OceanFirst Financial Corp 2026 Q3 Earnings Call

Good morning, and welcome to the OceanFirst third quarter earnings call. I'm Alfred Goon, SVP of Corporate Development and Investor Relations. Before we kick off the call, we'd like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company website, oceanfirst.com. Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures. All participants should refer to our SEC filings for a complete discussion of forward-looking statements and associated risk factors. Thank you, and I will turn the call over to Christopher Maher, Chief Executive Officer of OceanFirst.

Thank you, Alfred. Good morning, and thank you to all been able to join our third quarter 2026 earnings conference call. This morning, I'm joined by our President, Joe Lebel, and our Chief Financial Officer, Pat Barrett. We appreciate your interest in our performance and this opportunity to discuss our results with you. This morning, we will provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business. We may refer to the slides filed in connection with the earnings release throughout the call. After our discussion, we'll look forward to taking your questions. We reported third quarter results that reflect our first full quarter as a combined company following the acquisition of Flushing Financial Corporation.

On a GAAP basis, we reported earnings per share of $0.17, which included $0.30 per share or $29.4 million of non-recurring merger-related expenses, net of taxes. On a core basis, which excludes non-recurring items, earnings per share were $0.48 or $46.9 million, up 54% from the prior quarter and up 131% from the prior year. Compared to the third quarter of 2025, net interest margin has expanded 27 basis points, core return on average assets has improved 20 basis points to 80 basis points, and our core efficiency ratio has improved more than eight percentage points to 62%. This reflects both the early benefits of the Flushing combination and the multi-year return on our revenue-generating investments. This week, our board also approved the quarterly cash dividend of $0.20 per common and common equivalent shares, marking the company's 119th consecutive quarterly cash dividend.

Regarding capital, our priorities are, first, supporting organic growth in our core businesses, second, maintaining our dividend, and third, returning excess capital through share repurchases when the returns are compelling. We did not repurchase shares under the share repurchase program during the third quarter as we prioritized capital flexibility through the Flushing integration, leaving 3.2 million shares available under our existing repurchase authorization. With integration risks behind us and earnings growing, we expect to be more active with share repurchases. Share repurchases at the current valuation are accretive to both tangible book value and earnings per share. If that remains the case, we expect to be opportunistic with repurchases going forward. Pat will discuss our capital outlook and current capital ratios in his remarks.

We completed our acquisition of Flushing Financial Corporation on June 1st, and on September 21st, completed the operational integration and rebranding of Flushing's 30 branches across New York City and Long Island. We are pleased that the acquisition closing on June 1st, balance sheet restructure on June 26th, and operational integration on September 21st have all been completed on schedule and executed in a manner consistent with the original merger announcement. We remain on track to achieve the cost savings and returns outlined at the transaction announcement and note that third quarter core operating expenses came in below the range we guided to in July. We expect the majority of the remaining cost saves to be reflected in our fourth quarter run rate. Even more importantly, we continue to see competitive wins in both talent acquisition and customer acquisition across the Flushing footprint.

With the integration complete, our focus remains fully to executing our organic growth strategy, which is reflected in this quarter's loan and deposit growth. I am proud of the pace at which our team has moved on both fronts. At this point, I will turn the call over to Joe for additional color on these businesses.

Thanks, Chris. I will start with loans. Total loans grew $216 million during the quarter to $16.5 billion, approximately 5% annualized growth, which included $202 million of commercial real estate growth and another $123 million of C&I growth, partly offset by the expected residential runoff. Commercial loan originations increased 15% to $735 million from $642 million in the prior quarter. This is our first full quarter of growth as a combined company and reflects our focus on core relationships. Our mission to grow the C&I business across our markets to diversify our commercial loan portfolio continues as C&I grew approximately 13% on an annualized basis. We have recruited 11 C&I bankers so far in 2026 and continue to be opportunistic with hiring. Moving to deposits, total deposits grew $319 million or 1.8% during the quarter to $18.1 billion.

