Q4 2023 OceanFirst Financial Corp Earnings Call

Participants

Alfred Goon; Senior Vice President, Corporate Strategy & Development; OceanFirst Financial Corp

Joseph Lebel; President, Chief Operating Officer, Director; OceanFirst Financial Corp

Presentation

Operator

Hello everyone and welcome to the Ocean First Financial Corp, Q 423 earnings release and thank you for standing by. My name is Daisy and I'll be coordinating your call today. (Operator Instructions) And I would now like to hand. Over to your host. Alfred, going from the first station. Again, Alfred, please go ahead.

Alfred Goon

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 take up 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. Thank you. And I will now turn the call over to Christopher Moore, Chairman and Chief Executive Officer.

Thank you, Alfred. Good morning and thank you to all been able to join our fourth quarter 2023 earnings conference call. This morning, I'm joined by our President, Joe Lebel 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 GAAP diluted earnings per share of $0.46. Our earnings reflected 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 CD's, stable deposit balances and a loan to deposit ratio below 100%. The resulting mix shift and 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 rate is increased to 38% from 35% in the prior win 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 brokered time depot. 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 with our common equity tier one 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 $0.20 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. However, 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's 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.

Joseph Lebel

Thanks, Chris. Non maturity deposits continue to grow, increasing approximately 1% link quarter, while overall deposit balances declined by approximately 1%, reflecting our continued plan run off for brokered CD's. Our strategy to change the mix in the deposit composition has proven successful with the percentage of brokered CD's 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 700. And 60 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 anticipated resurgence in customer demand with an outlook look 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. As the quality metrics remained strong with non-performing loans and criticized and classified assets representing only .29% and 1.44% of total loans respectively. This quarter, we reported essentially 0 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.

Thanks, Joe's. 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 cost reflects cycle to date deposit betas of 38%. 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 II 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 in which we executed during 2023. Note that core non-interest expense excludes $1.7 million related to the FDIC special assessment. Will 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. 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 appreciably with growth in our CET one ratio to an estimated 10.88%. At 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.

Question and Answer Session

Operator

Thank you if anyone would like to register a question, please press * followed by one on your telephone keypad and ensure you are unmuted locally. If you would like to withdraw your question, please press * 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.

Thank you. Good morning, everybody. Maybe first just. Yeah. Maybe first just on 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 how that is baked into the the the assumption of the margin in terms of like what how much the the margin you think is reacting will react to to each 25 basis point rate cut?

Hey, David, Pat, I'll take that. So 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. And obviously the street has a 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 $1 million. 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 moved our asset sensitivity and to where we're 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 NI volatility.

OK. And it how much does the 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 or other factors.

Hey there, 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 you know mid-single digits during the year, that's not a rate dependent. Decision. It's a decision that we're now generating capital and wanted to deploy it with our customers. The only caveat, I'll leave you with that 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. 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.

I appreciate that Chris. And I guess you expect to be able to. You you put, I think 100% loan or deposit ratio this year, but you as loan growth accelerates you you think you'd still be able to fund that loan growth with core deposit growth and maybe even over fund it I guess reduce the loan deposit ratio as we get in the out?

Joseph Lebel

Yeah, Danny, it's Joe. That's exactly right, I. Think 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. You saw the uptick in the pipeline in, in Q4, a little bit. I mean we have a ways to go, but we're starting to see some green. Shoes clients are. Sort of seeing their way through, navigating through and. That that I think will bode well for us as well.

OK. Thank you for all the color. I'll step back.

Thank you.

Operator

Thank you. Our next question today is from Frank Schiraldi from Piper Sandler. Frank, please go ahead. Your line is open.

Frank, just given the given that the cost of deposits and then the. Spot rate being slightly below the average for the quarter? Is that is that something you? Know can we? Sounds like you're still thinking that there could be some deposit cost increase in the in the. First half of the year. Before we see margins stabilized or is it potentially? We're already at. Stabilization on the deposit cost side and and we could be closer to min drop here.

We would be very cautious, frank, predicting anything about the deposit cost because of the, 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 wanted. For rate, I think what you saw in the mechanism in the fourth quarter is during the course of the quarter. We've rolled off a substantial matter brokered CD. So that would cause the spot rate at the end of the quarter to not reflect all those brokered CD's. So that was kind of the impact that that impact will diminish a little bit overtime.

OK, great. And then. Pat, you mentioned getting to uh, we're getting close to neutral here on on rate sensitivity. What does that assume and what do you assume for in your guide for deposit. Painted on the way down, as we see these, these three rate cuts, are you guys expecting modeling and immediate reaction to the rate cuts in terms of a deposit beta or is there some lag effect?

I think we would definitely expect a lag effect. I mean we saw 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, so I think 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.

Frank, it's Chris. I'd add that if you think about kind of supply and demand and deposits for the industry right there, 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.

OK. And then just lastly on that front. Sorry if I missed that, but in terms of you know the guide for long growth and positive growth it is pretty broad in, in the in the deck and. You know, you guys talked about a little bit. On the call. But it it's so if I understand the most likely scenario as as we stood 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 sort of? The guide here.

