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Date

Friday, July 25, 2025 at 3:00 p.m. ET

Call participants

Chairman and Chief Executive Officer — Christopher Maher

President and Chief Operating Officer — Joseph Lebel

Chief Financial Officer — Patrick Barrett

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Takeaways

GAAP and core EPS: Reported GAAP EPS of $0.28 and core EPS of $0.31 for fiscal Q2 2025 (period ended June 30, 2025).

Net interest income: Increased by $1 million for the third consecutive quarter; net interest margin expanded by one basis point.

Total loans: Rose by $60 million, representing a 2% annualized growth rate; quarterly originations totaled $716 million.

Commercial and industrial loans: Increased 8% during the quarter, reflecting strategic focus on this segment.

Operating expenses: Totaled $71 million, including nearly a full quarter’s run rate from new commercial banking hires and the Premier Bank launch.

Asset quality: Loans classified as special mention and substandard declined 3% to $145 million, or 1.4% of total loans.

Capital levels: Estimated common equity Tier 1 capital ratio at 11%; tangible book value per share reported at $19.34.

Share repurchases and authorizations: $17 million used to repurchase 1 million shares (average cost $17.17); additional 3 million shares authorized for repurchase on July 15.

Dividend: Board approved a quarterly cash dividend of $0.20 per common share, marking the 113th consecutive quarterly dividend.

Deposit balances: Excluding brokered CDs, deposits declined approximately 1% sequentially but increased $117 million compared to Q2 2024.

Premier banking deposits: Teams onboarded in April brought in $115 million across over 670 accounts as of June 30, 2025; 20% in noninterest-bearing DDA; weighted average cost was 2.7%.

Non-interest income: Increased 5% to $11.8 million; after excluding non-core and non-recurring items, non-interest income fell 1% due to lower swap activity offset by gain on sale.

Provision and charge-offs: Provision driven primarily by $2.2 million in net charge-offs, including $1.6 million from two commercial credits and just over $400,000 from a small nonperforming residential loan sale.

Commercial loan pipeline: Reached a record $791 million at quarter end, reflecting ongoing expansion efforts.

Hiring: 13 C&I bankers and 36 premier bankers hired in fiscal Q2 2025, with most onboarding completed for the year.

Effective tax rate: Reported at 24%; guidance is for a 23%-25% effective tax rate range barring policy changes.

Summary

OceanFirst Financial Corp.(OCFC 0.99%) reported that late-quarter loan growth positions the balance sheet for higher net interest income and margin expansion in the coming quarters. New deposit initiatives through Premier Bank are expected to drive efficient funding and incremental noninterest-bearing balances. The record commercial loan pipeline and shift toward commercial and industrial loans indicate targeted portfolio growth, with updated hiring largely complete. Capital deployment remains flexible, with share repurchase capacity replenished and M&A taking a back seat to organic growth priorities, given current book value dynamics.

Barrett stated, "The CDs we have rolling over in Q3 2025 carry a funded average rate of about 3.8%," indicating limited near-term potential for funding cost reduction, as discussed on the fiscal Q2 2025 earnings call.

Guidance for operating expenses signals stability, as normalization of professional fees is expected to offset a full quarter's compensation and occupancy costs for recent hires.

Maher described the quarter as a trough in EPS, projecting subsequent improvement as organic growth momentum continues.

Commercial bankers have already contributed to both loan originations and deposit growth, accelerating delivery on 2025 deposit targets.

Barrett noted that the bank is not widely exposed to significant volatility from Fed rate cuts, with each 25-basis-point policy rate change estimated to have a negligible impact on EPS.

Asset quality improvements were assisted by declines in criticized loans. Future reserve building is possible as C&I composition grows over the next several quarters, according to Barrett.

Geographic loan origination strength was seen across the bank's footprint, cited by Lebel as a result of deep regional markets and new hire relationships.

Industry glossary

DDA (Demand Deposit Account): A bank account from which funds may be withdrawn at any time without advance notice, most commonly a checking account.