Excluding brokerage CDs, deposits grew $156 million, led by interest-bearing checking and money market balances. Non-interest-bearing checking averaged $2.9 billion or 16% of total average deposits, and our loan-to-deposit ratio ended the quarter at 91%. The Premier Bank teams had their strongest quarter to date, growing deposits by $181 million during the quarter to $674 million, while the cost of deposits was 2.49%. The group now manages 490 client relationships and 2,209 accounts and contributed $42 million in loan originations for the quarter. The two Premier Bank teams we added in Manhattan, Long Island during the summer are ramping up in line with our expectations. I also wanted to take the opportunity to announce the hiring of Eric Howell as the President of the Premier Bank.

As you know, Eric Howell was instrumental in the growth and success of the deposit-focused model at Signature Bank and has been a consultant for us for the past 24 months. We look forward to Eric's leadership and our continued success in the Premier Bank. In terms of calling activity across the Flushing footprint, including the Asian American community, we continue to surface meaningful C&I and CRE loan and deposit opportunities, and client relationship retention through the conversion has been in line or better than our expectations. Lastly, non-interest income was $13 million during the quarter, up from $10.6 million in the prior quarter, reflecting a full quarter of Flushing's fee and BOLI income, partly offset by lower gains on other real estate and lower commercial loan swap income. This was well within the range of $12 million-$16 million we guided to in July.

With that, I'll turn over the call to Pat Barrett to review the remaining areas of the quarter.

Thanks, Joe. Good morning to everyone on the call. We delivered our ninth consecutive quarter of net interest income growth. Net interest income was $172 million, up $51 million, or 43%, from the prior quarter, and 90% from the prior year, driven by a full quarter of Flushing, earning asset growth, and a $5.5 million non-recurring benefit from the payoff of a non-performing loan acquired from Flushing. Pre-tax, pre-provision core earnings were $71 million, up 59% from the prior quarter. Third quarter net interest margin expanded 13 basis points to 3.18%. Excluding the impact of the non-recurring recovery, net interest margin was 3.08%. Loan yields increased 27 basis points to 5.82%, reflecting new originations and a full quarter of the Flushing portfolio, while total deposit costs were 2.17%, up 11 basis points.

The increase in deposit costs reflected a full quarter of Flushing, partly offset by the non-recurring benefit from purchase accounting adjustments. Our asset quality remained strong. Excluding purchased credit deteriorated or PCD loans, non-performing loans were 0.37% of total loans. Non-performing assets were 0.32% of total assets. It's both consistent with our historically low levels, and early-stage delinquencies improved or declined $4 million during the quarter. Reported non-performing loans increased to 0.85% of total loans, with substantially all of the increase coming from acquired PCD loans, which carry the fair value marks established at the time of acquisition. Criticized and classified loans were approximately 3.13% of total loans, essentially flat to the second quarter. We have no broad-based concerns in the portfolio. Our allowance for credit losses remained at 1.29% total loans.

The provision for the quarter was $4.3 million, reflecting loan growth, replenishment of net charge-offs, and continued macroeconomic uncertainty. Net charge-offs were de minimis at approximately 4 basis points of average loans on an annualized basis. Turning to expenses, GAAP operating expenses for the quarter were $151 million, which included $37 million of merger-related expenses. Core operating expenses were $114 million, below the $120 million-$125 million range that we guided to back in July. This reflects higher cost saves in the quarter than we originally projected and continued expense discipline. Capital remains strong with an estimated common equity Tier 1 capital ratio of 10.6%, a modest decrease from June 30th, as capital generation was offset by merger-related expenses and loan growth.

Tangible book value per share was $18.08, which was down slightly from the prior quarter, reflecting merger-related costs of approximately $0.30 per share and a $14 million after-tax increase in accumulated AOCI. This is actually accumulated other comprehensive loss. This is primarily reflecting the higher interest rate environment adjustment on the securities book. With merger expenses largely behind us, we expect tangible book value and capital ratios to grow from here. On a normalized basis, our effective tax rate was approximately 29%. Going forward, our expected tax rate is 28%-29%, absent any impact of tax credit benefits. Turning to our outlook for the fourth quarter, we expect modest growth in both loans and deposits in the near term, 1%-2% quarterly. Subject to growth and adjusted for the non-recurring interest recovery, we expect net interest margin to be stable to modestly higher in the fourth quarter.