Earnings Labs

Axos Financial, Inc. (AX)

Q4 2017 Earnings Call· Fri, Jul 28, 2017

$98.85

+0.34%

Key Takeaways · AI generated
AI summary not yet generated for this transcript. Generation in progress for older transcripts; check back soon, or browse the full transcript below.

Same-Day

+4.34%

1 Week

+0.97%

1 Month

+0.22%

vs S&P

+1.06%

Transcript

Operator

Operator

Greetings and welcome to the BofI Fourth Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Mr. Johnny Lai, VP of Corporate Development and IR. Please go ahead, sir.

Johnny Lai

Analyst

Thank you. Good afternoon, everyone. Thanks for your interest in BofI. Joining us today for BofI Holding, Inc's fourth quarter and full year 2017 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 operating results for the three and 12 months ended June 30, 2017, and they will be available to answer questions after the prepared remarks. Before I begin, I'd like to remind listeners that prepared remarks made on this call may contain forward-looking statements that are subject to risk and uncertainties and that management may make additional forward-looking statements in response to your questions. These forward-looking statements are made on the basis of current views and assumptions of management regarding future events and performance. Actual results could differ materially from those expressed or implied in such forward-looking statements as a result of risks and uncertainties. Therefore, the Company claims the Safe Harbor protection pertaining to forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. This call is being webcast and there will be an audio replay available on the Investor Relations section of the company's website located at bofiholding.com for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release. At this time, I’d like to turn the call over to Greg for his opening remarks.

Greg Garrabrants

Analyst

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 our fourth quarter and fiscal 2017 year-end ended June 30, 2017. I thank you for your interest in BofI Holding and BofI Federal Bank. BofI announced record net income of $134.7 million for the fiscal year ended June 30, 2017, up 13% over the $119 million earned for the fiscal year ended June 30, 2016. BofI's return on equity for fiscal 2017 was 17.78% and the bank's efficiency ratio was 36.08% up slightly from a year ago but still best in class. Fiscal year 2017 earnings per share increased 12% to 207 per diluted share compared to 185 in the fiscal year 2016. Net income for BofI fourth quarter ended June 30, 2017 was $32.5 million up 9.5% when compared to the $29.7 million earned in the fourth quarter ended June 30, 2016. Earnings attributable to BofI common stockholders were $32.5 million or $0.50 per diluted share for the quarter ended June 30, 2017 compared to $0.46 per diluted share for the quarter ended June 30, 2016 and $0.63 per diluted share for the linked quarter ended March 31, 2017 in which we recognize the vast majority of our seasonal tax related revenue. Excluding the after-tax impact of net gains related to investment securities, adjusted earnings for the fourth quarter ended June 30, 2017 increased by $2.4 million or 8.2% when compared to the quarter ended June 30, 2016. Other highlights for 2017 fiscal year and the fourth quarter include, net loans and leases increased by $354 million in the fourth quarter representing 5% growth linked quarter and an annualized growth rate of 20% For the full-year ended June 30, 2017, net loans and leases grew by…

Andy Micheletti

Analyst

Thanks Greg. Our 8-K was filed with the SEC today and is available online through EDGAR or through our website at bofiholding.com. In addition to our press release, the 8-K includes unaudited financial schedules. I will highlight a few areas rather than go through every individual financial line item. Please refer to our press release or 8-K for additional details. First looking at our results for fiscal 2017 compared to fiscal 2016, net income increased 13% to a record $134.7 million. Our earnings growth has been generated from growth in both net interest income and in fee income year-over-year. With primarily organic loan growth, our average loan portfolio balance grew $1 billion this year or 16%, while our net interest margin increased to 3.95% for this fiscal year compared to 3.91% last fiscal year. Our fee income this year was increased primarily by the ongoing program management agreement with H&R Block. Finally including the cost of our increased size in our new products and technology, our efficiency ratio for the year was 36.1% up from 34.4% last fiscal year. Now, looking at our results for the fourth quarter ended June 30, 2017. Net income was $32,548,000, up 9.5% when compared to the $29,720,000 of net income for the fourth quarter ended June 30 ‘16 and down 20.6% when compared to last quarter. This was due to the normal seasonal trend associated with the income tax season. Earning attributable to BofI common stockholders were $32,471,000 or $0.50 per diluted share for the quarter ended June 30, 2017 compared to $0.46 per diluted share for the quarter ended June 30, 2016 and compared to $0 .63 or $0.63 per day per diluted share for the quarter ended March 31, 2017. For the quarter ended June 30, 2017 net interest margin was 3.80%…

Johnny Lai

Analyst

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

Operator

Operator

[Operator Instructions] Our first question comes from Austin Nicholas with Stephens. Please proceed with your question.

