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OCEANFIRST FINANCIAL CORP (OCFC)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 GAAP diluted EPS was $0.28; core diluted EPS was $0.31, reflecting an “investment quarter” with elevated operating expenses from commercial banker hires and a $1.842 million preferred stock redemption loss . EPS missed Wall Street consensus ($0.333*) and “revenue” missed ($100.9m*), driven primarily by higher opex and the redemption charge; net interest income and margin still expanded modestly (NII +$1.0m q/q; NIM +1 bp) .
  • Net interest margin improved to 2.91% (from 2.90% in Q1), and net interest income reached $87.6m, supported by deposit cost stability (total cost of deposits at 2.06%) and loan growth late in the quarter .
  • Loan pipeline hit a record ($791m), C&I loans grew $131.7m q/q, and deposits rose $166.1m; capital actions included repurchasing ~1.0m shares and redeeming all preferred stock; a $0.20 quarterly dividend was declared .
  • Management guided Q3 2025 to 2−3% sequential loan growth, operating expenses steady at $71–72m, deposit growth consistent with loans, and stable-to-modestly higher NIM; CET1 expected to remain robust (>10%) .
  • Stock reaction catalyst: visibility on NII/NIM expansion into 2H and commercial pipeline execution versus the near-term EPS drag from opex ramp and mix shift in loans; the new 3.0m-share repurchase authorization provides downside support .

What Went Well and What Went Wrong

What Went Well

  • Net interest income and margin expanded: “a third consecutive quarter of growth in net interest income” (+$1m q/q) and NIM rose to 2.91%, with deposit costs holding flat at 2.06% .
  • Commercial momentum: Record commercial loan pipeline ($791m) and strong C&I growth ($131.7m q/q), with Premier Bank teams adding ~$115m of deposits at 2.71% weighted average cost and ~200 new relationships .
  • Asset quality remained strong: NPLs fell to 0.33% of loans and NPAs to 0.31% of assets; classified loans were just ~1.4% of total, “among the best in our peer group” per CFO .

Management quote: “We view the quarter as a trough in EPS that will build from this point as the organic growth momentum continues” .
Management quote: “Looking ahead, we expect to continue to build on this momentum from our commercial banking teams with a record commercial loan pipeline and new deposit relationship opportunities” .

What Went Wrong

  • EPS compression versus prior periods: GAAP diluted EPS fell to $0.28 (vs $0.35 in Q1 and $0.40 in Q2 2024), driven by higher compensation/professional fees and the preferred stock redemption charge .
  • Operating efficiency deteriorated: Efficiency ratio worsened to 71.93% (from 65.67% in Q1), as operating expenses rose $7.2m q/q to $71.5m with $1.6m non-recurring recruiting fees .
  • Credit costs ticked up: Provision was $3.0m (vs $5.3m in Q1; $3.1m in Q2 2024) with net charge-offs of $2.218m, including $1.6m on two commercial relationships and ~$445k tied to sale of non-performing residential/consumer loans .

Financial Results

MetricQ2 2024 (oldest)Q4 2024Q1 2025Q2 2025 (newest)
Net Interest Income ($m)$82.263 $83.329 $86.652 $87.636
Other Income ($m)$10.985 $12.232 $11.253 $11.733
Diluted EPS (GAAP) ($)$0.40 $0.36 $0.35 $0.28
Core Diluted EPS ($)$0.39 $0.38 $0.35 $0.31
Net Interest Margin (%)2.71 2.69 2.90 2.91
Efficiency Ratio (%)62.86 67.86 65.67 71.93
Provision for Credit Losses ($m)$3.114 $3.467 $5.340 $3.039
Operating Expenses ($m)$58.620 $64.849 $64.294 $71.474
Effective Tax Rate (%)22.5 18.7 24.1 23.2
Loans Receivable, Net ($m, EOP)$9,961.117 $10,055.429 $10,058.072 $10,119.781
Deposits ($m, EOP)$9,994.017 $10,066.342 $10,177.023 $10,232.442

Key KPIs and Balance Mix

KPIQ4 2024Q1 2025Q2 2025
NPLs / Loans (%)0.35 0.37 0.33
NPAs / Assets (%)0.28 0.29 0.31
Allowance / Loans (%)0.73 0.78 0.78
Net Charge-offs ($m)+0.158 (net recoveries) (0.636) (2.218)
Total Loan Originations ($m)515.187 416.955 716.004
Commercial Loan Pipeline ($m)197.491 375.622 790.768
Total Cost of Deposits (%)2.32 2.06 2.06

Loan Composition (EOP, $m)

CategoryQ4 2024Q1 2025Q2 2025
CRE – Investor5,287.683 5,200.137 5,068.125
C&I – Real Estate902.219 896.647 914.406
C&I – Non-Real Estate647.945 748.575 862.504
Residential3,049.763 3,053.318 3,119.232
Home Equity & Other Consumer230.462 226.633 220.820
Total Loans10,118.072 10,125.310 10,185.087

