Oceanfirst Financial Corp Q4 FY2023 Earnings Call

Hello, everyone, and welcome to the OceanFirst Financial Corp Q4 '23 Earnings Release. Thank you for joining us. My name is Daisy, and I will be coordinating your call today. Now I would like to introduce your host, Alfred Goon from OceanFirst. Alfred, please proceed.

Thank you, Daisy. Good morning, and welcome to the OceanFirst 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 Maher, Chairman and Chief Executive Officer.

Thank you, Alfred. Good morning, and thank you to all who were 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 included GAAP diluted earnings per share of $0.46. 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 mix 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 betas 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 by $265 million or 3%, excluding brokered time deposits, resulting in our decision to reduce brokered 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 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 $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 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.

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 and the deposit composition has proven successful with the percentage of brokered 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 remained strong with nonperforming 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.

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 may occur depends on so many variables I hesitate to put a degree of confidence on the exact timing. Said in another way, in terms of net interest income, we 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 noninterest 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 noninterest 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, though some quarterly volatility should be expected. Additionally, we continue to explore opportunities to further improve our operating leverage. The 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 CET1 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.

Thank you. Our first question today is from Daniel Tamayo from Raymond James. Daniel, please go ahead. Your line is open.

Thank you. Good morning, everybody.

Good morning.

Maybe first, could you provide your margin forecast for stability and potential expansion this year? Specifically, what are your assumptions regarding any rate cuts this year included in that? Additionally, how do you believe these rate cuts, particularly each 25 basis point cut, will impact the margin?

Hey, Dan, it's Pat. I'll take that. We're assuming three rate cuts around midyear, the third quarter, and year-end, based on what the Fed indicates. The market seems to have more aggressive expectations than we do. If rate cuts happen more quickly or are larger, it could have some impact for us, but not significantly. We're looking at an effect in the $1 million range, which is minimal. Unless we see a 50 basis point cut tomorrow, it’s unlikely we’ll notice any substantial changes in the first half of the year. We've adjusted our asset sensitivity and are currently in a fairly neutral position. So regardless of increases or decreases in rates, we probably won't experience much volatility in net interest income unless there are much larger changes than anticipated.

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?

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.

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

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 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.

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

Thank you.

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

Good morning.

Good morning, Frank.

Given the cost of deposits and the spot rate being slightly below the average for the quarter, are you considering that there might be a deposit cost increase in the first half of the year before we see margins stabilize? Or is it possible that we have already reached stabilization on the deposit cost side, and we could be facing a drop in net interest margin here?

Yes. We would be very cautious predicting anything about the deposit cost because it's really unknown how consumers and businesses will respond to the perception of lower rates. There’s a lot of discussion about rates, and consumers and businesses may have different expectations regarding what they want for rates. In the fourth quarter, we rolled off a substantial amount of brokered CDs, which meant the spot rate at the end of the quarter did not fully reflect all those brokered CDs. That was the impact, and it will gradually diminish over time.

Okay. Great. Pat, you mentioned getting close to neutral on rate sensitivity. What does that assume? What do you assume for your guidance on deposit betas as we see these three rate cuts? Are you expecting an immediate reaction to the rate cuts in terms of deposit beta, or is there a lag effect?

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. 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 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.

Okay. And then just lastly on that front, sorry if I missed it, but in terms of the guide for the loan growth and deposit growth is pretty broad in the deck. And you guys talked about a little bit on the call. But so am I understanding is the most likely scenario 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 the sort of the guide here?

Yes. Frank, it's Joe. That's the most likely scenario. I tend to think that we could see a little outperformance, but conversely we could see a little slow performance. So 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 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.

Okay. And then just lastly, Chris, you mentioned the deposit environment, obviously, it's quite competitive. And just curious, any sort of strategy you can talk about that you're using to bring in the incremental dollar geographically or size range of a given competitor. 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. 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 savings 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. So we despite having kind of brought the expenses down.

Yes. Frank, to add some context, we've recruited eight C&I bankers throughout 2023 in various locations including Boston, Philadelphia, New Jersey, and New York. They've been working hard and successfully bringing in some deposits. Historically, we have been focused on core deposits and didn't offer competitive rates for the surplus cash many clients held. Over the past year, we've actively worked to bring that cash back. This has strengthened our relationships with existing clients and allowed us to open new operational accounts. This is one of the reasons why our deposits have performed well in both the retail and commercial banking sectors.

Okay. Great. I appreciate the color. Thank you.

Thanks, Frank.

