OceanFirst Financial Corp (OCFC) 2011 Q4 法說會逐字稿

Good morning and welcome to the OceanFirst Financial Corp. earnings conference call. (Operator Instructions). Please note, this event is being recorded.

I would now like to turn the conference over to Ms. Jill Hewitt, Senior Vice President and Investor Relations Officer. Ms. Hewitt, please go ahead.

Thank you, Denise. Good morning and thank you all for joining us. I'm Jill Hewitt, Senior Vice President and Investor Relations Officer, and we will begin this morning's call with our forward-looking statement disclosure.

On this call, representatives of OceanFirst may make forward-looking statements with respect to its financial condition, results of operations, business, and prospects. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond OceanFirst's control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. OceanFirst undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

In our earnings release, we have included our Safe Harbor statement disclaimer. We refer you to the statement in the earnings release, and the statement is incorporated into this presentation. For a more complete discussion of certain risks and uncertainties affecting OceanFirst, please see the sections entitled risk factors and management discussion and analysis of financial conditions and results of operations set forth in OceanFirst's filings with the SEC.

Thank you and now I will turn the call over to our hosts this morning, Chief Executive Officer John Garbarino, President Vito Nardelli, and Chief Financial Officer Mike Fitzpatrick.

Thank you, Jill, and good morning to all who have been able to join in on our fourth-quarter and year-end 2011 earnings conference call today.

OceanFirst has just concluded its 109th year of continuous operations and our 16th year as a publicly-traded company, the most profitable year in our long history. Our $20.7 million bottom line for the year again represented a new record, surpassing the $20.4 million posted in 2010.

We have grown our balance sheet prudently, solidified our capital position, and initiated a new stock repurchase plan, serving the interests of our shareholders well in the midst of what appears to be a market slowly recovering from the turmoil and uncertainty of recent years.

We appreciate your interest in our performance and are pleased to be able to review our latest operating results from the quarter and year with you this morning.

You've all had the opportunity to review our release from Thursday and, following our usual practice, I will not be disrespectful of your time reciting a host of actual numbers from the release. My introductory comments will merely help frame our opportunity and add some color to the financial results posted for the quarter and year.

Of course, diluted earnings per share for the quarter were $0.30, compared to $0.28 from the linked quarter and $0.27 from the year-earlier quarter after adjustment for a $0.05 nonrecurring tax benefit recognized in the fourth quarter of 2010. This quarter brings our 2011 reported EPS to $1.14 versus $1.07 in adjusted 2010 earnings.

The Company's 60th consecutive quarterly cash dividend was declared and maintained at $0.12 per share, representing a 40% payout ratio on our quarterly earnings and an attractive 3.5% current yield on our shares.

The fourth quarter brought some positive and negative surprises to our income statement. While total other income benefited from increases in both gain on sale of loans, as well as fees and service charges, our loan loss provision rose as charge-offs, net of those attributable to our modified accounting policy, and nonperforming loans also increased modestly.

President Nardelli will review our credit quality with you shortly.

We are pleased with our ability to again post record annual earnings and restore some growth to our quarterly earnings per share at year-end. Despite continued elevated credit costs and reduction in loan portfolio balances, we were able to grow total net revenue during 2011 almost solely due to our disciplined deposit pricing. Core deposits increased $58.4 million for the year and now represent 84.2% of total deposits, contributing to an enviable cost of deposits of 48 basis points at year end.

While our net interest margin was essentially unchanged from the beginning to the end of the year, it did fluctuate during 2011 and we do expect the margin to be under continuing pressure in 2012 with funding costs seeming to have reached their absolute bottom. Pressure on the margin is likely to result from asset yields that we expect will continue to be adversely affected by significant loan prepayments and as commercial loan growth suffers from slack demand.

As to noninterest income year over year, most residential mortgage production at historically low fixed rates continued to reflect refinance activity and was sold into the secondary market, realizing attractive gain on sale margins rather than booked in portfolio. Total other income, however, was hampered by reduced overall gains on sale due to lower volume, along with an impairment loss realized on investment securities.

