts governing the relationships. Furthermore, we have taken a thoughtful and deliberate approach to the selection of the right partners. We announced our partnership with NetSpend last quarter. Notices have been sent by NetSpend to approximately 200,000 cardholders, informing them that we'll become their issuing bank as of February 26, 2013. We expect approximately $30 million of deposits from this initial transfer at essentially no cost, as well as fee income generated from interchange sharing. In addition to further planned expansion of our relationship with NetSpend, we have a robust pipeline of additional partnerships under contractual negotiation that, if consummated, will result in significant additional no-cost deposits and increased fee income. Our goal in our customer direct Internet channel is to increase our share of transaction accounts and develop deeper customer relationships. We continue to make strong progress on changing the mix of our deposits to become more transaction-focused. In the last year alone, from December 2011 to December 2012, we grew our checking account balances by 133%, our money market balances by 105%, while our certificate of deposit balances decreased by 27%. Transaction accounts now make up 43% of our deposit base, up from only 21% from a year ago. Additionally, in the last year, we have increased point-of-sale interchange income by almost 100%, as a result of the success of our Rewards Checking product. We believe this dramatic increase in checking account is not only the result of the strong consumer value proposition of our Rewards Checking account, but also of consumer fatigue with larger banks, shifting consumer preferences regarding how they interact with their bank, and enabling technology, such as mobile remote deposit capture, removing the final barriers to consumer comfort with branchless banking. Last quarter, we launched NetBank, our second-chance checking account brand designed for consumers that do not qualify for our premium products delivered through our Bank of Internet brand. NetBank is a second-chance checking account with a profitable fee structure. It is a full-featured checking account with features of a prepaid card such as access to Green Dot's reload network. Currently, the bank declines approximately 40% of its checking account applications. Without marketing and only 3.5 months of operation, we have 1,000 accounts that have been approved primarily from customers that were declined for other bank products. In a relatively short time since the launch of our Business Banking group, the bank has raised $146 million in business accounts -- business deposit accounts with very minimal advertising, increasing the business deposit balances by $46 million in the second quarter alone. Although the balance growth is impressive, I am more pleased with the confirmation we have received from the market that our branchless bank can utilize low-cost channels to provide a full suite of cash management services to business customers, and wind up with a very happy and well-served customer, who is indifferent to whether or not they have access to a branch network. Since this hypothesis has been proven, and that it is successful, it is now only a matter of scale and resources to allow us to further grow our business deposit franchise to enhance our noninterest income and allow us to continue to grow our asset base. Our advisor business also continues to grow with an increase in the number of enrolled advisors in the program of 78%, from about 182 to 325, since the beginning of this calendar year. We recently signed a financial advisory firm with 1,500 advisors and have many others in the pipeline. On the asset side, our 2 newer businesses are performing well. Our C&I group continues to find strong loan demand in our focus areas. As I stated last quarter, we added 2 Senior Vice Presidents in the C&I lending area, and this week we hired a seasoned team and leader in the healthcare, asset-backed lending space. We are excited about our opportunities in the healthcare finance space and look forward to loan portfolio growth in this area over the next several quarters. Our pipeline of C&I deals continues to grow, and we look forward to the asset diversity and growth opportunities our expansion in this area will bring. Our warehouse lending group continues and we -- our warehouse lending group success continues, and we have approximately $255 million of active credit lines this quarter, up from $214 million in the prior quarter and have pending applications for an additional $140 million. This group is growing rapidly, and originated $690 million of loans in the quarter ended December 31, 2012 versus $229 million of loans in the first quarter. Our nonagency, single-family Jumbo 30-year product also is gaining traction. We received $54 million of applications for this product in the first quarter. In the second quarter, we received $150 million of applications. This nonagency product serves to diversify our gain-on-sale income away from conforming loan production to a balance between confirming and Jumbo loan production. We continue to focus on ensuring that we remain cost-efficient, while we are investing in both new business growth and existing business growth. Given our rapid growth, there are opportunities to review efficiency and effectiveness of our people, vendors and other costs, and plug leaks that have developed over the course of our rapid growth. We have a comprehensive management framework that ensures our business unit leaders are process-focused and are measuring results