Participants

Alfred Goon; Corporate Strategy & Development and Investor Relations; OceanFirst Financial Corp

Christopher D. Maher; Chairman of the Board, Chief Executive Officer; OceanFirst Financial Corp

Joseph J. Lebel III; President and Chief Operating Officer; OceanFirst Financial Corp

Patrick S. Barrett; Executive Vice President and Chief Financial Officer; OceanFirst Financial Corp

Frank Schiraldi; Analyst; Piper Sandler & Co.

Tim Switzer; Analyst; Keefe, Bruyette & Woods, Inc.

David Bishop; Analyst; Hovde Group, LLC

Christopher Marinac; Analyst; Janney Montgomery Scott, LLC

Daniel Tamayo; Analyst; Raymond James Financial, Inc.

Matthew Breese; Analyst; Stephens Inc.

Manuel Navas; Analyst; DA Davidson & Co

Presentation

Operator

Hello, everyone, and thank you for joining the OceanFirst Financial Corp., Q1 '25 earnings call. My name is Marie, and I will be coordinating your call today. (Operator Instructions) I will now hand over to your host, Alfred Goon, SVP of Corporate Development and Investor Relations, to begin. Please go ahead.

Alfred Goon

Thank you, Marie. Good morning, and welcome to the OceanFirst first quarter 2025 earnings call. I am Alfred Goon, SVP of Corporate Development and Investor Relations. Before we kick off the call, we'd like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company website, oceanfirst.com.
Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures. All participants should refer to our SEC filings, including those found on Forms 8-K, 10-Q and 10-K for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements.
Thank you. And I now will turn the call over to Christopher Maher, Chairman and Chief Executive Officer.

Christopher D. Maher

Thank you, Alfred. Good morning, and thank you to all who've been able to join our first quarter 2025 earnings conference call. This morning, I'm joined by our President, 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'll provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business. We may refer to the slides filed in connection with the earnings release throughout this call.
After our discussion, we look forward to taking your questions. We reported our financial results for the first quarter, which included earnings per share of $0.35 on a fully diluted GAAP and core basis. We are pleased to report a second consecutive quarter of growth on both net interest income, which grew by more than $3 million for the quarter and net interest margin, which expanded by 21 basis points.
These improvements were largely driven by deposit repricing efforts. Results also included commercial and industrial loan growth of 6% or 24% annualized, while the total commercial loan pipeline increased to $376 million as of period end.
Operating expenses for the quarter were $64 million, modestly lower than the prior quarter. Note that our first quarter operating expenses did not reflect any of the material investments from our recent hiring efforts, which Joe will touch on in a moment. Asset quality remained strong as annualized net charge-offs were just 3 basis points. While total loans classified as special mention and substandard decreased 5% to $149 million or 1.5% of total loans.
Classified loan levels remained well below our long-term average and are substantially lower than our peer group. The reserve build for the quarter was primarily driven by an elevated level of uncertainty around macroeconomic conditions.
Capital levels remained robust with an estimated common equity Tier 1 capital ratio of 11.2% and tangible book value per share of $19.16. This week, our Board approved a quarterly cash dividend of $0.20 for the common shares. This is the company's 113th consecutive quarterly cash dividend and represents 57% of GAAP earnings.
Finally, we're very pleased with our progress in launching the Premier Bank initiative, which is growing quickly and should drive organic deposit growth and additional margin improvement in the second half of the year. For more color on that initiative, and our other businesses, I'll turn the call over to Joe for his comments.

