OceanFirst Financial Corp. (OCFC) Q1 2025 Earnings Report, Transcript and Summary

Hello, everyone, and thank you for joining the OceanFirst Financial Corp. Q1 2025 Earnings Call. My name is Marie, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. And if you change your mind, please press star followed by two. I will now hand over to your host, Alfred Goon, SVP of Corporate Development and Investor Relations to begin. Please go ahead. Thank you, Marie.

Morning, and welcome to the OceanFirst first quarter 2025 earnings call. I am Alfred Goon, 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. All participants should refer to our SEC filings, including those found on Forms 8-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 Maher, Chairman and Chief Executive Officer.

Thank you, Alfred. Good morning, and thank you to all who've been able to join our first quarter 2025 earnings conference call. This morning, I'm joined by our President, Joseph Lebel, and our Chief Financial Officer, Patrick 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. 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 and interest income, which grew by more than $3 million for the quarter, and net interest margin which expanded by 21 basis points. These improvements were largely driven by deposit repricing efforts. Results also included commercial and industrial loan growth of 6%, or 24% annualized, while the total commercial loan pipeline increased to $376 million as of period end. Operating expenses for the quarter were $64 million, 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 million or 1.5% of total loans. Classified loan levels remain well below our long-term average and are substantially lower than our peer group. The reserve build for the quarter was primarily driven by an elevated level of uncertainty around macroeconomic conditions. Capital levels remain 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.

Thanks, Chris. I'll start with the company's loan originations for the quarter, which totaled $417 million including $135 million 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, 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. 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. 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 $11.3 million 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.

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, our deposit gathering initiatives begin to ramp up. Asset quality remained very strong, with nonperforming loans at 0.37% and loans thirty to eighty-nine days past due at 0.46% of total loans. While we saw a modest uptick in substandard, overall criticized and classified loans declined 5%. Overall credit 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 today, 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 million reflecting both the heightened levels of macroeconomic uncertainty as well as a modest shift in loan portfolio mix to higher C and I exposures. Noninterest expense decreased $555,000 to $64.3 million during the quarter, driven by seasonally lower title costs with most other expense categories relatively flat to the prior quarter. Compensation expense was partly impacted by a $1.3 million incentive reduction recognized in the quarter. Looking ahead, we anticipate our quarterly operating expense run rate to increase approximately 10% of which $4 million 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 $6.9 million 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. And as previously announced, we'll be redeeming in full our $7.4 million 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.

If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure that your device is unmuted locally. Our first question comes from the line of Frank Schiraldi of Piper Sandler. Please go ahead.

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

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 gonna see the full range. I I don't think there's anything that we target as as specific relative to a vertical that would be either new to us or or or a concentration.

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 noninterest 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, on the lower end of market. Right? These are not the 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.

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?

Frank, it's Chris. I'd say we're at the tail end of the traditional kind of spring recruiting season. So there may be, you know, a couple more opportunities to bring people over, but you know, traditionally, that's kind of all wrapped up by mid May. So so a little bit little bit of opportunity out there, but we would probably, from that point forward, just kinda focus on execution for the remainder of the year.

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

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 gonna be an increase that you'll see in that line item as well.

Gotcha. Okay. Alright. I appreciate it. Thanks.

Thanks, Greg. Thanks, Greg.

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

Hey, good morning. Thank you for taking my questions. I have a few follow-up on hey there. 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.

Yeah. The the way we look at it is the 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 our call center and that works really well for them. Other clients like, would I'd make the comparison, like, a concierge medicine. Right, where you can kinda have a relationship where you have a primary doctor you go to all the time 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. And neither one's right or wrong. It's just customer preference.

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

So this would be essentially, for the most I 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, it would certainly be flexible and do whatever they want. But the the majority of that would be net additions Premier Bank.

Okay. Gotcha. 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?

Sure. Obviously, the 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. We're watching conditions in the market. 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 kinda leaving that out there for a bit of time you know, depending on market conditions.

And I'd 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 a million million and a half a quarter pretax.

Got it. Very helpful. Thank you, guys.

We have a question from David Bishop of Hovde Group. Please go ahead.

Yes. Good morning, gentlemen.

Good morning. Hey.

