OceanFirst Financial Q1 2025 Earnings Report

OceanFirst Financial EPS Results

• Actual EPS: $0.35
• Consensus EPS: $0.35
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

OceanFirst Financial Revenue Results

• Actual Revenue: $97.91 million
• Expected Revenue: $95.66 million
• Beat/Miss: Beat by +$2.25 million
• YoY Revenue Growth: N/A

OceanFirst Financial Announcement Details

• Quarter: Q1 2025
• Date: 4/24/2025
• Time: After Market Closes
• Conference Call Date: Friday, April 25, 2025
• Conference Call Time: 11:00AM ET

OceanFirst Financial (NASDAQ:OCFC) operates as the bank holding company for OceanFirst Bank N.A. that provides community banking services to retail and commercial customers. It accepts money market accounts, savings accounts, interest-bearing checking accounts, non-interest-bearing accounts, and time deposits, that includes brokered deposits to retail, government, and business customers. The company also offers commercial real estate, multi-family, land loans, construction, and commercial and industrial loans; fixed-rate and adjustable-rate mortgage loans that are secured by one-to-four family residences; and consumer loans, such as home equity loans and lines of credit, student loans, overdraft line of credit, loans on savings accounts, and other consumer loans. In addition, it invests in mortgage-backed securities, securities issued by the U.S. Government and agencies, corporate securities, and other investments. Further, the company offers bankcard, trust and asset management services; and bank owned life insurance products. The company was founded in 1902 and is based in Red Bank, New Jersey.

OceanFirst Financial Q1 2025 Earnings Call Transcript

Key Takeaways

• OceanFirst reported Q1 EPS of $0.35 with net interest income up $3 million and net interest margin expanding 21 bps, driven by effective deposit repricing.
• Commercial and industrial loan balances grew 6% (24% annualized) and the total commercial loan pipeline increased to $376 million at quarter end.
• Asset quality remained robust with annualized net charge-offs at just 3 bps and criticized/substandard loans down 5% to $149 million, well below peer averages.
• Operating expenses were $64 million in Q1—modestly below Q4—but are expected to rise ~10% as recent Premier Banking hires add $4 million to the quarterly run-rate.
• The Premier Bank initiative launched with nine new banking teams, positioning the company for organic deposit growth and additional margin improvement in H2 2025, with full run-rate potential in 2–3 years.

Presentation

[Operator]

Hello, everyone, and thank you for joining the OceanFirst Financial Corp Q1 twenty five Earnings Call.

[Operator]

My name is Marie, and I will be coordinating your call today. I will now hand over to your host, Alfred SVP of Corporate Development and Investor Relations to begin. Please go ahead.

[Alfred Goon, SVP of Corporate Development and Investor Relations at OceanFirst Financial]

Thank you, Marie. Good morning, and welcome to the OceanFirst first quarter twenty twenty five earnings call. I am Alfred Goone, SVP of Corporate Development and Investor Relations. Before we kick off the call, we'd like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company website, oceanfirst.com. Our remarks today may contain forward looking statements and may refer to non GAAP financial measures.

[Alfred Goon, SVP of Corporate Development and Investor Relations at OceanFirst Financial]

All participants should refer to our SEC filings, including those found on Forms eight ks, 10 Q and 10 ks for a complete discussion of forward looking statements and any factors that could cause actual results to differ from those statements. Thank you, and I now will turn the call over to Christopher Moore, Chairman and Chief Executive Officer.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Thank you, Alfred. Good morning, and thank you to all who've been able to join our first quarter twenty twenty five earnings conference call. This morning, I'm joined by our President, Joe LaVelle and our Chief Financial Officer, Pat Barrett. We appreciate your interest in our performance and this opportunity to discuss our results with you. This morning, we'll provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

We may refer to the slides filed in connection with the earnings release throughout this call. After our discussion, we look forward to taking your questions. We reported our financial results for the first quarter, which included earnings per share of $0.35 on a fully diluted GAAP and core basis. We are pleased to report a second consecutive quarter of growth on both net interest income, which grew by more than $3,000,000 for the quarter and net interest margin, which expanded by 21 basis points. These improvements were largely driven by deposit repricing efforts.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Results also included commercial and industrial loan growth of 6% or 24% annualized, while the total commercial loan pipeline increased to $376,000,000 as of period end. Operating expenses for the quarter were $64,000,000 modestly lower than the prior quarter. Note that our first quarter operating expenses did not reflect any of the material investments from our recent hiring efforts, which Joe will touch on in a moment. Asset quality remained strong as annualized net charge offs were just three basis points, while total loans classified as special mention and substandard decreased 5% to $149,000,000 or 1.5% of total loans. Classified loan levels remain well below our long term average and are substantially lower than our peer group.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

The reserve build for the quarter was primarily driven by an elevated level of uncertainty around macroeconomic conditions. Capital levels remained robust with an estimated common equity Tier one capital ratio of 11.2% and tangible book value per share of $19.16 This week, our Board approved a quarterly cash dividend of $0.20 for the common shares. This is the company's one hundred and thirteenth consecutive quarterly cash dividend and represents 57 of GAAP earnings. Finally, we're very pleased with our progress in launching the Premier Bank initiative, which is growing quickly and should drive organic deposit growth and additional margin improvement in the second half of the year. For more color on that initiative and our other businesses, I'll turn the call over to Joe for his comments.

