OceanFirst Financial Corp (OCFC) 2012 Q4 法說會逐字稿

Good morning, and welcome to the OceanFirst Financial Corp. earnings conference call and webcast. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (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. Please go ahead.

Thank you, Laura. 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 the 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 and 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 section entitled Risk Factors and Management's Discussion and Analysis of Financial Conditions and Results of Operations set forth in OceanFirst's filing with the SEC. Thank you.

And now I will turn the call over to our host this morning, Chief Executive Officer, John Garbarino; Chief Financial Officer, Michael Fitzpatrick; and Chief Administrative Officer, Joseph Iantosca.

Thank you, Jill. And good morning to all who have been able to join in on our fourth-quarter and year-end 2012 earnings conference call today.

Let me begin with a quick apology that we just became -- made aware of right at the top of the hour. And that is, that apparently, our press release that was issued included an incorrect area code for the conference call-in number.

So, if any of you had to scramble last minute to go back and look at the earlier press release, or come up with a different area code, we apologize. And for those of you that might be listening to this on a replay, let me extend my apologies to you in person. We're sorry for that. The correct area code should have been 888, not 877.

That having been said, let me point out that OceanFirst has just concluded its 110th year of continuous operations and our 17th as a publicly traded company. Our $20 million bottom line for the year again represented a solid performance in the face of substantial adversity, not the least of which was the October 29 landfall of the epic superstorm Sandy.

Over the year, we have managed our balance sheet prudently, fortified our capital position, and initiated a new stock repurchase plan, serving the interests of our shareholders well. 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 Wednesday, and although our usual practice is not to recite a host of actual numbers from the release, because of the extreme detail we went into in our release this time as to Sandy, we cannot help but repeat some of this information this morning. We certainly realize that because of our geographic market, Sandy has likely had a greater effect on our portfolio than any other Community Bank. Therefore, we wanted to give you the best look we can at the information we have as soon as we have it.

My introductory comments will merely help frame our opportunity to add some color to the financial results posted for the quarter and year. Of course, diluted EPS for the quarter were reported as $0.23, and that compares to $0.28 from the linked-quarter and $0.30 from the year-earlier quarter. This brings our 2012 reported EPS to $1.12 for the year versus $1.14 in 2011.

Needless to say, both the quarter and yearly earnings were severely impacted by Sandy. The Company's 64th consecutive quarterly cash dividend was declared and maintained at $0.12 per share, representing a 52% payout ratio on our quarterly earnings, and an average payout ratio of 42.8% of our 2012 earnings. The current yield remains an attractive 3.6%.

Of course, a mere 10 days after we last spoke with you on our third-quarter earnings call, Superstorm Sandy struck the heart of our market at the Central New Jersey shore. Left in her wake was remarkable devastation unseen in our lifetime, coupled, however, with a firm and unyielding desire of our residents to recover and rebuild.

I am pleased to report that in the face of despair, our neighbors seem to have strengthened their resolve to see this through. And OceanFirst has likewise committed to help show them the way.

As the year ended, we have followed through on our December 21 8-K disclosure of our efforts to assess the extent of the effect of Sandy on our loan portfolio, and our announcement of the potential for a $1 million to $3 million additional provision for loan losses, primarily related to Sandy. Our assessment has placed this special one-time provision at $1.8 million. And our Chief Administrative Officer, Joe Iantosca, will shortly review the details behind our assessment.

A little quick math will lead you to the conclusion that the Sandy reserve has had in excess of a $0.06 affect on our quarterly earnings. And, aggregated with our third-quarter announcement of the extraordinary severance expenses, the drag on our 2012 earnings per share was a total $0.09, leaving us with a relatively satisfying result for the year, and a belief that we have put Sandy in the rearview mirror.

For the record, the specific reserves also addressed in the 8-K that were being taken as a result of the OCC guidance on the bankruptcy discharged collateral-dependent residential loans had no effect on the fourth-quarter earnings, as these reserves were absorbed by previously unallocated general reserves in the normal calculation of our quarterly loan-loss provision. Absent Sandy, that provision was reduced modestly from the third quarter, primarily due to a decrease in loans receivable and otherwise generally moderating credit metrics.

