OceanFirst Financial Corp. (OCFC) Q3 2022 Earnings Report, Transcript and Summary

Good morning and thank you for attending today's OceanFirst Financial Corp. Earnings Conference Call. My name is Camilla, and I'll be your moderator for today's. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] It is now my pleasure to pass the conference over to our host, Jill Hewitt. Please proceed.

Good morning and thank you all for joining us today. I'm Jill Hewitt, Senior Vice President and Investor Relations Officer at OceanFirst Financial Corp. We will begin this morning's call with our forward-looking statement disclosure. Please remember that many of our remarks today contain forward-looking statements based on current expectations. We refer to our press release and other public filings including the risk factors in our 10-K, where you will find factors that could cause actual results to differ materially from these forward-looking statements. Thank you. And now, I will turn the call over to our host today, Chairman and Chief Executive Officer, Christopher Maher.

Thank you, Jill, and good morning to all who've been able to join our third quarter 2022 earnings conference call. This morning, I'm joined by our President, Joe Labelle and our Chief Financial Officer, Pat Barrett. As always, we appreciate your interest in our performance, and we're pleased to discuss our results with you. This morning, we will provide brief remarks about the financial and operating performance for the quarter and provide some color regarding the outlook for our business. As a reminder, in addition to the earnings release issued last night, an investor presentation is also available on our company's website. We may refer to those slides during the call. After our discussion, we look forward to taking your questions. Our financial results for the third quarter including GAAP diluted earnings per share of $0.64. Earnings reflected strong loan growth, expanding margins and benign credit conditions. Core earnings were $0.60 per share and reflect non-core items primarily related to unrealized mark-to-market valuation adjustments on equity investment positions, and to a lesser extent charges related to branch closures and mergers. I would also note that this quarter was the first quarter in which the company was subject to the Durbin amendment cap on interchange income, which reduced our interchange fees by $1.7 million for the quarter. This is the final material headwind we faced from crossing the $10 billion regulatory threshold. Turning to Capital Management, the Board approved the quarterly cash dividend of $0,20 per common share. This is the company's 103rd consecutive quarterly cash dividend and represents 34% of core earnings. Tangible common equity per share increased to $16.30 reflecting earnings momentum, outpacing AOCI marks related to our investment portfolio. The company did not repurchase any shares in the third quarter while we continue to await the regulatory review for the Partners Bancorp acquisition. Moving to the merger agreement with Partners Bancorp, November 4, 2022, will be the one-year anniversary of the announcement of the agreement to acquire Partners. We continue to collaborate with Partners and are working with our regulators as they review the application. As noted in the agreement after one year, either party may, but is not obligated to terminate the agreement without penalty. Of course, until all approvals and customary closing conditions are met, we cannot schedule the merger closing. We will publish appropriate filings when definitive information is available. Beyond our financial performance, I'm also pleased to note that earlier this month, we held a bank wide afternoon volunteering, then held closing our branches. So over 750 OceanFirst employees, we call our wave makers could spend the collective 3000 plus hours at over 100 project sites to help our neighbors in five states. While the afternoon of October 6 is not the only volunteering that takes place at OceanFirst. It certainly was a significant opportunity for us to help the nonprofit organizations in our communities who do so much to help our neighbors every day. This commitment is a core part of how we serve our communities and build our business. At this point, I'll turn the call over to Joe to provide some color regarding our progress during the quarter.