[Joseph Lebel, President and Chief Operating Officer at OceanFirst Financial]

Thanks, Chris. I'll start with the company's loan originations for the quarter, which totaled $417,000,000 including $135,000,000 of C and I originations. The commercial pipeline is nearly double last quarter, which should help build out C and I and more broadly stimulate overall loan growth. It's competitive out there, but as evidenced by the pipeline, the recruitment of commercial bankers over the last fifteen months has begun to pay dividends. Turning to our Residential division.

[Joseph Lebel, President and Chief Operating Officer at OceanFirst Financial]

Activity remains impacted by uneven loan demand with volatility in rates, limited inventory and seasonally low volumes affecting Q1. We remain cautiously optimistic and we are cognizant of the potential impact that economic uncertainty may have on rates, affordability and production. As we turn to the second quarter, we are pleased to announce the onboarding of nine premier banking teams in April. These teams have a proven track record of managing significant customer portfolios, historically consisting of lower cost deposit rich commercial relationships. We are optimistic that these teams will have substantial new client wins for the company throughout the remainder of 2025, although it could take two to three years to achieve their full run rate potential.

[Joseph Lebel, President and Chief Operating Officer at OceanFirst Financial]

We've also seen continued success in the hiring of C and I focused commercial bankers with the addition of six bankers so far this year. These new adds are incremental to the 10 C and I bankers we hired in 2024. As we have done historically, we will continue to identify and hire additional commercial bankers throughout the year when the opportunity arises. Moving to deposits. Excluding brokered CDs, balances decreased by approximately 2% compared to the prior quarter, primarily from a runoff of higher cost time deposits.

[Joseph Lebel, President and Chief Operating Officer at OceanFirst Financial]

We anticipate some seasonality in the second quarter, which should start to see the portfolio growth with new client wins thereafter. Noninterest income decreased 8% to $11,300,000 during the quarter. Excluding non core and non recurring items, non interest income decreased 11, primarily driven by seasonally lower title fees and service charges. With that, I'll turn the call over to Pat to review the remaining areas for the quarter.

[Patrick Barrett, CFO at OceanFirst Financial]

Thanks, Joe. As Chris noted, both net interest income and margin grew in the quarter with net interest income increasing by nearly 4% and net interest margin expanding by a healthy 21 basis points. Total funding costs as well as total deposit costs both declined by 26 basis points while loan yields remained essentially flat. While we're pleased with our overall reduction in funding costs, we believe the deposit repricing pace may moderate in the near term, but with positive tailwinds expected in the back half of the year as our deposit gathering initiatives begin to ramp up. Asset quality remained very strong with non performing loans at 0.37% and loans thirty to eighty nine days past due at 0.46% of total loans.

[Patrick Barrett, CFO at OceanFirst Financial]

While we saw a modest uptick in substandard, overall criticized and classified loans declined 5%. Overall, quality continued to perform in line with our company's strong historical experience and well below peer group averages. Additionally, we continue to monitor our exposures to industries and geographies for any emerging impact from recent political and administrative policy changes, but to date we've seen no signs of weakness across our customer base. Despite this, we felt it was prudent to increase our allowance for credit losses by just over 5,000,000 reflecting both the heightened levels of macroeconomic uncertainty as well as a modest shift in loan portfolio mix to higher C and I exposures. Non interest expense decreased $555,000 to $64,300,000 during the quarter, driven by seasonally lower title costs with most other expense categories relatively flat to the prior quarter.

[Patrick Barrett, CFO at OceanFirst Financial]

Compensation expense was partly impacted by a $1,300,000 incentive reduction recognized in the quarter. Looking ahead, we anticipate our quarterly operating expense run rate to increase approximately 10%, of which 4,000,000 is attributable to the recent Premier Banking hires this quarter. As Joe mentioned, we remain opportunistic for additional hires that could impact the run rate further. Capital levels remain robust and included nearly 400,000 shares repurchased for a total of $6,900,000 and a weighted average cost of $17.2 per share. We'll remain opportunistic in repurchasing shares in the near term, but that will be highly dependent on market conditions.

