OceanFirst Financial Corp (OCFC) 2007 Q3 法說會逐字稿

Welcome to the OceanFirst Financial Corp. quarterly earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It's my pleasure to introduce your host, Ms. Jill Hewitt, Senior Vice President for OceanFirst Financial Corporation. Thank you, Ms. Hewitt, you may begin.

Thanks, Anthony. Good morning and thank you all for joining us. I'm Jill Hewitt, Investor Relations Officer. We will begin this morning's call with our forward-looking statement disclosure.

This call, as well as our recent news release, may contain certain forward-looking statements which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words believe, expect, intend, anticipate, estimate, project or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain.

Factors which could have a material adverse effect on the operations of the Company and the subsidiaries include, but are not limited to -- changes in interest rates; general economic conditions; legislative regulatory changes; monetary and fiscal policies of the U.S. government including policies of the U.S. Treasury and the Federal Reserve Board; the quality or composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; demand for financial services in the Company's market area; and accounting principles and guidelines.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake and specifically disclaims any obligation to publicly release the results of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Thank you. And now I will turn our call over to the host for this morning, President and Chief Executive Officer, John Garbarino; Chief Financial Officer, Michael Fitzpatrick; and Chief Operating Officer, Vito Nardelli.

Thank you, Jill, and good morning to all of you who have been able to join us on our third-quarter 2007 earnings conference call today. We appreciate your interest in our company's performance and we are looking forward to reviewing the past quarter's operating results with you.

Earlier earnings conference calls conducted this year have unfortunately, yet necessarily, been dominated by a review of the operations of our mortgage banking subsidiary, Columbia Home Loans. We've spent a considerable amount of time discussing the events which caused us to devote the majority of our attention to investigating, identifying and providing for the losses associated with Columbia's renegade subprime lending operations.

I am pleased to report this morning the second consecutive quarter of profitability as the reserves we have established and actions we have taken with regard to Columbia have generally performed as expected. In fact, the current quarter's operations have benefited from a $200,000 reversal of our earlier provision for Columbia repurchased loans. Should events continue to stabilize for repurchase activity there may be opportunity to take down more of that reserve in future quarters.

The reserve is $2.8 million at September 30th and there was only one outstanding loan repurchase request pending for $618,000 with a $154,000 reserve already allocated. Counting this there have only been a total of three validated requests received since July 1st, even as the original loan sales become more seasoned.

Moreover to date we have entered into comprehensive settlements with investors over repurchase requests covering $45.6 million against a total of $64.1 million in requests received. The remaining $18.5 million is represented by individual settlements as opposed to repurchases and loans actually repurchased from investors.

We feel fortunate that we have taken the appropriate steps in negotiating our comprehensive settlements with many of these investors to attempt to affectively insulate us from any additional claims which may be triggered as a result of future rate resets on seasoned adjustable loans. I can confirm that we have ceased all subprime lending at Colombia and during the quarter have discontinued all operations at their former Valhalla, New York headquarters.

While we had previously planned to continue originating prime and Alt-A loans out of two smaller former Columbia Loan production offices, it has now been decided that they too will be closed during the fourth quarter. All remaining non-loan origination operations previously conducted at all Columbia offices have been incorporated into the core bank loan servicing operations.

While most costs associated with the closure of the Columbia headquarters in Valhalla have already been reflected in our operations, the additional compensation and occupancy expense related to the closure of these last two small loan production offices will be reflected in the fourth quarter. These are estimated to total $425,000 after taxes.

We remain confident as we move beyond this unfortunate period for the Company relating to Columbia's subprime lending activities and are appreciative of the fact that we recognized the effect on our operations early and efficiently. We remain focused on execution of our business plan in the continued challenging economic environment.

As is our custom on our quarterly earnings calls, I'll be respectful of your time in avoiding a simple recitation of actual numbers from our press release. I will highlight areas that we believe merit your attention and then give you the opportunity to pose your questions to our management team which I'm sure you will have this morning.

Of course, as the release notes, EPS for the quarter rose substantially from our prior quarter to $0.27 per diluted share. As we have in past calls, I'd like to strip away the expenses associated with winding down Columbia's activities from the income statement and then review the underlying results at the core bank as we move forward discounting the impact of the mortgage-backed subsidiary.

When we do this for the current quarter and nine month-period we are left with net operating income of $4.2 million and $11.6 million, $0.36 and $1.00 EPS respectively at the core bank. Moreover a similar adjustment to remove Columbia income and expense from the third quarter of 2006 discloses an identical run rate of $0.36 for the core bank from the same quarter last year.

