OceanFirst Financial Earnings Call Highlights Growth and Resets

Oceanfirst Financial ((OCFC)) has held its Q4 earnings call. Read on for the main highlights of the call.

OceanFirst Financial Balances Strong Growth With Margin Pressures in Latest Earnings Call

Management struck a generally upbeat tone on OceanFirst Financial’s latest earnings call, highlighting strong organic loan growth, five straight quarters of net interest income expansion, excellent asset quality, rising tangible book value and a capital-enhancing strategic merger. While modest net interest margin compression, a drop in noninterest income tied to outsourcing, and various one-time costs tempered the quarter’s optics, executives reiterated a positive outlook for 2025, backed by solid capital, a stable dividend, and expectations for loan, deposit and NII growth.

Earnings Performance: Core Profitability Outshines GAAP Headwinds

OceanFirst reported fourth-quarter 2025 earnings per share of $0.23 on a fully diluted GAAP basis, but a much stronger $0.41 on a core basis, excluding restructuring, merger and transaction-related items. The large gap between GAAP and core results underscores how special charges—rather than fundamental profitability—weighed on the headline number. For investors, the core EPS figure offers a clearer picture of underlying earnings power as the bank invests in strategic initiatives and restructures certain businesses.

Net Interest Income Growth: Fifth Straight Quarter of Expansion

Net interest income (NII) remained a central bright spot, rising by $5 million, or 5%, sequentially and 14% year-over-year, marking the fifth consecutive quarter of growth. This momentum was driven largely by a $446 million increase in average net loans, showing that the balance sheet is being deployed effectively despite a still-competitive funding environment. Management framed this steady NII trajectory as a key pillar of earnings growth heading into 2025.

Loan Growth and Originations: Robust Demand and Execution

Total loans expanded by $474 million during the quarter, translating into an 18% annualized growth rate, while loan originations reached about $1 billion for the second quarter in a row. This sustained origination pace indicates healthy customer demand across the franchise and demonstrates the bank’s ability to compete for new business. Such growth, if maintained with disciplined underwriting, positions OceanFirst for continued revenue expansion as these loans season and reprice over time.

C&I Lending Momentum: Mix Shift Toward Higher-Value Relationships

Commercial & Industrial (C&I) lending continued to ramp, with balances climbing 42% year-over-year, supported by recent hires and talent recruitment. This C&I push is reshaping the loan mix toward more relationship-driven, fee-capable business customers that can enhance both yield and cross-sell opportunities. Management emphasized that this segment should contribute meaningfully to future interest income growth and deepen the bank’s presence in attractive commercial markets.

Asset Quality: Credit Metrics Remain a Competitive Strength

Asset quality remained a standout, with classified loans (special mention and substandard) falling 10% to $112 million, representing roughly 1% of total loans. Nonperforming loans were a low 0.2% of total loans, nonperforming assets stood at 0.22% of total assets, and full-year net charge-offs were just 5 basis points. These metrics signal disciplined underwriting and limited credit stress, providing a solid foundation for growth and helping to mitigate concerns about rapid loan expansion in a late-cycle environment.

Expense Management: Core Costs Moving Lower

While GAAP operating expenses reached $84 million due to special items, core operating expenses were $71 million, down about $1 million (roughly 2%) sequentially. Management guided to a first-quarter core expense run-rate of $70–$71 million, indicating that underlying cost discipline is offsetting some of the pressure from strategic initiatives. This combination of revenue growth and controlled core expenses supports operating leverage, a key metric for investors watching profitability trends.

Capital Strength and Tangible Book Value: Further Cushion for Growth

OceanFirst reported an estimated CET1 capital ratio of 10.7%, boosted by roughly 50 basis points from a recently executed credit risk transfer transaction. Tangible book value per share increased to $19.79, reinforcing the bank’s ability to grow while protecting shareholder equity. The stronger capital position provides flexibility to fund organic growth, absorb potential volatility, and support the pending merger, even as share repurchases remain on pause.

Dividend Consistency: Long Tenure of Payouts Intact

The board approved a quarterly cash dividend of $0.20 per common share, marking the company’s 116th consecutive quarterly dividend. This consistency sends a message of confidence in the sustainability of earnings and capital, which may appeal to income-oriented investors who value predictable payouts, especially during periods of balance sheet transition and integration activity.

Strategic M&A and Investment: Scaling Up Through Flushing and Warburg Pincus

OceanFirst highlighted its announced merger with Flushing Financial Corporation and an investment agreement with Warburg Pincus, with closing expected in the second quarter of 2026. The transaction is designed to expand the bank’s presence in the New York market, enhance scale, and drive improved profitability over time, while also bolstering resources for organic growth. Management framed these moves as strategic steps toward building a larger, more efficient regional franchise, supported by a stronger capital base and broader geographic footprint.

Premier Banking Deposit Traction: Growing Low-Cost Relationship Funding

The Premier Bank division continued to gain traction, delivering $332 million in deposits across more than 1,300 accounts and over 350 new customer relationships. During the quarter, the Premier team grew deposits by $90 million, a 37% sequential increase, while lowering the weighted average deposit cost by 36 basis points to 2.28%. Notably, about 21% of these balances are noninterest-bearing demand deposits, which enhance funding stability and support margin resilience in a competitive deposit market.

