OceanFirst outlines 7%–9% loan growth target for 2026 amid strong commercial momentum and restructuring

Earnings Call Insights: OceanFirst Financial Corp. (OCFC) Q3 2025

MANAGEMENT VIEW

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CEO Christopher Maher reported "earnings per share of $0.30 on a fully diluted GAAP basis and $0.36 on a core basis," highlighting a fourth consecutive quarter of net interest income growth, with a $3 million increase over the prior quarter, driven by an increase in average net loans of $242 million. Maher noted "total loans for the quarter increased to $373 million," representing a 14% annualized growth rate, and emphasized the company's asset quality, stating "total loans classified as special mention and substandard decreased 15% to just $124 million or 1.2% of total loans." Maher also announced a strategic decision to outsource residential loan originations and underwriting functions, which is "expected to meaningfully improve operating leverage and earnings in 2026." He added that the company did not repurchase shares this quarter, prioritizing capital deployment for loan growth, and confirmed a quarterly cash dividend of $0.20 per share, marking its 115th consecutive quarterly dividend.

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COO Joseph Lebel described "loan originations for the quarter, which totaled $1 billion and resulted in loan growth of $373 million," with particular momentum in commercial and industrial lending, up 12% for the quarter. Lebel stated "the commercial pipeline continues to be strong at over $700 million." On the deposit front, Lebel reported "total deposits in the third quarter increased $203 million," with Premier bankers contributing $128 million of new deposits and being "on track to achieve our 2025 target of $500 million by the end of the year." He also highlighted a "5%" increase in noninterest income to $12.3 million, primarily from swap demand linked to commercial growth.

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CFO Patrick Barrett noted "pretax pre-provision core earnings grew 15% or $4 million linked quarter," with "loan yields increased 8 basis points, while total deposit costs remained flat." Barrett explained that "core NIM remained flat" but would have improved to 2.95% absent lower loan fees and higher interest costs. He indicated that borrowing costs increased 12 basis points due to subordinated debt repricing and added that the company "prefunded next year's anticipated growth in the securities book" with highly liquid, low-risk securities. Barrett expects "positive expansion in net interest income in line with or higher than loan growth but modest short-term compression on margin in the fourth quarter." He also stated that "fourth quarter core operating expense run rate to move downward slightly to the $70 million to $71 million range," and anticipated a final $8 million in restructuring charges in Q4 related to outsourcing. Barrett projected a "pretax improvement in annual operating results to be approximately $10 million."

OUTLOOK

* Barrett provided resumed annual guidance, projecting "7% to 9% annualized loan growth for the year" in 2026, driven predominantly by C&I growth and partly offset by residential portfolio runoff. He expects deposits to "grow in line with loans" and net interest income growth "in line with or exceeding high single-digit growth rate." Barrett indicated the "modeled 3 rate cuts of 25 basis points each throughout the year could drive a NIM trajectory well above 3% by mid-2026." Other income is expected in the range of $25 million to $35 million, reflecting reduced gain on sale and title revenues from outsourcing initiatives. Operating expenses for 2026 are guided to $275 million to $285 million, with capital expected to remain strong and CET1 ratio "at or above 10.5% for the year." The company targets "an annualized return on average assets of 90-plus basis points by the fourth quarter of 2026, with a glide path to achieving a 1% return on assets in early 2027."

FINANCIAL RESULTS

* The company reported "earnings per share of $0.30 on a fully diluted GAAP basis and $0.36 on a core basis." Net interest income increased by $3 million over the prior quarter. Net interest margin held at 2.91%. Total loans grew by $373 million, driven by $1 billion in originations. Asset quality improved, with "total loans classified as special mention and substandard decreased 15% to just $124 million," and nonperforming loans to total loans at 0.39%. Operating expenses were $76 million, including $4 million in restructuring charges. Noninterest income grew 5% to $12.3 million.

