OceanFirst Financial Corp. (OCFC) Earnings Call Transcript & Summary

Good afternoon. Thank you all for joining us. I appreciate that you're reserving a few hours of your day to learn more about OceanFirst. As a quick reminder, our forward-looking statement is right at the beginning of the presentation that allows us to speak with you freely here today. So please remember and refer to that if you need to. As you can see from the agenda, we have a full afternoon of presentations. After several presentations, please save your questions until the end of the presentation, using the Ask Questions feature. If you're one of our guests here in Red Bank, and it's great to see so many of you here, please raise your hand, and we will bring a microphone. The microphone is needed because that will allow everybody to be able to hear the questions, as well may need to limit questions for timing purposes, Hopefully, we will be able to get through all of them. And we will do our best to address them from both the guests here and Red Bank as well as virtually. You'll notice in the agenda that we are taking a brief break after the digital banking presentation. We estimate that, that should be around 3:00 p.m. However, if it is earlier or later, we may adjust the rest of the presentation times accordingly. After all of the presentations are done, Chris Maher and Joe Lebel will host a final question-and-answer session. So before Chris offers his closing remarks, you'll have an opportunity to spend a few minutes with Chris and Joe covering any topics that you're interested in hearing about. We're also doing tours of our security operations center. And several of our technology demonstrations will be held before we head over to our boat cruise for dinner. I'm sorry for the people who aren't joining us in person, but we'll be getting a wonderful tour of the Navesink River and a great meal later on today. So thanks for everybody who's able to stay and join us. If you are joining us virtually and not able to take advantage of the demos or the tour of the security operations center, please feel free to call me at any time. We're happy to schedule on-site visits. We are fully open for business here at our offices in Red Bank. And hopefully, taking these few minutes has given everybody an opportunity to test their equipment, and everybody who's participating virtually has had a chance to see where everything is. So now without any further ado, it's my pleasure to introduce Christopher Maher, OceanFirst Financial Corp. Chairman and Chief Executive Officer, who will start our program for the day.

All right. Thank you, Jill. I'm sure we get the slides right here. Well, good afternoon. It's been about 3 years since we welcomed many of you to the same spot to talk about our discussion of our strategy going forward. And I think the first thing I want to do is maybe link together what we talked about 3 years ago, where we are today, and then we'll talk a lot about the path forward. And certainly, given what's going on with COVID and the pandemic, I think most businesses are taking a fresh look at the post-COVID period and saying, what should the company look like and how should it perform? So we talked a lot the last time we were here, and it was 2018, about the customer care center and the capital investments we were making into that capability. Really proud to see that blossom, and we use the technology, you'll hear more about later, called Five9 to really enrich the customer experience. And one of the things we're going to talk a lot about is our use of video, which is much more than just a technology, it is a way we're interacting with our clients. So we have completed 220,000 video sessions with our clients that have resulted in a transaction. It's a very significant body of experience and work that we've done. And you'll see how we plan to leverage video going forward, especially, as I'm sure you guys have looked ahead in the deck, we're going to be consolidating a significant amount of branches. And we can't consolidate branches without having alternative channels for folks. We also talked about Nest Egg when we were together last, and Nest Egg was just about to be launched. Obviously, the pandemic interrupted us a little bit, but it's launched strongly. This is our investment we make a -- we have a minority ownership in Nest Egg, a fintech, that allows folks through video to understand how to invest in an ETF risk-adjusted basket of products. It's growing quickly. We have $130 million of assets under administration right now, growing at a rate of like 30% in the last quarter. So we're really pleased to see that moving forward. You'll hear more about that. We also talked about mobile account opening and online account opening. We are now, since then, on our third generation app for mobile account opening and process. So 1 in 7 of the new accounts that we open today are opened on the mobile app. Again, a really important characteristic as you consider the role of branches going forward. Mobile banking has really blossomed. I know a lot of folks have seen that. But we have -- in the case of mobile deposits, we have quadrupled in the last 2 years the dollar value of mobile deposits coming through. It's about 134% increase in units. Our electronic wallet transactions, so Apple Pay, Android Pay, they have quadrupled in units in the past 24 months. They're up 5x in spend, and the spend is up 215% just since the beginning of the pandemic. So our work to make sure not only do we have mobile payments, but our customers know how to get their eWallets activated, get their OceanFirst card in there was a tremendously important capability, and you'll hear more about that later. But those -- that suite of digital capabilities we talked to you about 3 years ago has really come to fruition. And it allows us to take this next strategic step of consolidating additional branches. You're also going to hear about treasury management. And in fact, 3 years ago, when we welcomed some of you here, Jeana was fresh to the company and building out that capability. We have an important update about that. Substantial growth in balances that's more than doubled to $5 billion worth of deposits. That's also important in the context of where we're going in branches. We are less dependent upon branches for funding than we were just a few years ago. So Jeana will walk you through how that works and why we're able to compete and win on that. From an infrastructure standpoint, when we last spoke, we were looking towards the $10 billion threshold. Obviously, there's a lot of anxiety as you consider passing that. But we're glad to be on the other side of it. We're still working through some of the economics. We're glad that Durbin got delayed for the year for us. But you see, whether it's the adoption of CECL or the risk management competencies we demonstrated during the pandemic, we've been very active. And of course, we did all of that in the context of also acquiring 3 banks during the time period. So Capital to River and Country. One question I get a lot is, did it work? And I get the question. It's a fair question, right? You're buying all these banks. Did it really work? Did you really get to where you expected to get to? And I would submit to you, it did, and let me walk you through why we think so. So I want to talk about 2019. If -- the pre-pandemic year, EPS of $2.07; margins, 3.62%; 56% efficiency ratio; 1.30% ROA; and ROTCE over 14%. So we were pretty happy about that. I think that, that kind of prove the model works. You can buy banks. You can integrate them. You can take the cost out, while you're continuing to invest in digital, in the future of your company. And then look, COVID hit. That happened, right? It's not an excuse. It just happened. It's an acknowledgment. But I want to talk for a minute about the first quarter of 2020. So COVID is just getting on the radar, right? I want to -- I know we've had a rough 1.5 years, but think back to that. That first quarter, we did $426 million of loan originations. We grew the loan portfolio $158 million that quarter. And we ended the quarter with a record pipeline, it's about $525 million, a record as of then. So we're kind of firing on all cylinders, ready to go, and take the 2019 performance and go further. But obviously, COVID hit. So by the end of that quarter, we were already seeing the impacts of that. Banks have a crisis playbook. It's not actually all that complicated, right? When really bad things happen, there are a couple of simple things you do. The first thing you do is build liquidity because if you don't, that will kill you faster than anything. So we added $1 billion worth of liquidity. The next thing you do is you have to remove any doubt about the future of your company. And we did that by raising $180 million of capital. The third thing you do is you make sure you're demonstrating that your asset quality is at or better than the pack. And we did that. We took proactive steps in the third quarter of last year. We sold off any high-risk loans we could find. So we stand today, nonperforming assets at just 28 basis points. 98.3% of our loan book is paid current on pre-COVID terms. No CARES Act deferrals, no TDRs. We're not having to resort to those things to get people to pay. And in fact, delinquencies, 30 to 89, just $5 million as of June 30. Exceptional numbers. So that's your playbook for any crisis, financial crisis, a pandemic or whatever. That's great, but it does erode earnings. Every single one of those steps hits earnings: the extra liquidity, the extra capital and the getting rid of loans that, by the way, we're paying, and some of them we're paying at pretty decent yields, right? But we thought those were the right steps to make. The last part of the crisis playbook is you just rebuild earnings, and that's where we are today. So that rebuilding is -- and the path forward is very simple for us. We're going to do what we've done for the past 8 years. Grow the loan portfolio. In this case, we expect that -- we're targeting loan portfolio growth by the end of 2023 in the range of $2 billion. We're going to lean into digital, which is what we've been telling you for years. And you'll see the stats that show we have the infrastructure to allow us to do that. We're going to advance our branch-light strategy. You'll hear later our average branch sizes should eclipse $250 million when we're done with that project. And that will allow us, I'm just thinking about the branch sizes, it's more than double the average branch size of some of our peers. Those actions, you knit them together, it's not rocket science, they allow us to move towards our historical level of profitability. And I want to make an important point here. The yield curve is lousy for everybody in the business, right? It's not just us. We're not waiting for the yield curve to bail us out. Hope is not a strategy. We have no idea if it's going to -- if the yield curve will return or when it's going to return. So we need to take the actions we can take today to improve the operating performance of the company, to reduce operating expenses, improve operating leverage. And you know what? If the yield curve comes back, we'll be substantially more profitable than we were in 2019. It's just the dynamics. So when you're getting your operating expenses down, if that revenue side comes back, it's a very powerful thing. It's not a very sophisticated strategy. It's very straightforward. And each of these things are things that we've done before. Hire bankers, make more loans, cut expenses, and move on. Just a couple of words about our speakers for today. The risk of embarrassing some of them. I mean I know many of you have met Joe, but Joe has been an extraordinary partner from when I originally joined the bank. In the first week I was at the bank, we connected immediately on the strategy of advancing commercial and have been at it ever since. You'll hear from Susanne Svizeny. She was the leadership we needed in Philadelphia. And in fact, if truth be told, we didn't know when we were going to enter Philadelphia because we kept looking for someone and couldn't find it. And the minute we found Susanne, we said then we have to go to Philadelphia because we have Susanne. So you're going to get to see her. Jeana, I'm not sure we knew how much we needed Jeana. So Jeana comes in. We had a treasury product, right? We felt like we were okay at it. She has brought us forward an astounding amount in the last couple of years, especially with her background at JPM and at Wells. Looking across the team, we have Anthony Giordano. So Anthony joined us, was probably our best acquisition. So with our first acquisition of Colonial American many years ago, Anthony and I negotiated at a local coffee shop. And Anthony said, "Look, I got to do the right thing for my shareholders. So you need me, you don't need me. It's okay. Let's just do the right thing." And I said, "What? I think we need you. I think we're going to grow. Could you help us out maybe with loan servicing?" He said, "Well, I'll give it a shot." So you'll hear now -- well, over the years, he got loan servicing, deposit operations, with the wire room, the customer call center. So whenever anyone is afraid of something, we'd give it to Anthony. We have George Destafney, who some of you -- I'm sorry, let me -- Rebecca. So Rebecca joined us in a skunkworks project, right? So we told her, don't worry, it'd be great, come to the bank. -- you're going to work for a department that doesn't really exist. And you're not allowed to work in the main office of the bank. We're going to put you out in a branch. And you guys are going to be in the conference room to figure out what the future digital bank will be. But she took that leap of faith, and I appreciate that. George Destafney will be talking later. George also took a leap of faith. And Joe will tell you that story later, but not easy at the time to convince top-notch commercial bankers. I tell you, why don't you come work for a thrift, where the Chairman and then CEO is 65 and has the change of control packages we all have? So leave your job at the wonderful commercial bank and come work for us, right? So Joe will tell you that story. He is tied for our #1 hire after I joined the bank, but with Sean Kauffman. I told Sean and George I would never forget the faith they showed in coming to work with us. And Angela Ho, which is [ bank clean up ] today, will talk to you about the financials, right? So she's been helping us modernize the finance function. And while she's doing that, we quintupled the size of the company to make it interesting for her, right? So I went back and look, we've been doing a conversion at least once a year and sometimes once every 6 months. In fact, we have the Country Bank conversion in September. When we complete that, we will have done 3 conversions in the last 18 months. So that puts stress on a lot of people in the company, but especially finance. So finally, for those of you on site, Jill already mentioned, we've got some demos here, and excited to show you, get your hands on the video technology and -- both for our branches as well as for Nest Egg and a tour of our security operations center. So those are really tangible examples of our investments since we last met in 2018. So I thank you for taking the time. We have several regional presidents with us here today, especially from our new regions in Baltimore and Boston, but we have a number of them here. So whether it's on a break or if you're in the audience today and you have the opportunity to join us later on for a cocktail, we hope that you get the opportunity to talk to them about their markets and about how we can bring the OceanFirst brand into those markets. So with that, I'll turn it over to my partner, Joe Lebel. Joe?

Thank you very much, Chris. I appreciate that. I got an easy job today because I get to talk a little bit more about the commercial bank -- there we go. All right. And the expansion, we'll talk a little bit more. And then I'll get the folks you want to hear from today up and talking before we go from there. So let me talk a little bit about what I consider to be the birth of the conversion of the commercial bank. So we talked about the fact that Chris joined the company in March of 2013. He and I had offices right next to each other. We had an immediate connection and the opportunity to have conversations around, how do we change this mix? And what I mean by that is the vernacular, the strategy, the path forward. But most importantly, how do we take the commercial bank and make it a true commercial bank, right? We're a thrift mentality. If you've heard some of the story before, we were 2/3, 1/3 residential to consumer. So the first thing you need to do is hire talent. So how do we hire talent? So I said to Chris, and Chris mentioned, we had a thrift mentality, we had a history of commission loan officers in residential banking. I said, "Chris, we have to pay for talent." So Chris said, "All right, I'll get you the money. Do you know who the talent is?" I say, "Well, I know who the talent is." And he goes, "Well, I said I know who the best bankers in Ocean and Monmouth County are. And if you give me the money, we'll hire them." So we closed 2 branches in 2013. A month later, we hired the 2 bankers. One of those bankers is George Destafney who's here today. The other one Chris mentioned, Sean Kauffman. So right off the bat, we said, well, the way to be successful is to pay for talent. That sounds like it's -- well, that's fairly straightforward, right? But you also have to have a mindset and a strategy. So if you think about it, what we just started in 2013 was where we're going forward today. So I'd like to say that was the beginning -- or at least we talk about it, the beginning of the Maher-Lebel era, right? Of course, I tell my kids it's the beginning of the Lebel-Maher era, right? But he gets top billing so. So if you think about that, that's 8 years ago, very modest beginnings. And quite frankly, you'll meet other people here today that have been with us a period of time. Vinny D'Alessandro, one of our regional presidents in South Jersey, has been with us since 2008. So talk about early leaps of faith, right? That's one of them. So even with that, when we hired George, we didn't even have a mom-and-county presence of any significance. So we talk about where we're going today. We were an Ocean County bank. Our first foray into loan production offices were as Red Bank, New Jersey, right down the block from where we are today. And from Red Bank, New Jersey, we said, oh, we can do this. And we hired some more talent. Brad Fouss, who now works with Susanne in Philadelphia. And Brad started our loan production office in Mercer County. We grew double-digits every quarter for 10 quarters. We ran out of deposits. Hence, the acquisition strategy, which we've all talked about for a long period of time. What did we do during that period? We unlocked the formula for success. Is the formula really earth-shattering? It's not. But it requires effort and skill and determination. So what do you do, right? I hired talent, #1. You give that talent the autonomy to be successful. You let them be nimble, right? Keep the organizational structure flat. Leave authority in regions to give them that ability to be successful, and get out of the way. And when they need you, you give them access. So we give our employees, our customers, our people access to leadership. It's not a difficult thing to do. Although shockingly, I've spent plenty of time with you guys where I talk about how do we acquire talent. I look at the top 5, 6, 7 banks in the country. I talk to their bankers all the time. And I say to them, there'll be a day where you wake up and you say, "Boy, it's no fun being here." That's the day you pick up the phone, you call me, right? You talk to our people and you say, I've heard a lot about what you guys do. Let's have that conversation. That's where we get our talent from. That's how we build the brand, right? Hire talent, give them autonomy, right, be nimble and give them access to leadership. All right. So we've talked about that. So you think about -- we mentioned before, Susanne is going to come up and talk in a little bit. We opened Philadelphia. So we said, oh, we're good at Red Bank, we're good at Mercer County, so we're pretty good at this New Jersey thing. Where should we go next? What makes the most sense? Well, if we're going to go a little bit further, we need talent, and we need brand. Don't knock on our brand. I love my brand, right? But my brand wasn't known in Philadelphia, and my brand wasn't known in New York. My brand today is not known in Boston or Baltimore or D.C., right? I have to go find the people to bring the brand. So if you think about it, we went and hired the brand in Susanne and then Brad and Dan Harris for New York within 60 days of each other, right? People forget that we were in New York and grew $0.5 billion before we bought Country, right? So within 60 days, we went from being that New Jersey bank that has a couple of LPOs and some really talented folks to being that Philadelphia, New York, New Jersey bank, all based on the tenets we talked about before. So the value of that success cemented that path forward and gave us that ability and that confidence to say, we can go further, right? And as I think a few articles have quoted us, the Amtrak bank, right? From Boston to Baltimore. So all right. So you're going to hear more about the commercial bank growth model and what we do from Susanne today. But for me, let me talk a little bit about treasury and our strategic advancement in treasury services. So I talked to you about hiring talent, give them room to run, that autonomy to make decisions. So in 2013, we had 1 cash management person. So when I hired Jeana, we had 4. I quadrupled the group, right? I was all proud of myself. 5 years, I hired 4 people, right? So I have 4 people in commercial -- or in the corporate cash management business. We renamed it treasury services. We told Jeana, you have this flexibility and this autonomy to be successful. Do what you need to do. From the time we've hired her in 2013 to today -- or 2018 to today, we now have 21 people running that business. As Chris said earlier, $5 billion in deposits, more than double, 36,000 accounts, customer accounts. It's pretty impressive. I'm not going to talk for her. She will. But suffice it to say, I think that we're well on our way in our strategic objective to build this business. Again, acquire talent, build product depth, improve service quality, right? Okay. That's treasury for the most part, interesting stuff. Digital investments. So Chris talked a little bit about what we've done to date. And you've heard us talk about our origins in the first Investors Day, the skunkswork program. We had 7 people in the beginning. And then we did our investments in mobile; our investments in online account; our investments in certified digital banking training, which you've heard about from us before; our various investments in fintech, such as Nest Egg; the advent of ITMs. And as Anthony will talk about today, the omnichannel customer care center, which includes video pretty shortly, right? Today, we have over 80 people in the digital effort day in and day out, and we're continuing to make investments in that space. All right. Rebecca and Anthony will talk a lot about that as we go forward today. And then last, the impact on this customer base. So we've committed to the digital future. We stand ready to provide a level of service and product that exceeds expectations. And it's evident that the customers have accepted it. You could see it in Net Promoter Scores. You can see it in App Store ratings. And you can see it in just in day-to-day opportunity. I think you're going to see the demos today. You'll find them interesting. I think they'll be informative. But the impact of the customer behavior just [indiscernible], right? We are increasingly a digitally progressive world. Customers are focused on things outside of everyday branch interaction. And the corporate client has been doing this for years. So we already know the faces -- or the challenges that we face in the low rate environment. It's a competitive environment. That's okay. It's part of what we do for a living. And we have a ton of liquidity to deploy, right? So we've been a leader in this branch optimization. We've been good stewards of our customers. And we're going to continue to move forward there. As you hear more about that today, you'll hear about that from George, and he'll talk about what we're doing in the latest branch optimization. And then as Chris mentioned, Angela will follow up, and she's going to talk about the financial impact of the branch optimization and the near-term growth model. All right. So with that, I'm going to ask Susanne and Jeana to come up. And Susanne is going to talk first a little bit about herself. And then we'll go from Jeana, and I'm looking forward to it. Should be an exciting day. Thanks, everybody. Appreciate it.

