Q2 2024 OceanFirst Financial Corp Earnings Call

Good morning all and thank you for attending the OceanFirst Financial Corp Q224 earnings release conference call. My name is Brika and I will be your moderator for today.

Operator: U24 Earnings Release Conference Call. My name is Brika, 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.

Speaker Change: All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end.

Speaker Change: Please press star followed by 1 to ask a question, and if you wish to remove that request at all, please press star and 2.

Operator: Please press star followed by 1 to ask a question, and if you wish to remove that request at all, please press star then 2. For operator assistance, please press star zero. Thank you. I would now like to pass the conference over to your host, Alfred Goon, Investor Relations at OceanFirst Financial Corp.

Speaker Change: For operator assistance, please press star zero. Thank you. I would now like to pass the conference over to your host, Alfred Goon, Investor Relations at OceanFirst Financial Corp to begin. Thank you. You may proceed, Alfred.

Alfred Goon: Good morning, and welcome to the OceanFirst second quarter 2024 earnings call. I am Alfred Goon, SVP of Corporate Development and Investor Relations.

Speaker Change: Thank you, Prika.

Alfred Goon: Good morning and welcome to the OceanFirst second quarter 2024 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.

Alfred Goon: 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 8K, 10Q, and 10K for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements. Thank you, and now I will turn the call over to Christopher Maher, Chairman and Chief Executive Officer.

Alfred Goon: Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures.

Speaker Change: All participants should refer to our SEC filings, including those found on Forms 8K, 10Q, and 10K, for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements.

Speaker Change: Thank you, and now I will turn the call over to Christopher Maher, Chairman and Chief Executive Officer.

Christopher D. Maher: Thank you, Alfred. Good morning, and thank you to all who have been able to join our second quarter 2024 earnings conference call. This morning, I'm joined by our president, Joe Lebel, 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 will 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 distributed in connection with the earnings release throughout the call. After our discussion, we look forward to taking your questions.

Christopher D. Maher: Thank you, Alfred. Good morning, and thank you to all who have been able to join our second quarter 2024 earnings conference call.

Speaker Change: This morning, I'm joined by our President, Joe Lebel, and our Chief Financial Officer, Pat Barrett.

Speaker Change: We appreciate your interest in our performance and this opportunity to discuss our results with you.

Speaker Change: This morning we will provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business.

Speaker Change: We may refer to the slides filed in connection with the earnings release throughout the call.

Christopher D. Maher: Anticipating that there may be some questions regarding the impact to bank operations as a result of the global CrowdStrike IT issue, I'm pleased to report that the bank is operating with minimal disruption. We've had no issues with customer access to our online banking, mobile banking, customer care center, OFB Connect, which is our mobile platform for business clients, ATM machines, card, and wire systems. Our branches are open and serving customers as well. We appreciate the hard work of our IT team this morning.

Speaker Change: After our discussion, we look forward to taking your questions.

Speaker Change: Anticipating that there may be some questions regarding the impact to bank operations as the result of the global CrowdStrike IT issue, I'm pleased to report that the bank is operating with minimal disruption.

Speaker Change: We've had no issues with customer access to our online banking, mobile banking, customer care center, OFB Connect, which is our mobile platform for business clients, ATM machines, card and wire systems. Our branches are open and serving customers as well.

Christopher D. Maher: Our financial results for the second quarter included GAAP diluted earnings per share of $0.40. Our earnings reflect net interest income of $82 million, representing a decrease compared to the prior-length quarter of $86 million. As the yield curve remains inverted, we experience elevated paydowns on higher-yielding loans.

Speaker Change: We appreciate the hard work of our IT team this morning.

Speaker Change: Our financial results for the second quarter included GAAP diluted earnings per share of $0.40.

Speaker Change: Our earnings reflect net interest income of $82 million, representing a decrease compared to the prior one quarter of $86 million, as the yield curve remains inverted and we experience elevated paydowns in higher yielding loans.

Christopher D. Maher: Operating expenses remain stable at $59 million, and asset quality metrics continue to remain strong. Criticized and classified assets, which were already lower than our peers and below our long-term averages, decreased 15% or $25 million to $143 million. The quarter included a net ACL bill of $1.6 million and net charge-offs of $1.5 million, which included a $1.6 million charge-off on a single commercial real estate relationship that was moved to non-accrual in the third quarter of 2020.

Speaker Change: Operating expenses remain stable at 59 million dollars.

Speaker Change: Asset quality metrics continue to remain strong. Criticized and classified assets, which were already lower than our peers and below our long-term averages, decreased 15% or $25 million to $143 million.

Speaker Change: The quarter included a net ACL bill of $1.6 million and net charge-offs of $1.5 million, which includes a $1.6 million charge-off on a single commercial real estate relationship that was moved to non-accrual in the third quarter of 2023.

Christopher D. Maher: The remaining exposure for this credit is $7.2 million, and the sale of the collateral is contracted to settle during the third quarter. Capital levels continued to build, with our estimated Common Equity Tier 1 Capital Ratio increasing to 11.2% and continued growth in tangible book value, which increased by 30 cents to $18.93. Tangible book value per share has grown 7% over the past year. Capital growth was sustained this quarter while the company repurchased an incremental 338,000 shares under its repurchase program.

Speaker Change: The remaining exposure for this credit is $7.2 million, and the sale of the collateral is contracted to settle during the third quarter.

Speaker Change: Capital levels continued to build, with our estimated common equity Tier 1 capital ratio increasing to 11.2%, and continued growth in tangible book value, which increased by $0.30 to $18.93.

Speaker Change: Tangible book value for shares grown 7% over the past year.

Speaker Change: Capital Growth was sustained this quarter while the company repurchased an incremental 338,000 shares under the company's repurchase program.

Christopher D. Maher: Through June 30, 2024, we have purchased nearly 1.3 million shares at a weighted average cost of $15.35. The company has 1,638,524 shares available for repurchase under the Authorized Repurchase Program. Further on capital management, the board approved a quarterly cash dividend of $0.20 per common share. This is the company's 110th consecutive quarterly cash dividend and represents 50% of GAAP earnings. Solid Credit Metrics, in our bolstered capital position, we are now increasingly focused on driving organic growth in the back half of the year into 2021. At this point, I'll turn the call over to Joe to provide some more details regarding our performance during the second quarter and our efforts to increase organic growth rates.

Speaker Change: To June 30, 2024, we have purchased nearly 1.3 million shares at a weighted average cost of $15.35.

Speaker Change: The company has 1,638,524 shares available for repurchase under the Authorized Repurchase Program.

Speaker Change: Further on capital management, the board approved a quarterly cash dividend of $0.20 per common share. This is the company's 110th consecutive quarterly cash dividend and represents 50% of GAAP earnings.

Speaker Change: The solid credit metrics and our bolstered capital position, we are now increasingly focused on driving organic growth in the back half of the year into 2025.

Speaker Change: At this point, I'll turn the call over to Joe to provide some more details regarding our performance during the second quarter and our efforts to increase organic growth rates.

Joseph J. Lebel: The bank's loan pipeline of $259 million reflects a marked increase over the $137 million in Q1. It was the highest in the past five quarters as the bank continues to pivot its organization engines or origination engines to growing and expanding C&I lending relationships from our historical CRE focus. The recruitment of C&I lenders continues with the addition of five new bankers this year and four offers accepted or pending, with additional recruiting ongoing. This includes a new team buildout with a focus on middle market C&I and government contracting. You've also added a middle market banker well-known in the grocery space. We should expand opportunities for each other in that industry.

Joseph J. Lebel: Thanks, Chris.

Joseph J. Lebel: The bank's loan pipeline of $259 million reflects a marked increase over the $137 million in Q1.

Joseph J. Lebel: and was the highest in the past five quarters as the bank continues to pivot our organization engines or origination engines to growing and expanding C&I lending relationships from our historical CRE focus.

Joseph J. Lebel: The recruitment of C&I lenders continues with the addition of five new bankers this year and four offers accepted or pending with additional recruiting ongoing. This includes a new team build-out with a focus on middle market C&I and government contracting.

Joseph J. Lebel: We've also added a middle market banker well known in the grocery space, which should expand opportunities for us in that industry.

Joseph J. Lebel: While originations of new loans were modest in Q2, I expect growth in the C&I business in the second half of the year, which will bring with it new deposits and fee income while offsetting any small decline in CRE. For a quarter, our C&I loan balances were impacted by five borrowers who paid down or paid off loans in the normal course of business in the amount of $86 million. Overall, the impact of declines in loan and other earning asset balances accounted for approximately $2 million of our decline in net interest income from the prior quarter.

Joseph J. Lebel: While originations of new loans were modest in Q2, I expect growth in the C&I business in the second half of the year, which will bring with it new deposits and fee income, while offsetting any small decline in CRE.

Joseph J. Lebel: For the quarter, our C&I loan balances were impacted by five borrowers who paid down or paid off loans in the normal course of business in the amount of $86 million.

Joseph J. Lebel: Overall, the impact of declines in loan and other earning asset balances accounted for approximately $2 million of our decline in net interest income from the prior quarter.

Joseph J. Lebel: The CRE portfolio continues to perform well, and we remain committed to methodically rebalancing our commercial loan portfolio towards C&I relationships over time. Moving to deposits, the balance has declined by approximately 2% as non-maturity deposits decreased 4% compared to the prior quarter. This decline includes our continued runoff of brokered CDs of $142 million, and a decline in high-yield savings balances of $96 million driven by targeted refinements to both marketing efforts and rates offered. As Chris noted, we booked a net ACL bill of $1.6 million and net charge-offs of $1.5 million, representing a $3.1 million provision for credit losses during the quarter, increasing our coverage ratio to 0.69% of total loans.

Joseph J. Lebel: Our CRE portfolio continues to perform well, and we remain committed to methodically rebalancing our commercial-owned portfolio toward C&I relationships over time.

Joseph J. Lebel: Moving to deposits, balance has declined by approximately 2% as non-maturity deposits decreased 4% compared to the prior quarter. This decline includes our continued runoff of brokered CDs of 142 million.