Q&A

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Daniel Tamayo, Raymond James: Asked for clarification on net interest income guidance and the timing of reaching a 3% NIM, and how balance sheet dynamics relate to that. Barrett responded that "we do expect that we will approach or breach a 3% NIM sometime in the first, second quarter of next year" and that "balance sheet to continue to grow in the high single-digit levels, almost entirely from loan growth."

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Timothy Switzer, KBW: Inquired about the acceleration in Premier Bank deposit growth and the trajectory to $2–$3 billion by 2027. Lebel responded, "It's the teams we've hired and their acclimation not only to the bank but their customers' acclimation to the bank." Switzer also asked about the $10 million pretax benefit from restructuring the residential mortgage business; Maher confirmed "you're right about the $4 million headwind in residential."

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David Bishop, Hovde Group: Asked about NDFI exposure and government contractor lending. Maher stated, "we really aren't engaged in NDFIs that lend to the consumer," and on government contracting, "not a big exposure for us today," with $100 million exposure focused on "mission-critical contractors."

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Tyler Cacciatori, Stephens: Asked about deposit costs and when lower all-in costs might be seen. Maher said, "on the Premier side, you'll see that kind of go down gradually… pretty gradual change." Cacciatori also queried on ROA timeline; Maher indicated "better than 0.9% by the end of next year, fourth quarter '26, crossing over above 1% in the first quarter of '27."

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Christopher Marinac, Janney Montgomery Scott: Asked about reserve sensitivity to criticized loans. Maher explained, "if we saw a material movement in those numbers. We have a little bit of pressure on the ACL... but we've been trying to be thoughtful about the provision to reserve using our qualitative factors." Marinac also asked about hiring; Maher said, "we're very much focused on hitting the return hurdles that we've outlined today."

SENTIMENT ANALYSIS

* Analysts raised several questions regarding the sustainability of growth, margin expansion, restructuring impacts, and the deposit cost trajectory, reflecting a neutral to slightly positive tone with a focus on clarity and risk.
* Management maintained a confident tone in both prepared remarks and responses, with Maher stating, "We are pleased with their results thus far," and Barrett providing explicit guidance and acknowledging uncertainty: "this is our best estimate now and we're trying to probably err on the conservative side." The tone was slightly more optimistic than the previous quarter, reflecting confidence in recent momentum and strategic actions.

QUARTER-OVER-QUARTER COMPARISON

* Guidance shifted to a resumed annual forecast, providing specific targets for 2026, compared to the previous quarter where no annual guidance was given. Strategic focus has shifted to outsourcing residential loan originations and tightening expense controls, while commercial banking momentum continues to accelerate. Analysts in the current quarter focused more on the sustainability of growth, restructuring impacts, and deposit cost trajectory, while last quarter's questions centered on initial progress of new hires and capital allocation. Key metrics such as net interest income, loan growth, and asset quality showed sequential improvement. Management's tone was more confident this quarter, emboldened by loan growth and successful execution of strategic initiatives. Analysts' tone remained probing but leaned slightly more positive as the bank delivered on prior expectations.

RISKS AND CONCERNS

* Management acknowledged the possibility of margin compression in the short term due to seasonality and deposit repricing. The restructuring of the residential mortgage business poses a $4 million headwind in noninterest income, with further reductions from title revenues due to outsourcing. Regulatory and economic conditions, such as Fed rate cuts and competition for deposits, were noted as uncertainties. Analysts probed on the sensitivity of reserves to criticized loans and the potential for expense volatility during the transition period. Management highlighted ongoing monitoring and qualitative overlays in reserve decisions, as well as disciplined capital deployment.

FINAL TAKEAWAY

OceanFirst management emphasized a return to annual guidance for 2026, projecting 7% to 9% loan growth, net interest income growth aligned with or above high single digits, and a clear trajectory to a 1% return on assets by early 2027. Recent strategic actions—including the outsourcing of residential lending and a focus on commercial deposit growth—are expected to drive operating leverage and improve efficiency. The company is prioritizing organic growth and disciplined expense management, with robust capital levels supporting continued expansion in its core commercial banking franchise.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/ocfc/earnings/transcripts]

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