On the whole, it changed very little, due largely to offsetting increases in BOLI income, fee and service charges, and income from loan servicing.

On the expense side, a $983,000 decrease in operating expenses helped drive our efficiency ratio for the year down 118 basis points to 56.86%, with expense control remaining a key target of our operations in this environment.

As to capital, our disciplined balance-sheet growth in the face of lackluster commercial loan demand, coupled with the record 2011 earnings and prudent cash dividend payout practices, resulted in fortification of our strong capital position and fostered our announcement of a new share repurchase program late in the year. For the quarter, 165,154 shares were repurchased, leaving 770,152 shares remaining under the current 5% program.

The year closed with our ratio of tangible common equity at a staunch 9.42%. During the year, our tangible book value increased $0.92 to $11.61 per share, and given current market conditions, remaining share repurchases under the current program are not expected to have a substantial dilutive effect on this position.

Before asking President Nardelli to review our credit quality, I'll comment briefly on the noise in our release created by the change in our charge-off accounting policy adopted in the fourth quarter. The modified policy affecting the timing of charge-offs on loans secured by real estate is required as a result of our regulatory report conversion from the old thrift financial report to the now-standard call report due at March 31, 2012.

Rather than delay the policy change into 2012 and carry the explanation throughout our 2012 reporting, however, it was decided to adopt the change at year-end. Of course, both policies are acceptable under GAAP and in no way has or will change -- will the change in policy affect our income or prudential loss provisioning.

President Nardelli will now offer some added color on our loan portfolio's performance and general assessment of conditions in our local market.

Thank you, John. I'll begin with a little more color on the modifications we have made to our accounting policy for charge-offs.

Previously as an OTS-regulated thrift, OceanFirst, as many others, allocated specific reserves to seriously delinquent real estate loans, only processing an actual charge-off at the time the loan was disposed.

The OCC requires all banks to charge off the portion of seriously delinquent real estate loans that are deemed to be uncollectible. As such, we changed our accounting policy to conform to this requirement by charging off the shortfall to net realizable value on any loans secured by real estate that becomes 120 days delinquent.

For the quarter, this charge resulted -- for the quarter, this change resulted in charge-offs of $5.7 million, which had previously been carried as specific reserves against the individual loans. There was no effect on the provision for loan losses or net income for the period. There were additional charge-offs totaling $1 million primarily related to commercial real estate loans, bringing the total charge-off for the quarter to $6.7 million.

In the quarter, all loan categories, except for commercial real estate loans, showed a decrease in nonperformers, primarily resulting from the above charge-offs. In the residential portfolio, we finally did take two properties back on completed foreclosures in the quarter; however, foreclosure delays in the state continued to be significant, at last report 974 days, and will continue to impact the level of nonperforming loans as residential foreclosures continue to build.

Delinquencies of less than 90 days grew somewhat quarter to quarter to a level consistent with the past two years' fourth-quarter levels.

Residential mortgage loans which were originated by the core bank, the only remaining origination channel, continues to perform quite well with a nonperforming rate of 1.5%. Loans originated by the now-shuttered Columbia and Kenilworth channels carries 9.3% and 4.8% delinquency rates, respectively.

For the quarter, we set the provision for loan losses at $2 million, well in excess of net charge-offs not associated with the accounting policy change. As is always our practice, in addition to the charge-offs, the level and composition of our nonperforming loans, and the historical loss levels, we considered our overall assessment of the local real estate market, which we see as relatively stable in establishing the provision.

We are confident in the rigorous quarterly analysis of the loan loss reserve and believe that our reserve level is adequate.

While I haven't recently discussed the reserve for repurchased loans, there was some activity this past quarter that I would like to comment on. There was a settlement on one request deemed to be legitimate that resulted in a charge to the reserve of $104,000.