The fourth quarter did bring a positive surprise to our net interest margin. Benefiting from a 3 basis point boost due to heavy loan prepayment fees on the commercial portfolio, the margin reversed course and expanded from 3.28% to 3.29%.

Gain on sale, however, adversely impacted our noninterest income, decreasing as a result of lower volume, primarily attributable to canceled loan closings from Sandy. Overall, the balance sheet contracted $35.2 million for the quarter, which helped improve our tangible common equity ratio to 9.69% at year-end, despite the repurchase of 125,000 shares during the quarter from our new 5% repurchase plan announced in November of last year.

To give you some additional insight into what we have done relative to Sandy, and review the allocation of our reserves as set forth in our release, I'll turn you over to Joe Iantosca.

Thank you, John. In my comments this morning, relative to asset quality and credit metrics, I will be discussing two one-time considerations mentioned in our 8-K filing at December 21.

As John's explained, the specific valuation reserve of $642,000 on the $6.3 million in loans that had previously been classified as troubled debt restructurings, under OCC guidance for collateral-dependent loans, was able to be funded as part of our normal loan-loss provisioning for the quarter. A more prominent topic, however, is the effect of Superstorm Sandy on the Bank's asset quality and loan-loss provisioning, which caused the Bank to take the special provision of $1.8 million. We have, and we will continue to, proactively work with all borrowers affected by Sandy.

On the commercial side, there are three borrowers with properties severely impacted by the storm. These loans totaled $3.6 million. Each of these loans had a loan-to-value ratio prior to the storm of no greater than 25%. The borrowers continue to pay as originally agreed, and expect to continue to do so as they rebuild their properties. Additionally, six commercial borrowers have requested short-term relief as a result of the storm. After individual evaluation, each was permitted to defer principal payments only for up to 90 days, and all are honoring the payment deferral arrangement.

Regarding the residential portfolio, as of year-end, 120 customers initially requested payment relief from a hardship created by the storm. These loans totaled $28.8 million. Just over two-thirds of these loans are located in what was a designated flood zone at the time of the storm, and are therefore covered by flood insurance.

Proceeds from insurance claims are managed by the Bank to ensure the funds are used to repair the collateral property and/or repay the debt. Payment from insurance carriers for both flood and homeowners claims are being made, with our staff having handled over 600 claim checks across our owned and service portfolios.

The weighted average loan-to-value ratio on the 120 loans was 61%, based on the most recent appraisal available prior to the storm. The initial relief granted was a 60-day payment deferment. We have staffed appropriately to be able to follow up individually with each customer, to determine the current status of the borrower's ability to pay and the condition of the collateral property. As of this past Saturday, 87 of those borrowers have been contacted a second time.

The first item of note is that not one customer has yet told us that they were abandoning the property, or that they did not intend to honor their debt. In fact, 75 borrowers, with balances of $16.9 million, have either already paid current or confirmed their arrangement to be current within four months. As such, we expect these credits will remain as performing loans.

The remaining 12 borrowers, with balances of $2.3 million, are continuing to experience various issues which are delaying repayment of arrears in full, and are being reviewed for other forbearance. Note that approximately half of this amount is delayed due to reasons surrounding delays in processing insurance claims.

We evaluated each of those 12 loans, taking into account the last known value of the underlying land, plus the value of the flood insurance policy, and determined that each individual loan appears to be adequately collateralized. As such, no loan level specific reserves have been taken to date on these residential loans.

Following the storm, we also considered additional possible future developments, not the least of which is the impact of the newly developed FEMA flood zone maps on the cost of rebuilding and on existing real estate values. With this as yet unknown effect on the market, and the continued uncertainty surrounding the 2013 summer season, the Bank increased the general reserve allocation modestly on each individual class of loans, which resulted in the $1.8 million special provision.

Turning to credit metrics exclusive of Sandy, during the fourth quarter, nonperforming loans in the residential and consumer portfolios increased a modest $1.9 million. Quarter-over-quarter, there was also a modest blip in net charge-offs, while 30 to 89-day delinquencies remained relatively steady. Considering these facts, along with a $22.4 million reduction in loans receivable, and an improvement in our unallocated general reserve calculation, we set the normal quarterly loan loss provision at $1.3 million, which resulted in a $400,000 reserve build for the quarter, exclusive of the Sandy one-time provision.

