Yahoo Finance

Joseph Lebel

Thanks, Chris.
The company's loan originations for the quarter totaled $515 million and included $78 million of C&I originations. The annualized net loan growth was 4% during the quarter, driven by our Owner-occupied and Residential portfolios.
Despite solid Residential originations of $235 million for the quarter, pipelines remain impacted by uneven loan demand, given interest rates increases and seasonality. Commercial loan pipelines of $197 million remain stable quarter over quarter and should improve as we move out of the winter months, which also reflects seasonality.
For the quarter, we added three new C&I bankers to the eight already onboarded in 2024. This month alone, we've added another three bankers as we continue to focus efforts on expanding the C&I bank.
We are also excited about the build-out of our Premier Banking team, which is focused on targeting low-cost, deposit-rich, commercial customer relationships. We believe this is a pivotal opportunity to expand our services to new clients with our historical level of superior delivery.
Deposit balances, excluding brokered CDs, increased by approximately 1% compared to the prior quarter. Our year-to-date run-off of brokered CDs is $557 million, which, as Chris mentioned, is close to our early 2023 levels of near zero.
We remain confident in our ability to grow, retain, and reprice consumer, commercial, and government deposits in this environment. And based on our commitment to attract and hire talent, we anticipate accelerating commercial deposit growth in the coming quarters.
Non-interest income decreased $2.5 million to $12.2 million during the quarter. However, excluding non-ore and non-recurring items, non-interest income increased modestly, primarily driven by increased gain on sale of Residential loans combined with modest improvements in fee income. But we will likely not see significant near-term improvement without increased mortgage activity in the markets.
With that, I'll turn the call over to Pat to review the remaining areas for the quarter.

Patrick Barrett

Thanks, Joe. Good morning to everyone.
As Chris noted, both net interest income and margin grew in the quarter, totaling $83 million and 2.69%, respectively. Funding costs declined by 16 basis points, a decrease that meaningfully exceeded the modest decline in earning asset yields as the impact of rate cuts and further repricing activities rolled through our balance sheet this quarter.
While volume growth was modest, we're pleased with the momentum in reducing overall deposit costs across all deposit types and are cautiously optimistic that we'll be able to continue this repricing into 2025. You should still expect seasonality, and volatility, and consumer spending, rate sensitivity, and investment alternatives, particularly if we're entering a higher, prolonger, short-term rate environment.
Asset quality remains strong with non-performing loans and loans, 30 to 89 days past due, at 0.35% and 0.36%, respectively. These measures reflect modest increases due to acquired PCD loans and normal seasonality for delinquencies.
In spite of historically low net charge-offs and absent any deterioration in credit quality, we were still able to increase our allowance, modestly, and we continue to feel great about our credit profile and outlook.
Non-interest expense increased $1.1 million to $64.8 million during the quarter, in line with our expectations Excluding non-recurring charges, expenses grew by $2.7 million, largely reflecting the full-quarter impact of our acquisitions on compensation, marketing, data processing, and professional fee expenses. This run rate may increase, modestly, in the next quarter, reflecting the impact of annual compensation actions and vendor contract renewals.
Capital levels remain robust. We did not repurchase any shares during the quarter and ended the year with total repurchases of nearly $1.4 million shares at a weighted average cost of $15.38. We're not planning for material share repurchases in the near term.
Finally, a word on taxes. Our effective tax rate of 19% for the quarter was positively impacted by tax credits and other year-end true-up activity. We expect our effective tax rate, going forward, to remain in the 23% to 25% range, absent any changes in tax policy.
At this point, we'll begin the Q&A portion of the call.

Question and Answer Session

Operator

(Operator Instructions)
Tim Switzer, KBW.

Tim Switzer

Hey. Good morning, guys. Thank you for taking my question.

Christopher Maher

Good morning, Tim.

Tim Switzer

We appreciate the Q125 outlook you, guys, provided. It's very helpful.
Can you help quantify the typical seasonal increase you, guys, see on the OpEx side? Give us an idea of where that goes.
And then what's the trajectory from there over the course of the year, knowing that you might be able to recruit some additional talent along the way?

Patrick Barrett

So there's a reason that we modified our guidance to just being Q1. Because we know that we're making investments this year, we're a little bit reluctant to guide towards a full-year outlook. We'll keep you posted and apprised each quarter as we're making those investments.
Typically, we do see a little bit of an uptick, as most firms do around compensation, payroll taxes, et cetera that have an uptick in Q1. It's pretty modest, million, maybe million and a half. So this year, probably, wouldn't be any different than that.
So the only real changes in expenses are likely to be in hiring that we'll be making or have already made. And that's almost entirely focused on revenue-producing talent.