The net interest margin did expand 12 basis points from the linked quarter as the balance sheet continued to contract, partly reflective of the elimination of Columbia's mortgage banking operations. Total deposits moderated for the past quarter, although our disciplined retail CD pricing has resulted in a $67 million decrease in CDs year-to-date.

We continue to view this as managing affectively to support our margin, suffering the CD runoff in the ultra competitive environment we operate. Core deposits correspondingly have increased modestly year-to-date and represent an improved 63.3% of average deposits.

Asset quality at the Bank also continued to be generally positive with charge-offs of only $7000 for the quarter. Nonperforming assets decreased $2.3 million from the linked quarter due primarily to partial resolution of a nonperforming commercial real estate credit. Despite the effects of the subprime repurchase and sale activity, core bank asset quality has held up well and we continue to view the residential and commercial portfolio as solid and well collateralized.

We repurchased no shares during the quarter but still have ample existing Board authority and holding company liquidity available to us as we continue to evaluate the repurchase strategy for future periods of profitability. As I realize we cannot possibly address all issues from our quarter in this brief summation, Mike, Vito and I would be pleased to respond to your questions this morning. Anthony, are you there?

(OPERATOR INSTRUCTIONS). Frank Schiraldi, Sandler O'Neill.

Good morning. I'm just trying to get a sense of the earnings power going forward. So you said that the net earnings would have been $4.2 million at the core bank, is that right?

Right, that's the way we break it out, about $0.36 for the quarter.

Okay. And then just the servicing income, is that included in that $4.2 million now that that's going to come over from Columbia?

Yes, the income on that is nominal after expenses. But yes, the servicing portfolio comes over from Columbia with the Bank and that has a nominal effect.

Okay. And then when you talked, John, about the two additional loan production offices that are going to close in the fourth quarter and you mentioned $425,000, is that lease termination and onetime charges that will be in the fourth quarter?

That's essentially -- yes, some of the compensation expense that will leak into the fourth quarter benefit expense and then some assumptions with regard to lease termination charges that we think we've been very conservative on. So all factored in that would amount to about $425,000 after taxes. So probably a little more than $0.03 in the fourth quarter.

Okay. And so I guess it would be pretty fair to say then that if you're looking for a good run rate going forward you'd take the $4.2 million that's the core bank and then for the fourth quarter you'd have this charge of about $0.03. But going forward the core bank, that should be the best run rate?

Yes. Although again, we're not officially giving guidance that way, but clearly that's where we were in the third quarter if we stripped out all the expense.

Just wondering on Columbia on the two loan production offices that are going to be closed and Columbia Mortgage in general, now that you've really gotten probably through the early payment default stuff, is there any worry? I know you guys have already reviewed this, but is there any worry that you might have some misrepresentation of borrower information anywhere within the subprime, the Alt-A, the prime stuff or have you basically scoured through those loans and are pretty comfortable?

We've been through that pretty thoroughly, Frank, but we also, we think, have protected ourselves with most of those comprehensive settlements. Most of those comprehensive settlements exclude any borrower or occupancy fraud as a claim that could come back. So while I think a lot of people might be sitting there worrying about rate resets, and I tried to address that in my opening comments, as an opportunity for an investor to go back and look at some additional reason to throw the loan back after two or three years, we don't think we have a large exposure there.

We think that we've successfully negotiated a significant number of comprehensive settlements that protect us there. And our investigation that we've conducted as a result of the forensic that we did does disclose quite a bit of borrower fraud related generally to occupancy and income. Obviously again, these are stated income loans and that's where most of the borrower fraud came. So we're aware of that and as a result of that we tried to build that into our comprehensive settlements going forward.

Okay. So the $2.8 million reserve --

To give you one, our settlement with Merrill -- and since Merrill is in the public view today -- requires that in order for them to kick the loan back to us they would have to have a fraud conviction, it wouldn't even be the assumption of fraud, but they would have to have a conviction of fraud in order to get us to repurchase the loan.

Okay. And the settlements that you've made with I guess some of the bigger investors, that covers the majority of the --

The majority, it's probably about 70%. I think the numbers are just under $46 million of the $64 million in repurchase requests that were recorded to date.

Okay.

So it's about 70%.

And that 70% is stuff that you haven't had to bring back on your books?

We haven't, no. Again, we've only actually repurchased $12 million.

Right.

At 15 through the third quarter.