according to establish metrics. As most of you know, this October, we raised $18.6 million of convertible preferred stock, increasing our quarter-ended, fully-diluted share count by approximately 4.75%. We recognize that dilution is painful for our shareholders and can impact EPS. I am very pleased that we are able to fully absorb the impact of that dilution this quarter and improve diluted earnings per share to $0.70 per share, up 4.5% or $0.03 over last quarter. Without the dilution, our EPS would've risen by 9% over the prior quarter. Now I'll turn the call over to Andy, who will provide additional details 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, bofiholding.com. Second, I will discuss our quarterly results on a year-over-year basis, meaning fiscal 2013 versus fiscal 2012, as well as this quarter ended December 31, 2012 versus the first quarter ended September 30, 2012. For the quarter ended December 31, 2012, net income totaled $9,768,000, up 46.7% from the second quarter of fiscal 2012, and increased 8.7% compared to the first quarter ended September 30, 2012. Diluted earnings were $0.70 per share this quarter, up $0.16 or 29.6% compared to the second quarter of fiscal 2012 and up 4.5% from the first quarter. For the 6 months ended December 31, 2012, net income totaled $18,757,000, up 42.2% compared to prior period fiscal 2012. Diluted earnings were $1.37 per share for the 6 months ended December 31, 2012, up $0.23 or 20.2% compared to the prior period in fiscal 2012. Excluding the after-tax impact of gains and losses associated with our securities portfolio, core earnings were $10,080,000 for the quarter ended December 31, 2012, up 47.6% year-over-year from $6,828,000 in core earnings for the second quarter of fiscal 2012, and up 10.2% from the $9,150,000 in core earnings for the last quarter ended September 30. Net interest income increased $5,850,000 during the second quarter ended December 31, 2012 compared to the second quarter of fiscal 2012, and increased $2,451,000 compared to the first quarter ended September 30, 2012. This was a result of the increase in average interest-earning assets and average interest-bearing liabilities, as well as a decrease in the cost of funds. The net interest margin was 3.81% this quarter compared to 3.60% in the second quarter of fiscal 2012, and 3.70% in the first quarter. The cost of funds decreased to 144 basis points, down 52 basis points over the second quarter of fiscal 2012, and down 8 basis points compared to the quarter ended September 30, 2012. Provisions for loan losses were $1,950,000 this quarter, $1 600,000 for the second quarter of the fiscal year and $2,550,000 for the first quarter ended September 30, 2012. Increased growth in the loan portfolio in fiscal 2013 required an increase in the loan-loss provisions. Now on interest income for the second quarter of fiscal 2013 was $6,249,000 compared to $2,986,000 in the second quarter of fiscal 2012, and $6,761,000 for the first quarter ended September 30, 2012. Increased sales volume resulted in higher mortgage banking gains are primary reason for the variance between the quarters. Noninterest expense, or operating costs, for the second quarter ended December 31, 2012 was $12,781,000 compared to $9,204,000 in operating costs in the second quarter of fiscal 2012, and compared to $11,532,000 in operating costs for the first quarter of fiscal 2013. For the quarter and the prior period of fiscal 2012, salaries and compensation was up $2 million, primarily due to the overall increase in staff. And advertising and promotions were up $510,000, mainly due to the cost of lead generation in the mortgage area. And other general and administrative expenses were up $689,000 primarily due to an increase of $258,000 related to loan-processing expenses, and an increase of $144,000 related to software license and other associated costs. For the second quarter ended -- or for the second quarter compared to the first quarter ended September 30, 2012, salaries and compensation was up $583,000 primarily due to an increase in staff and volume. And advertising and promotions were up $322,000 mainly due to the cost of lead generation in the mortgage area. Other general and administrative expenses were $446,000 higher. Our efficiency ratio was 40.98% for the second quarter of 2013 compared to 41.70% recorded in the second quarter of 2012, and compared to 39.43% for the first quarter of fiscal 2013. The efficiency ratio is calculated by dividing our operating expenses by the sum of the net interest income and our noninterest income. Shifting to the balance sheet. Our total assets increased $487.5 million, or 20.4%, to $2,874,000,000 as of December 31, 2012, up from $2,386,000,000 at June 30, 2012. The increase in total assets was primarily due to an increase of $434.7 million in loans held for investment. Total liabilities increased $451.5 million, primarily due to an increase in deposits of $353.2 million and an increase in borrowings of $105 million, from the Federal Home Loan Bank of San Francisco. Stockholder's equity increased by $36 million, or 17.4%, to $242.6 million at December 31, 2012, up from $206.6 million at June 30, 2012. The increase was primarily the result of net income for the 6 months ended December 31, 2012 of $18.8 million and the issuance of convertible preferred stock, or Series C, of $18.6 million. At December 31, 2012, our Tier 1 core capital ratio for the bank was 8.52%, with $101.6 million of capital in excess of the regulatory definition of well-capitalized. With that, I'll turn the call back over to Greg.

