OceanFirst Financial Q2 2025 Earnings Report

OceanFirst Financial EPS Results

• Actual EPS: $0.31
• Consensus EPS: $0.33
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: N/A

OceanFirst Financial Revenue Results

• Actual Revenue: $99.37 million
• Expected Revenue: $101.26 million
• Beat/Miss: Missed by -$1.90 million
• YoY Revenue Growth: N/A

OceanFirst Financial Announcement Details

• Quarter: Q2 2025
• Date: 7/24/2025
• Time: After Market Closes
• Conference Call Date: Friday, July 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 Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Net interest income rose by $1 million and net interest margin expanded 1 bp, marking a third consecutive quarter of revenue growth and setting up improved earnings in Q3.
• Positive Sentiment: Record-high commercial pipeline of $791 million and $716 million in loan originations (including $232 million in C&I) reflect the immediate productivity of recent commercial banking hires.
• Positive Sentiment: Asset quality strengthened further with classified loans down 3% to 1.4% of total loans and nonperforming assets among the lowest in the peer group, driving minimal provision expense.
• Positive Sentiment: Premier Bank launch onboarded 36 bankers who have already generated $115 million in deposits (20% non-interest-bearing) at a 2.7% cost, on track for the $500 million year-end target.
• Positive Sentiment: Robust capital deployment with $17 million in share repurchases, $57 million preferred redemption, authorization for 3 million more repurchases, and the 113th consecutive $0.20 quarterly dividend.

Presentation

[Operator]

Thank you all for attending. I'd like to welcome you all to the OceanFirst Financial Corp Q2 twenty twenty five Earnings Call. My name is Breeka, and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Alfred Goone, Investor Relations at OceanFirst. Thank you. You may proceed.

[Alfred Goon, SVP - Corporate Development, Strategy & IR at OceanFirst Financial]

Thank you, Prika. Good morning, and welcome to the OceanFirst second 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 - Corporate Development, Strategy & IR 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 can cause actual results to differ from those statements. Thank you. And now I will turn the call over to Christopher Moore, Chairman and CEO.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Thank you, Alfred. Good morning, and thank you to all who have been able to join our second quarter twenty twenty five earnings conference call. This morning, I'm joined by our President, Joe LaBelle 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 the call. After our discussion, we look forward to taking your questions. We reported our financial results for the second quarter, which included earnings per share of $0.28 on a fully diluted GAAP basis and $0.31 on a core basis. Before I walk through a few items, a summary of how we see the quarter may be helpful. This was an investment quarter as we added C and I bankers, launched the Premier Bank, opened a commercial banking office in Melville, New York and opened a new full service branch in Perth Amboy, New Jersey, all of which increased expenses as we expected and as we had guided last quarter.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Revenue growth has been on a strongly positive track and we expect that to continue, while absolute expenses remain flat with some potential to decrease over time. As a result, we view the quarter as a trough in EPS that will build from this point as the organic growth momentum continues. We expect this progress to continue while credit performance remains among the best in our peer group. In terms of performance indicators, we were pleased to report a third consecutive quarter of growth in net interest income, which grew by $1,000,000 and continued stability in our net interest margin, which expanded by one basis point. Importantly, the loan growth in the quarter came late in June, so the quarterly results don't fully reflect the earnings power of the balance sheet, which is better positioned for additional improvements to net interest income in the third quarter.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Total loans for the quarter increased $60,000,000 representing a 2% annualized growth rate, driven by strong originations of $716,000,000 The quarter also included strong growth in commercial and industrial loans, which increased 8% for the quarter, reflecting our focus in this segment. Operating expenses for the quarter were $71,000,000 in line with our expectations and previous guidance. Operating expenses included nearly a full quarter of the run rate from our recent commercial banking hiring efforts and the launch of the Premier Bank Group. These additional bankers have been immediately productive. Joe will provide a detailed update on these initiatives in a moment.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Asset quality remained very strong as total loans classified as special mentioned and substandard decreased 3% to 145,000,000 or just 1.4% of total loans. Classified loan levels remain well below our long term average and are substantially lower than our peer group. The quarterly provision was primarily driven by net charge offs of $2,200,000 and by a mix shift as commercial and industrial loans increased while commercial real estate loans decreased slightly. Capital levels remained robust with an estimated common equity Tier one capital ratio of 11% and tangible book value per share of $19.34 The quarter included $17,000,000 of share repurchases or 1,000,000 shares at a weighted average cost of $17.17 and the redemption of $57,000,000 of preferred stock. With the existing share repurchase authorization nearly completed, on July 15, the company authorized an additional 3,000,000 shares available to be repurchased.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