Okay. So then I'm just wondering -- kind of wondering, the recovery seemed like it could've been more in this quarter. If you have the 618 in repurchase requests and then it seems like it's tailed off a whole lot, you said you had three requests since July 1st. I'm just wondering what the rationale for keeping $2.8 million in reserves are?

Well, we haven't seen it stop, number one. We have seen some requests trickle in. And although we are protected we think by most of those comprehensive settlements, we still think there is some exposure with rate resets that for us will run into 2008. All things being equal we see the opportunity to take that reserve down over time as our experience continues to prove out with our assumptions. I mean there's nothing to be gained by declaring victory and moving on at this point.

Okay. And just wondering if you guys can give us some color on the nonperformers. They came down linked quarter and it looked like the Columbia stuff basically --

Was unchanged basically, yes. Columbia was really unchanged and, as I say, most of that was accumulated in the third quarter when we had to repurchase most of Columbia's product. So -- in the second quarter rather -- in the third quarter it was largely unchanged and the reduction was a loan that we had talked about in previous calls where we -- a commercial real estate loan where we actually had a partial recovery of the -- or a partial cure of $2.3 million and that's really the reduction of the nonperforming. So it's strictly in our commercial real estate portfolio.

The rest of our portfolio looks good, there's been very little change to it. There are no warning signs as far as our delinquency patterns are concerned on our core portfolio, whether you're talking about residential, consumer or commercial loans.

Okay. And then just --

Commercial real estate loan, Frank, it was $2.3 million nonperforming in June and it's only $883,000 now. So we've paid down $1.4 million. So that's the biggest change in the nonperformers from June to September, a reduction of $1.4 million on the one commercial real estate loan.

The only thing that tainted our portfolio at all here earlier this year was the Columbia repurchases that we were unable to go ahead and subsequently sell. We took some substantial hits with scratch and dent sales and loans that we had to repurchase and sell and there's obviously some residual that's in the portfolio for any number of reasons and that's the only taint to the portfolio going forward. Most of them are in foreclosure and will eventually work their way out of the portfolio.

But as we point out and I know you certainly recognize, there've also been written down very, very heavily so that we feel that any additional losses associated with those nonperforming Columbia loans are likely to be very minimal.

Right, okay. And that $3.3 million and the $887,000 that you talked about nonperformers, those are the numbers after the write-down, right?

Yes. Those numbers are net of the write-down, right.

Okay. And then just wondering -- because I had experienced this with another bank in the quarter -- about appraisals. As far as the nonperforming coming back onto the balance sheet, are they reappraised at that point.

Yes, that's the standard practice for us in terms of how we service loans. So all the appraisals are brought current as they come back onto the balance sheet.

Right, okay. I figured that was the case. Okay, great. Thank you.

Matthew Kelley, Sterne Agee.

Just to reconcile the reported net income versus the core net of $4.2 million, what was the actual Columbian expenses during the quarter that are kind of being backed out to get to that $4.2 million?

The Columbia loss for the quarter, we say in our press release, was $1.1 million. They did have revenue offsetting expenses. So we reported $3.2 million net income, Columbia's loss was $1.1 million. If you just add that back you're at the $4.2 million.

Okay. Can you just give us each of the components for Columbia, the revenue versus the expenses there?

I don't know, Matt. Their revenues are --

I think we're splitting hairs. (multiple speakers) so light at this point.

Okay. So it's all expenses?

It's a lot of expenses, but there's some revenue and they've got other sources -- they've got servicing income sources of revenue, they've got (inaudible) on sale, they've got net interest margin. There's a lot of detail that goes into that and a lot of that is gone now anyway. So I'm not sure it benefits anybody going forward. That office was closed on September 30th, so the fact that their expenses -- their expense base in the third quarter is really not relevant going forward.

Okay. I guess what we're trying to get at here is the total non-interest expense for 4Q will be down under $12 million then, down around $11.5 million?

Total non-interest expense --

And you had $12.6 million less roughly $1 million in expenses.

Then again, we've got these residual expenses associated with those two other offices which is going to boost it up a little bit too. That bleed through is going to be about -- as I said, $4.25 million after-tax.

That's a charge, though.

Yes, it's a charge, right. The expenses will be less than $12 million, certainly, yes.

Right, okay. And then once we get into first quarter of next year we should be down closer to $11.5 million, right?

We would hope so and that's going to make a significant change in those ratios as we strip the Columbia expenses out in the efficiency ratio.

