OceanFirst NIM Slips Below 3% as Loan Growth Surges

Date of Call: Jan 23, 2026

Financials Results

• EPS: $0.23 per diluted share (GAAP), $0.41 per share (core)

Guidance:

• Loan and deposit growth: mid- to high single-digit for the year.
• Net interest income (NII) and net interest margin (NIM) expected to grow, with NIM expected to pass 3% during the year and NII ramping in the second half.
• Core operating expenses for Q1 expected to be $70M-$71M.
• Effective tax rate expected to be 23%-25% quarterly.
• No changes to full-year guidance, which does not include the impact of the Flushing acquisition.
• Q1 always reflects a 2% day count reduction from Q4.

Business Commentary:

Net Interest Income and Margin:

• OceanFirst Financial Corp reported net interest income growth of $5 million or 5% compared to the prior quarter and up 14% year-on-year.
• The net interest margin was 2.87%, showing a modest decline compared to the third quarter.
• Growth in net interest income was driven by an increase in average net loans, while margin pressure was due to floating rate resets and a mix shift in the portfolio.

Loan Growth and Asset Quality:

• Total loans increased by $474 million, representing an 18% annualized growth rate, driven by $1 billion in originations.
• Asset quality remained strong with total loans classified as special mention and substandard decreasing by 10% to $112 million.
• The growth was fueled by investments made in the first half of 2025 and favorable conditions for borrowers.

Operating Expenses and Strategic Initiatives:

• GAAP operating expenses for the quarter were $84 million, including $13 million for strategic initiatives like outsourcing and merger costs.
• Core operating expenses were down $1 million or 2% from the previous quarter.
• The decrease in core expenses was primarily due to the strategic initiative to outsource the residential lending platform.

Capital Levels and Dividend:

• The company reported a robust Common Equity Tier 1 capital ratio of 10.7%.
• OceanFirst did not repurchase any shares under the existing plan to support loan growth.
• The board approved a quarterly cash dividend of $0.20 per common share, marking the 116th consecutive quarterly cash dividend.

Strategic Acquisition and Growth:

• OceanFirst announced a merger agreement with Flushing Financial Corporation and an investment agreement with Warburg Pincus.
• The acquisition aims to support organic growth initiatives in New York, with an expected close in the second quarter of 2026.
• The merger is anticipated to improve profitability and increase operating scale, delivering meaningful upside to shareholders.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed being 'pleased' with results, noting a fifth consecutive quarter of net interest income growth, 'exceptional' asset quality, robust capital levels (CET1 ratio 10.7%), strong loan growth (18% annualized), and record quarterly loan growth. The merger with Flushing is expected to deliver 'meaningful upside' and improve profitability. Forward guidance anticipates growth in NII, NIM, and loan/deposit growth.

Q&A:

• Question from Daniel Tamayo (Raymond James): Maybe just a clarity on your net interest income guidance...
  Response: NII will grow at a bit higher clip than loan growth due to compounding balance sheet effects; expect high single-digit growth for the year.

• Question from Daniel Tamayo (Raymond James): ...any kind of updated commentary around what loan sales might end up looking like after the close?
  Response: It is too early for precise figures, but portfolio review expects to improve margins and ROA while reducing credit risk.

• Question from Daniel Tamayo (Raymond James): ...on the expense line. Where is the recurring CRT premium expense?
  Response: It is an OpEx item, appearing in the 'other' expense line, similar to an insurance premium.

• Question from Timothy Switzer (KBW): ...on commercial balances, C&I... What kind of pace should we expect for 2026?
  Response: Expect similar growth rates of 7% to 9% for C&I, driven by talent investments and favorable conditions.

• Question from Timothy Switzer (KBW): ...how much of the growth this quarter in C&I was driven from the Premier Bank...
  Response: Premier Bank generated just shy of $200M in gross closed loans in the first half, with strong self-funding leading to deposit growth.

• Question from Timothy Switzer (KBW): ...on the Premier Bank specifically, it looks like the deposit growth maybe slowed down...
  Response: The slowdown was due to seasonality and distribution timing; expect recoveries and continued growth, with 2027 targets unchanged.

• Question from Christopher Marinac (Janney Montgomery Scott): I wanted to ask about the Premier banking new money rate...
  Response: Overall deposit cost is down to about 2.25%; noninterest-bearing deposits are coming in faster, with a trend toward lower yields and faster growth.

• Question from Christopher Marinac (Janney Montgomery Scott): ...as you move forward with Flushing, can you just go back through the opportunity...
  Response: There is a significant opportunity to grow deposits by leveraging Premier Bank's platform and branch network, attracting top talent, and optimizing the combined balance sheet.

• Question from David Bishop (Hovde Group): ...on the C&I growth here and maybe for Joe. Just curious geographically...
  Response: Growth is geographically dispersed, driven by talent hires and Premier Bank; some activity is from expiring noncompetes, with a positive flywheel effect from new bankers.

• Question from David Bishop (Hovde Group): ...I saw the earnings narrative on the deposit funding side...
  Response: The deposit rate reset was a one-time, large customer item fully reflected in Q4 and not expected to recur; NIM was only slightly impacted.

• Question from David Bishop (Hovde Group): ...did see a noticeable pickup in the early-stage delinquencies...
  Response: The increase was due to one loan in the substandard bucket with a federal government lease payment delay; no long-term concern.