This will allow us to remain flexible with our capital deployment. This week also the Board also approved a quarterly cash dividend of $0.20 per common share. This is the company's one hundred and thirteenth consecutive quarterly cash dividend. Finally, we're very pleased with our progress growing the commercial bank, which is on track for a strong third quarter. The commercial pipeline of $791,000,000 is a record high.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

We're seeing meaningful lending opportunities and early success gathering deposits. We expect an increase in net interest income in the third quarter and continued improvement to margins in the second half of the year. At this point, I'll turn the call over to Joe for additional color on the business.

[Joseph Lebel, President, COO & Director at OceanFirst Financial]

Thanks, Chris. I'll start with loan originations for the quarter, which totaled $716,000,000 including $426,000,000 from the commercial bank, inclusive of $232,000,000 of C and I originations. For the second consecutive quarter, the commercial pipeline has doubled and as Chris noted, is a record high for the company. This momentum is directly attributed to our investment in talented commercial banking hires who continue to add diversity in size and geography to the pipeline. At this point, we've completed the majority of our commercial banking hires for the year with 13 C and I bankers and 36 premier bankers hired in 2025. Turning to our residential business, activities increased on the linked quarter basis, but our markets continue to remain impacted by uneven loan demand, volatility in rates and limited inventory. The second quarter is typically our low point in deposit balances for the year as government balances decline and seasonal shore businesses consume cash in preparation for the summer. Deposit balances excluding brokered CDs decreased approximately 1% compared to the linked quarter, but increased by $117,000,000 compared to the same period in 2024.

[Joseph Lebel, President, COO & Director at OceanFirst Financial]

The addition of our new premier banking teams, all of which we onboarded in April, have contributed to the bank in short order. As of June 30, these teams brought in $115,000,000 in deposits across more than six seventy accounts representing nearly 200 new customer relationships. Approximately 20% of those balances are in non interest bearing DDA and the overall weighted average cost of those deposits was 2.7%. As these relationships begin to transition to OceanFirst, we expect the percentage of DDA to increase as many of these accounts are not yet fully operational as of quarter end. These bankers are on pace to achieve our twenty twenty five target of nearly $500,000,000 in deposits by year end, while also contributing to the commercial loan pipeline.

[Joseph Lebel, President, COO & Director at OceanFirst Financial]

We are very pleased with their results thus far. Lastly, non interest income increased 5% to $11,800,000 during the quarter. After excluding non core and non recurring items, non interest income was down 1% compared to the prior quarter due to lower swap activity largely offset by gain on sale. With that, I'll turn over the call to Pat to review the remaining areas for the quarter.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

Thanks, Joe. Good morning to everyone on the call. As Chris noted, both net interest income and margin grew in the quarter with loan yields increasing four basis points and total deposit costs remaining flat. Average interest earning assets declined during the quarter reflecting modest declines in the securities portfolio, while average loan balances only increased slightly due to larger payoffs early in the quarter and higher originations late in the quarter. We expect positive expansion in both net interest income and margin in the back half of the year based on period end balances and pipelines.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

Asset quality remained very strong with non performing loans to total loans at 33 basis points and non performing assets to total assets at 31 basis points. Delinquency levels continued to remain at the low end of historical levels and criticized and classified loans declined. Debt charge offs for the quarter were largely driven by two commercial credits totaling $1,600,000 and just over $400,000 from a small sale of non performing residential loans. Overall, credit quality continued to perform in line with our strong historical experience and remains among the best in our peer group. Credit reserves were stable with provision expense only addressing charge offs, growth and a mix shift in loans.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

