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spk04: And welcome to the Ocean First Financial Corp Q4 23 earnings release. And thank you for standing by. My name is Daisy and I'll be coordinating your call today. If you would like to register a question, please press star followed by one on your telephone keypad. And I would now like to hand over to your host, Alfred Goon from First Ocean to begin. Alfred, please go ahead.
spk00: Thank you, Daisy. Good morning and welcome to the Ocean First fourth quarter 2023 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 in our forms 8-K, 10-Q, and 10-K, for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements. Thank you, and I will now turn the call over to Christopher Moore, Chairman and Chief Executive Officer.
spk08: Christopher Moore Thank you, Alfred. Good morning and thank you to all who have been able to join our fourth quarter 2023 earnings conference call. This morning I'm joined by our President, Joe LaBelle, 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. Our financial results for the fourth quarter include a gap diluted earnings per share of 46 cents. Our earnings reflect net interest income of $87.8 million, representing a modest decrease compared to the prior linked quarter of $91 million. Operating expenses decreased to $60.2 million, Excluding the FDIC special assessment of $1.7 million, operating expenses decreased to $58.5 million. We're pleased to have executed many strategic initiatives that resulted in a meaningful improvement to the bank's efficiency. This work will continue in 2024 as we make every effort to hold expenses flat for the year. Fourth quarter results were impacted by modest margin pressure linked to our continued efforts to improve the quality of deposit funding. These efforts resulted in another quarter of substantial decline in brokered CDs, stable deposit balances, and a loan-to-deposit ratio below 100%. The resulting mixed shift in deposits placed some pressure on net interest margins, but margin pressure continues to abate, allowing net interest income to stabilize, and it is possible that margins may expand modestly throughout 2024. Deposit bait has increased to 38% from 35% in the prior linked quarter, indicating a slowdown in the pace of deposit cost increases. Our competitive pricing strategy through various channels has continued to protect the deposit base, which increased $265 million, or 3%, excluding broker time deposits, resulting in our decision to reduce broker time deposits by $364 million, all while keeping our loan-to-deposit ratio below 98%. Capital levels continue to build. their common equity Tier 1 capital ratio increasing to 10.88% and continued growth in tangible book value per share to $18.35. Turning to capital management, the Board approved a quarterly cash dividend of 20 cents per common share. This is the company's 108th consecutive quarterly cash dividend and represents 44% of GAAP earnings. The company did not repurchase any shares in the fourth quarter. the company may reactivate the share repurchase program this quarter. Despite a tumultuous time for the industry in 2023, the company executed on our strategic goals to improve operating expenses, diversify and strengthen our deposit base, and bolster our capital position. Looking ahead to 2024, the company is well positioned to continue to create shareholder value by remaining focused on responsible growth, expense discipline, and prudent balance sheet management. At this point, I'll turn the call over to Joe to provide some more details regarding our performance during the fourth quarter.
spk03: Thanks, Chris. Non-maturity deposits continued to grow, increasing approximately 1% linked quarter, while overall deposit balances declined by approximately 1%, reflecting our continued planned runoff of brokered CDs. Our strategy to change the mix in the deposit composition has proven successful, with the percentage of broker CDs to total deposits dropping to 6%. We couldn't have accomplished this without growing our deposits organically, and our deposit growth for the year of $760 million demonstrates our ability to grow and deepen relationship deposits during what has been a very challenging and competitive higher cost environment for the industry. On the loan origination side, we continue to see tempered growth as a result of reduced demand from customers combined with our pricing discipline. We have seen a slight uptick in pipelines and anticipate a resurgence in customer demand with an outlook calling for loans and deposits to grow at mid-single-digit levels in 2024. Growth may be lower in the first half of the year, but potentially accelerate as the year goes on. Asset quality metrics remain strong with non-performing loans and criticized and classified assets representing only 0.29% and 1.44% of total loans, respectively. This quarter, we reported essentially zero net charge-offs, bringing our full-year annualized charge-off rate to a nominal eight basis points. With that, I'll turn the call over to Pat to review margin and expense outlook.