[Patrick Barrett, CFO at OceanFirst Financial]

And as previously announced, we'll be redeeming in full our $57,400,000 of preferred stock on May 15. Finally, a word on taxes. We expect our effective tax rate, which was 24% in the first quarter, to remain in the 23% to 25% range, absent any changes in policy. At this point, we'll begin the question and answer portion of the call.

[Operator]

Our first question comes from the line of Frank Schiraldi of Piper Sandler. Please go ahead.

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

Morning. Morning, Frank. In terms of the of the new teams brought over, any specific sectors targeted here that you can share? And and and then, you know, I know it's it's obviously a lot depends on rates and so forth, but just any thoughts around the mix that is likely to come over in terms of pickup in overall costs or percentage non interest bearing? Any thoughts on that front?

[Joseph Lebel, President and Chief Operating Officer at OceanFirst Financial]

Frank, I'll start with the sectors. The teams have a really robust variety of commercial clients and they range anywhere from those clients that are deposit rich law firms, title companies to more traditional commercial borrowers that have a variety of credit needs. So I think we're going to see the full range. I don't think there's anything that we target as specific relative to a vertical that would be either new to us or a concentration.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Frank, I'd just add on in terms of deposit rate expectations and the weighted average cost of deposits. We obviously hesitate to give you very specific guidance on that. But the portfolios these clients maintain, typically a substantial portion of non interest that could be, you know, 20% plus or minus depending on the team. And then the remainder of the funds they bring over have a market rate, but on the lower end of market. Right?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

These are not high end of the market. So when you blend those two numbers together, you get a very attractive cost of deposits. But it varies by team from team to team.

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

Okay. Alright. I appreciate that. And then, you know, you mentioned the opportunity maybe to to bring over additional folks. Just just curious, you know, given timing of bonuses, way that works, is that more sort of a 2026 expectation or is there still opportunity here in in coming weeks and and months?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Frank, it's Chris. I think we're at the tail end of the traditional kind of spring recruiting season. So there may be a couple more opportunities to bring people over. But traditionally, that's kind of all wrapped up by mid May. So a little bit of opportunity out there.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

But we would probably, that point forward, just kind of focus on execution for the remainder of the year.

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

Okay. And if I could just sneak one more in terms of the expense increase, 10% on run rate, 4,000,000 related to these premier groups. Just anything else to call out in terms of the rest of it? Is it just the 10% increase? Is it just general investments? Anything to call out there?

[Patrick Barrett, CFO at OceanFirst Financial]

As far as the the nature of the expense, it's really driven by comp expense increases. We do have some contracts that are renewing, and we will see some inflationary increases. But I would say that those would be kind of in line with a normal kind of 3% increase on average. Then there's some occupancy because we have to put these people in places that we don't currently have vacant. So there's going to be an increase that you'll see in that line item as well.

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

Got you. Okay. All right. I appreciate it. Thanks.

[Operator]

Thanks, Thanks, Craig. We have a question from Tim Switzer of KBW. Please go ahead.

[Tim Switzer, Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)]

Hey, good morning. Thank you for taking my questions. Have a few follow ups on I have a few follow ups on the Premier Bank. Can can you maybe walk us through kind of, like, the messaging to customers on Premier Bank versus kind of more classic ocean and what the reception has been so far in people who have joined the Premier Bank?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Yeah. The way we look at it is that we have a variety of service models that are tuned to a variety of different kinds of clients. And, you know, some clients, you know, love dealing with our kind of automation or call center, and that works really well for them. Other clients, like I would I would make the comparison like a concierge medicine. Right?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Where you can kinda have a relationship where you have a primary doctor you go to all the time and and you really value that relationship. And other folks, you know, buy their health care differently. It's no different in banking. So we wanna serve the customer the way they wanna be served. So Premier Bank appeals to a certain segment, and the rest of our businesses appeal to other segments.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

And neither one's right or wrong. It's just customer preference.

[Tim Switzer, Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay. How how many new customers is this bringing in versus moving, like, you know, larger legacy customers over into for MiraBank?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So this would be essentially, for the most part, would imagine all net new customers to the bank. We're not remapping existing customers. I mean, of course, over time, if if a customer wanted to be handled in a different way, we'd certainly be flexible and do whatever they want. But the majority of that would be net additions to Premier Bank.

[Tim Switzer, Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay. Got you. And then sorry if I missed this in jumping around calls, but can you update us on your plans for refinancing the sub debt if you want to after you've paid off the preferreds?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Sure. Obviously, the big thing you already mentioned is the preferred, so we wanted to make sure we got rid of that first. That was the most expensive capital we had. We're in no rush to do anything about the sub debt. It's a little bit more expensive, but it doesn't weigh earnings all that much.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

We're watching conditions in the market. You know, we'll consider our growth rate and other things over time. So we're in a position to refinance that if things get attractive for us. But we're equally comfortable kind of leaving that out there for a bit of time, you know, depending on market conditions.