Austin Nicholas

Analyst

Just on the total dollar amount, the average excess block liquidity do you have what that number is or was in the second quarter and a fiscal fourth quarter?

Greg Garrabrants

Analyst

I can get it for you once you go on to your next question.

Austin Nicholas

Analyst

And then can you may be give us a little bit more color on the margin and if you’re seeing any deposit pressure from, you know the big money center banks kind of getting into that market given what we're seeing on LCR or are they kind of waiting and seeing if there is any changes to that with outright reform?

Greg Garrabrants

Analyst

No, I think that specifically the LCR reform I see that is coming on the consumer deposits side which is what you’re talking about right the relative value moving towards consumer away from business deposits, yes I think you do see that in the nature of union bank with pure point and things like that and you see CLC money center banks with competing very hard as essentially online savings platform. So I think that, we always thought that was coming recognizing from our perspective that the branch model from a growth perspective has serious issues, but I definitely see that there is a real push not only on the rate side but just also on the amount of money that a lot of the money center banks are offering for our consumer checking accounts right, a lot of offer $300, $400 to open a consumer checking account. So I think competition there is really stiff, but I don’t really know if that changed that much I think that’s been that way for a while.

Austin Nicholas

Analyst

And then looks like you guys had nice rebound in the warehouse lines which we seen at your peers. Can you give some color of where you see those balances going over the remainder of year and if you have any guidance on the pipeline there?

Greg Garrabrants

Analyst

Yes, we have a nice pipeline of new customers that are going through our process. The process does take some time cycle time there - it’s not a month it’s longer than that. That is a business that has cyclicality based on what happens with underlying origination volume. So as the market moves we're inevitable are going to be dragged along in some way there. I think we have a competitive advantage there in the sense that we do have a portfolio product that we can offer as a bundle package. That portfolio of product has a little bit less sensitivity from our perspective than the agency business and certainly in the refi business. So there's a little bit of a help there but we’re going to move with the market so the mortgage market forecast is as good forecast as any with respect to the current customers. And then we do have a nice pipeline though and we think will be able to continue to grow that.

Andy Micheletti

Analyst

Austin thanks for your patience on the average liquidity balance, it was a $354 million that’s down from $567 million last quarter but nonetheless still there.

Austin Nicholas

Analyst

And is that all out now in this quarter is that off loan like flown out of bank?

Andy Micheletti

Analyst

Generally yes, we’re at the trough in that cycle.

Austin Nicholas

Analyst

And then just one final on the new refunded advance agreement, congrats on that. Is that just a one year agreement or is that kind of ongoing or up for renewal?

Greg Garrabrants

Analyst

We have a seven year deal which we're in our third - this is our third year with Block right our third year of that - the underlying other products. And then this product - this is a one year deal. So you know what we think, we think that obviously if we do a good job given our full relationship they'll be continued opportunities there but this year it’s one year deal.

Operator

Operator

Our next question comes from Brad Berning with Craig Hallum. Please proceed with your question.

Brad Berning

Analyst · Craig Hallum. Please proceed with your question.

It will be nice to get back to focusing on the fundamentals so appreciate the other updates. I was wondering if you could touch based a little bit more Greg from a bigger picture perspective we've transitioned through loan growth issues, we've transitioned through some expense initiatives. And just how do you think about the bigger picture of the growth potential of the overall business model from a top and bottom line now that we’ve kind of transitioned through those a little bit and just kind of wondering how you're thinking about things more from a medium term perspective of the kind of growth rates that you're looking for?

Greg Garrabrants

Analyst · Craig Hallum. Please proceed with your question.