Christopher Maher

And those hires -- typically, this is the season when bankers evaluate their options and high-quality bankers are usually receiving some sort of incentive payments depending on the bank, somewhere between January and March. So we can't be quite certain exactly what the recruiting class of 2025 is going to be but I would say this: what you see in our baseline, the guidance we've given you today, is consistent with the staff we have today.
So should we have a successful recruiting season -- and we certainly hope to and have every indication we will -- we would not just be adjusting expense guidance, we would also be adjusting guidance around deposit growth and loan growth.
It's not going to impact Q1 and by the time we're on the phone with you in April, I think we'll have a pretty good handle on what those numbers look like. And we plan to share a better outlook or more precise outlook at that time.

Tim Switzer

Okay, great. That all makes sense.
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

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.

Joseph Lebel

Tim, I think we spent the latter half of [early] '24, and as you can see already in '25, focusing on the additions to the C&I bank, which the recruiting doors open for us. We have the opportunity to grow that, I, in my mind exponentially.
And then, I think Chris aptly touched on the Premier Bank and I'd add one more comment about the Residential bank. We're, obviously as all of us are, dependent on the rate environment but we've had some success in bringing the people in. We have the small acquisition we've added, which has been a substantial add to our volume. And while that may be a little choppy, a lot of those folks tend to work on commission. They're active, they're in the market, and we're in the market as well.
So if we have the opportunity to recruit some more of those, we will, which will only help us as time goes on.

Tim Switzer

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

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.
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.

Tim Switzer

Great. Thank you guys for answering all my questions.

Operator

Christopher Marinac, Janney Montgomery Scott.

Christopher Marinac

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

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%.

Christopher Marinac

Great. Thank you for that.
And then just a quick overview about C&I as a percentage of the portfolio. If you look out a year or two, how big of a change should we anticipate, just in terms of percentage mix of the overall company?

Christopher Maher

I think it's going to be something you see very gradually. We're not trying to turn too quickly. We're very mindful that it's a crowded market, meaning there's a lot of people out there trying to do exactly the same thing we're doing and we're going to be very careful about our risk selection in that.
But it all comes down to risk selection structure and pricing. So I think you're going to see that growth slowly. But you will see, as a proportion, that's going to increase and investor CRE is on a more downward trend.
And that's just a rebalancing. We think we're a better and more profitable and more valuable company with a little more balance.

Christopher Marinac

Great. Thank you for hosting us and all the background today.

Christopher Maher

Thanks, Chris.

Operator

David Bishop, Hovde Group.

David Bishop

Good morning, gentlemen.

Patrick Barrett

Hey, David.

David Bishop

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

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.

David Bishop

Got it.
And then, maybe, a question for you, Joe -- and Chris too -- you mentioned the Premier Banking division, if any of those hires relates to that group and are you seeing any traction, thus far, from (inaudible - microphone inaccessible) hiring some of these new (inaudible) hire (inaudible -microphone inaccessible)?

Christopher Maher

It's still very early days. We have been building out the infrastructure. So already baked into the expense rate, today, is a few hires to make sure we've got our infrastructure teams really well.
We're very mindful that as we add these new bankers in, we have one opportunity to get our brand right, especially in markets we may be going into, let's say the New York Metro that don't know the OceanFirst brand this well.
So we're being very deliberate, very careful. We want to launch the right way. And the hiring in that division of bankers will probably be more skewed into Q2 than Q1. We may have one or two hires in Q1 but you haven't seen that yet.
We do have the escrow team we talked about last quarter. They're starting to put business on, which is nice, think (inaudible).

Joseph Lebel

I think you hit right on the head. I think the vast majority of the hires would be in Q2 and Q3. The people we met so far, we've been impressed by. So looking forward to it.

David Bishop

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

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.

Joseph Lebel

So we've been pretty thoughtful. We like the relationship we have with OxCap on a variety of levels. And we look at that as a three-pronged approach.
Obviously, we have the ownership investment, which we're very happy with.
We also do a combination of purchases with them. We've looked at a variety of purchases that we do, what I refer to as participation in purchases, on a one-off transaction where we have larger transactions where we partner with them.
And then, as you see more recently, we've done a couple of these loan pools, which have been really an amalgam of credits that we already knew and credits that they originated. And then we also have the White Label business where they act on our behalf as our equipment-leasing provider. Where we also share in the ownership, we hold the majority of those loans and they own a smaller piece.
So it's been a really good three-pronged stool approach for us. And we're pretty happy with that. And the credit quality has been great, we have no delinquencies in the portfolio.

Christopher Maher

Great. Thank you.

Operator

Matthew Breese, Stephens Inc.

Matthew Breese

Hey. Good morning, everybody.

Christopher Maher

Good morning, Matt.

