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BofI Holding (NASDAQ:BOFI)

Q3 2014 Earnings Call

May 06, 2014 4:30 pm ET

Executives

Johnny Lai -

Gregory Garrabrants - Chief Executive Officer, President, Director, Member of Asset & Liability Committee, Member of Directors Credit Committee and Member of Operations & Technology Committee, Chief Executive Officer of BOFI Federal Bank and President of BOFI Federal Bank

Andrew J. Micheletti - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Member of Asset & Liability Committee, Member of Internal Asset Review Committee, Chief Financial Officer of BOFI Federal Bank and Executive Vice President of BOFI Federal Bank

Analysts

Michael Millman - Millman Research Associates

Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division

Donald Allen Worthington - Raymond James & Associates, Inc., Research Division

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to BofI Holding, Inc.'s Third Quarter Fiscal 2014 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, May 6, 2014.

Now I'd like to turn the conference over to Johnny Lai from MZ Group. Please go ahead, sir.

Johnny Lai

Thank you, and good afternoon, everyone. Joining us today for BofI Holding, Inc.'s Third 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 third quarter, and they will be available to answer questions after the prepared presentation.

Now before we begin, I would like to remind our listeners on this call, our 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 the protection from the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements related to the business of BofI Holding, Inc. and its subsidiaries can be identified by common-use forward-looking terminology, and those statements involve unknown risks and uncertainties, including all business-related risks that are in more detail in the company's filings on the Form 10-K, 10-Q and 8-K with the SEC.

This 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 in the press release today.

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

Gregory Garrabrants

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 third quarter of fiscal 2014, ended March 31, 2014. I thank you for your interest in BofI Holdings and bank -- and BofI Federal Bank.

BofI announced record net income for its third quarter ended March 31, 2014, of $14,610,000, up 40.5% when compared to the $10,402,000 earned in the third quarter ended March 31, 2013, and up 11.1% when compared to the $13,154,000 earned last quarter. Earnings attributable to BofI's common stockholders were $14,533,000, or $1 per diluted share for the quarter ended March 31, 2014, compared to $0.74 per diluted share for the quarter ended March 31, 2013, and $0.91 per diluted share for the quarter ended December 31, 2013.

Excluding the aftertax impact of net gains related to investment securities, core earnings for the third quarter ended March 31, 2014, increased $4,801,000, or 47.1% when compared to the quarter ended March 31, 2013. Other highlights for the third quarter include: Total assets reached $3,850,000,000 at March 31, 2014, up $760 million compared to the June 30, 2013, assets and up $889 million from the third quarter of fiscal 2013. Return on equity reached 17.94% for the third quarter. Our net interest margin was 3.89% for the quarter ended March 31, 2014, a 12 basis point decrease over the quarter ended March 31, 2013, and a 15 basis point improvement over the quarter ended March 31, 2013. Total deposits reached $2,833,000,000, up $430 million when compared to December 31, 2013.

Our loan units had another great quarter, with $696 million in gross loans originated in the quarter. As a result, the bank achieved good quarterly loan growth, growing loan balances by 11.4% over the linked quarter and at a 46.1% annualized rate. The excellent performance of our lending groups resulted in $301 million of net loan growth. The $696 million of production consisted of $47 million of single-family agency eligible gain on sale production, $6 million of single-family non-agency eligible gain on sale production, $305 million of single-family jumbo portfolio production, $15 million of single-family jumbo gain on sale production, $34 million of multifamily non-agency gain on sale production, $67 million of multifamily portfolio production and $222 million of C&I and specialty asset production. As of April 31, 2014, the lending pipeline is robust, with a single-family jumbo pipeline of $363 million, $157 million of multifamily loans and $167 million of C&I loans.

For this quarter, our noninterest income continues to show the diversity of our platform. This quarter, our noninterest income, excluding securities and mortgage repayment penalties, was $5,400,000, consisting of $800,000 of mortgage banking income from single-family agency-eligible mortgage loans, $400,000 of mortgage banking income from single-family jumbo mortgage loans, $1.2 million of mortgage banking income from multifamily mortgage loans, $1.9 million from the sale of structured settlements and other loans, $600,000 of prepaid card fees and $500,000 of other fees.

Because the banks felt that the agency mortgage loans involve sales [indiscernible] of single-family jumbo and multifamily and specialty finance production, the bank's continued strong overall loan production allows us to continue to generate fee income from loan sales, reducing dependency on agency mortgage banking income.