Joseph J. Lebel III

Thanks, Chris. I'll start with the company's loan originations for the quarter, which totaled $417 million, including $135 million of C&I originations b. The commercial pipeline is nearly double last quarter, which should help build out C&I and more broadly stimulate overall loan growth. It's competitive out there, but it's evidenced by the pipeline, the recruitment of commercial bankers over the last 15 months has begun to pay dividends. Turning to our Residential division.
Activity remains impacted by uneven loan demand with volatility in rates, limited inventory and seasonally low volumes affecting Q1. We remain cautiously optimistic, and we are cognizant of the potential impact that economic uncertainty may have on rates, affordability and production. As we turn to the second quarter, we are pleased to announce the onboarding of nine Premier banking teams in April.
These teams have a proven track record of managing significant customer portfolios, historically consisting of lower cost deposit-rich commercial relationships. We are optimistic that these teams will have substantial new client wins for the company throughout the remainder of 2025, although it could take two years to three years to achieve their full run rate potential.
We've also seen continued success in the hiring of C&I-focused commercial bankers with the addition of six bankers so far this year. These new ads are incremental to the 10 C&I bankers we hired in 2024. As we have done historically, we will continue to identify and hire additional commercial bankers throughout the year when the opportunity arises.
Moving to deposits. Excluding brokered CDs, balances decreased by approximately 2% compared to the prior quarter, primarily from a runoff of higher cost time deposits. We anticipate some seasonality in the second quarter, which should start to see the portfolio growth with new client wins thereafter.
Non-interest income decreased 8% to $11.3 million during the quarter. Excluding non-core and non-recurring items, non-interest income decreased 11%, primarily driven by seasonally lower title fees and service charges.
With that, I'll turn the call over to Pat to review the remaining areas for the quarter.

Patrick S. Barrett

Thanks, Joe. As Chris noted, both net interest income and margin grew in the quarter, with net interest income increasing by nearly 4% and net interest margin expanding by a healthy 21 basis points. Total funding costs as well as total deposit costs, both declined by 26 basis points, while loan yields remained essentially flat.
While we're pleased with our overall reduction in funding costs, we believe the deposit repricing pace may moderate in the near term, but with positive tailwinds expected in the back half of the year as our deposit gathering initiatives begin to ramp up. Asset quality remained very strong with non-performing loans at 0.37% and loans 30 days to 89 days past due at 0.46% of total loans. While we saw a modest uptick in substandard, overall criticized and classified loans declined 5%.
Overall, credit quality continued to perform in line with our company's strong historical experience and well below peer group averages. Additionally, we continue to monitor our exposures to industries and geographies for any emerging impact from recent political and administrative policy changes. But today, we've seen no signs of weakness across our customer base.
Despite this, we felt it was prudent to increase our allowance for credit losses by just over $5 million, reflecting both the heightened levels of macroeconomic uncertainty as well as a modest shift in loan portfolio mix to higher C&I exposures.
Non-interest expense decreased $555,000 to $64.3 million during the quarter, driven by seasonally lower title costs with most other expense categories relatively flat to the prior quarter. Compensation expense was partly impacted by a $1.3 million incentive production recognized in the quarter.
Looking ahead, we anticipate our quarterly operating expense run rate to increase approximately 10%, of which $4 million is attributable to the recent Premier banking hires this quarter. As Joe mentioned, we remain opportunistic for additional hires that could impact the run rate further. Capital levels remain robust and included nearly 400,000 shares repurchased for a total of $6.9 million at a weighted average cost of $17.20 per share.
We'll remain opportunistic in repurchasing shares in the near term, but that will be highly dependent on market conditions, and as previously announced, we'll be redeeming in full our $57.4 million of preferred stock on May 15.
Finally, a word on taxes. We expect our effective tax rate, which was 24% in the first quarter to remain in the 23% to 25% range, absent any changes in policy. At this point, we'll begin the question-and-answer portion of the call.

Question and Answer Session

Operator

(Operator Instructions)
Frank Schiraldi, Piper Sandler.

Frank Schiraldi

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

Joseph J. Lebel III

Frank, I'll start with the sectors. The teams have a really robust variety of commercial clients, and they range anywhere from those clients that are deposit-rich law firms, title companies to more traditional commercial borrowers that have a variety of credit needs. So I think we're going to see the full range. I don't think there's anything that we target as specific relative to a vertical that would be either new to us or a concentration.

Christopher D. Maher

Frank, I'd just add on in terms of deposit rate expectations and the weighted average cost of deposits, we obviously hesitate to give you very specific guidance on that. But the portfolios these clients maintain typically a substantial portion of non-interest that could be 20% plus or minus depending on the team.
And then the remainder of the funds they bring over have a market rate, but on the lower end of market, right? These are not the high end of the market. So when you blend those two numbers together, you get a very attractive cost of deposits, but it varies by team -- from team to team.

Frank Schiraldi

Okay. Alright. I appreciate that. And then you mentioned the opportunity maybe to bring over additional folks. Just curious, given timing of bonuses, the way that works, is that more sort of a 2026 expectation? Or is there still opportunity here in coming weeks and months?

