Axos Financial, Inc. (AX) Q4 2014 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the BofI Holding, Inc.'s earnings conference call for the quarter ended June 30, 2014. Good day, ladies and gentlemen. Thank you for standing by. Welcome to BofI Holding, Inc.'s Fourth Quarter Fiscal 2014 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, August 7, 2014. Now I'd like to turn the conference over to Johnny Lai from MZ Group. Please go ahead, sir.

Okay. Thank you, and good afternoon, everyone. Joining us today for BofI Holding, Inc.'s fourth quarter 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 the financial and operational results for the fourth quarter ended June 30, 2014, and they will be available to answer questions after the prepared presentation. 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 in response to your questions. Therefore, the company claims 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 comments-use forward-looking technology, 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. Call is being webcast, and there will be an audio replay available on the company's Investor Relations website located at www.bofiholding.com. All the details of this call were provided on the conference call announcement and the press release today. At this time, I would like to turn the call over to Mr. Greg Garrabrants, who'll 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 fourth quarter and fiscal year ended June 30, 2014. I thank you for your interest in BofI Holding and BofI Federal Bank. BofI announced record net income for its fourth quarter ended June 30, 2014, of $16 million, up 43.8% when compared to the $11.1 million earned in the fourth quarter, June 30, 2013, and up 9.6% when compared to the $14,600,000 earned last quarter. Earnings attributable to BofI's common stockholders were $15.9 million, or $1.09 per diluted share, for the quarter ended June 30, 2014, compared to $0.78 per diluted share for the quarter ended June 30, 2013, and $1 per diluted share for the quarter ended March 31, 2014. Excluding the aftertax impact of net gains related to investment securities, core earnings for the fourth quarter ended June 30, 2014, increased $4.1 million, or 33.7%, when compared to the quarter ended June 30, 2013. For the year ended June 30, 2014, net income was approximately $56 million, up 38.9% over the $48 million -- $40.3 million earned for the quarter ended June 30, 2013. Other highlights for the fourth quarter include: total assets reached $4.4 billion at June 30, 2014, up $1.3 billion compared to June 30, 2013; return on equity reached 18.14% for the fourth quarter; our net interest margin was 4.02% for the quarter ended June 30, 2014, a 13 basis point increase over the third quarter ended March 31, 2014, and a 13 basis point improvement over the fourth quarter ended June 30, 2013. Total deposits reached $3 billion, up by approximately $950 million compared to June 30, 2013. Our lending groups had another great quarter, with $942 million in gross loans originated in the fourth quarter. As a result, the bank achieved good quarterly loan growth, growing loan balances by 13.9% over the linked quarter and at a 55.6% annualized rate. The excellent performance of our lending groups resulted in $431 million of net loan growth. The $942 million of production consisted of $71 million of single-family agency eligible gain on sale production, $9 million of single-family non-agency eligible gain on sale production, $363 million of single-family jumbo portfolio production, $21 million of single-family jumbo gain on sale production, $67 million of multifamily non-agency gain on sale production, $81 million of multifamily portfolio production and $330 million of C&I and specialty asset reduction. Total originations for the year ended June 30 2014, reached $3.1 billion, an increase of 41.3% over the year ended June 30, 2013, originations of $2.1 billion. Total assets reached $4.4 billion at June 30, 2014, up $1.3 billion compared to June 30, 2013, an increase of 42.5%. As of August 1, 2014, the lending pipeline remains robust with single-family pipeline of $405 million, $124 million of multifamily loans and $258 million of C&I loans. We remain highly focused on credit quality at the bank and have not sacrificed credit quality to increase originations nor loosen our underwriting standards to gain volume. For the fourth fiscal quarter originations, the average cycle for single-family agency eligible production was 7 68, with an average LTV of 65%. The average cycle for the single-family jumbo production was 7 16, with an average LTV of 59%. The average LTV of the originated multifamily loans was 61%, and the debt service coverage was 1.41% -- 1.41. At June 30, 2014, the weighted average LTV of our entire portfolio was 55%. In our single-family portfolio, we continue to originate only full documentation, high credit quality, low loan-to-value jumbo single-family mortgages and have not reduced our loan rates for these products. Instead, we focus on increasing the scale and efficiency of our sales and marketing efforts and focused on turnaround time to cater to an increasingly purchase-oriented marketplace. With our C&I yields coming it at higher rates than our single and multifamily loans, we believe that we can continue to grow our loan portfolio at similar yields in this coming year, as we have in the prior year, and maintain our conservative credit guidelines. I'm sometimes asked if I see increased competition in our lending areas. The answer is that we have faced robust competition in our lending areas for several years. In fact, I believe we can continue to pull further away from our competition as we continue to refine our systems for processing loans efficiently, enhancing the accuracy of our propensity models to allow us to better target clients with a greater likelihood of purchasing and adopting more sophisticated CRM tools to ensure our sale teams are working efficiently. We have spent significant time and effort to develop our multifamily lending system and fully convert all commercial real estate production