Q1 2024 OceanFirst Financial Corp Earnings Call
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Victoria: Good morning. Thank you for attending the OceanFirst Financial first quarter 2024 earnings release. My name is Victoria, and I'll be your moderator today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end.
Victoria: Good morning. Thank you for attending the Ocean first financial first quarter 2024 earnings release, My name is Victoria and I'll be your moderator today, all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you'd like to ask a question. Please press star followed by one on your toes.
Victoria: If you would like to ask a question, please press star followed by one on your cell phone keypad. I would now like to pass the conference over to your host, Alfred Goon, with OceanFirst Financial. Thank you. You may proceed, Alfred.
Victoria: Phone keypad.
Victoria: Alex that's the conference over to your host Alpha again with Ocean first financial. Thank you you May proceed Alfred.
Alfred Goon: Thank you very much. Good morning, and welcome to the OceanFirst First Quarter 2024 Earnings Call. I am Alfred Goon, SVP of Corporate Development and Investor Relations. Before we kick off the call, we'd like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company website, oceanfirst.com. Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures. All participants should refer to our SEC filings, including those found on our Forms 8K, 10Q, and 10K for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements. Thank you, and now I will turn the call over to Christopher Maher, Chairman and Chief Executive Officer.
Alfred: Thank you very much good morning, and welcome to the Ocean <unk> first quarter 2024 earnings call I'm, all for <unk> SVP of corporate development and Investor Relations before we kick off the call we'd like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company web site <unk> Dot com.
Our remarks today may contain forward looking statements and may refer to non-GAAP financial measures all participants to refer to our SEC filings, including those found on our forms 8-K, 10-Q and 10-K.
Alfred: For a complete discussion of forward looking statements and any factors that could cause actual results to differ from those statements.
Alfred: And I will now I will turn the call over to Christopher Maher, Chairman and Chief Executive Officer.
Christopher D. Maher: Thank you, Alfred. Good morning, and thank you to all who have been able to join our first quarter of 2024 earnings conference call. This morning I'm joined by our President, Joe Lebel, and our Chief Financial Officer, Pat Barrett. We appreciate your interest in our performance and this opportunity to discuss our results with you. This morning we'll provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business. We may refer to the slides filed in connection with the earnings release throughout the call. After our discussion, we look forward to taking your questions.
Christopher D. Maher: Thank you Alison good morning, and thank you to all been able to join our first quarter of 2024 earnings Conference call.
Christopher D. Maher: I'm joined by our President Joe Labelle.
Christopher D. Maher: Chief Financial Officer, Pat Barrett.
Christopher D. Maher: We appreciate your interest in our performance and this opportunity to discuss our results with you.
Joseph J. Lebel: This morning, we'll provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business.
Joseph J. Lebel: We may refer to the slides filed in connection with the earnings release throughout the call.
Joseph J. Lebel: After our discussion we look forward to taking your questions.
Christopher D. Maher: Our financial results for the first quarter include a GAP diluted earnings per share of $0.47. Our earnings reflect net interest income of $86 million, representing a modest decrease compared to the prior-linked quarter of $88 million. Operating expenses decreased to $59 million.
Joseph J. Lebel: Our financial results for the first quarter included GAAP diluted earnings per share of <unk> 47.
Joseph J. Lebel: Our earnings reflect net interest income of $86 million representing.
Joseph J. Lebel: Representing a modest decrease compared to the prior linked quarter of $88 million operating expenses decreased to $59 million.
Christopher D. Maher: First quarter results demonstrated a stable quarter for margins as our core net interest margin was flat at 2.77%, the same level as the prior quarter. However, profits were impacted by our continuing efforts to improve the quality of deposit funding. These efforts resulted in another quarter of decline in brokered CDs, a loan-to-deposit ratio below 100 percent, and a negligible increase in deposit betas to 40 percent. We continue to see a gradual shift in deposit mix towards higher-yielding products, but that velocity is slowing and is now largely offset by the ongoing repricing of our loan and securities portfolio.
Joseph J. Lebel: First quarter results demonstrated a stable quarter for margins as our core net interest margin was flat at $2, 77% the same level as the prior quarter.
Joseph J. Lebel: Margins were impacted by our continuing efforts to improve the quality of deposit funding. These efforts resulted in another quarter of decline in brokerage Cds.
Joseph J. Lebel: Loan to deposit ratio below 100% and a negligible increase in deposit betas to 40%.
Joseph J. Lebel: We continued to see a gradual shift in deposit mix towards higher yielding products, but that velocity is slowing and is now largely offset by the ongoing repricing of our loan and securities portfolios.
Christopher D. Maher: Capital levels continue to build, with our common equity tier one capital ratio increasing to 11%, and continued growth in tangible book value, which increased by 28 cents, or 1.5%, to $18.63. These results include nearly 1 million shares repurchased under the company's repurchase program at a weighted average cost of $15.64. Further on capital management, the board has approved a quarterly cash dividend of $0.20 per common share. This is the company's 109th consecutive quarterly cash dividend and represents 43% of GAAP earnings.
Joseph J. Lebel: Capital levels continued to build with our common equity tier one capital ratio, increasing to 11% and continued growth in tangible book value, which increased by 28 or one 5% to $18 63.
Joseph J. Lebel: These results include nearly 1 million shares repurchased under the Companys repurchase program at a weighted average cost of $15 64.
Joseph J. Lebel: Further on capital management. The board has approved a quarterly cash dividend of <unk> 20 per common share.
Joseph J. Lebel: This was the company's 109th consecutive quarterly cash dividend represents a 43% of GAAP earnings.
Christopher D. Maher: We continue to remain focused on positioning the company for a variety of economic and industry outlooks through responsible growth, Expense Discipline, and Prudent Balance Sheet Management. At this point, I'll turn the call over to Joe to provide some more detail regarding our performance during the first quarter.
Joseph J. Lebel: We continue to remain focused on positioning the company for a variety of economic and industry outlooks through responsible growth expense discipline and prudent balance sheet management at this point I'll turn the call over to Joe to provide some more detail regarding our performance during the first quarter.
Joseph J. Lebel: Thanks, Chris. Non-maturity deposits remain relatively stable, decreasing approximately 1% compared to the prior quarter. Overall, the deposit balance has declined by approximately 2%, reflecting our planned continued runoff of brokered CDs, and a decline in high-yield savings balance is driven by targeted refinements to both marketing efforts and rates offered. On the loan origination side, we saw a modest decline in loan balances of less than 1%, driven by reduced demand from customers combined with price and credit discipline.
Thanks, Chris.
Joseph J. Lebel: Non maturity deposits remained relatively stable decreasing approximately 1% compared to the prior quarter overall deposit balances declined by approximately 2%.
Joseph J. Lebel: Reflecting our planned continued run off of brokered Cds and a decline in high yield savings balances driven by targeted refinements to both marketing efforts and rates offered.
Joseph J. Lebel: On the loan origination side, we saw a modest decline in loan balances of less than 1% driven by reduced demand from customers combined with price and credit discipline.
Joseph J. Lebel: Given the slow start of the year, growth in loans and deposits may be modest for the remainder of 2024. Growth is expected to be lower in Q2, but pick up in the second half of the year. Said another way, we expect our 2024 year-end loan balances to be higher than 2023, by low to mid single digits, with the majority of the growth coming in the third and fourth quarters. Asset quality metrics remain strong, with non-performing loans and criticized and classified assets representing 0.35% and 1.65% of total loans, respectively. We reported 0.01% in net charge-offs, the average total loans for the quarter, which marks essentially no net charge-offs in 11 of the last 12 quarters. With that, I'll turn it over to Pat.
Joseph J. Lebel: Given the slow start to the year growth in loans and deposits may be modest for the remainder of 2024.
Joseph J. Lebel: This is expected to be lower in Q2, but ramp up in the second half of the year.
Joseph J. Lebel: Said another way, we expect our 2024 year end loan balances to be higher than 2023.
Joseph J. Lebel: By low to mid single digits.
Joseph J. Lebel: Majority of the growth coming in the third and fourth quarters.
Joseph J. Lebel: Asset quality metrics remained strong with nonperforming loans and criticized and classified assets, representing three 5% and 165% of total loans respectively.
Joseph J. Lebel: We reported 0.0% to 1% and net charge offs to average total loans for the quarter, which marks essentially no net charge offs in 11 of the last 12 quarters.
Joseph J. Lebel: That I will turn it over to Pat to review margin and expense outlook.
Patrick S. Barrett: Gap net interest income and margin were $86 million and 2.81%, respectively. Reflecting the continued repricing of assets offset by the higher interest expense from a continued modest, Transcription by Trans-Expert at Fiverr.com As Chris noted, funding costs for FLEX cycles have hit positive betas, 40 percent, up modestly from 38 percent in the prior quarter. While initial signs show relative stabilization and net interest margin, this is subject to unpredictability around loan growth and funding mixed trends, so you shouldn't be surprised to see either stability or possibly some modest compression in the near term.