Okay. And then how should we think about the reversals going forward? $200,000 came out of the provision for repurchase loans, how will that progress over the next year or two?

Well again, it remains to be seen what our experience is. But I think we're committed -- we've discussed with our independent public accounting firm what our plans might be with regard to taking that reserve down as our experience confirms the assumptions that were originally made. But as I just told Frank, there's nothing to be gained by us declaring victory and moving on at this point. So we think time will allow us to take that down.

For example, most of our rate resets on the 228's that were originated do not occur -- I say most -- none of our rate resets occur until the second quarter of next year. So for example, these 228's that the market is fond of talking about that's coming due in the fourth quarter and in the first quarter of next year, we don't have any of them until the second quarter of next year. Because again, we didn't get involved in this aspect of the subprime lending until April of '06. So the first reset comes around in April of '08.

What's the total dollar amount of the 228 exposure as of quarter end?

The 228 exposure I've got here. I don't know if it's all 228 exposure, but it's ARM reset exposure. And it's -- through all of '08 it's $156 million. That's through all of '08 and that again runs second, third, fourth quarter, there's no exposure in the first quarter.

Now -- just to give you a little better number on that, I'm talking about the comprehensive settlements, $150 million of that $156 million is covered by comprehensive settlements. So that our net exposure for that $156 million is about $5.7 million.

Okay.

But it's still exposure.

Okay. And how did the -- the mortgage loans held for sale, which I assume are on nonaccrual status then, effect the margin over this quarter?

The mortgage loan held for sale is only a couple million dollars at the end of the quarter.

Right. But I mean down from a pretty significant amount over the last two quarters wasn't it?

Yes, well there was a bulk sale in June. So at June 30th we had whittled that down pretty far down and we had already made the decision to close Columbia. So we had already whittled it down at June 30th --.

So the improvement in the margin then is kind of all organic, not related to changes in nonaccruals?

Well, the second quarter was depressed because we were holding a large amount of nonaccrual loans that we sold in mid June, so they were on our books. We bought them in March, we held them all through the second quarter, we sold them at the end of June. So that depressed the second-quarter margin, so you could look at the second quarter being -- it was kind of slightly depressed because of that. That's one of the reasons why the third quarter is higher. And we had some CD runoff because of some disciplined pricing so that kind of helped the margin. It delevered the balance sheet a little bit, but it helped the margin.

Our CD costs actually decreased for the quarter, our cost of funds.

Right.

I think the Fed's rate cut also helped a little for the quarter and we're looking forward to some additional help for the full fourth quarter obviously being liability sensitive.

If the Fed cut another 50 basis points next week for a cumulative 100, what kind of margin do you think we could be seeing for '08, particularly the back half once that starts to move through?

Again, we wouldn't give guidance on where the margin might be going, but we think it would certainly be positive for our margin, let's leave it at that.

It's got a marginal benefit -- it's got a small positive benefit. The cut itself -- it's the slope of the yield curve would help it.

Okay. The last question is just on capital in terms of potential for buying back stock or actually growing the securities portfolio, take advantage of some of the steepness in the curve and some of the wholesale opportunities -- talk about the capital, thought process --

(multiple speakers) in the curve, what curve are you talking about?

Well, I know it's been a little bit of a parallel shift now, but there's been some improvement on mortgage spreads.

Every time I look at it it changes just a little more. But I'm not sure there's a lot of wholesale opportunity out there. It's something we look at, but your question is germane.

What about versus buybacks? Where does capital have to go for buybacks to come back into the equation?

Well, this is the first quarter that we've actually earned our dividend so it's kind of an early question. As I say, if we can develop some support to the capital we've also been shrinking the balance sheet which is also making the capital look a little stronger. I don't think we have a bright line in the sand yet, but suffice it to say if we continue on this path I think we'll be back buying back our stock because we think frankly it's undervalued right now and represents a nice opportunity for us.

Okay, thanks a lot.

Scott Carmel, Philadelphia Financial.

Good morning. Let me ask Matt's question a little differently, because I'm trying to get to the same answer in terms of the expense related to Columbia. As of 1Q 2008 will that $1.1 million be completely gone in the after-tax cost of Columbia?

Yes, that will be completely gone. That was our after-tax loss in the third quarter, we've got some expenses rolling into the fourth quarter from the two small loan production offices, and in first quarter '08 that will be gone.

Okay. So January 1, 2008 --?

Yes, January 1st it will be gone. So we've got the clean first quarter.