Thanks, Chris. The loan portfolio had another solid quarter with 294 million in net growth. Total loan originations were 544 million driven by commercial closings of 357 million. It's important to note that loan originations have slowed considerably, running 35% lower than Q2 and 47% lower than Q1. This is a natural consequence of our conservatism regarding credit risk and consumer demand falling as interest rates rise. However, net loan growth remains healthy and has grown at double-digit levels, as prepayments have decreased throughout the year. While originating less, the quality of our originations remains strong as our focus remains the diligent application of a consistent credit appetite for responsible loan growth in the face among certain economic environments. The economic uncertainty affords us less visibility into 2023 but a modicum of continued responsible growth is expected in certain segments. While we all expect continued declines in residential lending, due to rising rates affecting affordability coupled with ongoing supply constraints, multifamily demand is high as rental rates continue to outpace inflation, and a constant need for housing advance. We expect loan growth in the construction of multifamily and the conversion of existing projects to permanent amortizing loans in Q4 and into 2023. Turning to deposits, our loan to deposit ratio ticked up modestly to 97.6% from 95.9% in the prior linked quarter, due to loan growth coupled with a traditional decline in the seasonality of certain deposit classes. Organic deposit growth was 120 million for the quarter. Our total cost of the deposits of 36 basis points rose 14 basis points as compared to the same prior year period but remains remarkably below the pace of Fed increases. We expect to aggressively look for new deposits to support prudent loan growth, while still anticipating modest net interest income improvements. Moving on to fee income. As Chris mentioned, this quarter is the first time we've experienced revenue reduction as a result of reduced Durbin amendment fees. Accordingly, bank card fees related to Durban fell 1.7 million for the quarter. With that, I'll turn the call over to Pat to provide more details on the margin, expense trends and tax rate expectations.

Thanks Joe. Turning to net interest income and margin net loan growth of 294 million and our assets sensitive balance sheet drove another quarter of margin improvement, which expanded by 7 basis points to 336. While our strengthening margin was somewhat muted by higher funding costs, it's important to note that our deposit data so far, are only about a quarter of what we saw in the last interest rate cycle. Two factors should provide further tailwinds for margins. First quarter end loan portfolio of nearly $10 billion was 160 million higher than the third quarter average. And second, nearly a quarter of our earning assets are floating rate providing further opportunity for margin expansion as rates increase in the remainder of the year and into 2023. Core non-interest expense ticked modestly upward by about a $1 million to 59 million, primarily due to employee medical costs incurred in the third quarter. It's also worth noting that our effective tax rate for the quarter was just over 24%, we expect that to remain in this range in future periods. Overall, we continue to remain very disciplined around expense management. This, combined with our steady growth this year puts us in a position to highlight that we've already outperformed the quarterly efficiency and profitability targets that we announced at last year's Investor Day. As a reminder, those target metrics were to earn $0.55 per share, meet or exceed a 1% ROA and achieve an efficiency ratio of 55% or better. At this point, I'll turn the call back to Chris.

All right. Thanks, Pat. We'll begin the question-and-answer portion of the call. So give me a minute while we assemble everyone's questions.

Absolutely. [Operator Instructions] The first comes from Michael Perito with KBW. Your line is open.

Thanks for taking my questions. I want a couple big picture questions maybe and I will let others kind of drill in on the model. But I guess first for starters, pretty good balance sheet growth again this quarter and good name trends. As you guys think about some of your more expansion type markets where I imagine kind of the core funding isn't as robust as in your legacy New Jersey, broader New York market. Does it alter your appetite for expansion as those economics potentially changed with deposit betas creeping up? Or how do you guys think about that dynamic as you kind of continue to try to drive loan growth outside of your legacy New Jersey footprint?

That's a good question, Mike. So as we open these offices, I always kind of cringe when people refer to them as loan officers or loan production officers, because we think of them more as a commercial banking officers. It is the case though, that deposits will grow a little slower than loans will. But we do expect to be raising deposits in each of these markets, and over probably a period of years achieved some level of self-funding in those markets. But even ask Joe to talk a little bit about our investments into treasury and cash management for our clients.

Just I'll echo Chris's points Mike. And I will tell you, it's an interesting, even a mindset for our folks, because we spent, as you know, the last two years putting money to work, excess liquidity, trying to put money work, put money out on the street. And our folks justifiably focused on one side of the balance sheet, and now we're focusing on both sides of the balance sheet. So I'm not overly concerned, I spent two days in Boston last week talking to corporate clients that have excess liquidity that are excited to move dollars to us. And as Chris mentioned, we've spent a lot of effort and time and product set investing in our treasury business for corporate clients. So I think we're well positioned to gain market share in deposits in what I consider to be the non-legacy geographies that we operate in.

Last month, we've released a significant upgrade to our treasury suite for our corporate clients, called the LFB Connect, which is a comprehensive mobile offering, which provides those corporate Treasurers and CFOs on their mobile device, the kinds of things they've become accustomed to on the consumer side. So we've been investing heavily. And I think it'll take some time, but we do see deposit generation coming from all markets.

