OceanFirst Financial Corp (OCFC) Q1 2021 Earnings Call Transcript

Image source: The Motley Fool.

OceanFirst Financial Corp (OCFC 4.04%)
Q1 2021 Earnings Call
Apr 30, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the OceanFirst Financial Corp. Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Jill Hewitt. Please go ahead.

Jill Hewitt -- Senior Vice President and Investor Relations Officer

Thank you. 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. 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 turn the call over to our host today, Chairman and Chief Executive Officer, Christopher Maher. Chris?

Christopher D. Maher -- Chairman and Chief Executive Officer

Thank you, Jill. And good morning to all who've been able to join our first quarter 2021 earnings conference call today. This morning, I'm joined by our President, Joe Lebel; Chief Risk Officer, Grace Vallacchi; and Chief Financial Officer, Mike Fitzpatrick. As always, we appreciate your interest in our performance and are pleased to be able to discuss our operating results with you. This morning, we will cover our financial and operating performance for the quarter and then provide some color regarding the outlook for our business in 2021. Please note that our earnings release was accompanied by a set of supplemental slides that are available on the company's website. We may refer to these slides during the call. After our discussion, we look forward to taking your questions. In terms of financial results for the first quarter, GAAP diluted earnings per share were $0.53, another strong quarter for the company. Earnings reflect the continuing economic recovery, with the bank demonstrating improved credit trends, disciplined expense management, expansion in our core margin and the return of loan portfolio growth. Reported earnings were impacted by a few items, including the final gains in our dividend-focused financial equity strategy, which collectively resulted in noncore net income in the amount of $5.2 million after tax. As a result, we pegged the core net income for the quarter to be $26.5 million or $0.44 per share, which was almost 13% higher than the prior quarter. Regarding capital management, the Board declared a quarterly cash dividend of $0.17 per common share and approximately $0.44 per depositary share of preferred stock. The common share dividend is the company's 97th consecutive quarterly cash dividend. The $0.17 dividend represents just 32% of GAAP earnings.

Over the past two quarters, our robust earnings have driven a $0.68 or 4.7% increase in tangible book value per share. The common share dividend remains at a conservative payout ratio and will be evaluated later in the year as the post-pandemic earnings trajectory is more established. Tangible stockholders' equity to tangible assets remained strong at 8.83%. Our balance sheet continues to be somewhat inflated as we carried $1.2 billion or 10% of the entire balance sheet at cash at quarter end. I'd like to put that into perspective. If the excess cash, which provides no short-term financial benefit, were simply removed from the balance sheet, the reported NIM would increase by 36 basis points to 3.29%, the reported return on assets would increase by 10 basis points to 1.04% and the TCE ratio would increase by 97 basis points to 9.8%. The excess cash is a direct result of positive trends in our business and should provide an incredible opportunity to build earnings over time. Deposits continued to grow during the quarter, while the deposit mix shifted. A $262 million decrease in certificates of deposit was more than offset by $285 million of growth in noninterest deposits. The opportunity to add $285 million of noninterest deposits could not be passed up and is a high-class problem we will address over time. The mix shift from CDs to noninterest deposits was the driving force behind the seven basis point decrease in deposit costs during the quarter. The excess cash position will continue to distort asset-based performance ratios, including margins, return on assets and capital levels in the short term, but is a very positive development in the long term. The company resumed share repurchase activities during the first quarter purchasing 500,000 shares at a weighted average price of $19.94.

The company has approximately 1.5 million shares remaining in the current share repurchase program. Before we discuss the outlook for our business, I'll spend a minute reviewing market conditions in our area of operation. During the first quarter, we observed a significant recovery in local economic conditions throughout our markets. Despite some elevation of COVID cases in the New York, New Jersey, Pennsylvania region, our clients were able to continue the reopening process and are demonstrating notable resiliency. All our markets are experiencing positive momentum, but the suburban markets in the New Jersey Shore area continue to evidence particularly strong activity. Based upon summer reservations and depleted residential real estate inventories, the growth is likely to continue for quite some time. Considering the experience after 9/11, we expect the consumer habit changes to be durable as a new generation comes to appreciate the attractions of the Shore region. Our employees have also been exceptionally resilient, having done a terrific job supporting our clients throughout a difficult time. With the support of our human resources team, 50% of our employee base has received the vaccination, and we hope to see that increase further in the coming weeks. The commitment of our staff is demonstrated by the record loan originations for the quarter. In order to provide the highest level of support to our clients and our communities, we are transitioning our back-office staff to on-premise work this summer.