Good afternoon. Since Joe stole pretty much my whole -- all my comments, I mean typical Joe, I'm going to talk a little bit more about the commercial bank and take you on this journey of -- and path that we've gone on and starting in 2013 -- to 2013 to where we are today. So let's start with where we are today. As Joe mentioned, commercial banking has become a really significant part of our business over the past couple of years. The success is a transformative story. We moved from a consumer focus on consumer and mortgage, which is about 65% of the portfolio, to where we are today with our commercial portfolio at $5.3 billion and 68% of the portfolio. So it grew from $533 million to $5.3 billion today. Also, if you look at the chart that's on the bottom, the commercial loans by region, about 48% of the portfolio is now in some of our expansion regions: Philadelphia, New York and Baltimore. The growth of the commercial business was driven, as Joe mentioned as well, it was driven all by talent and talent acquisition. We've tripled the RM staff since 2017. In addition to the RM staff and the treasury consultants that we hired, and Jeana has built that business, we also built a very strong infrastructure in loan servicing, loan operations and credit because one of the keys to our operation is being nimble and local, and we needed the resources and infrastructure to support our growth. So we've built this business and growth in loans, but we've also maintained our credit quality. We continue to outperform our peer group by 70 basis points on net charge-offs over the last 10 years, which is pretty remarkable. So let me show you the geography a little bit more. So our strategy is not a new one. It was built over 8 years. First, with, as we talked about, the county expansion from Ocean to Monmouth and the hiring of George Destafney, who is our current regional president in Central and Northern New Jersey. And then Brad Fouss that we talked about, that now is our commercial regional manager on my team in Greater Philadelphia. He joined and started in 2015 in Mercer County. So how do we build this business? We have focused on hiring the best talent that are well-connected leaders in their marketplace, understand the business community and the prospects, have relationships with those prospects, and also have credibility and influence in their sphere of influence in geographies. As Joe had mentioned before as well, leadership does carry the brand. So having done this successfully in expanding our New Jersey coverage, it was logical to go to Philadelphia and New York City, the contiguous markets, in 2019 and then also to Northern New Jersey in Hasbrouck Heights, George's team, in 2020. The goal was to continue to diversify our geographic market and fortify our commercial business model. So in terms of Philadelphia, which obviously I know the best, we opened a loan production office in Center City in 2019. I joined mid-2019 after a long career with Wells Fargo and its predecessors, spending my time as the Philadelphia Regional President for both Wachovia and Wells. Since 2018, on our team in Philadelphia, we've quadrupled it, and we've grown to $1 billion in outstandings, loan outstandings. This success was truly a team effort. We hired great talent from all the money center regional banks: JPMorgan, Bank of America, TD, Cap One and WSFS. So a real diverse group of team members. Let me be clear, our competitive target are the clients, are the largest banks in this country, that miss having that high-quality, deeply professional banker to help them. If you're going to compete with the banks, the money center banks, you need to hire from them. So following our success with commercial and treasury, we've also made the commitment to open a branch in Center City, Philadelphia. We have so many customers that live and work in Philadelphia in South Jersey. And some bank with us in South Jersey and really want to have a branch in the city. We think it really demonstrates our long-term commitment to the Philadelphia market. So what is our formula for success? We first assess the market. We look at the density, the resiliency, the vibrancy of a market that we're going into. Are there strong demographics relative to various sectors of the business community that really focus and fit with our credit appetite? As well as is there a strong investment and stability in the commercial real estate market? So for example, in Philadelphia, it's been pretty robust over the past couple of years. There's a 10-year tax abatement and -- for new construction, and it's really propelled a lot of financing opportunities in the city. And also, surprisingly, even in 2020, demand for multifamily housing outpaced the supply. And Philadelphia was ranked 1 of the top 5 cities in the United States in terms of multifamily growth. That fueled a lot of opportunities for us from a real estate financing perspective. Not just that asset class, by the way. We did all asset classes, but that was a real driver in 2020. We also needed to assess where OceanFirst would fit in a new market. Like who were the competitors, and what's the opportunity? So in the Philadelphia market, 70% of the market share is held by the money center banks, the top 5 money center banks when we opened our office. And at that time, in 2019, as you recall, there were many reputational issues and reorganizations going on at Wells. That's probably one of the reasons I left, and many of the other money center banks were looking at efficiency and centralization of some of their servicing. All these banks, these money center banks, I think, have really lost sight of the lower end of the middle market, which presented us with a tremendous opportunity to build our business at this time. So we're very clear and focused on who our competitive targets are. It's the money center banks that have abandoned many of their commercial customers with internal distractions, reorganizations and centralization. Second item in terms of our plan was to hire proven leader. We've talked a lot about that, proven and respected leader. Most markets, and I know Philadelphia the best, they don't really like having an imported leader from headquarters to run the market. I've seen it in the past, and it's failed. You need to have people from within the market that really know the centers of influence and are committed and understand how to gain business within those markets. In both New York City and Philadelphia, we hired top talent from the money center and regional banks. And these individuals were excited to come and build a business and grow and get back to what really counts, which is servicing customers. The bankers are credit trained, and they're proven in their markets for new business success. And they just want to get back to doing what's out of the administration and some of the siloed behaviors on how the money center operate really get back to servicing their customers. So for example, we hired a top TD banker. He's now our Philadelphia team leader. He joined in late 2018. He had a long-standing client that he got tapped out with in terms of credit exposure at his bank. He brought the relationship over, his first loan with us in 2018 for $6 million. And then the relationship has grown over the past 3 years, with about 13 loans that total now $51 million. In addition to the lending opportunities, he brought over a trust relationship. And this particular client use us now as their primary bank. I was also fortunate, when I came over, there was a financing opportunity with one of my old customers at Wells Fargo. And it was a $55 million student housing project in -- at Rowan University. The customer was working with a competitor. Wasn't Wells. And things were not really going that well. We had an opportunity to really present our proposal, which we did, and we're able to close that loan in 2 months. Shows our local, nimble and quick decisioning. Since that time, with that relationship, we've grown to $75 million. And of course, the customer comes to us on every new opportunity to see if we could handle that transaction -- their transactions. We also built a marketing plan. That included some advertising in the right publications, like the business journals, just to get our name out. We talk to the media to tell our story and how we're different in terms of being local and nimble and responsive. In Philadelphia, we had many opportunities that Chris Maher had -- many interviews, Joe Lebel, myself. And we really focused on really telling our story, which is a great venue to do that. We also did a lot of grassroots work in terms of talking to our accountants and attorneys and telling we're here and want to do business. We're open for business and can execute. Because that's what every -- all the referral sources want, is that you can execute. We also execute as one team. Our treasury consultants and credit partners sit with us. We're located in the same geographies. So we act and operate as one team. And we work collaboratively to come up with best practice ideas on how we can best prepare a proposal and service our customers. As we know, actions speak louder than words. And the best press that we can have when we go into a new market is a happy customer that's already dealt with us. We recently held a phenomenal customer event in Philadelphia with our executive leadership and the Board of Directors. We invited our customers to this. And that kind of access doesn't happen at a money center bank, access to executive leadership. Our customers were talking about how they've been pleased. A lot of the customers knew each other and were talking about how pleased they were in terms of operating with our Philadelphia team. So we've proven that this formula works within our core market as well as the expansion into New York and Philadelphia. And we're confident that we're going to take this model with the leadership we have in place in Boston and Baltimore as well as in D.C. And they will be equally successful. So let me just show you a graph on how talent drives performance. In Philadelphia, we built a loan portfolio, as I mentioned, of over $1 billion, doubling the portfolio from its base in Southwestern New Jersey. We tripled the relationship manager talent on the team during this period of time. And as you can see, loan production in the first half of this year in 2021 in Philadelphia was $269 million, which really matched almost 2020's performance. We also are going into the second half of this year with a really strong pipeline and that we're working on closing in the next few months. In terms of New York. New York has also had tremendous success with a portfolio of $1.4 billion, a team of 10 relationship bankers. New York is on pace to exceed 2020 loan production performance. And as you can see on the jump, there's a couple of asterisks there. The acquisition of Sun Bank and Country Bank added about $750 million to this portfolio, but they did grow this portfolio by over 50% organically. All right. Let's go to the expansion. So in Baltimore, left BBVA to join OceanFirst. This team of 5 is led by Tom Crawford. Tom, Market President, if you wanted to stand up and wave. Tom evaluated other banks when I've talked to him. He looked at other banks before making this leap to OceanFirst, but decided on it because of the collaborative culture and the entrepreneurial opportunity to build a new market. The Baltimore market share is controlled by 5 money center banks as well, same ones in all our markets. They have about 85% market share. And then they have a number of smaller community banks that really don't have the credit capacity or the product capability to really be that competitive alternative to a money center bank. OceanFirst fits perfectly in this market because we have both the credit capacity and the product capability, operating with a home team in Baltimore, a real opportunity and formula for success. We're also in the process of building out a team in D.C. We already have one experience, well-respected commercial real estate banker that I've been working with on a regular basis. We look forward to building that pipeline as well in the D.C. market and building out the talent in that market. Moving north to Boston. We're excited to have a new market president in Boston as well. Daniel Griggs joined us from TD Bank. Dan? Dan started only a few weeks ago and is in the process of building his team. The market in Boston is a bit more fragmented than the other cities we talked about, with about 53% market share. Oh, it's so important to hire a banker, a leader that understands the market and understands how he can position OceanFirst in the Boston region. So in 2021, we've hired 19 new bankers in commercial and credit, which is a 40% increase over 2020. Our new hires were both in the core markets and our expansion markets of Baltimore and D.C. and Boston. We believe this investment in talent will provide continued diversification, but also real exceptional growth in 2021 and beyond. So how do we attract talent, I guess, is the question. I think, obviously, we've talked a lot about. OceanFirst is such a compelling story. I can speak from my own experience in joining 2 years ago that I led a multistate commercial banking business at Wells. However, the role that I was in became one that was less customer and team focused, but regulatory and administratively focused. So I took the opportunity to leave during a reorganization. And Joe called, and Chris called, and I said it was perfect timing to come join this great team. So as we built the brand in Philadelphia, we now have bankers that are calling us. And we didn't have that 3.5 years ago, that want to join and really kind of build our region. So as we hire new bankers, there's a number of differentiators. First, OceanFirst is focused on growth and building rather than being internally focused and efficiency focused. We're investing in acquiring and looking at the long term in building our business. One of my bankers mentioned to me, and she came over from Wells Fargo. She was one of our real rock stars over there. She's now a rock star here. She said she was focused on becoming a Wells Fargo expert versus really building professionally in her career. And in the 6 years that she was there, she's had more deal flow here than the 6 years she was at Wells Fargo and has really been building her talent and skill set. We provide both autonomy and authority. We know each market is different and unique. And we have to hire the leadership that understands and is empowered to operate in those markets. So we've successfully recruited from money center banks, which, quite frankly, are just slower to execute, more layers and more bureaucracy. So executive leadership governs OceanFirst Bank, but the local leadership is empowered to run their markets. We've also built a culture where your voice is heard. Executive and regional leadership is engaged with the team. We listen and make changes that are appropriate. The business is moving so quickly. You need to be nimble in how you operate and execute. One of my bankers in Philly came on board and he said, "We're really missing opportunities for swap transactions in that $3 million to $5 million category. We had kind of a limit of $5 million and above." And Joe sat down, Joe Lebel. We talked -- he came and talked to you, and wanted, kind of pleaded his case, that we could do a lot more business than that if we had that capability. Joe reviewed it, assessed it and made the decision. That doesn't happen quickly in other organizations. Of course, you have to have suitability for the borrower on those transactions, but we expanded it. We also provide the freedom to pursue any industry or vertical. And we don't have geographic limits, which is very attractive to a banker. You work in a money center bank. You have this geography. You have this segment. And then you also carve out specialized businesses that are managed and handled by bankers that don't even live or work in the marketplace. Not only does it create a better business opportunity for the RM that joined us -- is joining us. But they're also advancing and building their skills in terms of understanding different industries, different geographies and different segments. We have a real holistic approach to how we manage relationships in commercial banking. We don't silo the relationships. You don't have a C&I team that's separate from a commercial real estate team. You handle the whole relationship. And there's a really great example in Central, in George's world, where one of his top bankers was -- asked one of his customers for a referral. There was a warehouse fire in -- at this particular location, and his customer was doing the remediation work on the site. He said, there's got to be a financing opportunity here, and there was. He got in. He financed a 50 -- did a $50 million financing for two 300,000-square foot warehouses. And they were very impressed with this banker and how he performed. And at that time, the company had a really long-standing relationship with Bank of America. However, the RM decided, look, I'm going to continue to call it because there's an opportunity with the operating business. So when the company decided to move their headquarters from Brooklyn to New Jersey, they decided on their OceanFirst banker. And just last month, he closed on a $17.5 million credit facility, which included treasury and also trade finance business, displacing Bank of America becoming their primary bank. So this is how we differentiate ourselves. We're not siloed in how we execute and operate. A few other key factors in acquiring talent is access to our executive leadership. They know you as an individual here, which is wonderful. And they're willing to call with you. All executive leadership and regional leadership are willing to call with you to go out to meet with customers. A few weeks ago, Chris Maher and -- joined me and one of my RMs for some calls in the Greater Philadelphia market, 2 of which were prospect calls that we're still competing for the business. One was our first call on the customer, and they're talking to a lot of different banks. So I don't think that's going to happen at some of our competing organizations, to have your Chairman and CEO go out on a prospect call. Really, really differentiating the fact that we have -- they will have access to executive leadership. Our credit and treasury teams are aligned by region. So they sit with us. We're organized that way. We think that way. We have a collaborative culture in how we operate. And we think the culture of teamwork and collaboration is really -- makes a difference. If you're collaborating internally, you're going to execute better externally with the client. So we had a -- recently, we had a -- well, the Baltimore team that just joined us, talking about teamwork and working together. We had them up in Philadelphia to really kind of get to know the team and talk about some of the ways our RMs came on board so that they had kind of partners. And we hosted a 2-day onboarding meeting. Chris Maher was there. Joe Lebel was there. We had all the line of business leaders. And that's how we work. We want everyone to succeed in every market, and we work very collaboratively together. And I think yesterday, they were together again. They've really built a strong partnership with each other. So how do we compensate and how do we compete for that talent from a financial perspective? We set goals for loans, deposits, treasuries, referral fees for wealth and asset management. And it -- the targets are based on, obviously, the experience of the banker and kind of the opportunity that they present in coming to the organization. Our story is all about talent and the growth and getting top talent. So we have to be competitive with the money center banks in terms of our compensation structure. So in addition to having a competitive base, our relationship managers are incented based on a target percentage of their base salary. And that incentive is paid based on a 60% individual component and a 40% bank performance component. So this means that an RM can get 60% of their incentive regardless on -- of how the bank performs based on their performance. Additionally, we have a derivative swap program incentive. So on swaps, an RM can receive, outside of their incentive, 5% of the bank's net revenue on that particular transaction. This is limited $20,000 per transaction. And the RM can earn up to $100,000 annually, which is obviously a great incentive. Our bankers also here are vested in the success of the company with the -- with an ESOP program that they can participate in after one year of service. And then our top RMs that really kind of knock the cover off the ball have the ability to receive equity grants that are vested over 4 years. People are the key to our success, and you need to invest in them. So we've proven that our organic growth strategy works, and we continue to invest in all the markets. Even when we find great talent in our current core markets, we're looking to build the business. So our expansion into the Northeast, here's our total map, it's getting colored in a little bit more, is really exciting in terms of what we're doing. 80 million people live in this -- between D.C. and Boston. It's 20% of the nation's population. It comprises a very diverse business segments to operate in. And it's a real great opportunity for our company to continue to build our commercial business. So to give you a view, this first half of this year, in terms of new loan business that we've closed, we've closed over $800 million already through the first half of the year. And we have a current pipeline of about $460 million that we plan to close in the next few months. This, coupled with our new team members in Baltimore, Boston and D.C., will also provide some great momentum as they're building out their businesses and growing their markets. So I want to thank you for your time. And now I want to turn it over to Jeana to discuss the great success of treasury management.