Regarding the New Jersey foreclosure backlog, there has been no appreciable change, as the Bank acquired title to only three properties in the quarter. The New Jersey foreclosure window still remains at approximately three years, barring major complications -- a fact that continues to hamper improvement in the residential nonperforming category.

Turning to the reserve for repurchased loans, we also provided an additional $400,000 this quarter for loan repurchases. This was driven by the receipt of two repurchase requests. The repurchase of one loan, where the Bank charged off $252,000, and the satisfactory resolution at no cost of another request.

Recapping the full-year's repurchase activity, there were four requests outstanding on January 1, 2012. 18 requests were received, nine requests were resolved at no cost, and only one loan was repurchased. This leaves 12 requests outstanding with a principal balance of $3.6 million. Of these 12 requests, three are from the GSEs, and nine are from other investors with whom we have not entered into comprehensive settlements.

While the resolutions throughout the year were overall favorable and encouraging, as is evident from the one loss, we recognize that we may not always be successful in our defense of these claims. We continue to seek resolutions that will preclude or diminish future repurchase requests, while satisfying current outstanding demands only when warranted.

I'll now turn return the call to CEO Garbarino for his concluding comments.

Thank you, Joe. All in all, under the circumstances of Sandy, the ever-evolving regulatory climate emanating from Washington, the economic uncertainty both home and abroad, and the continued challenging, extremely low rate environment engineered by the Federal Reserve, we are glad to have 2012 behind us and look forward to 2013.

We remain energized by our initiative discussed in last quarter's call relative to our entry into the Red Bank market, and the effect this will have on our plans for the years ahead. I can also report that we are continuing to search for our new President and Chief Operating Officer, which we initiated in August, hopeful that it can be successfully concluded soon.

We recognize that the New Year holds great promise for our Company, as our market recovers and rebuilds from the aftermath of Sandy, and we are amazed at the resilience of our Central Jersey Shore neighbors. As we enter 2013, we remain focused on restoring a pattern of growth to our revenue and earnings, building additional value for our shareholders' investment.

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

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

Just a few questions. First, just on the storm and some of the numbers you gave in the release. The 120 borrowers that you noted versus the 87 borrowers that have been reached a second time, I guess I'm just curious what the other borrowers -- the other 33 borrowers -- is there an issue there why they have not been reached? Is there a problem reaching them? Or what's the issue there?

You know, Joe will address the mechanics of that for you, Frank.

Frank, it's just the calendar. What we had told the borrowers is that, from when they contacted us, we would give them 45 days, and then we would reach back out to them to see how they were doing. And it's just those 33, the calendar is not up yet.

Got you.

So, they weren't scheduled to be contacted again. Our initial reaction, when we were in really a triage situation here early on was -- and any of our borrowers that called up, we didn't want to pepper them for details as they're swimming out of their house.

So, we literally said, initially, when the initial call was made, anybody that calls and says, listen, I've got a problem here with Sandy, we said, fine. We'll get back to you in 45 days. So, if that contact occurred more than -- less than 45 days ago, we haven't gotten back to them as yet. But we're gradually getting through all of them, and we should be through all of them in the next two weeks or so.

Got you. Okay. And then in that group that -- that group of individuals that is -- has a repayment plan in place, and expects to be able to start paying and get totally current within four months, is there any review of that? Has there been a review of that collateral at all, in terms of damage? Or is it just basically going off of what the borrower says and taking it from there?

Depending upon the extent of damage, generally, we've gotten photos of almost everybody, if not everybody. I just don't want to be blatant and say everybody, since I haven't seen them all; or if the damage was heavier, there would have been an inspection. So, it really depended on the level of damage. But there has been some level of assessment on everyone.

Got you. Okay. And then just switching gears, I wanted to ask Mike a question on looking forward into 2013, if you could just talk a little bit about the margin expectations? I know, obviously, you had a boost in this quarter by prepayment penalties.