Right, I think that having growth up into through that $10 billion mark in the 15%ish range with loan growth ahead of that a little bit in between 15% and 20% is where we’d like to target. I think that as we get through what I hope to be the period where our software platforms from a consumer and business perspective where we want them to be, we have a lot of stuff we're looking at from a branding perspective, naming perspective and all those things. And I think that - and we kind of push through that $10 billion mark which we want to reach in a measured way. I think there probably will be a little bit of an opportunity to accelerate that. In some cases this year was a great year in many respects from - I thought loan growth at 16% was pretty decent. I thought margin was good, I thought obviously credit was fantastic, one of the things when you're looking at this deal the overall growth though is that - our gain on if you look at the gain on sale, other line it was that you $50.5 million it went down to 44 and that really was the result of repositioning of our structured settlement portfolio which is our longest duration portfolio. That was a smart thing to do from a standpoint of what those assets were worth at that time versus what they be worth now. But that obviously was a headwind that we confronted as we had a year-over-year measurements that we had. So I don't think that up to that $10 billion mark the analysts are too far off and then I think a lot of these things are going to come together. One of the reasons why we have been so successful in keeping credit losses to an absolute minimum and if you think about it’s really pretty amazing right because those couple of basis points, the credit losses include entries into the auto lending business, unsecured lending, right. And so those aren’t just the core real estate portfolio buckets and so those are going to get to places where we’re going to be comfortable, let nose run a little bit more and they could run a lot faster, but I'm just not comfortable with that until I see some good run time there. So, hopefully that gives you some color.

Brad Berning

Analyst · Craig Hallum. Please proceed with your question.

Absolutely that's very helpful. And then maybe you can update us on kind of the universal digital banking kind of platform initiatives, what are you seeing for opportunities to recognize and realize say over the next year?

Greg Garrabrants

Analyst · Craig Hallum. Please proceed with your question.

Well the first - so the stages that we’re operating in here is the first rollout of the consumer platform which was would lead to the eventual sun setting of any third-party online platforms that we’re using on a consumer side. We’re going to rollout that data this year into a platform we’re going to test it and we’re going to start adding if the minimum viable product from a standpoint of how we thought about getting that out and testing it, making sure the architecture works. The core benefit of it is the radical flexibility embedded in the structure such that because everything is tile based and the product development is relatively straightforward to change things that obviously there is really multiple levels of how this benefit us. One is, taking any element of customer experience that’s problematic, biometric authentication all these things and being able to quickly integrate those so that's one. And then other products from a development perspective is the cross-selling of our own product that we have within our platform on the consumer side that we’ve been developing auto unsecured, is another component of that and that will be pushed into that, that environment and personalized so that those offers are delivered in an intelligent manner in real time based upon actual need of the customer. And then of course, there is additional and incremental products that we’re looking as well. But I don’t want to spend a lot of time on now because I want to work through how much impact they'll have and then of course, on the business side, we will move to that too. But we do think there is a is a definite and real advantage of being able to make sure that that customer experience is best in class and that’s what we are moving towards. Right now we just don’t have enough control, our platform to get pushed in the third-party development tiers.

Operator

Operator

Our next question comes from Andrew Liesch with Sandler O’Neill. Please proceed with your question.

Andrew Liesch

Analyst

Just want to talk about, funding cost for a second here. Just so, cost of interest bearing liabilities is up 9 basis points sequentially. Just curious what the drivers behind that. Is that more along the lines of commercial deposits or retail deposits and then with the rate hike coming later in your fiscal year. What's your outlook for that going forward?

Greg Garrabrants

Analyst

It’s really a mix. There’s been - there is lot of commercial deposits that have been – where we haven't had to do anything with all the small business deposits really have been very steady and stable all the consumer checking stuff has definitely. We've worked with a provider that I think is doing some need things called max my interest and they are a provider that we integrated on an API basis with and that technology integration was successful and they have partnerships with a bunch of wealth management firms. But the deposits that we’re getting from there definitely higher rate. And so, that's one component of it, and I do think the deposited market is definitely getting more competitive, and I think we get - vastly outperformed on models this year and we kind of based part of our loan pricing on you know those models but obviously as we go forward that something we have to be very thoughtful about and make sure we’re watching on margin there. Like most banks, I think it's a it's definitely - I get the sense that at the next number of rate hikes, maybe more banks will be really looking to pass those on and creating little more competition. We had one of our big commercial customers and we got their statements from Wells and they were telling us that Wells was repricing and we didn’t really absolutely believe that and we saw that based on their statements. So it really is, it’s not systemic now but it certainly is something that we have to keep an eye and that we have to make sure that we're focused on it because – and continuing to improve our deposit franchise because it definitely is something that you know obviously that’s the environment, are going to be in.

