OceanFirst Financial Corp Q4 2023 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Daniel Tamayo - Raymond James Financial, Inc. - Analyst : Thank you. Good morning, everybody.

Question: Daniel Tamayo - Raymond James Financial, Inc. - Analyst : Yeah, maybe first just on the margin forecast for the stable and perhaps expansion this year. First, just what are your assumptions in terms of any rate cuts this year baked into that? And then just curious how that is baked into the assumption on the margin in terms of like how much the margin you think will react to each 25-basis point rate cut? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 19, 2024 / 4:00PM, OCFC.OQ - Q4 2023 OceanFirst Financial Corp Earnings Call

Question: Daniel Tamayo - Raymond James Financial, Inc. - Analyst : Okay. And how much does the assumption for rate cuts impact the assumption for accelerating loan growth in the back half of the year? Or is that just more around pipelines or other factors?

Question: Daniel Tamayo - Raymond James Financial, Inc. - Analyst : I appreciate that, Chris. And I guess you expect to be able to -- you put, I think, 100% loan-to-deposit ratio this year, but as loan growth accelerates, do you think you'd still be able to fund that loan growth with core deposit growth and maybe even overfunded, I guess, reduce the loan to deposit ratio as we get in the out years?

Question: Daniel Tamayo - Raymond James Financial, Inc. - Analyst : Okay. Thank you for all the color. I'll step back. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 19, 2024 / 4:00PM, OCFC.OQ - Q4 2023 OceanFirst Financial Corp Earnings Call

Question: Frank Schiraldi - Piper Sandler Companies - Analyst : Good morning.

Question: Frank Schiraldi - Piper Sandler Companies - Analyst : Just given that the cost of deposits and then the spot rate being slightly below the average for the quarter, is that an -- can we -- sounds like you're still thinking that there could be some deposit cost increase in the first half of the year before we see margins stabilize. Or is it potentially, we're already at stabilization on the deposit cost side and we could be closer to NIM drop here?

Question: Frank Schiraldi - Piper Sandler Companies - Analyst : Okay. Great. And then Pat, you mentioned getting close to neutral here on rate sensitivity. What does that assume? And what do you assume in your guide for deposit betas on the way down, as we see these three rate cuts? Are you guys expecting modeling an immediate reaction to the rate cuts in terms of deposit beta? Or is there some lag effect?

Question: Frank Schiraldi - Piper Sandler Companies - Analyst : Okay. And then just lastly on that front, sorry if I missed it, but in terms of the guide for the loan growth and deposit growth, it's pretty broad in the deck. And you guys talked about a little bit on the call. But so am I understanding is the most likely scenario, as we sit here, like low single-digits to start the year? And then the idea is that that could pick up through the year, given what the environment looks like? Is that the guide here?

Question: Frank Schiraldi - Piper Sandler Companies - Analyst : Okay. And then just lastly, Chris, you mentioned the deposit environment, obviously, it's quite competitive. And just curious, any strategy you can talk about that you're using to bring in the incremental dollar geographically, or size range of a given competitor? Where is the opportunity here to bring in the incremental deposit dollar?

Question: Frank Schiraldi - Piper Sandler Companies - Analyst : Okay. Great. I appreciate the color. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 19, 2024 / 4:00PM, OCFC.OQ - Q4 2023 OceanFirst Financial Corp Earnings Call

Question: Michael Perito - KBW LLC - Analyst : Hey, guys. Good morning.

Question: Michael Perito - KBW LLC - Analyst : Pat, I want to ask a similar question, that I asked last quarter, just get the updated thoughts. It's where -- as we think about why NIM might stabilize, right, it sounds like it's too early to necessarily call bottom on deposit costs rising. But I think maybe it sounds like with loan growth re-engaging more consistently at better incremental spreads, to like the 280 consolidated NIM you have today, that starts to become maybe a bigger impact, particularly as it compounds in the back half of '24, which is a long-winded way of asking, can you give us an updated view where the average commercial credit's being originated today relative to the 5.40% blended yield in the fourth quarter? And are you still seeing that rise? Or is that also starting to stabilize, that incremental new yield on commercial origination.

Question: Michael Perito - KBW LLC - Analyst : That's helpful. And then just in terms of the 2024 outlook, any initial thoughts around non-interest income, which I didn't see necessarily anywhere in the guide. Just, is there -- obviously, probably a couple of key pieces, maybe swaps mortgages, just any thoughts about what might transpire over the year in your budget, as we think about what the contribution looks like?

Question: Michael Perito - KBW LLC - Analyst : Thanks, Chris. That's helpful. And then just lastly, and I'll step back. I know you commented a little bit on it already, just to maybe go a layer deeper, just around buybacks. I think you were pretty clear in terms of why you didn't elect to use them in '23. It was a build liquidity, build capital year. It feels like the footing underneath you guys is much more certain now. As we think about the $2.9 million authorization remaining, are you willing to provide any more color about how attractive the opportunity is to deploy capital that route today, particularly if loan growth might be a little bit more back half heavy in '24? I mean, is now the time to maybe buy back some shares? Or just any expanded thoughts there would be great.