Thanks, Andy. Operator, if you could open the call for questions, that would be great.

[Operator Instructions] We'll take our first question today from Brett Rabatin 'with Sterne Agee. Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: Wanted to, I guess, first ask, could you give a little more color around -- and I apologize if you've indicated it and I missed it, but just the gain-on-sale margins for the quarter and just kind of how you see those trending going forward and what they were relative to 3Q?

Sure. Now in general, just to give you a sense of the gain-on-sale income that we have, it comes from 3 primary places. One is the single-family agency sales. The others, we have non-agency sales that we sell through the 30-year fixed-rate Jumbo product, which we sell to street firms. And the third is we allocate a certain component of otherwise portfolio eligible production, and we push that production through to our network of banks that buy those loans in whole-loan trades that are generally bulk whole-loan trades, rather than the flow arrangements we have for the other 2 products. Because of the -- so I'll give you -- I'll tell you what we do publicly disclose in that area. Because of the nature of the relationships that we have from the standpoint of the sale process to street firms, we don't spend a lot of time talking about our margins. Some of those deals are highly specific to us. They're differentiated the yields and ones we spent a lot of time on. The portfolio production on a multifamily side sells in the 104-plus range and we generally have 1.5 point of cost in that. So that's where that comes in. They're -- and then otherwise, just from a trending perspective, I would say that from this quarter to what we're seeing right now, there's been a little bit of margin pressure. I would say that that's very constant with what we see from the seasonal perspective, every January and February when the market is just a little bit slower in that timeframe and it's also slower through the holidays. So we reduced our margin a bit in December and -- to hold volume. And generally, we were reasonably successful on holding the volume, but the margin is going to be potentially a little bit lower this quarter. Now that being said, we've had -- January was a good month, much better than it seasonally is, historically, from a volume perspective. So we're hopeful. The final thing I would say when you look at this on the balance sheet is, basically, their -- for the agency loans that are gain-on-sale loans, those loans are mark-to-market. And so what that means is you're looking at the pipeline at the end of the quarter, obviously, you're estimating what those gains would be when you sell those loans. Those loans are under hedges and pull-through ratios will impact the numbers as well. But candidly, the reason we don't go through that is we have a variety of different arrangements, sometimes with large partners. Those things are things that we believe are important that we maintain confidence around. Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: Okay, that's fine. I was mostly just hoping to get some color on a single-family piece of it anyway. And that's -- I want to get color. I guess, the other thing I was hoping, guys, to get a little more flavor for was the commentary towards the beginning of the call about C&I and health care. I mean, I was hoping maybe you could quantify what kind of opportunity that might be in terms of balance sheet lending, and if that's something that's going to -- if C&I is like the new, so to speak, leg of the stool that you're hoping to really grow going forward? Or how should we think about your growth from here?

That's a great question. I think it is. We're going to take this like we all take -- take all new businesses in a slow and methodical fashion and make sure that we're doing it the right way. We've been shipping away in the lender finance business for certain real estate lenders and tax lien providers for about a year now, and that business has been a very good and profitable one for us. The push in the C&I lending is partly a diversification of play from -- to push us a little bit away from the real estate side and just give us more legs of the stool, as you said. I think the real estate finance -- I'm sorry, the healthcare finance side is particularly interesting for us because we're looking to build an asset-based lending platform that is secured by healthcare receivables. We'd like that market because we like the quality of the receivable. There's nuances, obviously, as to figuring out the gross-to-net on the receivables, but we think there's an opportunity in that market. The folks we've brought on have been in that business a long time. The gentleman who is leading it has lived in San Diego for a long time and we're excited to have him come on board. And we think it can be a substantial opportunity because there's a whole in the market where we see, from a size perspective, where we want to play. How much volume that's going to do in the next several quarters relative to the much bigger businesses that we have, I think that it'll be something. It's not going to be incredibly substantial, but there's good margin on those loans. And if you do them correctly, they can be very safe. So we think that, in addition to our enhancement to our origination volume, it also helps us to fend our net interest margin as well.

