OceanFirst Financial Corp. (OCFC) Q2 2012 Earnings Report, Transcript and Summary

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 Jill Hewitt, Senior Vice President and IR Officer. 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 operation, 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's Discussion and Analysis of Financial Condition 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 for 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 us for our third quarter 2012 earnings conference call today. We appreciate your interest in our performance and are pleased to be able to review these results with you this morning. You've all had the opportunity to review the earnings release from last evening. 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 to add some color to the results posted for the quarter. As has been our custom, we will also spend some time reviewing our credit metrics and reserve provisioning, as well as other attendant issues from the past 3 months. Our team assembled for you this morning includes a new voice, first, Senior Vice President, Joseph Iantosca. Joe has been a key member of our Senior Executive Management since 2004. In his role as Chief Administrative Officer, he is uniquely qualified to provide background information on our loan servicing, credit provisioning, loan repurchase analysis and branch expansion. For the quarter, diluted GAAP EPS, of course, was $0.28, unchanged from the prior year quarter, as was the company's 63rd consecutive quarterly cash dividend, which is maintained at $0.12 a share, representing a 43% earnings payout ratio of GAAP earnings. For purposes of comparison in today's call, however, I'd like to define core operating EPS from the quarter as our GAAP earnings per share adjusted for the $0.03 nonrecurring severance expense referenced in our release. On that basis, this quarter was stronger than first glance, with core operating EPS of $0.31, posting gains over both the linked and prior year quarter. The increases were driven by reduced credit costs, higher noninterest income and lower average shares outstanding. Our loan-loss provision decreased $300,000 from the prior quarter, the rational of which we will review with you shortly. Noninterest income benefited from a continuation of strong gain on the sale of mortgage loans and across-the-board increases in merchant services revenue, bank-owned life insurance and other real estate operations income. These gains overcame the compression in our net interest margin. Although we did post a modest increase in interest earning assets, as well as in our commercial loan portfolio, the substitution of lower-yielding investments for amortizing loans continued to take its toll as our margin contracted 11 basis points during the quarter. Meaningful commercial loan growth remains difficult to achieve. It remains our observation that lenders are merely trading lending relationships amongst each other as competition continues to grow in the market in the face of tepid demand. It is axiomatic that until we achieve more significant growth in our commercial loan portfolio, the much desired increases in total revenue cannot be realized. We were ready repurchases of 204,516 of our shares during the last 3 months, although not as active as in the previous quarter. There remain 58,899 shares eligible for purchase under the existing board authorization. The company continues to embrace the principle of providing value to our shareholders through leverage of our excess capital as our tangible common ratio remains robust at 9.53%. As a result, capital management remains a focus of the board, whether in the form of additional share repurchases or changes in our dividend policy. Both alternatives will be under review as year end approaches and our current repurchase authorization is completely utilized. Now to give you some background on our improving overall credit condition, reserve positioning and plans to stretch our market reach a bit, as promised, I'll call on our Chief Administrative Officer, Joe Iantosca.