[Patrick Barrett, CFO at OceanFirst Financial]

And I'd this is Pat. I'd think about it this way. We we kind of preserved any tangible book value dilution or erosion by repaying or redeeming the preferreds. So kind of the net impact of that cost avoidance pretty much offsets the increase in the sub debt, which is about $1,000,000 1 point million dollars a quarter pretax.

[Tim Switzer, Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)]

Got it. Very helpful. Thank you, guys.

[Operator]

We have a question from Dave Bishop of Hovde Group. Curious,

[David Bishop, Director - Research Department at Hovde Group]

probably more question for Joe. The growth in the C and I, obviously, was very strong this quarter. Just curious, does that represent maybe new sectors or segments and types of customers you're being able to book? And just curious where that growth was geographically. Was it broad based or was it centered in any specific regions?

[Joseph Lebel, President and Chief Operating Officer at OceanFirst Financial]

Yes. Thanks, Dave. The growth was broad based, which is good, although we did see some concentrated growth in our government contracting business that's fairly new to us in the Virginia, Maryland, D. C. Metro.

[Joseph Lebel, President and Chief Operating Officer at OceanFirst Financial]

But I'd probably just say overall that we're seeing activity from not only the legacy folks, but also the folks that we've put in place over the last year. It typically takes a C and I banker three to six months to get acclimated not only to the way a new bank does business, but also to convince clients that this is the right place for them. And we're starting to see that momentum build. And I think we'll continue to see. I think this is just the beginning.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

What I'd just add, one of the nice things about the GovCon business for us is we don't have a back book. So we're able to be very selective over the credit risk that we choose to take in that world. And for the remaining companies that are quite strong that have could be military cyber contracts, that kind of work, there's very good work to be done there. And it's nice to kind of step into that business at a time where we can be very selective.

[David Bishop, Director - Research Department at Hovde Group]

Got it. And then, you know, Pat, that you you noted maybe maybe waning ability to to lean on deposit cost. Just curious of maybe the, I don't know, get the spot rate of average cost of deposits at quarter end, but maybe a near term outlook where you see maybe deposit costs trending. It sounds like there could be some seasonality in the second quarter that may require you to lean on borrowing. So did I read that right?

[Patrick Barrett, CFO at OceanFirst Financial]

I'd say probably. There's not going to be a whole lot of bias one direction or the other at this point. Pretty stable outlook in the near term on costs. We certainly have the capabilities to lean on wholesale, but at this point, don't envision needing to do too much of that. And we're hopeful that as the premier banking and additional deposit gathering initiatives continue to build and build steam that that'll take any pressure off of funding needs. Got it. Appreciate the color.

[Operator]

We have a question from Christopher Marinac of Janney Montgomery Scott. Please go ahead.

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

Hey, thanks. Good morning. As you execute the new Premier Bank initiative, how much of the customer's kind of wallet do you think you'll get over time? And is that any different as you've kind of gotten closer to the launch compared to what it had been in the past?

[Joseph Lebel, President and Chief Operating Officer at OceanFirst Financial]

Chris, it's Joe. I would tell you that the expectation is that over time we'll get the majority share of the wallet. These are long standing customer relations, which is something that's really attractive to us. As we talked about earlier, I think you'll see it come over in time. We all know that sometimes when you have existing loans, those take time to mature or reprice.

[Joseph Lebel, President and Chief Operating Officer at OceanFirst Financial]

And the same thing goes with operating accounts. It takes a period of time for people to migrate across and run through the activity at the old institution. But I'm a big believer that these teams have significant followings. They're full relationships, and they'll be loyal.

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

Got it. And Joe, is it fair that some of the teams that may be out there that you may not be pursuing as hard because you may not be having the same visibility to bring, you know, their their their full wallet over.

[Joseph Lebel, President and Chief Operating Officer at OceanFirst Financial]

That's fair.

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

Okay. I was just trying to delineate between the the big opportunity and kinda how much kinda gets narrowed down into the funnel over time.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Chris, I'd add that we view this not only as a driver of margin and earnings over time, but a franchise value. So the higher quality relationship you have on the deposit side, the more durable those deposits are. We're not interested in putting dollars on just to put dollars on. We're trying to make sure we build a long standing liability sheet here that makes creates a lot of franchise value.