to that system. We have established an enterprise-wide CRM that, when fully implemented, will allow over lending and deposit teams to better cross-sell to our customers and better manage our people to enhance productivity. The result of these efforts are partially present in this year's results, but there is substantial more growth to be achieved from leveraging these investments in the coming years. We have scaled the systems that we can leverage across our lending platforms for further growth. For this quarter, our noninterest income continued to show the diversity of our platform. This quarter, our net interest income, excluding securities and mortgage repayment penalties, was $4.5 million, consisting of $1.4 million of mortgage banking income from single-family agency eligible mortgage loans, $400,000 of mortgage banking income from single-family jumbo mortgage loans, $900,000 of mortgage banking income from multifamily mortgage loans, $600,000 from the sale of structured settlements and other loans and $1.2 million from prepaid card and other fees. We continue to enhance our sources of fee income by increasing our loan production available for sale, increasing fees on our cash management accounts and interchange income on deposit accounts and increasing our prepaid fee income. Because a couple of banks that partnered with prepaid card providers have received regulatory orders for compliance and Bank Secrecy Act related issues, we received a few questions related to how our strategy compares to other program managers and whether similar concerns exist at our bank. We have a different core philosophy to the way we run our prepaid sponsorship business compared to that of our competitors. Our prepaid sponsorship business has been built methodically over the past 3 years, with the philosophy to work only with the largest program managers that have a sophisticated understanding of the operational and regulatory risk management processes required to run a successful and compliant prepaid card business. While partnering with only a small number of companies committed to investments in people, systems and processes, we ensure that our prepaid card business is profitable and compliant. We've made significant investments in our overall compliance infrastructure over the past several quarters, including BSA and AML compliance. We believe that we are in the same page as our regulators about their expectations. These banks that work with prepaid program managers have a different level of existing BSA demands based upon the number of programs, program types and level of partner sophistication. We conduct extensive due diligence on every program prior to signing an agreement and turned down all programs that do not meet our stringent standards. We have no regulatory limitations on our prepaid or other third-party businesses. We announced 2 agreements with H&R Block in April: the acquisition of approximately $500 million of IRA and prepaid deposits from H&R Block Bank; and our program management agreement to provide 3 financial products that H&R Block Bank currently offers, refund transfers, Emerald Advance loans and Emerald prepaid cards. We mentioned that the projected annual revenue from the program management agreement is estimated to be between $26 million and $28 million. We believe the strategic and financial benefits in this relationship with H&R Block are extremely attractive. Although we are waiting regulatory approval, we believe that we will be able to close this transaction in time to perform the services for H&R Block before the tax season. Of course, neither the potential approval nor timing of the transaction is known with uncertainty. We are pleased with the increase in the credit quality of the bank. Our nonperforming assets as a percentage of total assets are down from 0.66 basis points at the end of June 2013 quarter to 46 basis points at the end of the quarter ended June 2014. We continue to make progress in growing and enhancing our deposit franchise. Our goal is to increase our share transaction account and develop deeper customer relationships. We have made strong progress on changing the mix of our deposits to become more transaction focused. Transaction accounts now make up 66% of our deposit base, up from only 37% from a year ago. The bank's deposit base as of the end of June 30 quarter is approximately 74% checking and savings prior to the acquisition of H&R Block Bank. On a pro forma basis, assuming the H&R Block deposits were added to the deposit mix as of the end of June 2014 quarter, our transaction accounts will be 87% of our deposit base and reduce our average cost of deposits by 10 basis points. Of the 26% of our deposits that are CDs, over 24% have durations over 5 years or more. Our Business Banking group had over $1.4 billion of deposits at the end of the quarter, up from $1.1 billion of deposits from the prior quarter ended March 24, 2014. The business bank has over 2,800 accounts with 84% of balance is comprised of checking accounts. We continue to foresee robust growth in our business deposit balances. Including the growth of both consumer and business checking, we have grown our checking account balances by approximately 330% this fiscal year. We offer a strong value proposition to our consumer and business bank deposit customers that does not rest on any single attribute because we were able to provide customer service that is equal to or superior to what branch-based bank competitors offer. The average longevity of our deposit customers is very comparable to that of our peers, and in many cases, extends beyond that. We achieved a 34.87% efficiency ratio this quarter, despite ongoing investments in technology, personnel and compliance infrastructure to support our growth in existing and new businesses. Our ability to maintain an efficient, scalable cost structure is a function of our culture of continuous operational improvement and ongoing process management initiatives that we have undertaken at the bank. Now I'll turn the call over to Andy, who'll provide additional details on our financial results.