Thank you, John, for the opportunity to address the improving nature of our credit profile. During the third quarter, nonperforming loans in the residential portfolio decreased by $2.3 million and commercial nonperformers remained controlled, with overall nonperforming loans declining 6.9%. Coupled with the quarter-over-quarter reduction of $1.5 million in net charge-offs and the improvement in the 30- to 89-day delinquencies, we set the quarterly provision at $1.4 million, which still allowed for a reserve build of over $600,000. The Consolidated Data section of our release discloses that performing troubled debt restructurings increased by $6.5 million as a result of the implementation of the OCC's guidance related to one-to-four family and consumer loans, with the borrower's obligation was discharged in bankruptcy. The characterization of these loans in this manner, however, certainly does no damage to our credit risk profile or the sufficiency of our reserve position. Regarding the New Jersey foreclosure backlog, we have continued to see movement similar to the last quarter, with title finally acquired to 7 properties. While this pace will not quickly eliminate the backlog, it is helpful and prevents a further buildup of loans languishing in the protracted state of foreclosure. The New Jersey foreclosure window still remains at approximately 3 years, barring major complications, a tedious process, which inflates our nonperforming assets. Turning to loan repurchase activity, we continue to build the repurchase reserve with the addition of $100,000 this quarter. This provision was made solely in response to the receipt of an increased number of repurchase requests throughout the year and quarter, and not as a result of any payments made to settle or repurchase loans. In fact, there have been no payments made from the reserve this year. Recapping the year's repurchase request activity, there were 4 requests outstanding on January 1. Through September 30, 16 requests have been received and 8 requests were resolved at no cost. This leaves 12 requests outstanding, with a principal balance of $3.8 million. Of these 12 requests, 3 are from the GSEs and 9 are from other investors. While these continued favorable resolutions are encouraging, we recognized that we may not always be successful in our defense of these claims. We do, though, attribute much of the success to the fact that these requests have been on prime age loans, vintage 2005 through 2007, that performed for some time before encountering an issue and not an all-day or sub-prime loans that faulted very early on in their existence. While discussing repurchase activity, you may recall that in 2007, our subsidiary, Columbia Home Loans, entered into comprehensive settlements with numerous investors that defease the ability of those investors to put back loans to Columbia. These settlements represented 93% of the $480 million in sub-prime and all-day production that Columbia sold up until it was shuttered in 2007. We continue to seek agreement with other non-GSE investors the settlements that would preclude any future repurchase requests. I'd like to now turn from recapping the credit metrics to a more forward-looking note. We are excited to expand our presence in Monmouth County, with the planned 2013 opening of the bank's full-service financial solution center in Red Bank. We have leased 7,500 square feet at a prominent intersection location to be named The OceanFirst Bank Building. We will house under the same roof commercial and residential lenders, trust officers and investment services representatives, along with a full-service retail branch. The retail branch will be suited to the character of Red Bank by eliminating the typical telecounter and allowing for all transactions to be conducted in a more comfortable, private bank-like setting. We look forward to taking this first step in delivering our extraordinary community banking to Red Bank and the surrounding communities, which will serve the long-term interest of our shareholders with the expected growth in several business lines. With that, I'll return the call to CEO Garbarino.

Thank you, Joe. In summary, then, we have posted another quarter of consistent core earnings to share with you this morning. The obvious beneficiary of these earnings, coupled with our lack of meaningful balance sheet expansion, is a strength in capital position, which has made us a stronger company, helping as rebuild tangible book value. While we realize that the revenue growth we desire derived from an expanding commercial loan portfolio remains difficult to attain, we are also mindful that pursuit of this growth cannot involve the relaxation of the disciplined standards traditionally maintained by the company. Our announced initiative of an increased presence in the Red Bank, a gentrified Monmouth County town, colloquially known as Wall Street South, owing to its impressive financial district, promises to provide some much-needed assistance in developing new business relationships for the bank. Pursuing multiple business initiatives, as we are, in the right location in Red Bank on the expanding edge of our existing market is exciting in the immediate term and holds great promise for us in the years ahead. With that, Misters Fitzpatrick, Iantosca and I will be pleased to take any questions you have this morning. Denise?

[Operator Instructions] Our first question this morning will come from Frank Schiraldi of Sandler O'Neill.

Just a few questions. I want to start with the big number on mortgage banking gain on loan sales, and just ask if you can give any color into -- because, obviously, there is a lag from when you originate and then sell and get the revenue on these things. If you can give us any color into how 4Q is -- should begin to be shaping up.

Well, I think that's going to continue to be strong, Frank, because the 60- to 90-day lag on that, we still have -- we have...

$57 million in the pipeline right now, I think, which is still pretty strong for us on the residential side.

Okay. So could that even be -- is there anything, I guess, in the quarter that you would think might flow out from that in 4Q? Or is that number a pretty good run rate?

Well, we sold 45 million -- that's actually only a small increase from the prior quarter. The prior quarter was 41 million. What happened was the gain-on-sale margin increased from the prior quarter. So it's -- actually, for us, it's probably a historical high by 2.4%. So a lot of the increase from last quarter to this quarter was not so much in volume, but it's a higher gain-on-sale margin. So it appears that, that margin will probably be sustained through the fourth quarter. And volume, we don't see that the volume changing that much. The pipeline, yes, the loan pipeline in September was $78 million. In June, it was $79 million. So it hasn't changed much. [indiscernible] pipeline all loans. So it looks like we are on track for a similar-type number.

Got you. Okay. And then I wonder if you could just speak to the fee income side on the fee and service charges, the growth there linked quarter. Just speak to what's driving that.