Turning to non interest expenses, increased about $7,000,000 to $71,500,000 driven by increased comp expenses, professional fees and other operating expenses. The increase in compensation expense was driven by the recent commercial banking hires, while professional fees included $1,600,000 of non recurring recruiting fees related to these hires. Other operating expenses reflected some volatility across a number of minor categories and are expected to revert back to historical levels. Looking ahead, we expect our quarterly operating expense run rate to remain stable in the 71,000,000 to $72,000,000 per quarter range with normalizing professional fees being offset by a full quarterly run rate of compensation and occupancy for the recent addition of banking teams. And as Chris noted, capital levels remained robust and included 1,000,000 shares repurchased at a weighted average cost of $17.16 per share.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

And while we reloaded our repurchase plan by 3,000,000 shares, we expect capital priorities will focus on supporting expected loan growth in the near term and we'll reserve any share repurchases for periods of market volatility. Finally, a word on taxes. We expect our effective tax rate, which was 24% in the second 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]

Thank you. Thank you. We will now begin the question and answer session. You. As a reminder, if you are using a speakerphone, please remember to pick up your handset The first question we have from the phone lines comes from Daniel Tamayo with Raymond James. Please go ahead.

[Daniel Tamayo, Vice President at Raymond James Financial]

Thank you. Good morning, guys. Maybe to start just on the deposit side, curious, you got a lot going on, right? You've got the new hires, you added $115,000,000 I think you said, Joe, including some DDA there. At the same time, overall funding costs are starting to stabilize.

[Daniel Tamayo, Vice President at Raymond James Financial]

So as this shift continues to happen with the deposits coming on from the new hires. If we could pull rate cuts out of this for a second, do you think you can reduce funding costs going forward? And how much of that is, like, further out like next year or the year after type of thought? And how much is more near term?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Certainly, opportunity to mix shift to reduce it a little bit. I think absent rate cut, I wouldn't see a lot of movement in the near term. The CDs we have rolling over in Q3, I think, have a blended average rate of about 3.8%. So there's a little bit of opportunity there, not a lot. And it's not a lot of maturity, so it's not going to drive a big change in the mix.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

But as the Premier Banking teams come on, Joe noted, they're going to have slightly higher levels of DDA. But also outside the Premier Bank, the C and I growth has been very strong. And the accounts that they bring along are going to tend to be far better priced than kind of market rate accounts that you've raised. Anything you want add?

[Joseph Lebel, President, COO & Director at OceanFirst Financial]

Yes. Think the only thing I'd add is historically, the second quarter is the weakest quarter for us. Government seasonality, tax payments, all those kinds of things are on the come, and we have a lot of the operational businesses utilizing cash. So 3Q, 4Q should be better.

[Daniel Tamayo, Vice President at Raymond James Financial]

Okay. And I guess bigger picture kind of same theme, but on the margin, stable to slightly up in the third quarter. Maybe if there was a rate cut, it would have been stable or slightly down. But I'm just trying to think about the trajectory of the margin longer term, obviously up, but your thoughts on kind of how quickly that translates into margin expansion as we get into the out quarters here?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Probably a slow and steady process where it's going to just come up maybe a few basis points a quarter. We think we're within striking distance of that 3%, which is important to us. Unclear whether we would get there by year end, but we're on the path to get there and cross over that. So I think it's going spend a little bit on mix shifts and how many dollars people have in different account types, but it's certainly improving. And in the loan side, as we grow loans, the mix of the loans we grow will also be important and the weighted average coupon.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Saw the weighted average coupon in the pipeline came down a little bit quarter over quarter. That just reflects more C and I deals, which tend to be priced in the short end of the curve, so they tend to have lower nominal rates, But they're adjustable, is good.