And I guess, piggybacking off of that question, the 3 basis points that, John, you mentioned, was that all the prepayment penalties that flow through the margin in the quarter?

Yes, that was the full effect of the unusual size of the prepayment penalty. You saw the effect on the commercial portfolio where it backed up quite a bit. And most of that was not because we hadn't been making loans, but there was some several large prepayments that had penalties associated with it.

So, the total effect of those penalties was 3 BPS. Absent that, the margin would have shrunk, I guess, 2 basis points for the quarter.

Got you.

And that's moderated, Frank. As you know, it's been compressing 5 or 6 basis points over the last year or year-and-a-half. So, even without the prepayment penalty, it's down 2.

Now we did have some benefit of some repricing, continued repricing, down of our deposits during the quarter. But as we've acknowledged on every call in the last year is that the margin is going to come under pressure, and it will probably -- there'll probably be some contraction, although our plan is to try to offset that with loan growth as best we can.

Okay. So to the extent that you saw a couple of basis points of contraction this quarter, you know, excluding the prepayment penalty, do you think that's something that you could potentially, if you do continue, or if you do get some decent loan growth going forward, is that something that you could maybe expect to see going forward to a few basis points of compression a quarter?

We would probably get some compression every quarter; whether it's 2 or 4 or 1 is hard to predict, because it's also depending not only on our loan growth, our ability to grow loans, but that it's also obviously dependent on prepayment speeds, which were very heavy all last year because of refinance activity. So, to the extent that those speeds kind of slow down, then that will keep the compression at the low end of the range.

And then just finally, I just wanted to ask on mortgage banking. I mean, given the obvious impacts from Sandy on mortgage banking revenue, I would think there's going to be a big backlog. And I don't know if that's starting to move through the system now, and if we might see that benefit quarter-over-quarter in the first quarter of 2013.

Well, the pipeline on the residential side is not as robust as it has been in the past couple of months. And while there was some delay in November, most of what was going to close, closed by the end of the year in December.

But there were a number of deals that were lost as a result of Sandy. There were contracts that blew up, and there were refinances that were being processed on homes that are no longer there. And that's not good business, as you know.

Right.

So those closings will never occur, unless someone comes about rebuilding and it turns itself back into a construction loan. But there's some of that that departed. Most of what was delayed in November was certainly closed by year-end. So, we don't see the run rate changing too much as we enter the New Year, because again, the pipeline is not as robust as it was, say, at this time three months ago.

Got you. Okay, that's helpful. Thank you.

Travis Lan, Stifel Nicolaus.

Just starting on the margin, was there any promotion, Mike, that maybe expired in the quarter? Or another specific item that would have contributed to the improvement in the transaction deposit costs in the quarter?

No. I think we've been focusing on trying to reduce some of the costs in our government deposit portfolio. And we were successful in doing that at the end of the year. And then in the beginning of this year, we had a lot of municipal deposits that were repriced down. Their spreads to treasury were reduced. So, I think that was probably the biggest effect. I mean, there's always some special CDs that are rolling off, but that happens every quarter. And our CDs aren't a big fact -- a big part of our portfolio anyway.

We did have one very large relationship that exited that was a multi-million-dollar relationship in our money market -- our premium money market product that exited, that was earning a premium rate. And that relationship was probably large enough to move the needle, Travis. So, while that wasn't a specific promotion, it was a relationship where there was some parked funds that, because the premium rate expired, the money disappeared.

Got you. Okay, thanks. So, obviously, you had your hands full in this quarter with Sandy. But I wondered if you had the chance to look at the new qualified mortgage guidelines, and maybe had any perspective on how that could impact either your business or kind of the competitive landscape? You know, just any quick thoughts, if you did have the time to think about it.

Yes. No, we're monitoring that. Clearly, I mean, life goes on. And I don't think it has a large effect on us, because these days, we are pretty much A lenders. We're not doing any alternative credit or subprime lending.

And the qualified mortgage guidelines that were issued, I think we can live with. It's -- we'd rather not have to deal with all the housekeeping that's going to be associated with it, but at the end of the day, we don't think that's going to have a big effect on our loan origination capabilities.

