OceanFirst Financial Corp. Q1 FY2026 earnings call

• CEO Christopher Mark mentioned solid first quarter results with EPS of $0.36 GAAP and $0.43 core, net interest income growth, and asset quality being exceptional. - President Joe LaBelle discussed loan originations of $429 million, 19% annualized growth in C&I business, $192 million deposit growth (excluding broker deposits), and Premier Bank progress with over 1,500 new accounts and $21 million in loan originations. - CFO Pat Barrett noted net interest income growth in line with guidance, asset quality remaining very strong, core non-interest expense decrease, and capital levels being strong with an estimated CET1 ratio of 10.7%. - Merger with Flushing Financial Corp: received shareholder and some regulatory approvals, expected closing in second quarter 2026 and full systems integration and rebranding in third quarter 2026, with arrangements made for branch transactions.

Net interest income saw its fifth consecutive quarter of growth, increasing by $1 million (1%) sequentially and $10 million (11%) year-over-year. This was driven by an increase in average net loans of $268 million and net interest margin expansion to 2.93%. Total loans for the quarter increased by $92 million, a 3% annualized growth rate from $429 million in originations. Asset quality remained exceptional with total loans classified as special mention and substandard at 1.5% of total loans, below the 10-year average of 1.8%. Core operating expenses were $69 million, a $2.1 million (3%) decline from the prior quarter, due to outsourcing of the residential lending platform and disciplined expense management. Non-interest income decreased by $2.7 million to $7 million in the quarter, primarily due to lower gain on sale of loans and reduced swap income.

• Expect mid to high single digit loan and deposit growth. - NIM expected to grow past 3% in the back half of the year. - Other income ranging from $7 to $9 million per quarter. - Expenses stable at $70 to $71 million per quarter, excluding impact of Flushing acquisition. - Removed the modest impact of further Fed rate cuts from the outlook.

• Competition is intense impacting loan spreads. - Yield curve playing havoc with repricing. - Criticized and classified loans increased due to one large commercial relationship but remained at low historical levels. - Integration risks related to the Flushing merger.

Q: Good morning, guys. Maybe starting first on the deposit side, nice quarter of growth for you guys. Had some positive mix shift. Sounds like the Premier folks are making an impact there. Maybe just some detail on, you know, you touched on in the prepared remarks a little bit, but where... How sustainable you think this is, if there's any seasonality in the first quarter numbers, if you're able to maintain the mix shift that you've had, any color on the deposit side would be great.

A: Danny, I think you see some seasonality. It's not uncommon for us in our space to see some, given where our geography is. And quite frankly, I think that Premier Guy's momentum, we're going to see more in Q2 and Q3. We're still pretty bullish there. It's a little bit slow start to the year for them, but it was more than made up for in other areas of the company. So we're pretty happy with the trajectory. More work to do, but overall, I think we're generally optimistic.

Q: And the reiteration of the Net Interest Income Guide, despite pulling the cuts out. Is that, and correct me if I'm wrong, but is the read there that competition is increasing and impacting loan spreads, or is it something else?

A: Yeah, I would say yes, competition is pretty intense. You see that in our loan yields, stable versus expanding. So any benefit from maturities and rollovers is being competed away for new originations. And of course, the yield curve is playing a little bit of havoc with repricing. But we've been positioned relatively neutral for several quarters on interest rates. And the impact of the Fed cuts is less of a thing that rolls through our balance sheet than it is a reason that gives us the ability to cut or reduce deposit costs. And it's about a quarter lag on seeing the benefit of that when we do it. So we saw a nice benefit from the PEDS rate cuts in September, November, December. Rolling through this quarter, we had only modeled, I think, a September rate cut and a December rate cut previously. So when we take that out, because we tend to track with consensus where the market views and predicts rates to be, it was less than a half a million dollars of impact on the year. It's a little bit more on an annualized basis for next year, but pretty much de minimis for this year.

Q: And then maybe one for you, Chris, just on the on the portfolio sale for Flushing. Any update there on potential size, timing, anything you can give us in terms of where you stand with that now?

