OceanFirst Financial Corp. Q3-26 Earnings Release - FLUSHING FINANCIAL CORP

Explicit Guidance:

• Q4 2026 Outlook: Net interest margin expected to be stable to modestly higher (excluding non-recurring interest recovery, baseline ~3.08%); assumes one additional 25bp rate increase in December; adjusted loan and deposit growth guidance of 1%–2% quarterly; other income guidance of $13 million/quarter; core operating expenses expected to decline to $110 million/quarter.
• 2027 Outlook: Core operating expenses guidance of $110 million/quarter; cost savings run-rate fully reflected in Q1 2027; 2027 profitability targets (1% ROA, 3.25% NIM) remain unchanged from acquisition announcement; effective tax rate guidance of 28%–29%.
• 2027 Full Year Guidance: Detailed full-year guidance to be provided in January 2027.
• Capital & Share Count: No share repurchases in Q3; 3.2 million shares remaining under authorization; expect opportunistic repurchases when valuations are accretive to tangible book value and earnings per share.

Business-Segment Outlook:

• Loans: Focus on organic growth; C&I loan originations up 15% YoY in Q3; CNI business growing at ~13% annualized; expect loan growth to self-fund ~40% of credit extensions; commercial real estate (CRE) investor demand remains stable despite higher rates, though repricing on existing loans will be higher; rent-stabilized multifamily business deemed "not important" and being right-sized/exited.
• Premier Bank: Hiring of Eric Howell as President expected to accelerate growth; targeting $2–$3 billion in deposits by end-2027 (timing may shift slightly due to ramp-up); deposit cost currently ~2.49%–2.5% expected to remain manageable; expected to grow slightly faster in 2027.
• Deposits: Total deposits up 1.8% in Q3; aim to rotate funding from wholesale/brokered into traditional client relationships; expect non-interest-bearing checking to represent ~16% of total deposits; New Jersey/NYC advertising campaign launched Oct 2026 with $60M in new accounts in first few weeks at 3.9% blended rate; expect to replace broker deposits with consumer deposits over time.
• Flushing Integration: Full operational integration and rebranding of 30 NYC/Long Island branches completed; expect to grow the ~$1.4 billion Asian American deposit base; leveraging multilingual staff for long-term competitive advantage.

Market and Competitive Outlook:

• Pricing & Spreads: Commercial loan spreads face minor compression for top credits; CRE competition noted as slightly higher historically; rates generally stable with "seven handles" observed; no expectation of "crazy" pricing dynamics.
• Competition: C&I space sees fluctuating competitor entry/exit based on appetite; OceanFirst expects to maintain stable pricing discipline.
• Liquidity & Securities: Securities portfolio (21% of assets) expected to reduce by <del>$1 billion over next 12–18 months via maturation/cash flow rather than reinvestment, targeting 15% of assets; cash flows (</del>$75M/month) to be used for loan growth or wholesale funding paydown.
• Asset Mix: Loan portfolio approximately 32% floating (SOFR/Prime), 45% fixed, 23% adjustable; fixed-rate assets expected to reprice at ~$1.2B in Q4 2026 and ~$3B total in 2027; fixed loans repricing off 4.8%–5.9% ranges.

Macro / Industry Outlook:

• Interest Rates: Expect ~10bp increase in deposit costs in Q4 2027 leading to Q1 2027; deposit beta estimated at ~40% on Fed rate hikes; expects Fed hikes to be gradual (every 6 months or so) rather than rapid, reducing volatility concerns.
• Economic Environment: Acknowledges higher rates impact commercial real estate investors on repricing, but demand for investment remains robust in NYC; macro uncertainty driving some provision for credit losses.
• FX/Regulation: No specific FX or tariff impacts mentioned; focus on regulatory compliance and standard banking environment.

Strategic Initiatives:

• Hiring & Talent: Recruiting ~11 C&I bankers in 2026; "spring hiring" season expected; budgeted to self-fund hiring; Eric Howell full-time leadership for Premier Bank to enhance productivity.
• Expense Reduction: Focus on staff costs, compensation, and vendor renegotiations (SaaS/BaaS); aiming to offset producer investments with efficiency gains; target expense ratio of ~1.75% of assets in 2027 (down from 1.9% in 2026).
• Technology: Continued investment in automation and efficiency efforts to offset labor cost increases.
• Geographic Expansion: Brand awareness campaigns in NYC (subway, LIRR, print, social) to drive client and talent acquisition.

Risks and Headwinds to Outlook:

• Expense vs. Revenue Gap: Acknowledged "gap" of ~$5M/quarter in EPS vs. targets to be closed via expense reduction or revenue growth.
• Rate Volatility: Uncertainty regarding the speed and magnitude of future Fed hikes; shape of the yield curve impacts funding costs.
• Deposit Mix: Risk that higher fixed-rate market deposits prevent expected cost reductions; deposit beta sensitivity.
• Credit Quality: Continued microeconomic uncertainty necessitating provision replenishment; acquired PCD loans carry fair value marks that may affect reported non-performing loans.
• Integration Risks: "Awkward" period of dual branding concluded, but brand unification benefits may take time to fully materialize in consumer deposit growth.

Management Tone on the Future:

• Confidence: Management expresses "bullish" sentiment on Premier Bank and the Flushing Asian American deposit base; confident in integration execution and ability to deliver cost savings.
• Strategic Discipline: Emphasis on "not winning everything" to maintain pricing discipline; focus on "high-quality" loan growth and "self-funding" loans.
• Execution: High confidence in meeting 2027 targets (1% ROA, 3.25% NIM) through expense discipline and organic growth; acknowledges pressure to maximize shareholder value.
• Hedges: Guidance assumes specific rate hikes; acknowledges "wait and see" on deposit beta and exact timing of deposit cost increases; expense targets are "best guess" subject to hiring yield.

Miscellaneous:

• Dividend: Quarterly cash dividend of $0.20/share approved (119th consecutive quarter).
• Asset Quality: Non-performing loans (excluding PCD) at 0.37% of total loans; allowance for credit losses at 1.29% of total loans; criticized/classified loans at 3.13%.
• Capital: Common Equity Tier 1 ratio at 10.6%; Tangible Book Value per share at $18.08 (down due to merger costs/AOCI); expects TBV and capital ratios to grow post-merger expenses.