Patrick S. Barrett: Thanks, Joe.
Net interest income and margin were $86 million and $2 eight 1% respectively.
Patrick S. Barrett: Reflecting the continued repricing repricing of assets offset by the higher interest expense from a continued modest mix shift in funding.
Patrick S. Barrett: As Chris noted funding costs reflect cycle deposit beta is 40% up modestly from 38% in the prior quarter.
Patrick S. Barrett: While initial signs show relative stabilization and net interest margin.
Patrick S. Barrett: This is subject to unpredictability around loan growth and funding mix trends. So you shouldnt be surprised to see either stability or possibly some modest compression.
Patrick S. Barrett: In the near term.
Patrick S. Barrett: Non-interest expenses decreased by $59 million in the linked quarter. We continue to make every effort to hold operating expenses stable in the $58 to $60 million per quarter range, but modest quarterly volatility may occur. Our effective tax rate for the quarter of 27% included a one-time non-recurring charge of $1.2 million. Excluding this charge, the full year effective tax rate is expected to remain at 24%, in line with prior periods and guidance. Finally, as Chris mentioned earlier, capital strengthened appreciably with growth in our CET1 ratio to 11%. We're pleased to report capital accretion even while repurchasing 958,000 shares for approximately $15 million during the quarter. At this point, the question and answer portion of the call will begin.
Patrick S. Barrett: Noninterest expenses decreased linked quarter to $59 million, we continue to make every effort to hold operating expenses stable in the $58 million to $60 million per quarter range.
Patrick S. Barrett: Modest quarterly volatility may occur.
Our effective tax rate for the quarter of 27% included a onetime nonrecurring charge of $1 2 million. Excluding this charge the full year effective tax rate is expected to remain at 24% inline with prior periods and guidance.
Finally, as Chris mentioned earlier capital strengthened appreciably with growth and our CET one ratio to 11%.
Speaker Change: And we're pleased to report the capital accretion, even while repurchasing 958000 shares.
Speaker Change: For approximately $15 million during the quarter.
Speaker Change: This plant will begin the question and answer portion of the call.
Victoria: Of course. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If, for any reason, you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. Our first question comes from the line of Frank Schiraldi with Piper Sandler. Your line is now open.
Speaker Change: Of course, we don't.
Speaker Change: I'll now begin the question and answer session.
Speaker Change: Like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: I would like to remove that question. Please press star followed by two.
Speaker Change: Again to ask a question press star one.
Speaker Change: As a reminder, if you are using a speaker phone. Please remember go pick up your handset before asking a question we'll pause.
Speaker Change: You briefly ask questions are registered.
Speaker Change: Our first question comes from the line of Frank <unk> with Piper Sandler your.
Frank: Your line is now open.
Frank Joseph Schiraldi: Frank, I just wanted to ask about the I believe in the slide deck to talk about the CT1 ratio remaining above 10%, and obviously, it's well above there now at 11%. And, you know, thinking about some modest growth in the back half of 2024 seems like you could, If you wanted to even return, I get 100% plus of earnings through a buyback. So I'm just trying to get a sense of, you know, when you talk about getting to that, or that 10% threshold, how aggressive you could be on capital return stock at these levels. And, and, you know, your thoughts about capital, I guess, over the next medium-term here.
Frank: Good morning.
Frank: Frank.
Yes.
How about the.
Frank: And I believe in the slide deck, you talk about the CET, one ratio remaining above 10% and obviously, it's well above their now at 11%.
And thinking about some modest growth in the back half of 2024, it seems like you could.
Speaker Change: If you want to do even.
Speaker Change: Return.
Speaker Change: Hundred percent plus of earnings.
Through a buyback so I'm just trying to get a sense of when you talk about.
Or that 10% threshold, how aggressive you could be on capital return stock at these levels.
Speaker Change: And.
Speaker Change: And yes your thoughts about.
Speaker Change: Capital I guess over the next.
John: Yes, John here.
Christopher D. Maher: Frank, it's Chris. Look, we're very comfortable with where we are in the capital ratios today. I think we have a little bit of room, but we also anticipate returning to growth. So we don't want to use up any of that excess capital that we might want later in the year for growth. I think, like you saw in the first quarter, if you just think about it this way, we're not using repurchases to increase our leverage.
Chris: Hey, Frank its Chris.
Chris: Look we're very comfortable with where we are in the capital ratios today I think we have a little bit of room, but we also anticipate returning to growth. So we don't want to we don't want to use up any of that excess capital that we might want later in the year for growth I think like you saw in the first quarter. If you just think about it this way, we're not using repurchases to increase our leverage.
Chris: We're using all of the free cash flow that we're not using for growth to fund repurchases and if pricing remains around this level I would expect that to continue.
Got it okay. I appreciate that and then as you think about growth in the back half of this year.
Chris: And maybe beyond just curious any targets.
Christopher D. Maher: Okay, appreciate that. And then as you think about growth in the back half of this year, and maybe beyond just curious, any,
Chris: Terms of.
Chris: About commercial real estate.
Situation, if you could just.
Christopher D. Maher: So, Frank, I think the way to think about it is that we're comfortable with our CRE exposure today, but we will not be increasing it. So what we're doing is, as loans mature, in some cases, we're allowing those, depending on the credit structure, to move off the balance sheet and replacing them with other borrowers. But that's kind of a treading water position, so most of the growth you're going to see is in classes outside of CRE. So that's kind of the right way to think about it.
Chris: Remind us where that is currently.
Chris: Capital and any sort of thoughts about trend there going forward.
Speaker Change: So Frank I think the way to think about it is that we're comfortable with our CRE exposure today, but.
Speaker Change: But we will not be increasing it so what we're doing is as loans mature.
Speaker Change: Some cases, we're allowing those depending on the credit structure to move off the balance sheet and replacing them with other borrowers.
Speaker Change: But thats kind of treading water position. So most of the growth youre going to see is in classes outside of CRE.
Speaker Change: So that's kind of the right way to think about it.
Frank Joseph Schiraldi: Okay. And just finally, obviously, Office has been a focus of investors, and I know you don't have much in the central business districts, but I wondered if you could maybe just spend a second or two on your larger loans. You know, I believe that, Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES
Speaker Change: Okay, and then just finally, obviously.
Speaker Change: Office has been a.
Speaker Change: Focus of investors.
I know you don't have much in the central business districts.
Speaker Change: I'm wondering if you could maybe just spend a second or two on.
Speaker Change: Your larger loans.
Speaker Change: Leave that.
Speaker Change: Average taken as an average.
Speaker Change: $1 million to $2 million.
Size, but if you could just spend a second on maybe on your on your larger loans.
Christopher D. Maher: Frank, I'll give you a couple of thoughts and then I'll have Joe walk you through some of the numbers. First, as we've talked before, our exposure in the central business district is quite low, and all the credits that we feel very comfortable with. So we've been through that book.
Speaker Change: How they are performing in the geographies there. Thanks.
Frank I'll give you a couple of thoughts and then I'll have Joe walk you through some of the numbers.
Frank: First as we've talked before our exposure in central business District is quite low.
Frank: And all credits that we feel very comfortable with so we've been through that book.
Christopher D. Maher: One important note, I've shared this with a number of folks, you know, our exposure in the central business district in Manhattan, for example, totals just $16 million on the balance sheet. We're talking about very low numbers. The vast majority of the portfolio is suburban office and in smaller loans. Joe, maybe walk through some of the stats you have that might be helpful. I'll just give you a couple, Frank.
Frank: One important note I've shared this with a number of folks.
Frank: Exposure in Central business District.
Frank: Hatton for example, totals just $16 million and the balance sheet, where we're talking about very low numbers.
Frank: Vast majority of the portfolio is suburban office and in smaller sized loans, but Joe maybe walk through some of the other.
Joseph J. Lebel: The stats you have that might be helpful.
Joseph J. Lebel: I'll just give you a couple, Frank. So about 87% of the loans are under 10, and the weighted average size of those loans is about 1.8 million. And we only have nine loans over $25 million in a portfolio, and that includes a loan I think we've been pretty transparent about in the CBD book, which is a very well-known national pharmaceutical company and another very well-known confectionery company where it's their U.S. headquarters.
Joseph J. Lebel: I'll just give you a couple of Frank So we have about 87% of the loans or are under 10 and actually the weighted average size of those loans is about $1 8 million and we.
Joseph J. Lebel: We only have nine loans over $25 million in the in our portfolio.