Well, as I said in my comments, I think merchant services income was extraordinarily strong for the quarter. That was up a pretty significant increase, I think, from the linked quarter. Trust, our trust services is finally starting to hit some stride there also, that's the asset management initiatives. And we also think Red Bank will be very helpful there because that'll be something of a new market for us. And because of the financial presence in the town, we think that, that's a fertile market for our wealth management business. And what else?

And retail checking fees.

Yes, retail checking fees have performed quite well through the year also because of the consistent increase in our core business accounts. We've also -- most of our core business accounts, in terms of additional color this year, have not been of the consumer or governmental variety, municipal deposits, but they've really been business relationships that we've been establishing in conjunction with our commercial lending initiatives. So I think some of the fees from that start to show up also.

Okay, great. And so you're seeing these are a lot of new business relationships that when the economy turns, I would imagine, is you just should start seeing the loan growth from and you're seeing the deposit -- maybe more the deposit growth now?

Yes, as I said on my comments, most of the volume that we're doing these days is taking someone else's customers. It's not -- certainly, new businesses are not being started and there's very little demand out there. So even in terms of the business deposits that you're getting, you're getting a conjunction with relationships that you're establishing, but you might be taking from a Wells or a TD or someone else in the market.

Okay. And then, John, on your comments on commercial growth, if I look at CRE and C&I growth linked quarter, looks like it ticked up a bit. Are you suggesting it may -- maybe in the fourth quarter it may tick back down? Or is this a decent run rate that you can hold in the current environment?

We think it should hold. Again, the commercial pipeline has been pretty robust all year, and that even goes back to last year. While demand is not tepid, it's difficult to get people to close in fund. And repayments have also been heavy. So it's -- as we take other people's customers, too, unfortunately, we occasionally are going to lose a customer to someone else, usually because of a pricing or an underwriting issue that we're not willing to budge on. But we see our ability to grow that commercial product as looking much better now as we enter the fourth quarter than it did certainly as we entered the beginning of the year. So I think the current run rate is probably representative. I know our lenders are encouraged by what they're beginning to see in the market. Demand is not picked up appreciatively, but our ability to compete in the market, I think, we're feeling much better about these days.

Okay, great. And then just one final question, just on the margin, Mike, I wondered if you could give a little bit of color or your thoughts. Margin compression was slightly above what I was looking for in the quarter. And what are your thoughts going forward? Do you think -- obviously, with deposit costs where they are, I'm sure we're likely to see more compression. Just wondering if you think maybe the magnitude may come down. The sequential contraction that we saw in 3Q may be a little bit less than 4Q. What's your thoughts there?

Yes, I think the 11 basis points was a little bit more than we had expected for the quarter. Clearly, with deposit costs -- our deposit costs all at the end of the quarter were 39 basis points. The good news is that was actually down 6 basis points from June 30, so we're still working that number. But clearly, it's difficult to drop it that much further. On the asset side, we're going to continue to see some repricing down. So there's going to be stress on the margin and some contraction. Hopefully, we can counteract that with what John just said about some commercial loan growth. That would help us contract -- offset that a little bit. But clearly, there's margin contraction, but probably not to the same extent as the third quarter.

Is that 11 basis points partially indicative of greater premium amortization in the investment securities books in the quarter?

Yes. It's because the cash flow has been substantial. The premium was -- yes, MBS premium. And let me look at -- yes, MBS premium, it was up. It's not up a lot. 20 -- it was up about $50,000. So it wasn't a big increase. But yes, it did adversely impact the quarter. It did go up. So it's part due to the premium amortization because of the cash flows on the MBS. And then the mix in the balance sheet we've talked about is less loans and more investments, so that's an issue as well.

Okay. So you said the amortization in the quarter was up $50,000. Is that what you said from the previous quarter?

Yes, $50,000.

Our next question will come from Travis Lan of Stifel, Nicolaus.

Just digging into the margin a little bit more. Could you update us on what your average residential real estate yield is that's running off, and also where you're seeing CRE origination yields?

The average yield that's running off, so we're talking about the existing portfolio?

Right, yes. So whatever the existing average residential real estate yield would be currently.

Mike's looking to see if he has that handy for you.