Thanks, Greg. First, I wanted to note that in addition to our press release, our 8-K filed with the SEC today is available online through EDGAR or through our website at bofiholding.com. This also includes unaudited financial schedules. Second, I will discuss our quarterly results on a year-over-year basis, meaning fiscal 2014 versus fiscal 2013, as well as this quarter ended June 30, 2014 versus the third quarter ended March 31 2014. Then, I will briefly discuss the results for the fiscal year. For the quarter ended June 30, 2014, net income totaled $16,010,000, up 43.8% from the fourth quarter of fiscal 2013. Diluted earnings were $1.09 per share this quarter, up $0.31 or 39.7% compared to the fourth quarter of fiscal 2013. Net income increased 9.6% compared to the third quarter ended March 31, 2014. Excluding the aftertax impacts of gains and losses associated with our securities portfolio, core earnings were $16,111,000 for the quarter ended June 30, 2014, up 33.7% year-over-year from the $12,046,000 of core earnings for the fourth quarter of fiscal 2013 and up from the $15 million in core earnings for the last quarter ended March 31, 2014. Net interest income increased $12,491,000 during the fourth quarter ended June 30, 2014, compared to the fourth quarter of fiscal 2013 and increased $4,833,000 compared to the third quarter ended March 31, 2014. This is a result of increases in average interest-earning assets and average interest-bearing liabilities, as well as a decrease in cost of funds. The net interest margin was 4.02% this quarter compared to 3.89% in the fourth quarter of fiscal 2013 and the same 3.89% in the third quarter of fiscal 2014. The cost of funds decreased to 109 basis points, down 21 basis points from the fourth quarter of fiscal 2013 and down 9 basis points compared to the quarter ended March 31, 2014. Provisions for loan losses were $2,250,000 this quarter, $1,500,000 for the fourth quarter of last fiscal year and $1,600,000 for the third quarter ended March 31, 2014. The increase this quarter was a result of the strong growth in the loan portfolio. Noninterest income for the fourth quarter of fiscal 2014 was $4,723,000 compared to $7,866,000 in the fourth quarter of fiscal 2013 and compared to $5,212,000 for the third quarter of fiscal 2014. Lower agency mortgage refinancing volumes resulted in decreased mortgage banking gains in fiscal 2014 compared to fiscal 2013. Compared to the third quarter ended March 31, 2014, the decrease is primarily the result of reductions in other gains on sales. Noninterest expense, or operating costs, for the fourth quarter ended June 30, 2014, was $15,766,000, compared to $15,353,000 in operating costs for the quarter ended June 30, 2013, and compared to $14,347,000 in operating costs for the third quarter of 2014. The year-over-year increase was mainly a result of an increase in compensation expense for the $733,000 compared -- related to additional staffing added during the year. Also, an increase in professional services was $69,000, advertising and promotional expense increased $97,000, occupancy and equipment expense increased $56,000 and an increase in data processing of expense of $474,000 was all partially offset by a decrease in other general and administrative expenses of $1 million. These increases are all primarily due to the growth of the bank's lending and deposit operations. Our efficiency ratio was 34.87% for the fourth quarter of 2014 compared to 42.8% recorded in the fourth quarter of 2013 and