As of the month of December, four requests were received by the now-shuttered mortgage banking subsidiary Columbia Home Loans from one mortgage bank for loans originated in 2005 and 2007. These requests were malformed and incomplete. We believe this to be indicative of an end-of-year effort by that bank to generate requests to several sellers to see which sellers would be inclined to pay unsubstantiated claims. This is not the case for Columbia, and these requests are being staunchly refuted.

With that, I'll return the discussion back to CEO Garbarino for some concluding comments, prior to engaging in a question-and-answer session this morning.

Thank you, Vito. Prior to these last two years, it had been a long time since our quarterly press releases and earnings conference calls have included the word record when referring to our earnings and revenue growth.

We are pleased indeed to be able to share that news with you again as we begin the 17th year of OceanFirst Financial's life as a publicly-traded company.

While we hope this will be the first of many future pleasant quarterly earnings releases and calls, we approach the immediate future with guarded optimism. Although we had a satisfying regulatory experience with our initial safety and soundness examination from the OCC during the year, we remain concerned with the regulatory uncertainty relative to the rule writing under Dodd-Frank. With an election year ahead, Washington has been known to react in strange ways, and the unsettled European economic situation also gives us pause as markets react from headline to headline.

Additionally, Vito has just reminded you of the continuing terrible backlog in foreclosure completion plaguing the state of New Jersey.

Nevertheless, we are beginning to see subtle, encouraging signs in our markets. We continue to believe that our community bank business plan has us well positioned to pursue our mission of developing incremental value for our shareholders' investment.

With that, Messrs. Nardelli, Fitzpatrick, and I would be pleased to take your questions this morning. Denise?

(Operator Instructions). Frank Schiraldi, Sandler O'Neill.

Just a few quick questions. First, I wondered, John, you talked about the attractive gain on loan sale margins. If you could just maybe talk about your thoughts here, given where MBS is coming on the books, your thoughts on maybe beginning to portfolio a bit more of the 1-4 family product rather than putting the money into MBS?

It's a tough argument to make, Frank, with the kind of margins that we're seeing on sale right now. I mean, the market's been so cooperative with the quantitative easing by the Fed, and it's a question of how long that might last.

Clearly we'd rather not buy mortgage-backeds at all, but in the absence of strong commercial loan demand, that's the only alternative. And the margins on sale are so attractive. We haven't seen -- we saw this all year long, and it's a substantial contributor to our bottom line. But we're seeing margins now north of 150 basis points that normally we would have targeted well under 100 basis points. So it's tough to turn our back on that income.

Again, the mortgage-backeds that we're putting on the books during the course of the year tend to be much shorter term. They tend to be CMOs, and even the 15-year product is not something that we're terribly intent -- we do portfolio a fair amount of the 15-year product, but even that from an interest rate risk standpoint we're not terribly comfortable with doing, given the yields -- the margins that we can obtain in the secondary market.

Okay, thanks. And then --

Frank, it's not the same products. We're selling 30-year and we're buying some 15-year MBS, but more recently shorter-term CMOs with two-, three-, four-year average life. So it's not the same product.

Okay, and what's the yield that you're getting on that new product?

For the CMOs, it's [150], [170] -- between [150] and [180].

Yes, I mean, we're not trying to chase that to build up the income statement, you know. We're taking the noninterest income where we can, but in terms of those -- bringing those CMOs on, it's not a yield play at all. It's more a defensive interest rate risk play.

Okay, and then if you could just talk a little bit about future repurchase activity. It appeared to me, given the disclosure in the release, that the buybacks were done at an average of around $13 or below. And given where this stock is trading now, do you expect to continue to do the same amount of production there? Or do the same amount of buybacks going forward?

Yes, I mean, when we modeled the buyback, we modeled a wide range of potential repurchase points, up to $14 a share.

And as I said in my comments, at all those points and certainly at what we've done so far, which is, as you say, short of $13 a share, the effect on book value, which we would normally be concerned about, buying at above book, is not all that dilutive.

It's clear that we understand the effect on the earnings per share, and we would be more concerned about the dilutive effect on our book. In this market, we don't see slowing down that repurchase activity. If the shares rebound significantly and they start to look like there's a lot less value in them, that would be a decision point that we might have to reach down the road, but I wouldn't want to forecast what that level would be.