Joseph J. Lebel: A Decline in High Yield Savings Balances of $96 Million Driven by Targeted Refinements to Both Marketing Efforts and Rates Offered.

Joseph J. Lebel: As Chris noted, we booked a net ACL bill of $1.6 million and net charge-offs of $1.5 million.

Chris: Representing a 3.1 million provision for credit losses during the quarter, increasing our coverage ratio to 0.69% of total loans.

Joseph J. Lebel: The Net HCL build was driven by external macroeconomic forecasts in our modeling, rather than credit quality indicators within our own portfolio. However, quality metrics remain strong, with non-performing loans and criticized and classified assets representing only 0.33% and 1.42% of total loans, respectively. Meanwhile, loans 30 to 89 days past due as a percentage of total loans remain minimal. Point and Basis. These metrics remain low compared to pre-pandemic levels and reflect strong credit performance in our portfolio. With that, I'll turn the call over to Pat to review Morrison and Expenso.

Chris: The Net ACL build was driven by external macroeconomic forecasts in our modeling rather than credit quality indicators within our own portfolio.

Speaker Change: As a quality metric to remain strong with non-performing loans and criticized and classified assets representing only 0.33% and 1.42% of total loans respectively.

Speaker Change: Meanwhile, loans 30 to 89 days past due, that's the percentage of total loans, remain minimal.

Speaker Change: at point and basis points.

Speaker Change: These metrics remain low compared to pre-pandemic levels and reflect strong credit performance in our portfolio.

Speaker Change: With that, I'll turn the call over to Pat to review margin and expense outlooks.

Patrick S. Barrett: Thanks Joe and good morning to everybody. Net interest income and net interest margin were $82 million and 2.71%, respectively. This reflects a combination of higher funding costs associated with a mixed shift in funding and modestly lower average earning assets. Funding costs reflect cycle-to-date deposit betas of 42%, up from 40% in the prior quarter. I continue to believe that we're at or very near our trough in both net interest income and margin. But our outlook for both could shift modestly, subject to interest rates, loan growth, or repayments.

Patrick S. Barrett: Thanks Joe and good morning to everybody. Net interest income and net interest margin were $82 million and 2.71% respectively.

Patrick S. Barrett: Reflecting a combination of higher funding costs associated with a mixed shift in funding and modestly lower average earning assets. Funding costs reflect cycle-to-date deposit betas of 42%, up from 40% in the prior quarter.

Patrick S. Barrett: We continue to believe that we're at or very near our trough in both net interest income and margin.

Patrick S. Barrett: But our outlook for both could shift modestly, subject to interest rates, loan growth, or repayments, and funding mixed trends in future quarters.

Patrick S. Barrett: Funding Mixed Trends in Future Quarters. We've said in the past that we're in a very conservative posture around new business growth and are unlikely to expand our long-standing risk appetites to stimulate short-term growth. Joe mentioned we increased our provision by $3.1 million.

Patrick S. Barrett: We've said in the past that we're in a very conservative posture around new business growth and we're unlikely to expand our longstanding risk appetites to stimulate short-term growth.

Patrick S. Barrett: Increasing our coverage ratio to total loans to 0.69 and 0.75, including purchase accounting credit marks. Despite strong asset quality metrics and stress test results, we've remained prudent and steadily continue to build reserve levels to address the uncertainty risk in the overall environment. It's worth noting that we've nearly doubled our allowance coverage ratio since adopting CECL four years ago, despite reporting an average of only 7 basis points of annualized net charge-offs during that same time frame.

Patrick S. Barrett: As Joe mentioned, we increased our provision by $3.1 million, increasing our coverage ratio to total loans to .69 and .75, including purchase accounting credit marks.

Joseph J. Lebel: Despite strong asset quality metrics and stress test results, we've remained prudent and steadily continue to build reserve levels to address the uncertainty risk in the overall environment.

Joseph J. Lebel: It's worth noting that we've nearly doubled our allowance coverage ratio since adopting CECL four years ago.

Speaker Change: Despite reporting an average of only seven basis points of annualized net charge-offs during that same time frame.

Patrick S. Barrett: Non-interest expenses remained flat from the prior quarter at $59 million. We continue to make every effort to hold operating expenses stable in the $58 to $60 million per quarter range, but modest quarterly volatility may occur. Finally, as Chris mentioned earlier, capital strengthened appreciably with growth in our CET1 ratio to 11.2%, and we're pleased to report capital accretion even while repurchasing 338,000 shares for $5 million during the quarter. Looking ahead, we would not expect meaningful repurchases in the near term. At this point, we'll begin the Q&A portion of the call.

Speaker Change: Non-interest expenses remain flat from the prior quarter at $59 million.

Speaker Change: We continue to make every effort to hold operating expenses stable in the $58 to $60 million per quarter range.

Speaker Change: But modest quarterly volatility may occur.

Speaker Change: Finally, as Chris mentioned earlier, capital strengthened appreciably, with growth in our CET1 ratio to 11.2%, and we're pleased to report capital accretion even while repurchasing the 338,000 shares.

Chris: or $5 million during the quarter. Looking ahead, we would not expect meaningful repurchases in the near term.

Speaker Change: At this point, we'll begin the Q&A answer portion of the call.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone key. If you change your mind at any time, please press star then 2. We will pause here briefly whilst questions are registered. We will take the first question from the line of Frank Schiraldi, with Piper Sander.

Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question please press star followed by one on your telephone keypad.

Speaker Change: If you change your mind at any time, please press star then 2.

Speaker Change: We will pause here briefly whilst questions are registered.

Speaker Change: We will take the first question from the line of Frank Schiraldi.

Speaker Change: with Piper Sander. May proceed.

Frank Joseph Schiraldi: Good morning, Frank. I'm curious to talk about the margin here. Obviously, you know, the quarter in terms of loan yield, you saw not as much pickup as you would otherwise expect, which you noted, and should be temporary. But I'm just trying to think through some of the specifics around the potential pickup in loan yield as the book turns over here. And also what it might mean, you know, for credit migration in terms of criticized classified balances.

Speaker Change: Good morning.

Speaker Change: Thank you. Bye.

Speaker Change: Cheers to us!

Speaker Change: Talk about the margin here obviously

Speaker Change: You know, the quarter in terms of loan yield, you saw

Speaker Change: Not as much pickup as you would otherwise expect, which you noted.

Speaker Change: and should be temporary but I'm just trying to think through some of the specifics around the potential pickup in loan yield as the book turns over here.

Frank Joseph Schiraldi: So like the 300 million or nearly 300 million in CRE repricing, I guess, in the back half of the year, you know, those are at rates that look like 5.8%. Is that right? And then where are the new rates that you're repricing to? And do you expect, you know, a decent amount of this will migrate off the balance sheet?

Speaker Change: And also what it might mean, you know, for credit migration in terms of criticized classified balances. So, like the $300 million or nearly $300 million in CRE repricing, I guess, in the back half of the year, you know, those are at rates looks like a 5.8 percent.

Speaker Change: Is that right? And then where are the new rates that you're repricing to? And do you expect, you know, a decent amount of this will migrate off balance sheet?

Christopher D. Maher: Okay, Frank, there are a couple of things there. I'll give you a few things, then we'll probably turn it over to Joe for more comments about loans and patterns around margin. Just as we talk about margin first, I would say that the deposit, the modest increase in deposit costs was expected by us; that's just the trend we've been on, and we anticipated that. However, the paydowns of higher yielding loans surprised us a little bit on the earning asset side.

Speaker Change: Okay, Frank, there's a couple things there.

Frank Joseph Schiraldi: I'll give you a few things, and then we'll probably turn it over to Joe for more comments about loans and pattern around margin. Just as we talk about margin first, I would say that the deposit, the modest increase in deposit costs was expected by us. That's just the trend we've been on, and we anticipated that.

Joseph J. Lebel: The Paydowns of Higher Yielding Loans

Christopher D. Maher: So the compression we saw this quarter was more a function, at least from what we expected, of having the paydowns in loans that were yielding. The weighted average coupon of those loans is north of 8%. So we don't expect that to recur.

Joseph J. Lebel: Surprise us a little bit on the earning assets side. So the compression we saw this quarter was more a function, at least from what we expected, of having the paydowns in loans that we're yielding. That weighted average coupon of those loans is north of 8%.

Christopher D. Maher: That's actually probably a pretty good sign for credit. These are customers of ours who have, you know, ample cash and are using it to reduce their leverage. So that's a good sign.

Speaker Change: So we don't expect that to recur, that's actually probably a pretty good sign for credit. These are customers of ours who have ample cash and are using it to reduce their leverage, so that's a good sign.

Christopher D. Maher: In a minute, I'll ask Joe to talk more about the perspective around future loan growth and future loan bookings. Just on your comment about credit and the rolling CRE loans, we do a lot of stress testing, as you can imagine, on the CRE portfolio. One of the most critical stress tests we do is to take a look at the rolling loans, look at the coupon they're paying today, and their ability to debt service that coupon as they roll.

Speaker Change: In a minute I'll ask Joe to talk more about perspective around the future loan growth and future loan bookings. Just on your comment about credit and the rolling CRE loans, we do a lot of stress testing as you can imagine on the CRE portfolio.

Joseph J. Lebel: One of the most critical stress tests we do.

Joseph J. Lebel: is to take a look at the rolling loans, look at the coupon they're paying today, and their ability to debt service that coupon as they roll. And not just for the remainder of this year, but looking at the totality of 2025 and even into 2026.

Christopher D. Maher: And not just for the remainder of this year but looking at the totality of 2025 and even into 2026, we have not identified any issue of any consequence around rolling loans. So we would expect that those loans would have the option to roll with us, pay current coupons, and save the bank. There is a little bit of a pressure valve in some places.

Joseph J. Lebel: We have not identified any issue of any consequence around rolling loans. So we would expect that those loans would have the option to roll with us, pay current coupons, and stay at the bank.