Although we can see mortgage banking income as lower in the third quarter, we are pleased to see significant positive trends in our agency mortgage banking business in the current quarter. As the selling season picks up and we move away from the holiday pipeline rolls, I believe we will see an increased contribution from agency mortgage banking in the fourth quarter.

We're also bullish about volumes in our single-family jumbo, multifamily and C&I lending businesses. We are particularly bullish about the jumbo mortgage business, given the securitization market is not an effective threat or competitor to balance sheet lending at this time, although we are well positioned if the securitization market does come back; the enhanced capital requirements of larger banks that are driving them to either exit businesses or reprice their loan rates; and the many potential competitors discouraged by the fixed cost of managing the wave of complex regulations, including those related to QM and QRM that came into effect in January of this year.

We are pleased with the increasing credit quality of the bank. Our non-performing assets, as a percentage of total assets, are down from 0.71% at the end of the March 2013 quarter to 50 basis points at the end of the quarter, March 2014. Into the third quarter of our fiscal year, that trend appears to be continuing. We remain highly focused on credit quality of the bank and have not sacrificed credit quality to increase originations, nor loosen our underwriting standards to gain volume.

For the third fiscal quarter's originations, the average cycle for single-family agency eligible production was 7 65, with an average loan-to-value ratio of 65%. The average cycle for the single-family jumbo production was 7 17, with an average long-to-value ratio of 59%. The average loan-to-value ratio of the originated multifamily loans was 61%, and the average debt service cover was 1.45. At March 31, 2014, the weighted average loan-to-value ratio of our entire portfolio of real estate loans was 55%.

When reviewing our loan loss provision, we spent time to ensure that our loss provisions are well matched to the level of risk in our portfolio. For example, our provision that will be booked for an 80% loan-to-value jumbo mortgage is 210 basis points, and for a 65% loan-to-value jumbo loan, the provision is 65 basis points. Our reserve for C&I loans is 274 basis points.

Our current level of loan loss reserve reflects the low risk and low loan-to-value ratio on the current portfolio. When reviewing our loan loss provision adequacy, it is worth remembering that our historic loss rates on single-family loans, including bulk loan purchases and those in our 2005 to 2007 vintages, are under 1 basis point. We're in the process of selling of our last piece of real estate owned this week.

We continue to make progress in growing and enhancing our deposit franchise. Our goal is to increase our share of transaction accounts and develop deeper customer relationships. We've made strong progress on changing the [indiscernible] of our deposits to become more transaction focused.

From December 2011 to March 2014, we grew our checking account balances by 1,303%, our money market balances by 200%, while our certificate of deposit balance is increased [ph] by 61%. Transaction accounts now make up 79% of our deposit base, up from almost 45% from the year ago. The bank's deposit base, as of the end of the March 31 quarter, is approximately 69% checking and savings prior to the acquisition of the H&R Block Bank.

On a pro forma basis, assuming the H&R Block deposits were added to our deposit mix, as of the end of the 2014 quarter, our transaction accounts would equal 85% of our deposit base and reduce our average cost of deposits by 13 basis points. Out of 31% of our deposits that are CDs, over 21% have durations of 5 years or more.

Our business banking group had over $1.1 billion of total deposits at the end of the quarter, up from $688 million in the prior quarter ended December 31, 2013. The business bank has over 2,300 accounts with 81% of those balances comprised of checking accounts. We continue to pursue 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 225% this fiscal year. We believe that we create value on our consumer deposit franchises by providing a strong value proposition to our customers. We do not rest on any single attribute of that value proposition.

First, for our deposit customers, the majority of whom are coming from larger banks, there's a deeper satisfaction with the fee and product structure of those large bank accounts, particularly in monthly fees, overdraft fees, overdraft line and credit usage fees, and not sufficient fund fees. No product from a large bank offers a fee-free usage of any ATM in the country. If the account is not at a monthly fee, it usually has a set of got-you criteria associated with the avoidance of the fee and an overdraft component tied to it. We can offer this enhanced consumer value because we have around half the cost on a percentage of asset basis as branch-based banks. Additionally, we have a significant advantage over larger banks, collecting roughly 95 basis points of additional interchange revenue with 115 basis points as average interchange versus 21 basis points of average interchange for non-Durbin exempt banks. Such that a checking account with an average spend of $3,000 per month would generate approximately an extra $250 per year of fee revenue. This interchange advantage allows us to offer more competitive accounts and to our debt and rewards products.