[Daniel Tamayo, Vice President at Raymond James Financial]

Okay. Helpful. And lastly, just to clarify, probably not that different from last quarter, just if you could kind of indicate what the impact from rate cuts at this point would be and how much of that would be initially after the first rate cut versus the lag effect.

[Operator]

Thank you.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Operator, move to the next

[Operator]

We question, have question from Tim Witser with KBW.

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

Hey, good morning. Thanks for taking my questions. The first one I have is just a quick clarification on the outlook for stable non interest income. What's the base for that? Is that the adjusted number or reported?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Bear with us as we seem to have a little technical difficulty with the, operator today.

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

I can hear you. Can you guys hear me?

[Operator]

Please standby whilst we try and establish the connection issue. Please stand by whilst we try and correct the connection issue with the speakers today. You will now hear holding music until we reestablish the issue with the speaker's connection. I can confirm we have the speakers back. And Tim, you may resume with your question.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Hi, Tim. Shut off for not trying to dodge your question.

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

It's a pretty simple one. I was just wondering what is the base we should be using for the relatively stable non interest income guidance? Is that the adjusted number or the reported GAAP?

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

Sorry. I didn't it's Pat. Could you say the first part of that question one more time?

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

Yeah. What is the base we should be using for the guidance for stable non interest income?

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

GAAP is the best base to use. They're almost the same at this point for this quarter. So if you're looking at margin two ninety one versus two ninety.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Even the non the non interest income.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

Oh, I'm sorry. For the non interest income.

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

Fee income. Do not

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

use the gap.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

Yeah. Gap and stable.

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

Okay. So like that $12,000,000 number?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Yes.

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

Okay. Then can you guys you guys talked about it a little bit last quarter, but can you provide a little bit more details on kind of what was the expense lift from the new hires you made in Premier Bank?

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

And how did that impact the earnings this quarter? And I think we're now at a more stable run rate going forward, right? Any plans for new hires over the rest of the year?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

No plans for new hires. If you think about it in EPS terms, the additional expenses in Q2 probably hit us about $06 in EPS. And then that will now reverse, and we'll start pulling out of that.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

And just to kind of simplify from a geography perspective, as we get the full quarter impact because a lot of these hires didn't start until late in April, Expect our comp expense will drift up a bit higher. So call it go from $40,000,000 run rate to $42,000,000 run rate. But professional fees will come down by $2,000,000 because we won't have all the hiring costs. So net, we should be flat on OpEx. Although I would add, we're not relaxing on expenses.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

We have a number of things that we're looking at and we actually do think there are opportunities for us in absolute terms to gain some additional expense efficiencies. We're just not guiding to that right now.

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

Okay. And then the last question I have is you guys have seen pretty decent capital levels here. Can you update us on your thoughts about your approach to M and A? How much of a priority that is relative to dividend and share repurchases?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Our primary focus is on the organic growth plan and producing the earnings momentum we think that we need to show. And I think we're also very mindful of where our shares trade relative to book value. So there are not very many opportunities that would make sense for our shareholders with the valuation of our shares today. So that's kind of how we think about things.

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

Great. Thank you, guys.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Thanks, Mitch.

[Operator]

Thank you. Your next question comes from Dave Bishop from Huffde Group.

[David Bishop, Director - Research at Hovde Group]

Hey. Good morning, gentlemen.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Hey. Question.

[David Bishop, Director - Research at Hovde Group]

Good to, catch up.

[David Bishop, Director - Research at Hovde Group]

I think you said in the preamble the the the deposits thus far, from the Premier team, maybe 20% DDAs, seeing that ramping up. Do do you see the weighted average rate going below the average for the the entire bank over time and pushing that, appreciably lower issue onboard more of these accounts?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So so right now, it's in the $260,000,000 range. It's been holding, and we've seen additional growth since the end of the quarter. Bank wide cost of deposits is closer to 2%. I think we'll get down to kind of match the bank, maybe a little bit better than the bank. But our expectation is that 30% or so will be noninterest bearing.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

The rest is going to be some version of market, maybe not the highest rate you have to pay, but something. So I think it's going to be very efficient funding, but we don't expect it to be free funding. Think of it kind of gravitating towards the cost of deposits for the rest of the bank, but being able to grow at a much faster clip. We've got a great deposit cost, but we haven't been growing as quickly. We want to match the growth rates we need to fund the balance sheet.