Matthew Breese

Understanding some hesitancy on the longer-term guidance and a number of different areas, what is the pipeline for some of these new teams look like? And if you're successful in bringing them in, what does that do to the deposit expense loan impact per team or overall?
Or maybe that's another way. If you guys were to give yourself an A-grade in terms of the hiring opportunities here, bringing them in, how would that impact some of these items? Expensive deposits loans?
Just some color would be very helpful here.

Christopher Maher

I'm glad you started off with you understand our hesitancy because until we work through the hiring season and have people on board and this is clicking, we don't want to get out ahead of ourselves.
But I would tell you that we're talking to multiple teams. Each team has a couple of people on it. Teams have portfolios of a variety of sizes, some might be just $100 million, some maybe a few $100 million. And I think you've seen very good examples in the market of what other banks have done in this space.
And if you got to think about the opportunity, we wouldn't be doing this if we didn't think there was an opportunity for hundreds of millions of dollars of new customers over time. But I'm very hesitant to give you a sense of when that would be and what the cost of those would be.
And the cost. It's not going to be free money but it will be well-priced deposits. So you get the opportunity to blend into your deposit base higher-quality customer deposit. So I think, in the call in April, we'll be able to give you information that make you feel a little more comfortable about what this is.
But this is not a new strategy for us. There's a new pool we're going after but we've been hiring commercial bankers for years. It's the way we built our business, largely. We slowed that down tremendously in '23 and '24 because there was a lot of other things going on in the market and the environment.
There were clearly issues that didn't come up and we want to be deliberate and not get over our skins then but we're back into that mode of hiring bankers. But we obviously hope it's a substantial number of bankers.

Matthew Breese

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

That's consistent with the conversations we've had.

Matthew Breese

And then, maybe, just bigger picture. This environment, this yield curve is, for folks like yourselves, increasingly favorable where the Martians to take 269 is a far cry from where it's been, historically.
I would assume it's up to the right. I was just curious when you think you can get back to your 3% level. Is that, do you think, in your mind of 2025 event or 2026?

Christopher Maher

Probably, more likely in '26 and '25. But there's still a fair amount of uncertainty about the shape of the curve. But your general point, that, I think is the right one. That this is not a bad rate environment for us. I talked earlier about our deliberate repricing of deposit accounts, If that goes really well, then maybe that's a little bit faster.
If we hit the resistance point a little earlier, then maybe it takes us a little longer. But in our back book, we have a pretty nice, part of it, rolls this year. And next one of the nice things about the long end of the curve being up is that those things are going to reprice it at a healthy rate.
And by the way, our stress testing shows that they're going to perform just fine with those new rates. So we like to have a little more time with the long end of the curve being elevated like this. So a lot of variables in that.
But we're on the march now. We're really pleased to see that inflection point is now behind us but I think you're going to see it just a steady slow march, not something that happens in a dramatic fashion.

Matthew Breese

Got it. Understood. I appreciate you taking my questions. Thank you.

Christopher Maher

Thanks, man.

Operator

Frank Chiodi, Piper Sandler.

Frank Chiodi

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?

Joseph Lebel

Sure, Frank. They're varied geographies. But as you know our footprint, we've hired some new bankers in January but also in the last half a year, anywhere from the Northern Virginia market up all through Boston. So we've hired in Philly, we've hired in New Jersey, and those two outside markets.
And the interesting thing is something I expected to happen. But I'll use the example, we tend to hire from larger regional or national banks just because they're more familiar with the way we do things, in terms of credit and everything else. But we've been already seeing some additional activity from folks that we've hired from, historically, like TD, especially early in the year, they've already paid their bonuses and people are unhappy with the direction. So we're benefitted by that.
I don't want to lose sight of the fact that we also hired in New York City. So I would say all throughout our markets.

Frank Chiodi

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

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.
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. So we want to be high-quality, long-term relationships and the conversations we've had.
And this goes for all the hiring we do. Joe was talking about the C&I hiring we've done, we love people that have usually -- our best people have been more than a decade where they are, they have mature, durable relationships with their clients and that creates a lot of long-term value for us.

Frank Chiodi

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

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.

Frank Chiodi

Okay?
And then just, lastly. Given the focus here and given the valuation of the stock, would you say, organically, M&A is on the back burner here? Is that less likely as you are focused on these organic initiatives?

Christopher Maher

We're highly focused on the organic initiatives. That's kind of what I would say.

Frank Chiodi

Okay. All right. Fair enough. Thank you.

Christopher Maher

Thanks, Frank.

Operator

Daniel Tamayo, Raymond James.

Daniel Tamayo

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

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.

Daniel Tamayo

Yes, that's good color. Thanks, Chris, with all that.

Christopher Maher

All right. Thanks, then.

Operator

Thank you. We currently have no further questions registered. But as a quick reminder, please press star one to register for a question.
Now, thank you all for joining. I can confirm that does complete today's call. Please enjoy the rest of your day and you may now disconnect.

Christopher Maher

Thank you.