Good afternoon. Welcome. It's a pleasure to see everyone here today, so many familiar faces, too. Last we met, it was Investor Day 2018. I had just joined the bank and it's kind of, "Throw her out there, let's see what she does." But anyhow, we -- at that time, we discussed our plans to grow the business and develop new funding sources and increase fee income. At the time, our business and government deposits were about $2.3 billion. And we were a line of business that was comprised of two departments, sales and service, with about a dozen team members comprised of treasury sales officers, business service reps and government bankers. As you know, OceanFirst has long recognized the value treasury management brings to an institution. Today, our business and government deposits are teetering over $5 billion. And we're a line of business with three departments: sales, service and product development. And we have doubled in size to support our commercial growth and focus on C&I with plans to expand the team by 25% in the next 6 months. We continue to operate in a rapidly changing environment. The pandemic and the Small Business Administration Paycheck Protection Program accelerated the momentum toward the acceptance of digital solutions for our 67 customers. Their adoption and incorporation of new online banking technology is no longer a choice but a critical, strategic business need. These are great benefits to treasury management and to OceanFirst overall. Now business customers have experienced efficiencies our banking technology creates, and no one is reverting back to the manual, antiquated, high-cost ways of conducting financial transactions. Business customers have become far less dependent upon our branch network to conduct business. Early in the pandemic, when our business customers were availing themselves of the first round of PPP loans, and we had customers that wanted to open new accounts, specifically for the distribution and management of PPP loan proceeds, I recall a conversation with a long-time business customer, calling in tears, fearing that she had to leave the safety of her home to travel to a branch to open a new account. Fortunately, I was able to explain to the customer that she can stay in the safety of her home. We had recently deployed digital account opening capability for business customers. And the relief for this customer was immediately evident. This is just one of many ways that we partner, respond to business needs and build trust with our customers, which leads me to the pandemic. It brought new meaning to the efficiency and cash optimization tools we have been marketing to our business customers, delivering our products and services to them at their place of business. And now it was beyond convenience, it was a matter of public health and safety. It is critical for survival that companies remain relevant and competitive during these rapidly changing times. We need to enable our clients to make faster, better financial decisions and mitigate risk. Speaking of faster, better, more efficient, according to a recent white paper by Volante and data from the Federal Reserve, checks comprised 42% of all B2B payments as of 2019, a distinct reduction from 50% or more, which have been the status quo for a decade. Commercial check volumes fell 8% in Q1 2020 compared to the previous quarter and almost 11% in Q2 2020, the largest quarterly decrease in over 10 years. For the full year 2020, commercial check volume was down about 14%. In addition to increased adoption of account-to-account payments, lower commercial check volume can be linked to economic downturns, such as the coronavirus pandemic and even the Great Recession. Notably, the pandemic it is almost certain to accelerate this decline, given high unemployment rates and the need to eliminate the physical contact that a check requires. Once the business makes the move to transacting electronically with its trading partners, it is unlikely to revert back to the paper -- to paper. We have seen the same transition or transformation across our business customer base. In 2018, our check volume was over 37,000 per year. Today, our items are trending towards 33,000, about a 12% decline. Our ACH volume has increased about 68%, it was about 3.5 million in 2018. And we're trending towards 5.5 million in 2021. And wire volume has followed in kind, about 57% increase from 67,000 in 2018 to about 115,000 in 2021. So it has become a case of when, and not if, a company will embrace technology. We are using positioned to partner with our clients to promote digital solutions and demonstrate treasury management efficiencies because of several factors. One, we're a growing institution and as such we, too, are adopting new technologies. Two, we're a team of well-trained, experienced professionals that live, work and volunteer in our local communities. And three, this enables us to build significant levels of trust between our business customers and their relationship team. Susanne has shared with you the level of talent we are recruiting from the money center banks. These experienced professionals joined OceanFirst with vast knowledge and the ability to offer true relationship pricing in a consultative approach. We all recognize that the money center banks, our C&I customers have been -- the money center banks have been charging our C&I customers quite extensively for services that they're not even using. Our consultative approach allows us to tailor a solution based on the customers' cash management needs, allowing us to offer a competitive relationship price. We have invested a great deal in technology in order to expand our treasury management capabilities in order to compete with the larger banks. There is an expense related to those investments and our customers pay a competitive price for a value-added service. Back in 2018, 40% of our business customers had 1 treasury management product. Today, 100% of our government customers and 80% of our business customers have at least 1 treasury management product. Many of our business and government customers will tell you they bank with us because they serve -- they trust us to serve their financial needs with the highest level of integrity. Recently, one of our government bankers received a glowing recommendation, indicating the high level of attentiveness and availability of their banker. Prior to my arrival, the bank's funding strategy derived primarily from acquisitions. Our customers remain loyal to OceanFirst and our retention rates from our acquired institutions are exceptional. Today, we have alternative institutional funding sources that we continue to develop and grow at the appropriate pace. In addition, our branch staff and relationship management colleagues are all carrying the treasury management plaque. We had a recent customer win that was referred by our branch team, the customer, a long-time C&I client in the health care segment, who have been well serviced by the retail staff for years. Then COVID came. The customer's business volume had tripled as did their receivables volume. The vendor and the client -- the vendor that the client had been retained to help them with their receivables had been gouging them, charging them over $50,000 a month. We partnered with the retail staff to present a lockbox solution, the customer accepted our proposal and we fully implemented this past July. The next steps will tackle getting the customer to adapt to digital capabilities and transitioning those check payments to electronic. So we certainly have the products, the professional team and now the credibility to be increasingly competitive. Our capability is now mature enough that it can fuel material deposit growth without reliance on physical branch distribution. We are staffed to support our expanding commercial franchise. Now with that, I will invite Susanne back up to the dais here, and we'll open it up to questions from the audience.

Susanne, what's the toughest competition in Philadelphia right now?

That's a tough one. It's very competitive right now. I mean, we're seeing -- obviously all the banks have a ton of liquidity. So we're seeing a lot of competition in rate, also in structure. And we're holding firm on structure and building on our relationships to really win the business. They're all tough, but we've been winning.

Is there a concern about the loans and payoffs that, at some point, this sort of quick hockey stick sort of levels off? Or are you still in a growth mode that, that's not an issue at the moment?

Yes. A lot of our loan growth is really, I would say, in Philadelphia, it's about 90% commercial real estate, so it's term planning, so there is an amortization to that. We understand that. So we know we need to outproduce our amortization in order to continue to show that growth over the next couple of years.

You mentioned kind of the discrepancy between Boston and Baltimore. I mean, Boston is a little bit more -- a lot of smaller banks and then Baltimore is a little bit concentrated up at the top. Does that change your approach at all in terms of, are you still targeting the same type of higher-level talent? Or are you willing to move downstream in a market like Boston, where there's a bit of a track record of smaller banks having market share?

Yes. Actually, I had a chat with our market president in Boston last night about that very topic. And he's going after the money center bank talent and top talent. And I know he's speaking to -- had two offers out as of yesterday, so hopefully we win those. In terms of the market, I think what was also interesting that I heard from Dan Griggs was there's the money center banks, the 53% of market share, then the smaller banks that really don't have the capability. And there's maybe 3 to 4 in that same market spot that we are. But having -- being nimble, being local, being responsive without a lot of layers, we feel we can out-execute them. So he was very confident in how we could position OceanFirst. He's right behind you. So if you grab him later, you might want to get that directly.

You mentioned that the 10-year tax abatement program in Philly has been a big kind of driver of growth. If that were ever ended or phased out, if you have any kind of plans for, I guess -- one, I guess, first off, how does that impact the growth in the market? And how would you then approach that market?

Yes. We're focusing on being very diverse in terms of the assets we go after, and not only just in Philadelphia, but in Pennsylvania. So we're not just in the city of Philadelphia. We're looking to do transactions in the Lehigh Valley. There's a lot of warehouses that's being built, if you look at real estate. Also building our C&I portfolio, it takes longer to build C&I. So we're investing in that now with the names and prospects that we're going after and working in partnership with our treasury consultants. So we believe that we'll be fine when that ends. It keeps getting pushed off because I think it's gotten pushed off a couple of times, so -- and then I think it's going to get phased out over like -- phased out to like 50%.

Jeana, pretend Chris isn't listening. What don't you have in your stack of products that you would like to have on your wish list?

It's not a long list to be candid with you. And honestly, I think, coming from a money center bank, we spend a lot of time focusing on a lot of glitz, right, and a lot of things, those analysis statements that had a lot of fees on it that our customers didn't know what they were anymore. We don't do that here, right? It's what do you need? What's the most efficient way to conduct your business? What would you need to be more real time or maybe have more integrated capabilities? We'll have that. We have a road map ahead to integrate that. But I think today, it comes down to, can I operate my business efficiently from the seat in my office and know that my bank is going to process my transaction? And that's what we do. So I don't think it's a long list, but I'll still beat Chris up later, when it comes to...

If you go to Page 20, just thinking about the Boston expansion, the map here certainly extends into Northern New England. We're talking areas like Portsmouth, New Hampshire, Portland, Maine. Can you just talk a little bit about entering those markets? Is that something the new team in Boston is capable of? If you need more staff, how long do you have until you're fully staffed up? More detail there.

Do you want to answer specific? Or does he want to come up...

Here he is. So it's Boston, go, Dan.

So we're going to be Boston-centric to start. But it's 120 miles to Portland, Southern New Hampshire, the East Coast, New Hampshire and it's 60 miles to Worcester, 90 to Springfield, about 120 to Hartford and about 60 miles to Providence, Rhode Island. That covers a lot of geography. So we're going to be Boston-centric. And if our sponsors need to go outside of Greater Boston, if you will, we're going to do that for them within that 2-hour drive, within what we call our market. And just to answer the other question, too, is lenders don't necessarily have to come from a big bank, but I'd like to see big bank experience.

Any other questions?

Maybe this is something Chris and Joe plan to address later. But obviously, if you go back 2 years, you had that timeline up. There's Philadelphia, there's a big push into Baltimore and Boston. But you also have probably over $100 billion of assets that are being impacted in your New York, New Jersey market through acquisitions, Sterling-Webster, M&T investors. Does that change? Do you feel like you have a team in place to kind of target the customer market share from that? Or are there actually lending additions from that as well that could become more of a priority, I guess, than maybe 12 months ago?

Yes. We actually -- first of all, we have great data, so we can go after -- we can get lists of banks, if they're going through an acquisition and there's internal distractions and focus, we can go after those names. And we're doing that. We will call those customers because there's disruption. They might lose their RM, there might be a different approach to how they do business. So we definitely target that very deliberately. In terms of people, yes, because there's going to be disruption. I mean, I have the WSFS-Beneficial going -- WSFS-Bryn Mawr deal going on. We've talked to some of the bankers over at Bryn Mawr. Pretty frankly, we didn't know if they were the right fit, the group that we had spoken to. So we are always talking to talent. I mean, it's just like prospecting. You need to have kind of a -- just a queue of people that you're going to talk to. And then as Joe mentioned, when the time is right, you hire them. So we've identified our top talent at all those banks.

Do we have any questions from the webcast?

Yes. No, thank you. We'll be here all day with you. And now we'd like to introduce Rebecca and Anthony. And they're going to take you through the transformation of the retail digital bank. Thank you.

So hello. So I know I have one person for sure. But show of hands, how many people actually were here for the last Investor Day in 2018? Right, quite a few. So was there anything particularly memorable from the last one that stood out in your mind?

I remember talking about the broad-based digital openings and why that was [ a big hurdle ].

All right. That's a good one. All right. Anything else that was on your mind and you're still thinking about it? No? Okay, well...

Egg, yes, that was interesting, [ a couple of partnerships up there ].

