OceanFirst Financial Corp.

Good morning. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ocean First Financial Corp First Quarter 2026 earnings call. All lines have been placed in mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during the Q&A session, simply press star, followed by the number one on your telephone keypad. And if you would like to withdraw your question, simply press star again. I will now turn the call over to Alfred Yun. Please go ahead.

Thanks, John. Good morning and welcome to the Ocean First first quarter 2026 earnings call. I'm Alfred Goon, SEP 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 now I will turn the call over to Christopher Mark, Chairman and Chief Executive Officer.

Thank you, Alfred. Good morning, and thank you to all who have been able to join our first quarter of 2026 earnings conference call. This morning, I'm joined by our President, Joe LaBelle, 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 look forward to taking your questions. We've reported solid first quarter results, which included earnings per share of $0.36 on a fully diluted GAAP basis and $0.43 on a core basis. GAAP earnings per share increased a penny and core earnings per share increased $0.08, or 23%, as compared to the prior year's quarter. In terms of performance indicators, we delivered our fifth consecutive quarter of net interest income growth, which increased by $1 million, or 1%, as compared to the linked quarter, and was up $10 million, or 11%, as compared to the prior year's quarter. This performance is driven by an increase in average net loans of $268 million and net interest margin expansion to 2.93%, supported by lower costs of funds and earning asset growth. Total loans for the quarter increased by $92 million, representing a 3% annualized growth rate, driven by $429 million in originations. Joe will have more to add regarding our growth strategy in a few minutes, but we are encouraged by the continued organic growth momentum from the second half of last year. Asset quality remained exceptional, as total loans classified as special mention and substandard were 1.5% of total loans, below our 10-year average of 1.8%, and within the top decile of our peer group. The quarterly provision was primarily driven by loan growth and an increase in criticized and classified loans, partly offset by lower unfunded commitments. Cap operating expenses for the quarter were $73 million, which includes $4 million of merger-related expenses. On a core basis, operating expenses of $69 million declined by $2.1 million, or 3%, from the length quarter. primarily driven by the impact of our strategic initiative to outsource the residential lending platform and disciplined expense management across the company. Looking forward, we've worked diligently to restructure our core IT infrastructure and position the bank to benefit from the deployment of artificial intelligence across all departments. We've invested in AI through existing vendor relationships and have started to see the efficiency benefits in legacy bank processes while looking to further enhance our capabilities. We see significant opportunities to date, and these efforts will enable our ability to improve operating leverage, building further scalability as the bank grows. Pat will provide additional commentary on our financial outlook in a moment. Capital levels remain strong, with an estimated common equity Tier 1 capital ratio of 10.7%, and tangible book value per share increasing to $19.86. During the quarter, we also repurchased a modest number of shares solely related to the vesting of employee equity awards we did not repurchase any shares under the board approved authorization as previously announced a quarterly cash dividend of 20 cents per common share was declared marking the company's 117th consecutive quarterly cash dividend finally on december 29th 2025 we announced our merger agreement with flushing financial corporation and an investment agreement with warburg pinkus to date both companies have received shareholder approval. In addition, we have received regulatory approvals from the State of New York Department of Financial Services and from the OCC. Approval from the Federal Reserve remains the final outstanding regulatory requirement to complete the merger. We continue to work towards an expected closing in the second quarter of 2026 and a full systems integration and rebranding in the third quarter of 2026. Importantly, We've made arrangements to accommodate branch transactions for all customers in all branches, effective in our first day of operation. We've undertaken that work as we believe that the additional flushing branches will provide an immediate and meaningful competitive advantage. We plan to provide a detailed financial update on the flushing merger in connection with our second quarter earnings, which will include a discussion on the pro forma balance sheet and other projections from our latest deal with the merger model. In the meantime, we remain focused on executing our organic growth strategy, which is clearly reflected in our results of this quarter. At this point, I'll turn the call over to Joe for additional color on these businesses. Thanks, Chris.