Christopher D. Maher

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

Frank Schiraldi

Okay. And if I can just sneak one more in. In terms of the expense increase, 10% on run rate, $4 million related to these Premier groups. Just anything else to call out in terms of the rest of it? Is it just the 10% increase? Is it just general investments? Anything to call out there?

Patrick S. Barrett

As far as the nature of the expense, it's really driven by comp expense increases. We do have some contracts that are renewing, and we will see some inflationary increases. But I would say that those would be kind of in line with a normal kind of 3% increase on average. Then there's some occupancy because we have to put these people in places that we don't currently have vacant. So there's going to be an increase that you'll see in that line item as well.

Frank Schiraldi

Got you. Okay. Alright. I appreciate it. Thanks.

Patrick S. Barrett

Thank you, Frank.

Operator

Tim Switzer, KBW.

Tim Switzer

Hey, good morning. Thank you for taking my question. I have a few follow-ups on the Premier Bank. Can you maybe walk us through kind of like the messaging to customers on Premier Bank versus kind of more classic oceans and what the reception has been so far in people who have joined the Premier Bank?

Christopher D. Maher

Yes. The way we look at it is that we have a variety of service models that are tuned to a variety of different kinds of clients. And some clients love dealing with our kind of automation or our call center and that works really well for them. Other clients, like I'd make the comparison like a concierge medicine, right, where you can kind of have a relationship where you have a primary doctor you go to all the time and you really value that relationship. And other folks buy their health care differently.
It's no different in banking. So we want to serve the customer the way they want to be served. So Premier Bank appeals to a certain segment. And the rest of our businesses appeal to other segments. And neither one is right or wrong, it's just customer preference.

Tim Switzer

Okay. How many new customers is this bringing in versus moving larger legacy customers over into Premier Bank?

Christopher D. Maher

So this would be essentially, for the most part, I would imagine, all net new customers to the bank. We're not remapping existing customers. I mean, of course, over time, if a customer wanted to be handled it in a different way, we'd certainly be flexible and do whatever they want. But the majority of that would be net additions to the Premier Bank.

Tim Switzer

Okay. Got you. And then sorry if I missed this and jumping around calls, but can you update us on your plans for refinancing the sub debt if you want to after you've paid off the preferred?

Christopher D. Maher

Sure. Obviously, the big thing you already mentioned is the preferred. So we wanted to make sure we got rid of that first. That was the most expensive capital we had. We're in no rush to do anything about the sub debt.
It's a little bit more expensive, but it doesn't weigh earnings all that much. We're watching conditions in the market. We'll consider our growth rate and other things over time. So we're in a position to refinance that if things get attractive for us, but we're equally comfortable kind of leaving that out there for a bit of time depending on market conditions.

Patrick S. Barrett

This is Pat. I think about it this way. We kind of preserved any tangible book value dilution or erosion by repaying or redeeming the preferred. So kind of the net impact of that cost avoidance pretty much offsets the increase in the sub debt, which is about [$1 million], $1.5 million a quarter pretax.

Tim Switzer

Got it. Very helpful. Thank you, guys.

Operator

Dave Bishop, Hovde Group.

David Bishop

Yeah, good morning, gentlemen.

Christopher D. Maher

Good morning.

David Bishop

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

Joseph J. Lebel III

Yes. Thanks, Dave. The growth was broad-based, which is good, although we did see some concentrated growth in our government contracting business that's fairly new to us in the Virginia, Maryland, D.C. Metro. I'd probably just say overall that we're seeing activity from not only the legacy folks, but also the folks that we've put in place over the last year.
It typically takes a C&I banker three months to six months to get acclimated not only to the way a new bank does business, but also to convince clients that this is the right place for them. And we're starting to see that momentum build. And I think we'll continue to see it. I think this is just the beginning.

Christopher D. Maher

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

David Bishop

Got it. And then Pat, you noted maybe waning ability to lean on deposit costs. Just curious of maybe -- I don't know if you have the spot rate of average cost of deposits at quarter end, but maybe a near-term outlook where you see maybe deposit costs trending? It sounds like there could be some seasonality in the second quarter that may require you to lean on borrowing. So did I read that right?