Got you. Okay. And just a couple more on Sandy. Was there any impact in operating expenses in the quarter? Or do you expect any future impact from either overtime or maybe the cost of managing the insurance process?

No, you definitely hit the nail on the head. We didn't talk about it because it was not terribly material -- if I can use -- if I can modify the word "material" with "terribly." But, for example, there was significant expense associated with, as you pointed out, overtime, with personal time allocated to employees. With the use of generators -- we had generators shipped in from out of state. That was a six-figure adjustment. I believe it was about $120,000.

So there's a little bit of baggage in there. But, by and large, it's not something that we can point to en masse, and we're not -- you know, it's not terribly material or terribly significant. But you're absolutely right. There was some ancillary expense that crept into the quarter.

Okay. And (multiple speakers) --

(multiple speakers) Yes, out-of-pocket -- it's $122,000 out-of-pocket, Travis, that we spent for various items. And then there were some subtle costs with personnel that are left clear. But -- so that will roll out of the numbers in the first quarter.

Sure, got it. And sorry if I don't understand this correctly, but does the $1.8 million Sandy reserve cover all of the perceived issues? Or could there be more for the 37 borrowers that weren't followed up on? Or is the $1.8 million comprehensively?

We've extrapolated what we know to those 37 borrowers, and we don't think that there will be any big surprises the second time around with those. We just gave them 45 days to get their life together, and so we weren't pounding them for what's going on with their insurance claim or whatever.

But that $1.8 million is kind of extrapolated to what we don't know we don't know about the portfolio, because we haven't spoken to all 8000 borrowers. And we think that that's not going to be feasible.

On the commercial side, we've contacted every single one of our commercial relationships and we feel very confident there. On the residential side, we're still mildly afraid of what we don't know we don't know at this point. And although we think that that's going to be manageable, we felt it was prudent to establish a reserve for that potential additional disclosure.

So, in other words, Travis, the $1.8 million is intended to capture all losses related to Sandy. In the pool -- including the pool of customers that we've talked to, the pool or borrowers that we've talked to, the pool that we're still intending to talk to, and the other 7000 borrowers that we haven't had any contact with, we know there's going to be some losses there, so -- and across all loan types. So this is anticipated to, based on the best information we have, to consider all losses in the portfolio as a result of Sandy.

Got it. All right. And assuming that there's no guideline to handle situations like these, you know, you guys should be commended for the job that you did in your community, and also in your transparency with us. But your last question I have is just if you could update us on a potential opening for the Red Bank branch? And whether or not your expectations for that office have changed at all, in kind of the wake of the storm?

No, not really at all, Travis. We're moving forward with construction. And it will be open the early part of this year, sometime before the summer, for sure.

All right. Thank you very much, guys.

Thanks, Travis.

Damon DelMonte, KBW.

Just wondering if you could give an update on, has any rebuilding effort started to take place along the shoreline? I mean, I know the (multiple speakers) --

Oh, absolutely. (multiple speakers)

You know, there was a (multiple speakers) --

(multiple speakers) It's remarkable some of the progress that's been made with the infrastructure. I know we talked to a lot of people immediately afterwards, and the infrastructure that was completely gone, for the most part, on the barrier island has really been restored. So you're talking about gas lines being re-sunk into the ground, and storm sewers and sanitary sewers being re-sunk into the ground that had been uprooted. Roadways being rebuilt.

I mean, there's still plenty of work that's left to be done, but the transformation in the 2.5 months that have gone by has been truly remarkable. The full range of the barrier island is still not open to regular traffic, unless you're a homeowner in that area or a contractor that's been retained in that area. But there's a lot of evidence of what's happening in areas that you can ride through -- and also on the mainland.

So. it's remarkable the recovery that's been undertaken. Nevertheless, as our good Governor points out, it's -- it would be foolish to expect that everything is going to be business as usual as we enter 2013. It's going to take much longer than that to make a full recovery. But the initial progress is really encouraging.

And with the recent relief package that was passed by the government, how does that factor into potential opportunities for the Bank with -- to participate in the rebuilding efforts? Do you see maybe an increase in loan demand kind of coming up in 2013 as a result?