Core EPS: Earnings per share excluding non-recurring, one-time, or non-operating items to provide insight into underlying operating profitability.

Special mention and substandard loans: Regulatory classifications for loans exhibiting potential weaknesses (special mention) or well-defined weaknesses possibly jeopardizing repayment (substandard).

C&I (Commercial and industrial): Loans to businesses for purposes other than the purchase of real estate, including working capital, equipment financing, and business expansion.

Full Conference Call Transcript

Christopher Maher: Good morning, and thank you to all who have been able to join our second 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 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&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. 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 million 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. Total loans for the quarter increased $60 million representing a 2% annualized growth rate. Driven by strong originations of $716 million. 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 million 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. Joseph will provide a detailed update on these initiatives in a moment. Asset quality remained very strong as total loans classified as special mentioned and substandard decreased 3% to $145 million 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 $2.2 million 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 1 capital ratio of 11%, and tangible book value per share of $19.34. The quarter included $17 million of share repurchases, or 1 million shares at a weighted average cost of $17.17 and the redemption of $57 million of preferred stock. With the existing share repurchase authorization nearly completed, on July 15, the company authorized an additional 3 million shares available to be repurchased. 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 113th 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 million is a record high, and we're seeing meaningful lending opportunities and early success in 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 Joseph for additional color on the business.

Joseph Lebel: Thanks, Chris. I'll start with loan originations for the quarter, which totaled $760 million including $426 million from the commercial bank, inclusive of $232 million of C&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&I bankers and 36 premier bankers hired in Q2 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 balance for the year, as government balances decline and seasonal shore businesses consume cash in preparation for the summer. Deposit balances excluding broker CDs decreased approximately 1% compared to the linked quarter, but increased by $117 million compared to the same period in Q2 2024. 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 million in deposits across more than 670 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 2025 target of nearly $500 million in deposits by year-end, while also contributing to the commercial loan pipeline. We are very pleased with their results thus far. Lastly, non-interest income increased 5% to $11.8 million 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 Patrick to review the remaining areas for the quarter.

Patrick Barrett: 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 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. Asset quality remained very strong with nonperforming loans total loans at 33 basis points and nonperforming assets to total assets at 31 basis points.

Delinquency levels continue to remain at the low end of historical levels. Criticized and classified loans declined. Debt charge-offs for the quarter were largely driven by two commercial credits totaling $1.6 million and just over $400,000 from a small sale of nonperforming 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 expenses only addressing charge-offs growth, and a mix shift in loans. Turning to non-interest expenses. They increased about $7 million to $71.5 million 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 $1.6 million 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 million to $72 million 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 million shares repurchased at a weighted average cost of $17.6 per share.

And while we reloaded our repurchase plan by 3 million 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. We will now begin the question and answer session. And again, to ask a question, please press 1. And as a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. The first question we have from the phone lines comes from Daniel Tamayo with Raymond James. Please go ahead.

Daniel Tamayo: Thank you. Good morning, guys. Maybe to start, just on the deposit side, you know, curious. You got a lot going on. Right? You got the new hires. You added $115 million. I think you said, Joe, including some DDA there. At the same time, the overall funding costs are starting to stabilize. So as this, you know, 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? Or and how much is more near-term?

Joseph Lebel: 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 have a funded 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 gonna drive a big change in the mix. But you know, as the premier banking teams come on, Joe noted they're gonna have slightly higher levels of DDA. But also outside the premier bank, the C&I growth has been very strong.

And the accounts that they bring along are gonna tend to be far better priced than kind of market rate accounts that you'd raise.

Christopher Maher: Yeah. I think the only thing I'd add is, you know, 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 Q3 and Q4 should be better.

Daniel Tamayo: Okay. And I guess bigger picture, kinda same theme, but on the margin, you know, 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, you know, obviously up, but your thoughts on kinda how quickly that translates into margin expansion as we get into the out quarters here.