compared with 35.10% for the third quarter of fiscal 2014. The efficiency ratio was calculated by dividing our operating expenses by the sum of our net interest income and our noninterest income. Now turning to our annual results. As Greg mentioned, net income was $55,956,000 for the year ended June 30, 2014, up 38.9% over the $40,291,000 earned for the year ended June 2013. Earnings attributable to BofI's stockholders were $55,647,000, or $3.85 per diluted share, for the year ended June 30, 2014, up 41% from the $39,456,000, or $2.89 per diluted share, recorded for the year ended June 30, 2013. Core earnings were $56,930,000 for the year ended June 30, 2014, up 37.2% year-over-year from the $41.48 million core earnings for fiscal 2013. Net interest income increased $35,469,000 during the year ended June 30, 2014, compared to fiscal 2013. This was a result of increases in average interest-earning assets and average interest-bearing liabilities, as well as a decrease in the cost of funds. The net interest margin was 3.95% this year compared to 3.79% in fiscal 2013. The cost of funds decreased to 1.17%, down 22 basis points from fiscal 2013. Provisions for loan losses were $5,350,000 this year compared to $7,550,000 for fiscal year ended June 30, 2013. The decrease was the result of lower charge-offs, partially offset by additional provisions needed for growth in the loan portfolio. Noninterest income for the fiscal year ended June 30, 2014, was $22,455,000 compared to $27,710,000 in fiscal 2013. Decreases in sales of agency loans resulted in lower mortgage banking gains and that's the primary reason for the variance year-over-year. Noninterest expense, or operating costs, for the fiscal year ended June 30, 2014, were $59,933,000 compared to $53,587,000 in operating costs for the year ended June 30, 2013. The increase was mainly the result of an increase in compensation expense of $3,366,000 related to additional staffing added during the year, an increase in data processing and Internet expense of $2.6 million, an increase in professional services of $1,890,000. All of those increases were partially offset by a decrease in other general and administrative expenses of $1,922,000. Shifting to the balance sheet. Our total assets increased $1.3 billion, or 42.5%, to $4,403,000,000 as of June 30, 2014, up from $3,090,000,000 at June 30, 2013. The loan portfolio increased a net of $1.275 billion, primary from loan portfolio originations of $2.3 billion less principal repayments and other adjustments of $1.022 billion. Total liabilities increased by $1.2 billion, or 42.9%, to $4,032,000,000 at June 30, 2014, up from $2.8 billion at June 30, 2013. The increase in total liabilities resulted primarily from the growth of demand and savings deposits of $1.2 billion and growth in FHLB borrowings of $319 million, partially offset by a decrease in time deposits of $268 million and a decrease of $65 million in securities sold under agreements to repurchase. Stockholders' equity increased by $102.5 million, or 38.2%, to $370.8 million at June 30, 2014, up from $268.3 million at June 30, 2013. The increase was primarily the result of $56 million in net income for the fiscal year and the sale of common stock through our ATM offering of a net $41.6 million. At June 30, 2014, our Tier 1 core capital ratio for the bank was 8.66%, with $161.6 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. I appreciate that. And operator, if you can open the line to questions, that would be appreciated.