Guidance Changes

MetricPeriodPrevious Guidance (Q1 2025 provided for Q2 2025)Current Guidance (Q2 2025 provided for Q3 2025)Change
Loan GrowthNext quarterMid-single digit annualized growth 2–3% sequential (8–12% annualized) Clarified/raised precision
DepositsNext quarterGrowth in line with loan growth Growth consistent with loan growth Maintained
Operating ExpensesNext quarterRun-rate to increase ~10%, incl. ~$4m for Premier hires $71–72m run-rate; minimal incremental hires Specified run-rate; stable
Net Interest Income / NIMNext quarterStable to modest uptick in NIM; NII to move with balance sheet growth Stable to modest uptick in NIM; NII $ growth in line with loan growth Maintained
Other IncomeNext quarterRelatively stable Relatively stable Maintained
CreditOngoingContinued benign outlook Continued benign outlook Maintained
Capital / CET1OngoingCET1 robust (>10%); preferred share redemption planned CET1 robust (>10%); 3.0m new repurchase authorization Added repurchase flexibility
DividendCurrent$0.20 per common share $0.20 per common share (Aug. 15, 2025 payment) Maintained

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
Net Interest Margin trajectoryInflection; NIM 2.69%, deposit spot rates down NIM rose to 2.90% on lower deposit costs NIM 2.91%; aim to approach ~3% over time Gradual up
Deposit costs and mixCost of deposits 2.32%; spot 2.17% Cost of deposits 2.06%; beta easing Premier deposits at ~2.6–2.7%; DDA to ~30%; bank-wide ~2.06% Stable/lower
Premier Banking rampAnnounced teams & targets 9 teams added; $500m 2025 deposit target ~$115m deposits through 6/30; ~200 relationships; on pace for target Strong ramp
Commercial pipelineStable pipeline ~$307m Pipeline doubled q/q to $376m Record $791m; diversified geographies and C&I focus Accelerating
Credit qualityNPL/loans 0.35%; allowance 0.73% NPL/loans 0.37%; allowance 0.78% NPL/loans 0.33%; allowance 0.78%; criticized loans ~1.43% Strong
Capital & buybacks2024 buybacks; CET1 ~11.2% ~398k shares repurchased; CET1 11.2% ~1.0m shares repurchased; new 3.0m buyback plan; preferred redeemed Shareholder-friendly
Rate sensitivityBeneficial on deposit costs; modest NIM tailwinds NIM influenced by deposit repricing; minimal EPS sensitivity per 25 bp <$0.01 EPS per 25 bp cut; lagged deposit benefit Neutral

Management Commentary

  • CEO framing quarter as investment/tough EPS trough: “This was an investment quarter… all of which increased expenses… We view the quarter as a trough in EPS that will build from this point as the organic growth momentum continues.”
  • Growth outlook: “We expect an increase in net interest income in the third quarter and continued improvement to margins in the second half of the year.”
  • Strategic momentum: “Record commercial loan pipeline… meaningful lending opportunities and early success gathering deposits.”
  • Premier Banking deposits: “$115 million of deposits… weighted average cost of 2.71%… on pace to achieve our 2025 target of nearly $500 million.”
  • CFO on opex and taxes: “Professional fees included $1.6 million of non-recurring recruiting fees… expect quarterly operating expense run rate to remain stable in the $71–$72 million range… effective tax rate 23–25%.”

Q&A Highlights

  • Deposit costs trajectory: Premier deposits expected to converge toward bank average with ~30% DDA over time; early deposits rate-driven while operational balances ramp .
  • NIM path: “Slow and steady… maybe a few basis points a quarter,” with goal to get near 3% depending on mix and rate environment .
  • Expense impact from hires: ~$0.06 EPS headwind in Q2; run-rate to be flat as recruiting fees roll off and compensation normalizes .
  • Capital priorities: Focus on organic growth; cautious on M&A given valuation; repurchases opportunistic amid market volatility .
  • CRE and C&I growth: CRE balances expected to remain steady; ability to replace payoffs at attractive spreads; diversified C&I growth across footprint .

Estimates Context

MetricConsensus (Q2 2025)Actual (Q2 2025)Surprise
EPS (Primary, $)0.333*0.31 Miss by ~$0.023*
Revenue ($m)100.896*96.33*Miss by ~$4.57m*
EPS - # of Estimates6*——
Revenue - # of Estimates4*——
Target Price ($)21.5*21.5*—

Values retrieved from S&P Global.*

Interpretation: The EPS and “revenue” misses reflect the accelerated opex ramp and the preferred redemption loss, while core operating trends (NII/NIM) improved.

Key Takeaways for Investors

  • Near-term EPS headwind appears transitory: Q2 looks like a trough as Premier/C&I investments begin to translate into NII growth and modest NIM expansion in 2H 2025 .
  • Funding mix and deposit costs are improving: Total cost of deposits held at 2.06%; Premier deposits should tilt toward non-interest-bearing DDA (~30%), supporting margin .
  • Commercial momentum is building: Record pipeline ($791m) and strong C&I growth increase visibility on loan growth (2–3% sequential) into Q3 .
  • Credit quality remains a differentiator: Low NPLs (0.33%), strong coverage, and benign outlook underpin confidence despite macro uncertainties .
  • Capital return flexibility: New 3.0m-share repurchase authorization adds support; dividend maintained at $0.20 .
  • Watch opex discipline: Run-rate guided to $71–72m; recruiting fees are non-recurring, but sustained expense control is key to EPS recovery .
  • Trading setup: Monitor Q3 NII/NIM and deposit mix improvements against expense normalization; delivery on pipeline conversion could be the catalyst for estimate revisions and multiple support .