spk09: Thanks, Joe. Net interest income and margin were $87.8 million and 2.82%, respectively, reflecting higher funding costs associated with deposit growth. As Chris noted, funding costs reflect cycle-to-date deposit betas of 38%, with margin compression stabilizing through the quarter. Based on our expectations for modest asset growth and assuming a continuation of the stability we're seeing in liquidity and funding, We're hopeful that we'll see margins stabilize and potentially expand as we move through the first half of 2024. But pinpointing the exact quarter that that may occur depends on so many variables, I hesitate to put a degree of confidence on the exact timing. Said another way, in terms of net interest income, we've reported two consecutive quarters of approximately $90 million in NII, and we're hopeful that we'll see that quarterly run rate continue and begin to grow as we move through the first half of this year. We're very pleased to have driven core non-interest expenses down by nearly 10% linked quarter to $58.5 million. Our fourth quarter expense run rate is in line with our stated guidance and directly driven by the company-wide efforts and investments which we executed during 2023. Note that core non-interest expense excludes $1.7 million related to the FDIC special assessment. We'll make every effort to hold operating expenses flat in 2024 to our fourth quarter 2023 run rate. Some quarterly volatility should be expected. Additionally, we continue to explore opportunities to further improve our operating leverage. Our effective tax rate for the quarter of 24% remains in line with prior periods and guidance, and we expect to remain in this range going forward. Finally, as Chris mentioned earlier, capital strengthened depreciably with growth in our CET1 ratio to an estimated 10.88%. With these levels and with modest organic growth expectations in the near term, it shouldn't surprise you to see the company resuming share repurchase activity as we remain very comfortable with the CET ratio above 10%. At this point, we'll begin the question and answer portion of the call.
spk04: Thank you. If anyone would like to register a question, please press star followed by 1 on your telephone keypad and ensure you are unmuted locally. If you would like to withdraw your question, please press star followed by two. That's star followed by one on your telephone keypad to register a question. Our first question today is from Daniel Tamayo from Raymond James. Daniel, please go ahead. Your line is open.
spk05: Thank you. Good morning, everybody. Good morning. 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 of the margin in terms of how much the margin you think is reacting will react to each 25 basis point rate cut.
spk09: Hey, Dave. Pat, I'll take that. So we're assuming, we kind of go with what the Fed says, and so we're assuming three rate cuts mid-year, third quarter, year-end, and obviously the street has much more aggressive expectations than that. So to the extent that rate cuts occur faster or in larger magnitude, it could move the needle for us, but not by a meaningful amount. We're talking about something that might be in the million-dollar range. So it moves slowly, and unless we get a 50 basis point rate cut tomorrow, you're probably not going to see anything meaningful in the first half of the year coming out of that. We've kind of moved our asset sensitivity to where we're a fairly neutral position right now. So whether we get up rates or down rates, we're probably not going to see, unless it's just an order of magnitude larger than anyone's expecting, you're not going to see a lot of NII volatility.
spk05: 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 kind of pipelines or other factors?
spk08: Hey, Dan, it's Chris. I think the assumption on loan growth is that we spent the majority of 2023 kind of bolstering capital and making sure that we had a great understanding of the credit risk dynamics in our portfolio. And we feel very good about both of those things. So we're going to start to slowly build back towards our historical growth rate. So as Joe said, mid-single digits during the year, that's not a rate-dependent decision. It's a decision that we're now generating capital and want to deploy it with our customers. The only caveat I'll leave you with that is obviously it's situationally dependent. We have certain credit quality standards and return dynamics that we've got to get out of our loans. So we're going to be out looking to grow the loan portfolio, but we're going to do it prudently. And we're not going to grow to chase a number. We're going to grow to improve the dynamics of the company.