Second, as branch transaction volumes continue to collapse, and technology, such as lower remote deposit capture, fully transform banking from a place you go to something you do, branches represent a much smaller part of a consumer experience for the ever-shrinking number of people. We have competent bankers able to handle customer requests effectively and efficiently and create a customer-centered experience where consumers engage with us through their cellphone, tablet, desktops, ATMs and customer service centers.

The addressable consumer deposit market for a branchless bank continues to growth far beyond what will be required to support our asset growth. There will continue to be a segment of the consumer deposit base that values branch proximity because they need a safe deposit box or other services. These customers will have to pay for those services eventually because most banks providing these services are not earning their cost of capital. However, we don't need to be all things to all people. We simply don't need to penetrate that customer segment because ours is growing more than sufficiently to support our funding needs and it is a more profitable segment.

I sometimes hear the concern that we have many more direct banking competitors than we did previously. We've always had competitors with our now -- with the now-consolidated ING DIRECT, the most conspicuous one. Our deposit strategy is different than these competitors in a significant way. We've demonstrated that we can offer a full-service consumer and business accounts in a cost-effective manner, not just focused on high-yield savings and CDs. We can do this with a lower cost structure by focusing on differentiated acquisition channels and operating efficiency without growing the cost of branches. The primary entitlement to growth of branchless banking is the momentum of customers willing to step out to try it. I believe the robust group of direct banks and branch-based banks doing things like charging customers to use a branch, will only increase the addressable market.

Despite our success in both our consumer and business deposit franchise, I'm excited about what we have left to do to expand our product offering, enhance our customer service simultaneously becoming more efficient in acquiring and servicing customers. Because we have shifted our deposit base toward consumer and business checking and savings accounts, and away from certificate of deposits, as well as extending our borrowing, interest rate risks have significantly improved both since year end and since last quarter. The sensitivity of our net present value of equity to an instantaneous 200 basis point parallel upward shock [ph] of 130 basis points decline in present value at March 31, 2014, compared to 166 basis point decline at December 31, 2013, and 199 basis point decline at June 30, 2013.

A review of a simplistic interest rate gap table will show, not surprisingly, that checking and savings accounts don't have contractual maturities, although the average time frame our checking and savings accounts are outstanding are 7 years and 5 years, respectively. The interest rate gap table simply do not reflect the economic benefit of longevity of higher-quality checking and savings deposits, and it does not reflect the prepayment of mortgage principle.

Our multifamily and single-family portfolio loans are primarily 5-1 ARMs, and the portfolio's weighted average life is about 3 years, shorter than the contractual period reflected in the interest rate gap table. We're looking at the cumulative interest rate gap table [indiscernible] is essentially neutral over a 5-year time horizon. From a net interest income and risk perspective, the bank benefits by approximately 1.8% in the first year from a 200 basis point up shock to rates, and the cumulative impact in year 1 and 2 with a decrease of 1.81% on a static asset base, an insignificant amount given the rate of growth in the bank’s net interesting income.

I also do not foresee margin compressions. I believe that we have a real opportunity, although one that is not guaranteed given our strong asset growth, to continue to take advantage of our ability to offer a better value of [indiscernible] to our customers to continue to lower our cost of funds. We will continue to reprice at lower rates our remaining repurchase agreements and to certificate of deposits, and gain the benefit of a lower cost of funds associated with the H&R Block deposit.

I believe that we'll be able to utilize our [indiscernible] relationships, as well as our increasingly sophisticated Internet marketing engine to drive consumers to our deposit products, including the approximately $300,000 rate [ph] deposit accounts we acquired from H&R Block.

On the loan side, I believe we can sustain the pricing on our multifamily and single-family products and pick up some incremental yield on our C&I portfolio. Given that we grow our loan portfolio at around 25% per year on a net basis and keep the duration of our loan book relatively short, our loan book would be priced upward in any interest rate -- in an upward environment at a relatively rapid pace. Additionally, although our securities book is higher-yielding than other banks, partially due to opportunistic purchases, the securities book is a lower yield than the yield generated from newly originated loans. As a result, we believe that our average asset yield will increase as a result of our securities book being replaced by a greater percentage of loans. Approximately 15% of our net interest income is from bonds, and we've grown our loan interest income by the entire amount of our bond portfolio income in less than 5 months this year.