Question: Michael Perito - KBW LLC - Analyst : Got it. Helpful, guys. Thanks. Stay safe with the storm, and I appreciate you taking my question.

Question: David Bishop - Hovde Group LLC - Analyst : Great. Good morning, gentlemen. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 19, 2024 / 4:00PM, OCFC.OQ - Q4 2023 OceanFirst Financial Corp Earnings Call

Question: David Bishop - Hovde Group LLC - Analyst : Hey, Chris, quick question in terms of -- you noted another quarter may be challenging in terms of the noninterest-bearing deposits. Has there been any change in terms of -- I don't know if you track where they go, does it continue to run off to some of the bigger -- the JPMorgans of the world, are you retaining them in other OCS products, OceanFirst products? And remind us if there's any seasonality in that end of year runoff?

Question: David Bishop - Hovde Group LLC - Analyst : Got it. And then I noticed a modest uptick in substandard loans. I don't know if any -- was there any commonality in segments? Just curious, some color behind that increase?

Question: David Bishop - Hovde Group LLC - Analyst : Got it. Appreciate the color.

Question: Matthew Breese - Stephens Inc. - Analyst : Yeah, thank you. Good morning, everybody. The first one for me is maybe for Pat. Taking the lower end of the NIM guide, which is calling for stability, what is the expectation for deposit costs by year end? And is there any peak and reduction in deposit costs within that assumption throughout the year?

Question: Matthew Breese - Stephens Inc. - Analyst : Okay. So the NIM stability guide basically assumes deposit costs are flat, and expansion assumes maybe there's some reduction. Is that a fair statement?

Question: Matthew Breese - Stephens Inc. - Analyst : Okay. And then flipping to the loan pipelines, I mean, the rates are considerably higher than what's on the balance sheet today. I mean, I think it's the widest I've seen in 5 to 10 years, that difference. So I'm curious, on the loan side, if we should see an acceleration in terms of loan yield expansion from here? And any frame of reference for the extent we might see that would be helpful.

Question: Matthew Breese - Stephens Inc. - Analyst : Got it. And could you just remind us of what percentage of the overall loan book floats immediately or within, call it, 60, 90 days?

Question: Matthew Breese - Stephens Inc. - Analyst : Okay. Last one for me, which is just on -- Chris, your prior point on stuff that's rolling, particularly in commercial real estate, how well do these properties handle higher rates? Could you provide some colors on before and after debt service coverage ratios? And then if there was a re-appraisal

Question: Matthew Breese - Stephens Inc. - Analyst : Got it. Okay. I appreciate you taking my questions. Thank you. It's all I had.

Question: Manuel Navas - DA Davidson Companies - Analyst : Hey, thank you. Just to, I guess, dive into the pipeline a little bit better. So most of the pipeline right now on the commercial side is C&I, and is that indicative that CRE is still muted and CRE can grow as we start to get the cuts that you foresee in your forecast?

Question: Manuel Navas - DA Davidson Companies - Analyst : On those C&I hires, you talked a little bit about deepening relationships. Is that the commercial lending channel -- how much of the deposits are being driven from that commercial lending channel in the fourth quarter?

Question: Manuel Navas - DA Davidson Companies - Analyst : Okay. That's great. I was thinking about, as capital builds, and you talked a little bit about the buyback, especially when growth is a little bit slower, what are your thoughts on M&A buy-in? Just what's the opportunity out there, if you find the right partner and capital stays elevated?

Question: Manuel Navas - DA Davidson Companies - Analyst : I appreciate that. Thank you.

Question: Christopher Marinac - Janney Montgomery Scott LLC - Analyst : Thanks very much and thanks for hosting us all today. Chris, I wanted to ask you or Joe about the pace of new customers. And I know you talked a couple of times this morning about bringing in new deposits and having that success last year. Should that pace accelerate under the right circumstances? And can you just walk us through what would drive that? Is it more external economic factors that would drive the pace of new customers to you?

Question: Christopher Marinac - Janney Montgomery Scott LLC - Analyst : Got it. That's helpful. And just a follow-up for Pat or whoever. The loan marks some fair value that we've seen in past quarters, did those improve this quarter? And is there opportunity for that to change further with rates this year?

Question: Christopher Marinac - Janney Montgomery Scott LLC - Analyst : That's great, Pat. Thank you for that and sorry to bring up a sore topic, but we appreciate the background a lot.

Question: Christopher Marinac - Janney Montgomery Scott LLC - Analyst : No, understood, and I appreciate it. Thanks again for taking all of our questions.