Andrew Liesch

Analyst

Have you made any adjustments on the loan yield that you are offering relative to multifamily or jumbo like you did maybe a quarter and six weeks ago?

Greg Garrabrants

Analyst

No, we really haven’t. I’d say, we probably been tighter on any kind of exception. So, we haven't done that yet and we’re watching that and so, as we feel as if need to do that to maintain margins we well. And then we also think that mix shift on the C&I side will be helpful as well. So, that's an area we’re helpful to grow. We have opportunity there for growth and so, our strategy is with mix shift and with whatever repricing we need to do to focus on that that margin maintenance. But I think it definitely one of those that one of the key metrics that we’re going to have to focus on in this year and then obviously as you raise loan rates then you have to make sure loan demand is there. So far it's been fine based on what we done with respect to the loan rates. But obviously I know we have our views on it, but we don't know for sure.

Andrew Liesch

Analyst

And then just on the expense side, data processing and advertising costs this quarter were the highest in the bank's history. Just curious if there’s anything outsize there and if we should drop back down in the third quarters ahead?

Greg Garrabrants

Analyst

Nothing, outsize of course, data processing is to a large extent a function of our growth as we have some variable components that that tied to the number of accounts and doing that, obviously we've also got investments that we are making that are non-capitalized that are going into data processing. So, I do expect our run rate to be a little bit higher, maybe not as high as we were. But it will be on average will trend higher. With regard to advertising, a part of it was a strong production period, in which we had good loan growth and in many times we see advertising up a little bit associated with that. But on average I expect them to be on average lower going forward.

Operator

Operator

Our next question comes from Steve Moss with FBR. Please proceed with your question.

Steve Moss

Analyst · FBR. Please proceed with your question.

I was wondering, if you could quantify your expectations around the H&R Block agreement for 2018. And how much do you think refund advance revisions to be?

Greg Garrabrants

Analyst · FBR. Please proceed with your question.

Yes. With respect to what I will say is that, I don’t want to get into the prediction of a volume side. They disclose that they did 700 million last year, between the two banks that they used or the two banks that bought the originations last year, the originating banks and then they kept some and we kept some. Look we hope obviously, that it goes up and when it goes up, our assuming our loss rates are within projections and last year they were better than our projections. Then we would have a linear increase based on that volume percentage and profitability, probably a little bit better than linear because there is – the revenue is linear and the cost are much more statistic because there is some fixed cost of a variety of items, personnel and other types of software development and stuff that’s embedded in that. So I really just think it’s way too early to predict that. You know obviously, we’re looking forward to focusing on making a very competitive program and a program that’s desirable for consumers that helps drive individuals into H&R Block locations and that’s good for everybody. And remember we have ancillary benefit from that because we receive revenue from other products that are in many ways - that basically because the product is loaded on Emerald cards and such it benefits over volume across the entire system of financial products.

Steve Moss

Analyst · FBR. Please proceed with your question.

On the Emerald cards, it’s automatic that the Refund Advance is put on Emerald card or is that at the option of the client?

Greg Garrabrants

Analyst · FBR. Please proceed with your question.

It’s put on Emerald card.

Operator

Operator

Our next question comes from Edward Hemmelgarn with Shaker Investments. Please proceed with your question.

Edward Hemmelgarn

Analyst · Shaker Investments. Please proceed with your question.

I’ve got a couple of questions. One, as the originating bank in the future as oppose to last year. Will you have any more control over credit decisions, things like that?

Greg Garrabrants

Analyst · Shaker Investments. Please proceed with your question.

Yes.

Edward Hemmelgarn

Analyst · Shaker Investments. Please proceed with your question.

So do you think there is some opportunities for improvement in that area?

Greg Garrabrants

Analyst · Shaker Investments. Please proceed with your question.