Absolutely. I don't think there's going to be any direct correlation with the relief package, per se. But that's certainly going to encourage a lot of redevelopment. And we think we're going to be eager participants.

As I said in my comments, we're here for these people. We're the local guys, the local community bank, and we're certainly not going to abandon our customers that we have over there. And I think they know that. Between the Bank and the foundation that we established, and the contributions that we have made to the recovery effort, I think we stand at the forefront of helping lead that recovery for the local area.

Okay, great. And then just one question on the margin, specifically on the cost of funds side. What does your maturity schedule look like for CDs this coming year? Is there opportunity to lower those costs, do you think?

I think we've got a couple of CDs left, but there's not a heck of a lot there. (laughter) Mike is just taking a look at the -- as we speak, trying to get you some numbers. But our CD portfolio has been really shrunk down to the point where the maturity exposure is not very great, and the repricing capability is likewise not all that significant.

Yes, let's see. Let's see what -- there's about $70 million repricing in the first quarter; $30 million in the second quarter; and another $38 million in the last six months of the year. That's the repricing for 2013. But I don't see -- a lot of this is looking at -- they're at [69] basis points, 52, 56, 81, 76. I don't see a lot of chance for repricing. Most everything that's repricing is below 1 -- the average of what's repricing is below 1.

Okay. That's all that I had. Thanks a lot, guys.

(Operator Instructions) Matthew Breese, Sterne, Agee.

Going back to the commercial real estate borrowers, the three with substantial impact. Could you give us a better idea of the definition of substantial? And are these individuals paying the loan off out-of-pocket? Or are these properties cash flowing and they're paying off with that?

No, they're out-of-pocket. Let me give you some -- you know, they're well-known to us. So, one is the -- is a local yacht club, which the building is gone. I mean, the clubhouse is absolutely gone. They had a loan in process with us for a construction loan because they were going to raise the building and rebuild, and they had raised $5 million prior to Sandy hitting and taking the building down for them.

So, there's absolutely no effect on that, because the building was going to be raised. They had already raised the money to rebuild it. They had a construction loan pending. So, although we had a small mortgage outstanding on it, they're still paying, and they're going to rebuild the building, okay?

Another one was an oceanfront nightclub really well-known in the shore area -- that is gone. And there's significant oceanfront property, and there's also significant parking lot property immediately adjacent down the street. And the owner is paying out-of-pocket, and he's going to rebuild the property. And he's got some condos associated with it. And the loan-to-value ratio is of such an extent that while he's waiting to rebuild, he's going to pay out-of-pocket.

And the third is another yacht club, where there was significant damage outstanding. But our total outstanding was just under $71,000, and the appraisal in 2003 was over $1.25 million. So we're extremely well-secured on that one also. But, it's -- they're paying out-of-pocket.

Okay. So that $3.6 million, you really don't anticipate any losses on it?

No. No. No. That's completely sound. And that's the worst of the commercial devastation. You've got other incidental instances of minor damage where businesses are, in fact, continuing to operate. And we're not concerned about that either.

The commercial side really -- we really feel we have our arms around it 100% at this point. It's a little bit on the residential side that, if we have some mild trepidation about what we -- again, what we don't know yet, that would extend to the residential side.

Would you say that includes the six C&I borrowers?

I'm sorry, the --?

The additional C&I borrowers that (multiple speakers) --?

C&I, no. I'm saying that's the commercial side.

Okay.

I'm not just referring that as commercial real estate. I'm saying the C&I borrowers, all our commercial customers have been contacted.

Okay. So the $1.8 million in provision related to Sandy, I mean, if that kind of circles everything, can we expect going forward a more normal position in that $1.3 million to $1.4 million range?

Absolutely. We're treating that, in our minds, as a one-time provision that is now in the rearview mirror, as I said in the comments. Now, that -- we could be eating those words three months down the road, but we have no expectation that that's going to happen.

Outside of the changes in flood zones, are there any other law changes that have been placed -- you know, I heard one of your competitors say that houses with significant damage, you know, the stilts that they're placed on are going to need to be lifted significantly.

Yes, there's a lot of misinformation and misunderstanding about building codes that's kind of surfacing. And a lot of this is by rumor, and in some cases, municipal officials, maybe, that are giving out difficult information to be digested. But things like that will sort themselves out.