And we'll take our next question from Juliana Balicka of KBW. Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division: I wanted to continue a little bit on the mortgage discussion. On the qualified mortgages and interest-only mortgages, and new rules that have recently come out. I see it from your 10-Q, that you've got $351 million of interest from your loans. So could you talk about what your plans are kind of going forward? How you're thinking up new regulations or preparing for that, be they take an effect 12 months from now or maybe never?

Right. That's a great question. So we're still evaluating those. We don't actually see much of our production coming in as interest-only anymore to the extent that it is very low loan-to-value. Frankly, for loans that are a certain loan-to-value, like ours tend to be, we think that sometime interest-only maybe appropriate. With regard to the way those rules are read right now, they create a Safe Harbor that obviously won't allow regulatory-challenged to the ability to pay. But we also believe that even under those current rules, if we see the opportunity there that we can say officially document ability to pay through, but any issues that might arise with regard to the documentation of those loans. But that being said, that's just my initial thoughts and we'd have to go through in much greater detail with a regulatory counsel and look at this. I would say that the broader picture of this, however, is a good one. And that is that we always are focused on high-quality lending. And one of the things that I think is a risk to the business is that, over time, other lenders loosen their standards to the point that we no longer are willing to make loans in a particular market. And I think that this qualified mortgage rule is useful in that regard in the sense that it'll set standards by which the street firms in particular, because of the need for the securitization structure from a legal perspective to hold qualified mortgages, will prevent the type of disintermediation of balance-sheet lenders that occurred in the prior crisis. So actually, I have little bit of a contrarian view to this maybe. I don't really think it's a bad thing. I, frankly, think that the role of regulators may be best served in some instances, in particular markets, by ensuring that minimal credit standards are met and that bankers compete on other things -- frankly, things that we're a lot better at, like low-cost infrastructures and things like that, than on loosening credit standards. So I don't think it's going to have a big effect on our business, but I can't say that we've fully gone through and vetted with a legal counsel all the indications. So that is something that we will obviously be doing as it becomes to fruition. And there's also discussion out there, as I'm sure you know, that there may be some exceptions for banks of our size, and so we'll wait to see how that turns out. And if that happens, obviously, that's another benefit that might accrue from that legislation. Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division: Those are some very good thoughts. And then if I can have a follow-up question, as well. On the loan-to-deposit ratio and kind of your balance sheet management, you're trending around 110%. What's been the comfort zone for you in terms of deposit-to-loan growth? And I mean, I know a lot of your loans can easily be sold so that might help alleviate some of the pressure that other banks are experiencing, so what are your thoughts in terms of that management of that ratio in the balance sheet?

It's interesting, I know that that's a ratio that comes -- that obviously, a lot of folks concentrate on. And I think in certain instances, it may have applicability for commercial banks, perhaps more than the banks that have thrift-like structures. To the extent that we're putting on long-term borrowings, and at those long-term borrowings, provide security against the assumptions that are embedded in our models for nonmaturity deposits, I think that that's actually quite a prudent thing to do. And so, I think the most important thing, from our perspective, is that we're taking an appropriate level of interest rate growth and making sure that we're hedging that risk. And the utilization of Federal Home Loan Bank deposits for term is that one of the best ways to do that -- because obviously, you don't have the prepayment issues or concerns about the assumptions that you're making for nonmaturity deposits. That being said, I think that this quarter, we had -- we actually held some inventory on loans that we would normally sell over the Christmas period and the holiday period and sold them in the first quarter. So we may have been a little bit higher on that ratio than we otherwise would be if we didn't make that decision. That decision turned out to be a good one because in a lot of respects, a lot of desks just want to be done during that time, and so they lower their bids, and we ended up holding some loans through that time period. But I think that thinking about interest rate risk is probably a little bit more important to us than thinking about that ratio. I think, inevitably, our ratio in that area, regardless of deposit growth, is probably going to remain relatively high, because I see very little to no value in the securities market whatsoever. And I do see value in having a percentage of our funding structure be in Federal Home Loan Bank advances, given the term benefits.