Frankly, I think that the credit performance was pretty strong last year and obviously, there is a targeted credit performance and that credit performance is based upon a set of approval rates that were helpful to achieve. And we’re not mandated to hit those approval rates. But as a good partner we are going to try very hard to hit those approval rates. So the objective is to maximize approval rates and at the same time have credit losses that are in the expected range. Now obviously, if we can have approval rates that are at or above expectations and also have credit losses expectations and that’s obviously a benefit to everybody and we would obviously work to achieve that. So that’s on us to ensure that we accomplish that. So from those perspective, I know you are going with this is, what are the upside potentials from the numbers we provided and the upside potential from the numbers we provided and he upside potentials are that credit is better than expected, which we would keep the benefit of that and the volume is better than expected and we would keep. We would have a linear benefit associated with that.

Edward Hemmelgarn

Analyst · Shaker Investments. Please proceed with your question.

Second question as it relates to your equity capital. I know it’s been creeping up as a percentage of your assets and you are getting to the over capitalized era. What are your thoughts on that, your capital levels?

Greg Garrabrants

Analyst · Shaker Investments. Please proceed with your question.

I was thinking about inventing a new capital distribution, they call [indiscernible] dividend. Look, I think you are right and I think that clearly the capital levels are creeping up and at a certain point, they are creeping at a level that, as you well know, because you know with a long time that previously are loan growth was exceeding our ROE and therefore requiring us to reach out to capital markets in order to fund that loan growth is sort of period of time, loan growth is going to be within the range of our return on equity. Then obviously or even slightly lower than that then it generating excess capital and that capital needs to be and utilized for strategic acquisitions that are beneficial to the overall growth or return to the shareholders. So I agree with that from a philosophical perspective. I don’t think we’re quite – we might be getting close to that, but don’t think we’re quite there. But I think it’s definitely something as you know, close to 10% capital ratio at the holding company on a Tier 1 basis. It certainly – I certainly can understand your characterization of the capital levels.

Edward Hemmelgarn

Analyst · Shaker Investments. Please proceed with your question.

The other thing was I mean you did liquidate some of the investment portfolio so that it wasn’t just a loan growth?

Greg Garrabrants

Analyst · Shaker Investments. Please proceed with your question.

I think that’s right. And so, I mean obviously the asset growth rate was lower than the loan growth rate too so that obviously, if you do that and obviously you are freeing up capital on that respect too. I think that’s a - I am sure there will be robust discussions about that as we continue to go forward and then that’s certainly is something that we need to actively consider. How to work with the excess capital.

Operator

Operator

Our next comes from Gary Tenner with D.A. Davidson. Please proceed with your question.

Gary Tenner

Analyst

On that topic of liquidating shares portfolio or part of it this past third quarter, the sale you advance about $260 million of securities at the credit end balance sheet. Can you talk about what your thought process is in terms of reinvesting and maybe what the yield is on the remaining series portfolio headed into the September third quarter?

Greg Garrabrants

Analyst

So, what happens this third quarter is about, 107 million in securities actually matured and so, that the primary reason for the decrease. We picked up a couple of securities and we sold one security. But the primary difference was the decrease as a result of maturities. We continue to look for obviously our tactics and securities look at our low leveled yields and our securities yield and to the extent that securities traded times, that are unnecessary for liquidity. We’re okay with that, to the extent that loan yields are higher. And of course, that’s been the case with us for quite a while. So when you look at this third quarter in terms of the three month yield, our investment portfolio at 4.09%, I think it will be net-net accretive when you consider the securities that paid off. So I would expect 409 or possibly slightly better next third quarter.

Gary Tenner

Analyst

And then Greg, I was just hoping you could just repeat your comments on your prepared remarks regarding SEC, I am not sure I heard it clearly. So just to make sure I understanding it?

Greg Garrabrants

Analyst

So, I’ll repeat exactly what I said. So we received confirmation from the SEC, that no investigation is going and enforcement action is contemplated against BofI.

Operator

Operator

Our next question comes from Scott Valentin with Compass Point. Please proceed with your question.

Scott Valentin

Analyst · Compass Point. Please proceed with your question.