We have enhanced our remote work policies to take best advantage of the flexibility offered by our technology, but want to balance that with building our culture with regular and unscheduled opportunities or in-person collaboration and staff development. Turning to the bank's performance. Asset quality continues to improve with virtually all key performance measures noting improvement, including decreased levels of special mention, substandard and nonperforming loans. We recorded net recoveries for the quarter, hold virtually no OREO and delinquencies dropped to one of the lowest levels on record. In fact, delinquencies were among the three lowest measurements of the past 40 quarters and very close to the lowest level we have ever recorded. As noted in our supplemental slides, this performance is further supported by exceptionally low levels of CARES Act deferrals, which totaled just 13 basis points of the commercial loan portfolio. At quarter end, 97.4% of our loans were paid current under their pre-COVID terms and conditions and are not under any form of CARES Act-related deferral. The modest reserve release was driven by these indicators, and the trend suggests that credit costs will remain a tailwind. We're also pleased to see that the early action we took to address credit risk has allowed us to focus on building our business organically. That focus will continue throughout the year and should help drive improved financial performance as cash is deployed and net interest income recovers.

At this point, I'll turn it over to Joe to review our progress related to organic growth initiatives as well as the outlook for margin and operating expenses.

Joseph J. Lebel III -- President and Chief Operating Officer

Thanks, Chris. Loan originations hit an all-time record for the company in the first quarter with $748 million in new loans exclusive of some PPP originations. The commercial lending teams closed a record $548 million in loans in the quarter, with the consumer bank generating $200 million. Overall portfolio growth of $116 million was net of $67.5 million in residential loan sales. Income from the gains on the sale of loans was well above forecast due to the execution available in the secondary market. Much of the loan growth for Q1 came late in the quarter, so we will see the interest income in Q2 and beyond. In the Commercial Bank, our Philadelphia commercial region crested $1 billion in loans outstanding in the quarter, joining our New York region with over $1 billion in loans and furthering our belief that branch-light, talented, focused lending teams in robust, vibrant metropolitan markets makes sense. On the hiring front, we added nine new commercial bankers in Q1 and early in Q2. While I expect some ramp-up time, we should see some activity from the new lenders in the second half of 2021 and normalized revenue streams in 2022. We remain actively recruiting in our existing and adjacent markets and expect continued adds to revenue-generating staff for the remainder of 2021.

In that regard, while we are eager to deploy the cash we have on the balance sheet, I expect competition, the rate environment and some customer hesitation as the pandemic recedes to cause some choppiness in loan demand. We've seen a return of the life companies in the loan market on the long end for commercial real estate, and there is no end in sight to the overly competitive nature in the C&I business. That said, I fully expect normalizing business loan demand and more predictable activity and growth in the second half of this year. We remain bullish on our local economies, especially shore businesses, which rebounded strongly in the summer of 2020 and are prepared for the expected summertime consumer demand in 2021. We still see some clients accumulating cash. And while they are cautiously optimistic, some industries such as hospitality and food service have a way to go. The new restaurant revitalization fund will really add some support to those still in need. Our corporate treasury team continues to drive deposit growth, adding $75 million in growth for the quarter. But as -- but the growth number is misleading as noninterest-bearing deposit costs -- deposits rose $285 million from year-end as we replaced high-cost CDs with better long-term, low-cost funding sources. We have embedded treasury sales team members within our commercial teams throughout our geography, and the collaborative effort is being realized on a daily basis. Core NIM improved four basis points, and we'll continue to build as cash is deployed and deposit costs decline.