Nest Egg. Yes. All right. So lucky for all of us that weren't -- some of us that were not here for the last one, this update is even better. So with that, our mission hasn't changed very much since 2018 when we first released it, but our digital strategy continues to be focused on transforming our people, our products and our infrastructure to narrow the gap between ourselves and what we consider best-in-class. So to support future innovation, we've invested a lot in digital science. This ensures not only can we monitor our performance more effectively, but also that we set ourselves up to deliver a very personalized and hopefully more intelligent experiences for our customers using digital services in the future. So in the last 3 years, we have made great progress while also, I'm going to point out, minimizing the disruptions of we had 4 acquisitions, 57 branch consolidations, the pandemic and then most recently in July, our core conversion. So it's exciting to be able to share with you what we've done today, what we have accomplished, what we're working towards. And Anthony will get into our road map for the future looks like. So let's dig into the details, starting with our people -- like I remember to click. So what we've done to create a digital-first culture shift at our organization, so recognizing the need to transform our customer-facing staff into digital brand ambassadors, we, as you've all heard, introduced that first certified digital banker program in 2017. And in that first year, we had 307 graduates. So in 2021, we released certified digital banker 2.0, which is much more designed to give that Genius Bar, Apple-like experience for a customer that comes into the branch or calls on the phone. So today, our employees can troubleshoot a wide range of topics from adding your debit card to Venmo or setting up your new smartwatch to take contactless payments. So in total, 657 branch and customer care team employees have completed this program. And we have 82 employees in the program right now, so new employees. So we continue to help people learn about our digital tools. So in 2018, this culture shift was reinforced with a sales-focused branch incentive plan. But in that plan, mobile use and our Net Promoter Score had a very central role. So speaking of talent, our digital bankers now have years of experience delivering really extraordinary customer care over video, you've heard a lot about video today. And the part of our success really stems from the interviewing process. So we use HireVue, it's our digital video interviewing tool. And I think we'd even first announced it at the last Investor Day. But it's currently being used bank-wide. So as of June 30, we had 1,682 videos submitted through HireVue. And we've ensured that our -- that our employees now are much more tech-savvy and interested in new technology. It's also reduced the time to fill positions by 20 days. So we have been tracking Glassdoor and Indeed ratings. And as of June 30, we have a rating of 3.7 on Indeed and a 4.4 out of 5 on Glassdoor, where 90% of those respondents said they would recommend OceanFirst to a friend. It's pretty, let's say, powerful metrics. This culture shift extends to how we think about our customers and retention. So when we started measuring retail deposit retention back in 2017, we were at 86.6%. So our goal back then was really just to get to the industry benchmark of 90%. And after a very challenging, we'll say, year last year with temporary branch closures, continuous, we were at 91.7% for our retention rate. That's a 5 point increase in client retention, and I'm going to point out also in a year that we closed 14 branches permanently. So a lot of potential for customers not to be as happy with us. So we expanded our reputation management program, so we now monitor Google reviews and app ratings. So even with the frustration of temporary closures, we've been able to maintain an overall bank Google app rating at 4.7. And as of June 30, 91% of the ratings we've gotten year-to-date are 5-star, which says a lot. These Google reviews are an independent confirmation that our improved recruiting and training and digital tools really have quantifiably helped us to deliver better service, and our customers are saying that and it's better than what we see with our competitors. Our branch teams are very proud of their reviews. I love when I get an e-mail from one of them and they say, "Hey, a customer came in and they said they picked us because of our branch reviews." Many banks rush to put new technology out just to check a box. But really just checking a box isn't good enough to create any true competitive advantage anymore. So we're able to filter our Net Promoter Score survey responses in a way that we can filter them by touch point. So we respond to online banking- and ATM-specific surveys as if they were service requests. So we're constantly listening. Our digital banking NPS was only 52% -- I'm sorry, a 52 back in 2017, when we first started really paying attention. And overall, it brought the entire bank score down. And it was a little embarrassing being the digital person. So it's been a lot of work, but this effort is paying off. And in July, our NPS score for digital banking was 69 after an all-time high in May at 77. So coming from 52, quite proud. This 33% improvement in our digital NPS is a quantifiable measurement of our success in delivering a quality digital experience. Speaking of tools, as you heard from Jeana and Susanne, our product suite has evolved a lot over the last few years. But mobile use, Nest Egg and online account openings are still our strategic priorities. So in mobile adoption -- do I need to switch? Hold that thought. No, we're still here. Mobile adoption has been consistently an important metric for us. When we started tracking in 2017, we only had 55,000 -- at the end of this past June, we had 55,000 active users with 25% of our deposit customers active on mobile within the last 90 days. And I think they did fix it for me. That's a 62% increase in 3 years, fourfold since 2017, when we started actively engaging. So we continue to evolve our online account opening. As Chris mentioned, we're now in our third generation. And each time, we upgrade to improve the mobile experience and to make it the client experience faster and easier to get more people through and to having completed the process. So year-to-date, 13% of deposit accounts that are opened are opened via mobile. As Chris mentioned earlier, 1 in 7 accounts are digital. One of my favorite stats is that we open online now more accounts each month than our most high-volume branches. And that's something that has changed dramatically since we first started this program 4 years ago. We moved to a dedicated team in 2020 really to focus on getting more people through the funnel. So our completion rate year-to-date is 64%. I would like it to be higher. But considering the benchmark that we use of 38%, which is the industry standard for the products that we are on, we're doing very well. So every account that's opened, another change we've made, improvement, is that every account that's opened is automatically enrolled in online banking. And as of June, 70% of those accounts that were opened online have become mobile active users. So those new customers are more mobile-ly active by default. So moving on to -- from deposits to consumer lending. We are now offering a 100% paperless process, which was something OceanFirst had not done before. So now it keeps us competitive with a Rocket Mortgage-like product for our [indiscernible] 800 million and continue to streamline all of our operations to try and create a more paperless environment. In 2018, at Investor Day, as Chris mentioned, we were about to launch Nest Egg. So that first equity investment in a non-FDIC investment product, it complements our trust and asset management business, allowing us to market to a different audience than our traditional trust and asset management business. So in Q1 this year, we saw record sales of $32.8 million. And every one of those sales was through a video interaction with a centralized investment adviser, a group of investment advisers across the U.S. In the first half of 2021, we had 1,018 qualified leads that resulted in 461 accounts. So at 45%, it's an incredible conversion ratio. So our investment in video continues to pay off. We need to expand our digital payment options to ensure that wherever our customers want to interact with us, they can and we can support it if they call in and they need assistance. Our new debit cards are now 100% contactless, very excited about that, and can be used in all e-wallets from Apple Pay to Fitbit Pay. We've seen 127% increase in dollars spent using e-wallets in just the past year. E-wallet transactions this June are running almost $10 million annualized. And that's a lot of lattes, I'm just going to say. So this time, I'll remember. So we talked about people, talked about products and now infrastructure. So upgrading our customer care centers infrastructure has been a years-long strategic objective. So it will position OceanFirst to successfully execute on our branch optimization strategy that George will talk about in detail later. We began in 2018 with building reporting, case management and creation of individual agent scorecards, so we could really help each individual become as good as they could be in all different areas. Our initial goal was to provide 1 call resolution. And today, we're at 83% of inquiries that are answered within -- your question answered within that first call. So at the time when we started all of this, we were only seeing a couple of hundred calls a day. But we understood that it was very important to be able to quickly scale. So we needed to improve on our capabilities, which our IT folks have helped us tremendously. And Anthony will tell you a lot more about what we're doing on that front. So today, we average 1,500 calls a day. But we have seen spikes up to 6,000, whether it was with the stimulus payment checks and is my money there to our core conversion only weeks ago in July. So our telephone banking system alone handles 80,000 customer calls each month. And shifting to video banking, our interactive teller machines, which you'll also hear them called ITMs, what we call it when we say an ATM with video teller to make it customer-friendly. It's an ATM that has software on it that lets you connect to a teller using video. So OceanFirst was early adopter in 2014. And today, our fleet is 35 machines and we have 4 more scheduled to go live this fall. So you can do almost anything you would do in a branch at an ITM for basics like depositing a stack of checks and bills to making an address change to making a loan payment. Brenda Gleeson, who'll you met later, when you take a tour and you can try out a video teller, continues to expand the customer care center's ability to be more of a virtual branch. So particularly after COVID, we all understand the power of video, particularly when you needed to close a branch, and we could tell people the branch might be closed temporarily. But the ATM, you can still talk to a teller and do all the transactions you need to do. This experience has really laid the foundation for a significant expansion of our customer care facilities and our video capabilities. And Anthony is going to share more with you now.

Thank you, Rebecca. Great job as always. Good afternoon, everyone. Rebecca and I welcome you to OceanFirst, and we're both very excited to discuss the advancements we've made in the transformation of our customer care center. We go the other way. We've not only transformed our customer care center, as you've heard and Chris kicked that off earlier, but consumer-oriented video technologies and other plans we have for the future, which have prepared us well to execute on important strategic initiatives and branch optimization, which you're going to hear a lot about today. So in 2019, we began to assess the various impacts across the bank if customer transaction patterns migrated quickly to digital channels. We evaluated the potential outcomes from a variety of perspectives, including customer retention, retail branch strategies, the balance sheet and financial impact and, of course, market and shareholder reactions. So five key strategic priorities were designed to achieve the inevitable, which was the migration of operating expenses to capital investments to digital channels. And those five included: transformation of our customer care center, increasing mobile banking adoption, increasing digital account acquisition, increasing debit card usage and enhancing digital treasury services, which Jeana aptly covered earlier. Little do we know then that just 6 months later, after these strategic priorities were determined in 2019, a pandemic would provide the tailwinds of change in consumer behavior and accelerate digital adoption, thus, increasing reliance on customer care centers and reducing reliance on physical retail branches. But this organization has been diligently preparing for this exact moment of providing our customers the channels they desire to conduct their banking business and the seamless optimization of brick-and-mortar branches. So today, you'll hear a lot about how we are prepared from technological and operational perspectives, but as importantly, from a culture perspective, investment in digital and contact center strategies funded by the continued optimization of retail branches has always been our expectation. In the traditional banking model, banks determined how and when customers transact in business. Physical branches were the centerpiece for customer experience with channels such as ATM, online banking and mobile banking. We've now evolved to a customer-centric design of delivery channels. The customer chooses how and when to transact banking in their channel preference. Their expectation is that we provide a seamless customer experience regardless of the channel. And this includes virtual banking, our customer care center, whether it's voice, telephone banking, e-mail, chat, video and of course, our digital channels. Traditional branches are still needed for cash, coin, those type of transactions. And George will talk a little more about that later. In terms of our future state, you'll see in the inner circles, CRM, where we do have use cases today, where we want to get to the point where we have an enterprise-wide 360 view of customers across all channels. It's better coordination of most of our outbound call center, which I'll talk about, our customer care center and customer-facing staff. And AI, as it pertains to artificial intelligence, recent research from the Digital Banking Report found that less than 1 in 4 financial institutions are capable of leveraging data for personalization and maximizing opportunities such as proactively suggesting the next product to offer a customer. We are big proponents of data utilization and believe collecting and analyzing rich, robust data sets will drive machine learning. And AI will be a differentiator versus our peer group. So today, we've talked a lot about the customer care center, we're going to get into more detail. Our ability to execute our customer care center at a high level will have a direct correlation on customer satisfaction and result in deposit attrition -- retention. Customer care centers are the new center of the universe for channels -- for customer channels. There's much more reliance on customer care centers across all industries as customers adopt digital and mobile channels and require or demand channels to conduct business the way they want to conduct it. An industry-leading customer care center capability is the foundation of digital service and relationship-building. It is the precursor to a successful retail network optimization. So what have we done to position our customer care center for future growth and success in an ever-changing environment of consumer behavior and branch optimization? First and foremost, the customer care center, we went live with our new Five9 telephony system just this past December 2020. And this has been a game changer. Five9, you may know, it's a leading innovator of cloud-based telephony technology and provides omnichannel solutions that are scalable with fully integrated capabilities, which we're rolling out in phases. An omnichannel approach allows our customers to enjoy their desired experience, whether they use a website, mobile app, the contact center, a branch visit, telephone banking or other channels. And to support this design environment, the customer care center will improve the customer experience by adding video, we'll get into that, and some chat, e-mail, co-browsing, chatbots and other communication options in additional to traditional voice calls. These new features are designed to provide more self-service options and a better overall customer experience. Since the December launch of Five9, our KPIs, our key performance indicators, have significantly improved in a Five9 environment. Fewer screens for the agents to navigate, scripts and procedures are accessible quickly for the agent to view. When a customer calls in, they can go -- they get to our IVR on the phone and they take what option they want to get to. And that call is directed to a subject matter expert. So one example is our loan subject matter experts. If a customer calls and presses number 3, that call is directed right to a loan call center agent. And what this does is it results in less escalation of calls, more one-time resolution, long call resolution and a better overall customer experience. So our key performance indicators are vastly better in the Five9 environment than they were previously and scalable. We'll get into a little more of that. So best evidence to date of the effectiveness and scalability of Five9 was our highest call day ever, which Rebecca talked a little bit about. And that was just recently, it was July 13. It was on the first business day following our core conversion. We had 6,000 calls which were efficiently handled with no technological issues and, more importantly, all satisfied customers. And by comparison, we typically handle 1,500 to 1,800 calls per day. And the success of the customer care center is because we invested in our people. Our agents are carefully recruited, deeply trained, they're experienced digital bankers and they create the OFB experience over all media and consumer channels, including video. And as part of branch optimization, we have developed staffing models to support the future growth, which includes dedicated trainers and business analysts to make sure we maximize Five9 technology and reporting capabilities. So we expect high call volume as a result of branch optimization, and we're modeling one new agent in the contact center for each branch that's closing. And that's all modeled in the financials that Angela will talk about later. So we currently have about 38 agents. So by January 1-ish, we should have about 58 in the contact center. And we believe our contact center is a big differentiator versus our peers and that the investments we've made thus far have positioned us well for the future. Very few peer banks can demonstrate the quality and scalability we've already achieved and continue to build upon. As part of our next phase of the contact center is our virtual branch concept. What that means is we're going to develop capabilities in the contact center to virtually perform most transactions which have traditionally been performed in a physical branch. Of course, there's exceptions, cash, coin, notary signature, safe deposit box. But virtually everything else, the customer will be able to transact through our customer care center. And many product sales are -- you talked about Nest Egg before, right? Many product sales are initiated via interactions with branch staff. So to augment the reduction in branches and continue to capture sales and revenue opportunities, we're designing an outbound call center to launch later this year. And this team will utilize the same Five9 technologies and capabilities as a contact center and agents will focus on Nest Egg sales and other banking products on a full-time basis. For the next three topics, I'm going to delve into more detail on three important customer video-facing -- customer-facing video technologies that we have implemented, all of which we'll have the opportunity to demo later. So as part of the omnichannel expansion, we recently launched live video chat in the customer care center. So we have the same proven technology, a company called Recursive, that Coca-Cola and TD Ameritrade uses. And it integrates right into Five9. Agents and customers communicate via mobile app. And this demo will be on again at 5:00, which I hope you stick around for. Five9, as you may have read, recently announced a merger with Zoom. It's too early to assess the full impact of the merger. However, in my view, it's a bullish sign for future video capabilities and other R&D initiatives, considering Zoom's large cash position. A recent national survey by online provider -- online banking provider, Access Softek, found 65% of respondents use video for work, I'm sure you all do, family or other purposes. 30% said they want to have video conversations with their bank, yet only 2.7% said their bank offers live video capability. So there is proven consumer demand for video banking as also evidenced by the growth in ITM usage Rebecca talked about earlier. The next phase of video will include co-browsing, which enables an agent to better assist customers resolve tech issues in online banking without having to take over their whole device. And from a financial perspective, the benefits of a fully integrated telephony platform is that the video channel is relatively inexpensive. It's only $8 per user per month. So we couldn't build that on our own at that pricing scale. Let me talk a little bit about ITMs. As Rebecca mentioned earlier, our video teller program, or otherwise known as interactive teller machines, expanded to 23 machines at the end of 2020. And we are on track to hit 40 by year-end '21. We're also using them differently to offer extended hours with centralized teller staff and replacing high-volume drive-through locations with video tellers. The video tellers are all located in our customer care center in Toms River. The Toms River drive-through, it's on your right, experienced 16,000 transactions in its first 6 months, which is more than our original location, Applewood Banking Center, has seen since its original installation in 2014. Applewood is a 200-person assisted living facility. While it offered minimal customer activity, they prove that age is not an excuse for low use of digital capabilities. With guidance, the residents learned to use the technology and built relationships with tellers that are centrally located again just as they would a physical branch without the need to leave their facility. As an added benefit to ITMs, we have extended hours. Our customer care center is open 7 to 7, Monday through Friday, 9 to 5 on Saturday, which are longer hours than a traditional physical branch, so better for our customers. We have learned what it takes to help transition customers from the initial period. We station enthusiastic staff outside in the drive-through lanes literally. And they coach customers on how to use ITMs. There's still a need for a physical branch for customers, if one needs to go inside, they have a large stack of checks, if they want to do a cash or coin transaction. And it's especially true right here, right? We're in the Jersey Shore in the summer, so we have a lot of businesses that still do use the physical branch. And while we know that the ITM is best suited and accepted by our customers in the drive-through, like with Toms River, we have our first high-volume location where we converted all 4 drive-through lanes to ITM. That's part of the super branch concept, which George will further describe as part of his presentation. In ITM, I'm going to talk about how they're centrally-located, the tellers, right? So ITM is providing the efficient use of teller resources. It allows us to leverage centralized staff, to provide teller services with expanded hours benefiting our customers. And ITM tellers typically average 8 to 10 customers per hour and are able to work remotely, which enables us to maintain services through disruptions like a pandemic or weather events. So now that we have the data to support resource modeling, we are enabling all capable machines in the fleet as well as in the super branch design to become ITMs. As we mentioned earlier, Nest Egg is a hybrid robo advisor and was the bank's first fintech partnership. Today, we have over $130 million in assets under management, 2,000 accounts, average account size of $45,000 and across -- right across 7 different risk-based portfolios. So what happens is, on video, customers answer a short series of questions and Nest Egg quantifies the risk tolerance level. This, combined with their investment objective, enables Nest Egg to create a comprehensive risk-based investment plan primarily for retail customers. So this really provides more proof of video technology as a customer channel. Since inception in 2019, we've had 4,000 leads that have led to 3,000 video chats, which have resulted in 2,000 accounts. So it's a very good capture rate. And of course, there'll be a demo at the end of the day, they'll meet Nancy Mazza. And if you meet Nancy and you get to know Nancy, there's a good possibility some of you will be opening an account later today. So this is our customer service center of excellence in Toms River. We continue to invest in new infrastructure at our new HQ1, we call it, operations center in Toms River, and this is on track for completion in early '22 on January 1. Digital is the -- most effective when you leverage electronic channels to deliver a very human experience. Of course, if you want to build the kind of relationships that OceanFirst has been building since 1902, you must have access to a terrific labor force. Ocean County, which is where Toms River is located, has proven to be a terrific place to find smart, committed staff that have embraced our strategy. I'm sure you've heard a lot about labor shortages lately. Our commitment to extraordinary staff and investment in recruiting, training, technology tools and an environment that will attract talent. As our customers migrate to digital, more and more relationship interactions are happening in our customer care center and back office. This is the engine room that runs and supports the bank. It's the nucleus for servicing and creating an experience for the customer, not only for the obvious or valued external customers, but for our internal customers on the front lines that operation serves as our -- such as our lending teams, treasury teams and retail branch network. We are investing in the expansion of a 6-story, 80,000-square foot state-of-the-art highly functional building, which is scheduled to open in January. It's being built right next to -- if you've been to our former headquarters before we moved in here, it's being built right next to the existing 72,000-square foot HQ1 and it's to handle the bank's growth and customer care center and digital branch expansion. This expanded operations center contains our customer care center, Rebecca's digital banking team, Jeana's treasury client services team, loan and deposit ops, consumer loan originations, our partners in IT and more. The operations center is ideally located in densely Toms River, Ocean County where the wage scale is, on average, 15% more favorable right here in Red Bank and Points North including New York City. As we look to the future, there is more. We are far from done. We continue to push the pedal down to go even further on our digital journey. We are building consumer and customer solutions, talented teams and the center of excellence you saw. A couple of things we're working on, I'll just note. One is in our retail online banking and mobile banking, we have an RFP process underway. And our primary goal of that RFP process to come out on the other end is increased capabilities and functionality and performance for our customers with a reduction in costs for us. As also noted earlier, 3 weeks ago we completed a successful core conversion. We converted from a system called Total Plus to a new system called Premier, new to us. This opens up a new universe of integrated technology, vendors and platforms to choose from. To put into context, there are approximately 1,200 banks on Premier, and we were the next to last bank on Total Plus. So there weren't a lot of vendors out there building integrations for Total Plus. Additionally, we want to improve on our marketing, technology and automation. We want to future-ready our marketing function. So we're seeking to recruit impactful marketing leaders who are proficient in data, analytics and automation of digital marketing. And as part of that discipline, we're looking to refresh our website to support more targeted SEO and marketing strategies and a more personalized digital experience for our customers. And for back office, which is, again, down in Toms River, we're always seeking to automate and streamline operational processes throughout the bank, but particularly in the back office. So we need to optimize the back office cost structure so we can operate and scale efficiently. As the next speaker is break, but before we get there, we have 3 summary takeaways I want to share with everybody. One is confidence in execution. As an organization, we have demonstrated successful execution of 58 branch consolidations over the last 5 years, development of a robust customer-centric digital strategy and conservative management of company capital. There is no blank check. We funded digital investments through operating expense savings generated primarily via branch consolidations. Secondly, competitive advantage. Very few peer banks have made these types of digital investments and are this far along in implementation. This is where experience matters. It makes our digital journey impossible for someone else to quickly recreate because it must be done in a fiscally responsible way. And finally, strategic value proposition. Our holistic digital estate makes OFB a desirable strategic partner for organizations who have not yet made significant digital investments nor have the talent and resources to execute. And just little housekeeping on demonstrations. So good news to share about the video technology as we discussed. Later today, for anyone participating here at our administrative offices, we'll have demos set up throughout the building, including Nest Egg, video teller, video chat and a human resources tool, HireVue. All you have to do after these sessions are done is move up to the atrium, look for Jill and she'll point you in the right direction. So we're ready to take on any questions both from our guests here and those participating virtually. Bring Rebecca back up.