Another way to look at this would be at a 15% rate in securities payoff, it would take 3 to 4 weeks of loan production to replace the entire annual income from the runoff of securities portfolio, assuming that we do not purchase additional securities. At different times, over the last number of years, there's been a concern expressed over how the bank can replace income from its securities portfolio. And that shows that this is a small concern, but it is interesting because those concerns are often voiced by those who say that they're simultaneously concerned with higher rates. The easy answer is that if rates are so much higher, you can buy marketable securities to replace the yield.

I'm proud of our 35% efficiency ratio we attained this quarter, a 35% efficiency ratio, despite our investment in our technology and compliance infrastructure, expansion of our more established and newer business as is a testament to our business model, as well as the ongoing operational improvements and cost management initiatives we have undertaken at the bank. What is so fantastic about where we are on our cost-management initiative we began about 8 months ago is that we still haven't fully implemented all our vendor cost containment processes, where we have significant repetitive processes that are too labor intensive and can be automated to increase the efficiency of our personnel. However, as we prepare for the Block transaction, some of the incremental personnel expense associated with preparation for that business will be incurred prior to the realization of revenue that is clustered around tax season. And as we enhance our executive team for the next phase of our growth, I believe that we will revert to an efficiency ratio that is closer to 40% than 35%, at least until we realize the revenue benefits from the H&R Block transaction.

This quarter, we have a new Chief Digital Officer, who will enhance our digital marketing infrastructure and refresh our marketing strategy for the mobile- and social-oriented consumer. We also added a Chief Deposit Officer, a former Mckenzie partner will ran analytics through the city bank to focus on enhancing the integration between our data and marketing initiatives and continue to drive greater engagement with our customers with a particular focus on our consumer deposit customers. We significantly upgraded talent in our analytics area as well as with a recent senior hire. We also recently added several risk-focused personnel in our C&I lending business in order to ensure that our infrastructure sufficiently handles the increased volume of business we expect. As we grow the bank, the expertise required to manage our operations continues to increase, and we're pleased to be able to supplement our management team to allow us to pursue the significant opportunities that are available to us.

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

Andrew J. Micheletti

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 2014 versus fiscal 2013, as well as this quarter ended March 31, 2014, versus the second quarter ended December 31, 2013.

For the quarter ended March 31, 2014, net income totaled $14,610,000, up 40.5% from the third quarter of fiscal 2013. Diluted earnings were $1 per share this quarter, up $0.26, or 35.1% compared to the third quarter of fiscal 2013. Net income increased 11.1% compared to the second quarter ended December 31, 2013.

For the 9 months ended March 31, 2014, net income totaled $39,946,000, up 37% compared to the 9 months ended March 31, 2013. Diluted earnings were $2.76 per share for the 9 months ended March 31, 2014, up $0.64, or 30.2% compared to the 9 months ended March 31, 2013.

Excluding the aftertax impact of gains or losses associated with our securities portfolio, core earnings were $15 million for the quarter ended 2014, up 47.1% year-over-year from the $10,199,000 in core earnings for the third quarter of fiscal 2013, and up 8.8% from the $13,786,000 in core earnings for the last quarter ended December 31, 2013.

Net interest income increased $9,461,000 during the third quarter ended March 31, 2014, compared to the third quarter of fiscal 2013, and increased $2,836,000 compared to the second quarter ended December 31, 2013. This was a result of increases in average interest earning assets, combined with a decrease in cost of funds, resulting in net interest margin of 3.89%. This is compared to 3.74% in the third quarter of fiscal 2013. The cost of funds decreased to 1.18%, down 14 basis points compared to the third quarter of fiscal 2013, and was up 2 basis points compared to the quarter ended December 31, 2013.

Provisions for loan losses were $1,600,000 this quarter, $1,550,000 for the third quarter of last fiscal year and $1 million for the second quarter ended December 31, 2013. The increase this quarter, compared to last quarter, was the result of higher charge-offs and growth in the loan portfolio.

Noninterest income for the third quarter of fiscal 2014 was $5,212,000 compared to $6,834,000 in the third quarter of fiscal 2013, and compared to $5,543,000 for the second quarter ended December 31, 2013. The decline was primarily the result of industry-wide declines in agency mortgage banking. We have mitigated the decline by selling other loans and increasing fees.

Noninterest expense, or operating costs, for the third quarter ended March 31, 2014, was $14,347,000 compared to $13,921,000 in operating costs in the third quarter of fiscal 2013, and compared to $15,304,000 in operating costs for the second quarter of fiscal 2014.