And next we'll take a question from Andrew Liesch of Sandler O'Neill and Partners. Andrew Liesch - Sandler O'Neill + Partners, L.P., Research Division: The -- I'm just curious if we can get a little bit more detail on the portfolio loan pipelines like you have in prior quarters?

Yes, the -- I don't know if we have exact numbers I can give you -- I'll give you a broad outline. Single-family portfolio is looking very good. And the single-family Jumbo for sale pipeline is way up. Multifamily is had -- is having -- it has the same cyclicality that it had in the prior year, and so it tends to be at a low point coming into the new year after the holidays, and we've seen an immediate uptick there. So I don't actually have the exact numbers in front of me. But multifamily has a -- was down a bit and they are coming back. But I would say that, that market on the multifamily side continues to be a very tough competitive market with pricing that I think is -- can get to be a bit irrational at times. And so, while we're still hanging in there, we haven't really been able to grow that business in the manner that we'd like to see all our businesses grow. Andrew Liesch - Sandler O'Neill + Partners, L.P., Research Division: Okay. I think that's pretty comparable to a year ago with the multifamily book. And then it sounds like this whole healthcare team -- are they all based in San Diego?

We have -- so we hired a total of 4 individuals. There's 1 salesperson who is based out of the office, and then 3 -- the remaining 3 will be in San Diego. Andrew Liesch - Sandler O'Neill + Partners, L.P., Research Division: And then it just looked like, when we were there last quarter for the investor day -- that even though you guys moved, you're certain to fill up the office space, do you expanded beyond this?

We have a building in Carlsbad that has space and the mortgage banking operations are there. We're continuing to look at space and evaluating it. I think that some potential additional space maybe necessary over time. And partly, you may have space in a particular area, but groups being together is relatively important just from a management perspective. We find that closely knit teams do a little bit better from an efficiency perspective, so we're always looking at that. But I don't think that that'll be a substantial expense, and it only be done if we see the growth opportunities. Okay. And we have an 8-K coming out tomorrow with the pipeline numbers, so you'll be able to see those then, because Andy's going to investor conference.

And now we'll hear from Donald Worthington of Raymond James. Donald Allen Worthington - Raymond James & Associates, Inc., Research Division: Just a follow-up on the discussion on using FHLB advances to manage interest rate risk. Any more specifics in terms of the maturity structure and the rates on the advances you took down this quarter?

Sure. We're mostly taking down 7-year and 10-year advances. And the rate structure on that is going to be in the 2% range for the 10 years, and below 2% for 5 and 7 years. That's roughly the numbers. Donald Allen Worthington - Raymond James & Associates, Inc., Research Division: Okay. And then, do you collateralize that with blanket lien collateral or a specific collateral?

We actually do specific. We've elected not to do blanket lien to make sure we have all of our options open.

And we have a very large -- what's the unused capacity there? It's in the $500 million range.

Yes. Exactly.

So there's a lot there. We're far from maxing it out, and we have a limitation of 40% of total assets at FHLB alone. Obviously, that's the lesser of that number and the specific asset value that they'll give us on the underlying collateral, but there's a lot there.

And our next question today is from Mitchell Sacks with Grand Slam.

I wanted a little -- still a little bit more with respect to the turndown products that you're now doing, the NetBank, and how that impacts from a fee perspective. Because I've noticed that your bank fees are starting to come up, and I was wondering if that's part of what's driving it?