You hear anecdotal stories about problems, but the real genesis of this is the fact that FEMA just happened to change their flood maps -- the flood maps were changed prior to Sandy. This is not a reaction to Sandy after the fact. These maps were changed earlier in the year, and they are only released late in the year after the Sandy hit. But all the mapping had been redone prior to that.

So, it's going to take a while for everybody to digest exactly what's happening. I think the biggest effect is going to be the impact on flood insurance premiums as the FEMA zones were renamed. I mean, there's -- I shouldn't say renamed -- redesignated. And in some cases, they're much more severe designations than occurred in the past.

Likewise, the federal subsidy that was applied to flood insurance, independent of what happened with Sandy, was -- it lowered dramatically. And the flood insurance is now on a basically market basis since the middle of last year. That was a bill that was signed, I believe, into law mid-year in 2012, and again, that was prior to Sandy.

So you've got kind of a confluence of things about the flood insurance premiums being more market-related. You've got FEMA changing its map designations -- and that was all prior to Sandy. And then you've got the impact of Sandy and municipal codes and misunderstanding and rumor. So, it's going to take a while for all that dust to settle and for people to become comfortable with what they're faced with going forward.

Okay. And then (multiple speakers) --

(multiple speakers) But I don't think it's a perfect situation that everybody can speak with certainty as to, if I live in a certain town and I have a certain flood designation, what I'm going to be required to do with my property. In many cases, that's still kind of up in the air and there's a lot of frustration that people feel as a result of that.

Okay. In terms of increased demand for loan growth, looking out into 2013, do you guys foresee sometime later this year a reversal in the declines in loans, and we can start seeing some loan growth again?

Well, yes, I think we'd like to say that's the plan, Matt, I really do. I mean, clearly, we've talked about the Red Bank initiative. That's going to be a new market for us. I think that's going to open some opportunity.

I think the aftermath of Sandy is going to open some opportunity. And I think we're going to have to do a little better job of getting the demand that's out there. We have been very, very disciplined in terms of our pricing, and certainly, maybe more importantly, in our underwriting.

And we're certainly not going to lose that discipline on the underwriting side, but we may have to lower our expectations for internal rate of return in our pricing model as far as the pricing side is concerned, because it's a very, very competitive market out there. And we want to make sure that as this -- if there is any potential increase in demand associated with the recovery from Sandy, that we're certainly active participants in it.

When do you expect that really to kick into gear? Will it be during the spring and then summer seasons? Or now throughout the year?

Now, I realize you'd like to get that cranked into your model, and the only thing I can tell you is we can't do that with any degree of certainty. Let's say that our budgeted plans for the year have it ramping up throughout the year -- which I realize is of no help to you, Matt, but that's about the best I can do.

I understand. My last question is surrounding capital deployment and buybacks. Specifically, with stock down closer to [13], can we expect you guys to be more aggressive repurchasing your own stock?

Yes, I think so. I think we consider the stock to look awfully inexpensive right now. We're currently in a blackout period, so we haven't been in the market. Obviously, pending this earnings release, well, that blackout period, in terms of our policy, will continue through the early part of next week. But I think that, given the current trading range of our shares, we'd be very ready purchasers and looking to execute on that.

Of course, again, we're not looking to drive that. Our posture in repurchasing shares has always been to respond to market demand. And we know there have been some institutional orders, sell orders, that have been placed in the early part of January, partly over some uncertainty regarding Sandy, and leading up to this earnings release. But we haven't been able to be responsive to that because we've been in the blackout period. So, we -- starting next week, we expect to be back in the market at these levels.

Thank you very much, guys.

All right, Matt.

(Operator Instructions) And this will conclude our question-and-answer session. I would like to turn the conference back over to John Garbarino for closing remarks.

I thank you all again for joining us this morning. We're happy we'd be able to bring some clarity regarding to the devastation that we all experienced down here at the Jersey Shore. It's nice to see that it's a nice sunny day. There's a little snow on the ground. But we look forward to sunnier days, as we move through this year, and talking to you again in three months. Thanks again for your interest.

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