spk05: I appreciate that, Chris. And I, you know, I guess you expect to be able to, you put, I think a hundred percent loan or deposit ratio this year, but as, as loan growth accelerates, you think you'd still be able to fund that loan growth with, with core deposit growth and maybe even overfunded, I guess, reduce the loan deposit ratio as we get in the out years.
spk03: Yeah, Danny, it's Joe. That's exactly right. I think we, We see loan growth as we see deposit growth. We expect that we'll fully fund loan growth with continued core deposit growth as we deepen relationships. So we're pretty comfortable. You saw the uptick in the pipeline in Q4 a little bit. I mean, we have a ways to go, but we're starting to see some green shoots. Clients are sort of seeing their way through, navigating through, and that I think will bode well for us as well.
spk05: Okay. Thank you for all the color. I'll step back.
spk08: Thank you.
spk04: Thank you. Our next question today is from Frank Chiraldi from Piper Sandler. Frank, please go ahead. Your line is open.
spk07: Good morning. Good morning, Frank. Just given the cost of deposits and the spot rate being slightly below the average for the quarter, Is that an assumption, you know, can we, sounds like you're still thinking that there could be some deposit costs 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 MIM drop here?
spk08: We would be very cautious, Frank, predicting anything about the deposit cost because it's really unknown how consumers and businesses are going to respond to the perception about lower rates. So I think there's a lot of discussion about rates. Consumers and businesses may have different expectations about what they want for rate. I think what you saw in the mechanism in the fourth quarter is during the course of the quarter, we rolled off a substantial amount of brokered CDs. So that would cause the spot rate at the end of the quarter to not reflect all those brokered CDs. Uh, so that was kind of the, uh, the impact that, that impact will diminish a little bit over time.
spk07: Okay, great. And then, um, Pat, you mentioned getting to, uh, we're getting close to neutral here on, on, um, rate sensitivity. Um, what does that assume and what do you assume, um, for in your, in your guide for deposit data on the way down as we see these, uh, these three rate cuts? Are you guys expecting a modeling and immediate reaction to the rate cuts in terms of a deposit beta, or is there some lag effect?
spk09: I think we would definitely expect a lag effect. I mean, we saw a one-year lag effect for the most part on the way up, and can't imagine that it would be dramatically shorter than that. 2024 is going to be a baked in kind of higher funding cost year from a core deposit perspective. And frankly, people are still expecting, I mean, we're still competing on rate for just about all of our deposits right now.
spk08: Frank, it's Chris. I'd add that if you think about supply and demand and deposits for the industry, right, there are a lot of banks who would love to grow their deposit portfolio right now. So although the Fed may make rate cuts and you may see overall rates come down, We expect the competition among banks for deposits to remain brisk. So I think you're going to see, as Pat said, a fair lag.
spk07: Okay. And then just lastly on that front, sorry if I missed it, but in terms of, you know, the guide for long growth and deposit growth is pretty broad in the deck. you know, you guys talked about a little bit on the call, but it's true. So, my understanding is the most likely scenario is, 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 sort of the guide here?
spk03: Yeah, Frank, it's Joe. That's the most likely scenario. I tend to think that, you know, we could see a little outperformance, but conversely, we could see a little slow performance. So, it's It's sort of choppy out there a little bit. There's a lot of noise, a lot of conversations we're having. As I mentioned earlier, the pipeline is up, but it's still got to get to fruition. So I definitely think we're going to see positive growth. The question is how fast it ramps up to what we consider to be more normalized environments.
spk07: Okay. And then just lastly, Chris, you mentioned the deposit environment, obviously. It's quite competitive. And so just curious, any sort of strategies you can talk about that you use to bring in the incremental dollar, you know, geographically or, you know, size range of a given competitor? You know, where is the opportunity here to bring in the incremental deposit dollars?
spk08: I'll make a few comments, and I'll ask Joe to follow in as well. You know, one of the things we have not talked much about is that while we have reduced operating expenses, we've actually kind of apples to apples reduced them more than you would think. And we've then dedicated some of that save to reinvest in a couple of key platforms in both the hiring of bankers and treasury and all that. So, Joe, maybe talk a little bit about the bankers you've added this year, despite having kind of brought the expenses down.