• Question from David Bishop (Hovde Group): ...It looks like the Netflix studio is entering into sort of the final stages...
  Response: The development will benefit Monmouth County; existing branches provide coverage, but no need to open new branches. The broader Jersey Shore market is seeing strong, sticky demand.

• Question from Matthew Breese (Stephens): On Premier Banking... I was a little bit surprised by the loan and deposit growth guide...
  Response: The goal is to reduce the loan-to-deposit ratio below 100%, though not dramatically; the bank has multiple deposit verticals and is opportunistic on earnings.

• Question from Matthew Breese (Stephens): ...is 30% DDAs from Premier banking, that's still the right long-term number?
  Response: A range of 25%-30% for DDA is still considered right; expect a higher percentage as unfunded operating accounts migrate in 2026.

• Question from Matthew Breese (Stephens): ...Of the $7.3 billion of Flushing deposits, could you just describe some of the business lines...
  Response: Higher-cost components include online banking, government deposits, and promotional money markets. High-quality, long-term deposits in consumer and commercial accounts, especially in Asian communities, are the focus for retention and growth.

• Question from Matthew Breese (Stephens): ...could you help us out with the deposit cost outlook for the year?
  Response: Deposit costs are expected to keep coming down, lagging rate cuts; they will move roughly in line with loan yields, with margin improving steadily each quarter.

• Question from Matthew Breese (Stephens): ...What is kind of the blended all-in cost of CDs...
  Response: Brokered deposits, which are high-cost and short-duration (~4 months), will be a first priority for runoff in the balance sheet restructuring, providing an opportunity to reduce costs.

Contradiction Point 1

Net Interest Income (NII) Growth Guidance

Guidance shifts from a floor to a more specific, higher growth expectation.

Does the net interest income (NII) growth align with the ~$90 million loan growth, and is there updated commentary on loan sales post-Flushing Financial merger? - Daniel Tamayo (Raymond James)

2025Q4: NII will grow at a bit higher a clip than loan growth... Full-year 2026 is expected to see high single-digit growth in NII. - Patrick Barrett(CFO)

How is next year's NII guidance structured in terms of balance sheet versus margin factors? - Daniel Tamayo (Raymond James & Associates, Inc., Research Division)

2025Q3: NII guidance of 7%-9% is a floor, erring on conservative side due to uncertainty. - Patrick Barrett(CFO)

Contradiction Point 2

Deposit Cost Outlook

Expectations for deposit cost trajectory and timing diverge.

What is the deposit cost outlook this year, including peak timing and the impact of rate cuts? - Matthew Breese (Stephens Inc.)

2025Q4: Deposit costs are expected to keep coming down, but they lag rate cuts... Margin is expected to improve steadily quarter-by-quarter. - Patrick Barrett(CFO)

When will benefits from lower deposit costs be realized, given stable costs despite strong deposit growth? - Tyler Cacciatori (Stephens Inc.)

2025Q3: Broader deposit cost declines lag Fed rate cuts (approx. 90-day lag), hence Q4 NIM may be flat to down, then expand in Q1 2026. - Christopher Maher(CEO)

Contradiction Point 3

Commercial & Industrial (C&I) Loan Growth Outlook

Specificity and drivers of growth guidance change.

What is the expected pace of commercial (C&I) loan growth for 2026, what drove Q4 growth, and what is the update on Premier Bank deposit growth and the $2B-$3B target by 2027? - Timothy Switzer (KBW)

2025Q4: Expect similar strong growth rates of 7% to 9% in 2026. Growth is geographically dispersed and driven by talent investments, new client acquisition, and favorable conditions. - Joseph Lebel(COO) / Christopher Maher(CEO)

What's driving Premier Bank's accelerated deposit growth toward $2B-$3B by 2027, and what are the loan origination expectations relative to deposits? - Timothy Switzer (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q3: Premier bankers have been active in loans ($85M in originations this year). Expect more activity. Loan-to-deposit ratio historically low; outcomes to be monitored. - Joseph Lebel(COO)

Contradiction Point 4

Deposit Cost Trajectory and Outlook

Contradiction on the timing and pace of deposit cost decline.

What is the deposit cost outlook for this year, including peak levels and the impact of rate cuts? - Matthew Breese (Stephens Inc.)

2025Q4: Deposit costs are expected to keep coming down... The pace will be influenced by loan growth opportunities. - Patrick Barrett(CFO)

With new hires and deposit growth, can you reduce funding costs moving forward? How will the reduction be split between near-term and longer-term? - Daniel Tamayo (Raymond James)

2025Q2: Some opportunity for mix shift reduction, but near-term movement is limited as CDs rolling over in Q3 average ~3.8%. - Christopher Maher(CEO)

Contradiction Point 5

Net Interest Income (NII) Growth Outlook

Contradiction on NII growth rate guidance between quarters.

Does net interest income (NII) growth align with the ~$90 million loan growth, and are there any updates on loan sales following the Flushing Financial merger? - Daniel Tamayo (Raymond James)

2025Q4: Full-year 2026 is expected to see high single-digit growth in NII. - Patrick Barrett(CFO)

When do you anticipate an inflection point in NII and NIM due to deposit repricing and Premier Bank? - Matthew Breese (Stephens Inc.)

2025Q1: Additional margin expansion is expected in the second half of the year, with a potential glide path above 3% into next year, driven by factors like Fed cuts, Premier Bank, and the repricing of the back book. - Christopher Maher(CEO)