Just a second. Well, the number I'm going to give you, Travis, is for the portfolio as a whole, I mean, the fixed. The mortgage portfolio at the end of the September would yield in 4.5%. That's the whole portfolio. Now obviously, the higher coupon ones pay off and the lower coupons don't, so it's hard to get a -- it doesn't pay you off at the same level or in the tranches.

Yes, I understand. Just having the average number is enough because then I can just make my own assumption about what's going to pay down. And then, I guess, if you have a number for it, you're seeing CRE originations coming in at?

Well, we're not -- we're putting very little residential activity on the books. The only residential activity that goes on the books these days is any jumbo business that we do and whatever adjustable rate product that we're not selling. We haven't sold much adjustable product during the year. So the residential portfolio is inconsequential. The commercial portfolio is generally in the mid-4% to low-5% range, depending upon the term. We're not currently writing at much past 7- to 10-year period.

Right, okay. That's helpful. So the CRE yields are mid-4% to low-5%, that's helpful.

Yes, maybe low 4% to 5%, yes.

Okay. And then just the pace of residential runoff is kind of accelerated the last couple of quarters. Do you have any outlook for how you think that's going to trend over the next few quarters?

Well, we're still amazed as many refinance as much refinance activity as you do. And our people tell us that we're refinancing loans for a second and third time over the last 3 or 4 years as rates move lower and lower. We're still bouncing on the bottom with all-time lows that any of us can remember in many generations. And so it's difficult to say when that refi blitz may stop. It's -- again, in terms of what we do internally, we have a pretty aggressive modification program where we'll modify an existing residential loan rather than lose it to a competitor and cut the red tape and get a little premium over what the market rate might be. But you're talking about 30-year fixed rate, which is the product of choice for most people these days, really, bouncing along in the low- to mid-3% range, which is very, very attractive in terms of consumers looking to lower their debt service costs. So it's difficult to forecast any type of diminution in that activity. That's -- we think is going to be there as long as rates bounce along at those levels. In the past, when we've seen them bump up over 4% to those lofty levels above 4%, we see activity drop off a little bit, but we haven't been there for quite some time.

Okay. And then just 2 more. Do you have an update -- or do you -- have you ever made an explicit reserve to loan target, put that out there? I'm not sure if you have or not.

No. That's how we -- I mean, that's something you do at the end. You do your calculation that -- our models that we apply consistently. And then when you go at the end, you look at the numbers and you look to see if they make sense based upon trends and whatnot. But they -- there's no target.

Okay. And then, John, just for you. If you were to complete the buyback, do you still think that an additional buyback would be a good use of capital, given where the stock trade is currently and your ability to grow capital on this environment?

You raise a good question, Travis. And we've discussed that. Our board is aware of that. As I tried to relay on my comments, it's something we take a look at. We realize there's several capital management alternatives that we can have under consideration. Additional buybacks is certainly something that we would be taking a look at down the road as we complete the existing authorization. At the levels we're trading at now, there is some dilution to book value. We think in the past that, that's been acceptable to accept that nominal dilution for the improved use of the capital and the effect that it has on our current earnings per share calculation. But that's something that we'd have to take up when and if that opportunity presented itself, and we haven't made any decision on it as of yet.

[Operator Instructions] Our next question, and I apologize for any mispronunciation, will come from Timur Braziler of KBW.

Most of my questions have been answered. I just have a couple stragglers here on asset quality trends. Can you maybe go over some of the trends you're seeing in the early-stage delinquencies and any migration, if any, on the classified assets?

Timur, on the early-stage delinquencies, we've seen a reduction quarter-over-quarter in the 30 and 89s, primarily in the residential. We're not seeing a specific trend. We think that reduction was a natural occurrence. We don't see any specific trends nor do we see any specific migrations out of the 30 and 89 upstream.

In general, I think our residential delinquencies have shown a general pattern of slow improvement over the entire year. That's not been exclusively from month-to-month, but generally, from quarter-to-quarter, I think you'll see that. And then the -- those short-term delinquencies can bounce around, as you know, a lot with seasonal influences. But overall, we see a general improvement in the overall delinquency credit metrics. And our metrics on the commercial side have really been rock-solid. So that's been consistent good news. That goes right back over the last 4 or 5 years. There's very little variance there.