[David Bishop, Director - Research at Hovde Group]

Got it. And any I know it's still early in the life cycle here, but any new line of sight on potential loans emanating from that segment?

[Joseph Lebel, President, COO & Director at OceanFirst Financial]

Actually, they were pretty bullish on the opportunity there. Obviously, with the Premier Bank, the expectation is the positive focus, but we've already driven some significant activity that you're seeing in the pipe already and I expect that to continue to grow over time. So we're very pleased with the activity on that end of the spectrum as well.

[David Bishop, Director - Research at Hovde Group]

And Joe, sticking maybe with loans on the commercial side. Just curious where you're seeing sort of the best opportunity either geographically or within that C and I segment, any specific verticals that are driving the majority of growth your way when it's a pretty tough environment to grow C and I in this market?

[Joseph Lebel, President, COO & Director at OceanFirst Financial]

Yes. Dave, we're pretty thoughtful about, obviously, what we're seeing in markets. But the good news is from a geographic perspective, we're seeing it all over the footprint, which I truly appreciate. It's not being driven by one area, but we've seen good continued momentum in our North Virginia market in government contracting. But I have also seen some really good activity in our home markets, which have been a little quiet, so that's good to see as well.

[Joseph Lebel, President, COO & Director at OceanFirst Financial]

We've seen some equipment finance. I wouldn't go as far as to say there's any real concentration in vertical, in any vertical. But but when you hire the people we've hired, some of that is the fact that they're bringing relationships that they've built over fifteen, twenty years to us. So even though the environment's difficult, we're taking market share from others.

[David Bishop, Director - Research at Hovde Group]

Got it. Then maybe a housekeeping item on the sub debt. Just any update there in terms of the thinking of the redemption and retirement?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

We're watching that market carefully. It gets have more efficient teams every quarter. So we don't feel a burning need to have to address that immediately. We have the option to address it in either pieces or potentially do a new issuance. The recent issuances in the last few weeks have looked pretty promising.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So we think about it often. When we think that opportunity is right, we might refinance it or we might look to kind of pay down a little bit with earnings over time. So we like having the optionality. We're watching the markets and could go in either direction over the next quarter.

[David Bishop, Director - Research at Hovde Group]

Great. Thanks.

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

Thanks, Dave.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Thanks, Dave.

[Operator]

Your next question comes from Manuel Daddas with D. A. Davidson. Please go ahead.

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

Hey, good morning.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Good morning.

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

Is the 3Q loan loan growth guide, how sustainable is that? And and and how how much is that based on what you've seen so far this quarter and what's expected by the year end? And how much give is there in that projection?

[Joseph Lebel, President, COO & Director at OceanFirst Financial]

I think we feel pretty confident given the pipeline that we have and I think the continued pipeline growth. I think Manny, the real challenge for anybody else is what are you going to see at the other end? We've seen payoffs abate since early in the quarter and especially in Q1, which is a positive. I can't predict what could occur in the future. But in terms of what we're originating, who's originating it, where it's in our footprint, we're pretty confident we're going to continue to drive that momentum forward.

[Joseph Lebel, President, COO & Director at OceanFirst Financial]

So on that end of it, I think you can be as confident as you can be. So I think that's probably a fair assessment.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

I would add, in our conversations with our clients, they're reporting to us that business conditions are good for them. They've got building backlogs. Got plenty of work, plenty of opportunity. We're seeing them increasingly lean in and make investments. So I know kind of those macro headlines are concern over the economy.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

We have not seen that reflected in the comments from our customers to date, but that could change. We're in the we live in a volatile world. But for now, our clients are thinking pretty positively to doing projects. We've got good visibility. And all these a lot of these hires we made, they're going to produce opportunities for us for years to come.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Typically, a commercial banker takes could be anywhere between eighteen months and three years to reach their full potential. So I think this is a sustainable growth rate.

