OCEANFIRST FINANCIAL Q2 FY26 earnings call OCFC

OceanFirst completed its transformational acquisition of Flushing Financial Corporation on June 1, 2026, concurrently with a $225 million strategic investment from Warburg Pincus. The acquisition added approximately $8.7 billion in total assets, $5 billion in loans, and $7.4 billion in deposits, along with 30 retail branches, bringing the combined franchise to approximately $23 billion in assets. The company also repositioned its balance sheet by selling $1.3 billion of multifamily loans acquired from Flushing, reducing commercial real estate concentration by 50 percentage points to 381% and reinvesting proceeds into highly liquid investment-grade securities.

On a core basis, earnings per share was $0.43, unchanged from the prior quarter and up 39% from the prior year. Pre-tax, pre-provision core earnings grew by 29% from the prior quarter to $44.5 million. Net interest income increased $24 million (25% QoQ) to $121 million, and net interest margin expanded 12 basis points to 3.05%. The company noted this highlights a multi-quarter journey towards peer profitability levels, driven by revenue-generating investments.

Loan originations totaled $642 million, a 50% increase from the prior quarter. Excluding the Flushing acquisition and multifamily loan sale, underlying commercial organic loan growth was approximately $154 million, or 2% from the prior quarter. The C&I business grew 8% on an annualized basis, supported by recruitment efforts, with 17 iBankers recruited so far in 2026. Management expects to continue opportunistic hiring throughout the year, particularly in Q1 of next year.

Total deposits grew by $6.6 billion to $17.8 billion, primarily due to the $7.4 billion of deposits acquired from Flushing. Excluding Flushing, deposits modestly declined due to seasonal government outflows and reduced brokered deposits. Positively, non-interest-bearing deposits increased 6%, and premier bank deposits grew by $150 million, with the cost of deposits dropping by 17 basis points. The premier group now manages 426 clients and 1,879 accounts, contributing $45 million in loan arrangements for the quarter, and two new premier teams were added in Manhattan and Long Island.

Underlying asset quality remains strong. Excluding acquired credit deteriorated loans, non-performing loans to total loans were 0.33%, and non-performing assets to total assets were 0.38%, consistent with historically low levels. Criticized and classified loans increased to 3.12% of total loans, impacted by the application of OceanFirst's credit rating methodology to the Flushing portfolio, but this does not reflect underlying credit deterioration. The allowance for credit losses increased to 1.29% of total loans, primarily reflecting a Day 1 reserve of $80 million established for the Flushing portfolio.

GAAP operating expenses were $130 million, including $43 million of merger-related expenses. On a core basis, operating expense was $87 million, including $15 million from one month of Flushing operations. Excluding Flushing, the core expense base was $72 million. Integration planning is well underway, with full integration, systems conversion, and rebranding anticipated by the end of Q3 2026. Cost savings are expected shortly after systems conversion, with operating expenses projected to decline further in Q4 and operating leverage to improve throughout 2027 with AI-driven automation.

Capital levels remain strong post-acquisition, with an estimated common equity Tier 1 ratio of 10.7%, flat to the previous quarter, supported by the Warburg Pincus investment. Book value per share was $18.19, reflecting purchase accounting and the substantial increase in the allowance for credit losses. The Board approved a quarterly cash dividend of $0.20 per common share, marking the company's 118th consecutive quarterly cash dividend. Management prioritizes organic growth, followed by buybacks for excess capital, and is not currently pursuing M&A.