Christopher D. Maher: You know, there are market players like Freddie Mac. We're still offering very attractive rates out there. So you might see some pressure on that. And frankly, on the CRE side, if we're getting paid, we're happy to keep it. These are good clients, but we're not going to compete on price in that market. We're going to be focused on CNI, so maybe I'd ask Joe to talk a little bit about the outlook for loan originations in Q3 and beyond. And then maybe, Pat, anything you want to add?

Joseph J. Lebel: There is a little bit of a pressure valve in some places, you know, there are market players like Freddie Mac

Joseph J. Lebel: We're still offering very attractive rates out there, so you might see some pressure on that. And frankly, in the CRE side, if we're getting paid, we're happy to keep it. These are good clients.

Joseph J. Lebel: But we're not going to compete on price in that market, you know, we're going to be focused on C&I. So maybe I'd ask Joe to talk a little bit about the outlook for loan originations, Q3 and beyond, and then maybe, Pat, anything you want to add to the margins?

Joseph J. Lebel: So, I'll talk about just the outlook for loans. Look, Q2 is a pretty quiet quarter. It's evidenced by even our conservative approach in the way we report in terms of the pipeline as to where we're headed. The pipeline's very strong, and I anticipate that we'll have a significant increase in activity in Q3, and that should, you know, bode well for Q4 as well, not only with the existing team but the team members that we're adding.

Joseph J. Lebel: So I'll talk about just the outlook for a long time. Q2 is a pretty quiet quarter. It's evidenced by even our conservative approach in the way we report in terms of the pipeline as to where we're headed.

Joseph J. Lebel: The pipeline is very strong and I anticipate that we'll have a significant increase in

Joseph J. Lebel: activity in Q3, and that should, you know, bode well for Q4 as well, not only with the existing team, but the team members that we're adding. So I think we had a very small amount, 56 million, in commercial closing in Q2, which is a very small number. I would anticipate that we're probably going to head back

Joseph J. Lebel: So, I think we had a very small amount, $56 million in commercial closings in Q2, which is a very small number. I would anticipate that we're probably going to head back toward where we were in June 23. I think we had much higher activity in that period of time. I think that's probably the path.

Joseph J. Lebel: Toward where we were in, you know, June of 23. I think we had a much higher activity in that period of time I think that's probably the path

Joseph J. Lebel: And then yields are much better as well. I think the pipeline shows that, you know, a weighted average yield is $7.98. It's a function of both floating rate CNI and floating rate construction, which dominate the pipeline content.

Joseph J. Lebel: And then yields are much better as well. I think that the pipeline shows that, you know, a weighted average yield is $7.98. That's a function of both floating rate CNI and floating rate construction, which dominate the pipeline content.

Patrick S. Barrett: I guess, this is Pat, on the margin that we saw and that we're expecting, like Chris said, the paydowns were the part of the margin decline that was a little bit unexpected for us. Notwithstanding that, we would have seen three, maybe four basis points of compression on a combination of balance migration and rate change, but it was probably more mixed than anything else on the funding side. We were happy to see our non-interest-bearing balances remain pretty stable, so that wasn't a surprise.

Joseph J. Lebel: I guess, this is Pat, on the margin that we saw and that we're expecting, like Chris said,

Patrick S. Barrett: The paydowns were the part of the margin decline that

Speaker Change: was a little bit unexpected for us. Notwithstanding that, we would have seen three, maybe four basis points of compression.

Speaker Change: on a combination of balance migration and rate change, but it was probably more mixed than anything else on the funding side. We did continue to reduce appropriate CD balances and some of our higher cost institutional.

Speaker Change: Our non-interest bearing balances, we were happy to see remain pretty stable. So that wasn't a surprise. I think going forward, notwithstanding the effect of any other paydowns we may see that were accelerated or growth.

Patrick S. Barrett: I think going forward, notwithstanding the effect of any other paydowns we may see that are accelerated or growth, I think that our margins should be relatively stable, but we're hopeful that we can generate some growth in the second half of the year that will be accretive to the margin if we don't see further payoffs and paydowns.

unknown: [inaudible]

Speaker Change: That I think that our margin should be relatively stable, but we're hopeful that we can generate some growth in the second half of the year That will be accretive to the margin that we don't see further payoffs and paydowns

Frank Joseph Schiraldi: Right, so I guess as you guys grow in the back half of the year, you feel like you're going to be in a place where you're not going to see NIM contract further because of that growth. But would you give up some NIM growth, some NIM in the near term, maybe to, you know, do something like position yourself a little bit better for a down-range environment? Is there any potential to see long growth here in the near term, kind of exceed deposit growth, and fund it with short-term borrowings with the idea that maybe you could lock in some lower deposit costs down the road? Or how do you think about, as you grow the loan book, the loan to deposit ratio here in the near term?

Speaker Change: Sorry for all the hoax.

Speaker Change: Right, so I guess, as you guys grow in the back half of the year, um, you're, you're

Speaker Change: You feel like you're going to be in a place, I mean, that you're not going to see NIM contract further because of that growth. I mean, would you give up some NIM growth, some NIM in the near term?

Speaker Change: Maybe to, you know, do something like position yourself a little bit better for a down payment. Is there any potential to see loan growth here and in the near term kind of exceed deposit growth and

Speaker Change: [inaudible]

Christopher D. Maher: I'll take that in two parts, Frank. It's Chris.

Christopher D. Maher: There's no question that we're in the relationship business. We want to build those relationships. Every quarter, the margins may be a little bit better or worse because of that. So if we find the opportunity to add good relationships and we have to be a little more competitively priced, we'll do it. I kind of differentiate between net interest income and margin. We have our eye more focused on net interest income and building that.

Speaker Change: Well, I'll take that in two parts, Frank. It's Chris. There's no question that we're in the relationship business. We want to build those relationships. Every quarter, the margins may be a little bit better or worse because of that.

Speaker Change: So if we find the opportunity to add good relationships and we have to be a little more competitively priced, we'll do it. I kind of differentiate between net interest income and margin. We have our eye more focused on net interest income and building that.

Christopher D. Maher: So if we had the opportunity to grow the loan book a little bit, improve net interest income, and we had to give up a point or two on NIM, that's a good tradeoff as long as we're bringing in high-quality clients and good relationships. So that's kind of the way we would look at things. And we're confident. We've got the teams in place. We know how to grow the loan book. We're just taking our time and doing it very thoughtfully and methodically.

Speaker Change: So, if we had the opportunity to grow the loan book a little bit, improve net interest income and we have to give up a point or two on them, that's a good trade-off as long as we're bringing in high-quality clients and good relationships. So, that's kind of the way we would look at things.

Speaker Change: We're confident, we've got the teams in place, we know how to grow the loan book, we're just taking our time and doing it very thoughtfully and methodically.

Frank Joseph Schiraldi: Great. Okay. I appreciate it. Frank, one other thing. You did mention the loan-to-deposit ratio, so our views have not changed on that. We're comfortable operating at or near 100% loan-to-deposit ratio. We like being in the 90s. If a quarter comes up where we're at 100 or 101, that's not a big deal for us, but we're not going to go to 110 or 120. We're not going to push that much. We're comfortable we can originate deposits on loan growth in the second half of the year.

Speaker Change: Right, okay. I appreciate it. Frank, one other thing. You did mention the loan-to-deposit ratio.

Speaker Change: So our views have not changed on that. We're comfortable operating at or near 100% loan-to-deposit ratio. We like being in the 90s. If a quarter comes up where we're at 100 or 101, that's not a big deal for us, but we're not going to go to 110, 120, we're not going to push that measure.

Speaker Change: We're comfortable we can originate deposits on loan growth in the second half of the year.

Operator: I appreciate it. Thank you to the caller.

Speaker Change: Appreciate it. Thank you to the caller.

Daniel Tamayo: We now have Daniel Tamayo with Raymond Jane. Your line is open.

Speaker Change: Thanks.

Speaker Change: We now have Daniel Tamayo with Raymond Jane. Your line is open.

Daniel Tamayo: Thank you guys. Okay, good morning. Good morning.

Joseph J. Lebel: So I guess I just wanted to ask more about that loan growth topic. You mentioned you're trying to reduce CRE Concentration; you've got the C&I Initiative. How should we be thinking about the CRE book growth, you know, in the next couple of years? I mean, is that a book that you expect to see modest growth, you know, stable as it relates to the CRE concentration, like how quick do you expect that to come down?

Daniel Tamayo: Thank you guys.

Daniel Tamayo: Okay, good morning. Good morning. So I guess I just wanted to ask more about on that loan growth topic You know, you're you mentioned you're trying to reduce

Speaker Change: CRE Concentration, you've got the CNI initiatives.

Speaker Change: How should we be thinking about the CRE book growth, you know, in the next couple of years? I mean, is that, is that a book that you expect to see modest growth, you know, stable? I mean, as it relates to the CRE concentration, like how quick do you expect that to come down?

Joseph J. Lebel: So, you know, I guess the best way to think about that is first, we like our CRE both notwithstanding kind of the market tone around CRE, so we're not in any rush to kind of move to a certain ratio; we don't have a target to kind of reduce it in that sense. But we also noticed, you know, we would understand that we're going to be a more valuable franchise if we had a little more diversification in our asset mix. So over time, I think you're going to see the CNI proportion of our balance sheet increase. CRE proportions will remain flat, maybe decrease a little bit.

Speaker Change: So, I guess the best way to think about that is, first, we like our CRE book, notwithstanding kind of the market tone around CRE, so we're not in any rush to kind of move to a certain ratio. We don't have a target to kind of reduce it in that sense.

Speaker Change: But we also noted, you know, we would understand that we're going to be a more valuable franchise if we have a little more diversification in our asset mix. So over time, I think you're going to see the C&I proportion of our balance sheet increase.

Christopher D. Maher: And then within the CRE book, we're optimizing the best relationships we have. It's kind of an interesting time because of the contraction in CRE lending across the industry. Some of our best clients are bringing us really good and attractive opportunities. So, we're still in the business of doing CRE lending. But proportionally, I would expect that to fall on the balance sheet, and you might see our investor CRE ratios decrease over time as well. But we're not in any mad dash to go, you know, try and run off a portfolio of customers.