Thanks so much, you guys. We actually have a question from a webcast participant and it ties directly into some of your last comments, Anthony. The question was why wouldn't the bank consider scaling the call center -- or the customer care center even greater and using that as an outsourcing -- for other banks to be able to outsource the services that they need because they don't have them to OceanFirst.

That's a great question. We've started the customer care center back in 2016, '17 and it's evolved, right? So we're at the point now where we can scale, right? We Five9 technology, we're implementing more and we can actually -- we actually have plans in our headquarters that you saw where we're going to efficiently use the space. So for example, we have room for 120 agents that we're going to seat in 60 cubicles. So we have a hybrid work-from-home/work-in-the-office plan for the -- we implemented for the customer care center. So we can definitely scale on our own. As far as partnering with other banks, I think we're probably a little -- probably a little ahead of us right now. So we still have a lot to do on our own to get our own foundation where we want it, and we're really close. But that's something we could take away for the future.

That was a very interesting presentation. A quick question, the core conversion to Premier, which I believe is a Fiserv offering, how reliant do you see yourself on Fiserv for your technology needs over the next handful of years? And can you maybe discuss how you're using more external vendors than you were previously from a technology side as well?

Yes. We can answer part of it and Karthik, our CIO is, here who may be able to answer part of it. So we rely on Fiserv as the core, right? We use third-party vendors for wires, for online banking, for treasury. So we don't -- we're not married to Fiserv for everything, right? So a lot of our customer-facing products are not Fiserv products. But basically, we use them for the core. Karthik, do you want to go into little more on the road map from Premier where we are today?

Sure. So we chose Premier because of its capability to go ahead and snap on to many different fintechs' technology pieces and capabilities such as Five9, such as basically a new online banking system that's there. But I would say we can go ahead and change -- one thing that we demonstrated is we can go ahead and change to any core that's going to be competitive. And if there is an opportunity that presents itself to, say, where our business is going to take a different path, we're able to go ahead and change that without going ahead and changing the surrounding technologies. It was time for us to go ahead and advance to the next level. And so we chose basically a good element core. Fiserv is maybe the leader today and its technology has proven. Maybe some companies at the top of their game are not always there at the end of the next decade, right? Microsoft was top in like the '90s and they're still a relevant player today, but they're not always there. I mean, you'll see now Google app and different vendors coming back to the top. So as it suits us right now, it allows us to go ahead and integrate a great many technologies, sort of as basically the Swiss army knife, of course. But if there's a better capability out there, we're not married to 1 vendor or 1 capability. We're married to our business strategy more than anything else.

Particularly Anthony mentioned the RFP for online banking and online account opening. We didn't really have choices before. Now we can go to any vendor and most likely they have done an implementation with Premier in the past. So it's open doors for us beyond Fiserv.

So my question was the cost per transaction, and do you have enough data now to talk about that night and day difference and how many transactions were coming through digital versus the old analog world?

Well, we have -- we don't have a cost per transaction quantified, but we track our -- all of our digital channels have seen significant increase prepandemic, right? So consumer behavior was changing before the pandemic. It accelerated during the pandemic and it's still growing, right? So -- and we could probably provide you some details on customer transaction volumes, how they've trended. But overall, we still see a continued increase.

Right.

Rebecca, do you have mobile metrics you can quote us? Adoption rate 2018 to today, how much of the total bank is using mobile? How many customers use it 3 times a month. Size of transaction? I was just curious.

So something that did change from 2018 when we were here to now, we did, let say, improve the way that we were tracking mobile adoption. So back in 2017, we were very focused on only deposit customers. And there was a lot of, oh, we don't want to talk about CDs. So it was a very small subset that we were looking at. We were also only looking at primary account holders. And we took a step back and said, as an institution, that wasn't a big enough picture for us. We wanted every customer. So the 25% that I quoted earlier that are 90-day active, that includes Jeana's customers who don't have a mobile app until she releases it, they'll have to get later this year a fully functional mobile app to use. So we wanted that to be a true number. And I expect that to rise a lot once she introduces the new app this year. So then...

Much about peer groups, right? At NCR, we track our peer groups.

Yes. So we are an NCR Digital Insight customer and every month we get peer group analysis. So part of my metrics that I send to Anthony every month include how we compare against that. And we are above our peers on almost every metric. I can't think of one that isn't.

And then, Anthony, how are you guys using AI now? You're an nCino bank? Have you looked at nIQ? Are you using other forms of AI or you're just scratching the service right now?

Yes. Mostly the latter. We're using mostly for fraud detection purposes. We've looked at implementing AI and it's very expensive if we were going to do a bank-wide enterprise project. So today, I don't think we would -- we all looked at it and the ROI just isn't there for us today. But it's coming, and the technology will get cheaper over time. We've seen that with almost every technology we've launched. You think how much online banking and digital banking used to cost per user just a couple of years ago, they're a couple of bucks. Now it's getting under $1 per user per month. So better technology at lower cost. I think the same thing will happen with AI as more users like us start to deploy it.

Also speak a little bit about AI as well, too. In some of the bullets you saw that Anthony talked about for automation, such as our small business lending, we are looking more and more as AI matures to be able to go ahead and do that and I would say a respectable way. So one thing about artificial intelligence, as I often explain to folks is, it's like a small 2-year-old child, right? It learns by imitating others and AI learns by imitating humans, right? It can imitate humans' good habits, bad habits, their biases as well, too. And we have to live in a world that is respective of things such as Community Reinvestment Act and fill the spaces. So we want to see those areas mature to a point where we can go ahead safely and I would say properly use them. But I would say in all the generational advancements you see in basically digital, we are looking to go ahead and have AI as an element to all of those to go ahead and automate and carry us forward in terms of how we want to go ahead and make that digital experience smoother from basically a personal finance manager in the wallet all the way up to small business lending. And back the nCino question, as things start getting better in terms of the capability and the maturity and the smoothness as well as, I would say, the regulational compliance of these aspects, you want to go ahead and then start going ahead and bringing them in. So we're looking at the nCino automation. Some of the things are not there yet such as maybe some of the title searches or some of the automation on the onboarding, but some of them are such as maybe the FICO scoring or the credit scoring or the initial onboarding and background checks that you're doing. We have to do that respectively and responsibly.

Right. And I think you asked a question earlier about fraud -- well, that question, but that was your memory from the last presentation was online account opening fraud. And every day, we get an incredible amount of data back on the accounts opened and started recently working with the InfoSec team to say, all right, how can we better mine that data and proactively use it on our own side and not rely on the different agencies that tell us this is a good person. This person is likely not a good person to open an account with. We will have our own metrics that we can tailor and fine-tune to be able to really identify who has potential risk. But that's -- I'll say it's in the works. Very exciting, though. Can't wait.

Just a quick one on core as well. I'm just kind of curious, your thoughts on -- in a few years' time, do you think community banks will still be on the big -- the Fiservs, the Jack Henrys of the world? It seems like there's a lot of opportunity for disruption but also banks, as a highly regulated industry, have to sort of be cautious on how they tiptoe into that.

Yes. That's a great question. I would say in what the advantage of providers like Fiserv offer to the smaller community banks is sort of that installation against, I would say, the complexity that they have to overcome in that regulation. And I had been looking at basically all the myriad aspects and facilities they have to hit to go ahead and process and service customers. There is going to be changes that are going to come about. I think the biggest one is going to be the Fed making their move to real-time payments, right? As some of these capabilities start to become more modern, the core may still be there in the corner, but it may just intermediate itself further and further away from what is going to be the customer experience and the digital channels that we see. But as it evolves, it -- everybody thought mainframes were going to go ahead and disappear in the year 2000, but they're still out there, and unfortunately, they're still running cores, right? But at a certain point, as it moves further to the edge, we'll definitely be looking at saying what's the right decision for us as we go forward. And as our business evolves, you're hearing a great story about our commercial banking today, as we go ahead and enter into our evolution of our business and our business strategy, we're going to be looking at those technology investments to take the right path for those.

Great. You guys did an awesome job because we are at exactly 3:00, I believe, so we are going to take a brief break right now. For anybody who's participating via the webcast, we are planning on resuming at 3:20 to start the rest of the presentations. For everybody who's here with us in Red Bank, we have some refreshments for you in the cafeteria. And if everybody could just be back and ready to go at 3:20, that would be great. [Break]

If I can ask everybody here in Red Bank to find their seats again, we are going to get started. It's amazing what putting cookies out does to get everybody out of their chairs. Hope you enjoyed the presentations that we've had so far. We are ready to get started with this afternoon. So it's my great pleasure to introduce our President and Chief Operating Officer, Joe Lebel.

Thank you, Jill, and back for round 2. I'm looking for more laughs on my jokes this time around. So I asked our Chief Risk Officer and our Chief Credit Officer how we're doing so far, they both thought it was great, which after I asked I realized, well, it doesn't take much for them to think things are exciting. So we'll take them at their word. All right. So I -- it's a real short thing. I'm going to tell you a story about George Destafney before George comes up and talks about branch optimization. So as Chris and I mentioned earlier, George was the first hire we made after our strategy took place in May of 2013. So Chris and I had a conversation and that conversation revolved around the hiring of talent. Did we know the people in the market, I said there's 2 guys in the markets, they both work for TD. George works for TD in Monmouth County. He's a prolific producer, very successful. And the guy by the name of Sean Kauffman works for TD in Ocean County. I've known Sean for 20 years, he's great. If we hire those 2 folks to the existing complement of people we have, we're well on our way. So we closed those 2 branches, we took a bunch of money. We pitched the guys and they both agreed to join. And they joined under a variety of provisos, but one of them was a big thing. TD back in those days provided their lenders with corporate vehicles and they were a small cars, whatever it is, but something to get around. And George joined on May 24, Sean joined on May 23. So we ordered 2 cars, 2 modest cars, Hyundai Sonatas. And they're in transit, and I said to Sean, you're here a day early. You beat George in by a day. We have a blue car and black car. We'll call it whatever you want. And he says, I'll take the black car. I said, okay, fine. So I text George, I say, George, when you come here tomorrow, I'm going to have keys for you. Sean took the black car, you're going to get the blue car. I'm sure it's like, fine, it's not a problem. So he shows up a couple of days later, the cars come in. Black Hyundai is not a beautiful, right? Spectacular, right? The blue Hyundai Sonata, your grandmother baby blue Q-tip, the color of the OceanFirst water bottle that you have. So George, to his credit, drove that car for how long was it, George, 3 years? Three years. And the worst part of that it was bad enough the color wasn't that good, he had to live with me for 3 years taking a picture every time I went to a mall and seeing a baby blue car, taking a picture and forwarded the text to him, how's your car doing. So anyway, with no further ado, George.