Patrick S. Barrett

I'd say probably, there's not going to be a whole lot of bias one direction or the other at this point, pretty stable outlook in the near term on costs. We certainly have the capabilities to lean on wholesale, but at this point, don't envision needing to do too much of that. And we're hopeful that as the Premier Banking and additional deposit gathering initiatives continue to build and build steam that, that will take any pressure off of funding needs.

David Bishop

Got it. I appreciate the color.

Operator

Christopher Marinac, Janney Montgomery Scott.

Christopher Marinac

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

Joseph J. Lebel III

Chris, it's Joe. I would tell you that the expectation is that over time, we'll get the majority share of the wallet. These are long-standing customer relations, which is something that's really attractive to us. As we talked about earlier, I think you'll see it come over in time. We all know that sometimes when you have existing loans, those take time to mature or reprice, and the same thing goes with operating accounts. It takes a period of time for people to migrate across and run through the activity at the old institution. But I'm a big believer that these teams have significant followings, they're full relationships and they'll be loyal.

Christopher Marinac

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

Joseph J. Lebel III

That's fair.

Christopher Marinac

Okay. I was just trying to delineate between the big opportunity and kind of how much kind of gets narrowed down into the funnel over time.

Christopher D. Maher

Chirs, I'd add that we view this not only as a driver of margin and earnings over time, but a franchise value. So the higher quality relationship you have on the deposit side, the more durable those deposits are. We're not interested in putting dollars on just to put dollars on. We're trying to make sure we build a long-standing liability sheet here that makes -- creates a lot of franchise value.

Christopher Marinac

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

Christopher D. Maher

It does. I mean this is -- as you point out, this is when we get a ton of tax returns in and things like that, although many of them get put on extension. So you see a lot of them in the fall as well. So -- but we've seen no trends that would be concerning. We're always thoughtful that, that's a rearview mirror kind of thing and not a windshield kind of thing.
But we did conduct a survey of our commercial book just to understand not just from what we see in our credit work, but what our customers tell us about their tariff exposure. And it's a very limited exposure to the first order concern about tariffs.
In fact, I think only about 8% of the commercial book recorded any meaningful exposure at all to tariffs. And then of those folks, the majority -- about half of those folks thought they could have a reasonable chance of passing along any cost that came to them. So -- but despite surveys and despite underwriting, we felt that we really couldn't get a perfectly clear view, and that's why you saw the additional reserve build. That's kind of an adjusting case in an environment that's fairly foggy right now.

Christopher Marinac

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

Operator

Daniel Tamayo, Raymond James.

Daniel Tamayo

Thank you. Good morning, guys.

Christopher D. Maher

Good morning.

Daniel Tamayo

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

Christopher D. Maher

So we'll try and take those in pieces. So let me talk a little bit about profitability impact. First of all, it's a significant build in expenses. Given our overall expense base, it's not all that significant. And we're being very careful besides the compensation costs to be very deliberate around other costs, things like facilities.
Really pleased that the majority of these bankers are going to be located in Manhattan or Long Island. We had existing branches today in one on Third Avenue in Manhattan and one up in Scarsdale that will support those teams. We took a little bit of back office space upstairs from our branch just to make sure that was an efficient kind of leveraging of the full service branch. And we only envision one facility on Long Island for the teams we've hired to date. That will be a modest facility out in Melville.
Depending on the hiring, we might add another modest facility or two, but it's not really going to be a big expense build. So when you put all that in, you think about the leveraging of the operating environment we have today, it's probably somewhere around the four quarter mark that you have a little bit of a subsidy to this business. And I want to be very careful. This is a little art and not as much science. That could be four quarters, it could be five quarters, it's hard to tell exactly.
At that point, the margin improvement should have overcome any of the OpEx considerations. And then from there on, it takes maybe another year or so to get fully profitable. But if you think about the numbers we gave you today, you're talking about operating expense on the additional customer base, sub-hundred basis points, could be 80 basis points, 90 basis points.
So the operating leverage here is quite good as you work your way through it. And there'll be a modest impact to EPS for the next four quarters. It's not going to be dramatic, and we think we kind of turned that around. So we felt that a 12 month to 18 month payback is pretty fast to build something that's got durable franchise value. So forgive me if we missed any other part of that question.

Daniel Tamayo

No, that was great. I guess the only other question within there is just do you have a target in mind for where you want the loan-to-deposit ratio to be?