Speaker Change: The CRE proportion remained flat, maybe decreased a little bit.

Speaker Change: Some of our best clients are bringing us really good and attractive opportunities. So we're still in the business of doing CRE lending, but proportionally I would expect that to fall on the balance sheet, and you might see our investor CRE ratio decrease over time as well. But we're not in any mad dash to go...

Speaker Change: try and run off a portfolio of customers that we like.

Christopher D. Maher: Okay, well, I appreciate that. And I recognize this next one is a tricky question, as it relates to regulators' conversations and all that. But, you know, I think the market was spooked clearly by the FFWM, you know, the first foundation equity issuance in the quarter, and especially for banks with high CRE concentrations. So, I mean, is there anything you can say or comment on, you know, regulatory discussions or pressure that they're putting on you guys, or any kind of commentary around kind of what those conversations are like with the regulators would be interesting. Thanks.

Speaker Change: Okay, well, I appreciate that. And I recognize this next one is a tricky question as it relates to regulators, conversations and all that. But, you know, I think the market was spooked.

Speaker Change: Clearly by the FFWM, you know, the First Foundation.

Speaker Change: Thanks a lot for speaking today. Thank you, my pleasure to be here and I'm thrilled that you're trying to keep in touch though. I'm happy to answer any questions or pressure that they're putting on you guys or any kind of.

Speaker Change: Commentary around kind of what what those conversations are like with the regulators would be interesting. Thanks

Christopher D. Maher: I understand the question. But we certainly can't talk about our conversations with our regulators.

Christopher D. Maher: I think our financial statements or outlook in this discussion should give you some comfort. If you look at the way our portfolio is performing, if you look at the way we've handled concentrations both geographically and by asset class, we don't have a lot of anything. We've got a lot of stuff kind of put out in different geographies, different asset classes. We have not had a lot of CRE growth in the last couple of years.

Speaker Change: I understand the question. We certainly can't talk about our conversations with our regulators. I think our financial statements or outlook in this discussion should give you some comfort.

Speaker Change: If you look at the way our portfolio is performed, if you look at the way we've handled concentrations both geographically and by asset class, we don't have a lot of anything. We've got a lot of stuff kind of put out in different geographies, different asset classes.

Christopher D. Maher: The growth factor is a really important consideration that regulators look at. If you're growing quickly, you're going to attract more attention. So when you look at the credit metrics in our portfolio, we think they're holding up well. There's no cause for concern.

Speaker Change: We have not had a lot of CRE growth in the last couple of years. The growth factor is a really important consideration that regulators look at. If you're growing quickly, you're going to attract more attention.

Speaker Change: So when you look at credit metrics in our portfolio, we think they're holding up well. There's no cause for concern. When you think about the stress testing that we share with you in our disclosures, that gives you a sense as to how we're thinking about interest rate risk management.

Christopher D. Maher: When you think about the stress testing that we share with you in our disclosures, that gives you a sense as to how we're thinking about interest rate risk. Over time in that portfolio, you know, that kind of maturity wall issue. So when you look at all that stuff, we've got a very good portfolio. We feel good about it. But the second part of our consideration is that we've always been pretty proactive about capital.

Speaker Change: Over time in that portfolio, you know, that kind of maturity wall issue.

Speaker Change: So when you look at all that stuff, we've got a very good portfolio, we feel good about it. But the second part of our consideration is we've always been pretty proactive about capital.

Christopher D. Maher: So, you know, we went, you know, 18 months ago into a mode of preserving and building capital. It was very thoughtful. We wanted to protect ourselves from what might occur in the environment, and we're now really happy with where capital is. So I look at it in two ways. If the portfolio is performing well and we feel good about it, there's not a lot of pressure. And then you look at your capital ratios and see that you've built them nicely over the last couple of years. That's kind of what I would say is a textbook way to manage your CRE concentration. We feel good about it, but I wouldn't make any comments attributable to our regulators.

Speaker Change: So, you know, we went, you know, 18 months ago into a mode of preserving and building capital. It was very thoughtful. We wanted to protect ourselves from what might occur in the environment, and we're now really happy with where capital is. So I look at this two ways.

Speaker Change: If the portfolio is performing well and we feel good about it, there's not a lot of pressure. And then you look at your capital ratios and see that you've built them nicely over the last couple of years.

Speaker Change: That's kind of what I would say is a textbook way to manage your CRE concentration. We feel good about it, but I wouldn't make any comments attributable to our regulators.

Daniel Tamayo: I appreciate you giving me some commentary there, Chris. I'll step back. Thanks, guys.

Speaker Change: I appreciate you giving me some commentary there, Chris. I'll step back. Thanks, guys.

Operator: Thank you. The next question comes from Tim Slitzer with KBW.

Chris: Thank you.

Chris: Thank you. Thank you.

Speaker Change: Thank you. The next question comes from Tim Snitzer with KBW. You may proceed, Tim.

Tim Slitzer: Hey, thank you for taking my question. I had a quick follow-up on your comments there about You know, you're happy with where your capital is right now. You still have a good amount of capital, though, and you've been doing buybacks for the last two quarters. Why do you not expect to do any more the rest of the year given some sensitivity to valuation, given the recent rising shares, or is it more that you're trying to preserve capital for either a potential downturn or maybe opportunities on the M&A side?

Tim Snitzer: Hey, thank you for taking my questions. I had a quick follow-up on your comments there about...

Tim Snitzer: You know, you're happy with where your capital is right now. You still have a good amount of capital, though, and you've been doing buybacks your last two quarters. Why do you not expect to do any more the rest of the year?

Speaker Change: You know, given some sensitivity to valuation, given the recent rising shares, or is it more you're trying to preserve capital for either a potential downturn or maybe opportunities on the M&A side?

Christopher D. Maher: First, I would say that there's no reason we wouldn't buy shares back. We're just thinking about the best use of capital, which is organic growth, and we're playing that off against the opportunity to repurchase shares over time. So I think as Joe builds out his teams and the pipelines build, and we get a sense of exactly how much capital we're going to use for organic growth, any excess capital beyond that, as long as we're trading below tangible book value, I think it's a pretty attractive financial decision for us to buy back shares.

Speaker Change: First, I would say that there's no reason we wouldn't buy shares back.

Speaker Change: We're just thinking about the best use of capital, which is organic growth.

Speaker Change: And we're playing that off against the opportunity to repurchase shares over time. So, I think as Joe builds out his teams, and the pipelines build, and we get a sense to exactly how much capital we're going to use for organic growth.

Speaker Change: Any excess capital beyond that, you know, as long as you're trading below tangible book value, I think it's a pretty attractive you know financial decision for us to buy back shares, so number one priority is supporting organic growth. Number two priority is taking advantage of a valuation we think is attractive.

Christopher D. Maher: So number one priority is supporting organic growth. Number two priority is taking advantage of evaluation. I wouldn't say zero, but we just said it should maybe be a little bit. You might not see a lot of it.

Speaker Change: Produced by the U.S. Embassy in the Philippines

Christopher D. Maher: Okay, so it's more based on the anticipation of more loan growth given the pipeline you've seen.

Speaker Change: So I wouldn't say zero, but we just said it should maybe a little bit, you might not see a lot of it.

Speaker Change: Okay so it's more based off of the anticipation of more loan growth given the pipeline you've seen.

Christopher D. Maher: Yep, and we think generally that the capital levels we're at are adequate for the risk profile of our company. So we're not trying to use repurchases to lever the company at all. We're just taking excess earnings and applying them to repurchases. So, to the extent we don't need it, we'll keep our capital ratios pretty much in this neighborhood and use any excess earnings for repurchases. But, you know, we don't need growth

Speaker Change: We think generally that the capital levels we're at are adequate for the risk profile of our company, so we're not trying to use repurchases to lever the company at all. We're just taking excess earnings and applying them to repurchases.

Speaker Change: So to the extent we don't need it, we'll keep our capital ratios pretty much in this neighborhood and use any excess earnings for repurchases that we don't need for growth.

Christopher D. Maher: Okay, understood. I was also interested in your comments about the hiring efforts you've made in the C&I space. I know the competition there has been, I mean, just for C&I and loan growth generally has been a little tough as banks try to diversify. What's the competition been like on the recruiting side? Has that been tough?

Speaker Change: Okay, understood.

Speaker Change: I was also interested in your comments about the hiring efforts you've made in the C&I space. I know the competition there has been, I mean, just for C&I and loan growth generally has been a little tough as banks try to diversify.

Joseph J. Lebel: And what's the pitch OceanFirst makes to potential new bankers?

Speaker Change: What's the competition been like on the recruiting side? Has that been tough? And what's the pitch OceanFirst makes to potential new bankers?

Joseph J. Lebel: I think, well, one, I'd say that the competition's difficult in any environment, especially for revenue-producing people, whether it be, you know, classic C&I bankers, deposit gatherers, you name it, investment folks. But I think for us, the pitch has always been a very similar pitch, right? We're steady. We're going to be in the markets. We don't change our minds about whether or not we want to do things.

Speaker Change: I think, well, one, I'd say that the competition's difficult in any environment, especially for revenue-producing people, whether it be, you know, classic C&I bankers, deposit gatherers, you know, you name it.

Speaker Change: Investment folks. But I think for us, the pitch has always been the very similar pitch, right? We're steady, we're going to be in markets, we don't change our minds about whether or not we want to do things.

Joseph J. Lebel: It's been very clean, straightforward. The management team has been consistent. And when people come here, they like it, and we don't have turnover.

Speaker Change: It's been very clean, straightforward, management team has been consistent, and when people come here, they like it.

Joseph J. Lebel: So I think we have a good reputation in the marketplace, and I think that helps salespeople. Salespeople want to make sure, especially the people we target, which are mostly from what I consider to be the large regional and national banks. Those folks get in and out of markets and businesses all the time. And we tend to be, if we're in a business, we tend to stay in a business. So we tell people that they don't have to worry about policy shifts and changes. If you bring us good business, we'll do it. So that seems to always resonate.