And again, as we've said several times, we're not encouraging people to sell our shares to OceanFirst. We want to be there as a buyer to be supportive of the shares and to extract some of the value that might be available.

Okay, great, and then just finally on the charge-offs in the quarter, the noise in the quarter, the $5.7 million to sort of play catch-up for the new policy. Can you just talk about the loans behind that $5.7 million? In other words, how much in terms of par residential loans that reflects?

Was it percent of par? Okay. Well, I'm not sure I have that, Frank.

I'm just trying to get a sense of the marks, and if that, other than obviously being problem credits being nonperforming, if there is something special about that batch of loans in terms of geography, if they were a Columbia product (multiple speakers)

Frank, maybe the way to cast this, and maybe it's helpful, maybe it's not. All of these loans had specific reserves that were charged against them, and probably in past conference calls, if ever we took a provision of a significant amount, we would've covered it with the investors on the call.

So all this policy did was take that provision, that specific provision against those respective loans, and says, okay, now you've charged them off. And we just charged them off.

So I don't think there was anything new or different or dynamic. It's just -- instead of keeping it as a provision, you accept a charge-off if you find them to be uncollectible for a period of 120 days or greater.

Right, no, I understand it's just an accounting move. I just -- really (multiple speakers) of accounting.

(Multiple speakers) geography, specifically. It was across the entire portfolio. So Frank, and the fact that we originated all these loans. They're in our market. There were some second positions that were involved in terms of some of the equity loan products that may have been written down, but other than that they tend to be -- the majority of them are residential first mortgage loans within our existing market.

Frank, when we do our analysis of the reserve for loan losses, it's about -- for one-to-four family loans, our history is about 20%.

I don't know if this specific charge-off in December was a catch-up with 20%, but those -- first of all, those specific reserves were always in our loss calculation. Even though they hadn't been charged off yet, we considered them in our loss calculations. When we go through our calculations, those charge-offs, the charge-offs that we've taken over the last -- we look back a year, that's been averaging about 20% in the one-to-four family loan portfolio. I hope that answers your question.

That helps. Thank you. That's all I had.

Matthew Clark, KBW Capital Markets.

Hey, guys, good morning. The loan yields bumped up, it looks like, eight basis points. Just curious as to some -- whether or not there were some fees in there that may have propped those up. And just wanted to get a better sense as to -- obviously, directionally, we'd expect that to go lower, but I wanted to know maybe what you're -- at what rate you're putting on new commercial loans at?

Actually the reason for that, Matt, the biggest reason was in -- the third-quarter number was adversely affected. We had a couple of big loans in the third quarter that went into nonperforming where we reversed interest. So the yield, especially the commercial loan portfolio, but the overall loan yield was weighted down in the third quarter by some nonrecurring items.

There were two big commercial loans that went in and we reversed interest. So that weighed down the yield in the third quarter. So that was unreasonably low, and then it just -- and then it bounced back. We didn't have that effect in the fourth quarter.

Okay.

The fourth-quarter rate is the better rate. The third-quarter rate had some one-offs in it.

Okay, thanks. And then, on the pipeline, the pipeline continues to build here. I assume you're closing a majority of that pipeline each quarter, but obviously it's being more than offset by payoffs and loans sold. Just wanted to get a sense for the originations in the quarter, payoffs and loans sold.

On the residential side, again, you know, we're still in something of a refi blitz. We're seeing local refis for the second and third time here in the last couple of years. But --

Loan originations for the quarter were $156 million and loans sold was $63 million.

$63 million?

Right. Almost $64 million.

Okay.

And of course what you don't see, Matt, too, is the modification program that we offer existing mortgagors, too, in terms of not going through the refinance. So there's a modest amount of our loans that might otherwise be refinanced that we actually enter into modification agreements with.

Your loan yields are still above 5%. Obviously, there's a commercial component in there. I guess, do you sense that we're kind of reaching the burnout, anywhere near a burnout (multiple speakers) pace or not?