Joseph J. Lebel: That includes alone I think we've been pretty transparent about in the CBD book, which is a very well known national pharmaceutical company.
Joseph J. Lebel: And another very well known.
Joseph J. Lebel: Confectionery company words there.
Joseph J. Lebel: So we're pretty confident, pretty positive. Another very large loan is the headquarters of one of the big four banks, a regional headquarters of one of the big four banks in the country. So that's three of the nine larger loans over $25 million.
Joseph J. Lebel: U S headquarter, so we're pretty confident and pretty positive.
Joseph J. Lebel: The another very large loan is.
Joseph J. Lebel: As a.
Joseph J. Lebel: Headquarters of one of the Big four banks regional headquarters in one of the big four banks in the country. So that's it.
Joseph J. Lebel: Three the three of the nine larger loans over $25 million.
Christopher D. Maher: Okay, and I guess if we're thinking about central business, forgive me, I forget exactly what you have total, but is that, you know, kind of the book you look at when you have stuff over 25 million is kind of the CBB stuff?
Joseph J. Lebel: Okay, and I guess as we're thinking about the central business District.
Speaker Change: Forgive me I forgot exactly what you have total but does that.
Speaker Change: Kind of the book you look at stuff over $25 million is kind of the CBD stuff.
Christopher D. Maher: There's a correlation there. Certainly, the larger stuff tends to be in CBDs, where you'd see bigger buildings, but the entirety of the CBD book is about $125 million, and each of the loans that Joe mentioned is part of that. They just happen to be in CBDs.
Speaker Change: There is a correlation there is certainly the largest stuff tends to be in CBD is where you'd see bigger buildings, but.
The entirety of the CVD book is about $125 million.
Speaker Change: And each of the loans that Joe mentioned as part of that they all happen to be in CBD.
Frank Joseph Schiraldi: Sure. Okay. I appreciate it. Thanks.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Thanks.
Victoria: Thank you for your question. Our next question comes from the line of Tim Switzer with KBW. Your line is now open.
Speaker Change: Thanks, Greg. Thank you for your question.
Speaker Change: Our next question comes from the line of Tim Switzer with K B W.
Tim Switzer: Your line is now open.
Tim Switzer: Hey, good morning. Thanks for taking my question. Good morning, Tim.
Tim Switzer: Hey, good morning, Thanks for taking my question.
Tim Switzer: Hey, Tim.
Tim Switzer: I wanted to follow up on your comments about the loan demand you've seen recently and you know a little bit less demand from customers. Do you think part of that is driven by an expectation for rates to be lower by the end of the year and so they're maybe waiting for that, or is it macro-related fears? Could you maybe just provide some color around the lower demand?
Tim Switzer: I wanted to follow up on your comments about the loan demand <unk> seen recently and a little bit less demand from customers.
Tim Switzer: Do you think part of that is driven by an expectation.
Tim Switzer: Our rates to be lower by the end of the year and so there may be waiting for that or is that.
Macro related fears could you maybe just provide some color around the lower demand.
Joseph J. Lebel: Hey Tim, it's Joe. I would tell you that was absolutely the case early in the year, January, February. I think people were looking for some relief before taking on either an M&A transaction, a new business line, maybe some, you know, capital expenditure purchases. But we're seeing that moderate. I think people are coming to the realization that that may not necessarily be the case. The other thing that we're seeing is that we're seeing a little bit more renewed confidence.
Tim Switzer: Yes, Tim It's Joe I would tell you that was absolutely. The case early in the year January February I think people were looking for some relief before taking on either an M&A transaction.
Tim Switzer: The new business line, maybe some capital expenditure purchases, but we're seeing that.
Moderate I think people are coming to that realization.
Tim Switzer: That may not necessarily be the case. The other thing that we're seeing is that we're seeing a little bit more renewed confidence people who've been able to pass along.
Joseph J. Lebel: People have been able to pass along increases in some product costs. We're seeing that obviously in inflation. So we've seen, subsequent to the quarter end, a little bit of an increase in pipelines. So we're seeing those green shoots start, which is positive for us. And I think, as Chris mentioned earlier, the vast majority of the increase in the pipe is coming from the CNI book, which is really where we've been focused.
Tim Switzer: Increases in some of the product costs, we're seeing that obviously inflation so.
Tim Switzer: We've seen subsequent to quarter end, a little bit of an increase in pipelines. So we're seeing those green shoots start which is a positive for us and I think as Chris mentioned early earlier the vast majority of the increase in the pipe is coming from the C&I book, which is which is really where we've been focused.
Christopher D. Maher: Okay, got it. And could you remind us or update us on what you guys believe the impact of rate cuts would be in the back half of the year on the NII, and you know, particularly if we only get, say, one or two rate cuts, how would that be different than if we got, say, you know, a series of five to six?
Speaker Change: Okay got it and could you remind us.
Speaker Change: Or update us on what you guys believe the impact of rate cuts would be in the back half of the year to the NII.
Speaker Change: And particularly.
Speaker Change: If we only get a one or two rate cuts how would that be different than if we got say a series of five to six.
Christopher D. Maher: First, it's Chris, and Pat will probably chime in as well, but I give you just a sense that whether it's an incremental cut up or even down, so I think we're looking and thinking about it both ways these days, doesn't make a big change. So we have a relatively stable outlook regardless of whether it's two cuts or even one raise, right, those kinds of scenarios. So it's not going to be
Speaker Change: First I'd say, it's Chris and pattern will probably chime in as well but.
Chris: Just a sense that whether its the incremental cut upward we're even down so I think we're looking at thinking about it both ways. These days.
Chris: Does it make a big change so were relatively stable outlook, regardless of whether it's.
Chris: Two cuts or even one race right those kinds of scenarios. So it's not it's not going to be a big impact. We do have a significant amount of loans that are maturing contractually maturing.
Christopher D. Maher: We do have a significant amount of loans that are maturing, contractually maturing, in the last three quarters of the year. And I think one of the ways we're thinking about hiring for longer is some things we know for certain and some things we're just going to have to see play out. But on the certainty side, we know what's rolling. You know, we've got about $700 million worth of loans rolling, fixed-rate loans that are contractually hitting their maturity in Q2, 3, and 4, or their reset. So as a result, that $700 million is going to come from where it is today. That's a significant opportunity.
Chris: In the last three quarters of the year.
Chris: One of the ways, we're thinking about higher for longer.
Chris: Some things we know for certain and some things, we're just going to have to see play out but on the certainty side. We know what's rolling we've got about $700 million worth of loans rolling.
Fixed rate loans that are contractually hitting their maturity in Q2, three and four.
Chris: The reset.
Chris: So as a result of that $700 million is going to come up from where it is today, that's a significant opportunity.
Christopher D. Maher: On the other hand, there will be lingering deposit pressure. I mean, it's abating, but it's very hard to say exactly how that will look as the year goes on. So higher for longer doesn't concern us particularly. And, you know, one or two cuts or one raise doesn't change the outlook much either. So it's a relatively stable outlook. I've never eaten out of that. No, I guess I'll just...
Chris: On the other hand, there will be a lingering deposit pressure abating, but it's very hard to say exactly how that will look as the year goes on so higher for longer doesn't concern us, particularly.
And one or two cuts or one raise doesn't change the outlook much either so its a relatively stable outlook for us.
Add to that.
Speaker Change: No I guess I would just.
Patrick S. Barrett: Yes, I would just emphasize that the whole uncertainty factor that we're really looking at is around the non-maturity deposit funding side. So on the term side, on the loan side entirely, the securities book entirely, and DDs and other term funding, we've got a pretty high level of confidence. It's just the unpredictability of the behavior of depositors in the interest-bearing space and the non-interest-bea
Speaker Change: Yes.
Speaker Change: Just to emphasize that the whole uncertainty factor and we're really looking at is around.
Speaker Change: Non maturity deposit funding side.
On the <unk> side on the loan side entirely the securities book entirely.
Speaker Change: DDS and other term funding, we've got pretty high level of confidence is just the unpredictability of behavior of depositors in the interest bearing space noninterest bearing space that has proven really difficult for us to predict.
Tim Switzer: That has proven really difficult for us to predict, and it's hard to see that confidence level building in the near term. I think we're just going to have to see some trends develop before we have better confidence. And that's why you see our wording on our outlet for NIMS, be pretty cautious around stable, but it might be a little compressed. I could have said that it might even expand a little bit, but I'm just a naturally cautious guy, so. Okay, I got it. That was
Speaker Change: It's hard to see that confidence level building in the near term I think the disconnect trends.
Speaker Change: Before we have better confidence and Thats why you see our wording on our outlook for NIM.
Speaker Change: Be pretty cautious around stable it might be a little compressing I could have said that it might even expand a little bit.
Speaker Change: Just a naturally cautious guidance.