We reduced deposit costs from 45 basis points at year-end to 37 basis points in Q1 and expect substantial improvement in Q2 as well. On the branch front, we consolidated four branches in April and plan to use the $1 million in annual savings for commercial bankers. We are carefully reviewing customer patterns in our branches to further optimize efficiencies to support our investment in the commercial bank. Our continued investment in technology, which accounted for nearly 90% of total core noninterest expense in Q1 versus 17.8% in 2020, represents our dedicated effort to maintain our competitive posture by investing in areas where our consumer -- or our customer behaviors are shifting. We have a slide in our supplemental disclosures detailing this. The investments in digital over the past years are notably reflected in almost 15% of our new checking accounts opening online and digital adoption of our client base nearing 40%. Video transactions with customers accessing our interactive teller machines, commonly referred to as ITMs, now total over 220,000. That's a startling number that I'd like to repeat. We have conducted over 220,000 financial transactions for customers over our video platform.

Our next step is to extend video bank into mobile devices in our customers' hands, creating a personal high-quality customer experience accessible on all our clients' personal devices. We remain on track to provide this full video chat capability in our call center by late 2021. We see firsthand the success rate when we have the ability to interact through video as our Nest Egg hybrid robo advisor business has had over 2,700 video chats, majority of which have resulted in product sales. I'll end by noting that we also continue to invest in new digital financial service products with talented entrepreneurs. We've recently invested in Auxilio, a provider of asset-based supply chain finance services. Using the technology-enabled credit and documentation platform for equipment leasing, and our noncontrolling equity investment will serve our clients well in the coming years.

With that, I'll turn it over back to Chris.

Christopher D. Maher -- Chairman and Chief Executive Officer

Thanks, Joe. Before we turn to questions, I'll just close out our comments by noting that you can see we have a lot going on in terms of commercial banker hires, investments in digital and expected retail optimization. During the second quarter, we expect to complete the bulk of our commercial bank hires for the year, and we'll be in a position to assess post-pandemic customer transaction patterns. That will allow us to better forecast long-term objectives for loan growth; expense trends; and ultimately, the degree to which we can deliver improved financial performance in the coming quarters. As a result, we expect to host an Investor Day following our second quarter earnings release to share that road map with you. The event will be scheduled for early August and is expected to include both in-person and remote access options. We hope you'll be able to join us for that.

At this point, we'll turn it over to questions, the Q&A portion of the call.

Questions and Answers:

Operator

[Operator Instructions] Our first question today comes from Frank Schiraldi with Piper Sandler. Please go ahead.

Frank Schiraldi -- Piper Sandler -- Analyst

Good morning.

Joseph J. Lebel III -- President and Chief Operating Officer

Hi, Frank.

Frank Schiraldi -- Piper Sandler -- Analyst

Just wanted to make sure I have my numbers right. In terms of, Joe, you mentioned the nine -- and you put in the release the nine commercial lenders since the end of the year. And then I think you hired a few in the fourth quarter as well. So is that accurate? And then can you just give the breakout in terms of geography of these new hires?

Joseph J. Lebel III -- President and Chief Operating Officer

Sure, Frank. We did hire -- I think that we had four in the fourth quarter. Of the nine we hired, the bulk of those were in what I'd consider to be the core markets, which are Philadelphia, New York and New Jersey. We did open a new loan production office in New Jersey in Hasbrouck Heights. We already have four folks up there working. And we created a new vertical for us. One of the lenders is actually the leader of the vertical. It's a construction vertical for us here in New Jersey.

We've always been a good construction lending company, but I felt that given the size and the scope of the company today, that we needed a dedicated vertical for that space. So we've hired Stan Correa to run that business for us We've also hired two lenders in adjacent footprints for us. We've hired a lender in Boston and a lender in Washington, D.C., both of which started this month. And we're happy to announce that we have a -- we have our first team lift out of an additional four folks, four lenders and an additional support person in Baltimore, Maryland. We expect them to start at the end of May, but they have signed up with us, so we're excited about that.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. So it sounds like, yes, you've either gotten the guys in place or you've got really good visibility into hires that you want to make. Chris, you mentioned that you expect the bulk of new hires to take place by the second quarter. So Just wondering if you could update us. And maybe it's too early, but just in terms of if you do get these folks in place, updated thoughts to what run rate loan growth could look like by the time we close out 2021?