Okay, that's great color. And then on the residential nonperformers right now, the $25.5 million remaining. How granular is that portfolio? Are there any other chunky, call it, $2 million credits that can really move that number lower? Or is it really going to be kind of a slow and low type of process?

There's nothing significant size remaining in that. Nothing north of $2 million.

Okay. And then I'm sorry if I missed this in your remarks, but the 12 remaining repurchase requests outstanding, what's the outstanding balance there?

Let me just go back -- $3.8 million.

$3.8 million. Okay, great. And then just lastly, maybe, John, you can provide us a little bit of an update on how the search for COO has gone?

Well, the searches are a tedious process, and while we'd like to get it done as quickly as possible, it's much more important to get it done well. So we are engaged in the search. We are moving through a list of candidates, and we would hope it would be concluded as expeditiously as possible. In terms of targets, I think we're certainly looking at early into 2013 on a hopeful basis, but there's no guarantee of that, obviously.

Okay. And has anybody actually come in for interviews? Or is it too early for that part yet?

Well, no, we're not talking to people directly in-house. Again, we have the search firm engaged that is conducting interviews and that we're receiving information on that, but we haven't moved into the shortlist prospects as of yet.

Timur, just on the one-to-four family, I just reviewed the list. It's only one loan over $1 million, $1.3 million, so every other loan is below $1 million. There are some relatively high-balance commercial loans that might move the needle if they came out.

And our next question will come from Matthew Breese of Sterne Agee.

Just wanted to touch on the securities portfolio. Can you give us an idea what types of securities you're buying this quarter and the yields that they're being brought on at?

Yes. There's a mix -- CMO, MBS, CMO, all agencies, which is about 1 30 to 1 50 yield. We've also been purchasing some muni securities with 1 to 3 -- generally 1- to 3-year yields that are probably about 1%. And then -- yes, about 1%, although those are not highs, there's a lot of small pieces with the munis. And not -- our total portfolio is just a little over $20 million because a lot of the pieces we buy are 300, 400 still New Jersey based there, so they're small pieces. So they don't -- they're not high-volume. And then there's some agency notes that are relatively modest yields at 60 basis points or so. So they're not -- clearly, the excess liquidity, we saw a lot of good investment opportunities. We haven't gone out long. We tend to stay relatively short, that's why we have the CMOs. They have an average life of about 2 years as opposed to buying MBS, which might extend longer.

So given yields where they are and it seems like the portfolio, in aggregate, was about flat from last quarter, what do you see that looking like in the quarters ahead?

The investment portfolio?

Yes.

Yes. Well, clearly, it's going to be continued cash flow. But there's cash flow in the mortgage-backed securities as well, so we're -- although there was a relatively -- there wasn't that big of an increase this quarter versus last quarter because we didn't have the same kind of mortgage loan decrease. So I guess it depends on our success in growing commercial loans. And it also would depend on the extent of the prepayment. But our desire, clearly, is to grow loans and not investments.

Clearly, our goal.

And that investment portfolio, for us, over the last, probably, 10 years has really been a liquidity portfolio more than anything else. It takes care of some excess liquidity, but it's not something that we actively manage as a profit center in the company.

When you look from -- yes, I'm just looking at -- it's really very modest increase here. When we look at investments in MBS as a whole, was down -- the MBS was down $15 million for the quarter and investments up $23 million. So for the quarter, there's only an $8 million increase in securities. So that really didn't move up that much during the quarter.

Right, right, right. The total portfolio is right around a quarter of the balance sheet right now. I just -- it sounds like it's going to hold flat as you grow loans.

Right.

So with that being said, there's a lot of moving parts in loan portfolio. Residentials continue to come down. You're incrementally more optimistic about the commercial side of things. How much net loan growth do you think we could have over the next 6 to 12 months?

It's a difficult question, Matt. As John said, we have to take -- it's not a lot of growth in the marketplace if we have to take it from competitors who are all competing on price and kind to take ours. So I mean, the focus is on commercial. We have to take opportunity from competitors. We are excited about this Red Bank location that we talked about earlier. It's kind of a market for us. It's a new -- relatively new -- it's a new market for us, but we see a lot of opportunity there. We're going to have a commercial lender staffed up there full-time to work that market, so that will be hopeful. And we also -- we've also had some consumer loan growth this year because we've got some new products, the first lien product has done pretty well. But the one-to-four family, they're prepaying and the loans that we're originating are being sold. So as much growth as we may expect in commercial and consumer, there's going to be no growth in mortgage. In fact, it's going to be runoff in mortgage because we were not originating loans at 3.5%. And we're not going to keep them, we're selling them. So on balance, it's not going to be a lot of loan growth because of the runoff in the one-to-four family, but we're hopeful that we can have reasonably good growth in commercial and consumer.