Patrick Barrett: Probably a slow and steady process, where it's gonna 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. I think it's gonna spend a little bit on, you know, mix shifts and how many dollars people have in different account types. But it's certainly improving. And then the loan side, you know, as we grow loans, the mix of the loans we grow will also be important. And the weighted average coupon.

You saw the weighted average coupon in the pipeline came down a little bit. Quarter over quarter. That just reflects more C&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. Both, which is good.

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

Operator: The operator moved to the next question, please. We have another question from Tim Switzer with KBW.

Tim Switzer: 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?

Patrick Barrett: Is that the adjusted number or reported? And with us, we seem to have a little technical difficulty with the operator today.

Tim Switzer: Can hear you. Can you guys hear me?

Operator: Please standby. We'll switch right and establish the connection issue. Please standby while 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.

Tim Switzer: Hi, Tim. Sorry. Cut off, for not trying to dodge your question.

Tim Switzer: 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 gap?

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

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

Patrick Barrett: Gap is the best base to use if they're almost the same. At this point for this quarter. So if you're looking at margin, two ninety-one versus two ninety. Even the non the non-interest income. I'm sorry for the non-interest income. Fee income. Do not use the gap. Yeah. Gap.

Tim Switzer: Okay. So, like, that $12 million number?

Patrick Barrett: Yes. Okay.

Tim Switzer: And then can you guys you guys talked about it a little bit last quarter, but can you provide a little bit of detail on kind of what was the expense lift from the new hires you made in Premier Bank and how did that impact the earnings this quarter? And I think we are now in a more stable run rate going forward. Right? Know, any plans for new hires over the rest of the year?

Patrick Barrett: No plans for new hires. If you think about it in EPS terms, the additional expense in Q2 probably hit us about $0.6 in EPS. And then that will now reverse, and we will start pulling out of that. 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 million run rate to $42 million run rate. But professional fees will come down by $2 million 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. We have a number of things that we're looking at, and we 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: Okay. And then the last question I have is you guys have sent pretty decent cap levels here. Can you update us on your thoughts about know, your approach to M&A? How much of a priority that is relative to dividend and share repurchases?

Patrick Barrett: 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 kinda how we think about things.

Tim Switzer: Great. Thank you, guys.

Patrick Barrett: Thanks, miss. Thank you.

Operator: Your next question comes from David Bishop from Hervey Group.

David Bishop: Hey. Good morning, gentlemen. Hey. Question.

Christopher Maher: Good to catch up. I think you said in the preamble the deposits thus far. From the Premier team. Maybe 20% DDAs that ramping up. Do you see the weighted average rate going below the average for the entire bank over time and pushing that appreciably lower issue? Onboard more of these accounts.

Patrick Barrett: So yeah. So right now, it's in the $2.60 range. It's been holding, and we've seen additional growth since the end of the quarter. The bank-wide cost of deposits is closer to 2%. I think we'll get down to kinda match the bank maybe a little bit better than the bank, but our expectation is that, you know, 30% or so will be noninterest bearing. The rest is gonna be some version of market, maybe not, you know, the highest rate you have to pay, but something. So think it's gonna be very efficient funding, but we don't expect it to be, you know, free funding.

It's think of think of it kinda 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 we haven't been growing as quickly. We want to match the growth rates we need to fund the balance sheet.

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

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

Joseph Lebel: Yeah. And they were pretty thoughtful about, obviously, what we're seeing in markets. But good news is from a geographic perspective, we're seeing it all over the footprint, which I truly appreciate, where it's not being driven by one area, but we've seen good continued momentum in our North Virginia market and 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. We've seen some equipment finance.

I wouldn't go as far as to say there's any real concentration in any vertical, 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: Got it. Then maybe a housekeeping item on the sub debt. Is any update there in terms of the thinking of the redemption and retirement? Thanks.