Christopher D. Maher -- Chairman and Chief Executive Officer

Sure. So Frank, just a note on the seasonality of hiring commercial bankers. Not surprisingly, everything has a season, and the top-notch people or usually do some good year-end incentives. So the best time to be recruiting and getting them to change their employment is after they've gotten those incentives. That usually happens in the first quarter or early second quarter. So that's kind of why you would have a seasonality to bring these folks on. As they come on, until they become incrementally more productive -- I'm sorry, we may have a technical issue. [Technical Issues]

Joseph J. Lebel III -- President and Chief Operating Officer

Frank's still here?

Frank Schiraldi -- Piper Sandler -- Analyst

I'm here, fine. Yes.

Christopher D. Maher -- Chairman and Chief Executive Officer

Okay. Yes. Sorry. We may have the technical issues. So sorry about that, Frank. Anyway, as those lenders come on, they're incrementally more productive during the course of the year. So I think what we've said before is by the end of the year, we should be growing our loan portfolio at about a 10%-or-better clip, which would equate to about $250 million of growth per quarter, if you think about it that way.

Joseph J. Lebel III -- President and Chief Operating Officer

And Frank, I would expect that the CRE lenders, we're hiring a mix of CRE and C&I lenders. The C&I business takes a little bit longer to ramp just by virtue of the customer relationship aspect. But I expect that the CRE lenders that we hire, as Chris noted, will be more productive in a more rapid fashion. I do expect in 2022 that everyone that we hire in '21 will be fully up to speed in the revenue streams.

Frank Schiraldi -- Piper Sandler -- Analyst

Great. Okay. Thank you.

Joseph J. Lebel III -- President and Chief Operating Officer

Thanks, Frank.

Operator

Our next question will come from Dave Bishop with Seaport Global Securities. Please go ahead.

Dave Bishop -- Seaport Global Securities -- Analyst

Yes. Good morning, gentlemen. [Indecipherable] as well.

Christopher D. Maher -- Chairman and Chief Executive Officer

Good morning, Dave.

Dave Bishop -- Seaport Global Securities -- Analyst

Following up on the -- that last question and the hirings you noted in the Boston, D.C., Baltimore market. Just curious, is this your typical MO where you're hiring out of sort of the larger regional players? And just curious if any of these new hires were sort of impacted by some of the ongoing market consolidation we're seeing across the Mid-Atlantic and Northeast.

Christopher D. Maher -- Chairman and Chief Executive Officer

Well, Dave, definitely. So we look at bringing on seasoned folks that have a long history of being effective commercial bankers, and they typically come from larger companies. And we're talent-driven first. So when we find a team, that's where we want to go.

In terms of geography, we want to be able to drive to our markets, and we're hopping on training or do something like that. So this is still a relatively compact geography. And the last thing I'd add to it is that our experience in Philadelphia and New York as well as our experience during the pandemic helps us feel more comfortable about having a little bit of distance between us and the lenders.

Dave Bishop -- Seaport Global Securities -- Analyst

Got it. And then as it pertains -- I appreciate the color on the slide deck on page seven, where you note the tech spend accounted for about 19% of core operating expenses and then contemplating additional investments in the latter part of the year. Just curious where maybe -- I don't know if you can provide specific guidance or where you think that ratio trends to -- for the full year relative to 2020?

Christopher D. Maher -- Chairman and Chief Executive Officer

I think you're going to see two offsetting things happen. So you're going to see that technology spend, especially as a percentage, increasing. And then as we tune the retail distribution network, you're going to see some of those expenses decreasing over the course of the year. And they should be -- so the percentage should be moving, but the total shouldn't be moving as much. There'll be a little bit of an increase in expenses, obviously, as we add the commercial bankers. But at this point, we're hoping we can offset a good portion of that later in the year with optimization of our retail network.