A: Yeah. So the only thing I can tell you is that when we kind of work through legal day one and have all those answers, we'll promptly share them out with folks. There's nothing that's changed our outlook since either the last time that we spoke or the merger model is holding up. So there's really no deviation in terms of marks, earnbacks, anything like that. So I think we're pretty much on track to where we thought we would be. But I leave the details around the balance sheet restructure for legal day one, and we'll talk to you then. And I would note that certainly there are some loan segments we're looking at, but it even goes deeper than that. We're looking at hedges and liability structures and securities portfolios. So it's a It's kind of an all-encompassing review to make sure we have the right balance sheet coming together as a combined company. So there's a lot of kind of different things we would tick and tie, but we will report them out to you guys promptly. Our views haven't changed, and the merger model is on track. No reason to have any concern about either marks or earn-back periods at this point.

Q: Hey, good morning. Thanks for taking the question. All right, Tim. So you guys mentioned prior to few C&I bankers already, two other premier bank teams and, you know, looking to maybe do a little bit more hiring, like any goals in terms of how many bankers you'd like to add and how should we think about this impacting the expense outlook?

A: Tim, the way I think about it is we're really bullish on the opportunity to be building out our franchise in New York. We think there's so much opportunity there that the more qualified bankers we can bring on, the better. So I think that as we see that opportunity, it's getting us interested in adding a few more bankers. But, Joe, you might talk a little bit about the work you're doing now. And this is kind of key hiring season. So why don't you take it from there?

A: Yeah, Tim, there's a lot of irons in the fire. I'm a big believer that you hire talent when talent's available to you. So we were fortunate to get a couple folks just ahead of the hiring season. We're in the thick of it today. I think you'll see more from us in the coming quarters. But we're pretty bullish. A lot of that talent's going to come in the C&I section of the bank, which I think is where you're going to see the vast majority of the loan growth as we diversify the mix over time. But there's good talent to be held. or had across the geographies that we're in. I'd also note, and we mentioned this in the prepared remarks, that we've made a lot of progress on a few things that relate to the infrastructure costs around the company. So we did guide on standalone expenses, and those reflect us being able to add a significant amount of talent but not have expenses go up. So we're seeing material decreases in some of the operations areas. which is helping us fund the new folks that we're bringing on board. So I think we're going to have a brisk hiring season, and we're going to be able to comply with the expense guidance that we put out earlier. So don't look for expenses to move up if we are able to hire several more high-quality bankers. We've got room to do that. But don't be surprised if you see comp expenses go up and data processing expenses go down, and the net would be a push.

Q: but there was some you know slight credit migration across some of the more forward-looking metrics nothing crazy and all from like low levels but um just to check the box is there anything systemic in there or concentrations in certain sectors A: no it was really just it was a single customer had a weak year last year so you kind of you look at your risk ratings on that basis um You know, at this point, it looks like that they've got runway to recover and migrate back out of that over a foreseeable time period. But they were watching closely, but it was only one credit, and it was not something that had a pattern or anything that we would be concerned about bleeding from there.

Q: and the timing of close for the merger, so we'd be thinking like end of Q2. So we're going to close pretty promptly after we receive the final regulatory approval, but we've got to kind of respect their process and understand where they are. You know, there is a typically you're not really able to close for about 15 days after you receive the final Fed approval. So, you know, we would be hopeful that we're doing it, you know, earlier in the quarter, but who knows. And we've got to just kind of respect that process and let's see how things fall out.

A: Yeah, okay, totally understand. Thank you.

Q: Hey, good morning, gentlemen. Good morning, David. Hey, Chris, Joe, I'm just curious, as you sort of get to know, you know, the legacy flushing franchise and their customer and deposit base, any sort of update on your assumptions in terms of your ability to sort of, you know, go in there and maybe reprice and, you know, you know, may re-systemize, remap some of their deposit products and realize some of the maybe deposit cost saves you guys may have contemplated on first pass?