Again, as I said earlier, we thought we were there two or three times in the last four years.

I know, I know.

But we're seeing people a second and third time, and even in terms of those modification arrangements. So (multiple speakers)

So net loan growth, you're still thinking it's going to be somewhat elusive, I assume?

Yes, again, on the residential side we're not targeting any loan growth. We expect some shrinkage in that portfolio.

The disappointing factor is the slack loan demand on the commercial side. It's just -- people are just not interested in adding debt to their balance sheet at this point in time, and the uncertainty that's out there, I think, still has local business owners a little hesitant to come in and borrow some money.

And I mean, you hear that story from every reporter. It's not just OceanFirst, certainly, but our loan officers are out there, frustrated, calling on people, maintaining relationships, and people just aren't just borrowing money.

Okay, and then, with the acceleration of the losses this quarter, obviously your coverage ratios look different, and knowing that we can adjust for them and they're still at the end of the day where they were. But just trying to get a -- I assume we're building from here, is that still fair, in terms of coverage?

Yes (multiple speakers). I think -- you know, I think that we're comfortable with where the ratios are right now. So we increased our provision for the quarter.

Some of that was being sensitive to where some of the coverage ratios went down to. But in terms of our analysis, we still feel we have a large unallocated portion to that reserve and we feel that it's prudently provisioned.

So, we'd like to think we get some relief in credit costs in 2012, but that remains to be seen. And as you and I or others have talked about, with the foreclosure situation in the state of New Jersey we still have this fear that perhaps the market has not been able to, at least on the residential side, to adjust itself appropriately.

So if we have something that keeps us awake at night, it's the fact that the residential market, because of the foreclosure situation, may not be allowed to adjust itself and prices may not have hit their true bottom at this point. We'd like to think that's not going to be the case, but every once in a while it causes a sleepless night.

Sure, okay. I'll step out, thanks.

(Operator Instructions). Laurie Hunsicker, Stifel Nicholas.

Yes, good morning. I wondered if we could follow back on capital management, two parts here. The share buyback, the actual cost, I wondered if you had it. I backed into [1272]. I know it's right around there, but --

The actual -- yes, it was (multiple speakers)

You mean, the dollar (multiple speakers)

No, just the per share. Yes, you gave the dollar amount. Just it was (multiple speakers)

The average per-share cost? (Multiple speakers). Yes, it was about $12.70, give or take a couple of pennies. I mean, we round the numbers off, but it was $2.1 million, 165,000 shares into $2.1 million.

Right, no, just wanted an actual cost. Okay, and then to the extent that your dividend payout has been about 40%, and to the extent that even though there's pressure and so forth on margin it looks like directionally your earnings are continuing to move up, are you likely to stay at a 40% payout so we would, by extrapolation, likely to see the dividend go up?

We go through an evaluation of that every quarter, Laurie, and if we felt our earnings were going to be supportive of a higher dividend, it's certainly something that we could take a look at down the road.

But we've just come off a series of quarters where we were posting $0.28, and it seemed like we were married to that number, and so to get a little boost here at year-end is certainly very satisfying and that, but we're still at the 40% ratio.

So before we would consider moving that dividend, I think we'd want to see some sustained ability to grow earnings and I think that's only going to be really derived from some significant loan growth on the commercial side, in our view. I think we've done just about everything else we can in terms of controlling operating expenses, keeping our interest costs in line, trying to develop our noninterest income, and, I mean, unless we're able to see some commercial loan growth, I think it's going to be very difficult to generate any additional revenue growth from our existing balance sheet the way it looks.

Okay, great. And do you have a month-end margin for December?

It's -- when you do the month-end, it's hard -- it's consistent with where we ended it. When you do month-end margin, a lot of the -- the margin right now is affected, adversely affected, by cash flows and premium amortization. So you can't just take a month-end yield because then it's adjusted by -- you've got to forecast cash flows and things.

So it's consistent with where -- with the average for the quarter. It's not a big change either way.