Christopher D. Maher

Sure. So when we think about each of our businesses, they have very different dynamics around loan-to-deposit ratio. So the Premier Bank is a very low loan-to-deposit ratio. It's predominantly deposits, although there's a substantial amount of loans. Some of the teams might have a 20% loan-to-deposit ratio, some may have lower.
It's a very nice complement to our C&I business, which has a high loan-to-deposit ratio. Typically, they don't -- our C&I business doesn't self-fund. So when you put the two of them together, you get a really powerful combination. So the Premier Banking teams, we'll keep you updated on this. I would not be surprised if the loan-to-deposit ratio in there is plus or minus 20%.

Daniel Tamayo

Okay. And then I guess, lastly, just to put a finer point on the expense build. You talked a lot about it. Pat talked about it earlier. But -- so should we think about the 10% increase that's off of the what, it's --

Christopher D. Maher

First quarter -- that's the first quarter a little bit --

Daniel Tamayo

Okay. So 10% on the $64.3 million in the second quarter? And then any other kind of incremental build that we should expect going forward? Or kind of how you were thinking about expense growth prior to this announcement is still about -- still makes sense?

Christopher D. Maher

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

Patrick S. Barrett

Danny, this is Pat. I'd use $66 million as a run rate because we did have a year-end incentive comp true-up that made our comp expense lower in Q1. So if you add that back in, that should be your base.

Daniel Tamayo

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

Patrick S. Barrett

Yes, on the incremental from more hirings. I don't think that you'll see a steady increase from that second quarter run rate. I think it will be relatively stable. So I think we'll see a fair number of annual inflationary increases that will roll through by the middle of the year.

Christopher D. Maher

And those are all within the 10% guidance we've given you. It wouldn't be on top of that.

Patrick S. Barrett

There's going to be some timing issues. We're kind of in the middle of adding to all of this. So these are not as precise as we would normally have them. But we'll fine-tune that as we kind of move through into the second quarter earnings.

Daniel Tamayo

Got it. So I guess back of the envelope that you're going to be kind of maybe $73 million-ish for the rest of the year. It sounds like it's in the ballpark.

Patrick S. Barrett

A little bit -- maybe a little bit lower, $70 million, $71 million probably.

Daniel Tamayo

Got it. Okay. Alright. Thanks very all the color. I appreciate it.

Christopher D. Maher

Thank you.

Operator

Matthew Breese, Stephens Inc.

Matthew Breese

Hey, good morning. I was hoping with the Premier teams and the anticipated deposit growth, could you give us some help on how we should think about the overall balance sheet size. With the growth, is it a one-for-one increase? Or do you expect reductions in some of your higher cost funding categories? And if so, kind of just frame for us what you'd like to run off?

Christopher D. Maher

Our guess is that -- and this is a guess at this point, Matt. It's going to depend a little bit on quality loan demand. So if we get the loan demand we'd like and the pipelines are pretty good, you can imagine some balance sheet growth, but it would be a mix of balance sheet growth and remix under the covers that will help us kind of optimize our capital position, leave some capital out there if we want to do things like buybacks. And if -- look, we're in a very volatile environment. It's very difficult to give you any longer-term guidance around loan growth beyond Q2.
If loan growth were to be flatter, that's okay, too, because we can just use these deposits to redeem higher cost deposits and still make margin improvement out of it. So we have nice optionality here. But my guess is that if loan demand stays steady, which is a giant if think of it as half of it going to deposit remix and half of it going to net balance sheet expansion.

Matthew Breese

Okay. I know the teams are going to be metro New York City based, Long Island based. Any of them have a more national kind of customer focus or national business line focus?

Christopher D. Maher

No. I'd say just like our existing clients that we have today, we have an occasional client who has a business that may have other facilities in Georgia or Florida or Texas. We bank them wherever they are. So we've done that in many cases already. I think you're going to see the same thing, just a very small number of clients who may have -- maybe they have an investment in California or something. And we'll follow them, but the vast majority of this is really New York metro centric.