Okay got it that was all really helpful. One last question could you remind us what percent of your loans are.
Victoria: Okay, got it. That was all really helpful. One last question. Could you remind us what percent of your loans are repriced immediately or floating rate?
Speaker Change: Repriced.
Speaker Change: Immediately are floating rate.
Speaker Change: About 30%.
Speaker Change: Great. Thank you.
Speaker Change: Yeah.
Daniel Tamayo: Thank you for your question. The next question comes from the line of Daniel Tamayo with Raymond James. Your line is now open.
Speaker Change: Thank you for your question.
Speaker Change: The next question comes from the line of Daniel Tamayo with Raymond James.
Daniel Tamayo: Your line is now open.
Daniel Tamayo: Hey, good morning, guys.
Daniel Tamayo: Morning. Hey, I appreciate the guidance on the range for expenses in the $58 to $60 million per quarter through the year. I was hoping that we could get a finer point on maybe the cadence of expense growth. Does it just kind of imply volatility each quarter through that $58 to $60 million range, or should we kind of expect a little bit of a ramp-up as we go through the year here?
Daniel Tamayo: Good morning.
Daniel Tamayo: Right.
Daniel Tamayo: Hey, I appreciate the guidance on the range for expenses in the $58 million to $60 million per quarter through the year.
Speaker Change: Hoping that we can get a finer point on maybe the cadence of expense growth does it just kind of implied volatility each quarter through that $58 million to $60 million range or should we kind of expect a little bit of a ramp up.
Christopher D. Maher: No, I think you should expect it to be flat throughout the year, but it could bounce around a little bit. You do have some volatility, but we're going to work really hard to keep it below 59. We put the range out there so that you can do the math and come up with 59, which is a pretty good average estimate, but you should expect that it's the one thing every day that we know that we can control, and it's not up to customer behavior.
Speaker Change: As we go through the year here.
Speaker Change: No I think you should expect it to be flat throughout the year, but it could bounce around a little bit you. Just you do have some volatility, but we're going to work really hard to keep it below 59.
Speaker Change: So we put the range out there. So that you can do the math and come up with 59, which is a pretty good average estimate but you should expect that's the one thing everyday that we know that we can control is not up to customer behavior.
Christopher D. Maher: And then maybe additionally, you know, are there any timing for any additional initiatives that you guys are working through that are implemented through the year?
Speaker Change: And then maybe additionally, there are there any timing of any additional initiatives that you guys are working through there are implemented through the year.
Christopher D. Maher: The only thing that we would anticipate doing over the course of the year is we always hire good talent when we find it in the markets. So if we find good talent, good commercial bankers, we're going to hire them.
Speaker Change: Let me just I mean, the only thing that we would anticipate doing over the course of the year as we always hire good talent when we find it in the markets. So.
Speaker Change: If we find good talent good commercial bankers, we're going to hire them.
Christopher D. Maher: We have some room in the budget to do that. We have other expenses that are coming down, so if we're hiring our typical pattern of a few people every quarter, we can hold expenses right where they are. If we find an opportunity to do something better than that, then we'll change our expense guidance and let you know. But that would be, in our view, a very positive outcome. So any volatility, any significant volatility in expenses, would be linked to something that we think would be good.
Speaker Change: We have some room in the budget to do that we have other expenses that are coming down. So if we're hiring our typical pattern of a few people every quarter.
We can hold expenses right, where they are if we find an opportunity to do something better than that then we'll change our expense guidance and let you know.
Speaker Change: But that would be our view a very positive outcome. So any volatility any significant volatility in expenses would be linked to something that we think would be good news.
Daniel Tamayo: Chris and then maybe lastly just looking kind of at the felines here you know kind of looking stripping out the noise of some of the equity gains and the trust sale you know taking out maybe the holy game during the quarter we kind of just apply a run rate a little bit under nine million there and kind of what the main variance being a little bit you know lighter service charge that we were looking for is that kind of nine million dollar level kind of fair to look at run rate going forward or is there kind of you know maybe some seasonality or one times things service charges that may boost that going forward
Speaker Change: Chris and then maybe lastly, just looking kind of at the fee lines here kind of look and strip out the noise of some equity gains in the trust sale taken out maybe the full week during the quarter, we kind of just imply a run rate a little bit under $9 billion, there and kind of what the main variance pedal a bit.
Speaker Change: Lighter service charges that we were looking for is that kind of $9 million level kind of fair to look at run rate going forward or is there kind of maybe some seasonality or what types of things.
Speaker Change: <unk> charges that may boost that going forward.
Christopher D. Maher: Seasonality would not play a significant role, but I'm always cautious on this line given public policy around fees. And, you know, I would expect that as we continue the dialogue over which fees are more or less responsible than others, you could have some, you know, some vulnerability there to fees we may decide to change to make sure we're in line with the current regulatory framework. But seasonality wouldn't come into it.
Chris: It is seasonality would not play a significant role, but I'm always cautious on this line given public policy around fees.
Chris: And I would expect that as we continued the dialogue over which fees are more or less responsible than others. You could have some some vulnerability there to fees. We may decide to change to make sure. We're in line with the current regulatory thinking but.
Chris: But seasonality wouldn't come into it this is really just kind of.
Daniel Tamayo: This is really just kind of listening to the, you know, our regulators and to their views on different fee lines may cause us to reexamine fees in the next few questions.
Chris: Listening to the.
Our regulators into their views on different fee lines may cause us to reexamine fees in the next few quarters.
Daniel Tamayo: Thanks for the color, guys.
Chris: Okay.
Chris: Ed Thanks for the color guys.
Speaker Change: Alright, thank you.
Victoria: Thank you for your question. The next question comes from the line of David Bishop with Foods Group. Your line is now open.
Speaker Change: Thank you for your question. The next question comes from the line of David Bishop with.
Speaker Change: Group.
David Jason Bishop: Your line is now open.
David Jason Bishop: Hey, good morning, gentlemen. Good morning, Dave.
David Jason Bishop: Hey, good morning, gentlemen.
David Jason Bishop: We did.
David Jason Bishop: Hey, Joe, quick question in terms of maybe the outlook for, you know, low to mid single-digit growth, mostly in the back half. Is it, you know, obviously the pipeline numbers have come under pressure here. Do you have a sort of line of sight in terms of maybe what's beyond the published numbers in terms of terms? You know, the great of a 90-day pipeline that gives you confidence that you may hit those bogeymen in the second half of the year.
David Jason Bishop: Hey, Joe quick question in terms of maybe the outlook for.
Joseph J. Lebel: Low to mid single digit growth, mostly in the back half is it.
Joseph J. Lebel: Obviously, the pipeline numbers that have come under pressure here.
Joseph J. Lebel: Jeff sort of line of sight in terms of maybe what's beyond the published numbers in terms of.
Joseph J. Lebel: The greater than 90 day pipeline that gives you confidence that you may hit those both even the second half of the year.
Joseph J. Lebel: Yeah, Dave, I think so.
Joseph J. Lebel: Yeah, Dave, I think the easier answer is this. We had, you know, we added eight C&I lenders last year. You know it takes them some time to ramp up, so we've added two more in the first quarter. We have a couple more scheduled to start pretty much any day now in Q2, so we're absolutely seeing an increase in pipe subsequent to the end of Q1. I think you're going to see that start to filter through closings in Q2 and Q3.
Jeff: Yes, Dave I think is the easier answer is this.
Jeff: Ed.
Jeff: We've added eight C&I lenders last year. It takes them some time to ramp up we have added two more in the first quarter. We have a couple more scheduled to start.
Jeff: Pretty much any day here in Q2 so.
We are absolutely seeing an increase in pipe subsequently end of Q1.
I think youre going to see that start to filter through closings in Q2 into Q3 and I expect the folks that.
Joseph J. Lebel: And I expect that the folks that have finally gotten to that point where they're ramping up to continue to bring that kind of business to us. So I think that's the measure of what we're seeing so far and what our expectations are.
Jeff: That has finally gotten to that point, where they're ramping up to continue to bring that kind of business to us. So I think that's the measure of what we're seeing so far and what our expectations are.
David Jason Bishop: Got it. And then I saw on the slide deck some narratives regarding the high yield savings product. It sounds like you moved down the pricing. It looks like the spot rate was down 30 basis points from the quarterly average. Am I reading it right that overall balances have remained stable? And is there more opportunity to move those rates down? Maybe because they are in the money market or interest-bearing checking? I think we're in the middle of it.
Speaker Change: Got it and then I saw in the slide deck the narrative regarding the.
Speaker Change: The high yield savings product it sounds like you moved down pricing it looks like that the spot rate was down 30 basis points from the quarterly average.