With regard to margin guidance, I think you guys were - prior guidance was 3.8% to 4% kind of the core margin. Just wondering if that’s still valid going forward given what’s happened with rates and deposit competition?

Greg Garrabrants

Analyst · Compass Point. Please proceed with your question.

Yes. We are very focused on maintaining that over a full year, I can’t - I think I would like to have that with removing the impact of block liquidity and those sort of things that sometimes can push it around. That is absolutely the full year guidance and I’d like to maintain that on call it a core basis over every third quarter as well. I have much better certainty I think although it’s still obviously everything is uncertain to some extent about maintaining it over the next year. Over the third quarters, I have left certainty but I believe that we’re going to be able to do that. I think that – but that’s the execution right. It’s the ability to grow like we do and to maintain that margin and to maintain the safety that we do. So it’s not always easy. But Andy as got some.

Andy Micheletti

Analyst · Compass Point. Please proceed with your question.

In the prepared remarks, we did provide a number that eliminated the excess liquidity and so, it came in at 3.89% and very close to where we were without block last third quarter and then we also had about 2 or 3 basis points of impact from the Federal Home Loan Bank dividend adjustment. So, on a run rate basis we are right in the center of that range.

Greg Garrabrants

Analyst · Compass Point. Please proceed with your question.

I think when you separate out the noise of FHLB and excess liquidity and H&R Block loans that are coming in and out. Our core loan yield this year was 5.18%, which was up 16 basis points and the average deposit cost over that fourth quarter of fiscal 2016 was up by 9. So we were up 7 basis points on that core measure of just looking at loan yields versus average deposit yield. And I think that’s very good for our ability where we still were able to grow loans very nicely and that’s obviously a focus that we have to have. The abilities that we have there is that, we have been able to adjust loan yields without suffering strong degradation in volume or any degradation in volume. We’ve been able to hold them and then we’ve also been able to generate strong C&I production which is a higher average yield than some of the other asset classes and that’s helpful and it’s also floating rates, the vast majority of the floating rate, so that also is helpful as well And some of the single family jumbo and multi family or (51) arms. But there is given that the book turns quickly, those loan yield increases that we pass through even as - even this year flowed through relatively quickly into the book itself, boosting loan yields by 16 basis points. The actual yield, that the loans are coming on out, is obviously going to be better than that. And so, as those loans that have lower yields are paying off we're replacing those as well. So there is an inherent benefit that will achieved from in the underlying portfolio yield simply from the pricing that exist as well.

Scott Valentin

Analyst · Compass Point. Please proceed with your question.

And then you mentioned efficiency ratio crate up a little bit, making ongoing investments in the platform, improving delivery. Just wondering how we should think about efficiency going forward, if given, now look for revenue growth, loan growth, margin kind of stable, call it stable year-over-year. Did the efficiency ratio creep up a little bit year-over-year because of the investments or do you think you can manage to hold the efficiency ratio relatively stable against over the course of the year?

Greg Garrabrants

Analyst · Compass Point. Please proceed with your question.

Over the course of the year, right I think you have to look at it on a yearly basis. I think that focusing on a 36 - last year we set 36% to 37% yearly efficiency ratio is where we’re looking to be. I want to be in that range as well and I want to push to make sure that that there. And there is a high level of investment going on now and we're generating strong results from a software perspective and from a development perspective. So although there is some incremental investments that have to be made I don't view those as particularly material. And I think that there is benefits to be achieved from the investments that we're making without us having to do a massive amount incrementally. Now look whether a 100 basis points here there I'm not going to minimize that but those are within a tolerance, but we’re pretty focused on cost around here and we expect that if we’re going to have cost increases we better have revenue increases.

Scott Valentin

Analyst · Compass Point. Please proceed with your question.

And then one follow-up question, just around - you mentioned a $10 billion threshold cross I’m just wondering if you have kind of timing for that given that the lag between when you cross and when you’re actually subject to DFAST and things like that. And also maybe if you have a cost – so understanding incurring some cost now any idea that - kind of build slowly over time just wondering if there is cost estimate on crossing?

Greg Garrabrants

Analyst · Compass Point. Please proceed with your question.