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

Yes. Understood, Chris. Thanks for that. And then just one follow-up, I guess, a credit perspective. Does this time of year with new financial statements make any difference to kind of how the risk ratings may play out? It had obviously good experience here in recent quarters.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

It does. I mean, is as you point out, this is when we get a ton of tax returns in and things like that. Although many of them get put on extensions, so you see a lot of them in the fall as well. So you know, but we've seen no trends that would be concerning. We're always thoughtful that that's a rearview mirror kind of thing and not a windshield kind of thing.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

But we did conduct a survey of our commercial book just to understand, not just from what we see in our credit work, but what our customers tell us about their tariff exposure. And it's a very limited exposure to the first order concern about tariffs. In fact, I think only about 8% of the commercial book recorded any meaningful exposure at all to tariffs. And then of those folks, the majority, about half of those folks thought they could have a reasonable chance of passing along any cost that came to them. So but, you know, despite surveys and despite underwriting, we felt that we really couldn't get a perfectly clear view and that's why you saw the additional reserve build.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

That's kind of a just in case in an environment that's, you know, fairly foggy right now.

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

Nope. Well stated, Chris. Thank you very much for sharing that too. I appreciate it.

[Operator]

We have a question from Daniel Tamayo of Raymond James. Please go ahead.

[Daniel Tamayo, Vice President at Raymond James Financial]

Thank you. Good morning, guys.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Good morning, Dan.

[Daniel Tamayo, Vice President at Raymond James Financial]

Yeah. Maybe just going back to Premier Bank, you know, kind of longer term goals. You you put in there the the two to three year ramp and how much you're expecting it on deposits. Curious if you guys are thinking about given you're putting on a lot of expenses kind of immediately, it's going to impact profitability, but kind of longer term where this takes the bank. If you have any kind of targets from a financial perspective, where you think that might breakeven relative to where you would have been before. If there's a loan to deposit sorry, a lot of questions in your list loan to deposit thoughts longer term as well? Thanks.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So we'll try and take those in pieces. So let me talk a little bit about profitability impact. First of all, it's a significant build in expenses given our overall expense base, it's not all that significant. And we're being very careful besides the compensation cost to be very deliberate around other costs, things like facilities. Really pleased that the majority of these bankers are going to be located in Manhattan or Long Island.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

We had existing branches today in one on Third Avenue in Manhattan and one up in Scarsdale that will support those teams. We took a little bit of back office space upstairs from our branch just to make sure that was an efficient kind of leveraging of full service branch. And the we only envision one facility on Long Island for the teams we've hired to date. That'll be a modest facility out in Melville. Depending on the hiring, we might add another modest facility or two, but it's not really going to be a big expense build.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So when you put all that in and you think about the leveraging of the operating environment we have today, it's probably somewhere around the four quarter mark that you have a little bit of a subsidy to this business. And I want to be very careful. This is a little hard and not as much science. That could be four quarters, it could be five quarters, it's hard to tell exactly. At that point, the margin improvement should have overcome any of the OpEx considerations.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

And then from there on, it takes maybe another year or so to get fully profitable. But if you think about the numbers we gave you today, you're talking about operating expense on the additional customer base is sub 100 basis points, could be eighty, ninety basis points. So the operating leverage here is quite good as you work your way through it. And there'll be a modest impact to EPS for the next four quarters. It's not going to be dramatic.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

And we think we kind of turn that around. You know, we felt that a twelve to eighteen month payback is pretty fast to build something that's got durable franchise value. So forgive me if we missed any other part of that question.

[Daniel Tamayo, Vice President at Raymond James Financial]

No, it was great. I guess the only other question within there, just do you have a target in mind for where you want the loan to deposit ratio to be?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Oh, sure. So, you know, we think about each of our businesses, they have very different dynamics around loan to deposit ratio. So the premier bank is a very low loan to deposit ratio. It's predominantly deposits, although there's a substantial amount of loans. You know, with some of the teams might have a 20% loan to deposit ratio, some may have lower.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

It's a very nice complement to our C and I business, which has a high loan to deposit ratio. Typically, they don't our C and I business doesn't self fund. So when you put the two of them together, you get a really powerful combination. So the Premier Banking teams, we'll keep you updated on this. I would not be surprised if the loan to deposit ratio in there is plus or minus 20%.

[Daniel Tamayo, Vice President at Raymond James Financial]

Okay. And then I guess lastly, just to put a finer point on the expense build, you talked a lot about it. Pat talked about it earlier. But so should we think about the 10% increase that's off of the what? It's First quarter.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

That's all the kind of first quarter, which is a little bit low.

[Patrick Barrett, CFO at OceanFirst Financial]

Yeah. Yeah. Okay.

[Daniel Tamayo, Vice President at Raymond James Financial]

So 10% on the 64.3% in the second quarter. And then any other kind of incremental build that we should expect going forward? Or kind of how you were thinking about expense growth prior to this announcement is still about still makes sense?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

That's what's big for the folks that we have on board today. We hire a few more additional bankers, it might come up a little bit. But that's a good news item and we report that in July if that happens. That may or may not happen.