Speaker Change: Am I reading it right that overall balances have remained stable and is there more opportunity to move those rates that may be that they're in the money market or interest bearing checking.
Speaker Change: I think we are in the.
Joseph J. Lebel: I think the good news is we're in the fine-tuning stage of this rate cycle, meaning we're kind of deciding which money we want to keep, at what prices, and money that may not be economical for us to keep, and we can kind of pull back on it. So that stability is a welcome change.
Speaker Change: The good news is we're in the fine tuning stage of this rate cycle meeting, where kind of deciding which money we want to keep at what prices and money that may not be economical for us to keep if we can kind of pull back office. So that stability is is a welcome change we saw in the fourth quarter coming into the first quarter.
Joseph J. Lebel: We saw that in the fourth quarter coming into the first quarter. And let's be clear, when we reduced those rates, we lost some deposits. That's why you saw some deposit contraction in Q1. But that was planned.
Speaker Change: Let's be clear when we reduce those rates we lost some deposits Thats why you saw some of the deposit contraction in Q1, but that was planned we knew when we actually hit pretty much what we expected to in terms of attrition in the high yield book.
Joseph J. Lebel: We knew, and we actually hit pretty much what we expected to in terms of attrition in the high-yield book. So I would expect us to be fine-tuning deposit pricing over the course of the year. One of the questions we get often goes back to Fed rate policy and people trying to predict whether they're going to be cuts and all that. Obviously, we care a lot about what the Fed does. But I would not assume that there is any linkage between Fed rate policy and depositor rate expectations.
I would expect us to be fine tuning deposit pricing over the course of the year.
Speaker Change: One of the questions, we get often it goes back to fed rate policy and people trying to predict they're going be cuts and all that.
Speaker Change: Obviously, we care a lot about what the fed does.
Speaker Change: But I would not assume that there is any linkage between fed rate policy and deposited rate expectations.
Joseph J. Lebel: Depositors are going to want what they want; they're going to shop where they shop, and that's what makes it a little bit difficult at this point in the cycle to kind of get a beat on things. We certainly feel the pressure is easing, but it is way too early to make a longer-term blanket statement.
Speaker Change: The positives are going to want with a good once theyre going to shop, where they shop in.
Speaker Change: Yes.
Speaker Change: That's what makes it a little bit difficult at this point in the cycle to kind of get a beat on things. We certainly feel the pressure is easing, but it is way too early to make a longer term blanket statement about that.
David Jason Bishop: Got it. And then, in the same vein, is there any sort of outlook in terms of brokerage deposits maybe maturing or this quarter?
Speaker Change: Got it and then in the same vein is there any.
Speaker Change: Any sort of outlook in terms of brokerage deposits may be maturing or.
Speaker Change: This quarter.
Joseph J. Lebel: Over time, we generally want to just continue to reduce that brokered segment. Traditionally, we have not relied on brokered funding.
Speaker Change: Over time, we generally want to just continue to reduce debt brokerage segment.
Speaker Change: Traditionally we have not relied on brokered funding.
Joseph J. Lebel: We saw it as a really good option to kind of bolster liquidity at a time when it made a lot of sense to do so, and it is a great way to manage interest rate risk. So what we did with our brokered book is we went out right after rates first started to rise, and we immediately kind of pulled down funding that we would have a very certain interest rate characteristic to it for a duration.
Speaker Change: So it is a really good option to kind of bolster liquidity at a time when you've made a lot of sense to do so.
Speaker Change: And it is a great option to manage interest rate risk. So what we did with our brokered book as we went out.
Speaker Change: After rates first started to rise and we immediately kind of pull down funding that we knew we would have a very certain interest rate characteristic to it.
Speaker Change: A duration now that we're somewhere near the top end of the cycle extending the.
Joseph J. Lebel: Now that we're somewhere near the top end of the cycle, extending the duration through brokered CDs doesn't make sense. So rolling them off also takes not just volatility out but allows us to maybe become a little bit more liability sensitive.
Speaker Change: The duration through brokerage Cds does it makes sense. So rolling them off also take takes not just volatility out but allows us to maybe become a little bit more liability sensitive over time.
David Jason Bishop: Got it. One final question. Looks like maybe a modest pick-up in the Special mention, loan category, maybe looks to be office theory. Just curious about maybe some commentary on what you wrote about the change in risk rating. Thanks. Yeah, Dave. I'll give it to you.
Speaker Change: Got it and then one final question it looks like maybe a modest pickup in the.
Speaker Change: Special mentioned.
Speaker Change: Loan category, maybe looks to be office CRE, just curious, but maybe some commentary on what drove the.
The change in risk rating.
Speaker Change: Yes, David I'll give you a little feedback is primarily three loans one.
Joseph J. Lebel: Yeah, Dave, I'll give you a little feedback. It's primarily three loans. One, just a little color; one was a construction, build-to-suit. There's a little delay getting the tenant in. The tenant is in and paying. And the two other loans; one was an office loan in Philadelphia, which is fully occupied. It's just something that got a little bumped in the road with the principal. I think two of the three, if not all three, will be cleaned up by the end of Q2. But it's just prudent to put them in the category where they belong if you're.., you know, have some concerns.
Speaker Change: Just a little color one was the construction build to suit, there's a little delay getting the tenant and the tenant is in and paying.
Speaker Change: And the two other loans one was most of them off this loan in Philadelphia, which was which is fully.
Speaker Change: Fully occupied just some little bumps in the road with the principal I think two of the three if not all three are cleaned up by the end of Q2, but it's just prudent to put them in the category where they belong.
Speaker Change: I have some concerns.
David Jason Bishop: Got it. I appreciate the color.
Speaker Change: Got it appreciate the color.
Victoria: Thank you for your question. Our next question comes from the line of Christopher Marinac with JMS. Your line is now open.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Chris.
Chris: Christopher <unk> with <unk>.
Christopher William Marinac: Hey, thanks. Good morning. I'm just going to continue where Dave left off on his last question. So if we look at the level of criticized loans, did you see that driving all your reserve levels going forward? Or is the reserve still built on kind of across the cycle, and the low charge-offs continue to kind of speak for themselves?
Chris: Your line is now open.
Chris: Okay.
Hey, Thanks, Good morning, I'm, just going to continue where Dave left off on his last question. So if we look at the level of criticized loans did you see that driving at all your reserve levels going forward or is the reserves still build on kind of across the cycle and the low charge offs continue to kind of speak for itself.
Christopher D. Maher: Yeah, no, I don't think, Chris, it's a good question. I don't think there's any linkage there.
Chris: Yes.
Speaker Change: I think Chris it's a good question.
Speaker Change: I don't think Theres any linkage there we don't expect any kind of going forward unless there's a change in the outlook, which frankly, we don't see so.
Christopher D. Maher: We don't expect any kind of going forward unless there's a change in the outlook, which, frankly, we don't see. So the way I would think about it is, if you look at the allowance this quarter, if we had just gone with the external observable factors, both the economic forecast as well as our history of charge-offs, you might have made an argument to release reserves. I didn't think that was prudent at this point in the cycle, so our qualitative factors came up a little bit. But that's kind of what's going on. But quantitatively, it would have been the quarter where you could have considered releasing them. I know some banks have. We just chose to be a little bit more conservative.
Speaker Change: I would think about it is if you look at the allowance this quarter.
Speaker Change: If we had just gone with the external observable factors, both the economic forecast as well as our history of charge offs.
Speaker Change: Might have made an argument to release reserves. We didn't think that was prudent at this point in the cycle. So our qualitative factors came up a little bit.
But that's kind of what's going on in the quantitatively it would've been.
Speaker Change: The quarter, where you could have considered releasing I know some banks have we just chose to be a little bit more conservative.
Christopher D. Maher: Great. And then just to follow up on overall commercial growth, where do you think customers are now? I mean, you know, we know there's a lot of pencils down with the large regionals, but given that you may not want to do commercial real estate, as you mentioned, so just specifically in C&I, where is the customer attitude? Are you dependent on them kind of being more optimistic in the second half of the year?
Speaker Change: Great and then just a follow up about overall commercial growth, where do you think customers are now I mean, we know theres a lot of pencils down with the large regionals, but given that you may not want to do commercial real estate as you mentioned, so just specifically in C&I, whereas the customer attitude is are you dependent on them kind of being.
Speaker Change: More optimistic in the second half of the year.
Joseph J. Lebel: Yeah, I think we all are. But I think we're already seeing in the conversations we're having that customers are getting a little bit more optimistic. I think the other thing is, you know, we continue to recruit lenders largely from, you know, the nationals. And largely, what we're hearing from our new folks is that there's a limited appetite for any type of lending at the highest level, which is beneficial for us as time goes on.
Speaker Change: Yes, I think we all are but I think we're seeing we're ready the conversations we're having are that customers are getting a little bit more optimistic I think the other thing is we've continued to recruit lenders largely from.