Perfect, wonderful. And then the loan -- gain on sale income in the quarter was $1.2 million, there was $200,000 of reserve reversal in there, what was the remaining $1 million?

The remaining $1 million is -- well, it's a number of things. First of all, Columbia did have -- they didn't accept new loans in the third quarter but they had a pipeline at June 30th that was sold -- of nonprime loans that they originated in May and June that were sold in July and August that pipeline of loans that closed so they were selling loans. It wasn't just expense base at Columbia, they did have a revenue stream of some sort. Also the bank sells loans to manage interest rate risk, so the bank sells typically 30-year fixed-rate loans and there's gain on sale at the bank as well so --

Could you separate out those two months?

I'll tell you the bank gain on sale was -- $280,000 for the quarter.

Okay, so if I take 200,000 reserve reversal the remaining would be the Columbia loans sold?

Right.

Okay. And could you give me the two dollar amounts of loans sold between the two, the Bank and Columbia?

Dollar amount of loans sold, you're getting pretty granular on us, Scott. One second, Scott.

Sure.

Okay, loans sold for the Bank was $30 million.

And for Columbia?

We report in our press release -- don't we report the number in the press release? If you go to the press release we report loans sold. It goes back to the press release. On the third page of the press release -- or fourth page we report loans sold was $64 million.

Okay, so I can (inaudible) the number. Then just one other question on -- your FHLB stock, the dividend rate was very high in the quarter, what's driving that -- something.5%?

The New York Bank is obviously hitting their targets with regard to dividend rate. They built their retained earnings sometime ago so they have been very generous with their dividend off current earnings and they have delivered on what they said they were going to be doing. We just got notice, the dividend here in the fourth quarter is going to be even more attractive. I believe -- is it 875, Mike? Yes, 875 for the fourth quarter.

Don't they target somewhere around a 4 or 5% dividend rate?

No, no, the New York Bank doesn't. The New York Bank targets a percentage of current earnings and their earnings have been very strong over the past -- over this year.

Got you, okay.

And they've built their retained earnings so the New York Bank is in good shape as far as capital is concerned. The went through a period a couple of years ago you recall where we went with some zero dividends quarters and we paid the price back then. They've been very aggressive with their dividend over the last couple of quarters.

Understood. Thanks a lot, guys.

Julienne Casserino, Prospector Partners.

I had a quick question on the buybacks. What is your time frame for when you feel comfortable getting back into the market for your stock? I know there's probably a lot of moving parts, but is it capital driven and earnings --?

Right now, Julienne, you're absolutely right. I think right now would still be capital driven for the most part. We still have plenty of liquidity at the holding company, we have our board authority, but I think that we've just come through about a $25 million hit to our capital over the last three quarter and I think we'd want to rebuild that a little bit before we got very aggressive with buybacks.

Having said that, we're in a position where we can engage in buybacks as early here as the fourth quarter, I just don't expect that we're going to be very active with it in the near-term. That could change; as I said to an earlier question, I don't think there's a bright line in the sand yet. I don't think we have a threshold that we have to step over before we can engage in it. But I think that we're not giving up on the idea of buybacks. And as our performance continues to move past Columbia I think we'll be in a much better position to assess it.

Okay. So this doesn't have anything to do with the 2008 -- seeing how the 2008 experience or (multiple speakers)

You mean with the (multiple speakers) expense? No, I don't think that that's a large factor. Although if there was some significant adverse experience there it might affect our overall profitability, but I think that given that our assumptions with regard to moving Columbia past continue to perform as expected. Our experience continues to the firm the assumptions. I think we'll be in good shape.

On a tangible equity to tangible asset ratio is there a target that you have in mind for when you feel like you're at a comfortable if not overcapitalized level?

Again, it's not a bright line, Julienne. But the biggest constraint that we've always looked at has been our risk based capital calculation, our tangible and our leverage ratios are really in pretty good shape. Our risk-based ratio is the largest constraint that hampers us from being very aggressive air.

Okay, thank you.

(OPERATOR INSTRUCTIONS). Ross Haberman, Haberman Funds.

Good morning, gentlemen. Could you give us a feel for local economy, local housing prices, and what kind of organic loan growth are you seeing now and expecting given the local conditions now?

I don't think it's too different from what you're reading in the national press. Clearly home sales have really come to a grinding halt pretty much. There's a tremendous inventory on the market right now. Likewise [Hamanian] started six or eight weeks ago with that discount program over the weekend and we saw Pulte do it in our market this past weekend. I haven't seen any results of how successful they were, but they were discounting a project that they have locally here up two $100,000 on a special three-day sale. And I just saw Pulte's results, I understand why they were doing it.