[Patrick Barrett, CFO at OceanFirst Financial]

And I Danny, this is Pat. I'd use I'd use 66 as a run rate because we did have a year end incentive comp true up that made our comp expense lower in q one. So you add that back in, that should be your base.

[Daniel Tamayo, Vice President at Raymond James Financial]

Okay. So 10% off of $66,000,000 in the second quarter. And then assuming no other hires, kind of a normal, call it, mid single digit growth rate off of that? And then if you do have more hiring, then that would be incremental?

[Patrick Barrett, CFO at OceanFirst Financial]

Yes, on the incremental for more hiring, I don't think that you'll see a steady increase from that second quarter run rate. I think it'll be relatively stable. So I think we'll see a fair number of annual inflationary increases that will roll through by the middle of the year.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

And those are all within the 10% guidance we've given you. Yep. They wouldn't be on top of that.

[Patrick Barrett, CFO at OceanFirst Financial]

There's going to be some timing issues. We're kind of in the middle of adding to all of this. So, these are not as precise as we would normally have them. But we'll fine tune that as we kind of move through into the second quarter earnings.

[Daniel Tamayo, Vice President at Raymond James Financial]

Got it. So I guess back of the envelope that you're going to be kind of maybe $73,000,000 ish million for the rest of the year. It sounds like it's in the ballpark?

[Patrick Barrett, CFO at OceanFirst Financial]

A little bit maybe a little bit lower. Dollars 70,000,000 to 71,000,000 probably.

[Daniel Tamayo, Vice President at Raymond James Financial]

Got it. Okay. All right. Thanks for all the color. Appreciate it. Thank you.

[Operator]

We have a question from Matthew Breese of Stephens Inc. Please go ahead.

[Matthew Breese, Managing Director at Stephens Inc]

Hey, good morning.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Good morning, Matt.

[Matthew Breese, Managing Director at Stephens Inc]

Was hoping with the Premier teams and the anticipated deposit growth, could you give us some help on how we should think about the overall balance sheet size? With the growth, is it a one for one increase? Or you expect reductions in some of your higher cost funding categories? And if so, of just frame for us what you'd like to run off.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Our guess is that and this is a guess at this point, Matt. It's going to depend a little bit quality loan demand. So if we get the loan demand we'd like and the pipelines are pretty good, you can imagine some balance sheet growth, but it would be a mix of balance sheet growth and remix under the covers that will help us kind of optimize our capital position. We've some capital out there if we want to do things like buybacks. And if look, we're in a very volatile environment.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

It's very difficult to give you any longer term guidance around loan growth beyond Q2. If loan growth were to be flatter, that's okay too, because we can just use these deposits to redeem higher cost deposits and still make margin improvement out of it. So we have nice optionality here, but my guess is that if loan demand stays steady, which is a giant if, you know, think of it as half of it going to deposit remix and half of it going to net balance sheet expansion.

[Matthew Breese, Managing Director at Stephens Inc]

Okay.

[Matthew Breese, Managing Director at Stephens Inc]

I I know these teams are gonna be based, you know, you know, Metro New York City based, Long Island based. Any of them have a more national kind of customer focus or national business line focus?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

No. You know, I'd say just like our existing clients here that we have today, we have an occasional client who has a business that may have other facilities in Georgia or Florida or Texas. We bank them wherever they are. So we've done that in cases already. I think you're going to see the same thing, just a very small number of clients who may have maybe they have an investment in California or something.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

And we'll follow them, but the vast majority of this is really New York Metro centric.

[Matthew Breese, Managing Director at Stephens Inc]

Got it. Okay. Yes, that's what I was looking for. And then the last one for me is, obviously, there's more of a C and I focus, and commercial real estate has been deemphasized to some extent here. Could you just update us on what your current CRE concentration is, where you'd like it to be?

[Matthew Breese, Managing Director at Stephens Inc]

And do you foresee any sort of kind of bulk sales to kind of help get you there? It sounds like the environment from a payoff and competitive standpoint is a bit more friendly today.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Yeah, I'd say a few things about that Matt, and then I'll ask Joe to chime in as well. We're very happy with our CRE business. We have allowed it to drift down a bit, so the CRE concentration at the bank level is four sixteen. At the holding company level, it's below four, it's three ninety three. And interestingly, that's not necessarily because we're trying to drive to a certain number, but you'd be surprised how much competitive pressure there is in the market now for CRE loans and making sure you can get good structures and good pricing.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

I look at this and say, we're not on any drive to achieve a certain CRE ratio. We've managed it very prudently. You can see that in our credit numbers. You can see that in our minimal exposures. We do not have an exposure for rent stabilized multifamily.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

We have a negligible exposure to Central Business District office. All segments are performing really well. So we're happy with it in some ways. Might actually bring that up a little bit over time if we had the opportunity to do it with high quality loans and good structures. What you're seeing in that concentration drifting down is less quality structures and more competitive pricing.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So Joe, maybe give some description of what you guys have seen in the market because it's kind of puzzling.

