OceanFirst Financial Corp Q4 2024 Earnings Call Transcript

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

Question: Tim Switzer - Keefe, Bruyette & Woods, Inc. - Analyst : Hey. Good morning, guys. Thank you for taking my question. Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank Good morning, Tim.

Question: Tim Switzer - Keefe, Bruyette & Woods, Inc. - Analyst : Okay, great. That all makes sense. 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 24, 2025 / 4:00PM, OCFC.OQ - Q4 2024 OceanFirst Financial Corp Earnings Call And are there any specific regions or areas you're looking on to be adding some additional bankers, typically? And then you mentioned multiple initiatives, what are some of the other initiatives you, guys, have? Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank It's really two sets of bankers. And I'll let Joe walk into more of the details. But if you think about them broadly, C&I bankers who are broadly interested in both loan- and deposit-taking tend to have loan-to-deposit ratios that require funding from other parts of our business. So we've been successful hiring some of them in the last couple of years. We're accelerating the pace of hiring in that place. And then, as everyone has been doing, we're focused on deposit-gathering commercial bankers as well, who may have a niche area that they focus in and able to provide that their loan-to-deposit ratio tend to be quite low. So they're a net producer of deposits for other parts of our business. But Joe, talk about the hiring you did in '24 and how you're thinking about things.

Question: Tim Switzer - Keefe, Bruyette & Woods, Inc. - Analyst : Okay, great. And if I get one more question. You, guys, have your (inaudible) preferred coming up here, have you had your thoughts at all on if you want to refinance those at all, change? Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank I guess the way we're thinking about that, Tim, is we've got multiple options and we're watching the markets and the cost of capital that would be available. One of the reasons that we have been allowing our capital ratios to drift up is to have the ability to, at least, partially redeem those out of our existing capital base when they hit their repricing. So it's something that we would consider various options but one of the options on the table is just using our current capital position to redeem some of them in May. And then, maybe, in subsequent quarters, redeem the remainder out of earnings. So we would certainly consider other ways to do that, raising fresh capital, but we want to be very careful about the overall cost of capital and the utilization of what we have in the books. 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 24, 2025 / 4:00PM, OCFC.OQ - Q4 2024 OceanFirst Financial Corp Earnings Call Certainly, our growth rate will factor into this as well. So as we conclude the hiring season and understand how much capital we'd like to have on hand for growth capital, we'll think through that as well.

Question: Christopher Marinac - Janney Montgomery Scott, LLC - Analyst : Thanks. Good morning, Chris and Joe. I wanted to ask about the reserve build we saw this quarter. Is that really reflective of future loan growth you anticipate this year? Is there any change in loss content that you see on the horizon? Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank I give you two primary messages on that. The first is that about a little less than half of it was related to the day 1 provision for Spring Garden. So that won't recur. And then the remainder of it was macroeconomic factors, the models move around a little bit. Everything we're seeing on the interior, the loan portfolio, the performance has been very good. So I think if you look at where the reserve is now, as we grow, we'd probably be growing at that level, maybe a little bit higher depending on the mix of growth. So as we do more C&I lending, you might expect that the incremental provisioning for growth would probably be closer to or maybe a little bit over 1%.

Question: Christopher Marinac - Janney Montgomery Scott, LLC - Analyst : Great. Thank you for hosting us and all the background today. Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank Thanks, Chris.

Question: David Bishop - Hovde Group, LLC - Analyst : Good morning, gentlemen.

Question: David Bishop - Hovde Group, LLC - Analyst : Chris and Joe, just curious on the funding side. We've seen the cost come down. Just curious where you see more opportunity. Or how much more opportunity there is to roll down deposit cost, either in the CD book or on the retail commercial deposit base. Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank We're still in the process, Dave, of repricing that base down. It can be very hard to figure out exactly at what point the market pushes back a little bit. The CD book is obviously the easiest one to deliberately price down and watch out how flows work. So our posture going into Q1 is that we're going to continue to price that down slowly but methodically. And if we get to a point where there's push back on balances, then we'll pull back a little bit. But at this point, we think there's still a little more room. I wouldn't say there's a lot of room but a little more room. And there's certainly less competitive pressure than there was pretty much at any point in the last two years. So we still see that pressure decreasing, which we think gives us a little bit of room around rates. 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 24, 2025 / 4:00PM, OCFC.OQ - Q4 2024 OceanFirst Financial Corp Earnings Call

Question: David Bishop - Hovde Group, LLC - Analyst : Got it. One final question. Just some details on the loan purchase, Chris. The $76 million of loan purchase, any details on that would be helpful. Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank Sure. We know noted a couple of years ago that we did the OxCap investment, [Australian] capital. And Joe, I want you to talk a little bit about the loans we do with them and then this opportunity to add some of these.