Okay. And then at your Red Bank new territory, I think last quarter you said you had a total of 5 commercial lenders. Just curious, are you hiring any more to work that territory? If so, how many more?

Yes. We'd take us many good lenders as we see in the marketplace. That's -- we're constantly recruiting loan officers on the commercial side. So I think, as you said, last quarter, we reported 5. I believe we had one additional hire this past quarter. But I think we can easily accommodate 8 to 10. Not that, that's a target, but I think that the -- if we saw quality people that were available that had become disenfranchised or dislocated where they were currently operating, we would certainly not hesitate to hire them, bring them on board, especially those in this slightly new areas I think I characterized on the fringe of our existing market. Getting back to your question about loan growth, though, Matt, if you look at each quarter this year, I mean, the overall portfolio has really experienced some runoff, but it hasn't been as severe as it was in 2011. So I think that we're gradually starting to hit some strides, starting to keep some of those -- some of that loan portfolio in-house. The quarterly runoff, in terms of the entire loans receivable entry on the balance sheet, is much smaller than it has been in recent years.

I agree. My last question, getting back to the repurchase request, it sounded like there's $3.8 million total repurchase requests. And it also sounded like, you said, with the settlement with the Columbia Home Loan, 93% of the sub-prime stuff had been settled. How much of that $3.8 million was, or if it was, previously settled?

; Nothing that was previously settled. We don't have anything outstanding on anything previously settled. And everything in that $3.8 million is prime aged.

[Operator Instructions] The next question will come from Ross Haberman of Haberman Management Corporation.

John, a quick question. This new Red Bank operation, how big a drag will it be this year and/or how big in terms of production, deposits do you need to grow it to hit a breakeven?

I'll characterize it broadly, and then I'll give it to Joe because Joe has really run the numbers on that pretty closely. But we don't think it's going to be significant. It's a lease location. The fit-up expenses are going to be relatively modest for us. The staffing will be built up over a period of time. We'll have to spend some significant marketing dollars in terms of reinforcing our brand since it is kind of on the fringe of our existing market. But we think that it will repay dividends rather quickly. Joe has got some actual numbers on it. And in terms of quantifying it for the income statement, Mike, what do you say?

Well, I mean, Ross, we expect -- clearly, it's going to be dilutive in the first year. We think, based on our model, it'll be about $0.02 to $0.03 adverse impact to EPS next year. And then it would gradually go down from there, maybe $0.01, $0.015 next year, and then it will start breaking even in the third year.

; Okay. And for that area, is 1 branch enough? Or if it's successful quicker or more than you thought, would you consider a second location?

Yes. You're very perceptive there, Ross, and you may even be familiar with the area. I don't think this will be an outpost by any stretch of the imagination. But I'm also not going to refer to it as a hub-and-spoke type operation either because I don't think you're going to see 6 or 7 offices around it. But there's going to be some additional support that's going to be added over a period of time, but we're very selective with that. What really drove this rather quickly was the availability of the space right in the downtown area in the center of the financial district. And that space was just too attractive for us to pass up. We can fill around it with a 1 or 2 locations over a period of time. There's nothing immediately on the drawing board right now.

And just one further question about that. Who would you say is your top 2 or 3 direct loan competitors in that market, as well as deposits?

The usual suspects.

Yes. I mean, investors have done very well on the deposit side there in the recent month -- in the recent years. But you got the TDs, the Wells, and Banks of America, so everybody's in that pond.

[Operator Instructions] I'm showing no additional questions in the queue. This will conclude our question-and-answer session. I would like to turn the conference back over to John Garbarino for his closing remarks.

Thank you, Denise and, again, once again, I'll just thank everyone for their interest this morning as we finish up what we view as a pretty solid successful third quarter. And we look forward to speaking to you again early in 2013. Thanks again for your interest.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.