Patrick Barrett: We're watching that market carefully. It gets 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. You know, the recent issuances in the last few weeks have looked pretty promising. So we think about it often, and 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. We like having the optionality. We're watching the markets, and go in either direction over the next quarter.

David Bishop: Great. Thanks.

Christopher Maher: Thanks, Dave. Thanks, Dave.

Operator: Your next question comes from Manuel Navas with D. A. Davidson. Please go ahead.

Manuel Navas: Hey. Good morning.

Christopher Maher: Morning.

Manuel Navas: Is the 3Q loan growth guide how sustainable is that? And 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 in that projection?

Joseph Lebel: I think we've we feel pretty confident given the pipeline that we have, and I think the continued pipeline growth, Manny, the real challenge for anybody else is what are you gonna see at the other end? Which is a positive. I can't predict what we've seen payoffs abate since early in the quarter and especially in Q1. But 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 gonna continue to drive that momentum forward. 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: I would add, you know, in our conversations with our clients, they're reporting to us that business conditions are good for them. They've got building backlogs, plenty of work, plenty of opportunity. We're seeing them increasingly, you know, lean in and make investments. So I know kind of those macro headlines are concerned over the economy. We have not seen that reflected in the comments from our customers to date. But that could change. You know, we're in the we live in a volatile world. But for now, our clients are thinking pretty positively to doing projects. We got good visibility.

And all these a lot of these hires we made, you know, they're gonna produce opportunities for us for years to come. Typically, a commercial banker takes, you know, 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: I appreciate that. It looks like if you look at 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?

Patrick Barrett: I think it's just the pace at which there's net additions to the balance sheet. So there is a scenario, Manny, 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: 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&I?

Patrick Barrett: No new geographies. We're very happy. We have enough geographies 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. We operate in the strongest banking markets in the country. We're we essentially think that the hiring is done for this year. But if a great banker comes available to us next month, we're gonna hire the great banker because it's good for the company. So but I would assume that the hiring's 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 '26. Based on how we're performing with the teams we've hired thus far. So for now, that's why I think Pat guided to a flat to possibly even reduced operating expense level over time. We'll keep you guys updated on our plans in that regard.

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

Patrick Barrett: Thank you.

Christopher Maher: Thank you.

Operator: We now have Christopher Marinac with JMS. Your line is open, Christopher.

Christopher Marinac: 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, the potential to kind of rethink that upper number over time not thinking the next quarter, of course, but just curious if the $500 million can be bigger as next year in the future come into focus.

Patrick Barrett: We've been I'll I'll make a qualitative comment, not a quantitative comment. We're really pleased with the relationships being introduced to and their customers' trust in coming over to us, joining the bank. You know, Joe mentioned hundreds of accounts, a couple hundred 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. It does take a little while to get oriented. Any new place has to kinda 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, but we'll see how we go through the end of the year. And, 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 them. The quality of the folks we're bringing over.

Joseph Lebel: I think the only thing I'd add, Chris, is that we provided some guidance toward multiple years out, and we fully expect, obviously, that we'll continue to grow these balances into bigger dollars in '26 and '27.

Patrick Barrett: And that was a pretty wide guidance, I think. You know? So we could outperform on the top end, but three days, rolling in this a couple of months. So I wanna kinda build some momentum and have a track record before we adjust it.

Christopher Marinac: Yep. Understood. And I see the multiyear aspirational goals. I just to give us curious how we go from this $500 million to the even the February, 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 pertains to the, I guess, longer-term interest of trying to grow the reserve, just in general. Is that still a possibility for you as these scenarios have played out?

Patrick Barrett: I think that's gonna be determined by the mix shift, Chris, over time. So as the portfolio becomes has a larger composition of C&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 that it 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. It's just a quarter where the numbers didn't turn out that way.

Christopher Marinac: Great. And then just last question. The small improvement 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.