Friends like Joe, who needs enemies, right? Yes. I think payback. Well, we'll see how this goes. So good afternoon, everybody. Nice to be here. Nice to see everybody. Nice to have some people and physically here in place. So nice to see everybody. OceanFirst has a rich history of meeting the financial service needs of our customers, and we understand the expectations are continually evolving. Our strategic objective is to evolve with our customers, delivering banking products and services that provide access to our banking professionals and their money at the time and location of their choosing. Branch banking will continue to play an important role in that delivery as banking here will always be relationship-centric and high-value face-to-face interactions build relationships. We will continue to develop the consumer banking model with an emphasis on relationships assisted by technology. Branch optimization is not new, of course. Our branch network has continually evolved with changes in customer needs and available technology. Since 2017, OceanFirst has consolidated 56 branches and developed data-driven tested models to best understand site selection, customer behavior, employee impact and ultimately client retention. We have become adept at consolidating branches while providing a rich set of digital alternatives, and as a result, have become highly successful in retaining clients. In fact, we're able to expand current relationships with our existing clients by providing them state-of-the-art digital products and delivery channels. Sorry, I went too far. So, this to me, tells the story. So this -- the top chart shows the balance retention for the 56 branches that we closed in 2017, so if you had deposits here in 2017 or you have them today. So what that number tells me is that 92% retention of deposit balances for branches that were consolidated since 2017. That's what that chart represents. Busy, I know, but it serves the point that it was 56 and the performance was remarkably similar. If you look at the bottom chart, the bottom chart shows this -- the group of branches that never experienced any consolidation and what their retention looks like. So there you could see there are some ups, some downs, but ultimately, that number doesn't deviate close to the end. That's about 94% retention. Those are deposit balances from 2007 or the early stage we have from conversion. So remarkably similar, remarkably similar performance. Here to me is another important measurement. If you look at these slides, what you're seeing is the branches on the left were the 56 and the current fleet of branches that we have now. And then to the right is the remaining branches that we have now, the 58 that we have now. So what you can see here is that -- and those -- the heat map is where our customers are. So what you can see here is that we still have branches where our highest density customer population is. We just have fewer of them, but we're still able to service where our customers are. So just another note. Pre-consolidation, our average branch side is going to be about -- our average branch size is about $167 million. Post, it's going to be about $250 million. So we've remained in these markets. Today, the demand for branch banking continues to change to accelerate by the events of 2020. I don't think that comes as a surprise to anybody. Our customers continue to tell us they want to bank differently. And as Anthony and Rebecca discussed, our customers connect with OceanFirst using omnichannel support, other banking needs, including digital, mobile, online banking, banking from their offices using remote deposit capture. The customer care center and video tellers, I think Rebecca and Anthony really went over that well. If we look at how the customers' behavior and how it's changed, we've seen a migration from branch banking and acceleration to other channels. Our customers are gravitating more and more to digital channels and are telling us they want multiple channels to do their banking. Branches remain important to our clients, just not to the same extent as in years past. So here are some of the numbers. In branch, transactions are down nearly 11% from prepandemic levels, 2019, but that extended a multiyear trend that was already in place. At the same time the customers are decreasing visits, the mobile deposits have increased. The pace -- this, I think, answers one of your questions before, the pace at which customers are adopting mobile has also accelerated. So between 2019 and today, mobile grew at a rate of about 38%. So that continues to accelerate. The customer care center has also experienced, as Anthony touched on, a 45% increase in call volume. Our customers are increasing the rate of which they use digital tools. The preference is jump forward, and we're jumping with it. The customer experience continues to be measured via Net Promoter Scores. So we talked about that a little bit before, but Net Promoter Scores are surveys that are done more than 12,000 times per year based on customer transactions -- interactions. The average OceanFirst branch NPS score at the time of closure was around 59% while the year-end score at 2020 for that same group of branches was about 75%. That's virtually in line with our unimpacted stores and a 27% improvement. So let me emphasize that. We have objective NPS scores demonstrating improved customer satisfaction levels and digital products to improve the branch numbers as branch numbers decrease materially. Anthony had the Google numbers up before, but I think it's important to touch on those again. So if you look at the Google reviews, which people are using now as a standard when they're going and looking for services that they're using, so if you look at our Google scores, we rate 4.7 out of 5. 4.7 out of 5 is pretty high. Then we had about 250 surveys completed year-to-date. So Anthony have up here before, but I want to touch on it again. This compares -- stacks up against companies like TD Bank that's got a 3.23 Google score; Bank of America, 2.46; PNC, 3.32. So we're outperforming that level of peer group. So it's another testament that the level of service our team is bringing to the table every day. These days, customer satisfaction can materially be improved and substantially outperform the largest banks in our market, all while shifting resources to digital. I want to go now and talk about where we are today, the current state. We're investing in the branch network with fewer physical branches and a greater use of digital banking and a new concept for some of our existing branches. During 2020, we renovated the branch in our Toms River headquarters into the first super branch design, which we view as the model going forward. So this is a picture of what our typical super branch design looks like. These are hub centers. Anthony talked before about the ITM machines. We've retrofitted out our entire drive-thru with ITM machines. This branch does about 9,000 transactions a year. It's a $435 million branch, about 9,000 transactions a year. It's a $45 million -- $435 million branch. So we're able to seamlessly integrate this stuff and we think that we'll be able to bring in new technology, sorry. The drive-thru was fully converted, as I said. And the interactive teller machines or the ITMs, which we talked about before, has seamlessly been integrated. It saw nearly 4,000 transactions in the month of June alone. Anthony had a number up before, 16,000 transactions, that was for the first 4 months. We're at about 37,000 transactions in these ITMs since we started. I don't know of any other bank that could support a $435 million branch on this footprint with those machines in such an automated fashion. It's been a great success, and we're going to do more. In fact, Rebecca and Anthony note that we've conducted more than 220,000 video banking transactions, video banking since these machines have been -- since these machines have been deployed. So adoption is actually an interesting thing here, too, right? I was out at a branch. I was in our Jackson office, it was one of the first machines that we've put out. And there was a business customer who happened to be there. So people were talking to him about using the ITM. He wasn't very interested in it. One of the personal bankers, universal bankers, took him, walked him up to the machine and said this is how the machine works, we think you'll like it, why don't you give it a shot. So I talked to him a little bit he's like, "I'm not for the machine, but I'll give it a shot." So we did and we kind of parted ways as friends, I gave him my business card. Thirty days later, I get a call from the same customer, said I'm glad I did it. It's great -- been a great experience. The technology is great. I could automate receipts with my deposits. I get the extended average, which is huge, I get it at 7:00 at night. And believe it or not, this particular customer still wrote checks to his clients -- to his employees for payroll. So instead of his boys running up against the clock trying to get to the bank, they're able to use the ITMs as well. It's that level of adoption that really makes a difference with the ITMs. And I'll tell you the other thing. This particular customer use the ITMs around similar times every day. So as you can imagine, the universe of these online tellers is a very similar structure to a branch. So they're there roughly at the same time, roughly the same schedules. So it's not uncommon for this business customer hit the button, get the video teller on the screen and it's the same one that they know and have a relationship with. So it's a combination of technology and the combination of the personal touch that I think makes a big difference with these ITM machines. I think they've really proven to be valuable. So the super branch sites offer greater service and will focus on mobile banking, digital banking, treasury services, business banking, mortgage banking, flex office space for banking partners and that can include merchant payroll providers, things like that, and financial education. ITMs extend bank hours, as we just talked about. And our super branch sites, which I'm also excited about include the Nest Egg platforms that, as Anthony just talked about, offers value-added customized investment services. The super branches will be equipped with iPads like we use for customers or associates for most of their banking services, including demos in mobile banking, account opening, to name a few. The iPads will be available for account openings inside and outside of the branch. So basically, the branch manager will have the ability to go out and use these iPads to effectively bring the branch to the customer's place of business. Our customer-facing retail employees are all universal bankers. And as trained certified digital bankers, which is, I think Rebecca talked about, has a proprietary training program to educate our employees on digital services both offered by OceanFirst and other platforms so they can educate and better assist our customers. These trained bankers provide a human touch in their introduction and education around digital of our clients and remain a resource, which is I think is important. They still remain a resource if there are further questions regarding utilization of digital products. These commercial bankers can handle routine transactions, and more importantly, can deliver higher-value services such as help with eWallet, which you saw those transaction numbers before, or business banking applications or whichever. So if a customer walks into our branch and says, hey, listen, I've got a problem with my OceanFirst app. They don't want to have to be directed to Apple. They want to get solutions right there on the spot, problems with the eWallet or problems with whatever and sometimes routine transactions. So you kind of have to be everything to everybody. The full scope of the business services that we're going to offer the super branch continues to be expanded with future planned enhancements, including the scheduling tool, which I think will be really important. I think with the scheduling tool, if you can come in and say, hey, listen, I know that I'm going to have my universal banker there, I can schedule an appointment with a business banker, I can have a mortgage application take and I can have a commercial person there and you walk in and those services are all available at our customer's choosing time-wise, I think that will really be a game changer in terms of scheduling for us. So as it relates to investments in super branches, Toms River was the first. The Point Pleasant borough office was the second. That opened this month -- last month, July of last year. We're doing an opening in a couple of weeks -- a grand opening in a couple of weeks. This is the model that we view going forward. And Susanne is actually putting a branch up in her market in Philadelphia later in this year. We're also putting a super branch in our Brick site, which I think is important. That will be a full rebrand in our 2020. So Brick, as you can imagine, is a legacy OceanFirst core market branch just like the Toms River headquarter was. So these are very large branches in high dense populations of our customers that will be able to do these kind of transactions. So we're investing in commercial, investing in digital, investing in the customer care and investing in super branches. As I said before, branches will always be important for things like Anthony talked about, coin currency, but clearly, few are needed today. Today, the OceanFirst Bank retail network stands at 58 locations with an average branch deposit size of about $164 million, right, similar to what I said before. Through this optimization, we'll consolidate at least 20 locations and complete the sale of 2 branches. Post consolidation, our branches will have an average size of about $250 million in deposits, which is roughly better than 30% of our peer group. Further, the cost of funds at the end of the quarter were 24 basis points and has since improved to 23 basis points, which is in line with the best performers in our peer group. I go too far, sorry about that. So that's what this shows you I didn't mean to show you Angela. I meant to show you this. So what this shows you is that if you're in the upper left-hand corner here, that's where the largest branch, lowest cost of funds -- deposits are. So this is the most competitive set in the peer group. So you can see how that stacks up against some of the best peers in our group that puts us right at the top of the -- right to the top and the best amongst our peer group. I can show you Angela again. The branch sales are planned to happen in October of this year. The branches are primarily consumer-oriented and facilities are geographically remote from our core branch franchise. So if we think about it, these branches, one was in Hunterdon County, one was in Middlesex County, we don't have core operations there. And this will align those folks with a better -- with -- not a better -- with a franchise that's within their market that can offer more service with their clients. Listen, these are great people in these branches. We have great depositors in these branches, great employees in these branches. This is just a better fit for geographically remote. The one in Hunterdon County was 20 miles away from our closest branch within the market. So this, I think, makes a lot of sense because it makes a lot of sense for everybody. So with the sale, our employees will be transitioning and our employees will be transitioning with the sale. So management is still carefully reviewing the data to determine specific branch locations that will be consolidated. The consolidations will occur over a relatively short window, starting in the fourth quarter and be completed by February of 2022. Candidate sites for -- candidate sites considered for consolidation have been identified based on multiple factors, including transaction volume, mobile adoption, customer traffic, total deposits, cash activity in the branch, customer locations and CRA implications amongst others. So just to frame this. We're analyzing this over the course of 2 years with the data, it's 4.5 million transactions, and we're overlaying that across our history of 56 branch closures since 2017. So branches will continue to remain in areas of high customer concentration and service hub centers. So we'll continue to have branches where we need them, and we're analyzing that data based on our experience since 2007 closing this number of branches and a bunch of other factors. So the final list of branches will be confirmed in the next few weeks after we've had the opportunity to talk with our employees and our customers. We found it critically important to discuss branch closure with our largest clients in these locations to make the best decisions and ensure alternative servicing options are made available in an appropriate manner. So we actually go out and talk to our customers and say, this is what we're thinking about doing. How does this impact your business? Is this -- do you think this will be materially -- a material detriment? We have those conversations with our larger clients in the branch. I think that makes a difference with our retention level. So the analysis for consideration of these locations will be extensive. We've reviewed the composition of the $9.5 billion deposit base, $5.2 billion of which are commercial and government accounts. All the government banking relationships have connected to assigned government bankers. And as Jeana said before, 100% of them have at least 1 treasury management product with most having more. Our government bankers are people in the street that know these clients intimately. This means it's truly the definition of relationship banking enhanced with the services provided by treasury. We look at all government relationships at the account level and evaluate these potentially impacted by consolidation and will augment services as needed. So if you think about it, if you have a government client coming into the space and they need a courier or a remote deposit or whatever those things may be in order to transact their business, we'll talk to them about that ahead of time. It's what we've done, it's where we've had some success, make sure that we're handling that transition the right way and we'll make those arrangements before the consolidations occur, right? So we've got a little bit of time here. We're going to figure it out, have those conversations and make sure that we're set up the right way. It's not unsimilar to our top depositors on the commercial side. So most of our larger commercial borrower -- commercial depositors have commercial relationship managers assigned. So these are the folks, along with treasury, that really drive the relationship. So treasury solves for most of that and our typical commercial customers' interaction with our branches are I wouldn't say limited, but aren't the primary. So we'll have similar type of conversations. We will review at the account level, we'll get to the level of granularity where we understand exactly who's using the branch, what they're using it for and if there's alternative channels. Again, we'll have those conversations. We'll know, we're doing it ahead of time to make sure that we're doing our homework to minimize customer impact. I'll tell you another thing. We've built a playbook that we've developed over the course of consolidating 56 branches, which lays out our course of action in order to achieve predictable results. Additional efforts include our boots on the ground campaign, which aligns a team of internal calling partners that proactively reach out to our customers ahead of time to communicate and plan and review alternative solutions if needed. So these people typically include treasury, our commercial relationship managers, government bankers, relationship managers. These folks have gotten really good at cultivating relationships, not only retaining clients, but use these opportunities to grow relationships. So it wouldn't be atypical to go out and have a conversation and say, hey, listen, this is what we're doing. We're talking -- out here to talk about retention. But hey, did you know we did this? Or did you know we did that? And proliferation of things like ACH deposits and payments, some other added services that we're able to talk about has actually allowed us to grow some of our existing relationships, which contributes to that high retention number that you saw before. So it starts off as a retention call and end up as being an awareness about things that we're doing and things that we now have available. Don't forget, a lot of our customers are legacy customers from OceanFirst 10 or 12 years ago and some were through acquisitions, which you know we've done a bunch of over the last few years. So they may not know the full breadth. So this generally turns into a very positive conversation about what the bank can do, what we can offer, and again, very high retention rates. So for the retail customer impact, we've analyzed that data and identified the highest at-risk population. We define that as people making in-branch cash transactions that can't really be substituted. That subset of clients accounts for about 6% of our total retail base. One of the biggest comments you hear when branches are closed is access to cash, access to the ATMs. So we implemented a new account. We did it last year, it's -- or early this year called our OceanFirst FreeStyle account. And that account one of the biggest -- one of the aspects of it -- attributes of it is that it offers no fee ATMs for any ATM in the country. But not only that, it will refund you of foreign ATM fees if you could get -- incurred costs in other places, right? So if you think about that, that effectively makes the ATM network anywhere in the U.S. free to our customers, right? So access to cash is handled through product development. So as with all branch customer contact, our branch managers will continue to play a central role during the optimization process and thereafter. During the process, the managers focus on retention efforts and customer -- and often customers and employees. Those daily relationship-centric efforts augmented by technology is part of the recipe for success. Going forward, managers are becoming more like our commercial relationship managers, business bankers, treasury management officers and government bankers and they're calling efforts and servicing efforts by doing so in an outbound appointment-based approach. So we've also made significant investments for new customer acquisition, including enhancements for the process for online banking. So Anthony talked about that a bit, right? Here's the numbers on that. In 2019, we opened about 1,000 accounts online, which jumped to about 2,600 accounts online in 2020 and we're on pace to do about 2,900 accounts online this year. Chris and I think Rebecca or Anthony all touched on this. About 14% of our account openings today happen online. Overall, the process takes about 18 minutes or so and more advanced users can do it in about 10. In 2020, we also implemented a team in the care center that is fully dedicated to accounts by phone. So you think about the ways that we continue to be able to acquire customers outside of the branch and the efforts and how successful they've been. From an employee perspective, many will be relocated to alternative branches or the customer care center or other open positions or may be resolved for attrition. There will be many cases where a portion of the staff from the closing site will be relocated to a receiving branch, which helps with customer retention, having familiar faces in new locations is a great retention tool. So if you think about it, you walked in one branch one day and that branch is now closed and you walk into the next -- the receiving branch the following day and the same employees are there, the story is actually eerily similar. The folks generally don't care all that much about the building. They don't really care about the brick-and-mortar. What they care about is the people that they know. It's the universal question when we've done these consolidations is what's happening to the people and how does that look from my interaction with them. It's very important in those interactions that we have and it's important that we keep those relationships intact. So our people are really important to us. And one of the reasons we were doing this now is the road map where people have time to consider their own career objectives or they can -- or they can choose to move to the care center or they can choose to go to digital banking or go to back office or maybe they have a time line for changing of their -- on their own. The closures will happen over the next 6 months, which will allow for people to plan. I think that's important. It allows for people to plan. What we don't want is to wait until we have to do this and do it in a disorderly manner that would negatively impact our employees and our clients. We will consider at least -- we will consolidate at least 20 branches, but we'll not have to identify the specific locations until we've reviewed our plans with our customers and our staff. The process now is to work between now and the end of August to have our discussions with our employees and our customers, and we'll start the filing regulatory applications around the consolidation in the fall. So I'll leave all the fun questions about financial metrics to Angela, but I would be happy to handle any other -- happy to field any other questions that you guys might have.

I was just curious, as we kind of shift the offering here's from Physical branch to ITMs, what the cost discrepancy is. For the branches that you have slated for closure, just give us an average sense for cost per branch. And then, I don't know about the ITMs in terms of full cost and service, but maybe give us a perspective for how much those are -- those costs because I think there's, what, 6 more coming over the next 18 months?

Yes, I'll give the numbers to Angela. What I can tell you is we get a lot more scale out of the ITM network, right? If you think about it, we've got a branch of video tellers that are looking at one place, they can get more efficiency, they can handle more transactions. So Toms was a great example. When we think about that, we would have had to have 2 tellers, some upside, some downside, 1 in those 4 drive-through lanes. Now you can get the scale of centralized location with that group. So I'll leave the exact dollars because its sensitive, but we absolutely could scale out of the ITM use in terms of FTE counts and things like that.

Of the remaining 37 branches, I guess you've addressed 4 already, 2 that have already been converted to the super branch and 2 more that are going to happen. So I guess, of the remaining 33, will those also be converted? And is there any square footage difference requirements for the branches? Is there opportunity to scale down there as well over time?