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

Yeah. Thanks, Dave. The growth was was broad based, which is good, although we did see some concentrated growth in our government contracting business that fairly new to us in the Virginia, Maryland, DC metro. But I'd probably just say overall that we're seeing activity from not only the legacy folks, but also the folks that we put in place over the last year It typically takes a a senior banker, you know, 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 it. I think this is just the beginning.

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

Got it. And then know, Pat, that you you noted maybe maybe waning ability to to lean on deposit cost. Just curious it'd 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 cost 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?

I'd I'd say probably. There's not gonna 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 you know, the premier banking and additional deposit gathering initiatives. Continue to build and build steam, that that'll take any pressure off of on funding needs.

Got it. Appreciate the color.

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

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

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

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

That's fair.

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

We you know, Chris and Ed, that we view this not only as a driver of margin and earnings over time, but a franchise value. So the the the higher quality of relationships 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 you know, long standing liability sheet here that that makes a lot of franchise value.

Yep. And then just one follow-up, I guess, from a credit perspective. Does this time of year with new financial statements make any difference to kind of how the risk ratings, you know, may play out? You've had obviously good experience here in recent quarters.

It does. I mean, this is, you know, 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 the fall as well. So yeah. 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 not a windshield kind of thing, 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. That's kind of a just in case an environment to, you know, fairly foggy right now.

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

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

Thank you. Good morning, guys.

Good morning, man.

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

So we'll we'll try and take those in 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. Not all that significant. And we're being very careful besides the compensation cost to be very deliberate around other costs, you know, things like facilities. Really pleased that the the majority of these bankers are gonna be located in Manhattan or Long Island. 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 of leveraging of the of the full service branch. And the we only envision one facility on Long Island from the teams we've hired to date. That'll be a modest facility out in Melville. Depending on the hiring, the you we might add another modest facility or two, but it's not really gonna be a big expense build. So when you put all that in, and you think about the leveraging of the operating environment we have today, it was probably somewhere around the 4 quarter mark that you're you have a little bit of a subsidy to this business. And I I wanna be very careful. This is a little hard in and not as much science. That could be, you know, 4 quarters. It could be 5 quarters. You know, hard to tell exactly. At that point, the margin improvement should have overcome any of the OpEx considerations. 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. That's sub a hundred basis points. It could be, you know, 80, 90 basis 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. And we think we kind of turned that around. So 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.

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?

Oh, sure. So, you know, think about each of our business as they have very different dynamics around loan to deposit ratio. So the premier bank is a very low loan to deposit ratio. 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. It's a very nice complement to our c and I business, which has a high loan to deposit ratio. Typically, don't 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 know, we'll 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%.

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 you know, that's off of the the what? It's First quarter. That's all the kind of first quarter, which is a little bit low. Yeah. Yeah.

Okay. 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 kinda how you were thinking about expense growth prior to to this announcement is is still about still makes sense.

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

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.

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

Yes. On the incremental for more hirings, 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 mid by the middle of the year.

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

Gonna 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 we'll fine tune that as we kinda move through into the second second quarter earnings.

Got it. So I guess back back of the envelope that you're gonna be kind of maybe 73 million ish for the rest of the year. Is a sounds like it's in the ballpark.

Little bit maybe a little bit lower. $70.71 probably.

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

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

Hey. Good morning. Morning, man. I was hoping with 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? If so, kinda just frame for us what you'd like to run off.

You know, our our guess is that and this is a guess at this point, Matt. It's gonna depend a little bit on quality loan demand. So, you know, 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 kinda optimize our capital position. We have some capital out there if we wanna do things like buybacks. And if you know, look. We're in a very volatile environment. 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, you know, half of it going to deposit remix and half of it going to net balance sheet expansion.

Okay. I I know these teams are gonna be based, you know, 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?

No. You know, I 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 we've done that in many many cases already. I think you're gonna see the same thing, just a very small number of clients who may have maybe they have an investment in California or something, and we'll follow them. But the vast majority of this is really New York metro centric.

Got it. Okay. Yeah. That's what I was looking for. And then the last one for me is you know, obviously, there's more of a C and I focus. And commercial real estate has been, you know, deemphasized to to some extent here. Could you just update us on, you know, what your current CRE concentration is? Where you'd like it to be, and do you foresee any sort of kind of bulk sales kinda help get you there? It sounds like the environment from a payoff and competitive standpoint is a bit more friendly today.