[Joseph Lebel, President and Chief Operating Officer at OceanFirst Financial]

Matt, I think I just I framed it this way. Our CRE folks are out looking for business. We're not holding them back. We're not telling them that we're not interested. Diversity is your friend.

[Joseph Lebel, President and Chief Operating Officer at OceanFirst Financial]

So, geographic diversity, industry diversity, property type diversity is valuable to us. I think we've made that pretty clear over time. That's one of the reasons the book's managed and done so well. So I think the comment in what Chris talks about competitively, we're starting to see even though we're not in the space, think his Class B office is a good example in New York City. There's a lot more activity in Class B after the big run to Class A over the last twenty four months.

[Joseph Lebel, President and Chief Operating Officer at OceanFirst Financial]

We find it fascinating. I can't pinpoint why there's leasing absorption in this market. It just could be that there's people coming back to offices. It's not something we're chasing, but it is very competitive. We've lost a couple of transactions, which are okay for us. People pricing in the fives. It's not our cup of tea, but that's okay. We'll use those dollars and put them elsewhere in C and I or in better price CRE.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So to add to that, May, you had a question about whether we would kind of de risk by the sale of loan pools. We do not anticipate doing that. I think that would be pretty unlikely. I would direct you to Page 14 of our supplement slides. We have a back book of about $1,000,000,000 rolling this year and next that is rolling off a 4.31 blended rate.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

We think there's an opportunity to get some earnings momentum out of that. So that's got a 4.31% rate. But if you look at the debt service coverage ratios on that page, the maturity wall for 2025 debt serves at 170 and for 2026 debt serves at two thirty. We've been through, we've stressed these loans, those loans can roll and cover their debt service and we can get paid better on them. So our bias would be keep the customers, roll the loans and improve our margin.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

It could be a significant pickup just from that $1,000,000,000 Okay.

[Matthew Breese, Managing Director at Stephens Inc]

I guess that leads to and and this is the last one, not a more positive bias on the on the NII outlook granted? We're just looking at 2Q for the presentation, but, you know, it feels like if there's if there's movement in deposit costs, it should be lower, especially with the new teams. To your point on the repricing on fixed assets, it's positive. When if it's not 2Q, when do we start to see that inflection point in the NIM and NII just from the simple mechanics of repricing the fixed assets and deposits?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So we expect we're going to see additional margin expansion in the second half of the year. We're just as you point out, we're being very conservative about not giving you a specific guide on that. We're watching what's happening in the markets. We understand that policy is going to come into this. If you do wind up seeing Fed cuts during the year, I think we've got a real material opportunity.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

As you start to pile these things on each other, right? Fed cuts help us, Premier Bank helps us, the back book helps us. So I think of ourselves at a 2.9% margin now, which has virtually no purchase accounting, it's kind of a real margin. As we go into the back half of the year and into next year, you can start to see a glide path to get you back above 3%. That's the point at which our earnings really start to build nicely.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

But we would hesitate to give you any specific guidance given all of those kind of open questions. So we'll just keep updating you through the year. We'll watch it. But I think as you point out, most of those factors lean to the positive for us.

[Matthew Breese, Managing Director at Stephens Inc]

I'll leave it there. Thanks for taking my questions. Appreciate

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

it. Thanks, Matt.

[Operator]

We have a question from Manuel Navas of D. A. Davidson. Please go ahead.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

Hey. Good morning. What is the current book of business for these new hires at past institutions?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So it falls right in that range of where we see this upon maturity. So if you're thinking somewhere between 2,000,000,000 and $3,000,000,000 today, call it $2.5 It's pretty close to the book of business that they had at their former places.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

So so any new hires just kinda build that target a little bit higher?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Correct.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

Okay.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Yeah. And and by the way, you know, you you never we've we've been hiring bankers for a long time. They never pull a % of their former book, but they pull a good percentage of it, and then they bring new book in because that's what they do. And so, you know, I think in a couple years, they'll be able to get back to where they were.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

If we get to those targets, you know, that could be 20% plus of your deposits. Would you reevaluate at that point how how big this premier bank could get? Prior institutions got very large doing this, and and you have a a key recruiter that could continue this process for years. What are your kind of thoughts for, like, the long term growth here?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