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

I appreciate that. It looks like if you look at the what you're bringing in from the commercial deposit teams, what you have in the loan pipeline, there's like a marginal NIM close to 4% plus. What keeps you from growing the NIM or expanding the NIM even faster?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

I think it's just the pace at which there's net additions to the balance sheet. There is a scenario, Meny, under which if we're growing and compounding this growth and there are rate cuts, you could see a faster expansion. And we just don't want to until we've seen that for a few quarters, we don't want to get ahead of ourselves.

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

Shifting topics a little bit. It seems like the team is largely in place at the moment, maybe for this year. Is there any shift in the hiring focus? Any expansion in geographies at the moment across the Premier Bank or even in C and I?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

No new geographies. We're very happy. We have enough geography that gives us the appropriate concentration balance because we don't want to have too much of anything in any one market. So we think we've got that covered. And our markets are exceptionally deep.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

We operate in the strongest banking markets in the country. We essentially think that the hiring is done for this year. But if a great banker comes available to us next month, we're going hire the great banker because that's good for the company. So but I would assume that the hiring is done for this year. As we get through year end, look through our performance in Q3, Q4, heading into Q1, we will consider what the appropriate growth rate is for 2026 based on how we're performing with the teams we've hired thus far.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So for now, that's why I think Pat guided to a flat to possibly even reduced operating expense level over time. So we'll keep you guys updated on our plans in that regard.

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

I appreciate the commentary. Thank you. I'll step back into the queue.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Thank you.

[Operator]

Thank you. We now have Christopher Marinac with JMS. Your line is open, Christopher.

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

Hey, good morning. Chris and Joe and team, I wanted to ask a little bit about the kind of big picture on deposits on the Premier Bank. I mean, given the strong quarter you just had, I mean, is there the potential to kind of rethink that upper number over time, not thinking in the next quarter, of course, but just curious if the 500,000,000 can be bigger as next year and the future come into focus.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

We've been I'll make a qualitative comment, not a quantitative comment. We're really pleased with the relationships we're being introduced to, with their customers' trust in coming over to us, joining the bank. Joe mentioned hundreds of accounts, a couple of 100 relationships. They've really done what we would have expected to do. And this is only the first eight weeks or so that they were on board.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

It does take a little while to get oriented in any new place. Have to kind of find the restroom and work through policies and all that kind of stuff. So very pleased with the quality of the conversations we're having. I think it'd be premature to reset a different guidance level. Let's see how we go through the end of the year.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Joe, any color you'd add on the conversations you've had? Both Joe and I have been out and met a lot of these new customers, and I really appreciate the quality of the folks we're bringing over.

[Joseph Lebel, President, COO & Director at OceanFirst Financial]

I think the only thing I'd add for Chris is that we have provided some guidance toward multiple years out, and we fully expect, obviously, that we'll continue to grow these balances into bigger dollars, 26.7%.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

And that was a pretty wide guidance, think. We could outperform on the top end, but we're only in this couple of months. So I want to kind of build some momentum and have a track record before we adjust anything.

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

Understood. And I see the multiyear aspirational goals. Was just curious how we go from this $500,000,000 to the even the $2,000,000,000 in the 27,000,000,000 but we'll continue to let that play out. So thank you for the color, both of you. Any comments on just sort of overall credit quality as it pertains to the, I guess, longer term interest of trying to grow the reserve just in general?

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

Is that still a possibility for you as these scenarios have played out?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

I think that's going be determined by the mix shift, Chris, over time. So as we as the portfolio becomes has a larger composition of C and I loans and a smaller composition of CRE loans relative to each other, we would expect to carry slightly higher reserves. So it didn't turn out there was very small growth this quarter, so that wasn't an opportunity. The mix shift didn't provide enough to see a reserve build, but I would not be surprised if you see the reserve continue to build for the next several quarters as the mix shift changes. So we think it's heading in that direction.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

It's just a quarter where the numbers didn't turn out that way.