spk03: Yeah, so Frank, a little color here. We've added eight C&I bankers all throughout 2023 in all the footprints, so a couple in Boston, Philadelphia, New Jersey, New York. So they've been hitting the ground running and bringing in some deposits. And I think the other point I'd mention, for us historically, being core deposit driven, we didn't offer competitive rates for some of the excess cash that that many of our clients have had. And in the last year, we've dedicated ourselves going out and getting that cash back. So we've deepened relationships with existing clients as well as adding some new operational accounts. So I think it's been a testament to one of the reasons the deposits have done well, both on the retail and on the commercial bank.
spk07: Okay, great. I appreciate the call. Thank you. Thanks, Greg.
spk04: Thank you. Our next question today is from Michael Perito from KBW. Michael, please go ahead. Your line is open.
spk06: Hey, guys. Good morning. Good morning, Mike. Pat, I want to ask a similar question that I asked last quarter and just kind of get the updated thoughts kind of where – You know, 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, you know, I think maybe it sounds like with loan growth reengaging 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. But just a long-winded way of asking, can you give us kind of an updated view kind of of where NIM you know, the average, you know, kind of credit, commercial credits being originated today relative to the 5.40 blended yield quarter and, you know, are you still seeing that rise or is that also starting to stabilize that incremental kind of new yield on commercial origination?
spk09: We're actually definitely seeing that rise on new money and on renewals. So I think, now I'll caution you that when numbers are small, You shouldn't extrapolate them, but on the originations we had in the fourth quarter, we were originating at an average rate of about 770. Our pipeline, although it's grown, it's still a lot smaller than it normally is and was a year, year and a half ago, but our pipeline yields are at around eight, so we're definitely getting the pricing that we're looking for on originations. We continue to have the portfolio roll, so we'll have somewhere in the neighborhood of half a billion dollars per quarter of loans that are going to roll, and those are going to reprice into whatever terms they are as they mature and renew. We definitely have all the pieces in place to see NIM expansion. notwithstanding changes in deposit customer behavior or the need to fund incremental growth in a very competitive environment.
spk06: That's helpful. And then just in terms of the 2024 outlook, any kind of initial thoughts around non-interest income, which I didn't see necessarily anywhere in the guide, just is there, you know, obviously probably a couple key pieces, you know, 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?
spk08: We have an opportunity. We wouldn't provide guidance and it would be very difficult to quantify for you, but the three main areas that could be impacted by 2024 volumes are, as you mentioned, swaps, but also gain on sale income in residential and the title insurance business that we own as well. So It's really far too early to tell how much the unit volumes will increase, but you could imagine over the course of 2024, we certainly expect units to be higher in 2024 than they were in 2023, which should bode well for swap income, gain on sale, and title insurance revenues.
spk06: Thanks, Chris. It's helpful. And then just lastly, and I'll step back, just on 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 kind of 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 kind of attractive the opportunity is to deploy capital that route today, particularly if you know, loan work might be a little bit more back half heavy in 24. I mean, it's kind of now the time to maybe buy back some shares or just any expanded thoughts there would be great.
spk08: Mike, thanks for bringing that up. And you're exactly spot on. You know, when you get into a period like we did in 23, you want to be, you know, extra careful to make sure that you understand your risk positions, you understand your liquidity position, and you don't have anything that would be a lean against capital. So we built capital up over the course of the year. We're really happy with where capital is now, and we expect to maintain it. So the math around this, I think, will be pretty straightforward. To the extent we can grow customer relationships, that's always the best thing we can do with capital. But if that growth is a little more back-ended or takes a little more time, then these valuations we would expect to deploy capital through repurchases to maintain our capital ratio. And kind of interestingly, as we do the math, that's about a neutral proposition. So whether we're doing An incremental repurchase or bringing on new clients has about a neutral impact to earnings per share, and that's fine. We'd always rather have a customer, so that's our priority. But if we can't have the customer, we can get the same benefit by doing the buybacks. And certainly trading below book value is a great opportunity to take advantage of.