I'll start with loan originations for the quarter, which totaled $429 million and resulted in quarterly loan growth of $92 million, which was in line with our expectations given typical first quarter seasonality and and a handful of customer accelerated closings at the end of Q4. Our C&I business grew 19% on an annualized basis from the linked quarter, with closed loan volume in C&I and commercial real estate up 81% year over year, reflecting continued momentum from our recruitment of talent added in 2024 and 2025. We added another three C&I bankers in Q1 2026, with plans for more in the coming quarters. Total deposits grew by $192 million, or 2% in the quarter. Excluding broker deposits, deposits increased $314 million, driven by broad-based organic growth across our core business lines and institutional deposits. The Premier Bank deposits grew $9 million, or 3% from the linked quarter. The team has brought in over 1,500 new accounts across 400 relationships since the May 2025 inception, with approximately 20% representing non-interest-bearing accounts. As an added benefit, the teams contributed $21 million in loan originations for the quarter, and the loan pipeline in Premier stands at $40 million. Customer engagement and calling activity has been significant, and the addition of the Flushing branch footprint will provide a meaningful tailwind moving forward. We remain confident in our 2026 premier deposit targets and have recently added two new premier teams located in Manhattan and Long Island, with a few more on the horizon. Lastly, non-interest income decreased by $2.7 million to $7 million during the quarter, primarily driven by a lower gain on sale of loans of $779,000 relating to the Q4 2025 outsourcing of our residential platform. Additionally, we saw some reductions in commercial and swap income due to lower swap origination volume for the quarter. That should improve through the year as seasonal origination volumes increase. Overall, non-interest income levels were in line with our expectations and as guided in the previous quarter. With that, I'll turn the call over to Pat to review the remaining areas.

Thanks, Joe. As Chris noted, net interest income increased and margin expanded in line with our previous guidance. Compared to the previous year's quarter, net interest income grew $10 million, or 11%, attributed to the tremendous loan growth in the latter half of 2025. Pre-tax pre-provision core earnings grew 4%, or $1.2 million, from the prior quarter. driven by earning asset growth during the quarter and in the second half of 2025. Loan yields decreased modestly, reflecting both lower rates and a continued mixed shift within the portfolio. Total deposit costs decreased 16 basis points, driven by disciplined pricing across our relationship base and reflecting the positive impact of the Fed's rate cuts in late 2025. Looking ahead, we expect positive expansions in net interest income in line with our loan growth and a stable to modest increase in margin over the next quarters. As Chris mentioned, asset quality remained very strong, with non-performing loans to total loans and non-performing assets to total assets both at 0.31%. Criticized and classified loans increased during the quarter, driven by one large commercial relationship that remains current and well-collateralized. Even including this increase, asset quality continues to remain at the low end of historical levels for criticized and classified loans. And lastly, net charge-offs were de minimis, representing only three basis points of average total loans on an annualized basis. Turning to expenses, core non-interest expense decreased from 71 million to 69 million, driven by our initiative to outsource the residential business. Non-core items in the first quarter were almost entirely flushing merger-related costs. Looking ahead, we expect our second quarter core operating expense run rate to remain in the range of $70 to $71 million. Capital levels remain strong, with our estimated CET1 ratio 10.7%. A word on taxes. We expect our effective tax rate, which was 24% in the first quarter, to remain in the 23 to 25% range absent any tax policy changes. This will change with the impact of the flushing acquisition and we'll update you accordingly once the transaction closes. There are no changes to our full year guidance as stated in the previous quarter, although we've removed the modest impact of further Fed rate cuts from our outlook. To recap, our guidance is for mid to high single digit loan and deposit growth. NIM growing past 3%, in the back half of the year, other income ranging from $7 to $9 million per quarter, and expenses stable at $70 to $71 million per quarter. Note that these are standalone expectations and do not reflect the impact of the Flushing acquisition. We've also added our second quarter outlook for your convenience. At this point, we'll begin the question and answer portion of the call.

Thank you. Ladies and gentlemen, we will now begin the Q&A session. And at this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking the question. Our first question comes from the line of Daniel Tamayo with Raymond James. Please go ahead.

Thank you. Good morning, guys. Good morning. 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. Thanks.

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.

Okay. 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?

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.

Got it. Okay. Thanks for the color path. 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?

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.

All right. I appreciate it. Thanks, guys. I'll step back.

Our next question comes from the line is Tim Switzer with KBW. Please go ahead.

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?

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?

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.

guys okay yeah good to hear um and you touched on this in your in your comments earlier 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 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.

Okay, great. And one last quick one for me, like 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.

Yeah, okay, totally understand. Thank you.

Our next question comes from the line of David Bishop with the Havdi Group. Please go ahead.

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?

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.

Got it. 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. Next.

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.

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.

Great. I appreciate the color.

All right. Thanks, Dave. Our next question comes from the line of Christopher Maranek with Breen Capital Research. Please go ahead.

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.

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.

Great show. Thank you for that. 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.

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.

Great. Thank you, Chris. I appreciate the background here. All right.

Thanks, Chris. Thank you. And at this time, we have no further questions. I will now turn the call back over to Chris Merritt for closing remarks.

All right. Thank you. We appreciate your time today and your continued support of Ocean First Financial Corp. We look forward to speaking with you in July. at our second quarter results and hope we'll have the opportunity to go a little deeper in the flushing merger model at that time as well. So thanks, everyone.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lives at this time. Thank you for your participation and have a pleasant day.