[Operator Instructions] We'll go first to Hugh Miller with Sidoti. Hugh M. Miller - Sidoti & Company, LLC: I guess, starting off, you guys gave some commentary with regard to the H&R Block transaction, all going according to plan. I think you guys mentioned that you anticipate that it would close prior to the tax season. Can you just remind us again when that tax season starts? I believe that would indicate the fall, but I just wanted to make sure.

Well, there's some time frame before the fall that we would require for integration. So that's really the statement that we feel comfortable making, and I think the regulators understand that time frame. That doesn't mean that the transaction is approved. It's still going through that process, and it's subject to a potential, but it doesn't. But we believe, based on the information we have now, that we'll be able to have that occur. But it would be -- let's put it this way, I think it would have to be in the fourth quarter of the calendar year in order to enable us to do those things because there are system and process changes that have to be made in advance in order for H&R Block to stand it up. Hugh M. Miller - Sidoti & Company, LLC: Okay. So some time in the fourth calendar quarter is when you're anticipating a close.

We would hope that would be the case, and that's our best information. Hugh M. Miller - Sidoti & Company, LLC: Okay. And as I take a look at kind of the sequential rise in warehouse loans in the quarter, can you just talk to us about the seasonal aspect of that? And what are the yields on those loans? How should we be kind of thinking about that on a go-forward basis?

Sure. I'll let Andy give you a little bit more color on the yield side. But the -- just like our own mortgage banking pipelines and originations have increased 51% quarter-over-quarter, for us, we went from $47 million to $71 million. Our customers are also experiencing a rebound. We have good demand for that product and quite a few new lines in the pipeline. It's -- that can tend to have some cyclicality. I don't think -- I think that cyclicality is really more -- it's partially based on the selling season, which has kind of come through a bit and won't -- it'll go into probably a little bit more of a downturn from the purchase side. But we're seeing good volumes with our own business on the agency side and good volumes in our customers' business, and there's really nice pipeline. We have some products that make our warehouse lines unique and we're able to charge a little bit more for those products. So it tends to be the case that, if it's a specialty jumbo-type products where we'll either have relationships that are proprietary or we may be buying some of those loans ourselves off the lines that would tend to have a higher rate of interest than just simply straight through agency.

So rate wise, if you -- we're seeing it bounce between 4.2% and 4%. Last quarter, it was 4.06% on a weighted average basis.

And that's not including fees, all right?

Right. That's not...

We get fees per loans. So when you -- we look at that as an all-in yield. In the all-in yield, it's higher because there are fees associated with the processing of every loan. Hugh M. Miller - Sidoti & Company, LLC: Okay. And as we think about kind of some of the pipeline increase in C&I, I wasn't sure if that was pure C&I or C&I and other, including the warehouse on the pipeline side. I mean, as we take a look at just the increase in C&I loans, in and of itself, was it just a bit more modest, I think, up 4% or so on a sequential basis? And I was wondering, what you guys are seeing there. Is it just a function of kind of now you're seeing those originations come through in July and August? Or was it just more of a categorization thing, where in the pipeline you were including other things outside of than pure C&I?

No. So warehouse lending pipeline isn't actually included in any numbers we're disclosing. I suppose we could. It just -- it tends to be difficult because you often open large lines and then it takes quite a long time to get a product on those lines. So we're not actually -- the $330 million of -- well, the C&I lending pipeline of $258 million that we're talking about is definitely not including any warehouse lines for our typical agency and single-family warehouse business. What it does include is it does include our lender finance facilities that are outside of the warehouse lending group for more a typical sorts of assets that more have an ABL flavor. So frankly, I suppose, you could argue, you could throw them all together, but we just haven't. So that would be -- for example, if we're lending money on behalf of a consumer lender that's lending money, that would be -- those would be in there. Certain types of the structured settlement and lottery production is there and that's really -- so it doesn't include the single-family warehouse. Hugh M. Miller - Sidoti & Company, LLC: Okay. And so is it safe to then assume that you are seeing kind of a meaningful increase in production of C&I so far in the first fiscal quarter? And what are the yields on those loans that we are seeing right now?