Matthew Breese

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

Christopher D. Maher

I'd say a few things about that, Matt, and then I'll ask Joe to chime in as well. We're very happy with our CRE business. We have allowed it to drift down a bit, so the CRE concentration at the bank level is 4.16%. At the holding company level, it's below 4%, it's 3.93%.
And interestingly, that's not necessarily because we're trying to drive to a certain number, but you'd be surprised how much competitive pressure there is in the market now for CRE loans and making sure you can get good structures and good pricing.
I look at this and say, we're not on any drive to achieve a certain CRE ratio. We've managed it very prudently. You can see that in our credit numbers. You can see that in our minimal exposures. We do not have an exposure to rent-stabilized multifamily.
We have a negligible exposure to central business district office. All segments are performing really well. So we're happy with it. In some ways, I might actually bring that up a little bit over time if we had the opportunity to do it with high-quality loans and good structures. What you're seeing in that concentration drifting down is less quality structures and more competitive pricing. So Joe, maybe give some description of what you guys have seen in the market because it's kind of puzzling.

Joseph J. Lebel III

So Matt, I think I just -- I'd frame it this way. Our CRE folks are out looking for business. We're not holding them back. We're not telling them that we're not interested. Diversity is your friend. So geographic diversity, industry diversity, property-type diversity is valuable to us. I think we've made that pretty clear over time. That's one of the reasons the books managed and done so well.
So I think the comment and what Chris talks about competitively we're starting to see -- even though we're down in the space, I'll use Class B office is a good example in New York City. There's a lot more activity in Class B after the big run to Class A over the last 24 months. We find it fascinating. I can't pinpoint why there's leasing absorption in this market. It just could be that there's people coming back to offices.
It's not something we're chasing, but it is very competitive. We've lost a couple of transactions, which are okay for us, people pricing in the 5s. It's not our cup of tea, but that's okay. We use those dollars and put them elsewhere in C&I or in better pricing CRE.

Christopher D. Maher

So to add to that, Matt, you had a question about whether we would kind of derisk by the sale of loan pools. We do not anticipate doing that. I think that would be pretty unlikely. I would direct you to page 14 of our supplement slides. We have a back book of about $1.2 billion rolling this year and next that is rolling off a 4.31% blended rate.
We think there's an opportunity to get some earnings momentum out of that. So that's got a 4.31% rate. But if you look at the debt service coverage ratios on that page, the maturity wall for 2025, debt serves at [1.70%]. And for 2026, debt serves at [2.30%].
We've been through. We've stressed these loans. Those loans can roll and cover their debt service and we can get paid better on them. So our bias would be keep the customers roll the loans and improve our margin. It could be a significant pickup just from that $1.2 billion.

Matthew Breese

Okay. I guess that leads to -- and this is the last one, why not a more positive bias on the NII outlook granted, we're just looking at 2Q for the presentation, but it feels like if there's movement in deposit costs, it should be lower, especially with the new teams. To your point on the repricing on fixed assets, it's positive. When -- if it's not 2Q, when do we start to see that inflection point in the NIM and NII just from the simple mechanics of repricing the fixed assets and deposits?

Christopher D. Maher

So we expect we're going to see additional margin expansion in the second half of the year. We're just -- as you point out, we're being very conservative about not giving you a specific guide on that. We're watching what's happening in the markets. We understand Fed policy is going to come into this. If you do wind up seeing Fed cuts during the year, I think we've got a real material opportunity because you start to pile these things on each other, right?
Fed cuts help us. Premier Bank helps us. The back book helps us. So I think of ourselves at a 2.90% margin now, which has virtually no purchase accounting, it's kind of a real margin. As we go into the back half of the year and into next year, you can start to see a glide path to get you back above 3%.
That's point at which our earnings really start to build nicely, but we would hesitate to give you any specific guidance given all of those kind of open questions. So we'll just keep updating you through the year. We'll watch it. But I think as you point out, most of those factors lean to the positive for us.

Matthew Breese

I'll leave it there. Thanks for taking my question. I appreciate it.

Operator

Manuel Navas, D.A. Davidson.

Manuel Navas

Hey, good morning. What is the current book of business for these new hires at past institutions?

Christopher D. Maher

So it falls right in that range where we see this upon maturity. So if you're thinking somewhere between $2 billion to $3 billion today, call it, $2.5 billion. It's pretty close to the book of business that they had at their former places.

Manuel Navas

So any new hires just kind of build that target a little bit higher?

