OCEANFIRST FINANCIAL CORP Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Reported EPS of $0.35. Net and interest income grew, net interest margin expanded due to deposit repricing. Commercial and industrial loans grew 6%, pipeline at $376 million.
• Operational Aspects: Operating expenses $64 million, modestly lower. Asset quality strong, classified loans below average. Reserve build driven by macroeconomic uncertainty. Capital levels robust, dividend approved.
• Premier Bank: Onboarding nine premier banking teams in April, with proven track records, expected to drive organic deposits and margin improvement. Loan originations strong, including $135 million C&I, pipeline nearly double.
• Deposits: Excluding brokered CDs, down 2% due to runoff of higher cost time deposits. Noninterest income down 8% due to seasonality. Funding costs and deposit costs declined 26 basis points.
• Expenses: $64.3 million, down $555k, comp expense impacted by incentive reduction. Anticipate operating expense run rate increase ~10%, $4 million from Premier hires.

Segment Performance

• Financial Results: Earnings per share (EPS) of $0.35 on fully diluted GAAP and core basis. Net and interest income grew by over $3 million, with net interest margin expanding by 21 basis points, driven by deposit repricing efforts.
• Loan Growth: Commercial and industrial loan growth was 6% (24% annualized), with total commercial loan pipeline at $376 million as of period end. Loan originations totaled $417 million, including $135 million of C&I originations.
• Operating Expenses: $64 million for the quarter, modestly lower than prior quarter, not reflecting recent hiring efforts.
• Asset Quality: Strong, with annualized net charge-offs at three basis points, and classified loans down 5% to $149 million (1.5% of total loans), well below long-term average and peer group.
• Capital: Robust, with estimated common equity Tier one capital ratio of 11.2% and tangible book value per share of $19.16. Board approved quarterly cash dividend of $0.20 for common shares.
• Premier Bank Initiative: Growing quickly, driving organic deposit growth and margin improvement in the second half of the year.

Guidance

• Operating expense run rate expected to increase ~10%, with $4 million attributable to recent Premier Banking hires. Opportunistic on share repurchases dependent on market conditions.
• Will redeem $7.4 million of preferred stock on May 15. Effective tax rate expected to remain in 23%-25% range absent policy changes. Premier bank initiative expected to drive organic deposits and margin improvement in second half.

Risks

• Macro性 economic uncertainty leading to reserve build. Dependence on market conditions for share repurchases. Potential impact of political/administrative policy changes on exposures. Uncertainty around deposit repricing pace moderating near term.

Q: In terms of the new teams brought over, any specific sectors targeted? And thoughts on deposit mix and expense increase?

A: Joseph Lebel mentioned sectors are varied (deposit rich, law firms, etc.). Patrick Barrett noted deposit portfolios have substantial noninterest bearing and lower market rate funds. On expense increase, Patrick Barrett said it's driven by comp expense and occupancy increases.

Q: How does the messaging to customers on Premier Bank differ from classic OceanFirst, and updates on new customers vs moving legacy?

A: Joseph Lebel said Premier Bank appeals to a segment valuing concierge-like relationships, while classic serves other segments. Joseph Lebel stated majority of new customers to the bank are net additions, not remapping existing ones.

Q: Curious about C&I growth sectors, geography, and credit risk seasonality?

A: Joseph Lebel said growth was broad based, with concentrated growth in government contracting in Virginia, Maryland, DC metro. Christopher Maher mentioned credit risk ratings are affected by tax returns, but no concerning trends seen.

Q: How much of customers' account wallet do you think you'll get over time with Premier Bank, and credit risk ratings?

A: Joseph Lebel expected to get majority share of wallet over time. Christopher Maher said credit risk ratings are affected by tax season, but no concerning trends, and conducted survey on tariff exposure with limited impact.

Q: Thoughts on Premier Bank profitability, loan to deposit ratio target?

A: Christopher Maher discussed profitability timeline with modest impact to EPS for next four quarters, expecting margin improvement to overcome OpEx. Stated loan to deposit ratio varies by segment, premier bank has low ratio, C&I has high ratio.

Q: About Premier Bank customer focus, commercial real estate concentration, NII outlook?

A: Christopher Maher said Premier Bank teams are New York metro centric. Commercial real estate concentration at bank level is 4.16%, holding company level 3.93%, with no plans to sell loan pools. Anticipate additional margin expansion in second half due to various factors.

Q: Current book of business for new hires, long-term growth of Premier Bank, and buybacks vs growth?

A: Christopher Maher said new hires bring significant book of business, Premier Bank is long-term investment. Patrick Barrett mentioned opportunistic on share repurchases while balancing with growth, and will consider retiring sub debt.