Yes, it is, to some extent. There also are -- it's fee income coming off the BIN and credit sponsorship, group products as well, and so you'll continue to see that fee income trend upwards. And a goal of ours is to make that really meaningful to the bank. And I frankly don't think it's that meaningful right now, but it's getting there. Yes, the NetBank product is really in soft launch right now, making sure that we have a full understanding of all the risks, and making sure all our fraud mitigants are in place. But that product does generate significant fee income for each account. And we've had great success with -- right now, all we're doing is when an account gets turned down for a product where we really need a higher balance to make the economics work, we've been pushing it over to NetBank and having our call center team finish that sale, and it's working incredibly well. So we haven't done any advertising there yet. We have a trial where we're releasing the product through an employer group, to a set of employees who come on to a particular company. And then also working with an auto lender to do a small-targeted pilot, where they get an auto loan and then they're also delivered a NetBank card and given an incentive for setting up a direct deposit relationship whereby they then pay their automobile loan with that card. And the automobile lender was excited enough about the prospects of the enhanced collection from that, that they were willing to provide a bounty for the sign-up to the NetBank account. So I think that is a lot of possibilities related to how that product can be sold, and it not only serves to enhance our ability to be more effective in direct marketing, but also allows us some unique partnership opportunities that are regular high-yielding or, I should say, lower-cost, lower-fee products really don't provide..

And so to the extent that you're able to grow these types of relationships, that should certainly help on the cost side or your NIM equation, I would imagine?

Well, I would say that clearly the deposit base on these products are interesting, right? If you do the math on, let's say, the NetBank -- I mean, the NetSpend transfer, you have roughly 200,000 cards coming over. And we're underestimating or we're taking the low end of the estimate on the deposits that are coming in at $30 million. But if you're looking at that, you can do the math, and that the average account balance is a little bit -- is substantially lower than our typical accounts. Clearly, there's no cost on those deposits in the sense that you're not paying interest income on them and you're collecting fee. So I think what you're going to end up seeing is you end up seeing -- to the extent that these accounts have higher operating costs because right now, it looks as if the NetBank customers are calling in 3x as much around -- it's hard to say, we've got 1,000 of them, we're still looking at all of that data, but they obviously pay a lot more in fee and they don't receive any interest on the deposits. So there's a number of things moving around. You see enhanced fee income, you would see a little bit more cost, and to the extent that those deposits are significant enough, you'd see a reduced cost of funds. And that also is something that you'll see -- the difference on the BIN sponsorship side is because we certainly get less of the interchange that we would if we did all the work and marketing, selling and bringing those customers in. But we'd still -- in general, the deposits come over essentially for free and then you have a share of the interchange, which is lower. So that also will enhance bank fees and lower our cost of funds. Does that make sense?

And we'll take our next question from Edward Hemmelgarn of Shaker Investments.

Got a few questions. One, could -- I didn't write down as quickly as -- Greg, you were giving the various categories of loans that were originated in [indiscernible]. Could you run those through again a little bit more slowly?

Yes. Sorry about that, I may have rushed through them. So we had a $613 million of production: $166 million was single-family, agency-eligible gain-on-sale production; $67 million was single-family nonagency eligible gain-on-sale production, so that's the 30-year Jumbo fixed-rate conduit product; $175 million of single-family Jumbo portfolio production; $80 million of warehouse lending production; $40 million of multifamily nonagency-eligible gain-on-sale production, so that is the otherwise portfolio eligible multifamily product, which we sold and designated for sale; $53 million of multifamily portfolio production, that's definitely capped; and $32 million of C&I and specialty asset production.

Okay. Great. A couple more questions on this. This healthcare loan product that you're talking about, is that mainly targeted at like doctors' offices or what? Is it...

Well, it really -- the target really is the type of receivable. So what appeals to us about this receivable type is that the payors are either the government or large HMOs or other high-credit quality obligors. So certainly, there are certain hospitals that use the receivables to finance their growth or to finance themselves, because it's the most attractive asset they have from a collectible value perspective. So I would say that it's broad, and that the companies may be a variety of types of businesses. They might be home healthcare, they may be others that would generate receivables of the quality that we would be willing to lend on.

Okay. What's the average size and average maturity?

The average size of the loans we're expecting early on to be -- they really are sort of 2 sizes that we'll probably see. There's higher rates on the loans that are around $1 million to $2 million range, but their rates can be quite attractive. And then, we expect to see others getting into the $5 million and $6 million range for more established companies and the rates will be lower, but still very attractive on those sorts of transaction.

Okay. So this is more -- I mean, you're really -- these are significantly larger than the types I was thinking about. Okay. It's not really...