And I guess just at a really high level, it sounds like you guys still expect to be able to outpace any increasing funding costs with higher earning asset yields at this time.

We're pretty confident that at least over the next couple of quarters, the asset sensitivity position should persist. So funding costs will come up as we kind of compete a little bit more for deposits, but we think margins, hold steady and expand even in the near term, harder to see the back half of next year. I don't know if the yield curve is going to look like.

Okay. And then just lastly, kind of a hypothetical here. And I realized this is somewhat challenging to talk about, but just the timing of the November 4th a year anniversary on Partners deal. And this call being probably the last time you guys kind of publicly speak before that. Just was curious if hypothetically, for some reason that deal doesn't happen and close. Can you maybe just give us a sense of what the capital priorities will be prospectively going forward, as you look at the end and beginning of -- end of this year, beginning of next year?

I think as you can appreciate, Mike, we're going to be limited in what we can answer in a hypothetical case. And we appreciate the frustration, but we share it, Partners shares it about the timing and the process. Kind of setting that aside for a minute, whether that transaction closes or not. We've been investing heavily in our organic growth opportunities. And we expect to continue to do so. So the most valuable thing we can do is to grow customer relationships. And that's where our focus will be. And that's where our highest level capital allocation will be. So I don't know if that helps exactly. But that has been a theme that's happened even while we've been doing acquisitions.

No, I understand and appreciate you guys taking my questions. Thank you.

Thank you. Our next question comes from David Bishop with The Hovde Group. Please proceed.

Thanks to Chris and Joe, obviously investors theory continues to drive a lot of growth on the commercial side. Just curious, your appetite for that product, maybe what segments are you seeing your best opportunities for growing that on a sort of a risk adjusted basis?

Joe talked to the segment, I will say though, that we did see some nice growth in C&I in the last quarter on a percentage basis and continue to allocate resources to building those kind of relationships out. In some cases as we enter these new markets, your first transaction that you do to establish your brand or around real estate transactions, it's usually easier to build your brand that way. And then you transition more into what C&I. But Joe maybe you can talk to the segments and into the extent we're doing CRE which property types here you're focusing on.

Hi, Dave. I will tell you that I mentioned earlier about the multifamily segment. And it is interesting, because for a period of time, as you may recall, you followed us for a period of years. We were fairly conservative in the multi-space, just by virtue of the competitiveness on pricing. We've seen a little bit of widening in pricing spreads, which is a positive. And that continues to be a very strong asset class. And as you know, last year, we created a vertical and construction, which has been very successful in the space, and we continue to gain market share. They're driven by Stan Correa, who runs that group for us and his background and experience. So we do see opportunities to continue to grow multi, both in construction and in the permanent end of it. I think we're being a little thoughtful around other market segments, as you would expect. I mean, nobody is chasing urban office, with the exception of select opportunities. I would easily say the same thing about the retail and hospitality. I think everybody at varying levels likes industrial, as you would expect warehousing, but we're being thoughtful there, as evidenced by more recent pronouncements around Amazon and others that are slowing down the growth of their supply chains. So I do think that there is CRE opportunity. I think we will demonstrate, we're very good at it. And as Chris mentioned, we continue to put resources toward C&I, where you can drive as you know, some needed treasury and deposit growth as well.

Appreciate the color. And then maybe Chris, noticed in the slide deck, always appreciate the detail there. The tax spent up about another million dollars this quarter. Was that mostly related to maybe the cash and treasury management build out you noted? Just curious maybe where you see those expenses trending and from a holistic basis, as you build up your digital mobile banking capabilities, to view your sort of your competition as yourselves or the bigger banks like the BofA, the Wells Fargo's, Community Banks, just curious where you see, where you're trying to compete most against there from that viewpoint?

Yes. I think, I'd start with the strategy that we think that a branch light delivery model makes sense in the state of technology today, our customers really want to use digital. And I think we've done a good job of pointing our spend to those kinds of capabilities. I mentioned, OFBCONNECT is one example. We recently launched full real time [indiscernible] payments, those kinds of, that's where the dollars are going into those kinds of capabilities. If I think about where tech spend is going, I do think that we're kind of achieving that level, that should be kind of plateauing for a bit for at least our size of business. We've made significant investments in the infrastructure and the platform. And I think from here on out, it's going to be more efficiency gains. The last thing that is maybe less transparent is the investment in technology to serve our own people. So most of our investment has been focused around end customer experiences. The more recent spending is focused on enhancing efficiencies internally to the folks that serve as our customers. So we think there's an opportunity to get much better. But I don't think it's going to require the same levels of technology investment.