A: I think there's opportunity, Dave, in a lot of different ways. First, we've been very pleased as we've, you know, you can do all your work and diligence, but as you start working kind of face-to-face with people in broad numbers and get to know them better, we've got, you know, hundreds of people with Ocean First and Flushing working together and preparing for not just the closing but the integration and how we're going to run the business together. I really enjoyed that opportunity. A lot of good talent there. A particular call out, we think the branch folks are fantastic. We're working through a process of integrating the commercial bankers as well. I think in terms of deposit pricing, I think that some of that will be a little bit market driven. We've got to just understand where the market comes, the yield curve kind of bouncing around the last few weeks is we've raised the question in our mind about how much you could reprice. But the model was not especially dependent upon that. So I think we have an opportunity. And, you know, look, we're looking at the whole balance sheet because if we have an opportunity to restructure the balance sheet, we may be able to be less dependent on certain sources of funding. That could give us some options as well. So we still feel good about it, but we're also watching the the broader world and where short-term rates are and what Fed policy becomes, because that'll probably make a little bit of a difference over the next couple of quarters. As Pat pointed out, it's not going to make a big difference in our full-year earnings or the NIM, but around the margins, it could better.

Q: Then maybe one follow-up question. Obviously, the focus with the merger, obviously, in the New York metro area, but A lot of disruption from integration, you know, from M&A down in the greater Baltimore, D.C. region. Still looking to potentially add talent down in this metro area as well as Boston.

A: Absolutely. I was just staying with that team a couple weeks ago, and we think there's a great opportunity there. But, Joe, maybe you can walk through that one more.

A: Yeah, Dave, we have almost a dozen folks down there now. We've continued to build that team out in the last 18 months, and we're remain out there looking for more. I think we're still just scratching the surface of our opportunities down there. I think one of the things we're seeing, Dave, is kind of the advent of technology. There are a lot of smaller technology players that are working in the mission-critical government space, you know, everything from defense to cybersecurity and all that. And because they're smaller companies, they have, you know, it really – particularly suits our banking model, where the relationship matters a great deal, where they're looking to align themselves with the bank over the long term, and a bank that can grow with them because they may be small today but have aspirations to grow very quickly. So I really enjoyed meeting and working with a lot of those clients, and we think we can grow that pretty nicely in the coming years.

Q: Thanks. Good morning. I wanted to ask a little bit about the kind of non-New York geography and sort of new CNI business that you're doing in Philadelphia and Boston and the D.C. corridor and kind of how those markets can complement what you're building now with flushing and the combined ocean first footprint.

A: Chris, I'll start with Boston, just to give you a little bit of flavor, the three C&I hires this year were in the Boston footprint. We're pretty happy with that addition. That team is now eight folks or so. I mentioned earlier we're almost a dozen down in the D.C.-Baltimore metro. Philly's always been a constant performer. It's a book that's north of $2 billion today. We're really bullish on all three markets, continuing to add people in those segments. The C&I business is growing in all three segments. If you recall, you know, initially the Cree business was very strong in Philly and Boston, but the focus for us has been to diversify the books, and I think we've done a really good job there. But as I mentioned earlier, we're just touching the surface. I think there's a wealth of opportunity going forward.

Q: and, and, um, you know, Chris or, or Joe, um, if you go back to when signature failed a couple of years ago, um, how much business is still out there to move? If you had to ballpark it in terms of today, do you think, you know, there's always some opportunity there, but you know, we're really focused on is winning share across kind of a wider group of a lot of, a lot of different competitors. And in fact, the hires we made, including the number of the hires you made into the premier group this year, came from other banks and have other targets. So I think what we tried to build when we brought our teams over was to build out the folks that had had a history of working in this model and hiring bankers from a variety of different institutions and kind of bringing them into the premier model and making it work. So I think we're less dependent upon any particular competitor, but there is still opportunity out there. If we go back pre-pandemic and the hires you were doing in those years, Chris, it's going to look more like that, a real diverse set of institutions that bring their customers over.

A: That's exactly, although I will say that we continue to focus the premier group, although it's recruiting from a variety of sources, is still a deposit-heavy, deposit-centric hire. So the bankers we're looking at there are bankers that can bring cash management portfolios with them. which is a slightly different focus. The CNI folks bring cash management with them as well. And in fact, we're really happy. Our CNI bankers are funding almost 50% of their asset growth with their own deposits, which exceeds our expectations in that segment. But in the premier segment, we expect it to be more, you know, they would be funding, contribute excess funding. So it's a slightly different candidate but would look very similar to what we've done over the years.