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

Hey, guys. Good morning.

Good morning, Mike.

Pat, I want to revisit a question I asked last quarter to get your updated thoughts on why net interest margins might stabilize. It seems early to definitively say that deposit costs have peaked. However, with loan growth returning more consistently at better incremental spreads compared to the current consolidated net interest margin of 280 basis points, this could start to have a larger impact, especially as it accumulates in the latter half of 2024. Essentially, could you provide an updated perspective on where average commercial credit is being originated today in relation to the $5.40 blended yield from the fourth quarter? Are you continuing to see that yield increase, or is it beginning to stabilize for new commercial origination?

We are definitely observing an increase in both new money and renewals. However, I want to stress that when figures are small, they should not be broadly interpreted. In the fourth quarter, our originations averaged around 770. Although our pipeline has grown, it remains significantly smaller than usual compared to a year or a year and a half ago. Our pipeline yields are approximately 8, indicating that we are achieving the pricing we desire for originations. Additionally, we expect around $0.5 billion in loans to roll over each quarter, which will reprice according to their maturity and renewal terms. Therefore, we have all the necessary elements in place for net interest margin expansion, regardless of changes in deposit customer behavior or the need to fund additional growth in a competitive market.

That's helpful. And then just in terms of the 2024 outlook, any kind of initial thoughts around noninterest income, which I didn't see necessarily anywhere in the guide. Just is there obviously, probably a couple of key pieces, 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?

We see an opportunity, but it's challenging to provide specific guidance. The three main areas likely to be influenced by 2024 volumes include swaps, gain on sale income in residential, and our title insurance business. It's quite early to determine the exact increase in unit volumes. However, we do anticipate that in 2024, units will be higher than they were in 2023, which should positively impact swap income, gain on sale, and title insurance revenues.

Thanks, Chris. That's helpful. Just to touch on buybacks again, I understand you've mentioned this before, but I’d like to dive a bit deeper. You made it clear why buybacks weren't pursued in 2023, focusing on building liquidity and capital. It seems like your position is much stronger now. Considering the remaining $2.9 million authorization, can you share more on how appealing it is to deploy capital in that way now, especially if loan growth is expected to be more concentrated in the latter half of 2024? Is this a good time to consider buying back shares? Any further insights would be appreciated.

Mike, I appreciate you bringing that up. You are absolutely right. During a period like we experienced in 2023, it is crucial to carefully assess your risk positions, understand your liquidity, and ensure there are no claims against capital. We have accumulated capital throughout the year and are quite pleased with its current status, which we aim to maintain. The calculations regarding this matter seem rather straightforward. Increasing customer relationships is always our preferred method of utilizing capital. However, if that growth is slightly delayed or takes longer than anticipated, we anticipate using some capital for share repurchases to keep our capital ratio steady. Interestingly, our calculations indicate that whether engaging in additional repurchases or acquiring new clients has a roughly neutral effect on earnings per share. While we would always prefer to gain a new customer, we can achieve similar benefits through buybacks, particularly since trading below book value presents a valuable opportunity.

Got it. Helpful guys. Thanks. Stay safe with the storm, and I appreciate you taking my question.

Thanks. Take care.

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

Great. Good morning, gentlemen.

Good morning, David.

Chris, quick question in terms of, you noted another quarter may be challenging in terms of the noninterest-bearing deposits. Has there been any change in terms of, I don't know if you track where they go, is it continue to run off to some of the bigger JPMorgan's of the world, are you retaining them in other OCS product, OceanFirst products? And remind us if there's any seasonality in that end of year runoff?

Yes. No, 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 noninterest-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. So that's really what's driving it. And as we look forward, I would also mention that we have a lot of transaction accounts that are not captured in the noninterest-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'd just like to mention that we do experience seasonality, but it typically occurs within the quarter. If we adjusted our year-end to October 15th, you would likely observe peak noninterest-bearing levels each quarter instead of a low point, which we are currently experiencing. This is largely influenced by the government business, which drives inflows throughout the quarter that later return just in time for our reporting.

Got it. I noticed a modest increase in substandard loans. Was there any commonality in the segments? I'm just curious about the reasons behind that increase.

Yes, there is no specific theme, and nothing concerning in terms of trends. I want to emphasize that the level of substandard loans remains significantly below our long-term average of about 2%, and it is below pre-pandemic levels. This reflects a return to normalcy. Credit goes through cycles, but none of the portfolio segments raise any concerns, and there is no common factor among them.

Got it. Appreciate the color.

Thanks, David.