I think the point I made about wanting to see customer transaction patterns is really important. We're watching closely. As you guys know, we've consolidated 57 branches. So we're pretty good at that. We get it right. We tend to retain our customers and our relationships. We're looking at the data now and watching who is using branches in what way and in what locations, and that will enable us.

We just want the data to stabilize post-pandemic before we make further decisions about the optimization of the retail network. So you may have expenses come up a little bit in Q2 and Q3 as we add lenders. And then toward the end of the year, we expect to be getting some more synergies.

Dave Bishop -- Seaport Global Securities -- Analyst

Got it. Appreciate the color. And then in terms of the DDA growth, obviously strong again. Does this continue to represent some of the wins you've noted before in terms of expansion and wins in the cash management, charge management group?

Joseph J. Lebel III -- President and Chief Operating Officer

It does, Dave. We've talked about this before. As much as we'd like to deploy the money faster, we also can't tell our folks not to do their jobs on the other end. It's one of the things and one of the reasons we've more than double the size of our treasury team in the last few years, and it's paying dividends for us. And even with that, they come in with new relationships exciting. And the first thing Chris and I think about is how do we lend the money out.

Dave Bishop -- Seaport Global Securities -- Analyst

Got it. And Joe, a quick housekeeping question, good tax rate to use moving forward?

Michael J. Fitzpatrick -- Executive Vice President and Chief Financial Officer

Yes. It's Mike, Dave. 24%, I would use.

Dave Bishop -- Seaport Global Securities -- Analyst

Great. Thanks, Mike.

Michael J. Fitzpatrick -- Executive Vice President and Chief Financial Officer

Thanks, Dave.

Operator

[Operator Instructions] The next question today will come from Erik Zwick with Boenning and Scattergood. Please go ahead.

Joseph J. Lebel III -- President and Chief Operating Officer

Hey, Erik.

Erik Zwick -- Boenning and Scattergood -- Analyst

Hey, good morning. First one for me, I guess, a bit of a kind of follow-up in terms of the new lenders. I'm just curious as what are your expectations in terms of the percentage of loans that they generate over the next one or two years comes from their prior book of customers versus new customers?

Joseph J. Lebel III -- President and Chief Operating Officer

It's a combination. But typically, Erik, when you recruit lenders, you recruit lenders that -- we recruit seasonal lenders that have significant books of business. So we expect that the bulk of their business typically is going to come from some portion of their existing relationships, recognizing that as it's always based on a time frame, right? You're not going to get them almost immediately.

There are certain strings of tying folks to prior locations. But for us, the value of seasoned bankers from larger companies is typically their COI network. So that gives them the opportunity, and they always have prospect list. So it gives them the opportunity to lever -- pull different levers to get activity for us.

Christopher D. Maher -- Chairman and Chief Executive Officer

I would just give you some guidance on them. Folks are usually probably contributing net to income within a year. So these are not things where you've got to wait a long, long time. The first quarter or two, they may be a little bit of a drag. But the good lenders, you're bringing people over immediately. And they're building their books over the course of the first two, three, four quarters. You don't have to wait and see for years. A good lender is going to produce or not very quickly.

Erik Zwick -- Boenning and Scattergood -- Analyst

That's helpful. And then one last one on the new lenders, then I'll move on. Just curious, as part of your evaluation process and your vetting process, how do you evaluate them in terms of kind of their past credit quality experience at their former employers?

Joseph J. Lebel III -- President and Chief Operating Officer

So for us, Erik, a lot of it is based on who the former employer was. I mean the neat thing about our business is that we know the credit quality and the credit metrics and the risk appetite of the larger companies in our footprints.

Most of us have -- it's all -- it's a small world in our industry, so we understand that. And that's one of the reasons we focused on lenders coming from larger regional companies because the risk appetite in those companies is well documented It's easy to follow and reputations of people are easy to track. So...

