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OCEANFIRST FINANCIAL CORP (OCFC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 EPS was $0.36, down vs Q3 ($0.42) and vs prior year ($0.46), as noninterest expenses rose with acquisitions; net interest income increased to $83.3M and NIM expanded 2 bps sequentially to 2.69% as deposit costs declined .
  • Loan originations rose 20% q/q to $515M and net loans grew $95.9M (4% annualized); excluding $126.3M brokered CD runoff, deposits increased $76.5M and spot deposit costs fell to 2.17% (15 bps below the quarter’s 2.32% average) .
  • Asset quality remained strong: net recoveries of $0.16M, allowance to non-performing loans at 207%, and NPLs at 0.35% of loans (increase reflects acquired PCD loans); criticized/classified assets fell 16% sequentially .
  • Management guided Q1-25 to slower near-term growth with mid-single-digit loan growth for 2025, low-single-digit deposit growth in Q1-25, and a $63–$65M quarterly expense run-rate; dividend maintained at $0.20/share and CET1 ~11.2% .
  • S&P Global Wall Street consensus (EPS/revenue) was unavailable at time of writing; we cannot assess beat/miss for Q4 yet.

What Went Well and What Went Wrong

  • What Went Well

    • Margin/Deposit Cost: NIM expanded to 2.69% and average deposit cost fell to 2.32% with spot at 2.17%, reflecting easing pricing pressure and repricing progress (“deposit rate pressure easing”) .
    • Origination/Loans: Originations rose to $515M (weighted avg 7.38% yield); net loan growth $95.9M; pipeline stable at $306.7M, supporting future NII momentum .
    • Asset Quality: Another quarter of net recoveries and strong reserve coverage; NPLs remained low even including acquired PCD loans; management: “asset quality remained very strong” .

  • What Went Wrong

    • Earnings/Operating Leverage: EPS fell to $0.36 and the efficiency ratio rose to 67.86% as expenses increased from acquisitions and talent onboarding .
    • Year-over-Year Revenue Pressure: Net interest income declined vs prior year on higher funding costs and lower earning asset yields, despite sequential improvement in Q4 .
    • NPL/Delinquencies: NPLs and 30–89 day delinquencies increased y/y (partly due to PCD loans and seasonality); allowance coverage vs NPLs declined vs prior year (227% → 207%), though still robust .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Total Interest Income ($M)$160.4 $159.4 $161.5 $159.6
Net Interest Income ($M)$87.8 $82.3 $82.2 $83.3
Other Income ($M)$11.9 $11.0 $14.7 $12.2
Total Revenue (NII + Other Income) ($M)$99.7 $93.3 $96.9 $95.6
Diluted EPS ($)$0.46 $0.40 $0.42 $0.36
Core Diluted EPS ($)$0.45 $0.39 $0.39 $0.38
Margins and RatiosQ4 2023Q2 2024Q3 2024Q4 2024
Net Interest Margin (%)2.82 2.71 2.67 2.69
Efficiency Ratio (%)60.38 62.86 65.77 67.86
ROAA (%)0.78 0.70 0.71 0.61
ROTCE (%) (Return on avg tangible common equity)9.81 8.51 8.57 7.47
Loan Portfolio ($M)Q4 2023Q2 2024Q3 2024Q4 2024
CRE – Investor-Owned5,354.0 5,325.0 5,273.2 5,287.7
CRE – Owner-Occupied943.9 914.6 841.9 902.2
Commercial & Industrial666.5 677.2 660.9 647.9
Residential Real Estate2,979.5 2,977.7 3,003.2 3,049.8
Home Equity & Other Consumer250.7 242.5 243.0 230.5
Total Loans10,194.6 10,019.3 10,022.2 10,118.1
Deposit Mix ($M)Q4 2023Q3 2024Q4 2024
Non-Interest-Bearing1,657.1 1,638.4 1,617.2
Interest-Bearing Checking3,911.8 3,896.3 4,000.6
Money Market1,021.8 1,288.6 1,301.2
Savings1,398.8 1,071.9 1,066.4
Time Deposits2,445.4 2,220.9 2,081.0
Total Deposits10,434.9 10,116.2 10,066.3
KPIsQ4 2023Q3 2024Q4 2024
Loans-to-Deposits (%)97.70 99.10 100.50
Avg Total Cost of Deposits (%)2.22 2.44 2.32
Deposit Cost (Spot, %)2.38 —2.17
FHLB Advances ($M, end)848.6 891.9 1,072.6
CET1 Ratio (%)—11.3 11.2

Guidance Changes

MetricPeriodPrevious Guidance (Q3 2024)Current Guidance (Q4 2024)Change
Loan GrowthQ4-24; 2025Low-to-mid single digit annualized growth in Q4-24 Q1-25 growth may be slower; mid-single digit growth in 2025 Lower near-term; maintained for 2025
DepositsQ4-24; Q1-25Growth consistent with loan growth Low-single digit annualized growth in Q1-25 Clarified; modest near-term
Operating ExpensesQ4-24; Q1-25Increase to run-rate (~$5M per quarter from two acquisitions) Quarterly run-rate $63–$65M; Q1 seasonal uptick ~$1–$1.5M Raised run-rate detail
Net Interest Income/NIMQ4-24Stabilization/inflection upward in Q4-24 Stable to modest uptick; cautious on NIM expansion pace Maintained, more conservative tone
Capital/CET1OngoingMaintain CET1 >10% CET1 ~11.2%; optionality on sub-debt/preferred refinancing/redemption Reinforced strength/optionality
DividendOngoing$0.20/quarter common $0.20/quarter common (112th consecutive) Maintained