For the third quarter, year-over-year salaries and related costs were up $211,000 related to additional staffing added since March 31, 2013. Professional services increased $544,000; data processing and Internet expenses were up $847,000; and depreciation and amortization expense was up $251,000. These increases are primarily due to growth of the bank’s lending and deposit operations.

Other general and administrative costs decreased $884,000 as a result of the decline in mortgage banking-related costs and our cost management initiatives implemented to improve efficiencies and the effectiveness of people, vendor and other costs. For the third quarter ended March 31, 2014, compared to the second quarter ended December 31, 2013, salaries and related costs were down $239,000; professional services increased $162,000; advertising and promotional was down $544,000, primarily due to declines in online, e-mail and direct leads expense primarily related to agency mortgage banking; and other general and administrative expenses decreased $775,000, primarily as a result of the continued decline in mortgage banking-related activities and our increased focus on cost management initiatives implemented to improve the efficiency and the effectiveness of people and vendors and other costs.

Our efficiency ratio was 35.1% for the third quarter of 2014 compared to 42.14% recorded in the third quarter of fiscal 2013, and compared to 39.89% for the second quarter of fiscal 2014. The efficiency ratio is calculated by dividing our operating expenses by the sum of our net interest income and our noninterest income.

Shifting to the balance sheet. Our total assets increased $760.1 million, or 24.6%, to $3,851,000,000 as of March 31, 2014, up from $3,091,000,000 at June 30, 2013. The increase in total assets was primarily due to an increase of $844.5 million in loans held for investment. Total liabilities increased $689.5 million, primarily due to increases in deposits of $741 million, partially offset by maturity of $50 million of repurchase agreements.

Stockholders' equity increased by $70.6 million, or 26.3% to $338 million at March 31, 2014, up from $268.3 million at June 30, 2013. The increase was primarily the result of our net income for the 9 months ended March 31, 2014, of $39.9 million, the sale of common stock of $27.6 million, and vesting and issuance of RSUs and stock options of $3.9 million, less $600,000 for unrealized loss in other comprehensive income and less $200,000 for dividends declared on our preferred stock. At March 31, 2014, our Tier 1 core capital ratio for the bank was 9.07%, with $157.2 million of capital in excess of the regulatory definition of well capitalized.

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

Gregory Garrabrants

Thanks, Andy. Operator, if you could open the call for questions at this time. Thank you.

Operator

Before we go to questions, I'd like to turn it back to Johnny Lai for a quick announcement.

Johnny Lai

Great. Thank you, all, for joining us this afternoon. That concludes the prepared remarks. We will now move to the question-and-answer session. [Operator Instructions]

Question-and-Answer Session

Operator

We'll go first to Michael Millman with Millman Research and Associates.

Michael Millman - Millman Research Associates

I may have missed this, so I apologize in advance. Regarding the deal of buying Block Bank, will you need to borrow money to support, particularly the credited -- the cost of the advanced credit? Or will -- and if you need to borrow, is Block the likely lender?

Gregory Garrabrants

Sure. First of all, it's worth remembering that the H&R Block transaction, although signed, is subject to regulatory approval, and we would need that regulatory approval to close the transaction. With regard to the structure of the deal, we are assuming approximately $500 million of deposits in that transaction. There is no premium for that -- for those deposits, nor are there any significant assets of any kind being purchased or assumed as a result of the transaction. So the primary nature of the transaction is an assumption of deposits, which will reduce our cost of funds and increase our liquidity, as well as enhance our fee revenue through a series of products that we're going to be issuing through H&R Block, including prepaid cards and Emerald Advance loan product and a refund transfer product.

The only product within those 3 products that has any minor impact on the asset side or from a borrowing perspective, would be -- they were retaining a relatively small component of the Emerald Advance loans, which is around $40 million over the whole season, and they pay off and come and go. So the actual level of those, at any period, is even significantly lower than $40 million. So no, there's no need for borrowing or anything associated with that transaction.

Operator

We'll take our next question from Julianna Balicka with Keefe, Bruyette, & Woods.

Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division

I have a couple of questions. One, on the deposit growth that you saw this quarter -- and I'm sorry I missed this in your prepared remarks, could you talk about some of the qualitative drivers behind some of the extraordinary growth and maybe some thoughts about how that will continue through the rest of the calendar year? And any seasonality we should be looking for in that? And related to that question, it looks like on your average balance sheet, you have a higher level of IV [ph] deposits and excess liquidity. So should we think about that as getting redeployed in the near future? Or are you going to have to hold more liquidity for whatever various reasons, kind of going forward?