Question: Matthew Breese - Stephens Inc. - Analyst : Hey. Good morning, everybody. Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank Good morning, Matt.

Question: Matthew Breese - Stephens Inc. - Analyst : And, maybe, just to push it a little bit further. One of the things we've seen in the market, a lot of these teams tend to come with, from what it sounds like, maybe 35% to 45% non-par demand deposits with the balance being in money market or savings. Is that a fair statement as you start to bring some of these teams in? It's going to be improvement to the positive, in other words. Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank That's consistent with the conversations we've had.

Question: Matthew Breese - Stephens Inc. - Analyst : Got it. Understood. I appreciate you taking my questions. Thank you. Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank Thanks, man.

Question: Frank Chiodi - Piper Sandler & Co. - Analyst : Good morning. I mentioned I might have missed it. I know you talked, Joe, about new C&I bankers being hired over, I think even, the last couple of weeks, did you mention what geography we are?

Question: Frank Chiodi - Piper Sandler & Co. - Analyst : Got you. Okay. And then as you're thinking about the potential for these deposit-focused teams to come over, are you casting a pretty wide net? I mean, are there certain niche geographies that you're, maybe, shying away for from? Or this very well result in just an expansion of a geography, reasonably far outside your current footprint? Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank Look, it's a wide-net prank. But most of the conversations are happening in places either directly within or pretty close to our current footprint cluster in New York. Areas like that, that are not not far-flung for us, had a pretty wide appetite over the kinds of customers that they service. 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 24, 2025 / 4:00PM, OCFC.OQ - Q4 2024 OceanFirst Financial Corp Earnings Call We do have an eye on volatility. We want to make sure that we're not creating a funding source that would be more volatile than we would like.

Question: Frank Chiodi - Piper Sandler & Co. - Analyst : Okay And I just think, wondering if how you're thinking through what a reasonable earn do would be. Obviously, you bring these things over there, some upfront expenses. Broadly speaking, what do you think a reasonable earn back is? Is it one year, is that too short a time to do it, right, and drop off there? Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank I think it'd be a blend, Frank. Some of the teams may be very productive early on and we would expect that they're all productive, right? But as long as you're seeing that they're productive and on track, you feel pretty good about things. That's the way we've historically looked at things. If you see momentum, you've got the right conversations, you have the right pipelines, you're going to give people the time they need to get maturity. Our best bankers, over the years, typically, they're at that contributing point somewhere between year one and year two. If they're really good, it could be at a year inside that. And if they need a little more time but they've got momentum, not unusual for them to hit stride more in the second year than the first. But this is not a multiyear exercise. Somewhere in the next, if you were to pick a number, I'd say in the next 18 months, that they're making substantial contributions, they should be contributing all along. I would also caution while these are high talent, it doesn't matter what part of the business is in. Good talent has a cost. But the kinds of costs we're talking about, the number of people would not represent a giant percentage of our total expenses, right? This is still on the margins for the expense for us.

Question: Frank Chiodi - Piper Sandler & Co. - Analyst : Okay. All right. Fair enough. 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 24, 2025 / 4:00PM, OCFC.OQ - Q4 2024 OceanFirst Financial Corp Earnings Call Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank Thanks, Frank.

Question: Daniel Tamayo - Raymond James Financial, Inc. - Analyst : Thank you, guys. Good morning. So most of my questions have been asked and answered already. But I'll just ask one also related to the big picture here. You're obviously making a big push on into the C&I space, but have a strong track record and credit and growth on the CRE side, if you want to get back to the point where you (inaudible) that business again, is it CRE concentration? That's the biggest lever there. Is it mix. Just curious how you're thinking about the core CRE business that you've had, going forward. Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank We have a few thoughts on it. And the first is that we were very conservative in the way we constructed the portfolio. So it's a portfolio that does not have an exposure to things like rent-stabilized multifamily. It doesn't have a material exposure in urban office or central business district office. It's performing really well. It's spread among five states. It's been rolling really well. So customers roll to the new rates. We've not seen signs of distress. Our stress testing is good and the credit metrics are good. So we like the book but we recognize that, I think, we're a more valuable company if we're more diversified. So that's why you're seeing the investor CRE number is slowly going down and the C&I number will be coming up. But this is not something we're trying to accomplish in the next three quarters. And there's a fair amount of repricing CRE that gives us the opportunity to originate CRE loans every day. So we're not out of the markets, we never left the markets. It's important to us that we're there for our clients. Obviously, our appetite is a little different. We're a little more conservative and we want to get paid for what we do. But some of the things we've seen in the CRE space are the best structured and best price credits that you can do. So we're still doing those loans. But, directionally, you'll see more of a blend of the business lines, if that makes sense.