OceanFirst Financial NASDAQ: OCFC reported a second-quarter GAAP net loss of $0.04 per diluted share after recording $33.6 million of after-tax merger-related expenses tied to its acquisition of Flushing Financial Corporation. On a core basis, excluding non-recurring items, the company earned $0.43 per share, or $30.5 million, unchanged from the prior quarter and 39% above the prior-year period.
Management said the quarter reflected the June 1 closing of the Flushing acquisition, which added approximately $8.7 billion in assets, $5 billion in loans, $7.4 billion in deposits and 30 retail branches across New York City and Long Island. The combined company now has about $23 billion in assets. The transaction also included a $225 million strategic investment from Warburg Pincus, priced at $19.76 per share.
The company’s board approved a quarterly cash dividend of $0.20 per common share, its 118th consecutive quarterly cash dividend.
Acquisition drives income and balance-sheet changes
OceanFirst said net interest income rose $24 million, or 25%, from the first quarter and $33 million, or 38%, from a year earlier. Chief Financial Officer Pat Barrett said Flushing contributed $19 million of net interest income, while the balance of the increase was largely attributable to earning-asset growth.
Net interest margin expanded 12 basis points sequentially to 3.05%. Barrett said loan yields benefited from new originations and the acquired Flushing portfolio, while total deposit costs were 2.06% following the addition of Flushing’s deposits.
The company also sold $1.3 billion of multifamily loans acquired from Flushing. Management said the sale removed most of its exposure to New York City rent-regulated properties and reduced its commercial real estate concentration by about 50 percentage points to 381%. Proceeds were invested in highly liquid, investment-grade securities.
During the question-and-answer session, management said it retained multifamily relationships where it held primary customer relationships and strong deposit balances. The remaining rent-regulated multifamily portfolio is expected to be in runoff over the next eight to 12 quarters. Management described the remaining assets as having low loan-to-value ratios and strong debt-service coverage, while noting the asset class carries public-policy risk.
Loan production, deposits and commercial banking
President and COO Joseph Lebel said quarterly loan originations totaled $642 million, up 50% from the prior quarter. Excluding the Flushing acquisition and multifamily loan sale, underlying commercial organic loan growth was approximately $154 million, or 2% sequentially.
Commercial and industrial lending grew at an 8% annualized rate. Lebel said the company recruited 17 C&I bankers during the first half of 2026 and plans to remain opportunistic in hiring. Management expects the enlarged New York footprint and larger balance sheet to improve its ability to recruit commercial banking talent and expand relationships with Flushing customers.
Total deposits increased $6.6 billion to $17.8 billion, driven by the acquired Flushing deposits. Excluding Flushing, deposits declined modestly because of seasonal government-deposit outflows and lower brokered deposits. However, noninterest-bearing deposits rose 6%.
Lebel said the company’s Premier Bank deposits increased $150 million while their cost declined by 17 basis points. The Premier Bank group managed 426 clients and 1,879 accounts, and contributed $45 million in loan originations during the quarter.
Management said it expects a relatively flat balance sheet for the rest of 2026 as it reduces a temporarily elevated securities position and maintains strong liquidity. The company said it intends to keep its loan-to-deposit ratio below 95%, giving it flexibility to lower higher-cost funding, including brokered deposits.
Credit, expenses and integration timeline
Barrett said reported asset-quality ratios were affected by fair-value marks on Flushing’s acquired loans, including purchased credit-deteriorated loans, and did not indicate underlying credit deterioration. Excluding acquired credit-deteriorated loans, nonperforming loans represented 0.33% of total loans and nonperforming assets represented 0.38% of total assets.
Criticized and classified loans increased to 3.12% of total loans, primarily because OceanFirst applied its credit-rating methodology to the acquired Flushing portfolio. The allowance for credit losses rose to 1.29% of total loans, largely due to the day-one reserve established for Flushing loans. Net charge-offs were 5 basis points of average total loans on an annualized basis.
Management discussed a $21 million commercial real estate loan that became nonperforming, saying the bank and borrower have a plan in place and that it expects the loan to be resolved through an upgrade or refinancing before year-end. It did not provide further details on two commercial relationships totaling $56 million that moved to criticized status.
GAAP operating expenses were $130 million, including $43 million of merger-related expenses. Core operating expenses were $87 million, including about $15 million from one month of Flushing operations. Excluding Flushing, OceanFirst’s core expense base was approximately $72 million.
The company expects to complete Flushing’s systems conversion and rebranding by the end of the third quarter. Management said a significant share of expected cost savings should follow the conversion, although most staffing-related savings are expected to benefit the first quarter of 2027 more fully.
Outlook for the second half
For the remainder of 2026, OceanFirst expects loans and deposits to grow 1% to 2% from June 30 levels. It forecast net interest margin of 3.07% to 3.12% in the third quarter and 3.09% to 3.14% in the fourth quarter, assuming no interest-rate changes in the second half.
Management expects other income of $12 million to $16 million per quarter. Operating expenses are projected at $120 million to $125 million in the third quarter and $110 million to $115 million in the fourth quarter as merger cost savings begin to take effect.
Barrett said the company expects purchase-accounting accretion to contribute about $5 million in the third quarter and roughly $3 million in the fourth quarter. The company expects annual accretion of approximately $16 million to $18 million for at least the next two to three years.
Capital remained strong, with an estimated common equity tier 1 ratio of 10.7%, unchanged from the prior quarter. Tangible book value per share was $18.19, reflecting purchase accounting and the higher credit-loss allowance. Management said its immediate capital priority is funding organic growth, with share repurchases the preferred use for excess capital if suitable growth opportunities do not materialize.
About OceanFirst Financial (NASDAQ:OCFC)
OceanFirst Financial Corporation NASDAQ: OCFC is a bank holding company headquartered in Toms River, New Jersey, that provides a full range of community banking and financial services through its principal subsidiary, OceanFirst Bank. Established in the early 20th century, the company has built its business around serving the deposit, lending and wealth management needs of individuals, small businesses, municipalities and nonprofit organizations across New Jersey and portions of New York.
The company's core activities include accepting consumer and business deposits, making commercial, municipal and consumer loans, and offering residential mortgage financing.
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