Speaker Change: and we don't have turnover. So I think we have a good reputation in the marketplace and I think that helps salespeople. Salespeople wanna make sure, especially the people we target, which are people largely from...

Speaker Change: from what I consider to be the large regional and national banks. Those folks get in and out of markets and businesses all the time.

Speaker Change: And we tend to be, if we're in a business, we tend to stay in a business. So we tell people that you don't have to worry about policy shifts and changes. If you bring us good business, we'll do it. So that seems to always resonate.

Joseph J. Lebel: We've found over the years that the best bankers just want to know they can support their clients. And as long as you can demonstrate to them that they're going to have the tools and the support and the capital and the balance sheet to do that, they're going to feel pretty comfortable. We have joked over the years that some of these sales processes for new bankers can take a while. We've had banks we've pursued for up to five years before they actually sign up.

Speaker Change: We found over the years that the best bankers just want to know they can support their clients. And as long as you can demonstrate to them that they're going to have the tools and the support.

Speaker Change: We have joked over the years, some of these...

Speaker Change: Sales processes for new bankers can take a while. We've had bankers we've pursued for up to five years before they actually sign up. So the folks we bring on, we bring on kind of deliberately, but they're top quality folks. They stay with us a long time. They build really durable relationships and extend our brand.

Joseph J. Lebel: The folks we bring on, we bring on kind of deliberately, but they're top quality folks. They stay with us for a long time. They build really durable relationships and extend our brand. So we're adding people every quarter. We're going to add more between now and the end of the year. And we've got a positive outlook. Great. That's a lot of good color.

Speaker Change: So we're adding people every quarter. We're going to add more between now and the end of the year. We've got a positive outlook for it.

Tim Slitzer: Great. That's a lot of good color. Thank you, guys.

Speaker Change: Great. That's a lot of good color. Thank you guys.

Operator: We now have David Bishop with the Hofty Group. You may proceed with your question.

Speaker Change: Thank you.

Speaker Change: We now have David Bishop with Hovde Group. You may proceed with your question.

David Jason Bishop: Chris or Pat, just curious, you know, we spent a lot of time talking about the loan growth side, but on the funding side, you know, you paid down some of the brokered and high-cost savings accounts this quarter. Are there any sort of tranches or big tranches of maybe CDs or broker deposits that are ensuring that there's an opportunity to reprice here in the next couple quarters? Just curious what the funding side of the balance sheet looks like from a repricing perspective.

David Jason Bishop: Yeah, good morning, gentlemen.

David Jason Bishop: Chris or Pat, just curious, you know, we spend a lot of time talking about the loan growth side of it.

Speaker Change: On the funding side, you know, you said you paid down some of the brokered and...

Speaker Change: High Cost Savings Accounts this quarter. Are there any sort of tranches or big tranches of maybe CDs or broker deposits that are?

Speaker Change: Assuring that there's an opportunity to reprice here in the next couple of quarters, just curious what sort of the funding side of the balance sheet looks like from a repricing perspective.

Patrick S. Barrett: Hey David, this is Pat.

Patrick S. Barrett: Hey David, it's Pat. It's actually pretty steady, around, I don't know, 200-ish million on average that rolls. Every month, I guess, over the next six to nine months or so, we deliberately ladder into these so that we don't have any big slugs of it coming due at any one time. So that gives us opportunities to kind of manage how we roll it. Brokered CDs are a little bit lumpier than that, so I'm talking about more on the retail CD side, but we only have about $250 million, I think, that's rolling between now and year end. And we'll continue to look at that and decide, you know, whether we want to keep it or not.

Speaker Change: Every month, I guess.

Speaker Change: Over the next six...

Speaker Change: to nine months or so, so we deliberately ladder into these so that we don't have any big slugs of it coming due at any one time.

Speaker Change: And so that gives us opportunities to kind of manage how we roll. Brokered CDs are a little bit lumpier.

Speaker Change: So I'm talking about more on the retail CD side.

Speaker Change: But we only have about $250 million, I think, that's rolling between now and year-end.

Patrick S. Barrett: If it's economic, we generally would roll the brokered CDs. However, it's proven to be less economical this year. You'll remember last year when we layered in about eight or nine percent of our total deposit base. It was actually a 20 to 30 basis point advantage over other sources of funding, and so we thought it was a good deal, and we've been slowly letting it roll as it became less economical to do that. So it'll be pretty steady in the coming years.

Speaker Change: And we'll continue to look at that and decide, you know, whether we want to keep it or not, if it's economic.

Speaker Change: We generally would roll the brokered CD's. It's proven to be less economic this year. You'll remember last year when we layered in about 8 or 9 percent of our total deposit base.

Speaker Change: It was actually a 20 to 30 basis point advantage over other sources of funding, and so we thought it was a good deal, and we've been slowly letting it roll as it became less economic to do that. So it will be pretty steady.

Speaker Change: In kind of normal way, cash flows for us.

David Jason Bishop: Got it; I appreciate that. And then, Chris, sort of a holistic question, maybe a tougher question, maybe to answer and ask, but, you know, obviously, our rates have been depressed here, you know, that's been a tough yield curve over the past couple of years. From a board perspective, you know, is there sort of a sense that, you know, there are bright lines, are a way that you have to hit to sort of earn or maintain Does that does that come up in the dialogue? Is that something that's in the lexicon these days in terms of, you know, reaching a set return on equity or return on assets?

Speaker Change: Got it. Appreciate that. And then.

Speaker Change: Chris, sort of a holistic question, maybe a tougher question, maybe to answer that, but...

Speaker Change: You know, obviously R8's been depressed here, you know, it's been a tough yield curve over the past couple of years.

Speaker Change: From a board perspective, you know, is there sort of a sense that, you know, is there a bright line?

Joseph J. Lebel: Unknown Executive, Joseph Lebel

Christopher D. Maher: Well, yeah, we, as you can imagine, that comes up often, comes up among management, certainly with the board. I think if you look at the world this way and think about leverage, there's only a kind of range of leverage that would be, I think, workable for a regional bank like us. Once you know that leverage, you're going to have to have a certain ROA in order to be able to return, you know, the cost of capital.

Speaker Change: Well, yeah, we, as you can imagine, that comes up often, comes up among management, certainly with the board. I think if you back into the world this way and think about leverage, there's only a kind of a range of leverage that would be, I think, workable for a regional bank like us.

Christopher D. Maher: We have, for years, felt that the required investor return for us over the long haul should be in the upper teens. That reflects our risk, the risk position of our company, you know, things like dividend yield and liquidity and all that. So that's our aspiration.

Speaker Change: Once you know that leverage, you're going to have to have a certain ROA in order to be able to return a cost of capital. We have for years felt that the required investor return for us over the long haul should be in the upper teens. That reflects the risk position of our company.

Speaker Change: You know, things like the dividend yield and liquidity and all that. So that's our aspiration. If you back into our leverage position, that requires an ROA that is north of 1%, probably approaching 120. We have done that in the past, and I think we can get there again.

Christopher D. Maher: If you back into our leverage position, that requires an ROA that is north of 1%, probably approaching 120. We have done that in the past, and I think we can do it again. You know, the last two years of the inverted yield curve have not helped with that, and I'm not sure that will go away in the next, you know, two or three quarters. I think that inversion may stick around for a bit.

Speaker Change: The last two years of the inverted yield curve has not helped with that, and I'm not sure that goes away in the next two or three quarters. I think that inversion may stick around for a bit. But our thought is with the loan growth we're talking about building second half of this year going into 2025.

Christopher D. Maher: But our thought is with the loan growth we're talking about building in the second half of this year going into 2025, although margins may still be tight on that, operating leverage will pick up. And we have an opportunity to build back to that level. So we certainly recognize that to earn our independence, there's a little bit of a line in the sand that you better have a path to get yourself north of one ROA.

Speaker Change: Although margins may still be tight on that, the operating leverage will pick up.

Speaker Change: And we have an opportunity to build back to that level. So we certainly recognize that to earn our independence, there's a little bit of a line in the sand that you better have a path to get yourself north of a one ROA. And we think we have the visibility on that for now. But there's a lot, obviously, going on with rate markets and things like that.

Christopher D. Maher: And we think we have the visibility on that for now, but there's obviously a lot going on with rate markets. Interestingly, you know, with all the discussion about, you know, what the Fed is going to do or not do, we're probably more impacted over the next couple of years by what the five-year and the 10-year. That's got a significant impact on our business. So the longer end of the yield curve is something we watch as much as the short end, even though it gets less attention.

Speaker Change: Interestingly, with all the discussion about what is the Fed going to do or not do, we're probably more impacted over the next couple of years by what the 5-year and the 10-year do. That's got a significant impact to our business. So the longer end of the yield curve is something we watch as much as the short end, even though it gets less attention.

David Jason Bishop: Got it. I appreciate the color.

Speaker Change: Got it. Appreciate the color.

Operator: We will move on to the next questioner, and we have Manuel Navas with TA Davidson. You may proceed.

Speaker Change: Thank you.

Manuel Antonio Navas: We will move on to the next questioner and we have Manuel Navas with TA Davidson. You may proceed.

Manuel Antonio Navas: Hey, just a quick follow up on that 120 ROA long term. Does that also assume a kind of return to, I think, a more aspirational 10% longer?

Manuel Antonio Navas: Hey, just a quick follow-up on that 120 ROA long-term. Does that also assume a kind of return to, I think, more aspirational 10% loan growth?

Christopher D. Maher: Yeah, I think that's the way you get there. That's the path.

Speaker Change: Yeah, I think that's the way you get there. That's the path. And if you think about, okay.

Christopher D. Maher: And if you think about just building that over time, it's not something that's going to happen, certainly this quarter, but the other complication just may add a little bit of time to this is that we're not just rebuilding or building the loan book. We're also doing a mixed shift, and while we think that's really valuable for us over the long term of the company, it just takes a little bit longer. You know, most of these C&I relationships are only partially drawn up. So you're not putting out dollar for dollar like you would in commercial real estate.