Thank you. Our next question is from Matthew Breese 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. 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?

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 for runoff with those, but we're assuming we're going to be rolling our OceanFirst 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 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.

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.

The rates in the loan pipelines are significantly higher than those currently on the balance sheet, and I believe this difference is the largest I've observed in 5 to 10 years. I'm interested to know if we can expect an acceleration in loan yield expansion going forward. Any context regarding the possible extent of that expansion would be appreciated.

Matt, it's Joe. I'll start by saying this. We've seen a mix shift in the pipelines, which is good, especially in the commercial segment, moving more towards commercial and industrial credit and a bit less in commercial real estate credit. As you know, those commercial and industrial credits tend to be floating rate based on prime or a multiple of SOFR. That's why you're seeing the increased yield, which is a positive development. We're very pleased about that, as these relationships come with deposits and several other benefits. We will have some rate sensitivity as the Fed begins to move, but that should benefit deposit costs in the long run as well. I do think you're likely to see higher yields, although it might be a bit too early to declare victory and assume that we can expand margins solely based on loan yields. However, we're quite satisfied with what we're observing so far.

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 6s. So we're not rolling loans from 3% to 8%. We're rolling loans from 6% to 7% and change because the rolling loans are probably a little bit lower than that newly originated C&I 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 will be a little bit of a tailwind. We just don't know if it's enough to overcome any deposit headwind.

Got it. And could you just remind us of what percentage of the overall loan book floats immediately or within, call it, 60, 90 days?

Call it 1/3, 1/3 and 1/3. So we've got 1/3 that resets at least quarterly, if not more frequently. We've got a 1/3 that's hard fixed and then we've got 1/3 that are adjustable and those are spread out over a series of maturities and dates, and they roll when they roll.

Okay. Last one for me, which is just on Chris, your prior point on stuff that's rolling particularly in commercial real estate, how well do these properties handle higher rates? Could you provide some colors on before and after debt service coverage ratios? And then if there was a reappraisal on any of the stuff, how do the valuations and loan-to-value ratios respond?

So there's more detail in our supplemental, but I will kind of give you kind of the headlines. We've had a lot of stress testing of the loan book over the course of the year. We've looked at rolling maturities, all office loans, kind of every facet we can look at. We have updated as we have financial statements from clients about 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 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 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 7%, 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.

Got it. Okay. I appreciate taking my questions. Thank you. It's all I had.

Thanks, Matt.

Thank you. Our next question today comes from Manuel Navas from D.A. 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 most of the pipeline right now on the commercial side is C&I, and is that 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?

I believe we've been fortunate to hire eight more C&I bankers during 2023. They have now fully integrated into the OceanFirst culture and are beginning to see promising opportunities. We still have a strong interest in CRE, which we excel at, but as has been noted, there are recent concerns regarding valuations and low activity in that sector. We're definitely interested in the market activity that does exist, and as Chris pointed out, we're ready to compete. We've successfully completed a significant amount of construction over the past couple of years and are pleased with that progress, especially as projects are reaching or exceeding expected lease-up terms. We would like to pursue more opportunities in that area, but currently, there is not a lot available.

On those C&I 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?

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.

Okay. That's great. As we consider capital builds and your comments about the buyback, particularly in a slower growth environment, what are your thoughts on M&A? What opportunities do you see if we find the right partner and maintain elevated capital levels?

I'd start with our best investment is in ourselves, especially as we're currently trading below tangible book. So that would be our priority. We're going to continue the organic growth and build out the franchise. There are kind of two, I think, precursors to M&A returning to 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.

I appreciate that. Thank you.

Thank you. Our next question is from Christopher Marinac 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 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?

Yes. 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 one 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 a 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 talent to do that. So this is the year where we grow 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.

Got it. That's helpful. And just a follow-up for Pat or whoever, the loan marks some 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. It's something we wouldn't get that. Yes. You're going to see loan marks improve this quarter. You're going to see that across the industry with the change in curves and 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 exposure 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 in our discount rates. But we've got probably a bit heavier concentration of longer-term residential than many others do, and that will 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.

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 a sore topic; it's just a pretty deep subject. I'd love to discuss it offline sometime.

Chris, it's Chris. I want to add to Pat's comments. These calculations are often sensitive and can be very circular; when your prepayment speed assumptions change, your rates change, and one factor influences another. The good news is that we are improving in this area, and we will continue to refine our approach.

No, understood, and I appreciate it. Thanks again for taking all of our questions.

Thanks, Chris.

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 OceanFirst 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.

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