Got it. Then one final question. Any update to the targets from the Analyst Day last summer from an ROI or efficiency standpoint, at this point?

Yes. We certainly need to update those because we think there's upside and opportunity. So what we're going to do is work through as you can imagine the next few weeks, the outcome on the Partners transaction, and then I think that would give us the opportunity to come back to you and our other investors and kind of share what we think the target should be going forward. So stay tuned, we will be back to update those numbers.

Thank you. [Operator Instructions] Next question comes from [indiscernible] Your line is open.

I wanted to ask about your thoughts about using and sort of debt in wholesale to a greater extent over time? Or do you think it'll stay roughly where it is now?

Look, I think that there are opportunities in the funding market where you can do interesting things. And earlier this year, we saw an opportunity to exploit the brokered CD market. So we took advantage of that. I think historically, our level of wholesale FHLB borrowings is much lower than we typically run. So we have that lever if we need it. That said, over the long run, we think the most valuable franchises have a high-quality deposits. So we're not a company that's going to go over 100% loan to deposit ratio for long, or to any great degree. So we might drift over 100%, if we think that's tactically the right thing to do, in the interest rate environment, and we had the capacity to do so. We've got still a very modest wholesale borrowing position. So I think we're going to be opportunistic, and we're watching like everybody else to see where we think kind of the terminal rate might come out, what the outlook might be in the back half of next year so that we don't structure funding the cost as too much down the road.

Great. Thanks for that. And during the last year, as you've been waiting for approval on the Partners transaction, have you had your normal kind of regulatory exam process? And has there been any sort of, I guess half dozens of observations just from that process, the last year?

We've gone through the same kind of annual cycle than any bank would. So there's nothing unusual in terms of our cycle. And then in terms of themes, I think each of the regulatory agencies has done a pretty good job of communicating publicly the things they're focused on. And that's the same conversations we're having with our regulators as well.

Great, Chris. Thanks, again, for hosting us this morning.

Thank you. [Operator Instructions] The next question comes from Matthew Breese with Stephens Inc. Please proceed.

I was hoping for a little bit more color on the NIM outlook, assuming we get, call another 150 basis points of Fed hikes. Where do you expect the NIM to peak out and post kind of a peak, if you will, is there a fall off after that and many asset sensitive banks are discussing kind of a peak a little bit of a fall off as deposit costs continue to increase, just looking for some color on kind of the NIM trajectory over the next call it nine to 12 months.

Hey, Matt, Pat Barrett here. Take a first run at that. And then, Chris, and/or Joe can jump in on that. So look, I think what you saw from this quarter was kind of a mid-single digit expansion is a decent run rate that we should expect, as long as you see rates continuing to rise, it's not going to be linear, some quarters, it might be closer to flat, some quarters, it might be closer to 10 basis points. But it's not a bad proxy for the kind of rate increases we've seen, which we do expect to continue through this quarter and probably into the first quarter. I think we still remain asset sensitive with expansion upside, even when the Fed stops raising rates or when curves settle down simply by virtue of the mix of our portfolio. I'm really hesitant to put a peak or a timeframe on that, because that's essentially overlaying what I think the Feds going to do. And what I think is going to happen with deposit competition and pricing, both of which could kind of materially changes, but pretty comfortable, you'll continue to see expansion and growth in NII until rates start to come down.

Got it. Very helpful.

I would just add to that. When we reached terminal -- the terminal rate, and the idea that maybe the Fed would decrease rates thereafter, the shape and the speed of that decrease is going to matter a lot in terms of what happened. So I think us and to other assets sensitive banks. So I think what we saw in during COVID is this rate to zero. And in a rate to zero, our asset sensitivity really hurt us. You saw the margins come down under 3%. If there's a slight pullback in rates, but it's not that kind of rate to zero, I don't think it would be that -- it shouldn't take that big of a toll on our margin. So we should be okay if they're kind of a stable rate environment going forward, which is hopefully what we would get. We shouldn't be going back down to zero unless there's a kind of an emergency out there. So let's hope we avoid one of those.