Joseph Lebel

Yeah. Frank, it's Joe. That's the most likely scenario. I I tend to think that you know we could see we could see real outperformance of the conversely we could see a little slow performance. So it's 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 you know still got to get to fruition. So I definitely think we're going to see, you know, positive growth. The question is how fast it ramps up to what we consider to be more normalized environments.

OK. And then just lastly, you know, Chris, you mentioned the deposit environment, obviously it's quite competitive. And so just curious any sort of strategy you can talk about that you using to bring in the incremental dollar? You know geographically or you know size range of a given competitor, you know where is the, where is the opportunity here to bring in the incremental deposit dollar.

I'll make a few comments and I'll ask Joe to follow in as well. You know, one of things we've 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 and. 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. So we despite having kind of Brought the expenses down.

Joseph Lebel

Yeah. So, Frank, I, I, a little color here. We've added eight senior bankers all throughout. 2023 in in all the footprints, so you know a couple in Boston and Philadelphia, New Jersey, New York. And then I so they've been hitting. The ground running and bringing some deposits and I. Think the other. Point I'd mentioned you know, for us historically being court deposit driven, we didn't offer. You know, 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. To going out and getting. That cash back. So we've deepened relationships with existing clients as well as adding, adding some new operational accounts. So I think it's, it's been a testament to one of the reasons the deposits have done well both on the retail and on the commercial bank.

OK, great. I appreciate the call. Thank you.

Thanks Frank.

Operator

Thank you. Our next question today is from Michael Perito from KBW. Michael, please go ahead. Your line is open.

Hey, guys. Good morning. Morning, Mike. Todd, I want to ask a similar question that I asked last quarter. 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 cost rising, but you know I think. Maybe it sounds like with loan growth reengaging more consistently. At better incremental spread to like the 280 consolidated and then you have today that starts to become maybe a bigger impact particularly as it compounds on the back half of 24 which is a long way of asking. Can you give us kind of an updated view kind of where 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 the commercial origination?

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, is still a lot smaller than it normally is and was a year, year and a half ago. But our pipeline yields are at around 8:00. So we're definitely getting the pricing that we're looking for on originations. And then you know, we continue to have the portfolio roll. So we'll have, you know, 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 as they mature and. So we definitely have all the pieces in place to see NIM expansion notwithstanding changes in in, you know, deposit customer behavior or the need to fund incremental growth in a very competitive environment.

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 guy 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 as we think about what? The contribution looks like?

We have look, there's an opportunity we wouldn't provide guidance and 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 24 than they were in 23, which should bode well for swap income gain on sale and title insurance revenues.

Thanks, Chris. It's helpful. And then just last minute, I'll step back just on, I know you commented a little bit on already just to maybe go a layer deeper, just around buybacks. You know I I think you were pretty clear in terms of why you didn't elect to use them in 23. You know it was kind of a build liquidity build, capital year it, it feels like the footing underneath you. Guys is much more. Certain now you know, as we think about the $2.9 million authorization remaining, are you willing to provide any more color about how kind of attracted the opportunity is to deploy capital that route today, particularly if you know loan worth might be a little bit more back half heavy in in 24, I mean it's kind of now the time to maybe buy back some shares or just any expanded thoughts that would be great.

Mike, thanks for bringing up the 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 lien 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 would be pretty straightforward. To the extent we can grow customer relationships, that's always the best thing we can do with CAP. But if that growth is a little more back ended or takes a little more time than these valuations, we would expect to deploy capital through repurchases to maintain our capital ratio. And 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 is a great opportunity to make. To take advantage of.

Helpful guys. Thanks. Stay safe with the storm and I appreciate you. Taking my question.

Thanks take.

Operator

Thank you. Our next question is from David Bishop from Hope Group. David, please go ahead. Your line is open.

Hey, good morning, gentlemen.

We did.

Chris, quick question. In terms of you noted another quarter maybe challenging in terms of the non-interest-bearing deposits. Has there been any change in terms of, I don't know if you track where they go as they continue to run off to some of the bigger the JPMorgans of the world are you are you retaining them in other OCS project motion first products and remind us if there's any seasonality? And at that end of your runner.

You know we we're certainly keeping the deposits here at the bank for the most part. You know as Joe. Mentioned we take, 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. 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 noninterest number is important to us. The transaction account number is more important to us and that's been pretty stable.

I just. Hey, Dave, it's pat. I just throw into we do have seasonality, but it tends to be in truck order. So if we changed our year end to October 15. Then you would probably see kind of peak non-interest-bearing levels every quarter instead of through, which is what you see today. But it's a very it's the government business. So that does Dr. inflows throughout the quarter, they come back out again just in time for. Us to report.

Got it. And then noticed a modest uptick in substandard loans, didn't know if any common, was there any commonality in segments? Just curious some color behind that increase?

Yeah, there's no theme and there was nothing of note in terms of a trend that would cause any concern. The 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 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.

Got it. Appreciate the color.

Thanks, Dave.

Operator

Thank you. Our next question is from Matthew Breeze from Stephens Inc. Matthew, please go ahead. Your line is open.