Yeah. I'd say a few things about that, Matt, and then I'll ask Joe to chime in as well. We're happy with our CRE business. We have allowed it to drift down a bit to 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. 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. We have a a negligible exposure to Central Business District office. All segments are performing really well. So we're happy with it in some ways. I 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, you know, less quality structures and more competitive pricing. So, Joe, maybe give some description of what you you guys have seen in the market because it's kinda puzzling.

So I Matt, I I think I just I frame 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, 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 managed and and done so well. So I think the the comment in what Chris talks about competitively, know, we're starting to see even though we're not in the space, use class b office as a good example in New York City. There is a lot more activity in class b after the big run to class a over the last twenty four months. 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. Not something we're chasing. But it it is very competitive. We've lost a couple transactions, which are okay for us. People pricing in the fives. It's not it's not our cup of tea, but but that's okay. We'll use those dollars and and put them elsewhere in C and I or in better price theory.

So to add to that, Matt, you had a question about whether we would kind of derisk by the sale of loan pools. We do not anticipate doing that. I think that would be pretty unlikely. I I would direct you to page 14 of our supplement slides. We have a back book of about $1 billion rolling this year and next. That is rolling off a 4.31 blended rate. Think there's an opportunity to to get some earnings momentum out of that 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 one seventy. 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, you know, our our bias would be keep the customers for all the loans and improve our margin It could be a significant pickup just from that $1.2

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

So we expect you we're gonna 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 And we're we're, you know, watching what's happening in the markets. You know, we understand that policy is gonna come into this. You know, if you do wind up seeing Fed cuts during the year, I think we've got our real material opportunity because you start to pile these things on each other, right? Fed cuts help us Premier Bank helps us. The back book helps us. So think of ourselves at a two ninety margin now, which has, you know, 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, you know, our earnings really start to build nicely, but would hesitate to give you any specific guidance given you know, all those kind of open questions. So we'll just keep updating you through the year. We'll watch it. But think as you point out, most of those factors lean to the positive for us.

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

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

Hey. Good morning. What is the current book of business for these new hires at past institutions? So, you know, it it falls right in there range of where we see this upon maturity. So if you're thinking somewhere between 2 and $3 billion today. Call it 2 and a half. It's pretty close to the the book of business that they had at their former places.

So so any new hires just kinda builds that target a little bit higher? Correct. Okay. Yeah. And and by the way, you know, you you never we've we've been hiring bankers 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 of years, we'll be able to get back to where they were. If we get to those targets, 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?

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 amount five states, no big asset classes, concentration kills. 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 team through we 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 higher number. If the environment were less volatile, we might give you more specific guidance about that.

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

There are interesting to us is 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 it's really nice to see bankers who come to us from larger banks that are surprised and impressed with our treasury sweep They're surprised and and, you know, positively with the quality of our information technology. So I think the customer experience is actually a little better. And they love that. That that's probably the most significant thing I would mention. Terms of compensation plans, you know, think as you build a diversified business, you have a variety of different compensation plans for different businesses and segments. You know, what we have incorporated into all our compensation plans is some 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. 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 there is a 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.

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

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

And a a shift in topic a bit is with 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. 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?

Think, you know, one of the significant things is our having resolved our preferred shares outstanding. We have been kind of I wouldn't say hoarding, but setting aside capital to be in a good position to do that when they are repriced. With that now resolved and kinda off the table, we got, you know, different options around capital management. We're thrilled that we bought back 400,000 shares at 90% of tangible book. It's accretive to book. It's accretive to earnings. Just a wonderful thing. So we have 1,200,000.0 shares remaining in our authorization. And if conditions stay like this, I'd 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 of this size and then use the capital getting thrown off from that to repurchase shares. 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.

Or retire a sub debt.

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

Thank you, mister.

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

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 March 25, 2024, to review the proxy materials and vote your shares. We appreciate your time today. Your continued support of OceanFirst Financial Corp. We look forward to speaking with you during our annual stockholders meeting on May 19. Thank you.

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