Christopher D. Maher -- Chairman and Chief Executive Officer

This is one of the tricks of bringing in qualified experienced bankers. Our credit folks are actually pretty involved in these conversations because nobody wants to make a mistake, right? A banker doesn't want to come to a company where they can't do the business they need to do. And we don't want to have a banker who can't bring their typical clients into the bank. So as part of that betting process, all of our candidates have sat down with our credit folks.

They've talked about representative deals, the way they've lent in the past to make sure there's an alignment. Because they may have a different credit risk appetite in other bank, but we want to make sure that we're completely aligned in that. Otherwise, it's not going to be productive for them or us. We're just not going to make the loans that don't fit our mold.

Joseph J. Lebel III -- President and Chief Operating Officer

Yes. I will tell you, Erik, that the recruiting process today in our industry is very much two-sided. Not only are we recruiting but the lenders, if they have an interest are having those kind of conversations, it's a two-way interview process, which I encourage. And as Chris mentioned, we have a cadre of folks in our company from operations to credit to lending to wealth to treasury, all having interview conversations with new lenders.

Erik Zwick -- Boenning and Scattergood -- Analyst

That's helpful. I really appreciate the detailed color there. Moving on to -- I know I've said it before, but I just want to thank you guys. Again, I love the detail you guys provide in terms of existing pipeline yield origination data. Looking at the commercial statistics for the first quarter, the pipeline yield from 4Q to the end of 1Q remained pretty stable, kind of 3.75%.

But the origination yields in the quarter were lower, kind of 3.2% range with strong origination volume.

Just curious what maybe drove that origination yield down? Were you selecting maybe some higher quality customers that had lower yields? Or what drove that just kind of given the stability in the pipeline yield?

Joseph J. Lebel III -- President and Chief Operating Officer

Residential is easy, right? Residential rates are still among the lowest it's been in 30 years. The commercial business is a very competitive business, and it's become more competitive with the significant amount of liquidity on the balance sheet of many of our competitors, including ourselves. So -- and I think it's also -- we're also focused on really, really strong underlying transactions. And when you focus on those, you're going to compete not only on structure and everything else, but on price.

So if you're not going to give up on credit structure, it's really important to do the right thing for the client and the bank and to win business that will be accretive over time. And a lot of the sponsors and companies we look to do business with are larger in nature that will have either other real estate projects or other C&I needs. So you need to be competitive when it makes sense to be competitive.

Erik Zwick -- Boenning and Scattergood -- Analyst

Got it. And then last one for me. On noninterest expenses, first quarter had, I think it was a $662,000 benefit from PPP referral fees. Safe to assume that there's maybe a little bit more in 2Q lower than that, and then that trails off given the ending of that program?

Christopher D. Maher -- Chairman and Chief Executive Officer

Yes, the -- that would be a first quarter event. And I'm likely to repeat in the second quarter

Erik Zwick -- Boenning and Scattergood -- Analyst

Got it. Thanks everyone for taking my questions.

Christopher D. Maher -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question will come from Russell Gunther with D.A. Davidson. Please go ahead.

Russell Gunther -- D.A. Davidson -- Analyst

Hey. Good morning, guys.

Joseph J. Lebel III -- President and Chief Operating Officer

Good morning, Russell.

Russell Gunther -- D.A. Davidson -- Analyst

I wanted to follow up on the loan growth discussion. So the path forward is very clear with all of the hires. Could you guys spend a minute in terms of what drove the organic growth this quarter? Whether that was any contribution from some previous commercial hires for just specific geographies that contributed to the growth. Would be helpful to get some color on this quarter's results.

Joseph J. Lebel III -- President and Chief Operating Officer

So Russell, yes, I think it's a combination of both. So we did have some prior hires start to gain some traction, which is good. As we talked about, they tend to take three to six months to get folks up to speed. I also think some of it is a combination of there is some renewed demand in the market, which is good to see. I still think it will be a little choppy over the coming quarter just because of the environment. I think regionally, we saw all of our regions add to it.

So even though we've had some noise in regions because of the environment, you talk about whether it's in New York Metro or the New Jersey, we saw growth from New Jersey, New York and Philadelphia. So really happy about that. And almost all the lenders were successful.