Earnings Call Themes & Trends

TopicQ2 2024 (Previous Mentions)Q3 2024 (Previous Mentions)Q4 2024 (Current Period)Trend
Deposit repricing/costsLaddered CDs; steady roll schedule; targeting lower brokered balances Repricing aligned to Fed cuts; 50 bp reductions; high retention Average deposit cost 2.32%; spot 2.17%; continued repricing Improving cost trajectory
NIM trajectoryNear trough; focus on NII growth even if NIM flat Trough; modest expansion possible with mix/funding Sequential NIM expansion to 2.69%; modest further expansion possible Gradual improvement
C&I banker hiring/premier bankingAdding 5+ bankers; new verticals (gov contracting, grocery) 12 new bankers onboard; deposit-gathering focus; escrow team ramping Additional hires in Jan; premier banking skewed to Q2/Q3 hiring Accelerating talent build
CRE portfolio/maturity wallStress tests show benign repricing; focus on structure/pricing Investor CRE concentration gently declining; rotate to shorter-duration higher-yield Q4 CRE IO maturity 2025–26 ~$1.24B, WA rate 5.64%/3.97%; benign impact Controlled rotation/benign performance
Capital instruments (sub-debt/preferred)May-2025 resets; optional refinance; watch long-end Shelf updated; optionality; avoid high coupons Considering partial redemption from capital/earnings; maintain options Active planning/optionality
OpEx run-rate/seasonality$58–$60M/quarter target $63–$65M run-rate incl. acquisitions; fee income ramp to follow Q1 uplift ~$1–$1.5M; run-rate $63–$65M; accretive over 2025 Higher run-rate; 2025 accretive

Management Commentary

  • CEO (prepared): “We are pleased to see expansion of both net interest income and margin… deposit growth was also solid as we were able to nearly eliminate the last of our brokered deposits…” .
  • CFO (prepared): “Lending costs declined by 16 basis points… reducing overall deposit costs across all deposit types… cautiously optimistic that we’ll continue this repricing into 2025” .
  • CEO (press release): “As we turn to 2025, the Company remains focused on high quality growth while maintaining our expense and credit discipline” .
  • CFO (tax rate): “Effective tax rate of 19% for the quarter… expect 23–25% going forward absent policy changes” .

Q&A Highlights

  • OpEx seasonality: Q1 uptick ~$1–$1.5M; further increases tied to revenue-producing hires; guidance limited to Q1 pending recruiting outcomes .
  • Hiring focus/regions: C&I and deposit-heavy bankers across NYC/NJ/Philadelphia/Northern Virginia/Boston/Baltimore; durable relationships the priority .
  • Reserve build: Q4 provision partly day-1 CECL for Spring Garden; macro factors else; incremental provisioning around 1% on C&I growth mix .
  • Deposit cost opportunity: Pricing CDs lower methodically; less competitive pressure than prior two years; room remains though limited .
  • Margin outlook: Path back to ~3% likely 2026 rather than 2025; steady, slow march with long-end curve repricing benefits .
  • Capital instruments: Sub-debt/preferred optionality in May; consider partial redemption via capital/earnings; avoid high coupon issuance; earnings drag limited (~$10M pretax annual if no action) .

Estimates Context

  • S&P Global analyst consensus for Q4 2024 EPS and revenue was unavailable at time of writing due to access constraints. As a result, we cannot classify Q4 as a beat/miss vs Street. We will update this section when S&P Global data is accessible.

Key Takeaways for Investors

  • Sequential NIM expansion and falling deposit costs signal an inflection in NII; continued repricing and lower brokered CDs should support margin into 2025 .
  • Loan origination momentum (20% q/q) and pipeline stability underpin near-term growth, though management guides slower Q1-25 growth before accelerating to mid-single digits for 2025 .
  • Expense run-rate step-up from acquisitions/talent will pressure efficiency near term, but management expects accretive contributions (mortgage gain-on-sale, specialty finance) as volumes ramp through 2025 .
  • Credit remains a differentiator: very low NCOs, strong coverage, diversified CRE exposure, and benign maturity wall outcomes—mitigating headline CRE risk .
  • Capital optionality is a catalyst: robust CET1 (~11.2%), potential partial redemption/refinancing of sub-debt/preferred at May resets, and maintained dividend support the equity case .
  • Tactical positioning: prioritize the deposit cost trajectory and NIM cadence; watch Q1-25 expense seasonality and hiring updates for visibility on operating leverage; monitor specialty finance and mortgage fee ramps for noninterest income lift .
  • Without Street estimates, trade the narrative: sequential NII/NIM improvement, deposit mix normalization, and credit resilience are near-term stock drivers; consensus verification will refine positioning once available.

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