Yes. I think it's fair to say that we're seeing an increase in production. I mean, obviously, those loans, it depends on often the line size, which is included in the complete -- the $258 million includes the total line size of the loans. Obviously, those loans don't draw down immediately. So there's often buildup in time frame associated with getting full interest-earning assets on those. And rates tend to be higher generally, I'd say, in the low end in there in the mid-5s and they can get into the -- all the way through the 6s, into the high 6s. Hugh M. Miller - Sidoti & Company, LLC: Okay. And so then, as I consider those factors and kind of, obviously, the addition of the H&R Block transaction, should that obviously get completed, how are you guys thinking about kind of the stickiness of the NIM here? And as you consider just kind of eventually moving into a rising rate environment outside of what you're currently doing, how are you thinking about that in terms of just the liability sensitivity of the balance sheet? Is that something that you're considering making adjustments to? Or do you feel as though the mix shifts in both deposits and loans should take care of that for you?

Well, there's a lot of questions packed in there. Let me try to unpack it a little bit. So let me -- let's all start with the -- obviously, at 4.01%, I mean, I -- if I were going to guide you guys, I might guide you down, I don't know, 5, 10 basis point or something simply because not because we adjusted loan rates down, but it's easy to have payoffs and movements and structured settlements and lotteries that are often fairly high rates. And if they move around a little bit, you can have some sort of movements temporarily. We are -- we did do some borrowing in preparation for the H&R Block deposits because our business plan isn't to increase our size of the balance sheet with securities or anything from receiving that lump of deposits. With regard to the -- your NIM compression, and as a result of rising rates, remember, if you are a -- we are because we've grown our deposit base so rapidly. We have a higher rate of interest or a better value proposition for customers from an earnings credit perspective, and generally, other banks are paying. So in order to have anyone leave or have movement from a standpoint of higher rates, yes, they have those rates become meaningfully higher and you have to have other banks compete and you have to have those other folks leave. That's not going to be happening within the first 100 basis points of movement at the bank. I don't believe. Now with regard to this challenge, this rate risk, I'll let Andy go through some of the numbers there, but it remains good and we always obviously think about different sensitivities. What we've really tried to do is operationally increase the quantity of our checking accounts and savings accounts and improving the mix of our deposit base in order that it -- that it's more sticky. And I think that, that has been well done. We haven't had to compete as a highest rate provider in online savings or even, frankly, as high as a lot of the branch-based banks that are located near us. So obviously, at different points in time, we did -- we're growing fairly rapidly. And so the ability to do that and continued to attract deposits into all of those things, there's a lot of things that have to work. We have to continue to execute our Business Banking strategy, which has been very strong. We have to continue to grow our cash management business. We see so much opportunity in those areas, though, and what's never coming up is the fact that we're a branchless banking that we generally have an efficient cost structure related to our sales function. Every now and then, there'll be some system constraint that comes up in the cash management side. But we're competing with Citibank for big cash management accounts that have tons of fees, and we're winning at different times. Sometimes, they'll say, hey, we want this batch wire feature to look differently, things like that, and we're continually looking at upgrading our systems. But I think that the operational side of what we've done has been really the most important and most effective mechanism of combating any concerns there.

So if you looked at a 200 up scenario within 1 year, we're actually showing a favorable variance of 1.8% last quarter, going up to 3.3% favorable this quarter, looking at merging with the Block deposits on a pro forma basis. So to your point, we're looking toward deposit growth and some of the key important ingredients to our interest rate risk management.