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

Great. And then just last question. The small improvement we saw on the criticized debt ratio, are there upgrades driving that? Are there other upgrades that are possible in the future? Just sort of curious on any background.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

We've got a number of things that we think may resolve in the second half of the year that we provide some upside to that. But we always get cautious for two reasons. First, we don't know the environment we're going into, and we're at an absolute fairly low level. So as much as we might have positive resolutions, there's always situations where you may have a creditor or two that would slip into that. But nothing we're not seeing anything in portfolio trends, risk ratings, delinquencies.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

There's no sign of a wider deterioration. And the composition of the loans is really important. We've stayed out of some of the segments that have higher levels of concern. So we have a relatively small multifamily book. We don't really operate in unstabilized world.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Our Central Business District office portfolio is very small. So I think the portfolio is structured well and not have an outsized issue. Performance indicators are good, might get a little bit better, but probably won't get a lot better because these are pretty low levels notionally.

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

Great, Chris. Thank you all for the call today.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Thanks, Chris.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

Thanks, Bruce.

[Operator]

And we now have a question from Matthew Breese with Stephens. Go ahead.

[Matthew Breese, Managing Director at Stephens Inc]

Good morning, everyone.

[Matthew Breese, Managing Director at Stephens Inc]

First, I just wanted to circle back. I think Mr. Tomeo asked about the NIM impact from each 25 basis point cut, both initially and over time. We cut out there due to the connection. I just want to make sure that was answered.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Okay. Yeah. No. Thank you thank you for that, Matt, because we didn't hear that part of the question.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

No. Okay. Yeah.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

So so we're we're not wildly exposed to much volatility with or without Fed rate cuts. The impact for us is really more kind of in the belly of the curve, see what the two and the five year and the ten year do. So there's not a dramatic dollar amount. It rounds to kind of less than a penny a share on an annualized basis per 25 basis point cut from the Fed. Anything that we're talking about from a guidance perspective doesn't really contemplate anything meaningful from that any big change in the curve.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

We kind of go with consensus. So I think we have a third quarter rate cut and a year end rate cut. And right now, which I think is what most people think would happen. But if we got one next week, a 25 bp cut, there might be a little timing lag, but you'd see kind of the the negative on the floating rate book coming through and then the positive would would come through and lower deposit costs and with maybe a a one quarter lag.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Think it's bad point.

[Matthew Breese, Managing Director at Stephens Inc]

Got it. Appreciate that.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Longer end, the plan is probably be more. If if there's a fed cut and then the long end comes up, that might be more beneficial than just a cut. If there's a cut where the long end stays where it is, probably not that much.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

The paper is always is better. But we're we're still pretty neutral right now.

[Matthew Breese, Managing Director at Stephens Inc]

Okay. I wanted to go back to deposits. So, you know, the incremental from your deposit came in at, I I think, right around $2.70. The bank as a whole is at $2.00 6. So it feels like, you know, by the numbers, the incremental growth should take deposit costs higher, but you're suggesting maybe there's actually some some room to reduce costs. So I'm curious, you know, the other parts of the bank, what is kind of the blended new rate of deposits, you know, and or are there, you know, agreements with your banking deposits that, you know, whatever rate they're getting is more or less, you know, there's there's some, you know, you know, short term elements to it. Maybe help me out there.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Just the operational way that accounts get funded, Matt. So the bankers showed up in mid April. They begin to open accounts in probably by early mid May. And then there's a process on a commercial account. You have to go do all the beneficial ownership stuff, paperwork filed.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Then they have to go out and operationally kind of wind down wherever they're banking today and move over their cash management to checks and payment methods and all that. So as a result, the early deposits you get in tend to be rate driven deposits. And then you've got the operating accounts, but they've got nothing in them, and then they build in their balances over time. So I think Joe had guided to maybe closer to 30% non interest bearing over time. That would pull that $260,000,002 70,000,000 down closer to the $2.00 6,000,000 And if we can do better than that, you might even outperform it.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

But we don't think it's going to drag the deposit costs up at the bank. We think over time, we can kind of gather deposits about where we're priced today.