Yes. So in terms of new super branch that are coming online, I mentioned Brick, that will be 2022. So I don't think we changed every one of our branches to a super branch. What I think we do is have those in markets where the highest customer density is, right? So I think Brickpoint were great examples. Toms River was a great example. The newer market in Philadelphia have similar type services in those areas, I think, is a great example. And I think we continue to reevaluate the fleet as we go through time and see and continue to tweak the performance and offerings in those branches. As it relates to the footprint, it's not necessarily a footprint, right? We don't need gigantic branches, and we don't need micro branches. So it's probably a combination between the 2. I think we'll need space for partners and things like that. Mortgage rep in the branch, commercial person in the branch, things like that. But I don't think there's a marketable difference as it relates to the size. I think we continue to evaluate the performance to see what tweaks we want to make to it, see how effective the scheduling tool, see what that requires in terms of square footage and make adjustments from there.

So a similar question to Eric's and maybe one that's not all that fair given the success you guys have had already rationalizing the branch network, the 56 you talked about, the 20 more today. But when we meet 2 years from now, at the next Investor Day, what could that number be? And part of the question is you've had a great deal of success containing expenses and funding the tech investments. Does that lever ultimately run out at 37 pro forma? Or could we be at 17 super branches 2 years from now and continuing to fund ongoing deck?

So I'm going to give you the banker answer. It depends, right? So I certainly think, listen, we're going to continue to reevaluate our retail network. That's an ongoing thing. We've been the telling the community that for years, right? We look to see what the transaction lines look like. We look to see what the trends are. We look to see mobile adoption. We look to see all those things. So I think the answer today is, this is, I think, the right number for today. We'll continue to evaluate these things on a case by case as the trends develop as we go out. And it's an ongoing project for us.

Are you getting a pushback from the regulators on the closed branches? How's the regulators' sentiment today closing branches? Obviously, change in administration, more pressure coming. So do you get this done before it starts? Or...

Well, listen, I would tell you that I think it's a -- it's access, right? So we're not leaving any mortgage on their bank that don't have banks. We've done this a bunch, right? So we've done this 56 times recently. In some cases, we left things like an ITM that offers full service, right, that people can use access to the banks. So we look at this stuff. CRA is definitely something one of the considerations we look at. And we want to make sure that the market isn't left without access to banking, which is a big thing that I think regulators focus on. And we saw the cases again. We have left an ITM in one of the occasions that we closed in the last go around, and that seem to work well. Still there, still working, one of our busier ones. Good? All right. Great. Thank you, everybody. At this point, I'd like to bring up Angela, who'll go through all the finer points that I glassed over. Thanks.

Thanks, George. It's nice to see so many familiar faces in the crowd with us today. It's certainly been a long time since I've seen you, not through a Zoom screen or not through a Teams screen. And thanks for all of you who are joining us virtually as well. Wish you could be here with us in person, but I'm sure there are some benefits to being able to work remotely as well. Before we get started, it is -- Anthony Giordano is a very humble man. I just wanted to wish you a happy birthday. I'm not sure if it's a big birthday or not, but a happy birthday. And glad you wanted to share your time with all of our investors today and the analysts. So do you guys just want to skip forward to the last slide? We'll just talk through the numbers? I see Dave. He's got his spreadsheets up, and if you view others, I see that you've got your models up as well. But just to recap in this last session what we've been through all of the past 3 hours talking about, so growing the commercial bank, leaning into our treasury management, expanding our new hires in expansion markets and adding new lenders, that'd be point 1. Point 2 would be our digital banking initiatives, right? Banking our customers the way they want to be banked. And then lastly, of course, what George just covered, our branch optimization strategy. So why don't we start with our commercial banking initiative? We've added 19 new lenders across the Mid-Atlantic and Northeast region. So that includes our expansion markets and in our current markets in New Jersey, New York, Pennsylvania, and they're really the flywheel to our revenue engine. They're going to put our $1 billion of cash to work. So -- and that's on the asset side. On the liability side, as many of you may recall, our cost of funds was 37 basis points for the quarter ended June 30. As you may have seen on one of George's slide, the weighted average cost of deposits at June 30 was 24 basis points. And then if you were able to click into the graph that he just had before my picture, even heading into July, we've already been repricing our deposits down. So that's certainly a headwind as we continue on in this interest rate environment. That might seem unimpressive to you today, but it's been a benefit to us in rising rate environments in the past. And it's certainly a core tenet to the way we operate our business. In fact, our -- in a rising rate scenario, you may recall that in historical performance, our deposit betas have been about 50 basis points lower than our peers. So that's a little bit on margin. Actually, maybe I should mention that our noninterest -- the quality of our deposits is also shifting, which is helping our cost of funds decrease. So noninterest-bearing deposits have increased almost $0.5 million just this year alone. Moving into operating expenses. I've already gone that question a few times today. We've been able to add great leadership, right, to all of our existing markets and in our current markets. We've had great leadership from money -- big money center banks as Susanne alluded to, from Wells Fargo, BBVA, TD, Bank of America, Capital One, all really great reputable companies. I'm sure you've had the chance to meet Dan and Tom who are in the crowd with us. We may be adding a few additional bankers in the next few months, but really the team building is done, right? So you saw a partial expense incorporation in our 2Q expense base. But really, it'll be in Q3, where you see the full expense load from all of these new hires. The expectation there, we're targeting about a 3% increase in our total OpEx line as it relates to our new LPO strategy. So let's spend just a couple of minutes on our digital strategy. You've heard Rebecca and Anthony talk about how we've been at it for a long time. And so it's been 5 years. 2018, a lot of you were here with us as well, and I'm happy to report that there will be almost 0 incremental spend as it relates to our digital strategy investment. I should also highlight you may have heard Chris or Joe, Mike or I allude to this, that our tech spend, as a percentage of our operating expense base, is 19%, nearing 20%. And this may seem like an exorbitant high percentage, but we're quite proud of this statistic because we outpaced our peers in tech spend because that's where we believe the future of our business is. We -- like we've been saying all day, we want to bank our customers the way they want to be banked. And it's really important to put our customers first because they're the lifeblood of our business. So lastly, I think maybe where Matt, you were going and asking about what it costs to operate a branch. I can share with you that the branch optimization strategy on an annual run rate basis will result in $7 million to $8 million in annual savings a year. I'm trying to see if Dave is plugging that number into his spreadsheet. So where does that leave us for the efficiency ratio? Well, I think many of you know, right, the efficiency ratio is not just a factor of expenses. We're doing our best to pave a way forward for running this company in the long run, and we're doing our best to contain controllable expenses, but there's also a revenue component. And so where the yield curve has left us after 2019 has certainly been a challenging environment. But just back to expenses for a second. It's a fun fact we'd like to talk about. So we've grown substantially, right? Our asset base in 2015 was just probably just barely $2 billion. We're now an $11.5 billion bank. And our operating expenses, while they have increased in that same period of time, when you measure the ratio of operating expenses as a percentage of total assets, that ratio has been on the decline, and we expect that trend to continue downwards. So to put that into basis points reference for you, it's declined about 61 basis points since the end of 2015. So as our company has grown, we've actually been spending less in noninterest expense, all the while increasing our tech spend. So we can move to the final slide in our conversation today. And just wanted to share with you where we'll end fourth quarter of '22, what our target is for the fourth quarter of '22, and the fourth quarter of '23. The combination of the increased revenue from our commercial banking business and operating expense discipline from the digital and branch optimization projects will provide us an opportunity to materially improve our profitability. Operating expenses, post branch consolidations, should be just around $200 million a year. The additional commercial banker expenses, digital staff increases, and our new customer care center will be more than offset by the savings generated from the additional branch consolidations, but the timing of these events will not be aligned perfectly. So what that means is total operating expenses are forecasted to peak in the third quarter of 2021 at about $54 million. And they will start to decrease as time passes, while branches are sold and they're consolidated and will eventually stabilize around $52 million in the fourth quarter of 2022. And from that point forward, operating expenses will be subject to inflationary levels of increase. You should bear in mind that there will be other revenue and expenses related to these initiatives that are categorized as noncore items. So the branch sales that we talked about, you'll see that captured in a noncore line item. The liquidation on the sale of real estate and some employee transition expenses, those will all be captured as noncore items. For the entirety of this project, we estimate that the net impact to our net income will be about $15 million to $16 million. We really understand the importance of demonstrating strong financial performance in the short term and remain committed to solid earnings momentum even as we reposition our business for the future. These efforts will position our company to outperform in a very competitive operating environment. The migration to becoming a branch-light, commercially-driven bank needs to accelerate to allow us to remain competitive. The pace of change is accelerating, and we need to move quickly to take advantage of our strengths. Before we open up for questions, I would like to highlight that last month marked the 25th anniversary of our conversion to becoming a public company, OceanFirst Financial Corp., or OCFC, as many of you refer to us. We are pleased to celebrate -- we were pleased to celebrate this milestone by ringing the closing bell at NASDAQ. And in his remarks at the celebration, Chris talked about our intention to come back and celebrate our 50th anniversary in 2024. So I share this to reinforce the commitment that we have to our long-term strategies that deliver shareholder value. And while the maturation process of these initiatives outlined today may take some time, we believe that this is in the best interest for the longevity of our company. So thank you in advance for your patience and your interest as our management team executes on our strategy. And we'd be happy to take the questions that you may have.

Chris?

Could you go back to the $15 million, $16 million net income? I just want to go back and kind of break that down again.

Sure. So that will capture the gain on sale of our branches. And any sort of real estate gains or losses. Certainly, the exit of our furniture, fixtures and equipment, and some employee transition costs. So those are the 3 main components.

So to see those all onetime items together.

Correct.

Angela, in terms of the gains on sale -- right here, sorry, would you see some of that excess as potentially not hitting the -- or in terms of the excess capital generated from that used to plowback into the share repurchase program?

Yes. The $15 million you're asking about? That will -- that's a net charge, yes. So the gain from the sale of the branches will offset some of the losses.

How do you -- I assume that this analysis, the efficiency ratio, the ROA, EPS takes very little credit from any rate help. And curious, you had the -- after the branch closures and the higher deposits for branches and some of the other mix shift you guys seen, if you could maybe just walk us through how you feel the balance sheet is positioned, if we are to see higher rates and whether that would be fairly neutral environment longer term? Or what do you think that maybe be more positive potentially for you guys as it transpires?

Yes. Thanks for the question, Mike. So if you -- actually, our newest 10-Q should be filed sometime later today. But even if you were to look to the first quarter 10-Q, you'd see that our company is relatively asset-sensitive. And so with an increasing rate environment, we would substantially benefit from those tailwinds. So it would not be neutral. It would certainly be fairly positive. Follow-up question?

Yes. The -- does that take into consideration of like the $1 billion of cash today, right, I mean, which obviously would be wildly accretive, short-term rates should start moving up? I mean, if we move out towards the end of 2023, assume that cash is largely normalized, which I imagine this analysis comes close to, do you still expect it to be a material positive over a 12- to 24-month period?

Yes.

Yes? Okay.

Yes.

Just curious, maybe some of the tweaking that number one way or the other. For instance, the EPS number in the fourth quarter of 2022, what does that assume in terms of buybacks? You guys got a lot of -- a pretty big share repurchase program out there right now. So does that complete it to get to that $0.55? Or is that additional?

So we have 4 million shares outstanding today available to repurchase. And it wouldn't be all at once, but certainly, we have incorporated some share buybacks in getting to the $0.55.

Doesn't necessarily assume that's completed by that time.

It would be completed at that point. Anyone online? No? Great. Well, thanks again for spending the day with us. Looking forward to chatting with more of you at the dinner cruise, if you make it. And with that, I'll turn it over to Joe and Chris for Q&A.

All right. Good afternoon. I appreciate everybody's patience today. Our folks are -- we wanted to make sure you heard from our people and heard the story, and you'll have the opportunity for those here tonight to hear more from them later or on the side or see some of the demos. I did kind of warn them to be careful, right? We're talking about a few targets, don't give a lot of -- we're not giving out forward guidance. So -- but I can flesh out maybe a couple of the questions. Matt, you had a good one about average branch expense. And Angela gave you the net because what we do is we close a branch, we move some staff to the back office. You don't save everything from that. But a typical suburban branch, like a nonurban market, I think we're probably similar to most banks. It'll probably cost us between $750,000 to $1 million to operate as a discrete unit. But that doesn't all fall to the bottom line. We -- so Angela gave you the good kind of net number. And then interest rate risk, we have done some modeling, and you can go back and look at the Qs. Nothing that we're talking about materially changes our rate sensitivity, our asset sensitivity, which is -- and I'll go a little further than Angela, it's a pretty significant asset-sensitive position, which will remain. So we did some back-of-the-envelope math. If you look at these figures and took beyond the kind of forward curve, for every 100 basis points of movement beyond that, which is hard. It's like a parallel shift model, but at least to give you a sense, you're going to add about $0.05 a quarter to -- or $0.20 a year in earnings. So that's the big number, is about 10% lift just from the 100 basis points. The first 100 basis points are also not the best because you're coming up all floors and things like that. And I think you did hear a couple of our folks are -- deposit betas ran 50% of the peer group beta in the last rate rising cycle. And we actually think our deposit base is even better now than it was before. And we talked about the amount of noninterest expense. So -- I'm sorry, the noninterest-paying deposits. So hopefully, that kind of covers a couple of things. And I do want to go back to, I think, Bob, you had a good question on AI. And I think Anthony gave you the right -- we're scratching the surface there. Just doing a couple of things on fraud detection. But our strategy around AI is we know, and Anthony hit the nose on the head, it will be cheaper next year than it is this year. However, you're in a really bad place if you don't have the data. And I think a lot of regional banks have the challenge of you just don't have the data to let a machine learning algorithm chew on it. So we have been sticklers to keeping all the data about everything from -- and you saw some of the data on the 58 closed branches, who stayed, who left, mobile online banking, who opened an account, who abandoned account opening kind of sequence, who's buying Nest Egg. We have -- and who's not buying Nest Egg, right? So we're tracking the people who decided not to do something, which is as important in an AI world. So it's probably not something that's going to make a material difference maybe in the next 12 months. But as that cost curve comes down, we will at least have a rich data set. The 220,000 video sessions, we know who likes video, right? So we're at an advantage to people that have not done video yet, and we'll know even more than that in a year or 2. And then just, look, as we look at the financial numbers Angela put up, we would have loved to come back and say, hey, you know what? We're going to get back to 2019 and better, beat that 130 ROA. Given the rate environment, it's just the kind of risk we would have to take to push the needle that far, we don't think is in the long-term interest of the company. The other way we could do it, frankly, is we could skip doing a lot of what we're talking about today. And that would work. We would make more money in the short term. But the company wouldn't be able to do what we've been doing for the last few years, right? Had we not built treasury, we would be in a very difficult spot right now. Had we not invested in digital, we wouldn't have the option to consolidate another 20 branches. So we think those things are important. We think if you're running a franchise for the long term, you have to do it. And those numbers, while they may not be exciting, they're really solid numbers, and they should move the valuation of our company forward. That's the hope. But I just want to put that in context. So Joe, any comments you have on the...

Yes. A couple of other comments. We had a couple of comments about branch sizes and how many branches down the road. I think George answered it well when he said it depends, but I'll talk a little bit about branch size and super branches. There's no one size of a super branch. I'll give you an example, the branch square footage in Toms River is markedly larger because of the density and the volume of that branch. Susanne will have her own branch in Philadelphia, that's about 1,500 feet, which is a very small branch. We still consider a super branch. I told Susanne, she could have her branch when she got to $1 billion. I didn't realize she'd get to $1 billion so fast and now I have to deal with it. But -- and I think that the super branches will act almost as a hub and spoke. So other branches as we renovate, consolidate, or optimize, remaining branches may be smaller with a focused approach on those larger super branches as a way a hub approach to attract other people for other services. And remember, we're heading, as you saw on Anthony's slides, as many banks are, we're heading down the path for appointment banking, which really plays to the strengths of the super branch that have those talented people in play much like an Apple Store would be for future opportunity.

Chris, just expanding on the AI. What kinds of data do you have the capability to collect and store today? I think it's the next big battleground for all the banks.