I don't have a cost estimate for you today on that and right now the main focus that we have is ongoing through elements of heightened standards and looking at that from an analysis perspective a gap analysis. Preparing for the DFAST stress testing, we’ll have a trial run of that next year. So we’ll have I think that will end up with well before we’re at $10 billion we’ll have a trial run and then obviously as you said those standards don't kick in right when you crossover that mark. So there will be multiple years of trial runs obviously there's costs associated with it in different ways. We obviously - so we’ll - as we get closer we’ll be preparing those things and probably sharing more from that perspective.

Andy Micheletti

Analyst · Compass Point. Please proceed with your question.

I mean that said we've already made investments in software in people to get ready for the simulation. You're coming up so certainly cost has already been incurred to get us closer to where we need to be.

Greg Garrabrants

Analyst · Compass Point. Please proceed with your question.

Yes, we’ve got consultants and a bunch of other stuff its happening right now that were incurring to do this but that’s not to say that there might not be something else so obviously as well.

Scott Valentin

Analyst · Compass Point. Please proceed with your question.

Okay. Thanks very much.

Greg Garrabrants

Analyst · Compass Point. Please proceed with your question.

And we have Durbin as well which impacts interchange so that's another cost that’s out there.

Operator

Operator

Our next question comes from Don Worthington with Raymond James. Please proceed with your question.

Don Worthington

Analyst · Raymond James. Please proceed with your question.

If you mentioned and I missed it, what I was looking for was the origination volume out of the leasing group this quarter?

Andy Micheletti

Analyst · Raymond James. Please proceed with your question.

$15 million, Don.

Don Worthington

Analyst · Raymond James. Please proceed with your question.

$15 million, okay and then have you seen any shift in the composition between purchase and refi in the single-family residential area?

Greg Garrabrants

Analyst · Raymond James. Please proceed with your question.

Yes our purchase volume is up and as a percentage of our production that's partly the result of a market shift but it's also the result of some efforts that we've been putting in to a developing two sort of groups. One group is a builder group which is still relatively nascent but doing incredibly well given its relatively small cost footprint right now. And there's a lot is a nice pipeline there that we expect to continue, I think we bring a really compelling value proposition to builders because on the agency side we have really great cost structure. And on the portfolio side we have products that are really across the board on the jumbo side that can assist in a niche markets. So I think that's an area that’s help that and then we also have a segmented our call centers and worked through different mechanisms of dealing with purchase leads from refi leads and the problem is with that having those together from our perspective the gentleman who runs that business and I agree with him that it’s a little bit. You have to have different mechanisms of working through longer-term leads in the purchase market. And so that group is separate it in Las Vegas, it has a separate leader and they're getting reasonable traction. And there is a lot of neat things we’re doing to interact with realtors electronically from loan status and things like that that are just - and more series of investments and how we’re thinking about our unique model as we go up against you other purchase money competitors that have higher cost delivery models with field loan officers that make them uncompetitive on the cost side. So we had that increase I think we need to do more there. I think we’re - frankly I would like to be a little more ahead there than where we are but the gentleman who runs that group is very well aware of how much he is going to work hard on that to make that happen so.

Don Worthington

Analyst · Raymond James. Please proceed with your question.

And I guess lastly touched on M&A is a possibility what types of opportunities would you be looking at in the M&A area?

Greg Garrabrants

Analyst · Raymond James. Please proceed with your question.

There is really a variety of opportunities we've looked at and over time I think that opportunities that are unique our specialty lending niches that fit within our view that specialized national lending platforms that focus on a particular types of asset classes are a better approach to the market then to take geographic approaches across industry sectors so that's one thesis. And then unique mechanisms of thinking about branchless deposit gathering are also another general category. And that involves a variety of different types of companies that could be involved in that in those and that - in whatever they're doing generating deposits that are not tied to some branch infrastructure.

Operator

Operator

At this time, I’d like to turn the call back over to management for closing comments.

Greg Garrabrants

Analyst

Well thank you very much. I'd like to thank our employees for a great year this is I think was the fifth straight year we’ve been the number one thrift. And thank you to all our investors who have put up with a lot of the of extra work to sort through a lot of noise and silliness but I’m pleased with where we are and I thank you very much for your time and the work you do in following the company. So thank you.

Operator

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.