Gregory Garrabrants

We have a -- just, from an on balance sheet liquidity perspective, around 5% is just typically where I think you'd expect to see that. That may be above that at different periods of time. We did have a good deposit growth quarter. And we continue to add personnel in that area, increase our marketing and focus on continued deposit growth across both business and consumer. So we hope to be able to continue it to achieve that good deposit growth. And obviously, if the H&R Block acquisition is consummated, that'll assist in that growth as well. So we're putting continued effort into that side of our balance sheet and improving the mix and growing the deposit base. And we feel confident that we can continue to fund prudent asset growth with the deposits that we generate.

Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division

Very good. And then for my other question, the 40% efficiency that you're -- that you think you'll get to before the revenues from H&R Block Bank will kick in, how quickly do you think you'll go from 35% to 40% over the next quarter? Or is this more like 2 or 3 quarters? And then related to that, you've added a number of senior management this quarter, but are you adding more senior management throughout the year, especially in advance of H&R Block Bank, maybe in the areas of compliance, et cetera, that we should be thinking about?

Gregory Garrabrants

Sure. So partly, the 35% efficiency ratio is partly due to the cost-efficiency initiatives, which are really been grinding out. It's much as the little things that get leaky as you grow. But also, it has been a result of agency mortgage banking income declining, and so that did reduce the expenses in that area. We see a pickup that's significant in agency mortgage banking over the last month, and the pipeline is looking a lot better. That, therefore, is going to drive marketing expense up and some other things.

So I didn't -- what I said in the prepared remarks was that we'd be closer to 40% than it would be to 35%. Obviously, I'm hopeful that we don't get to 40%.

But we have -- we continue to add risk personnel. We have another senior BSA officer, 3 new BSA analysts with -- it's a substantial increase. We do believe that those are hires in advance of the things that we hope to accomplish with H&R Block Bank. And so it's a little bit tough to say because the efficiency ratio is somewhat driven by what happens on the loan production side. So I think that the good side of it will be, if it's closer to 40%, then you'll have good agency mortgage banking income. But I would think that somewhere in the area between 35% and 40% is probably a reasonable estimate for next quarter. Although, I really don't want to get more specific than that, just because I might be wrong. We're continuing to focus on risk personnel and making sure infrastructure's in good shape for our growth. So...

Operator

[Operator Instructions] And we'll go next to Don Worthington with Raymond James.

Donald Allen Worthington - Raymond James & Associates, Inc., Research Division

I missed 2 numbers, Greg, from the presentation. One was the -- in terms of the pipeline, the -- I got the last 2 last numbers on the multifamily and the C&I, but I missed the single family.

Gregory Garrabrants

Okay. The jumbo pipeline was $363 million. But not [ph] -- that's jumbo only, yes.

Donald Allen Worthington - Raymond James & Associates, Inc., Research Division

Okay. And then on the business deposits, what was the balance at the end of the quarter?

Andrew J. Micheletti

I got it. It would be $1,113,000,000.

Donald Allen Worthington - Raymond James & Associates, Inc., Research Division

Okay. Great. And then, in terms of, I guess, the loan pricing on the jumbo product, and I don't say specifically or necessarily where your pricing is. But just on a relative basis to the market, where would you say you are?

Gregory Garrabrants

I would say that we're within the market on our various products. The -- there's a lot of different market niches associated with the jumbo product and we have a pretty broad range of products to offer folks. So we focus on portfolio and the 5-1 ARM, but the -- we have a -- some [indiscernible] 30-year products that are securitization-eligible products, and those have kind of fallen a little bit out of favor lately. But I'm wondering, with some of the long rates decrease as we've seen over the past couple of weeks, you won't see that pick up a little bit. So I think we're in a good position there. We don't see -- we don't feel compression on -- from a rate perspective there, at least at this time. And we continue to look for that. But our volume's sufficient for our appetite and we try to focus on speed of service, on purchase business, the vast majority of that business is purchase. We get deals done in a quick period of time with good service, and so that assists us in gaining market share.

Operator

And we have no further questions. I'd like to turn the call back over to Mr. Johnny Lai for any additional or closing comments.

Johnny Lai

Great. Thanks for your interest in BofI, and your participation on today's call. If you have any follow-up questions, please contact me. Have a great afternoon.

Gregory Garrabrants

Thank you. Thank you, everybody.

Andrew J. Micheletti

Thank you. Bye-bye.

Operator

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

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