Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- OceanFirst Financial Corp (OCFC, Financial) reported GAAP diluted earnings per share of $0.40 for Q2 2024.
- Net interest income was $82 million, with operating expenses remaining stable at $59 million.
- Asset quality metrics remain strong, with criticized and classified assets decreasing by 15% to $143 million.
- The company repurchased 338,000 shares under its repurchase program, contributing to capital growth.
- The Board approved a quarterly cash dividend of $0.20 per common share, marking the 110th consecutive quarterly cash dividend.
Negative Points
- Net interest income decreased from $86 million in the prior quarter due to an inverted yield curve and elevated paydowns in higher-yielding loans.
- Deposits declined by approximately 2%, with non-maturity deposits decreasing by 4% compared to the prior quarter.
- The company experienced a net ACL build of $1.6 million and net charge-offs of $1.5 million, including a significant charge-off on a single commercial real estate relationship.
- Loan growth was modest in Q2, with commercial loan closings amounting to only $56 million.
- The net interest margin was 2.7%, reflecting higher funding costs and modestly lower average earning assets.
Q & A Highlights
Q: Curious to talk about the margin here. What are the specifics around the potential pick-up in loan yield as the book turns over and its impact on credit migration in terms of criticized classified balances?
A: The modest increase in deposit cost was expected. The paydowns of higher-yielding loans surprised us a bit, compressing the margin. We don't expect this to recur. We do a lot of stress testing on the CRE portfolio and haven't identified any significant issues. We expect loans to roll with us and pay current coupons. We're focused on C&I growth, which should help improve margins.
Q: How should we be thinking about the CRE book growth in the next couple of years?
A: We like our CRE book and are not in a rush to reduce it. Over time, we expect the C&I proportion of our balance sheet to increase, while the CRE proportion may remain flat or decrease slightly. We're optimizing our best CRE relationships and still see attractive opportunities in the market.
Q: Can you comment on regulatory discussions or pressure regarding CRE concentration?
A: While we can't discuss specific conversations with regulators, our financial statements and outlook should provide comfort. Our portfolio is well-diversified and performing well. We've been proactive in building capital, which has strengthened our position.
Q: Why do you not expect to do more share buybacks in the rest of the year?
A: Our priority is supporting organic growth. Any excess capital beyond that, as long as we're trading below tangible book value, makes share repurchases attractive. We might not see a lot of buybacks, but it's not ruled out.
Q: What's the competition like on the recruiting side for C&I lenders?
A: Competition is tough, but our pitch is consistent. We offer stability, a supportive environment, and a consistent management team. Our reputation helps attract and retain top talent, especially from large regional and national banks.
Q: Are there any big tranches of CDs or broker deposits maturing that could reprice in the next couple of quarters?
A: We have about $200 million rolling every month over the next six to nine months. Brokered CDs are a bit lumpier, with about $250 million maturing by year-end. We'll manage these based on economic conditions.
Q: Is there a bright line ROA that you have to hit to maintain independence?
A: We aim for an ROA north of 1%, approaching 1.20%, to ensure we return cost of capital. The inverted yield curve has been a challenge, but we believe we can achieve this with thoughtful loan growth and operating leverage.
Q: How are the new C&I lenders performing, and how is the team doing on deposit generation?
A: The new hires have met or exceeded expectations. Some C&I borrowers have paid down loans due to strong cash positions, which impacts loan balances but brings in deposits. Competition is tough, but we're focused on maintaining strong credit structures.
Q: What is the roll-on versus roll-off dynamic for the fixed rate and ARM book?
A: Our maturity wall shows the rates at which loans are rolling. We're earning slightly higher rates than stated due to swaps. As loans roll, we expect to maintain a spread of around 225 basis points over the curve.
Q: What is a good tax rate to use from here?
A: Approximately 24%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