You hit it on the head. This is a long term investment for us. We're gonna keep building this business. The only thing I would add to that though is that a fundamental risk control here is not having a concentration of anything. Even if you think about our CRE book, it's spread among five states, no big asset classes, concentration kills.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So we're gonna grow the premier bank. We think quickly and effectively, we think it's gonna be a great opportunity for us. But we're gonna grow the rest of the bank too. So we're gonna grow our consumer bank. We're gonna grow our our c and I led teams.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

We're you'll probably also see growth in CRE over time. So, you know, I think when you add all this stuff together, this just helps propel our growth rate to a higher number. If the environment were less volatile, we might give you more specific guidance about that.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

In the Premier Bank model for the for the nine teams, are there any differences or improvements on product or cost here versus what they had at prior institutions?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

There are it's interesting to us as we bring bankers over from a variety of institutions. They're typically surprised at the capabilities we have and we've built over the years. When you think about the last few years, one of the big benefits of us trimming our branch network is our ability to invest in technology and back office. So it's really nice to see bankers who come to us from larger banks that are surprised and impressed with our treasury suite. They're surprised and, you know, positively with the quality of our information technology.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So I think the customer experience is actually a little better and they love that. So that's probably the most significant thing I would mention. In terms of compensation plans, you know, I think as you build a diversified business, you have a variety of different compensation plans for different businesses and different segments. You know, what we have incorporated into all our compensation plans is risk management principles, so we don't aggregate too much of an asset or create a volatility around interest rate risk or funding risk or liquidity risk. So we've kind of put some tweaks and and made things our own.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

But we have a number of different compensation plans that are highly targeted to the businesses that are being run. And the premier business, that's a there is an extremely close connection between the compensation levels of those bankers and the quality and size of the portfolio they manage. It's a very direct correlation.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

Shifting over to loan growth for a moment. This mid single digit expectations for the second quarter with continued Premier Bank progress become a more normalized rate, especially with the ramp in the pipeline you've already seen?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Sure. And one of the advantages of having higher and higher quality deposits is it allows us to be a little bit more aggressive on pricing on the lending side. And look, it's a tough market out there, Joe mentioned that. It's pretty competitive. If you're trying to win new clients, have to have a sharp pencil.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

And having a, you know, lower cost deposits actually enables us to keep that credit discipline that we think is so important, but win new clients by doing it with a sharp pencil.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

And a shift in topic a bit is with growth potentially picking up during the second into the second quarter, you were able to buy back just under 1% of shares in the first quarter. You talked a little bit about buybacks continuing potentially continuing. Where do you kind of see where do you balance buybacks versus growth kind of near term?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

I think, you know, one of the significant things is our having resolved our preferred shares outstanding. We've been kind of I wouldn't say hoarding, but setting aside capital to be in a good position to do that when they repriced. With that now resolved and kind of off the table, we've got, you know, different options around capital management. You know, we're thrilled that we bought back 400,000 shares at 90% of tangible book. You know, it's accretive to book, it's accretive to earnings, just a wonderful thing.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So we have 1,200,000.0 shares remaining in our authorization. And if conditions stay like this, I'd expect to be active in the market. And and we can do both things. The great optionality around the mix shift on deposits means if we don't want to, we don't have to build the balance sheet. We can just build a more and more profitable bank at this size and then use the capital getting thrown off from that to repurchase shares.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So it's a we have a lot of levers here. We really like the position we're in and looking forward to playing it out

[Patrick Barrett, CFO at OceanFirst Financial]

or retire sub debt.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

Right. Right. I appreciate the commentary. Thank you.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Thank you, miss Hunter.

[Operator]

We currently have no further questions, so I will hand back to Chris Marek, Chairman and CEO for closing remarks.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Thank you. Before we close the call, we wanted to remind everyone that our Annual Meeting of Stockholders will be held virtually on May 19 at 08:00AM Eastern Time. We encourage stockholders of record on 03/25/2024 to review the proxy materials and vote for shares. We appreciate your time today and your continued support of OceanFirst Financial Corp. We look forward to speaking with you during our Annual Stockholders Meeting on May 19. Thank you.

[Operator]

This concludes today's call. Thank you all for joining. You may now disconnect your lines.

Participants

Executives

• Alfred Goon, SVP of Corporate Development and Investor Relations
• Christopher Maher, Chairman & CEO
• Joseph Lebel, President and Chief Operating Officer

Analysts

• Patrick Barrett, CFO at OceanFirst Financial
• Frank Schiraldi, Managing Director at Piper Sandler Companies
• Tim Switzer, Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)
• David Bishop, Director - Research Department at Hovde Group
• Christopher Marinac, Director of Research at Janney Montgomery Scott
• Daniel Tamayo, Vice President at Raymond James Financial
• Matthew Breese, Managing Director at Stephens Inc
• Manuel Navas, MD & Senior Research Analyst at D.A. Davidson