Speaker Change: From the nationals.
Speaker Change: And largely what we're hearing a lot of our from our new folks is that.
Speaker Change: There is a limited appetite for any type of lending at the highest level.
Speaker Change: Which is beneficial for us as time goes on it's still a relationship business. So I expect that to be the case.
Joseph J. Lebel: It's still a relationship business, so I expect that to be the case. On the CRE side, you know, what's fascinating, we've talked about this a bit. I think there's a little bit of a limitation on banks wanting to do CRE, but there are plenty of alternative lenders in the space. And one of the ones we talk about a lot is, you know, government entities. And we saw that a little bit in Q1, not that it was prevalent, but one of our better borrowers refinanced a $26 million transaction with one of the GSEs at 6% fixed, with an extended I.O.
On the on the CRE side, you know what's fascinating we've talked about this a bit.
Speaker Change: I think.
Speaker Change: There is a little bit of a.
Speaker Change: The limitation on banks wanting to do creep, but there are plenty of alternative lenders in this space.
Speaker Change: And one of the ones, we talk about a bunch is.
Speaker Change: The government entities and we saw that a little bit in Q1, it was prevalent but one of our better borrowers refinance the $26 million transaction with.
Speaker Change: One of the Gse's at 6% fixed.
Joseph J. Lebel: period. We're not pricing like that. And we're not structuring like that. And that's still a challenge. But in today's world, I don't think that's monumental.
Speaker Change: With an extended Io period.
Speaker Change: Not pricing like that and we're not structured like that but that's still that's still a challenge but in today's world I don't think that's monumental but it's just something to be aware of.
Christopher D. Maher: I make one more comment to Chris, the interesting phenomenon we've noticed among our long-term kind of generational C&I clients. It's a good news story in this that they have virtually no debt. They've paid all their lines and loans down, so that affects our earnings a little bit because we're not showing those outstandings. But, you know, these families have shared with us that they're poised and ready. I mean, Joe, you might add to that. But they're, at some point, they will become net borrowers again. We hope that's in the next couple quarters. We've told that story before.
Speaker Change: One more comment too Chris that.
Speaker Change: The interesting phenomenon, we've noticed among our long term kind of generational C&I clients.
Speaker Change: It's a good news story. This is they have virtually no debt they paid all their lines and loans down so that affects our earnings a little bit because we are not showing those outstandings.
Speaker Change: These families have shared with us that they're poised and ready I mean, Joe you might add to that but at some point they will become net borrowers again.
Speaker Change: We hope that in the next couple of quarters. We told that we've told that story of one of our better C&I clients has been chasing.
Christopher D. Maher: We've told that story of one of our better C&I clients who have been chasing two other acquisitions for a period of years and not been successful, and now he finally believes he will be successful. And with his balance sheet and our ability to lend, I think he finally gets that opportunity. But people are cautious still. There's still some of that in the market.
Speaker Change: Two other acquisitions for a period of years and not been successful and now. We finally believes he will be successful and with his balance sheet and our ability to lend I think key finally gets that opportunity, but it's people are cautious still there's still some of that market.
Christopher William Marinac: Great. Thank you again for the background here. I appreciate it.
Speaker Change: Great. Thank you again for the background here I appreciate it thanks, Thanks, Chris.
Victoria: Thank you for your question. The next question comes from the line of Matthew Breese with Stevens Inc. Your line is now open.
Speaker Change: Thank you for your question.
Speaker Change: The next question comes from the line of Matthew Breese with Stephens, Inc.
Matthew M. Breese: Your line is now open.
Matthew M. Breese: Hey, good morning, everyone.
Matthew M. Breese: Hey, good morning, everyone.
Matthew M. Breese: Okay.
Matthew M. Breese: I guess the obvious question is how much more should we expect in the way of buybacks? I think you have a remaining $2 million share authorization. So the first part is, is it reasonable to assume that that gets exhausted by the end of the year? But the second part is just more of a philosophical one.
I guess the obvious question is how much more should we expect in the way of buybacks I think you have remaining $2 million.
Matthew M. Breese: Dollars share authorization. So I guess first part is is it reasonable to assume that that gets exhausted by the end of the year.
Matthew M. Breese: The second part is just more of a philosophical one.
Matthew M. Breese: I can't remember the last time I saw OceanFirst buy back this many shares, and I would love to hear your kind of capital strategy, in light of valuation and the environment and in light of, you know, the other options you have on the table.
Matthew M. Breese: I can't remember the last time I saw ocean first buyback. This many shares and I would love to hear kind of capital strategy.
Matthew M. Breese: In light of valuation and the environment and in light of the other options you have on the table.
Christopher D. Maher: It's a great question, Matt, and I think there's a really simple answer for it. When we look at the value of our shares, we think there's an opportunity there. We feel very good about the balance sheet. We feel very good about credit.
Matthew M. Breese: Yes.
Speaker Change: Question, Matt and I think just really simple answer for it when we look at the value of our shares.
Speaker Change: We think theres an opportunity there.
Speaker Change: We feel very good about the balance sheet, we feel very good about credit.
Christopher D. Maher: We feel very good about our long-term prospects, and the sector, including us, is just trading at reasonably cyclical lows. So as long as we're below tangible book value, it's a very compelling investment decision. That said, to your earlier point, Matt, we're a growth company, and we're anxious to be back on the growth side. But we do get this opportunity.
Speaker Change: We feel very good a better long term prospects.
The sector, including US is just trading.
Speaker Change: Reasonably cyclical lows.
Speaker Change: So as long as we're below tangible book value. It is a very compelling investment decision.
Speaker Change: That said to your earlier point matter, we were a growth company and we're anxious to be back in the growth side, but we do get this opportunity as we grow loans in the second half of the year, we have the opportunity potentially.
Christopher D. Maher: As we grow loans in the second half of the year, we have the opportunity, potentially, with margin stabilization and a little bit of growth, to see some earnings power as well. So if we're returning to growth, you'll see earnings growth as well, which should provide some more growth capital too. So we don't want capital levels to drift up. We do have certain floors we want to make sure we're above, but trading substantially below tangible book value is just a unique opportunity for us. And you asked about the outlook.
Speaker Change: With margin stabilization and a little bit of growth to see some earnings power as well so.
Speaker Change: If we're returning to growth youre going to see earnings growth as well, which should provide some more growth capital too so.
We don't want capital levels to drift up.
Speaker Change: We do have certain floors, we want to make sure we're above but trading below substantially below tangible book value for us is just a unique opportunity.
Speaker Change: You asked about the outlook.
Christopher D. Maher: Look, the first quarter probably represents, I couldn't see us doing more than that because we do want to preserve capital for growth. But if we continue at anywhere near that level, by the end of the year, we would, you know, fill our current plan, and we'd have to think about whether we wanted to do another plan. So I think it's going to depend a lot on Believe it or not, the kind of margins, structure, and growth opportunities.
Speaker Change: Look the first quarter.
Speaker Change: We represent.
Speaker Change: I Couldnt see us doing more than that because we do want to preserve capital for growth, but if we continue to get anywhere near that level by the end of the year we would.
Speaker Change: Phil our current plan, we'd have to think about whether we wanted to do another plan. So.
I think it's going to depend a lot on.
Speaker Change: Believe it or not kind of margin structure and growth opportunities.
Christopher D. Maher: We can bring on new clients, but we want to make sure we're bringing them on at the right margins. It is not the right part of the cycle to give up your margin discipline and chase, you know, just like standalone EPS at the end of what could be a multi-year expansion. You know, the soft landing is not off the table. But you could also imagine that by 25, we're in a recession, right?
Speaker Change: We can bring on new clients, but we want to make sure we're bringing them on at the right margins. It is not the right part of the cycle to give up your margin discipline and chase.
Speaker Change: Just like Standalone EPS at the end of what could be a multi year expansion.
Speaker Change: Soft landing is not off the table.
Speaker Change: But you could also imagine that by 'twenty five we are in a recession right. I mean, we don't know what the fed is going to have to do later in the year. So so we're not going to drive capital levels down but at these prices if we have excess capital we're going to use it.
Christopher D. Maher: I mean, we don't know what the Fed's going to have to do later in the year, so we're not going to drive capital levels down, but at these prices, if we have excess capital, we're going to
Matthew M. Breese: I appreciate that. And then turning to credit, I was curious about the actual process for, you know, getting LTVs and getting debt service coverage ratios. Is the LTV out of origination, or is it more recent? If you have kind of an average age of the LTV, that would be great. And then are the debt service coverage ratios, are those updated annually? So are those fairly fresh?
Speaker Change: Okay.
Speaker Change: I appreciate that and then turning to credit.