Russell Gunther -- D.A. Davidson -- Analyst

Thanks, Joe. And then in terms of the choppiness you're talking about, I mean, is there a potential for organic balances to retract in the coming quarter before rebuilding in the back half of the year? Or just kind of organic growth to be perhaps less robust than it was this quarter?

Christopher D. Maher -- Chairman and Chief Executive Officer

We're still early in the quarter. I would hope we wouldn't see a contraction, but we may not see as much growth as we think you're going to see in the second half of the year. So we think two things are going to come together. So think about, as Joe mentioned, the four new hires you made in the fourth quarter were partially productive in the first quarter. Most of the hires, the nine, in the first quarter were just getting up to speed.

We might start to see them contribute toward the end of the second quarter. And then call it a few more that we make in the second quarter. By the back half of the year, you're going to have a significant number of folks contributing. And we time that -- and we started this process back last November. I mean we've been at this for quite some time. We timed it because we knew coming out of the pandemic or what we expected coming out of pandemic that loan demand in our markets would pick up. So we want to make sure we have all the right people in all the right chairs, they're well situated, they're trained, they're up to speed on credit policies, and they're able to be productive in the back half of the year. So we see Q2 will be probably an OK quarter.

We may grow a little bit. I don't think you're going to see us contract much. But then the back half of the year, we're looking at Q3 and Q4, we should have all of our folks in place, all contributing at the same point at which, hopefully, the market has got stronger demand. So you could see particularly strong numbers in the second half if all that comes together.

Russell Gunther -- D.A. Davidson -- Analyst

Understood. Thanks, Chris and thanks, Joe. I guess just one housekeeping item, and I apologize if I missed it. But the end-of-period balances on PPP as they stand today, do you have that?

Michael J. Fitzpatrick -- Executive Vice President and Chief Financial Officer

It's $110 million.

Russell Gunther -- D.A. Davidson -- Analyst

Okay. Thanks, Mike. And then just switching gears quickly. So on the expense outlook, I think I understand the puts and takes as you talk about 1Q to 2Q to 3Q, but maybe tying it all together kind of an annual basis, I mean, I'm not sure how you guys define core, but I was looking at a core noninterest expense number, around $209 million last year. Even with some of the step-up, is this a result that you think you could hold relatively flat for '21?

Michael J. Fitzpatrick -- Executive Vice President and Chief Financial Officer

Yes, I think so. I think year-over-year, it would be relatively flat. So we did -- it was about $50 million in the first quarter. We might be a little closer to consensus in the second quarter, maybe closer to 51 to 52. But then by that point, hopefully, we will be identifying expense reductions as well as we had that last group of lenders. So it should hopefully offset toward the latter half of the year. But saying that 2020, 2021, that's probably a good comparison.

Russell Gunther -- D.A. Davidson -- Analyst

'Okay. That's really helpful. Thank you all for taking my questions.

Michael J. Fitzpatrick -- Executive Vice President and Chief Financial Officer

Thanks, Russell.

Operator

[Operator Instructions] Our next question today will come from Christopher Marinac with Janney Montgomery Scott. Please go ahead.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Hey. Thanks. good morning. Chris, I wanted to circle back to your comment earlier about the -- I believe it was 36 basis points of NIM upside from the excess cash. Do you think that there's a scenario that this takes way more than a year for it to unfold? And that it would be a prolonged time frame to utilize this? And then does that impact your sort of strategy going forward?

Christopher D. Maher -- Chairman and Chief Executive Officer

It's certainly possible, Chris, when you think about absorbing that amount, right? So let's say we get to a run rate of $250 million a quarter, and that's going to take a year, right? It's not hard math. What's a little uncertain for us is exactly how strong the market will be in the second half of the year. If the market is strong, we will have the capacity in place to be able to overshoot that a little bit, maybe do it a little faster.

