OceanFirst Financial Corp. (OCFC) Q4 2012 Earnings Report, Transcript and Summary

Good morning and welcome to the OceanFirst Financial Corp. Earnings Conference Call and Webcast. [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 statements disclosure. On this call, representatives of OceanFirst may make forward-looking statements with respect to its financial conditions, 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, 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 Discussion and Analysis of Financial Condition and Results of Operations set forth in OceanFirst's filings with the SEC. Thank you. 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 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 and number. So if any of you had to scramble last minute to go back and look at the earlier press release to 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 the 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 29th 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 for 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 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 want 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. First, 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 seemed 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 21st 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 a 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 effect 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 discharge, 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 reverse course and expanded from 3.28% to 3.29%. Gain on sale, however, adversely impacted our non-interest 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 2 one-time considerations mentioned in our 8-K filing of December 21. As John has 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 our borrowers affected by Sandy. On the commercial side, there are 3 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, 6 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 hardship created by the storm. These loans totaled $28.8 million. Just over 2/3 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 serviced 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 4 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 and 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's been no appreciable change as the bank acquired title to only 3 properties in the quarter. The New Jersey foreclosure window still remains at approximately 3 years barring major complications, a fact that continues to hamper improvement in the residential nonperforming category. Turning to the reserve for repurchase loans, we also provided an additional $400,000 this quarter for loan repurchases. This was driven by the receipt of 2 repurchase requests, the repurchase of one loan with a bank charge of $252,000 and a satisfactory resolution at no cost of another request. Recapping the full year's repurchase activity, there were 4 requests outstanding on January 1, 2012. 18 requests were received, 9 requests were resolved at no cost and only 1 loan was repurchased. This leaves 12 requests outstanding with a principal balance of $3.6 million. Of these 12 requests, 3 are from the GSEs and 9 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 1 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 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 the 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 of the resilience of our Central Jersey Shore neighbors. As we enter 2013, we remain focused on restoring the pattern of growth to our revenue and earnings, building additional value for our shareholders' investment. With that, Mr. Fitzpatrick, Iantosca and I would be pleased to take your questions this morning.

[Operator Instructions] Our first question comes from Frank Schiraldi of Sandler O'Neill.

I just had a few questions. First, just on the storm and then 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?

Joe will adjust the mechanics of that for you, Frank.

Frank, it's just the calendar. What we have 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's not up yet. So they weren't scheduled to be contacted again.

Our initial reaction, when we were really in 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 2 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 4 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 with what the borrower says and then taking it from there?

Depending upon the standard damage, generally we've gotten photos of almost everybody, if not everybody. I just don't want to be blatant and say everybody because I haven't seen them all. Or if the damage was heavy, there would've been an inspection. So it really depended on the level of damage. But there's 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 flowed 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 back up quite a bit. Most of that was not because we haven't been making loans but there were 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've shrunk, I guess, 2 basis points for the quarter.

And that's moderated, Frank. As you know, it's been compressing 5 or 6 basis points over the last year, 1.5 year. So even with that, the prepayment penalty is 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 last year, is that the margin's going to come under pressure and it'll 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 in contraction this quarter, excluding the prepayment penalty, do you think that's something that you can 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, it's hard to predict because it's also depending not only on our loan growth, our ability to grow loans, but that is also obviously depends on prepayment speeds which were very heavy-oil last year because of the refinance activity. So to the extent that those speeds kind of slowdown, then that will keep the compression at the low end of the range.

And then just finally, just wanted to ask on mortgage Banking. I mean, given the obvious impact from Sandy, 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 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 and they're no longer there, and that's not good business, as you know. So those closings will never occur unless someone comes about rebuilding and turns itself back into a construction loan. But some of that has departed. Most of what was delayed in November 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 3 months ago.

Our next question is from Travis Lan of Stifel Nicolaus.

Just starting out on margin. Was there any promotion, Mike, that may be expired in the quarter or another specific item that would've contributed to the improvement in the transaction deposit cost in the quarter?

No. I think we've been focusing on trying to reduce some of the cost 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 part of our portfolio anyway.