Speaker Change: I just was curious about the actual process for getting ltvs and getting debt service coverage ratios.
Speaker Change: Is the LTV at origination or is it more recent if you have kind of an average each of LTE that would be great and then on the debt service coverage ratio are those updated annually. So are those fairly fresh.
Christopher D. Maher: So a couple things, Matt. The debt service coverage ratio is updated annually. If we detect an issue in a loan where we have a concern, we would go out and update the appraisal. Based on what we see in the portfolio, most of our appraisals are origination-based. We do not have a vintage chart, but we'll think about that. Maybe we'll add a vintage chart to our next investor presentation just to give people a sense.
So the couple of things, Matt So the debt service coverage ratios updated annually.
Speaker Change: If we detect and issuing alone where we have a concern we would go out and update the appraisal.
Speaker Change: Based on what we see in the portfolio most of our appraisals are origination based appraisals.
Speaker Change: We do not have a vintage chart, but we'll think through that maybe will add a vintage chart for our next investor presentation, just to give people a sense, but there's not really a big cluster of loans in any one vintage.
Christopher D. Maher: But there's not really a big cluster of loans in any one vintage. The other thing I'd mention is that one of the reasons we feel comfortable about our office book is that a lot of that book originated after COVID. We were very careful to focus on things like medical use and things that we thought were long-term, durable kinds of office products. So we'll work on a vintage for you. I'd also point you in the investor's deck to the variety of stress tests we do. Transcripts provided by Transcription Outsourcing, LLC.
Speaker Change: I think I'd mentioned is that.
Speaker Change: One of the reasons, we feel comfortable that our office book is it a lot of that book was originated after Covid. We were very careful to focus on like medical use and things that we thought through long term durable kinds of office products. So.
Speaker Change: We will work on a vintage.
Speaker Change: For you.
Speaker Change: I'd also point you in the investor deck to the.
Speaker Change: Variety of stress tests, we do we kind of take these loans and stress test them and then look at the NOI and the debt service coverage ratios post stress on those hold up really well. So we feel pretty good that whole income side of the equation. We are on top of it. It's very current the appraisal side would be subject of.
Joseph J. Lebel: Okay, and then, Joe, I think you mentioned that there are nine office loans over $25 million, and you can correct me if I'm wrong. There are three of them. I was curious, in the other pool of what else is over $25 million, are there any of those loans that are non-PASC? And I would love to hear, you know, thoughts on why, concerns, and any potential for lost content in your view.
Speaker Change: Vintage, but think about getting to the table on that.
Speaker Change: Okay and then.
Speaker Change: Joe.
Joseph J. Lebel: Thank you had mentioned that there is nine and you can correct me if I'm wrong, there's nine office loans over 25 million referred to three of them.
Joseph J. Lebel: Just curious in the other pool of what else is over $25 million is there any of those loans that are non pass.
Speaker Change: And I would love to hear.
Thoughts on why concern in any potential for loss content.
Joseph J. Lebel: So, good news, all the loans are passed. And I don't, you know, unequivocally. I could tell you at least the top three or four we're really happy with. You know, I'd have to go look at the other ones, but the fact that they're rated a pass tells you pretty much the story. We've really had, with the one exception, you know, in Q3, we've had really good performance in this book.
Speaker Change: So good news of the auto loans all loans are pass.
Speaker Change: And.
Speaker Change: Unequivocally I can tell you that at least the top three or four.
Speaker Change: Really happy with.
Speaker Change: I have to go look at the other ones, but the fact that they are ready to pastels, yet those are pretty much the story.
Speaker Change: We've really had.
Speaker Change: With the with the one exception.
Speaker Change: Q whatever Q3, we've had really good performance in this book.
Joseph J. Lebel: And we talk a lot about it, and we talk a lot about the fact that a lot of it is in suburban markets, very little CBD, very little urban, period. And I think that's been a benefit to the book. And as Chris mentioned, we've got a lot of diversity in the book in geography, medical, credit, tenant, the whole ball of wax. So I think we did what we did. The money's out. It's performing. And we're on top of that.
Speaker Change: A bunch about it and we've talked a bunch about the fact that a lot of it is.
Speaker Change: Suburban markets very little CBD, very little urban period.
Speaker Change: And I think thats been a benefit to the to the book and as Chris mentioned, we've got a lot of diversity in the book and geography medical credit tenants the whole ball of wax. So I think we've we've done what we've done the monies out is performing.
Speaker Change: And we're on top of it.
Matthew M. Breese: And then switching to deposits, how much more in high-cost savings or brokered is there kind of targeted to one-off deposits, and is the deposit growth guide all in, or is it just off of kind of the core deposit?
Speaker Change: And then switching to deposits how much more in high cost savings or brokered is there kind of targeted for one off and as the deposit growth guide.
Speaker Change: All in or is it just off of kind of the core deposits.
Christopher D. Maher: Well, the deposit growth guide is all in. And I think that, for the most part, we don't have much in brokered. Pat can give you the number, but We're not trying to drive that down quickly or in any material amount, so it shouldn't be much of a headwind. The high yield savings, I think there will be a little bit more of that running off in Q2, but nothing significant. And then your broker is just going to wind down over the next several quarters.
Speaker Change: It was the deposit growth guide is all in.
Patrick S. Barrett: And I think that for the most part we don't have much in brokered Pat can give you the number but.
Patrick S. Barrett: We're not we're not trying to drive that down quickly or in any material amount. So it shouldnt be much of a headwind the high yield savings I think be a little bit more of that running off in Q2.
Patrick S. Barrett: Nothing significant and then.
Brokerage is just going to wind down over the next several quarters.
Matthew M. Breese: And then last one for me, a lot of your peers are waving in talent from some, you know, recently disrupted institutions, if you will. Are you seeing any of that come your way, or is there opportunity to bring in some deposit gathering folks or commercial lending talent down in your neck of the woods?
Speaker Change: Okay, and then last one for me.
Speaker Change: Look a lot of your peers are waving in talent from some recently disrupting institutions. If you will.
Speaker Change: Are you seeing any of that come your way or is there opportunity to bring in some deposit gathering false or commercial lend.
Speaker Change: Lending talent.
Christopher D. Maher: I think there's a great opportunity, and this is something we've done over the years, and we'll continue to do it. And there are a lot of reasons that people kind of re-evaluate where they are, but when you go through periods like this... Really high-quality bankers sometimes have challenges wherever they are for whatever reason. And we have a lot of conversations and a lot of talk.
Speaker Change: Down in your neck of the woods.
Speaker Change: I think theres, a great opportunity and this is something we've done over the years and we will continue to do it.
Speaker Change: And there are a lot of reasons that people kind of reevaluate where they are but when you go through periods like this.
Speaker Change: Really high quality bankers, sometimes have challenges wherever they wherever they are for whatever reason and we have a lot of conversations and a lot of talk.
Christopher D. Maher: We've said over the years, and we mean it, when we find good people, we hire them. And we don't say, gee, we only have a budget for two people this year. But we don't do the opposite either. We don't just hire people because we think we've got to hire three bankers this month or something. I would expect you'll see us continue to add talent from a variety of backgrounds.
Speaker Change: We've said over the years and remediate.
Speaker Change: We find good people, we hire them and we don't we don't say Gee, we only have a budget for two people this year, but.
But we don't do the opposite either we don't just hire people because we think we've got a higher three bankers this month or something so.
Speaker Change: I would expect you'll see us continue to add talent from a variety of places.
Speaker Change: Okay.
Christopher D. Maher: [inaudible] Any comments on how much talent there is? I know Julia mentioned a big handful, and I'll leave it there.
Dan: This is Dan.
Speaker Change: Any comments on how much talent I know, Joe you had mentioned I think handful.
Christopher D. Maher: I think the easiest way to describe that, we've said a few already, we have an inside joke in the company that says that we don't have a budget for talent, and as Chris mentioned, all that means is that whenever we find good talent, we're going to try to hire them. So if we can find good talent, we'll add as many as we can.
Dan: I'll leave it there thank you.
Joseph J. Lebel: I think these were describing that we've had.
Joseph J. Lebel: A few already.
Speaker Change: We have an inside joke in the company that says that we don't have a budget for talent.
And as Chris mentioned, all that means is that whenever we find good talent, we're going to try to hire them. So if we can find good down we'll add.
Speaker Change: As many as we can add.
Christopher D. Maher: And Matt, you know, for today, it's still going at the kind of pace we've seen over the last couple years, a couple bankers a quarter. If that pace changes, we'll be communicating about it.
Speaker Change: Hey, Matt.
Speaker Change: Today, it's still going into kind of the pace that <unk> seen over the last couple of years, a couple of bankers at quarter.
Speaker Change: That pace changes, we'll be communicating about it.