spk06: Got it. Helpful, guys. Thanks. Stay safe with the storm, and I appreciate you taking my questions.
spk08: Thanks. Take care.
spk04: Thank you. Our next question is from David Bishop from Hovde Group. David, please go ahead. Your line is open.
spk12: Great. Good morning, gentlemen.
spk07: Good morning, Dave.
spk12: Hey, Chris, quick question in terms of noted another quarter may be challenging in terms of the non-interest-bearing deposit. Has there been any change in terms of, I don't know if you track where they go, is it continuing to run off to Some of the bigger, the JP Morgans of the world, are you retaining them in other OCS products, Ocean First products? Remind us if there's any seasonality in that end of year runoff.
spk08: We're certainly keeping the deposits here at the bank for the most part. As Joe mentioned, we've taken the opportunity to deepen relationships. The good news about that is you get customers to bring money in from other banks. The bad news is sometimes they want to move some of their non-interest bearing accounts into other accounts, so We're not seeing any competitive losses of magnitude to anyone, whether it's a big bank or a small bank. That's really what's driving it. And, you know, as we look forward, I would also mention that we have a lot of transaction accounts that are not captured in the non-interest-bearing designation. So we have a lot of interest-bearing checking that are truly transactional accounts. So while the non-interest number is important to us, The transaction account number is more important to us, and that's been pretty stable.
spk09: I'd just – hey, Dave, it's Pat. I'd just throw in, too, we do have seasonality, but it tends to be intra-quarter. So if we changed our year end to October 15th, then you would probably see kind of peak non-interest-bearing levels every quarter instead of trough, which is what you see today. But it's a very – it's the government business. That does drive inflows throughout the quarter. They come back out again just in time for us to report.
spk12: Got it. And then noticed a modest uptick in substandard loans. Was there any commonality in segments? Just curious some color behind that increase.
spk08: There's no theme and there was nothing of note in terms of a trend that would cause any concern. I would note that the level of substandard remains well below our long-term average of around 2%. It's below the level pre-pandemic. So this is really just kind of a reversion to normalcy, right? You know, that credits go through cycles and all that. But there's no segment of the portfolio that gives us any concern and no commonality among them.
spk12: Got it. Appreciate the color.
spk08: Thanks, Dave.
spk04: Thank you. Our next question is from Matthew Brees from Stevens, Inc. Matthew, please go ahead. Your line is open.
spk11: Yeah, thank you. Good morning, everybody. The first one for me is maybe for Pat. You know, 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 sort of peak and reduction in deposit costs within that assumption throughout the year?
spk09: I think we're assuming that we're peaking on deposit costs right now with a little bit of adjustment for some of the more institutional deposits that we have and allowing for runoff with those, but we're assuming that we're going to be rolling our Ocean First CD program at generally kind of similar rates to where we are today. We've been pretty successful at rolling at those. We're not aggressively growing institutional and sweep deposits right now, but we always have that to turn on. And then across the core deposit base, we're assuming a fairly stable mix in pricing. And as we touched on earlier, if we do begin to see improvement or i.e. lowering of costs, that's certainly going to be on the back half. So we look forward to being able to put a couple of months together and start talking about a trend like that, but we just aren't seeing it quite yet.
spk11: 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? Yes. Okay. And then flip into 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 five 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 sort of frame of reference for the extent we might see that would be helpful.
spk03: Matt, it's Joe. I'll... I'll start by saying this. We've seen a mixed shift in the pipelines, which is good, especially in the commercial pipe, more toward CNI credit and a little bit less in CRE credit. So those CNI credits, as you know, tend to be floating rate based off prime or multiple of SOFR. So that's why you're seeing the increased yields, which, by the way, is a good thing. We're very happy about that because those relationships come with deposits and a variety of other things. So we'll have some rate sensitivity if the Fed starts to move, but that will benefit hopefully in the deposit costs in the endgame as well. So I do think you're going to see higher yields. I'm probably a little too premature to declare victory and think that we can expand margin just on loan yields, but we're pretty happy with what we're seeing so far.