We did have one very large relationship that exited, that was a multimillion dollar relationship in our premium money market product, that exited that was earning a premium rate. 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 were some parked funds that because the premium rate expired, the money disappeared.

Got you, okay. 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 you had any perspective on how that could impact out of your business or kind of competitive landscape? Just any quick thoughts if you did have the time to think about it.

Yes, we're monitoring that, clearly. 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 other over time 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 it, as you pointed out, over time, with personal time allocated to employees, with the use of generators, we had generators shipped in from out of state. That was a 6-figure adjustment. I believe it was $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 it's not terribly material, or terribly significant. But you're absolutely right. There was some ancillary expense that crept into the quarter.

The $122,000 out-of-pocket, Travis, that we spent for various items. And then there were some subtle costs with personnel that are less clear. But -- so that will roll out with 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 the $1.8 million comprehensively?

We've extrapolated what we know to those 37 borrowers, and we don't think that there'll be any big surprises the second time around with those. We just gave them 45 days to get their life together. 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 about the portfolio because we haven't spoken to all 8,000 borrowers. And we think that, that's going to not 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.

In other words Travis, the $1.8 million is intended to capture all losses related to Sandy. In the pool of -- 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 several thousand 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 guys should be commended for the job that you did in your community and also in your transparency with us. Last question I have is just if you could update us on the 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 opened the early part of this year. Sometime before the summer, for sure.

And the next question is from Damon DelMonte of KBW.

Just wondering if you could give an update on has any rebuilding efforts started to take place along the shoreline? I know the...

Oh, absolutely. 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 have 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 islands still is 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 drive through and also on the mainland. So it's remarkable, the recovery that's been undertaken. Nevertheless, as our good governor points out, it would be foolish to expect that everything's 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 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 a 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've made to the recovery effort, I think we stand in the forefront of helping lead that recovery for the local area.

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

I think we got a couple of CDs left but there's not a heck of a lot there. Mike is just taking a look at the -- as we speak, he's 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 capabilities is likewise not all that significant.

Yes, let's see. There's about $70 million repricing in the first quarter, $30 million in the second quarter and another $38 million in the last 6 months of the year. That's the repricing for 2013. But I don't see -- a lot of this is -- I'm looking at 59 basis points, 52, 56, 81, 76. I don't see a lot of chance for repricing. Most to everything that's repricing is below 1. The average of what's repricing is below 1.

[Operator Instructions] And our next question comes from Matthew Breese of Sterne Agee.

Going back to the commercial real estate borrowers, the 3 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 these properties, cash flowing, and they're paying off of that?

No, they're out of pocket. Let me give you some -- they're well-known to us. So one 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 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 is significant oceanfront property and there's also significant parking lot property, nearly 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 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?

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 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 6 C&I borrowers?

I'm sorry, the?

The additional C&I borrowers that...

C&I, no, I'm saying that's the commercial side. I'm not just referring that as commercial real estate. I'm saying the C&I borrowers, all our 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 provision in that 1.3, 1.4?

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, we could be eating those words 3 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? I heard one of your competitors say that houses with significant damage, 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 these 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. Their 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 are 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 lowered dramatically and the flood insurance is now on basically a market basis since the middle of last year. That was a bill that was signed I believe into law midyear 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 rumors. 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. 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 in 2013, do you guys foresee some time later this year a reversal in the declines in loan 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've been very, very disciplined in terms of our pricing and, certainly, maybe more importantly, in our underwriting. And we are 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 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 summer seasons or now throughout the year?

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 it's 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 buyback, specifically. With the 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, we will -- 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 with the very ready purchases 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 starting next week, we expect to be back in the market at these levels.

[Operator Instructions] And this will conclude our question-and-answer session. I would like to turn the conference back over to John Garber -- Garbarino, I'm sorry, for closing remarks.

That's quite all right, Laura, you're not the first one to do that. I thank you all, again, for joining us this morning. We're happy we're able to bring some clarity regarding 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 3 months. Thanks again for your interest.

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