Matthew M. Breese: Perfect. I appreciate it. Thank you. Thanks, Matt.
Perfect I appreciate it thank you.
Victoria: Thank you for your question. The next question comes from the line of Manuel Navas with DA Davidson. Your line is now open.
Matt: Thanks, Matt.
Speaker Change: Thank you for your question.
The next question comes from the line of Manuel Nava with da Davidson.
Manuel Antonio Navas: Hi, good morning. So on the core deposit engine, are you seeing the CNI lenders that you've brought on actually bring in deposits so far? Or do you have, like, a visible pipeline at this point?
Manuel Antonio Navas: Your line is now open.
Manuel Antonio Navas: Hi, good morning.
Manuel Antonio Navas: Core deposit engine.
Manuel Antonio Navas: <unk> will see C&I lenders that you've brought on actually bring in deposits. So far or do you have like a visible pipeline to this point.
Joseph J. Lebel: So we are seeing them bring in deposits. If anything, they're bringing in deposits before they're bringing in loans, because, as you all know, sometimes there's limitations or maturities or prepayments that prohibit loans coming over as fast as some deposits early on. But I think, Manuel, we'll see more and more of that in Q3 and Q4.
Manuel Antonio Navas: So we are seeing them bring in deposits, if anything theyre, bringing in deposits before the marine and <unk>.
Manuel Antonio Navas: Loans, because as you all know, sometimes there is limitations or maturities or prepayments that prohibit loans coming over as fast as some deposits early on but I think I think Manuel will see more and more of that in Q3 and Q4.
Joseph J. Lebel: And that's kind of giving you that confidence to let some of the high yield reprice and run off of it, the high yield savings channel.
Manuel Antonio Navas: And thats kind of giving you that confidence to let some of the high yield.
Manuel Antonio Navas: Price and runoff of the high yield savings channel.
Joseph J. Lebel: And also, we need to understand exactly what those dynamics are. So until you start moving rates, you really don't know what that kind of runoff tolerance will be. So we're beginning that process of moving rates around a little bit so we know what that marginal pricing should be. We've always been big fans of: you can do every deposit survey you want, but the actual experience of pricing and watching deposit flows will tell you exactly what your market is.
Manuel Antonio Navas: And also we need to understand exactly what those dynamics are so until you start moving rates you really don't know what that.
Manuel Antonio Navas: Runoff tolerance will be so.
Manuel Antonio Navas: Beginning that process moving rates around a little bit so we know what that marginal pricing should be.
Manuel Antonio Navas: We've always been big fans of you can do every deposit survey you want but the actual experience of pricing and watching deposit flows will tell you exactly what your market is.
Manuel Antonio Navas: We're just trying to make sure we're on top of that.
Joseph J. Lebel: I'd also add that those levers, we have a high confidence level in our ability to ramp those back up quickly if we want to, whether it's high-interest savings, brokered CDs, certainly, or even time deposit specials, retail, and or other customer segments. With that confidence level, we're feeling a lot better about letting some things mature and roll off, not replacing and rolling them, and starting to dial back some of the highest rates that we've had on offer. And we'll learn from that and be prepared, hopefully, to see growth pick up in core deposits.
Manuel Antonio Navas: Ill add that does levers, we have a high confidence level in our ability to ramp those back up quickly if we want to.
Manuel Antonio Navas: There is high interest savings brokerage Cds certainly.
Manuel Antonio Navas: Or even time deposit specials retail <unk>.
Manuel Antonio Navas: Other customer segments.
Manuel Antonio Navas: With that confidence level, and we're feeling a lot better about letting some things mature and roll off not replacing enroll.
Manuel Antonio Navas: Rolling them.
Manuel Antonio Navas: Starting to dial back some of the highest rates.
Manuel Antonio Navas: <unk> had an offer and we will learn from that and be prepared hopefully.
Manuel Antonio Navas: To see some growth pick up.
Manuel Antonio Navas: [inaudible]
In core deposits.
Christopher D. Maher: I appreciate that color. Can we have a bit of a general update on the operating leverage strategies and where you sold the trust biz business and just kind of how that fits in?
Speaker Change: I appreciate that color.
Speaker Change: Can we have a bit of a general update on the operating leverage strategies and where.
Speaker Change: You saw the trusses business.
Speaker Change: Business, and just kind of how that fits in.
Christopher D. Maher: I'd make a couple of comments. First, the trust business sale is a strategic partnership where we think that with a partner, we can do more in that business than we do today. It's relatively neutral to the P&L, so you're not going to see much change in the P&L. In terms of the operating leverage strategy, I think the way we're thinking about the company is that we have now, for the most part, fully absorbed all the expenses attendant on coming over $10 billion.
Speaker Change: Couple of comments first the trust business sale as a strategic partnership where we think that with a partner we can do more in that business than we do today, it's relatively neutral to the P&L, so youre not going to see much.
Speaker Change: <unk> change in the P&L.
Speaker Change: In terms of the operating leverage strategy.
Speaker Change: I think the way we are thinking about the company.
Is that we have now for the most part fully absorbed all of the expenses attendant with coming over $10 billion. Obviously, if you add a banker here there you've got some expense, but the marginal cost to support growth.
Christopher D. Maher: Obviously, if you add a banker here or there, you've got some expenses. But the marginal cost to support growth is quite low. So, you know, our view here is to hold that non-interest expense line, allow non-interest expense on assets to decrease as we grow, and that's where you're going to see the leverage come in. And then I think there's a second story from that, which is that at some point, and I offer no calendar for this, we might have a yield curve that's not inverted, right?
Speaker Change: Quite low so.
Speaker Change: Our view here is hold that noninterest expense line.
Speaker Change: I'll now non interest expense to assets to decrease as we grow and that's where you're going to see the leverage come in and then I think there is a second story from that which is at some point.
Speaker Change: I offered no calendar for this.
Speaker Change: We might have a yield curve, it's not inverted right and at that point youre going to have the revenue side kind of kick in as well. So that's the guidance about flat expenses.
Christopher D. Maher: And at that point, you're going to have the revenue side kind of kick in as well. So this guidance about flat expenses doesn't mean that we're going to need to add dollars to grow. We can grow off this expense base. And then this kind of second cylinder that would hit would be at some point down the road.
Speaker Change: It doesn't mean that we're going to need to add dollars to grow we can grow off this expense base.
Speaker Change: And then this kind of second cylinder that would hit would be at some point down the road.
Speaker Change: Rates normalize.
Manuel Antonio Navas: I appreciate the commentary. Thank you.
Speaker Change: I appreciate the commentary thank you.
Christopher D. Maher: Thank you for your questions. There are no additional questions waiting at this time. I would now like to pass the conference back to Chris Maher for any closing remarks.
Speaker Change: Thanks.
Speaker Change: Thank you for your question there are no additional questions waiting at this time I would now like to pass the conference back to Chris Marr for any closing remarks.
Christopher D. Maher: Thank you before we close the call I want to remind everyone that our annual meeting of stockholders will be held virtually on May 21 at eight am eastern time.
Christopher D. Maher: Thank you. For the 2024 annual materials, we have transitioned to a notice and access model for all meeting materials. Notice and access grants stockholders access to the full set of materials electronically. By reducing paper waste and mailings, we're able to decrease operating costs and further our environmental goals as a company. If you have received a notice and would like to receive a printed version of our proxy materials, please follow the instructions provided on your notice and submit your request prior to May 7th, 2024.
Christopher D. Maher: For the 2024 annual materials, we've transitioned to a notice and access model for all meeting materials notice and access grants stockholders access to the full set of materials electronically.
Christopher D. Maher: By reducing paper waste and mailings were able to decrease operating costs and further our environmental goals as a company.
You've received the notice and we'd like to receive a printed version of our proxy materials. Please follow the instructions provided on your notice and submit your request prior to May seven 2024.
Christopher D. Maher: If you have any questions or need any assistance with requesting these materials, please call, please don't hesitate to contact us. We encourage stockholders of record on March 25, 2024 to review the proxy materials and vote their shares. We appreciate your time today and your continued support of OceanFirst Financial Corp. We look forward to speaking with you during our annual stockholder meeting on May 21st. Thank you.
Christopher D. Maher: If you have any questions or need any assistance with requesting his materials.
Christopher D. Maher: Please don't hesitate to contact us.
Christopher D. Maher: We encourage stockholders of record on March 25, 2024 to review the proxy materials and vote your shares.
We appreciate your time today and your continued support of Ocean first financial Corp. We look forward to speaking with you during our annual stockholders meeting on May 21. Thank you.
Victoria: That concludes today's call. Thank you for your participation, and enjoy the rest of your day.
Speaker Change: That concludes today's call. Thank you for your participation and enjoy the rest of your day.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.