spk08: Mike, I might add to that, too, that if you look at the rolling, just the CRE loans that are rolling that are in our supplemental presentation, they're carrying yields in the sixes. So we're not rolling loans from three to eight. We're rolling loans from six to seven and change because the rolling loans are probably a little bit lower than that newly originated CNI pipeline stuff that Joe refers to. So this is something that will play out over time. And if you kind of freeze rates where they are now, we have a backlog of loans that have to roll. So that'll be a little bit of a tailwind. We just don't know if it's enough to overcome any deposit headwind.
spk11: Got it. And can you just remind us of what percentage of the overall loan book floats immediately or within, call it, 60, 90 days?
spk09: Call it a third, a third, and a third. So we've got a third that resets at least quarterly, if not more frequently. We've got a third that's hard fixed, and then we've got a third that are adjustable, and those are spread out over a series of maturities and dates, and they roll when they roll.
spk11: Okay. Last one for me, which is on, Chris, your prior point on stuff that's rolling, particularly commercial real estate, How well do these properties handle higher rates? You know, could you provide some colors on before and after debt service coverage ratios? And then if there was a reappraisal on any of this stuff, how did the valuations and loan to value ratios respond?
spk08: So there's more detail in our supplemental, but I will give you kind of the headlines. We've done a lot of stress testing of the loan book over the course of the year. We've looked at, you know, rolling maturities, all office loans, kind of every facet we could look at. We have updated as we have financial statements from clients about, you know, cash flows and rent rolls. And if you were to stress particularly the rolling CRE, the stuff that rolls over the next two years, and stressed it at an interest rate of 7%, what you find is it still debt serves pretty easily. So it's in the 124 range, I think, of debt service. So we're comfortable that at that rate the portfolio doesn't really have much stress that would be interest rate related. And then I would point out another phenomenon. Some of these loans are eligible for either CMBS or some of the GSE programs. And what we're finding is that their pricing is even more affordable than that. So although we did all that stress at seven, that's not a market rate for those loans. So we don't expect a whole lot of concerns around that. In fact, it might be that some of that may wind up coming off the balance sheet because we're not willing to renew it at rates that are available in the market today.
spk11: Got it. Okay. I appreciate you taking my question. Thank you. It's all I had.
spk08: Thanks, Matt.
spk04: Thank you. Our next question today comes from Manuel Navas from DA Davidson. Manuel, please go ahead. Your line is open.
spk10: Hey, thank you. Just to, I guess, dive into the pipeline a little better. So most of the pipeline right now on the commercial side is CNI. And it's indicative that CRE is still muted and CRE can kind of grow as we start to get the cuts that you foresee in your forecast.
spk03: I think we've been fortunate, as I mentioned earlier, Maddie, good morning, to hire eight more C&I bankers during 2023. Those folks have now gotten fully immersed in the ocean-first culture, so to speak, and are starting to see green shoots in their opportunities. Look, we still love CRE. We're good at that. But I think, as it's been well-documented, CRE has had some more recent concerns around valuations and There's not a lot of activity. So the activity that's in the market, we're absolutely interested in. And as Chris mentioned earlier, we're happy to compete. We've done a decent amount of construction in the last couple of years. We're pretty happy with that. That continues to, as the projects complete, lease up according to terms or better than expected terms. So we'd like to do more. We're just not seeing a lot of it yet.
spk10: On those CNI hires, you talked a little bit about deepening relationships. Is that kind of the commercial lending channel? How much of the deposits are being driven from that commercial lending channel in the fourth quarter?
spk03: Well, I don't have that answer in front of me, but I will tell you that we've been very fortunate to not only defend but attract new deposits in the market. in the commercial bank. I'm sure we can get you some color after the call, if that makes sense.