Yes. I'll tell you a quick story. So we keep very granular data. We just went through this core conversion. And so we switched cores, right? So you could lose a lot of data when you go from one to the other. And I tortured our folks, and Karthik, he delivered. We took a lift of the old core and made sure we have transaction-level data going back years. And one of the great things today, even though we may not be using it for AI, the cloud, and you have to be very careful with cloud-based storage and those of you who visit the SOC center later, you'll get to see how we kind of handle things like that, but it's very inexpensive to keep massive volumes of data today. So we're like squireling it away, knowing that we have to go to it. And it has been really important. We came back to the identifying the branches that we're going to consolidate. And we identified a group we're comfortable we can get to 20. We are going to talk to our customers and our people. We might be this branch versus that branch, but we'll get to 20. But in that analysis, and I want to just draw on a point that George made, we can tell you that 6% of the deposit balances at OceanFirst are held by individuals who visit our branches to do cash transactions and are not mobilely active. That's the big risk. Now as it turns out, less than 3% of our total deposits are going to be in a branch affected by a consolidation in that class, right? So we're looking at how many channels they're active on, not just to you active on mobile, because if you're active on mobile and online and bill pay and mobile wallet, and all of that, that is a different thing than, hey, I used mobile banking once in the last 90 days. So we have that data. In some cases, I think we're using it really well. In other cases, we've not even begun yet. And I think last time -- one thing we didn't do this time is last time we had this presentation. We had our business intelligence group, BI group, was actually here and met a number of you. They sit right upstairs. That group has probably doubled in size in the last...

More than doubled.

More than doubled. So these are the folks we go through, whether it's a conversion exercise, or an acquisition, or making decisions on branches that it's a really rich opportunity for us. The other thing I probably should have mentioned, too, is I mentioned investing in our business, right? But these are the returns we're getting while we are net entering several new markets. So we're trying to balance this out. I've never been one that thinks you can go to your shareholders and say, hey, I got this bright idea, but you guys are going to suffer for the next 3 years. We're trying to move both needles, right? Move the company forward, but still improve performance.

Chris, Joe, thanks for all the information today. A question, I mean, it seems like the consumer side of the house is in a really pretty good spot. I mean, it's good technology. We have good products, good customer care. And if we look on the business banking side, obviously, the commercial side will always be more of a people business than the consumer side. But you're starting to see more disruptive forces on the business banking side. You have start-up -- fintech start-ups that are bringing into it and like ADP payroll in and all into their mobile app. You have some competitors north of you that are doing blockchain, real-time payments, and closed loops and things of that nature. How do you kind of -- or how do you think about the evolution of digital and business banking and making sure that your people have the tools that they need to continue to be competitive and grow over the next few years?

Yes. I think that question came up earlier when I think we asked Jeana, what she wanted and she has a list. So she's got a few things. The good news is we've done a lot of investment there, but I'll take a thing like blockchain, right? So we're watching it really closely. So our view on blockchain is that it's going to be really important for high-dollar complex transactions that are worth the collateral time spend to kind of get it right. So commercial real estate settlement, we think, is absolutely headed towards a blockchain world. And we're trying to time our entry point so that we're not jumping in early and spending a lot of money on it, but that we're ready so that the first time Jeana gets a call saying, hey, I want to move money through a blockchain transaction, that we have a way to do it. And a bank our size, we're going to have to look to partners. The good news is there are a lot of partners out there to do that. On the other hand, we're trying to be realistic, too. I think for the low-dollar, high-volume transactions, we have our sights set on the FedNow service. And we're watching that develop. We think that's going to be a really low-cost way to kind of jump ahead. It's kind of like we talked about Blend today. And if you're not familiar with Blend, great fintech, good partner of ours. They've revolutionized the way we handle residential mortgages. If we tried to catch Quicken when they launched Rocket Mortgage, we would have been dumping money in a hole. But if you watch and you wait and you went into your timing, the -- I don't know the exact figures, but our -- the net cost for us to install Blend was almost incidental. It was really no big deal. So we're watching those things. There are a few things Jeana needs to -- the good news is, I don't think -- and Joe may talk about this a little bit, we have a different level of credibility in cash management and treasury than we did just a few years ago, where I know we used to go in and say, hey, we know -- we would have customers say, I hate so and so bank, right? Depending on the day it was the flavor, I hate Wells or whomever. And we go we could do it, like yes, yes, yes, we hate so and so. Well, but you're kind of small and it's a $50 million account and I don't know how comfortable we are. We love you guys, but putting $50 million there, we start to get the shakes. But maybe talk about our competitiveness in that.

I'll just take a step back and -- in terms of just technology, I think we'd like to refer to ourselves as fast followers. And Blend's a great example. So when Blend's came out, the cost to install Blend for banks our size at that point was exorbitant. Fast forward 2 years, that cost was markedly less because they built a proof of concept. It's a clean, simple, state-of-the-art alternative. And for us, it makes us paperless, the client experience is much better, it's much more seamless to install, and we had record loan volume last year. Of course, rates help, but we couldn't do that record volume without being paperless so -- and very similar to this year. So -- and then in the treasury business, I'd say the same thing. I think as the bank is involved, it's a combination of product capability. You get that from the talent you hire. The talent you hire says, you need these things as do your people on The Street. So the corporate client who a couple of years ago said, I like you guys. You're a much better alternative for me, but I'm uncomfortable beast on your size, your capability, we don't hear that anymore. I think last year, I talked to you guys at a variety of investment events where I said, we had our first 9-figure treasury wins. And the biggest challenge we have today is not winning. The biggest challenge we have today is putting money to work. So if anything, I'd tell Jeana all the time, she'll call me and we'll talk about a large transaction and I'll say, as I get off the phone, what are we going to do the money, right? That's a good problem to have, right? It's not today because everybody is flushed with cash, but people forget down the road we're a bank, right? We take deposits, we make loans. We just happen to have a lot of deposits today.

Just quick add on treasury. We absolutely listen to Jeana in terms of what she thinks she wants, but we also listen to our field folks, right? So on Monday, I'm down with Tom in Baltimore, we meet a couple of different prospects that he banked at BBVA. And I think we've got a great chance of winning that business. We got to add a tweak here and a tweak there. And when we see that, it's often -- and we told the story earlier about responding on the way we're handling swaps and things like that. We are very responsive to our bankers. And when our bankers said, hey, you know what, I could win business, but your ABL solution needs to do this. Then, we'll just back out and figure out how to do it. That's what I think good organizations do. So we listen to Jeana too, she'd make sure of that.

We have a demo for a new ABL solution next Thursday, to give you an idea.

I had a few questions. First one, Chris, really quick. I think I missed it in your opening remarks, you threw out a loan generation figure. I think you said by end of 2023. What was that number? Is it $2 billion?

$2 billion.

Okay. So I have to say that the $1 billion run rate that we think we'll get on by year-end is going to double by year-end 2023?

Yes. So we think about $1 billion a year should be the run rate we're going on. So about $250 million a quarter. And look, there's -- obviously, rates will play some impact into that. But we've got the productive capacity to be able to grow at that rate for quite some time. So I think in 2020 -- so if you're doing $250 million a quarter times 4, it's $1 billion. You do $1 billion in '22 and $1 billion in '23, and that's what those numbers that Angela shared the targets where...

It's not a double.

Yes, okay. That's not an annual -- okay. So we're not getting to an annualized...

No, no, no.

Understood. The second question I have is, as I step back and listen to the message holistically, closing branches, having a ton of success with retention, digital offerings, improving account openings are looking good. What I didn't hear about is just penetration of younger demographics. Virtually those coming into earning years and needing loans and those kinds of things. Are you opening new digital accounts with younger demographics as well? Or are we just transitioning branch customers into digital customers?

Absolutely. If you look at the average age of the people that are opening on mobile, there is a SKU lower, right? So those are people that are much more comfortable just opening on the device. I think one challenge the industry has had is capturing people early on. This is more important than ever because once you set up a bank relationship, you're far less likely to leave these days than you would have years ago. But early on, as much as we love those customers in their 20s, they tend not to have a lot of banking demands, right? So they got -- they have lower average balances. They may borrow a lot, but they're a great candidate for, unfortunately, the category killers and consumer like Capital One and things like that. So there's no question that the mobile SKU is younger and we keep looking at that demographic to see what we can do to be better at it.

Okay. The last one for me is tying a couple of comments together. On the conference call, you said historically we've done deals for deposits. And Joe, your opening remarks, you talked about this kind of cycle, right, where we have deposits, we'd go out and hire, find lenders and use it. It feels like we're at the beginning of that cycle again. If you had to kind of prioritize where M&A is regardless of the multiple, is it kind of down towards the end of the bottom of the stack at this point just given everything you've laid out in the opportunities?

Our primary focus is to move the organic business forward. I'd say 2 things about M&A. Look, we think we're good at it. So we would do it if we could find the right thing. But it really has to move the needle, right? We're not going to do it for a couple of cents of EPS. It could distract us and not be worthwhile. The second thing is that we look at M&A very differently than we did just a couple of years ago. We're really confident that we can source our own deposits to fund our own lending at this point. We've matured that treasury product set. So we don't have to go out and find that next community bank with a low cost of deposits in order to run our engine. So the kinds of opportunities we look at would be very different. The hurdle to do a transaction is higher. And look, there's some great transactions announced this year. We moved a lot of those banks. But they wouldn't have provided the kinds of returns that we needed to distract us from what's in front of us. We're not going to get distracted. I want to be careful, though. I mean, when we look at M&A, we have done a lot of it. We think we're good at it, and we think we could continue to do it. But the universe of opportunities for us that we would consider exciting is much narrower.

Somebody answered the -- somebody asked the question earlier to Anthony, which I thought was an interesting question. They talked about, have we built enough technology and resource ability to possibly be an outsourcer for another bank? And I'd turn that around first, I'd say that's kudos to us for doing it, and reinvesting. But I think one of the reasons we've also done that, obviously, self-serving for our own benefit. But there's a nuance there that there are plenty of banks in the footprints that we serve that have not done that investment and would benefit by a combination down the road with us because we built that infrastructure. So that's another thing that we can have that kind of conversation around as the M&A marketplace opens up down the road.

I'll throw one more out. Just on the business banking side, again, to go back to that. As you look at the broader product suite, especially on the noninterest income side that you guys have, is there anything, especially with some of the M&A disruption in your markets where there could be people that come available that could maybe bring new fee-oriented businesses to the OceanFirst platform, and obviously, tell you the swaps but maybe you have an estate for the consumer, but maybe like a trust or wealth or something of that nature, anything that it would seem like there'd be a lot of overlap for your customer base for something like that? I'm just curious if you have any thoughts.

Yes. So we regularly look at opportunities like that. And we've yet to find that kind of foundational opportunity. And what I mean by that is we don't want to be involved in any hobby businesses. We want to do things really well. So I'll take, for example, the RIA world, right? And we've looked at a large number of transactions that subsequently, you've seen, right? They get bought by our peers or competitors. Those wouldn't be the right thing for us because we're not stepping into this with the credentials you would have, say, at Bryn Mawr or PPAC or even Provident, right? They've got big AUM, they've got a whole infrastructure, and they can bolt on easier. That said, if we identified what I would call kind of more of a franchise opportunity in that space, where you had younger talent that wanted to stay on, it could help us build out, we'd be very excited about that and then take a look at it. But we also do this in our bank M&A. We look at earn backs, right? And there's a lot of stuff out there that you can do that is highly dilutive to book value. We're all -- and it's not just RIAs or finance companies and things like that. And we always -- whenever we see an announcement that says price undisclosed, we always say, I don't know what the dilution in that was, right? But -- so it's been a hard one for us. We'd love to have more noninterest income, but we're going to wait for the right chance to do that. It's the same way we look at SBA businesses. We love an SBA business. But there's ways to do an SBA business, right? There's certain scale and complexity and you want to have the horsepower to do it right and not to open yourselves up so that in 2 or 3 years, the guarantee you thought you had didn't work out exactly right. So that's another area we've looked at a couple of times. If we found that kind of right thing, we'd absolutely do it. And we'd be more interested on looking at things we could acquire that would help us gain net new customers, asset growth, those kinds of things, not funding.

It's an interesting -- we're in an interesting dichotomy relative to the swap business today because you have rates at nearly, or at all-time lows in many instances competitively driving margins down. From a client perspective, it's a great opportunity to be in the swap product. But the swap product in itself and the environment that we have has gotten sully to a certain extent, especially in the lower end of the middle market. And interestingly, we're no different. So we've had very good years in swap income. This year, it's much more on balance sheet just by virtue of competitive pressure and also reputational aspects of the product itself. I think that turns around a bit. If you're a client today and you need to borrow, it's a great opportunity because of the expectations of where rates will go down the road. But because of prior experiences that people have had, or their professionals have had, that does tend to impact markets. So we've seen that much more than I've ever seen in the last 6 to 8 months.

This is kind of a what-if question. If we stay in this low rate scenario for a lot longer than we think, do you think U.S. banks will ever charge the customers for deposits? Because all the analysts here are trying to figure out how do we analyze the bank then. But it's...

We've looked at that. We've looked at what's going on in Europe. There's a couple of countries over there that are at negative rates and charging for deposits, and they tend to do it on the high dollar deposits, commercial accounts where they need access to the payment system. I guess it's conceivable. What I'm certain of is we won't be anywhere near the first, right? We're going to have to see other people go. But I will say there's an industry issue around, look, we model rates going up. It's very difficult to model rates going down. And if you talk to folks and they say, well, yes, it's probably not going to happen. Who knows? And it's just a difficult challenge. So we're trying to maintain as neutral an interest rate risk position as we can, obviously biased on the asset sensitivity, but who knows? It's uncharted territory. I will say this, in -- we could have several years' worth of margin pressure in our industry. Who knows? That could happen. So who's going to win? The most efficient banks. That's who's going to win. And that was part of our motivation to say, let's work with our branch people now. Let's not wait until there's an issue. Let's consolidate early. Let's consolidate actively. Having an average branch size of $250 million, all else equal, that's a huge competitive advantage. And so we hope rates go up. I think they will. It would be good for us as a company. But if we're stuck in this band, this strategy still pays off.

Chris, back to the loan and also earnings targets looking out the next couple of years. Should we think of loan growth as kind of a gross number and then there's a net number just because of natural amortization and payoffs? And then I had a related question on sort of how you provide for that.

Sure. So the $2 billion is a net number. In terms of how we provide for that, very hard to say. So I'll give you our CECL experience and Grace is in the back, she can spend as much time as anybody wants on CECL. But -- so I'll just kind of dumb it down because I'll use CEO math, right? If you look at our net charge-offs, which are really low even through the pandemic, even through the Great Recession, and you take our average loan life, there's not enough there to create a material reserve, right? You just don't have the inputs. So now more than half of our reserve at June 30 was qualitative, not quantitative. It didn't come from our loss history. It was stuff we put in because we're still nervous about the environment. And so where do we come out in terms of reserving? I think probably for a net new dollar of loan growth, it's going to be somewhere sub-1% on provisioning for that net new dollar, maybe it's depending on how the quarters line up in your loss history, that could be 60, that could be 75 or 80 basis points. But on net growth, you're going to have to do that. The question is we've got really positive momentum on credit. And I know everybody does, right? And one of the challenges in the world right now is just 2 things, I think, OceanFirst is really good at. We're really good at credit and the market doesn't care, right? And maybe the market is right. Maybe there's just nobody is going to lose any money on credit anytime ever. But we're really good at that, and that really doesn't help us today. So what's the second thing we're really good at? Funding. Nobody cares about that either because everybody's got free money. So we're trying to keep those disciplines because they're what we're good at. But I guess the best thing I can say is not all of it will have to be provided out of earnings. Some of it may be a recapture of existing reserves, but maybe it's 60 to 80 basis points. And I would challenge -- Grace is in the back, so anybody can spend a little more time with there. It depends a little bit on the mix of business, too. Any questions? Any questions from online? Look, we really appreciate -- we know you've got a lot on your plate, a lot of -- spending the time with us this afternoon is really appreciated. We often find in the conversations we have today and even outside this, when we kind of socialized, we learn as much from you as I hope maybe you learn about OceanFirst. So it's really appreciated that you spend the time to be with us today. I hope you got the message that we are squarely focused on controlling what we can control and moving our business forward by building revenue, reducing expenses. In a difficult environment, we're better off. If that difficult environment lifts, we're way better off. But that's what we're doing with the company. We do have -- I really encourage you, if you have the time, to go through the demos. I really appreciate anyone who can join us tonight. We can have more in-depth conversations about a number of things, but I do appreciate your time and energy today. Thank you. Joe, anything?

No. Thanks very much. Appreciate it.

All right. Thanks, everybody.

So as Chris mentioned, we are ready to offer tours. The first stop that we're going to have is the security operations center. If you aren't able to stay for the demos, we totally understand, but please don't miss the tour of our security operations center. It's really amazing, and you won't regret spending a few minutes with us. We're just going to meet right out here by the elevators. You can leave your things here. We'll be coming back this way.