Executive Summary / Key Takeaways

• OceanFirst Financial Corp. is executing a strategic pivot towards a more diversified, C&I-led growth model, complemented by a new Premier Banking initiative designed to attract low-cost, deposit-rich commercial relationships. This shift aims to enhance profitability and reduce reliance on investor commercial real estate (CRE).
• The company reported a fourth consecutive quarter of net interest income growth in Q3 2025, with net interest margin (NIM) stabilizing at 2.91%. Management projects NIM to rise "well above 3% by mid-2026," supported by anticipated Fed rate cuts and ongoing deposit repricing.
• Operational efficiency is a key focus, highlighted by the strategic decision to outsource residential loan originations and title business. This initiative, while incurring Q3 and Q4 2025 restructuring charges, is expected to generate approximately $10 million in pretax annual operating improvement starting in 2026.
• Asset quality remains robust, with non-performing loans at 0.39% of total loans and strong coverage by the allowance for loan credit losses. The company's conservative underwriting and limited exposure to high-risk CRE segments underpin this strength.
• OceanFirst is targeting 7-9% annualized loan growth in 2026, primarily driven by C&I expansion, with deposits expected to grow in line with loans. This organic growth, coupled with capital optimization efforts, is projected to deliver an annualized return on average assets (ROAA) of over 90 basis points by Q4 2026, with a glide path to 1% ROAA in early 2027.

A Strategic Evolution in Regional Banking

OceanFirst Financial Corp. ($OCFC), established in 1902, operates as a regional bank holding company, providing comprehensive community banking services to retail and commercial customers across New Jersey and extending into major metropolitan areas between Massachusetts and Virginia. The company's overarching strategy centers on diversifying its loan portfolio, enhancing deposit gathering capabilities, and streamlining operations to drive sustained profitability and increase franchise value. This strategic evolution is particularly critical within the competitive landscape of regional banking, where scale, digital capabilities, and localized relationships are paramount.

The regional banking sector, including OCFC's operating footprint, faces intense competition from larger national and super-regional banks, as well as agile fintech companies. Larger players like PNC Financial Services Group (PNC) and Citizens Financial Group (CFG) leverage their extensive scale and broader geographic reach to offer comprehensive services and achieve greater operational efficiencies. Smaller regional peers such as WSFS Financial Corporation (WSFS) and Fulton Financial Corporation (FULT) compete directly with OCFC through similar community-oriented models. Fintech companies and online banks, offering digital payment platforms and neo-banking solutions, present an indirect but significant competitive threat by providing user-friendly, often lower-cost digital alternatives that can erode market share in consumer deposits and loans.

OceanFirst differentiates itself through its deep community ties, personalized service, and specialized offerings, particularly for government and business clients in its core New Jersey market. This relationship-driven approach fosters strong customer loyalty, which can translate into stable funding sources and pricing power in niche segments. The company's diversified product range, including wealth management and commercial lending, further enhances its value proposition. However, OCFC's smaller scale and more limited geographic reach compared to larger rivals can lead to higher operating costs and increased exposure to regional economic risks. The company is actively addressing potential lags in digital capabilities by investing in technology and back-office infrastructure, which has impressed bankers joining from larger institutions.

Operational Excellence and Technological Edge

OceanFirst's strategic initiatives are underpinned by a commitment to operational excellence and leveraging technology to enhance customer experience and efficiency. The company's core technology, while not a proprietary hardware solution, lies in its robust digital banking platforms, treasury sweep services, and high-quality information technology infrastructure. These capabilities provide tangible benefits, enabling seamless cash management for commercial clients and supporting the efficient operation of its diverse service models. Bankers joining OceanFirst from larger institutions have expressed positive surprise at the quality of the company's treasury sweep and IT capabilities, indicating a competitive edge in service delivery.

The Premier Bank initiative, a significant strategic development, exemplifies OCFC's approach to innovation. This initiative is not merely about hiring bankers but about establishing a service model tailored for deposit-rich commercial relationships, akin to a "concierge medicine" approach in banking. The operational setup for Premier Banking, with teams strategically located in Manhattan and Long Island, leverages existing branch infrastructure and modest back-office space, demonstrating a capital-efficient expansion model. This focus on high-touch, technology-enabled service for specific client segments is a key differentiator, contributing to a stronger competitive moat by attracting and retaining valuable customer relationships.

The "so what" for investors is clear: these technological and operational differentiators contribute directly to OCFC's competitive standing and financial performance. By offering superior treasury management and IT services, the company can attract and retain high-value commercial clients, leading to lower-cost, more stable deposit funding. This, in turn, enhances the company's net interest margin and overall profitability. The strategic investment in the Premier Bank, supported by this technological foundation, is designed to drive organic deposit growth and improve operating leverage, positioning OCFC for sustained growth and increased shareholder value.