spk10: Okay, that's great. Thinking about it 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 thawing? What's the opportunity out there if you find the right partner and capital stays elevated?
spk08: Well, I'd start with our best investment is in ourselves, especially as we are currently trading below tangible book. So that would be our priority. We want to continue the organic growth and build out the franchise. There are kind of two, I think, precursors to M&A returning for the industry, a little better understanding of rates and rate marks and financial conditions, and then a little more transparency from the regulators regarding what they're looking for in responsible M&A transactions. So that said, I don't think it's a short term, but in the long term, I think there's obviously going to be more industry consolidation. I think we've done that well in the past, and we'd like to play a role going forward. But right now, most of our focus is on organically performing and improving our franchise.
spk10: I appreciate that. Thank you.
spk04: Thank you. Before we take our next question, I'd just like to remind everyone, if you would like to register a question, please press star followed by 1 on your telephone keypad. Our next question is from Christopher Marinak from Janie Montgomery Scott. Christopher, please go ahead.
spk02: 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 times this morning bringing in new deposits and having that success last year, should that pace accelerate under the right circumstances? And can you just kind of walk us through kind of what would kind of drive that? Is it more external economic factors that would drive the pace of new customers to you?
spk08: Yeah, we'd certainly like to see more growth going forward. And I think the way I would sum things up is that for a decent chunk of the year, if you think about events in March, April, and even into May, there was such unrest that customers were not willing to move from any bank to any other bank, right? If they were happy where they were, they were just kind of staying put. The same went for staff. We've been pleased to be able to add a few new bankers that Joe referenced. Historically, we have grown organically over a long period of time at like the 10% per year rate. We'd love to get ourselves back to that. It's not going to happen, I don't think, in 2024, but that's a really good number for our franchise. Our markets support it. We can find a talent to do that. So this is the year where growth rates pick up. But our long-term outlook would be to position the franchise to grow at about 10% a year. And I think we have the markets and the people to do that. It's just going to take a little while to return back to that level. So we're bullish, but it's going to take a little time to work through that.
spk02: Got it. That's helpful. And just to follow up for Pat or whomever, the loan marks from 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?
spk09: I really want to thank you for closing the call down with that question. I was hoping we wouldn't get that. Yeah, you're going to see loan marks improve this quarter. You're going to see that across the industry with the change in Curbs in rate expectations. We spent a fair amount of time looking at that and taking a look at how our mix is the same or differs from others. Because we've noticed that we tend to have very conservative loan marks that are out there from a fair value disclosure perspective. We feel good about those fair value marks. We think we've probably got a little bit of room for improvement to be a little more in line with some of the assumptions on our discount rates. But, you know, we've got probably a bit heavier concentration of longer-term residential than many others do, and that'll tend to drive bigger fair value marks. But I think you'll see the gap between kind of average and high and low narrow pretty meaningfully as people report this quarter.
spk02: That's great, Pat. Thank you for that. And sorry to bring up a sore topic, but we appreciate the background a lot.
spk09: It's a pretty neat topic. I'd love to take Ben's ear offline on that sometime.
spk08: Chris, I'll add to Pat's comments. They're like notoriously sensitive calculations, and we're kind of looking at them, and they're very circular in some cases where as your prepayment speed assumptions change, then your rates change, and kind of one thing feeds into another. The good news is they're getting better, and we're gonna continue to put a finer point on that.
spk02: Nope, understood, and I appreciate it. Thanks again for taking all of our questions.
spk08: Thanks, Chris.
spk04: Thank you. This is our final question today, so I'd like to hand back to management for any closing remarks.
spk08: All right, thank you. We appreciate your time today and your continued support of Ocean First Financial Corp. We look forward to speaking with you after our first quarter results are published in April. Thanks very much, and have a safe weekend.
spk04: Thank you, everyone, for joining today's call. You may now disconnect your lines and have a lovely day.
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