And we'll know go to Julianna Balicka with KBW. David Gong - Keefe, Bruyette, & Woods, Inc., Research Division: It's actually David Gong for Julianna. I had a question on the loan-to-deposit ratio. So it looks like your loan growth was stronger than deposit growth in the quarter. Was wondering if you have a particular loan-to-deposit ratio that you manage to, and if the deposit growth in the quarter was intentional in anticipation of the inflows from HRB?

Well, we were planning and we're aware that the loan-to-deposit ratio would spike up in those quarter based on our plan to receive the H&R Block deposits. So on an adjusted basis, the loan-to-deposit ratio, obviously, comes down around 100% range. I know that's a ratio that different folks concentrate on, and obviously, there's some natural limit to it. But our securities are becoming increasingly a smaller and smaller part of our book because we have a 40% borrowing capacity at the Federal Home Loan Bank, in that primarily single and multifamily loans, and the borrowing up from the FHLB is often at attractive rates and can be done at substantial durations at what we think are attractive borrowing rates. Those remain viable ways for us to think about financing loan growth and managing our interest rate risk. So I'm not going to give you a target ratio, but what I would say is that, obviously, we are planning on closing the H&R Block transaction, taking those deposits in. In the off chance that, that didn't happen, we certainly have ability to raise deposits and increase those deposit -- our size of our deposits, or if not, to do long-term borrowing with our significant borrowing capacity in order to control interest rate risk. We don't think we're going to have to do that. But I do think that it'll probably be difficult for some time to have our securities portfolio be maintained at the same level on a percentage basis as it is of our assets right now. And so that probably will shrink the securities portfolio. David Gong - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, great. And on your expenses, the $15.8 million in operating expenses this quarter, was there any expenses related to the preparation of closing of the transaction? And how should we think about the efficiency ratio going forward?

Sure. Yes, there were expenses related to that transaction. We've spent a significant amount of money on BSA, AML compliance upgrades and new systems and new personnel. We've also been beefing up our compliance teams. We have our prepaid team working hand-in-hand on an extremely large and detailed integration plan. We're proceeding operationally to do all that work, and that work has elements of cost associated with it. Whether we can maintain the 35% efficiency ratio throughout the next year is something that I think we certainly want to focus on. It's obviously very important to us. I've guided people previously potentially on a slightly conservative basis to more like a 37.5% efficiency ratio. But some of it just depends on the nature of whenever you're doing some significant thing, there may be a little more cost here and there. But I think guiding 35% is very good and guiding a little bit up may be a little bit cautious, but we believe there's -- we clearly see leverage in our business model with regard to our existing businesses at or below 35% from an efficiency perspective. But we want to make sure we stay ahead of our risk management needs and make sure that, certainly, we stay out of BSA trouble and things like that, so we're going to be investing. So I think that going with the 37.5% is probably not bad for you.

And we go now to Andrew Liesch with Sandler O'Neill + Partners. Andrew Liesch - Sandler O'Neill + Partners, L.P., Research Division: So you've covered pretty much all my questions except for one. And I just want to look at -- what are your thoughts on in the first quarter of -- first calendar quarter of next year with the RT business? As these tax returns come in and get put on the prepaid debit cards, I mean, are these going to be held as deposits at the bank? I mean, what are your plans with those?

So with regard to the balance sheet management side of it, we've done careful analysis and looked closely at those inflows and have a clear plan to do that to manage the balance sheet size. To the extent that there's a need to take our balance sheets off balance sheet, we certainly have the ability to do that and have thought through that. But that -- I think the way to think about that is there is -- there's a variety of mechanisms by which -- obviously, there's variety of mechanisms by which you can control cash, and cash is pretty easy to, from a spike perspective, to be able to manage. And so we feel good about it and we're not concerned about it. We don't believe that there'll be any incremental capital requirements to deal with the cash because, to the extent that there's concern about that, we'll just push it somewhere else. Andrew Liesch - Sandler O'Neill + Partners, L.P., Research Division: Got you. No, that certainly makes sense. I guess, along those lines, though, let's say there's a spike in cash and capital ratios are fine, I would imagine then, as these balances are held, that the margin would come in quite a bit. Not because of anything, like, poor that you're doing it wrong because that's the nature of the math and how that works out. I mean, is that something that you've been looking at, maybe the margin dipping pretty substantially in the first quarter before rising as these -- as this cash leaves?