Yes, these are real companies that need working lines of credit. The -- generally, the way the term works on these lines is they may be generally a year term, but the intention is that once you do all that significant work with the company that you're looking to continue to grow that line but turn on the receivables, is 60 to 90 days. So you know, obviously, and you're monitoring it even more closely and making sure that the receivables are turning quickly enough that you're making sure that your collateral gets repaid. And so to the extent that, obviously, they use -- they give you less receivables to act on a borrowing-base basis, and so that's going to obviously lower the amount of the loan outstanding.

Okay. And then lastly, I wanted to -- could you give us some information on the number of consumer, the number of business relationships you now have, and how that grew over the last 12 months? And then maybe also talk about is for -- how many of your customers do you have multiproduct relationships with them?

Yes. I don't -- I don't have those numbers right in front of me on the number. Because I know we talked about that at a different time. I don't have that in front of me, I'd have to go back and look at that. I think that the -- see, do we have anything there? These are just the aggregate number of accounts. I don't have exact data for you on that, Ed. I think with regard to the cross-sell type of concept, I would say that we still have very relatively low numbers of customers with multiple products. It certainly has increased. But in general, when we look at the mortgage banking customers that come through the affinity groups, in some cases, we're prohibited from marketing to them. So that certainly limits our ability to gain those customers. And then we market to our deposit base to get mortgages, and we do have some success there. But I would say that there's a lot of opportunity there, and it's one of our focuses going forward. You also have to have -- obviously, if you really look at our product base, we have no consumer-lending products right now. So effectively you've got the deposit products, so you may have a savings account and a checking account, and there's a decent number of folks who have those. The mortgage relationship, obviously, is a relatively one-time relationship. So we don't have a credit card product or others that would really -- would push that in that way. We do see decent opportunity to sell business products to our checking customers, though. So we're having a sales rally, actually, this week, where we're bringing all the salespeople and then we're focusing on a variety of different cross-sell opportunities that are increasingly becoming available as the bank becomes more diversified. Obviously, some of the obvious ones are multifamily loan customers switching their operating accounts to the bank and things like that. So I think you'll see more of that. But we don't have -- I don't have the exact numbers in front of me.

And up next, we have a question from Greg Cole of Sidoti & Company. Greg Cole - Sidoti & Company, LLC: Just on the BIN sponsorship. When -- I'm assuming most of the costs aren't in noninterest expenses yet from that?

They are. They are, and frankly, we've invested a lot in that team. The costs are in noninterest expense. And this is a -- there's a lot of scalability there. We have the ability to grow that business substantially with very, very little incremental cost, if any. We could take, I would estimate, when they're fully running -- because the negotiation process and the diligence process is a little bit painful, we could take 10 or 15 subsequent programs, which would generate hundreds of millions of dollars of no-cost deposits without adding any noninterest expense whatsoever. Greg Cole - Sidoti & Company, LLC: Okay. All right. You jumped in on my next question. And then on the loan-to-deposit question from a little bit earlier, if I can ask you in a different way, is the success of your business banking to generate the deposit accounts? Does that play in any role into how quickly you want to grow the loan portfolio?

I would say not really. I would say that what we do is we generally have pretty stringent criteria for the type of loans we're looking for. And we'll look at those loans and make sure that we have the deposit growth that we need to be able to originate those loans. So I would say that at any point in time, we have a lot of different deposit growth engines. And we do not want to use pricing as a lever to generate deposits. And we've tried to be as stable as possible with our rates and not utilize rates and track deposits. And that's the nature of the broad-based initiatives that we've had on the BIN side, the business side, on the advisor side to make sure that we are generating value outside the scope of just high-yield savings products. But candidly, those things are always available to us. And we can still do very well on our net interest margin from growing deposits in that manner. So I think a little bit of what happened this quarter, too, is we've got some really significant relationships and some other potential transactions that we're looking at. And when we look at those on the balance of risk perspective, we think that it was actually better to go into the quarter maybe a little light on the deposit side to prepare from a room perspective for some of those, because there's some fairly significant deposit relationships that are in the works that we just want to make sure that we don't end up with too much liquidity, because liquidity is expensive.

And, Mr. Garrabrants, with that, we have no further questions. I'll turn the call back to you.

Okay. Thank you very much for your time and I appreciate you following the company, and look forward to talking with everyone next quarter. Thank you.

Thanks.

Ladies and gentlemen, that does conclude today's conference. Again, we thank you all for your participation.