Okay, and then one last question. So, you opened your 24th branch. Do you have any more de novo branch plans or how do you look at it? Where is your breakeven? What are you expecting breakeven on this one?

Hey, Laurie, good morning (multiple speakers). We are always looking at sites and market areas where we think the OceanFirst brand can do well, but capital is very precious and before we would spend that on a new branch we want to make absolutely certain that the returns would be there.

And then, the environment we face, both from an acquisition point of view and from moving quickly on de novos, I think you still need to be a little cautious. And as such, we are moving cautiously.

We did open one this year, but we will continue to study locations and be absolutely certain that it makes sense to the bottom line of this Company before we pull the trigger.

The breakeven on this branch is quite low, Laurie, because it's a limited-purpose office. It is in an assisted-living community. It's got limited branch hours. It's really a nice piece for our trust business as much as it is for deposit gathering. So it's a very low overhead operation.

We think the breakeven -- I don't know. Do we have a model for it? It's probably $2 million, somewhere in that neighborhood, for a two-year period.

Okay, great. And then, one last question. You mentioned the residential foreclosure at 974 days, which is certainly a lot. Do you have a corresponding number on commercial?

We don't have a number, Laurie, but in terms of New Jersey, the foreclosure process on commercial is slightly better than residential.

We have the good fortune, too, not to have any commercial loans in foreclosure, Laurie. I mean, I think we've only got maybe two loans that were actually pursuing foreclosure.

You know, on the commercial side, you're usually able to get a workout and do a TDR. So I don't think -- I don't recall the last case that we've had where we went all the way through a strict foreclosure. I think it's always been in a workout capacity.

On the residential side, of course, I think we're now dealing upwards of 200 loans, so we've got a much better handle on what is going on there.

That makes sense. And actually, I'm sorry, just one more question here. The $6.4 million loan relationship, for some reason I had in my notes that was a $5.7 million. (Multiple speakers). Did I miss something?

(Multiple speakers). It had been $5.7 million. There was delinquent real estate taxes that we funded, so that's how it got up to $6.4 million.

Okay, and then it looks like, then, the appraisal also moved because the corresponding appraisal that I had in my notes previously was $8.1 million and it moved to $8.7 million?

Yes, exactly, but the relationship is still the same. When -- last quarter, we knew the taxes were outstanding, so they have priority lien. So we took the appraisal value of $8.1 million and deducted the taxes, compared to the $5.7 million.

This time, we funded the taxes, so we added them to the loan balance and then we added them back to the appraisal because now they're paid. So the relationship is the same.

Okay, and what is the latest status on that?

It was a --

TDR.

TDR. It was -- we recast the loan in November. There was -- so they're making payments under the revised terms, we made a concession on the interest rate, and (multiple speakers)

They're current to payment now, Laurie.

What is the interest rate? Do you disclose that?

I'm not sure we have that readily available. But it was part of the restructuring that we engaged in and that was engaged in during the fourth quarter. So it's going to be -- it's got to have a six-month run here where it's still performing before we can remove it from the nonperforming (multiple speakers).

But it would have been part of the restructuring, but offhand I can't tell you what that rate is.

Okay, great. That's all. Thank you all very much.

Matthew Kelley, Sterne, Agee.

I wanted to go back just the originations. I think you said 156 originated, 64 sold, so that kind of implies 92 retained. Is that right? In the portfolio?

Okay, go back -- one second.

I think that that's roughly the right arithmetic, yes. But of course, then you've got prepayments and they've been extremely heavy.

I mean, with the balance flat, it implies $100 million of paydowns, prepayments. It's like a 45% annualized rate. I mean, what is your projection for the paydown rate in the current-rate environment in the next couple of quarters? Is it something similar, which could imply a more significant decline in the loan balance?

Well, actually in terms of our loan pipeline and the one-to-four family specifically, that actually peaked earlier in the -- like early in the fourth quarter. It's actually began to slow down. Our application volume had slowed down the last couple -- the last few months. So we think, at least in terms of this most recent refi boomlet, I think it's peaked. It's not still escalating.