If there's a market setback for one reason or another or some new concerns that come up, it might go a little slower. But I'd be thinking of it taking us about four quarters to get there, beginning in the second half of the year, we'll really start to absorb it. There is another positive, though. If you -- we did put cash to work in the investment portfolio as well. So although it's not going up to loan yields, we're bringing it off that low base of the 10 basis points we were getting from the Fed keeping the cash there. So that will help a little bit as a tailwind, too -- as an interim step as we kind of rotate into that into investments and then back into loans.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

And then does this impact...

Christopher D. Maher -- Chairman and Chief Executive Officer

I'm sorry, one more thing, Chris, I should have mentioned is all of that considers a yield curve, which is relatively static. We have maintained and we will continue to maintain a strong asset-sensitive balance sheet. So I think we could disproportionately benefit should the yield curve begin to move.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Got it. Thanks, Chris. And does this at all impact your interest on M&A? Or does it put that in the back seat because you have this to say grace on for a while?

Christopher D. Maher -- Chairman and Chief Executive Officer

It's a great question. It doesn't impact our overall outlook for M&A, but it may impact what targets are most attractive to us. So when we began M&A in 2016, it had a very direct function, and that was to provide cash balances for us to continue to grow our commercial lending business. And it worked very effectively in that regard. We've got great franchises, great low deposits, and we're able to lever them. That is not important for us now given the cash that we have on the balance sheet today.

So unless we found opportunities that were not just kind of relatively fully went, but also with the capacity to continue to help us on the asset side, they would not be as attractive. The last thing we need now is more deposits that are unleveraged. So that would not be as attractive for us. So look at us. There's been a lot of M&A in the markets. We're watching like everybody else's. Our focus would be on opportunities that help us advance the commercial banking business.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Got it. Thanks, Chris. Appreciate all the information today.

Christopher D. Maher -- Chairman and Chief Executive Officer

Thanks.

Operator

Our next question will come from Judy Same, who is a private investor.

Judy Same -- Analyst

Hello. My question is when and how will we be notified about the share repurchase program?

Christopher D. Maher -- Chairman and Chief Executive Officer

Yes. So the share repurchase program is active today. And the way that we operate that program is that we're -- we repurchase shares in the open market, so over the exchanges. And so we're purchasing shares just like anybody else would be purchasing shares in the market. From time to time, we have had investors contact us about a direct purchase of shares. And if you'd like to do so, I'd suggest you reach out to us to our Investor Relations office, and we'd be happy to talk with you further about that.

Judy Same -- Analyst

Thank you. I have one other question. Which branch offices did you close?

Joseph J. Lebel III -- President and Chief Operating Officer

We closed Newark, [Indecipherable] Atlantic islands. I don't remember the other two.

Christopher D. Maher -- Chairman and Chief Executive Officer

Yes. The other two, they were all in market. And we had the -- as we've done over the years, these branches are reasonably close to other branches, so customers continue to have access. And we're also very careful to make sure there's a continuation of banking services in those communities. So most often, we're closing a duplicate branch in a community.

Judy Same -- Analyst

Thank you.

Christopher D. Maher -- Chairman and Chief Executive Officer

Thank you, Judy.

Operator

[Operator Instructions] There being no further questions, this will conclude our question-and-answer session. I'd like to turn the conference back over to Christopher Maher for any closing remarks.

Christopher D. Maher -- Chairman and Chief Executive Officer

Thank you. With that, I'd like to thank everyone for their participation in the call this morning. We'll remain focused on building the business deploying cash and improving earnings. We look forward to discussing our second quarter results with you in July. Thank you.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Jill Hewitt -- Senior Vice President and Investor Relations Officer

Christopher D. Maher -- Chairman and Chief Executive Officer

Joseph J. Lebel III -- President and Chief Operating Officer

Michael J. Fitzpatrick -- Executive Vice President and Chief Financial Officer

Frank Schiraldi -- Piper Sandler -- Analyst

Dave Bishop -- Seaport Global Securities -- Analyst

Erik Zwick -- Boenning and Scattergood -- Analyst

Russell Gunther -- D.A. Davidson -- Analyst

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Judy Same -- Analyst

More OCFC analysis

All earnings call transcripts