Agreed. Yes. And then maybe one for Joe, I got the sense from your comments that perhaps the loan growth outlook might slow down a little bit just being more selective to environment worthy of a bit more cautiousness. Just curious as we think about kind of the longer term 250 million net growth per quarter bogey out there? Is it more than likely that we come under that, at least for the near-term given some of the cautiousness you talked about?

It could be Matt. But I think it ends up being just a little bit more choppy, right, I do think that there is -- we're still seeing quality loan requests. And I think we're being a little bit more thoughtful around it, but we're still seeing activity. And I do think that there is an opportunity to outperform certain quarters and there'll be other quarters, that might be a little bit more muted, but I'm not uncomfortable. Listen, the capital position, we have supports high digit, or high single digit growth. So if we can find good growth, we'll look to do it.

Got it. Okay. And then just Trident revenues were a bit lower this quarter in the presentation, you noted that revenues will be kind of 3 million to 5 million per quarter. I'm curious, what are the factors that we should be considering when thinking about a really good quarter from Trident, generating $5 million versus the 3 million, and then maybe just updated thoughts on overall fee income and expense levels from here?

Matt, Trident still gets a solid amount of bulk of revenues from the residential business, you'll know what's happened to the residential business. I do think that we'll get the opportunity to do more commercial businesses, as our corporate clients get more and more comfortable with the fact that we have a ton of company and that there may be opportunities to do those types of businesses with us for ease of use and conformity and all that stuff. But I do think you're going to see, I think that's the right level of where we're going to be for the time being, I don't see any significant increases in residential activity coming in short-term.

The only thing I'd add Matt to the outlook for fees is that when you think about swap fee income and total originations, as Joe noted, with originations down, you have fewer transactions happening, so less opportunity for swap fees. And then you have the swap markets themselves and the pricing on that and people thinking hard before they enter into a swap deal. So we've seen a little weakness in this swap line item, which might continue for a bit. So and then deposit fees were off as well. And that's predominantly been a story around, overdraft and us being as conservative as we can, given the focus on those fees. So I think you've got a couple of different causes here in a quarter where you're doing more transactions, you could have a little bit of a benefit in both Trident and in swap fees. But the deposit fees are probably going to stay around where they are for a while.

Okay. And then two other ones. The first one is just you know, regardless of whether the Partners deal goes through, or doesn't go through, from here, what's the message around future M&A? And has this process changed your view on the types of deals you'd like to pursue? If so, just maybe discuss your thoughts around that?

Sure. Well, look, yes, you have to be aware of kind of trends. And when I think back about the opportunity, we had to grow through tactical acquisitions over the last few years, I think it's very valuable thing for us in building a platform that I think we're going to be able to do a lot with. That said in the seven prior transactions, we were involved in the path between announcement in closing was a lot more straightforward. So the risk level of getting a transaction done was low. At least for now, the risk level seems to be heightened, as I think not just us, but various regulatory agencies can interpret how they want to be evaluating M&A. So the net of that Matt is that we really don't have any interest beyond Partners in pursuing any tactical M&A. And we would be focused on the organic side because if you've got more risk, very much, far fewer transactions are going to meet that hurdle. So risk is up, which means our tolerance to do additional tactical acquisitions is quite low.

Right. Okay. And then just last one, look, I know, TCE Capital is healthy, which looking at kind of bank level capital ratios, once it stands out is the total risk-based capital below 12%. I just wanted to get your thoughts on that level, if there's, Capital Holdco, you could downstream or need for something, anything like that.

I think we're evaluating all of our capital options, especially in light of whether or not we closed Partners and kind of calibrating to the growth rates that Joe talked about. And as Joe mentioned, that, high single digits approaching, say, 10% of organic growth, we can handle that, with the capital we have on hand today. If we think there's an opportunity to grow faster than that, with good quality growth, and the economy were to appear to have gotten through this period, without a significant recession. We might look at opportunities to bolster capital through -- the first thing we would look at is, sub-debt that's probably the most efficient way to do that, we had redeemed $35 million for the sub-debt at the end of Q1. So you could conceivably replace that add to it. But that's about the extent of our thought process for now. We're watching origination volumes, we're watching balance sheet growth, we're going to get through the next few weeks of determination on the Partners transaction, and then we'll kind of calibrate things. There is also the opportunity for us to manage margins, as opposed to growth, where we could slow down the growth rates a little bit, but being more selective on pricing, which would allow us to boost profitability. So I think we're good for a period, but depending on market conditions, we may need to evaluate that.