Speaker Change: You know, just building that over time. It's not something that's going to happen certainly this quarter, but... And the other complication, just may add a little bit of time to this, is we're not just rebuilding or building the loan book, we're also doing a mix shift.

Speaker Change: And while we think that's really valuable for us over the long term of the company, it just takes a little bit longer. Most of these C&I relationships are only partially drawn, so you're not putting out dollar for dollar like you were in commercial real estate. Undoubtedly, we think that's much more valuable for our company.

Christopher D. Maher: Undoubtedly, we think that's much more valuable for our company, but it does complicate the time it takes to kind of rebalance a little bit and achieve that 10% growth. We've always thought that that's a nice prudent level of growth that you should be able to sustain year after year. And I point out that, prior to COVID, in the fourth quarter of 2019, we achieved that 120 ROA after, you know, working on operating leverage for a few years.

Speaker Change: But it does complicate the time it takes to kind of rebalance a little bit and achieve that 10% growth rate.

Speaker Change: We've always thought that that's a nice prudent level of growth that you should be able to sustain year after year.

Speaker Change: And I'd point out that, you know,

Speaker Change: Prior to COVID, fourth quarter of 2019, we achieved that 120 ROA after working on operating leverage for a few years.

Christopher D. Maher: COVID set us back. We had achieved it again, in the fourth quarter of 2022, and then we had the liquidity crisis we went into, so we know how to get there and we're comfortable we'll get on the path to get there. But I would just hesitate to give you a very precise date on which we think we'll be there.

Speaker Change: COVID set us back. We had achieved it again, fourth quarter of 2022. And then we had the liquidity crisis we went into. So we know how to get there and we're comfortable we'll get on the path to get there. But I would just hesitate to give you a very precise date on which we think we'll be there.

Joseph J. Lebel: I appreciate that, stepping back towards discussing the C&I team, some of the new lenders, and those that are still to come, have they been ramping as expected, or has competition kind of slowed their ramp, rates could be part of it too, and how is the C&I team doing on deposit generation as well?

Speaker Change: I appreciate that.

Speaker Change: stepping back towards discussing the

Speaker Change: C&I team, some of the new lenders and those that are still to come, have they been ramping as expected or has competition kind of slowed their ramp, rates could be part of it too?

Speaker Change: And how is the C&I team doing on the deposit generation as well?

Joseph J. Lebel: So I can tell you that the folks that we've hired have met or exceeded expectations. I think that the interesting, you know, sort of semi-answer to the question is, I'll use the example of the last quarter. We had five of our better C&I borrowers pay us down on their loan balances because they were doing so well and they had cash. So the good news is... I have cash from my C&I borrowers in the bank at reasonable rates and some in operating accounts where I'm not really paying a rate.

Speaker Change: So, I tell you that the folks that we've hired have met or exceeded expectations. I think that the interesting, you know, sort of semi-answer to the question is...

Speaker Change: I'll use the example of the last quarter. We had five of our better C&I borrowers pay us down on their loan balances because they're doing so well and they have cash. So the good news is…

Speaker Change: I have cash from my C&I borrowers in the bank at reasonable rates and some in operating accounts where I'm not really paying a rate. The bad news is they're...

Joseph J. Lebel: Unknown Executive, Daniel Tamayo, Alfred Goon, Joseph Lebel, Manuel Navas, Unknown Executive, We have an environment where there are people getting into this space that don't understand this space. And you always worry about people putting assets in the C&I space that are not structured properly. I'm happy to compete on price within reason, but I'm not going to compete on the structure aspect. That's just a long-term road to ruin. But our folks so far that we've put in place have done fine.

Speaker Change: done so well with cash that they're paying down my loan rate yielding assets because they have the ability to do so. So it's a little bit of a balancing act. Look, there's competition out there. The only thing I really worry about in the C&I space today in terms of competition is

Speaker Change: And you always worry about people putting on assets in the C&I space that are not structured properly. I'm happy to compete on price within reason. I'm not going to compete on the structure aspect. That's just a long-term road to ruin. But our folks so far that we've put in place have done fine.

Manuel Antonio Navas: That's good to hear. In terms of the NIM outlook, you talked about some of the wholesale funding that's coming up. What are the assumptions around wholesale funding? Is it the assumption that they stay at current levels and just reprice? Or is it assumed in the guide that you pay them off? Like, is deposit growth a wildcard here, potentially? How should I think about how you're viewing and planning for the wholesale funding payoff?

Speaker Change: That's good, that's good to hear. In terms of the NIM outlook, you know, you talked about some of the wholesale funding that's coming up.

Speaker Change: What are the assumptions around wholesale funding? Is it the assumption that they stay at current levels?

Speaker Change: and just reprice.

Speaker Change: or is assumed in the guide that you pay them off like

Speaker Change: Is deposit growth a wild card here potentially? How should I think about how you're viewing and planning for on wholesale funding payoffs?

Patrick S. Barrett: We don't have a ton of overnight wholesale funding that's out there. We've got about 800 million or so of borrowing, but 600 of that is termed. Seems like years and years and years ago, I guess it was about... Five quarters ago, we termed out three buckets of $200 million per bucket FHLB borrowings, and those start to mature in 2025 and then 2026 and then 2027. That's three quarters.

Speaker Change: We don't have a ton of overnight wholesale funding that's out there.

Speaker Change: 800 million or so of borrowings, but 600 of that is termed. Seems like years and years and years ago, I guess it was about five quarters ago, we termed out three buckets of 200 million.

Speaker Change: per bucket, FHLB borrowings, and those start to mature in 2025 and then 2026 and then 2027.

Patrick S. Barrett: We also, aside from that, really don't have much in terms of longer-term funding that's out there; even in our CD book, it's relatively short. So we're pretty well-positioned to... take advantage of lower funding costs as they occur. The flip side of that is, just to maintain our current liquidity levels, growth means that we're funding it at today's higher shorter-term rates, which, again, can squeeze profitability but does make us think carefully about the profitability of any loans that we're going to do because we are kind of funding incrementally as we go along. Does that help or answer your question? That...

Speaker Change: So that's three quarters.

Speaker Change: [inaudible]

Speaker Change: We also, aside from that, really don't have much in terms of longer term funding that's out there, even in our CD book. It's relatively short.

Speaker Change: To take advantage of lower funding costs as they occur the flip side of that is just to maintain our current liquidity levels

Speaker Change: Growth means that we're funding it at today's shorter-term higher rates, which, again, can squeeze profitability, but does make us think carefully about the profitability of any loans that we're going to do, because we are kind of funding incrementally as we go along.

Manuel Antonio Navas: That does, that does. Shifting gears for my last question. Can you discuss the upward trajectory of the loan loss reserve? It's just ticking off. And you're not responding to regulatory pressure, but you are building capital and building reserves, is that kind of report So, in support of seeing the landscape and trying to be proactive, is that the right way to think about it rather than being responsive to any particular regulatory concern for the CRE customer?

Speaker Change: Does that help or answer your question?

Speaker Change: That does, that does. Shifting gears for my last question. Can you discuss the upward trajectory of the loan loss reserve? It's just ticking off. And you're not responding to regulatory pressure, but you're, you are building capital and building reserves.

Speaker Change: Is that kind of...

Speaker Change: Part of seeing the landscape and trying to be proactive, is that the right way to think about it rather than being responsive to any particular regulatory concern on the CRE concentration issue?

Christopher D. Maher: And where would you kind of like to land? So the first part of the question is easier than the second part, but I would say it's completely an external function where we're thinking about the environment, we're thinking about pure loan loss reserves, and we're looking out at what the credit conditions might be. Let's say the soft landing isn't quite as soft as people would like it to be. I just want to have a little bit of an extra margin. It's not a giant difference.

Speaker Change #100: It's exactly you. And where would you kind of like to land?

Speaker Change #101: So, the first part of the question is easier than the second part, but I would say it's completely an external function where we're thinking about the environment, we're thinking about pure loan loss reserves, we're looking out at what...

Speaker Change #101: Unknown Executive, Joseph Lebel, Unknown Executive, Joseph Lebel, Unknown Executive, Joseph Lebel,

Christopher D. Maher: There is nothing inside our loan book that is driving us to feel that we need any significantly higher reserve than we have today. So it's just been a gradual evolution as we've watched things like Moody's forecasts and where unemployment is going and things like that. We just want to make sure we're a little bit more prudent. I would say that it is clear to us, and CECL is terrible in this regard, but CECL really anchors you back to your loss histories, and our loss histories have been really good, so it's hard to..., kind of satisfy the standard you would need around quantitative. As we build the C&I book, I think we'll also have the opportunity to maybe have a little bit higher reserve level against C&I. First of all, it tends to deserve that anyway.

Speaker Change #101: So, it's just been some gradual evolution as we've watched things like the Moody's forecasts and where unemployment is going and things like that. We just want to make sure we're a little bit more prudent. I would say that it is clear to us, and Cecil is terrible in this regard, but Cecil really anchors you back to your loss histories.

Cecil: and our lost histories have been really good. So it's hard to kind of satisfy the standard you would need around quantitative allowance.

Cecil: As we build the C&I book, I think we'll also have the opportunity to maybe have a little bit higher reserve level against C&I. First of all, it tends to deserve that anyway.

Manuel Antonio Navas: And although we've done C&I for decades, this is a little larger concentration for us and into some new verticals. So I think we're taking the opportunity, and I wouldn't be surprised if you see us take the opportunity to build a little reserve as we build that book up to a bigger part of our balance sheet. At the end of the day, we're not going to change our credit discipline. We don't expect different outcomes in credit performance.

Cecil: And although we've done C&I for decades, this is a little larger concentration for us and into some new verticals. So I think we're taking the opportunity, and I wouldn't be surprised if you see us take the opportunity to build a little reserve.

Speaker Change #103: Transcripts provided by Transcription Outsourcing, LLC.

