Matthew Breese: 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?
Patrick Barrett: Yes.
Matthew Breese: 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 5 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, 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&I credit and a little bit less in CRE credit. So those C&I credits, as you know, tend to be floating rate based on prime or multiple of SOFR. So that’s why you’re seeing the increased yield, 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 as the Fed starts to move, but that will benefit, hopefully, in the deposit costs in the end game, as well. So I do think you’re going to see higher yields 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.
Christopher Maher: 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.
Matthew Breese: 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?
Patrick Barrett: 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.
Matthew Breese: 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?
Christopher Maher: 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.
Matthew Breese: Got it. Okay. I appreciate taking my questions. Thank you. It’s all I had.
Christopher Maher: Thanks, Matt.
Operator: Thank you. Our next question today comes from Manuel Navas from D.A. Davidson. Manuel, please go ahead. Your line is open.
Manuel Navas: 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?
Joseph Lebel: I think we’ve been fortunate, as I mentioned earlier, Matt. Good morning. To hire eight more C&I bankers during 2023. Those folks have now gotten fully immersed in the OceanFirst culture, so to speak, and are starting to see green shoots and 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. So 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.
Manuel Navas: 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?
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.
Manuel Navas: Okay. That’s great. As thinking about it as a 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 [indiscernible]. Just kind of what’s the opportunity out there if you find the right partner and capital stays elevated?