Net Interest Margin: Mild Compression Amid Mix Shifts

Despite strong NII, net interest margin (NIM) edged down to 2.87%, a modest decline of roughly 3 basis points sequentially. Management cited loan mix shifts, moderating loan yields, and certain deposit repricing as drivers of this compression. While the decline was small, it highlights the tug-of-war between volume growth and pricing pressure, and underscores why management’s expectation for NIM to move back above 3% later in the year is an important watch point for investors.

Noninterest Income: Outsourcing Cuts Near-Term Fee Streams

Noninterest income fell by $3.3 million to $9 million in the quarter, primarily due to lower title fees and reduced gain-on-sale revenue tied to the outsourcing of residential and title platforms. The strategic shift should simplify operations and reduce certain costs over time, but it also removes some fee income in the near term. This transition means earnings will lean more heavily on spread income and deposit gathering until new or reoriented fee lines emerge.

One-Time and Transaction-Related Costs: GAAP Results Temporarily Burdened

GAAP operating expenses included $13 million of special items related to residential outsourcing, merger-related costs, and execution costs for the credit risk transfer. Within core noninterest items, there was $7 million of restructuring tied to residential outsourcing, $4 million in merger-related costs, and $1 million of professional fees for the CRT transaction. These investments are expected to reposition the business for future efficiency and growth, but they temporarily depress GAAP profitability, creating a gap between reported and core performance metrics.

Residential Platform Outsourcing: Strategic Refocus With Short-Term Drag

The decision to outsource the residential and title businesses led to a deliberate runoff in that loan portfolio and a smaller pipeline compared with the prior quarter, which reduced related revenue streams such as title fees and gain on sale. Management presented this as a strategic refocus away from lower-return, more volatile businesses toward areas with better risk-adjusted returns. While investors will see near-term revenue headwinds in this line, the expectation is for a simpler, more efficient franchise and a clearer earnings profile over time.

Deposit and Borrowing Costs: Isolated Repricing and Minor Margin Impact

Total deposit costs rose modestly during the quarter, reflecting some isolated upward repricing events as the bank responded to competitive pressures and customer behavior. Borrowing costs also added a slight headwind of about 1 basis point to margin, reflecting the net effect of subordinated debt issuance and retirement. Although these funding pressures are manageable, they illustrate the ongoing challenge of defending margins while continuing to fund robust loan growth.

Share Repurchases: Capital Redirected From Buybacks to Growth

OceanFirst did not execute any share repurchases under its existing plan during the quarter, choosing instead to direct capital toward supporting loan growth and strategic initiatives. While this conservative stance strengthens the balance sheet and funds expansion, it may disappoint shareholders who had hoped for more immediate capital returns via buybacks. Management’s approach suggests a priority on long-term franchise value and transaction integration over near-term share count reduction.

Delinquencies and Charge-Offs: Isolated Issues, Low Losses

Net charge-offs ticked up slightly but remained very low at 5 basis points for the full year, and there was a temporary increase in 30–89 day delinquencies driven by a single loan tied to a delayed government lease payment. Management characterized this as an administrative timing issue rather than a sign of broader credit deterioration. Combined with strong nonperforming metrics, the data points suggest that credit quality remains a clear strength despite rapid loan growth.

Seasonal NII Headwind: Fewer Days in Q1 Cloud Comparisons

Management cautioned that first-quarter results will naturally look weaker sequentially due to approximately 2% fewer days in the quarter, which mechanically lowers net interest income. This calendar effect may obscure the underlying positive trajectory early in the year, with management expecting NII to ramp again in subsequent quarters. Investors tracking quarterly trends were encouraged to look through this timing noise and focus on full-year guidance.

Guidance and Outlook: NIM Recovery, Growth, and Stable Costs

Looking ahead, management reaffirmed full-year expectations for mid- to high-single-digit growth in loans and deposits, with net interest income projected to rise at a high-single-digit rate. Net interest margin is expected to expand past 3%, with margins improving by a few basis points each quarter and NII ramping in the second half of the year. Other income is guided at $7–$9 million per quarter, and core noninterest expenses are expected to remain roughly flat to current run rates, with a first-quarter core operating expense range of $70–$71 million. The effective tax rate is anticipated to run around 23–25%, and the recently executed credit risk transfer, which lifted CET1 to about 10.7%, will carry an annual pretax cost of under $4 million. Altogether, the guidance points to a year of controlled growth, margin rebuilding, and stable cost structure supported by robust capital.

In closing, OceanFirst Financial’s earnings call painted a picture of a bank leaning into growth and strategic repositioning while managing through modest margin and fee-income headwinds. Strong loan expansion, resilient asset quality, rising tangible book value and a solid capital base underpin management’s confidence, even as outsourcing, merger activity and paused buybacks temporarily weigh on GAAP results. For investors, the story centers on whether the promised NIM recovery, disciplined expenses and strategic M&A can translate into stronger core earnings and improved returns over the coming year.