OCEANFIRST FINANCIAL CORP Q3 FY2026 earnings call

• Integration Success: Completed the acquisition of Flushing Financial Corporation on June 1st, with operational integration and rebranding of 30 branches completed on September 21st. All milestones were met on schedule.
• Financial Efficiency: Core operating expenses came in at $114 million, below the guided range of $120-$125 million, driven by higher-than-expected cost savings and expense discipline.
• Loan Growth: Total loans grew $216 million to $16.5 billion. Commercial Real Estate (CRE) grew $202 million and C&I grew $123 million, offsetting residential runoff. C&I originations increased 15% to $735 million.
• Deposit Growth: Total deposits grew $319 million to $18.1 billion. Excluding broker CDs, growth was led by interest-bearing checking and money market balances. The Premier Bank team grew deposits by $181 million.
• Strategic Hiring: Hired Eric Howell as President of the Premier Bank, leveraging his experience from Signature Bank to drive deposit-focused growth. Recruited 11 C&I bankers in 2026.
• Capital & Dividends: Board approved a $0.20 quarterly dividend (119th consecutive quarter). No share repurchases occurred in Q3 due to integration priorities; 3.2 million shares remain available under the authorization.
• Asset Quality: Strong asset quality with non-performing loans at 0.37% of total loans (excluding acquired PCD loans). Early-stage delinquencies declined by $4 million.

The provided transcript does not break down financial performance by distinct product segments (e.g., Commercial vs. Consumer). However, it provides aggregate financial metrics for the combined entity following the Flushing acquisition: GAAP EPS was $0.17 (including $0.30 of non-recurring merger expenses); Core EPS was $0.48 ($46.9 million), up 54% sequentially and 131% year-over-year. Net interest income was $172.51 million (up 43% sequentially). Total loans reached $16.5 billion with ~5% annualized growth, while total deposits were $18.1 billion with 1.8% quarterly growth. Non-interest income was $13 million.

• Q4 2026 Outlook: Expect modest loan and deposit growth of 1-2% quarterly. Net interest margin is expected to be stable to modestly higher, assuming one additional 25 basis point rate hike in December. Other income is expected to remain around $13 million per quarter.
• Expense Guidance: Core operating expenses are expected to decline to $110 million in Q4, with the full run-rate of cost savings reflected in Q1 2027.
• 2027 Targets: Profitability targets remain unchanged. Effective tax rate expected at 28-29%. Detailed guidance for 2027 will be provided in January.
• Capital Return: Expect to be opportunistic with share repurchases going forward, particularly if valuation remains accretive to tangible book value and EPS.
• Securities Portfolio: Unlikely to reinvest cash flows from the securities book; expect a steady reduction in the securities portfolio, potentially down by at least $1 billion over the next 12-18 months.

• Interest Rate Volatility: Uncertainty regarding the speed and magnitude of future Federal Reserve rate hikes and their impact on deposit beta and funding costs.
• Commercial Real Estate Exposure: Potential pressure on CRE investors facing higher repricing rates, though demand has not been adversely affected yet.
• Integration Execution Risks: While largely complete, continued monitoring of pricing methodology differences between OceanFirst and Flushing customer bases is required.
• Competitive Lending Environment: Rate compression in competitive lending spaces, particularly for high-quality credits in C&I and CRE sectors.
• Tax Credit Benefits: Future effective tax rate could fluctuate absent any impact of tax credit benefits.

Q: Analyst asked about net interest margin trends, deposit beta expectations, and how the balance sheet integration impacts the margin trajectory into 2027.

A: CFO Pat Barrett stated that NIM is expected to remain stable to modestly higher in Q4 and Q1 2026, driven by floating-rate assets and fixed-rate asset repricings. He noted an expected 10 basis point increase in deposit costs next quarter, translating to roughly 40 basis points of data on Fed rate hikes, but emphasized that organic growth of lower-cost deposits will mitigate this. CEO Chris Maher clarified that the baseline NIM will settle around 3.08%, coming off a higher Q3 peak, and that applying traditional pricing to the new Flushing base is proceeding well despite different methodologies.

Q: Analyst asked about loan competition in the New York market, lending spreads, and updates on the Premier Bank's deposit targets.

A: President Joe Lebel noted that competition varies by appetite, with some rate compression for top credits but generally realistic pricing. Regarding Premier Bank, CEO Chris Maher confirmed the $2-$3 billion deposit target remains intact, though timing may shift slightly. He highlighted that growing deposits while simultaneously reducing their cost is a key achievement, aided by the full-time leadership of Eric Howell and successful recruitment of new bankers.

Q: Analyst asked about the composition of deposit growth, specifically the split between commercial and consumer deposits, and where revenue upside might come from in 2027.

A: CEO Chris Maher explained that recent deposit growth was primarily commercial (Premier, C&I, CRE), while the retail/consumer base remained stable during the transition period. He anticipates replacing brokered deposits with consumer deposits over time. For revenue upside, he pointed to asset-side margin expansion from over $3 billion in fixed-rate assets repricing in 2027 and potential increases in swap fees as origination volumes grow.

Q: Analyst asked why OceanFirst’s Premier Bank hiring has not yielded immediate massive deposit inflows compared to competitors who hired ex-Signature teams.

A: CEO Chris Maher attributed the difference to scale and brand awareness. Competitors hired vastly larger numbers of people and had existing brand recognition. OceanFirst made a smaller, more deliberate bet, waited longer to enter the market, and lacked immediate brand awareness in New York. However, he expressed confidence that productivity will improve as the unified brand becomes recognizable and Eric Howell’s leadership takes effect.

Q: Analyst asked about the long-term strategy for the securities portfolio and its role in liquidity versus loan growth.

A: CFO Pat Barrett stated that the securities book is approximately 80% fixed with short duration (<4 years) and generates substantial cash flow (~$75 million/month). The bank plans to use these cash flows for liquidity, loan growth, or paying down wholesale funding, but is unlikely to reinvest them. Consequently, the securities portfolio is expected to shrink by at least $1 billion over the next 12-18 months, normalizing its concentration from current levels to around 17% of total assets.