Strategic Evolution and Financial Performance

OceanFirst's history, dating back to 1902, reflects a continuous adaptation to market dynamics, culminating in a focused strategy for organic growth and operational efficiency. In late 2024, the company made targeted acquisitions, including Garden State Home Loans and Spring Garden Capital, which contributed to increased operating expenses and a day-one CECL provision. This period also saw the initial phase of expanding its Commercial & Industrial (C&I) lending capabilities, with eight C&I bankers hired.

The first half of 2025 marked an acceleration of these organic growth strategies. In Q1 2025, OceanFirst continued to expand its C&I team, adding six more bankers, bringing the total to 16 C&I bankers hired since 2024. A pivotal development was the launch of the Premier Bank initiative in April 2025, onboarding nine teams dedicated to attracting deposit-rich commercial relationships. This period also saw positive financial momentum, with net interest income and margin expanding due to effective deposit repricing efforts. However, the company also faced challenges, including a reserve build driven by macroeconomic uncertainty and a shift towards higher C&I exposures. A significant capital management event occurred on May 15, 2025, with the redemption of all $57.40 million of its 7% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A.

The second quarter of 2025 continued the investment theme, with further expansion of the Premier Bank, additional C&I banker hires (reaching 13 C&I and 36 Premier bankers by Q2 2025), and the opening of new commercial banking offices and branches in the New York metropolitan area. These efforts quickly yielded results, with Premier banking teams bringing in $115 million in deposits by June 30, 2025, and the commercial pipeline reaching a record high of $791 million. Total loans increased by $60 million, reflecting a 2% annualized growth rate, with C&I loans growing 8%. To support future growth and maintain capital flexibility, the Board of Directors authorized a new 2025 Stock Repurchase Program on July 16, 2025, allowing for the repurchase of up to an additional 3 million shares.

In Q3 2025, OceanFirst continued its strong loan growth, with total loans increasing by $372.90 million, an annualized rate of 14%, significantly driven by commercial and industrial loans. Deposits also saw substantial organic growth. A major strategic decision was made to outsource residential loan originations and title business, incurring restructuring charges in Q3 and anticipating further charges in Q4 2025. This move is expected to reduce the workforce by 11% and generate $14 million in annual expense savings starting in 2026, albeit with a reduction in gain on sale of loans. The company also strategically prefunded a portion of its 2026 securities growth. Concluding these financial activities, on October 29, 2025, OceanFirst completed an offering of $185 million in 6.38% fixed-to-floating rate subordinated notes due 2035, further optimizing its capital structure. These events collectively underscore OceanFirst's ongoing strategy to diversify its loan portfolio, enhance deposit gathering, streamline operations, and manage its capital effectively for sustained profitability and franchise value.

Financial Strength and Operational Momentum

OceanFirst's financial performance in recent quarters reflects a deliberate strategy to enhance profitability and operating leverage. In Q3 2025, the company reported a fourth consecutive quarter of net interest income growth, which increased by $3 million compared to the prior quarter. The net interest margin (NIM) remained stable at 2.91%, expanding from 2.67% in Q3 2024, primarily due to a decrease in the cost of funds. This stability was achieved despite lower loan fees and higher interest costs on subordinated debt, which, if excluded, would have seen the core NIM improve to 2.95%. Loan yields increased by 8 basis points, while total deposit costs remained flat.

Total assets grew by $903.40 million to $14.32 billion, driven by increases in loans and debt securities available-for-sale. Total loans increased by $439.90 million to $10.56 billion, with a robust commercial loan pipeline of $710.90 million. Commercial and industrial (C&I) loans saw significant growth, increasing by $219.10 million, representing a 12% increase for the quarter. This C&I expansion is a key component of the company's diversification strategy, aiming to balance its portfolio away from a higher concentration in investor commercial real estate (CRE). Investor-owned CRE loans currently stand at $5.21 billion, representing 49.40% of total loans, with a weighted average loan-to-value (LTV) of 52% and a debt service coverage ratio (DSCR) of 1.80x.

Deposit gathering initiatives are yielding positive results. Total deposits increased by $203 million to $10.44 billion in Q3 2025, with organic growth of $321 million excluding brokered deposit run-off. The newly launched Premier Banking teams contributed $128 million in new deposits, bringing their total to $242 million by Q3 2025. Approximately 20% of these Premier Banking deposits are noninterest-bearing demand deposit accounts (DDA), with an overall weighted average cost of 2.6%. The loan-to-deposit ratio stood at 101.20% at September 30, 2025. Liquidity remains strong, with $3.60 billion in total on-balance sheet liquidity and funding capacity, covering 189% of estimated adjusted uninsured deposits.