[Matthew Breese, Managing Director at Stephens Inc]

Okay. That makes much more sense. I did wanna touch on security deals, you know, down, you know, pretty sizably the last three quarters. What's going on there, and and where do we start to hit, you know, stability in securities yield? Because that seems to be a a a to the margin.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

Yeah. Well, the the decline, there's a couple of things that are at work there. A third of our securities book is floating rate. So as you see any movements there, you get a little bit of directional push. But then the duration is pretty slow, pretty short as well.

[Patrick Barrett, Senior EVP & CFO at OceanFirst Financial]

So we've got reinvestment that's occurring of instruments that we entered into in a higher rate environment that are repricing out already based on the kind of belly of the curve a little bit longer end. So those are the main drivers. There wasn't a huge mix shift in those and we still remain largely treasury, treasury CMOs, agency paper. So whatever the rates are on those type of instruments is what you'll see. It's really only the floating rate piece, which is our CLO book that kind of moves around with the short end of rates.

[Matthew Breese, Managing Director at Stephens Inc]

Okay. And then loan yield expansion this quarter was, I I wanna say, maybe four ish basis points. Yep. In the absence of rate cuts, is that a decent rate of expansion from here?

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

I think that's a good that's a good proxy.

[Matthew Breese, Managing Director at Stephens Inc]

And then last one for me is just, you know, as you think about loan growth and the guidance, to what extent are you baking in commercial real estate payoffs? Seems to be a common theme this quarter. There's a lot of competition for paper in commercial real estate. All I had. Thank you.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Matt, in terms of commercial real estate, we think we do that well. And while we are focused on adding to the C and I book, we're not exiting or leaving the CRE book. We've done it well. It's performed well. We have great clients there.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

It's going be episodic on pay downs. That's the way that world works. If you have one big loan can make a difference. But we would hope that the CRE would remain flat. Maybe we could grow it a little bit depending on opportunities.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

But we do have a strong pipeline in CRE. Joe, you

[Joseph Lebel, President, COO & Director at OceanFirst Financial]

want Yes. Look, we've seen a resurgence in CRE transactions. And great example, Matt, is the largest payoff we got this quarter was a $55,000,000 transaction, $52,000,000 at 3.5%. So as long as I can put that money back out and I'll put it out this quarter, I'll take that trade even though I'm not theoretically growing the balance sheet on the CRE side. I do believe I'll be able to replace those payoffs in the second half of the year.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

So if you're thinking about modeling that, keeping CRE balances steady is probably a decent bet. It might go up a little bit. It might go down a little bit, but we're not I would not expect that portfolio to be in runoff.

[Matthew Breese, Managing Director at Stephens Inc]

All right. I appreciate all that. That's all I had. Thank you.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Thanks, Matt.

[Operator]

Thank you. I can confirm that does conclude the question and answer session. And I would like to hand it back to Chris for some final closing comments, please.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

Thank you very much. We appreciate your time today. Apologize for the technical glitch in the call that got us disconnected for a little bit. But we do appreciate your time and your support of OceanFirst Financial Corp. We hope you have a great summer.

[Christopher Maher, Chairman & CEO at OceanFirst Financial]

If your plans bring you to the Jersey Shore, come visit us, and we'll talk to you in October. Thanks very much.

[Operator]

Thank you. I can all confirm that does conclude today's conference call with OceanFirst Financial Corp. You all may now disconnect. Thank you all for your participation, and please enjoy the rest of your day.

Participants

Executives

• Alfred Goon, SVP - Corporate Development, Strategy & IR
• Christopher Maher, Chairman & CEO
• Joseph Lebel, President, COO & Director

Analysts

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