Yes. I think, Andrew, what you need to think about it is if the balance sheet stood still, that might be the case, but we're growing at 30% to 40% a year. So we can actually deploy that cash during the growth mode to take the best advantage of it to fund. So I think you'll see that we're able to utilize it much better because we're growing consistently quarter-to-quarter.

Yes. And all these higher rate environments, we're look forward to selling that spare cash for lots of money. So you got to figure out what you're worried about. You're worried about having us too much cash, too low cash. No, I'm just kidding. But anyway, who knows, maybe they'll be worth something someday.

And we'll go next the Don Worthington with Raymond James. Donald Allen Worthington - Raymond James & Associates, Inc., Research Division: Were there any interest recoveries that impacted the margin this quarter?

Not of a large, large sense. There was a small benefit due to payoff in one of our mortgage pay categories. And there was also an impact on FHLB stock. For those of you following the FHLB stock, the FHLB stock dividend rate is now up to 7%. So we had a favorable adjustment associated with that. But nothing in that I would -- cause to be a huge change in any number.

Yes. And I do think that, though, that -- I think that guiding -- I wouldn't guide you necessarily to above 4% net interest margin.

Yes. No, no, not at all.

I'd say let's look at the full year -- this prior year as a more accurate guide for thinking about the future. Donald Allen Worthington - Raymond James & Associates, Inc., Research Division: Okay. And then NPAs, based on the percentage that you disclosed, is a dollar amount around $16.3 million. Is that right about for the quarter?

It's a little bit bigger than that. It's around $20 million. We run it on a total loan -- gross loans, not on net loans, so that's probably why you're coming up with this small difference. But in basis point terms, on total loans, it's identical to last quarter. So it's 20 bps. Donald Allen Worthington - Raymond James & Associates, Inc., Research Division: Okay, all right. And then, what about performing TDRs? What's the current balance on that?

On performing TDRs, we are very, very similar to last quarter. Not much change at all. But I would guide you to look at last quarter.

And we go now to Edward Hemmelgarn with Shaker Investments.

Wanted a quick update. I missed a couple of numbers. What was your jumbo gain on sale production in the quarter?

Jumbo gain on sale that was $400,000.

No, I meant the originations.

Oh, the originations.

Yes.

You don't mean -- you mean jumbo gain on sale originations? That is -- that was $21 million.

$21 million. And the C&I for portfolio?

$330 million C&I and specialty assets that include structured settlement and lottery.

Let me clarify a number I gave out. I think I said nonperforming were 20 basis points. I meant 57 basis points, not 20 on that, but still down from 60 bps last quarter, 46 in total.

Yes. The -- what are some of the new -- I know you are constantly investing to try to branch out into new areas of loan production, in addition to the ones that you're currently involved in. I mean, are there any areas that you've started to focus on that you haven't been in the past?

We believe that on the C&I side, we're continuing to expand the capabilities of our asset-based lending group. We have a new advanced system that's going in there. We've been adding personnel in that area. We think that the ability to have a robust C&I capability will be relevant in different environments, so we want to make sure that we're very ready for that. We're looking at different consumer side opportunities. I'm not ready really to talk about things like that as we're just exploring them. But we, as you know, we are very active in looking at different areas and looking at different distribution opportunities and how those areas can be -- those lending areas can be married to distribution opportunities that are before us to think through new businesses.

[Operator Instructions]

Well, thank you all very much. Appreciate you listening, and we'll see you next quarter. Thank you.