Operating expenses for Q3 2025 were $76.30 million, including $4.10 million in restructuring charges related to the strategic decision to outsource residential loan originations and title business. This initiative is expected to result in an 11% workforce reduction and generate approximately $14 million in annual expense savings starting in 2026, partially offset by a reduction in gain on sale of loans. Pretax pre-provision core earnings grew 15% or $4 million linked quarter, demonstrating improving earnings power. Net income available to common stockholders for Q3 2025 was $17.30 million, or $0.30 per diluted share.

Asset quality metrics remain strong, with non-performing loans at 0.39% of total loans and non-performing assets at 0.34% of total assets. The allowance for loan credit losses as a percentage of total non-performing loans was 196.87%. Special mention and substandard loans decreased by $28.60 million to $131.20 million. Net charge-offs were $617,000, representing only 2 basis points of total loans in Q3 2025, with a year-to-date run rate of 5 basis points. The company's exposure to non-depository financial institutions (NDFIs) is small and focused on commercial lending, with no significant concerns. Its government contractor (GovCon) exposure is approximately $100 million, concentrated in mission-critical contractors with strong liquidity, mitigating risks from potential government shutdowns.

Outlook and Strategic Trajectory

OceanFirst has provided a clear outlook for 2026, signaling a confident return to annual guidance. The company anticipates 7% to 9% annualized loan growth for the year, predominantly driven by the expansion of its C&I portfolio, which will be partly offset by runoff in the residential portfolio due to outsourcing. Management expects deposits to grow in line with loans, maintaining a loan-to-deposit ratio of approximately 100%. The continued growth in earning assets is projected to drive steady net interest income growth, in line with or exceeding high single-digit rates.

A key assumption in the 2026 outlook is the expectation of three 25-basis point Fed rate cuts throughout the year, which is projected to drive the net interest margin (NIM) trajectory "well above 3% by mid-2026." This anticipated NIM expansion, coupled with loan growth, is expected to significantly improve profitability. Other income for 2026 is projected to be between $25 million and $35 million, reflecting the reduced gain on sale and title revenues resulting from the residential outsourcing initiative.

Operating expenses for 2026 are expected to range from $275 million to $285 million, reflecting the company's focus on expense discipline to offset inflationary pressures and realize the benefits of restructuring. The residential outsourcing initiative is expected to generate approximately $10 million in pretax annual operating improvement starting in 2026. Capital levels are expected to remain strong, with the Common Equity Tier 1 (CET1) ratio at or above 10.5% for the year. These firm-wide targets are projected to result in an annualized return on average assets (ROAA) of 90-plus basis points by the fourth quarter of 2026, with a glide path to achieving a 1% ROAA in early 2027.

Risks and Competitive Dynamics

While OceanFirst's strategic direction is compelling, investors should consider several inherent risks and competitive dynamics. The company's results are significantly affected by general economic conditions, including interest rates, inflation, unemployment levels, and real estate values. Repayment of commercial real estate loans, a substantial portion of the portfolio, remains sensitive to adverse conditions in the real estate market or broader economy. The company is also modestly liability-sensitive to rising interest rates and modestly asset-sensitive to falling rates, indicating exposure to interest rate fluctuations.

Competition in the regional banking sector is intense, with larger players benefiting from scale and broader digital capabilities. OceanFirst's smaller scale and more limited geographic reach could impact its ability to achieve economies of scale and expose it to regional economic risks. The company's ability to attract and retain talent in a competitive market is crucial for its organic growth initiatives. Regulatory capital restraints could also affect the Parent Company's ability to repurchase shares or pay dividends.

Despite these challenges, OceanFirst's strategic focus on building a diversified, C&I-led loan portfolio and attracting high-quality, low-cost deposits through initiatives like Premier Banking positions it favorably. Its conservative underwriting, strong asset quality, and commitment to operational efficiency provide a solid foundation for navigating competitive pressures and achieving its stated financial targets.

Conclusion

OceanFirst Financial Corp. is undergoing a transformative period, strategically repositioning itself for a future characterized by diversified growth and enhanced profitability. The company's deliberate pivot towards a C&I-led lending model, coupled with the successful launch of its Premier Banking initiative, underscores a clear commitment to attracting high-quality, low-cost deposits and expanding its commercial client base. The decision to outsource residential loan originations and title business, while involving near-term restructuring costs, is a decisive move to streamline operations and unlock significant annual expense savings, directly contributing to improved operating leverage and earnings power.

With a robust asset quality profile, strong liquidity, and a clear roadmap for capital optimization, OceanFirst is well-positioned to capitalize on its strategic investments. Management's guidance for 2026, including high single-digit loan and net interest income growth, a NIM trajectory above 3% by mid-year, and a path to 1% ROAA in early 2027, paints a compelling picture of future value creation. The company's ability to execute on these organic growth initiatives, maintain its credit discipline, and effectively integrate its technological differentiators will be paramount in realizing its long-term objectives and solidifying its competitive standing in the evolving regional banking landscape.