Great, that's all I had. Thanks for taking my questions.

Thank you. Our following question is from Matthew Breese with Stephens Inc. You may proceed. Excuse me about that, it is actually Manuel Navas with DA Davidson.

Can I have a little bit of an update on pricing competition across your different markets? And if you're still getting the increase in pipeline yields everywhere? Or is there some differences out there?

I think there's always differences not necessarily geographic but depending on the strength in the type of transaction that you're doing. So I think the larger you go up market, depending on the size of transaction, obviously, you have different competitors, who have different price sensitivities. I will tell you, on average, the C&I business tends to be a little leaner in spread. But it's offset by the ability to get deposits and Treasury income of right other things that you may not get in the CRE business. But I wouldn't anticipate that to be a significant adverse impact in any one market. And we do track that fairly, fairly closely.

As you were talking about the, your kind of NIM outlook, if you can talk a little bit about potential, like ways you could protect the NIM when that stops and kind of just talks about that point in time.

I can maybe just give you a couple of thoughts on that. The first is when you think about on the funding side, going into the pandemic, none of us knowing that a pandemic was on the way. We had entered into a number of kind of longer range agreements with some of our commercial clients to provide them a rate on their invested balances over a period of time. What that did is that gave us less flexibility as interest rates came down. So our cost of deposits fell much more slowly than the peer group. So number one, we're being very thoughtful about the duration of the funding, we're putting on the liability side. On the asset side of the balance sheet, we continue to favor kind of floating rate instruments. But we are thinking more about floors and swaps and things we could do to protect some of that floating rate asset pool from a significant decline in rates. But as I said earlier, a slight pullback in rates, terminal rate is reached sometime in the first half of 23 and then it pulls back 25 or 50 basis points. That probably doesn't do much, doesn't hurt us much. What had hurt us during COVID was the rates going to zero, right, that was that was a just a dramatic shock that we weren't as prepared for. So a little a little better strategic approach on the pricing of deposits. And thinking as hard as we can about fours and things like that on the asset side. So I hope that helps.

I appreciate that. Just kind of following up earlier, there was a question about a good run rate for operating expenses. I know that a healthcare was a little bit higher in the comp line this quarter. But other than that, is this kind of a good run rate as a base level ex Partners? Any commentary on that would be great.

Hey, Manuel, its Pat. Yes, I think this is a pretty decent run rate that we see right now. There was a little uptick in benefits through health care costs. But as with everyone else, where we are facing pressure on wages and wage inflation, we've done some work during the year. And that probably will continue. We're being super thoughtful about incremental spending, whether it be hiring or contract renewals or new contracts. And we're going to do everything we can to stay in front of meaning better than overall market inflation. But I do think that as we move into compensation season in the next year, we certainly will see normal increases for whatever the market is, but for now, I think it's a decent run rate.

I appreciate that. In your earlier commentaries that some of the technology spending might be leveling off, and I could offer kind of help –

Absolutely.

Keep that cost a little bit more contained. Okay.

That's actually a really good point. We don't have an overhang of a lot of incremental new spin that we have to make going forward to make sure that we have a competitive platform vis-à-vis digital product offerings for our customers. So that's actually we're very happy with the place we are in that.

Thank you for the time today.

Thank you, Manuel Navas from DA Davidson. The next question comes from Gerry Heffernan with Walthausen. Please proceed.

In regards to the step back in the loan production that you spoke of, I believe you used the terms just being a little bit more careful. In regards to that, could you just provide a little bit of color as to, is it being more careful and perhaps desiring higher prices? Is it being more careful about what industry the creditor may be representing as far as you know what type of businesses you're willing to lend to or not? Or does it have to do with the terms that are presently being offered or competed away against in the marketplace?