Manuel Antonio Navas: So I don't see us heading towards a reserve-heavy bank, but you might see what you've seen over the last year. You might see if economic conditions continue to be a little questionable, you might see a couple of basis points a quarter from here, from time to time, no big moves.

Speaker Change #103: So I don't see us heading towards a reserve heavy bank, but you might see what you've seen over the last year. You might see if economic conditions continue to be a little questionable. You might see a couple of basis points a quarter from here from time to time. No big moves.

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

Speaker Change #107: Thank you. I appreciate the commentary. I'll step back into the queue.

Operator: Thank you, Manuel. We now have Matthew Breese with Stevens.

Speaker Change #106: Thank you.

Speaker Change #106: Thank you, Manuel. We now have Matthew Breese with Stevens.

Matthew M. Breese: I was hoping you could provide an update on the percentage of loans at a pure floating rate, priced off something like prime or SOFR, and what the blended yield is on those loans.

Matthew M. Breese: Hey, good morning.

Matthew M. Breese: I was hoping you could provide an update on the percentage of loans at a pure floating rate, priced off something like prime or SOFR, and what the blended yield is on those loans.

Patrick S. Barrett: Sure. Hey Matt, it's Pat.

Matthew M. Breese: Hey Matt, it's Pat. So our pure floating rate is just under 29% of our loan book.

Patrick S. Barrett: So our pure floating rate is just under 29% of our loan book, 2.9 billion. And those are split.

Speaker Change #105: About $2.9 billion.

Speaker Change #105: And those are split.

Patrick S. Barrett: About one-third prime. Two-thirds SOFR. I don't have the exact numbers right in front of me, but I want to say it's about $900 million that's based on Prime. When we talk about our fixed inflation rate, you know, make up of being 55, 45-ish, which we've said in the past frequently, it's 54, 55. Floating includes Adjustment. We talk about that, which is about 1.7. Billion, and then the fixed rates, 5.5.

Speaker Change #105: About one-third prime.

Speaker Change #105: Two-thirds SOFR. I don't have the exact numbers right in front of me, but I want to say it's about $900 million that's based off Prime.

Speaker Change #108: Make up of being 55, 45-ish, which we've said in the past frequently, it's 54, 55 fixed rate.

Speaker Change #108: The floating includes adjustable.

Speaker Change #108: We talk about that which is about 1.7 billion and then the fixed rates 5.5

Matthew M. Breese: And is it safe to assume that the pure floating rate paper is, you know, capturing a spread of, you know, I don't know, two points over SOFR, two and a half points over SOFR? I'm trying to get a sense for, you know, if we look at that six-week portion of your book? What is that yielding, and what's the repricing opportunity, and when does that start to kick in for the next?

Speaker Change #109: And is it safe to assume that the pure floating-rate paper is, you know, capturing a spread of volat...

Speaker Change #110: Two points over SOFR, two and a half points over SOFR. I'm trying to get a sense for, you know, if we look at that fixed rate portion of your book.

Speaker Change #111: What is that yielding and what's the repricing opportunity and when does that start to kick in for the NIP?

Patrick S. Barrett: Yeah, I think historically, it kind of depends on the age, the vintage of it, but historically, we kind of average about 250 over benchmark. That obviously is compressed over time with competition, and it's probably more in the two to two and a quarter, so I think you're in the right zip code.

Speaker Change #112: Yeah, I think historically, it kind of depends on the age, the vintage of it, but historically we kind of average about $250 over benchmark. That obviously is compressed over time with competition, and it's probably more in the two to two and a quarter, so I think you're in the right zip code.

Christopher D. Maher: Hey Matt, it's Chris. One of the things that we do watch really carefully, this was my comment about watching, say, the five-year, is that a lot of those adjusting loans as they roll are indexed off the five-year. So as the five and the 10-year kind of fall a little bit, that can affect outcomes as well.

Speaker Change #112: Hey Matt, it's Chris. One of the things that we do watch really carefully, this was my comment about watching say the five-year, is a lot of those adjusting loans as they roll

Matt: They're indexed off the five-year.

Speaker Change #114: So as the five and the ten year fall a little bit, that can affect outcomes as well.

Christopher D. Maher: So just for the sixth grade in the arm book, what is the kind of roll on versus roll off dynamic that you're referring to, Chris?

Speaker Change #115: So just for the sixth grade in the ARM book, what is kind of the roll-on versus roll-off dynamic that you're referring to, Chris?

Christopher D. Maher: So I think if you look at our maturity wall, that's probably the best numbers you can see. You can see by period how many loans we have rolling through, and what rates they're coming from. Just a caution, we were trying to show a credit perspective in that. So we're using the rates the customer is paying, not the rate we are earning. We're actually earning a little higher than those rates because of swaps.

Matt: So if you look at our maturity wall, that's probably the best numbers you can see. You can see by period how many loans we have rolling through, what rate they're coming from. Just a caution, we were trying to show a credit perspective in that, so we're using the rates the customer is paying.

Christopher D. Maher: So probably, I mean, it's probably 30, 40 basis points difference between the stated rates in that maturity wall slide. In terms of what we're being paid today, kind of roll that forward and look at, take a number 225 over the curve as they roll.

Speaker Change #116: Not the rate we are earning. We're actually earning a little higher than those rates because of swaps. So probably, I mean, it's probably 30-40 basis points difference between the stated rates in that maturity wall slide.

Speaker Change #117: In terms of what we're being paid today, you can kind of roll that forward and pick a number, 225, over the curve as they roll.

Christopher D. Maher: And just playing this out, I mean, at what point do we start to see this dynamic really take hold and propel the margin higher? And in past quarters, we've talked about kind of a natural landing point for the NIM for a bank like yours being kind of a three, three and a quarter range. When can we start to see meaningful progress towards that?

Speaker Change #117: Thank you.

Speaker Change #118: And just playing this out, I mean, at what point do we start to see this dynamic really take hold and propel the margin higher? And in quarters past, we've talked about kind of a natural landing point.

Speaker Change #119: for the NIM, for a bank like yours being in kind of the three, three and a quarter range. When can we start to see meaningful progress towards that?

Christopher D. Maher: I think, look, we can make progress between where we are now and just kind of pick a number and say three over time. But to get much above three, you're not going to see that on an inverted yield curve. So we would need a normalization of the curve to get much beyond that.

Speaker Change #120: I think, look, we can make progress between where we are now and just kind of pick a number and say three over time.

Speaker Change #121: But to get much above three, you're not going to see that in an inverted yield curve.

Christopher D. Maher: You know, it is really important the new growth we do and what rates that come in at. As Joe mentioned, our pipeline today. We're really concentrating on that C&I borrower who carries almost an 8% handle. That will help. That will help us get back towards three, but if you're looking at our long-term average, which is closer to 3.25, I don't see us being able to achieve that without moving the yield curve.

Speaker Change #121: We would need a normalization of the curve to get much beyond that.

Speaker Change #122: You know, it is really important, the new growth we do, and what rates that comes in at. You know, as Joe mentioned, our pipeline today.

Matthew M. Breese: Okay, and then what is a good tax rate to use from here?

Joseph J. Lebel: which we're really concentrating on that C&I borrower carries almost an 8% handle. That will help. That will help us get back towards three, but if you're looking at our long-term average closer to 325, I don't see us being able to achieve that without moving the yield curve.

Speaker Change #123: Okay, and then what is a good tax rate to use from here?

Patrick S. Barrett: Twenty-four percent. I keep saying 25 approximately, and we keep printing 24, so I'm changing it, and it's 24%.

Speaker Change #124: 24%. I keep saying 25 approximately and we keep printing 24. So I'm changing it and it's 24% now.

Matthew M. Breese: Okay, and then just just the last one for me. You have I think a hundred and twenty five million of sub debt reaching its call date about this time next year, maybe a little earlier. One, what is kind of the current thinking around that? In terms of, you know, paying it off or reissuing it, and then secondly, just curious. At this point in the game, does the subject count towards the theory concentration, or have we moved to the tier one plus allowance methodology?

Speaker Change #125: Okay, and then just the last one for me. You have, I think, $125 million of sub-debt reaching its call date about this time next year, maybe a little earlier. One, what is kind of the current thinking around that?

Speaker Change #126: in terms of paying it off or reissuing.

Speaker Change #127: At this point in the game, does the subject count towards the theory concentration or have we moved to the tier one plus allowance methodology?

Christopher D. Maher: I'll give you the first part of that, and then Pat will follow up in a second. So the thinking on it is, you know, look, when it matures next May, if rates are what they are today, it's going to be more expensive than we'd like, and we'd probably look to refinance that. At the issuances that we've seen in the last... Call it 60 days.

Patrick S. Barrett: I'll give you the first part of that and then Pat will follow up in a second. So the thinking on it is, you know, look, when it matures next May, if rates are what they are today, it's going to be more expensive than we'd like and we'd probably look to refi that. At the issuances that we've seen in the last

Christopher D. Maher: We're not, you know, excited or anxious to do anything with that today. We're watching carefully whatever the Fed does. We're watching carefully to see if capital markets activities by other regional bank issuers come out. We're kind of watching that market, but it's conceivable we might take an opportunity to issue in advance of that, but not at today's rates, and we don't feel any pressure on that. And look, it still continues to be available to us next year, just at a higher reprice and, you know, with the margins would be more expensive than today's issuance rates. So there is an opportunity for us to refinance that. That's just on the capital treatment.

Speaker Change #128: Call it 60 days.

Patrick S. Barrett: We're not, you know, excited or anxious to do anything with that today.

Patrick S. Barrett: We're watching carefully, whatever the Fed does, we're watching carefully to see if capital markets activities by other regional bank issuers come out. We're kind of watching that market, but it's conceivable we might take an opportunity to issue in advance of that, but not at today's rates, and we don't feel any pressure on that.

Patrick S. Barrett: And look, it still continues to be available to us next year, just reprices and, you know, with the margins would be more expensive than today's issuance rates. So there is an opportunity for us to...