Okay. And the stuff that you did put in, what was the composition of the retained loans? Was it mostly ARM-type product?

It would be all ARMs, some jumbo product, and 15-year fixed product. But again, that's not the product of choice in this market.

Sure. And would you anticipate a similar type of decline in the single-family loan balance in 2012, compared to what we saw in 2011, in this rate environment?

We think, you know, further to someone else's question about prepayment rates, I think we might see them soften a little bit because it's a question of how many times can you go ahead and refinance? I think we're probably seeing the lows in terms of rates, although we've said that several times.

If we don't see prepayments soften, we certainly see originations quieting down. We're modeling about $45 million in originations a quarter, which is well down from the peak that we would have seen over the past couple of years.

So if prepayments don't slow down and we're still only originating $45 million a quarter, you might see some significant shrinkage.

Okay, and what about the pace of margin compression? Any change, what can be expected there? Do you think it's still a couple basis points a quarter? Or if we stay here for the next 12 months, would we see a larger magnitude picking up through the year?

No, as I say, you know, year over year we're virtually unchanged. I think we've only had a one basis-point change from the end of 2010.

So while it did fluctuate during the course of the year, that was largely due to peculiarities that may have occurred during the quarter. But we think the margin has held up real well.

We've supported it in the past by, obviously, the deposit pricing, but that has got to have hit rock bottom at this point. I mean, with 84% core deposits and the rates that they're being paid, you just can't squeeze any more out of that tube.

So, the asset yields and the asset repayments are going to be the key to what happens the rest of the year, and I think it's very difficult for us to forecast that. I think we -- suffice it to say, there's going to be some significant pressure on it.

Right, okay. And what about just on the expense front? The comp and benefits was down pretty good this quarter. What should we be using for a run rate to start 2012? That 13 number is the right number?

Yes, I think the 13 number is the right number. We had some expense reductions earlier in the year that were fully put into effect -- or at midyear that were fully in effect in the fourth quarter. So that should be a reasonable run rate with respect to compensation.

And of course, now you have annual incentive increases, but we expect those to be relatively modest, so there might be a little bit of an uptick, but not much.

Ross Haberman, Haberman Corp.

Good morning, gentlemen. How are you?

Hi, Ross, we're well. And you?

A quick question. I got on a little late. Did you touch upon any potential acquisitions, if you're looking, if you're not looking, if you're sort of on a hiatus? Could you discuss that, please?

Yes, Ross, and we always answer the question in the same way, and yes, we'd always be looking opportunistically.

But as a practical matter, within our footprint we think the opportunities are somewhat limited. We think that in most of those cases, there're probably already takeover premiums built in, and with the amount of capital that's chasing the relatively limited field, I think it's going to be very difficult for us to look at any type of acquisitions as a core strategy going forward.

I just don't see that developing unless we can have someone believe that our currency is that much preferable to theirs, and that's going to be a tough sale in this environment. I think there's going to be a lot of cash in the state of New Jersey and a lot of excess capital that's chasing the relatively limited market that we look at. So, I honestly don't think -- don't see that as a strong possibility for us in the near future.

Okay. Thanks, guys. Best of luck.

(Operator Instructions). Matthew Clark, KBW.

On the net inflows into non-accrual, it looks like they were about $3 million when you gross up for the charge-offs. Can you give us a sense for what you saw? Anything there that might be lumpy in the types of situations there?

I think it was closer to $1.3 million. If you net out -- if you adjust the third-quarter number down by $5.9 million, and then you show the increase of $1.3 million, of which $800,000 was actually that one we just talked about with Laurie, the capitalization of real estate taxes for our biggest nonperforming loan. It was about almost $800,000. So that was most of the increase, that one loan.

And showing no additional questions in the queue, this will conclude our question-and-answer session. I would now like to turn the conference back over to Mr. John Garbarino for any closing remarks.

Thank you, Denise, and again, thank you all for your continued interest in our Company. We're pleased with the year we put up and we'll look forward to speaking to you again the third week in April.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.