Yes. Thanks, Gerry. I think it's a combination of -- I think it's always a combination of factors. I'll give you an example of the term aspects. We still see competitors that have a different credit cut than we do. And it's okay. I mean, not everybody has the same credit appetite. And there are still what I'd consider to be covenant light transactions, even in this environment, out in the marketplace. So we've tended to, as much as we'd like to look at most anything that comes across, we've tended to be a little bit more circumspect when it comes to that. You can't have some of the recent rate rises without adversely affecting the way you stress test. And I think that's something that's really important to us when we look at transactions. And as I mentioned earlier, we'll use CRE as an example. I think a certain asset classes that we've done really well over the last few years. And as a result, we're saying in retail is probably a good example running offices and other where you don't say, you want to do it, I think you just are a little bit more thoughtful and careful about the ones that you end up doing. I think, low leverage is your friend in this environment today with rate volatility.

Okay. And as far as the loan originations go, have you seen an uptick in the renewal percentage, right, the number of times that a normal either renew with you or renew with a competitor?

I think I'd answer it this way. I think it's a little too early to a certain extent. I think our corporate clients that are our relationship clients renew with us, typically, it's very rare that we lose transactions to competition. I would say if you look at the last couple years where most banks have had run off, has been a combination of borrowers getting exorbitant prices for own real estate, so they get an opportunity to sell at a gain. And depending on the segment, certain borrowers refinancing to take out equity, which that's now not going to occur in the near future. So that allows prepay speeds to slow, which allows us to grow the balance sheet even with reduced originations.

Okay. Okay. And my final question would be on expenses, and you all certainly are to be complimented on hitting your expense ratio and goal already. That's great stuff. We talked previously about the branch network, optimizing the number of branches out there, recognizing the number of people that needed -- were needed per branch, but then saying, hey, let's not get too carried away, because we're looking to supplant personnel, in some cases with technology. And that requires adding employees to the technology department, which on basically are more expensive per head. So just where do you believe you are in the position of the company as far as the headcount that you need to advance your technology goals, versus the optimization of personnel in the branches? And even the total branch network count?

Yes. Thanks for that question. I think that that kind of plays to the strength of what we've been doing over the last couple of years. We think that transformation is I would categorize it as largely complete. And I'll give you one caveat for that. And while we complete, we've consolidated 77 branches over the last six years or so and added significant personnel to our digital banking group than our T group and you can see where those spends have come in. I think having completed the transactions over the consolidations we did last year, we feel very good about the branch network, being able to serve the communities that we're in today. And in fact, are making capital investments in a few branches here and there to make sure they're competitive in nice places for our customers to go in and visit and do business. So we think we've got a good network, we think that we've invested in the technology to be able to deliver digitally. And I think we're at a reasonable kind of a status quo on that. From this point forward, I think we'll be focused on the efficiency, the back office, how we can help our folks do more, do more faster, improve customer turnaround times and those kinds of things. But I think the relative spend between retail front facing employees and technology, infrastructure and digital employees, is about where we think it should be, at least for the foreseeable future. The caveat I'll give is we watch this every quarter. And it depends heavily on customer appetites. So if our customers need more digital, we need to be able to support that. But I think we're pretty competitively positioned today. And I think that that effort, took us a few years to get through and not easy. Our people did an extraordinary job of making that transition and retaining customers. So that we've got largely in fact we have more deposits now than we did when we started the process.

Yes, it has been a long process, but in your complimented for keeping your eye on the ball and achieving your goals. Thank you very much.

Thank you. There appear to be no further questions in the queue. [Operator Instructions]. So there are no further questions at this time. I'll pass it back to Chris Maher for closing remarks.

All right. Thank you. For those who follow OceanFirst, you may have noticed slightly different timing for our earnings release and conference call this quarter. Going forward in 2023, we anticipate shifting the schedule for our quarterly earnings announcement and call to be in the third week in January, April, July and October. As always, we appreciate your time and interest in OceanFirst, we look forward to speaking with you after our fourth quarter results are published in January and for those of you celebrating holidays from now until the end of the year, we wish you and your families a safe and healthy holiday season. So thank you very much. Bye.

This concludes the OceanFirst Financial Corp. earnings conference call. Thank you for your participation. You may now disconnect your line.