Patrick Barrett: Well, we've got a number of things that we think may resolve in the second half of the year that would 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, you know, fairly low level. So as much as we might have positive resolutions, there's always situations where you may have a creditor too that slips into that. But we're not seeing anything in portfolio trends, risk ratings, delinquencies. There's no sign of a wider deterioration. And, you know, 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 the unstabilized world. Our Central Business District office portfolio is very small. So, you know, I think the portfolio was 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. You know, the notion Great, Chris. Thank you all for the, call today.

Christopher Maher: Alright. Thanks, Chris. Thanks, Chris.

Operator: And we now have a question from Matthew Breese with Stephens. Please go ahead.

Matthew Breese: Hey, good morning, everyone. You know, first, I just wanted to circle back. I think I think Mr. Tamayo 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 wanna make sure that was answered.

Patrick Barrett: Okay. Yeah. No. Thank you for that, Matt, because we didn't hear that part of the question. So we're not widely 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 kinda less than a penny-ish on an annualized basis per 25 basis point cut. From the Fed. And anything that we're talking about from a guidance perspective doesn't really contemplate anything meaningful from that, any big change in the curve. Kinda 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 would happen. But if we got one next week, a 25-bit cut there might be a little timing lag but you'd see kind of the negative on the floating rate book coming through, and then the positive would come through and lower deposit costs and with maybe a one quarter lag.

Christopher Maher: Think it's bad. Point. Got it. Appreciate that. Longer end of the matter is probably be more. 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 better. But we're still pretty neutral right now.

Matthew Breese: Okay. I wanted to go back to deposits. So, you know, the incremental premier deposit came in at, I think, right around $2.70. The bank as a whole is at $2.06. So it feels like, you know, by the numbers, the incremental growth should take deposit costs higher. You're suggesting maybe there's actually some room to reduce costs. So I'm curious know, the other parts of the bank, what is kind of the blended new rate of deposits, and are there agreements with your banking deposits that, you know, whatever rate they're getting is more or less, there are some, you know, short-term elements to it. Maybe help me out there.

Patrick Barrett: Just the operational way that accounts get funded, Matt. So, you know, the bankers showed up in mid-April. They began 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. You know, paperwork filed. Then they have to go out and operationally kinda wind down wherever their banking today and move over their cash management, the 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 balances over time.

So I think Joe had guided to, you know, maybe closer to 30% non-interest bearing over time. That would pull that $2.60, $2.70 down closer to the $2.06. And if we can do better than that, you might even outperform it. But we don't think it's gonna drag the deposit costs up at the bank. We think over time, we can kinda gather deposits about where we're priced today.

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

Patrick Barrett: Yeah. Well, the decline is 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's pretty slow. Pretty short as well. We've got reinvestment that's occurring of instruments that we entered into in a higher rate environment. That is 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, you know, largely treasury, treasury CMOs, agency paper.

So whatever the rates are on those types of instruments is what we 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: Okay. And then loan yield expansion this quarter was, I want to say, maybe fourish basis points. In the absence of rate cuts, is that a decent rate of expansion? From here?

Christopher Maher: I think that's a good proxy.

Matthew Breese: And then the 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 to pay for in commercial real estate. That's all I had. Thank you.

Joseph Lebel: Yeah, Matt. In terms of commercial real estate, you know, we think we do that well. And while we are focused on adding to the C&I book, we're not exiting or leaving the CRE book. We've done it well performed well. We have great clients there. You know, it's, like, the episodic on pay downs. That's the way that world works. If you have, you know, one big loan can make a difference. We would hope that the CRE would remain flat. Maybe we could grow it a little bit. Depending on opportunities. But we do have a strong pipeline in CRE.

Christopher Maher: Joe, you look at we've seen a resurgence in CRE transactions in a great example, Matt, is that the largest payoff we got this quarter was a $55 million transaction, $52 million at three and a half percent. 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. 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: Alright. I appreciate all that. That's all I had. Thank you.

Christopher Maher: Thanks, man.

Operator: Thanks. 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: Thank you very much. We appreciate your time today. Apologize for the technical glitch in the call that kind of 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. 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 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.