Patrick S. Barrett: Yeah, so the subject of tier two, and typically, everybody issues from the holding company, your listed vehicle, and then to the extent that you need or want to have tier one treatment for your bank, you would then inject the capital down into the bank. So that would kind of drive the...

Speaker Change #129: to refine that. But Pat just done the capital treatment.

Patrick S. Barrett: Yeah, so the subject tier two, and typically everybody issues from the holding company, your listed vehicle, and then to the extent that you need or wanted to have tier one treatment for your bank, you would then inject the capital down into the bank.

Patrick S. Barrett: The denominator of the Tier 1 plus allowance is any sub-debt that's been put down into the bank, and it would be for the calculations of where all your loans are and where the bulk of your capital is residing, which would be in the bank. We've also, I'll just remind you, it's May of next year. We have the 125 that we'll reprice. And we also have 57, I think, preferred shares that also reprice in May of next year.

Patrick S. Barrett: So that would kind of drive the denominator of the Tier 1 plus allowance is any sub-debt that's been put down into the bank, and it would be for the calculations of where all your loans are and where the bulk of your capital is residing, which would be in the bank.

Speaker Change #130: We've also, I'll just remind you, it's May of next year, we have the $125,000 that we'll reprice.

Speaker Change #130: And we also have 57, I think, of preferred that also reprices in May of next year.

Patrick S. Barrett: And those are at 5.25% and 7%, respectively. So the sub-debt issues are benchmarked off of a longer-term treasury, so the short-term rates are much less important when we think about them than where we think the longer end of the curve is today versus where it might be then. So it's not that big of a difference; it's really just the additional months of carry if we were to issue anything in advance of that date versus the higher interest rate that we'll pay once those coupons reset in May, which the shorter the time gets, the less it kind of matters.

Speaker Change #130: And those are at five and a quarter and seven percent respectively.

Speaker Change #131: So the sub-debt, you know, issues and is benchmarked off of a longer-term treasury. So the short-term rates are much less important when we think about it than where we think the longer end of the curve is today versus where it might be then.

Speaker Change #132: So it's not that big of a difference. It's really just the additional months of carry if we were to issue anything in advance of that date Versus the higher interest rate that we'll pay once those coupons reset in May

Patrick S. Barrett: And so with capital thinking. We kind of like to do it when you can rather than when you have to, and so we've been thinking about this and talking about it for the better part of this year, and we'll be opportunistic and thoughtful about it. But net-net, in this environment, more capital is good, just like more allowance is good. There's an intangible trade-off of the extra cost of carrying for that capital versus the perception of the Strength of Your Balance Sheet.

Speaker Change #132: which, the shorter the time gets, the less it kind of matters, and so with capital thinking...

Speaker Change #132: We kind of like to do it when you can rather than when you have to, and so we've been thinking about this and talking about it already for the better part of this year.

Speaker Change #132: and we'll be opportunistic and thoughtful about it. But net-net, in this environment, more capital is good, just like more allowance is good.

Speaker Change #132: So there's an intangible trade of the extra cost of the cost of carry for that capital versus the perception of the strength of your balance sheet.

Matthew M. Breese: understood any that's for the sub to any change in thinking on how to navigate the preferred repricing

Speaker Change #133: Understood. That's for the sub to any change in thinking on how to navigate the preferred repricing.

Patrick S. Barrett: You know, not really. Retail seems to be... there's such a thirst for retail, and folks seem to be relatively indifferent if it's rated. So, that's pretty easy out on the replacement of the preferred, and it's a fairly small issuance bucket. The sub is generally, whether you price it institutionally or retail or not, consumed almost entirely by institutional investors, so you need to be careful, kind of thoughtful about the timing and the competition for capital.

Speaker Change #134: Yeah, not really. Retail seems to be, there's such a thirst for retail preferred and folks seem to be relatively indifferent if it's rated.

Speaker Change #135: So, that's a pretty easy out on the replacement of the preferred, and it's a fairly small issuance bucket.

Speaker Change #135: The sub is generally whether you price it institutionally or retail or not consumed almost entirely by institutional investors so you need to be

Patrick S. Barrett: How the issuance is going to be viewed by the street, of course, which we've seen positive reactions and negative reactions to capital issuance just in the last 90 days by banks of our size or communities or small regionals. We're also trying to navigate that perception, and challenges as well.

Speaker Change #135: I'm kind of thoughtful about the timing and the competition for capital.

Speaker Change #135: How the issuance is going to be viewed by the street, of course, which we've seen positive reactions and negative reactions to capital issuance just in the last 90 days by banks of our size or communities or small regionals.

Speaker Change #135: So we're also trying to navigate that perception challenge as well.

Matthew M. Breese: Great. I appreciate all the color. I'll step back. Thank you.

Operator: We now have Christopher Marinac with John A. Montgomery Scott. You may proceed.

Speaker Change #136: Great. I appreciate all the color. I'll step back. Thank you.

Speaker Change #136: [inaudible]

Speaker Change #136: We now have Christopher Marinac with John A. Montgomery Scott. You may proceed.

Christopher William Marinac: Thanks for hosting us this morning. Chris, I want to follow up on the allowance point you made two calls ago. So when you have idiosyncratic losses like you had with this one-off credit, does that give you any positive evidence to build that component, particularly as you have new loan growth?

Christopher William Marinac: Thanks for hosting us this morning. Chris, I want to follow up on the allowance point you made two callers ago. So when you have the idiosyncratic losses like you had, this one-off credit, does that give you any positive evidence to build that component, particularly as you have new loan growth?

Christopher D. Maher: You know what? It would, Chris, if we could find other loans like that in the book. And the problem is, we don't have them. You know, our central business district concentrations now. 125 million.

Chris: You know what it would Chris if we could find other loans like that in the book and the problem is we don't have them You know our Central Business District concentrations now

Christopher D. Maher: We've gone through that with a fine-toothed comb, understand everything about it, and we don't have any other credits that meet the same criteria as the one where we had the issue last year. So it's kind of hard to extrapolate and push that out. As we did our stress tests looking at the maturity wall, as we did our stress tests looking at different asset classes, looking at all of our construction loans, as we go through all these things, we're obviously looking for information that would support either the allowance we have today or require us to adjust the allowance. The good news is that those stress tests have been so positive that... (inaudible)

Chris: 125 million, we've been through that with a fine-toothed comb, understand everything about it, and we don't have any other credits that meet the same criteria as the one where we had the issue last year.

Speaker Change #138: Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change #139: We're obviously looking for information that would support either the allowance we have today or require us to adjust the allowance.

Speaker Change #139: That's it.

Speaker Change #139: The positive news is those stress tests have been so positive.

Speaker Change #139: that it hasn't really given us a lot of support to move the allowance in any particular way. But we understand that we're a little bit of an outlier in the total allowance and we don't like being outliers in anything so we look at it really carefully every quarter and make thoughtful decisions about it.

Christopher D. Maher: No, I understand. Thank you for that. And then just, I guess, a bigger picture question, the production that you anticipate in the next two or so years, how much of that will come by region? I'm just curious about, you know, would you have more in the Northeast and in the Baltimore and Washington area, just as those are newer, to contribute to a bigger percentage?

Speaker Change #140: I understand. Thank you for that. And then just, I guess, a bigger picture question. The production that you anticipate the next two or so years, how much of that will come by region? I'm just curious about, you know, would you have more in the northeast than in the Baltimore-Washington area, just as those are newer, to contribute to a bigger percentage?

Christopher D. Maher: I think you're still going to see the majority of activity happen in our most concentrated market, which is the corridor between Philadelphia and New York. But we do get meaningful numbers out of the other regions as well, and some of the hiring we've done has been down in the Baltimore and Washington area, especially that government contracting work. So there will be measured growth in other areas, but given the size of our franchise, our strongest markets are the ones closest to home.

Speaker Change #141: I think you're still going to see the majority of activity happen in our most concentrated market which is the corridor between Philadelphia and New York. But we do get meaningful numbers out of the other regions as well and some of the hiring we've done has been down in the Baltimore-Washington area.

Speaker Change #141: Especially that government contracting work.

Speaker Change #141: So, there will be measured growth in other areas, but given the size of our franchise, we still, our strongest markets are the ones closest to home. So, I think you're still going to see the majority, call it 50-75% of growth comes.

Christopher D. Maher: So I think you're still going to see the majority, call it 50% to 75%, of growth comes right in our core market in the Northeast. We really like being in the Northeast, especially as we see some of the volatility. You've heard this around multifamily in certain parts of the country, you've seen residential home prices starting to waver in certain places, and rents falling.

Speaker Change #141: Right in our core market in the Northeast. We really like being in the Northeast and especially as we see

Speaker Change #141: Some of the volatility, you know, you've heard this around multifamily in certain parts of the country. You've seen residential home prices starting to waver in certain places, rents falling. Fortunately, the Northeast tends to avoid both the up and down swings, so we feel pretty good about our market and we're not going to change it materially.

Christopher William Marinac: Great, thanks again for taking all of our questions this morning.

Speaker Change #142: Great. Thanks again for taking all of our questions this morning.

Christopher D. Maher: Thank you. I would like to hand it back to Chris Maher for some closing remarks. All right, thank you.

Chris: All right, thanks, Chris.

Chris: Thank you. I would like to hand it back to Chris Maher for some closing remarks.

Christopher D. Maher: Thank you, we appreciate your time today and your continued support of OceanFirst Financial Corp. We look forward to speaking with you again after our third quarter results are published in October. Thank you very much.

Christopher D. Maher: All right, thank you. We appreciate your time today and your continued support of OceanFirst Financial Corp. We look forward to speaking with you again after our third quarter results are published in October . Thanks very much.

Operator: Thank you all for joining. I can confirm that this does conclude the OceanFirst Financial Corp. Q2 24 earnings release conference call. Please enjoy the rest of your day, and you may now disconnect from the call.

Speaker Change #143: Thank you all for joining. I can confirm that does conclude the OceanFirst Financial Corp Q2 24 earnings release conference call. Please enjoy the rest of your day and you may now disconnect from the call.