So clearly new construction is very difficult, new home sales is very difficult, existing sales are very difficult, the realtors tell us that there are plenty of listings available and not very many buyers. Our residential loan originations are off substantially from where we would have modeled them early in the year and yet they're still pretty strong because they're picking up the conforming originations from local mortgage banking and mortgage brokerage companies that have gone out of business.

So we still have kind of a grim real estate market. I don't think we're in a real estate recession yet. I don't know how much pullback in prices we have seen. I think that hasn't necessarily been evident yet. We model for example how much our appraisals differ with the sales price and look at that over a period of time to see whether or not we're seeing an actual pullback in prices and we haven't really seen that. Likewise we haven't seen any increase in delinquencies or REO issues as a result of that. So I don't think we're in a full blown real estate recession but it's clearly a little darker data than it would have been in the past.

On the commercial side, I think we still have some commercial growth, but it's -- we don't see a lot of demand. We've never done a lot of commercial construction lending, so that hasn't hurt us too much. But it's still a question of price and it's a question of terms that are out there and it's still a very competitive market. We're not one to sacrifice those terms for growth's sake. I think we've always been disciplined on both sides of that balance sheet.

Just one question as an aside. What's your thought on the merger of Sovereign -- sorry, not Sovereign.

I thought you saw a release I hadn't seen.

Commerce, excuse me. Commerce, I misspoke there, and any benefits on the personnel or the customer side?

A think there might be benefits on both sides, but I hate to make a prognostication despite the fact that Vernon would have certainly been more than happy -- I mean he had the signs out on his lawn for the core states' First Union deal (inaudible). But I think that there will be benefits to us on both sides, but it remains to be seen how they handle the integration, what TD Banknorth's plans are going to be. But we might see some benefit to us on both personnel and on the growth side on both sides of the balance sheet.

But you're not seeing any of the fall-out yet?

No, I think it's far too early. I think Commerce, when people have asked us over the years we've always been very candid about the fact that Commerce was by far our toughest competitor on the retail side. There's no -- people have only found that out recently in other parts of the Northeast. We've been competing head up with Commerce now in excess of 15 years here at the shore. They've had Commerce Bank Shore has been the leading retail competitor for ours in the last 15 years. So obviously we have to feel good about the fact that they're not going to be their necessarily as strong as they have been in the past. And I'd rather take my chances with TD Banknorth than with Commerce.

Thanks. Best of luck.

Matthew Kelley, Sterne Agee.

Just trying to fill in a few more of the blanks here on the loss of $1.1 million for Columbia. You mentioned earlier to Scott's question that Columbia had a gain on sale -- sale revenue during the quarter of $720,000. Wouldn't that imply that expenses were larger to get to a loss of $1.1 million? Just kind of help us reconcile some of the line items for Columbia so we can fully understand that.

There are so many line items, we've got net interest -- their expense base was for the third quarter -- their expenses were $2.3 million. I don't want to go line by line, but they've got net interest income, they've got loan servicing income, they've got gain on sale income. So --

Then are bank expenses closer to $10 million or $10.5 million is the question?

Yes.

They are?

Yes.

Okay. So $2.3 million, that's basically occupancy and operating expenses for Columbia that were incurred during the period? It's not onetime items and once Columbia is truly shut down it's actually $2.3 million that's coming out?

Out of this -- yes, there were some -- yes, in the third quarter $2.3 million was Columbia's expenses, but the rest -- there's revenue that comes out as well. So you've still got to get down to the -- that's why we just tried to get to the $1.1 million loss.

Understood, but in terms of how we model that forward it's important knowing all those components.

But as long as you get back to a net of $1.1 million.

Okay. And then just maybe spend one minute on revenues beyond the $720,000 in gain on so just so we understand the magnitude of some of those items. What other revenue items besides the gain on sale do we have to think about.

Net interest income.

Of how much?

Matt, I don't want to go line by line with this income statement, that's what I tried to avoid earlier. But they have other sources of revenue, I guess you could take out the expenses and back into the total revenues. But they've got late charges on loans, there's fee income, there's all sorts of revenue streams that are in that number.

Okay, that's helpful. Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thank you, Anthony. And our closing comments will be brief. Again, I think that we're just happy to be able to discuss something positive for a change in a quarterly earnings conference call. As always we appreciate your interest and we look forward to being positive again with you in three months down the road. Thanks again.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.