Christopher D. Maher

Correct. And by the way, you never -- we've been hiring bankers for a long time. They never pull 100% of their former book, but they pull a good percentage of it and then they bring new book in because that's what they do. And so I think in a couple of years, they'll be able to get back to where they were.

Manuel Navas

If we get to those targets, that could be 20% plus of your deposits, would you reevaluate at that point how big this Premier Bank could get? Prior institutions got very large doing this, and you have a key recruiter that could continue this process for years. What are your kind of thoughts like the long-term growth here?

Christopher D. Maher

You hit it on the head. This is a long-term investment for us. We're going to keep building this business. The only thing I would add to that, though, is that fundamental risk control here is not having a concentration of anything? Even if you think about our CRE book, it spread among five states, no big asset classes. Concentration kills.
So we're going to grow the Premier Bank we think quickly and effectively. We think it's going to be a great opportunity for us, but we're going to grow the rest of the bank, too. So we're going to grow our consumer bank. We're going to grow our C&I-led teams. You would probably also see growth in CRE over time. So I think when you add all this stuff together, this just helps propel our growth rate to a higher number. If the environment were less volatile, we might give you more specific guidance about that.

Manuel Navas

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

Christopher D. Maher

There are -- interesting to us is we bring bankers over from a variety of institutions. They're typically surprised at the capabilities we have, and we've built over the years. When you think about the last few years, one of the big benefits of us trimming our branch network is our ability to invest in technology and back office. So it's really nice to see bankers who come to us from larger banks that are surprised and impressed with our treasury suite. They're surprised positively with the quality of our information technology.
So I think the customer experience is actually a little better and they love that. So that's probably the most significant thing I would mention. In terms of compensation plans, I think as you build a diversified business, you have a variety of different compensation plans for different businesses and different segments. What we have incorporated into all our compensation plans is risk management principles. So we don't aggregate too much of an asset or create a volatility around interest rate risk or funding risk or liquidity risk.
So we've kind of put some tweaks and made things our own. But we have a number of different compensation plans that are highly targeted to the businesses that are being run. And the Premier business that's -- there is an extremely close connection between the compensation levels of those bankers and the quality and size of the portfolio they manage, very direct correlation.

Manuel Navas

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

Christopher D. Maher

Sure. And one of the advantages of having higher and higher quality deposits is it allows us to be a little bit more aggressive on pricing on the lending side. And look, it's a tough market out there. Joe mentioned that. It's pretty competitive.
If you're trying to win new clients, you have to have a sharp pencil. And having a lower cost deposits actually enables us to keep that credit discipline that we think is so important, but win new clients by doing it with a sharp pencil.

Manuel Navas

And a shift in topic a bit is with growth potentially picking up during the second -- into the second quarter, you were able to buy back just under 1% of shares in the first quarter. You talked a little bit about buybacks continuing -- potentially continuing. Where do you kind of see -- where do you balance buybacks versus growth kind of near term?

Christopher D. Maher

I think one of the significant things is our -- having resolved our preferred shares outstanding. We've been kind of -- I wouldn't say hoarding, but setting aside capital to be in a good position to do that when they are repriced.
With that now resolved and kind of off the table, we've got different options around capital management. We're thrilled that we bought back 400,000 shares at 90% of tangible book. It's accretive to book, it's accretive to earnings, just a wonderful thing.
So we have 1.2 million shares remaining in our authorization. And if conditions stay like this, I would expect to be active in the market. We can do both things. The great optionality around the mix shift on deposits means if we don't want to, we don't have to build the balance sheet. We can just build a more and more profitable bank at this size and then use the capital getting thrown off from that to repurchase shares. So it's a -- we have a lot of levers here. We really like the position we're in and looking forward to playing it out.

Joseph J. Lebel III

Or retire sub debt.

Manuel Navas

Right. I appreciate the commentary. Thank you.

Operator

We currently have no further questions. So I will hand back to Chris Maher, Chairman and CEO, for closing remarks.

Christopher D. Maher

Thank you. Before we close the call, I wanted to remind everyone that our annual meeting of stockholders will be held virtually on May 19 at 8:00 AM Eastern Time. We encourage stockholders of record on March 25, 2024 to review the proxy materials and vote your shares. We appreciate your time today and your continued support of OceanFirst Financial Corp. We look forward to speaking with you during our Annual Stockholders Meeting on May 19. Thank you.

Operator

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