OCFC

Post-Merger Balance Sheet Restructuring

• Completed the Flushing acquisition and associated balance sheet restructuring, resulting in a cleaner balance sheet as of July 1st, with excess liquidity and a lower loan-to-deposit ratio.
• Sold multifamily loans that were primarily lending-only relationships, retaining loans where the bank held strong primary customer relationships and deposit profiles to preserve cross-business opportunities.
• Retained remaining non-securitizable rent-regulated multifamily loans, which are high-quality (50% average LTV, 140% debt service coverage, 5.5% average yield) and placed this asset class in a gradual runoff posture.

Interest Rate Risk Management

• Added interest rate hedges (caps and collars) to offset Flushing's original liability sensitivity, bringing the combined bank to a modestly liability sensitive, near-neutral overall rate position.
• Hedges are primarily designed to mitigate tail risk from large rate moves outside the normal +/- 100 basis point range, with total hedged volume of ~1.3 billion yen.

• Net interest margin (NIM) guidance of 320 bps by 2027 post-merger is reaffirmed, driven by full-quarter purchase accounting accretion, loan mix shift to higher-yield construction and C&I lending, and tactical reductions in deposit costs from optimizing Flushing's funding base.
• Expenses for the second half of 2026 include a $2 million one-time expense for the new digital banking platform. Most merger-related cost savings will begin in Q4 2026 after system conversion, with the majority of savings kicking in from Q1 2027; management expects a full-year 2027 operating expense run rate closer to 100 billion yen than 110 billion yen, with continued operating leverage improvements throughout 2027.
• The balance sheet is expected to stay flattish in 2026, with net loan growth starting in 2027 after reducing the current elevated securities position. Target loan-to-deposit ratio will stay below 95% to maintain strong liquidity, down from historical levels closer to 100%.
• Net charge-offs are expected to run slightly above the bank's historical near-zero levels as C&I lending grows, but will remain well below peer group averages with no material impact to profitability.
• Long-term minimum ROA target is 1.2%, with the bank targeting to exit 2027 above 1% on a trajectory to hit the long-term target in 2028.

No specific segment-level financial performance data (absolute revenues or revenue contribution percentages) was provided in the shared Q&A portion of the transcript. The only segment-related detail shared is that remaining rent-regulated multifamily loans represent a small portion of the overall loan portfolio, with a 14.5% credit reserve against this asset class.

• Ongoing competitive pressure from both bank and non-bank lenders is keeping new loan spreads at historically tight levels, particularly for CNI loans, which creates margin pressure that is reflected in current guidance.
• Rent-regulated multifamily loans carry public policy risk, which the bank has mitigated with a 14.5% credit reserve and aggressive mark-to-market pricing.
• Interest rate volatility remains a key uncertainty; while the bank is near-neutral to modest rate moves, large parallel shifts in the yield curve could create modest revenue impacts.

Q: What is the bank's interest rate sensitivity, and are current competitive margin pressures reflected in second half guidance?

A: After adding hedges, the combined bank is modestly liability sensitive and near-neutral overall. A 25 basis point rate hike would create a ~$5 million pre-tax annual revenue impact, while a rate cut would reduce annual revenue by ~$4 million. The bank is shifting its loan mix to higher-yield construction and C&I loans to offset competitive pressure on spreads, which is already incorporated into guidance.

Q: After the Flushing acquisition, what are the bank's capital priorities and appetite for further M&A?

A: The top capital priority is organic, disciplined commercial loan growth. If excess capital accumulates after pursuing quality growth, the next priority is share repurchases. Management is fully focused on integrating Flushing and is not pursuing further M&A at this time.

Q: What is the strategy for the remaining rent-regulated multifamily loans, and are there other Flushing assets targeted for expedited sale?

A: Remaining rent-regulated multifamily loans will be gradually run off over 8-12 quarters. They are high-quality assets with strong debt service and low LTVs, but they are less liquid and carry public policy risk, so the bank has marked them aggressively with a 14.5% credit reserve. No other Flushing assets are targeted for expedited sale; the full balance sheet restructuring is complete.

Q: What is the timeline and expected impact of merger cost saves, and when will we see a clean operating run rate?

A: The bulk of merger cost saves will begin in Q1 2027 after system conversion and post-conversion staff consolidation. Q1 2027 will be the first clean operating quarter, with management expecting continued operating leverage improvements throughout 2027 as expenses hold steady or fall while loan and deposit grow.