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.

I think we're assuming that we're peaking on deposit costs right now with some a little bit of adjustment for some of the more institutional deposits that we have and allowing to run off 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 and pricing. And as we touched on earlier, if we do begin to see improvement or IE lowering of cost, 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.

OK. So the NIM Stability guide basically assumes deposit costs are flat and expansion assumes maybe there's some reduction. Is that a fair statement? OK. And then and 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.

Joseph Lebel

Matt, I'll, it's Joe. I'll start by saying this the we've seen a mix shift in the pipelines, which is good especially in the commercial pipe more towards C and I credit and a little bit less in, in, in CRE credit. So those CI credits as you know tend to be floating. Eight based on prime or multiple of so for. 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, you know, we'll have some rate sensitivity as the Fed starts to move, but that will benefit hopefully in the deposit. Plus, in the end game. As well, so I I do think you're going to see higher yields. I 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.

Mike, you 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 3:00 to 8:00. We're rolling loans from you know six to seven and change because the. The rolling loans are probably a little bit lower than that newly originated C and I pipeline stuff that Joe refers to, so this is something that will play out over time. And if you kind of kind of freeze rates? Where they are. Now we have a backlog of loans that have to roll. So that will be a little bit of a tailwind. We just don't know if it's enough to overcome the any deposit headwind.

And could you just remind us of what? Percentage of the overall loan book. Floats in, you know immediately or then call it. You know 6090 days.

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.

Last one for me. Was just on Chris. Your prior point on. 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 do the valuations and loan? To value ratios respond.

So there's more detail in our supplemental, but I will going to 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 maturity. So all office loans kind of every facet we could look at. We have updated as 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 at an interest rate of seven. Percent what you'll find is it still, debt serves pretty easily. So it's in the 124 range I think of. Debt service so. 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. You know some of these loans are eligible for either. CMBS or some of the GSC program? And what we're finding is that their pricing is even more affordable than that. So although we did all that stress at 7:00, that's not a market rate for those loans. So we we don't expect that the 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. OK.

Got it. OK. I appreciate taking my questions. Thank You. That's all I had.

Thanks Matt.

Operator

Thank you. Our next question today comes from Manuel Navas from DA Davidson. Manuel, please go ahead. Your line is open.

Hey, thank you. Just to I guess dive into the pipeline a little bit better so so most of the pipeline right now on the commercial side is C and I and and that's indicative that Sherry is still muted and Sherry can kind of grow as as we start to get the cuts that you you foresee in your forecast?

Joseph Lebel

I think we've been fortunate, as I mentioned earlier, Manny, good morning. The higher you know. Eight more CI bankers during 2023. Of those, folks have now gotten fully immersed in the the Ocean first culture, so to speak, and and are are starting to see green shoots and their opportunities. Look, we still love Siri. We're good at that. But I think as it's been well documented, you know, Cle has had some. 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. And then and as Chris mentioned earlier, we're 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.

On those CI. Hires or, you know, 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.

Joseph Lebel

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.

OK, 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 kind of thoughts on M&A thawing, just kind of what's the opportunity out there if if you find the right partner and capital stays elevated?

Well, I'd start with, you know, our best investment is in ourselves, especially as we are currently trading below tangible book. So that would be our our priority would continue the organic growth and build out the franchise. They're kind of two, I think precursors to M and a returning for the industry with a 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. The 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.

I appreciate that. Thank you.

Operator

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 * followed by one on your telephone keypad. Our next question is from Christopher Marnach from Janney Montgomery Scott. Christopher. Please go ahead.

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 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.

Yeah, we'd certainly like to see more growth going forward. And I think you know 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 would just kind of staying put the same one for staff we've been, you know, 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. 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 we 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 take a little while to return back to that level. So, so so we're bullish, but you know it's going to take a little time to. To work through that.

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?

I really want to thank you for closing the call down. With that question, I was hoping we wouldn't get. That but yeah, I. You're going to see loan marks improved this quarter? You're going to see that across the industry with the the change in curves and rate expectation. 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. A bit heavier. Concentration of longer term residential. And many others do, and that will tend to drive bigger fair value marks. But I think you'll see the the gap between kind of average and high and low narrow pretty meaningfully as people. Report this quarter.

That's great, pat. Thank you for that. And sorry to bring up a sore topic, but we appreciate the background a lot.

It's not sore, it's just it's just it's it's pretty new topic, so. Let's take ginger your offline on that sometime.

Chris, it's, it's Chris. I'll, I'll, I'll add to patch comments. Yeah, these are they're like notoriously sensitive calculations and we're kind of looking at them and they're very circular in some, in some cases where your is your prepayment speed, assumptions change, then your rates change and kind of one thing feeds into another. The the good news is. That getting better. And we're going to continue to put a finer point on that.

Nope, understood. And I appreciate it. Thanks again for taking all our questions.

Thanks Chris.

Operator

Thank you. This is our final question today. So I'd like to hand back to management for any closing remarks.

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.

Operator

Thank you everyone for joining today's call. You may now disconnect your lines and have a lovely day.