OceanFirst Financial Corp and Flushing Financial Corp Announce Merger Agreement Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Daniel Tamayo - Raymond James - Analyst : Yes. Maybe first just on the balance sheet. So I think you made a comment on balance sheet size being lower priority in the slide deck and one of the -- [I think it was] to slide 10. And then, Chris, you just talked about potentially selling some loans after close as a way of that to manage the CRE concentration. Maybe you can kind of talk us through like how big do you think -- what's the size of the loan portfolio you're maybe targeting or think that this thing shakes out at once the dust settles post-close and maybe how you're thinking about CRE concentration after some of these balance sheet actions that may happen? Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank Sure. Maybe I'll just kind of start with an important principle that I know has been kind of central to our culture at OceanFirst and at Flushing. And that is -- we view these as customers and not individual kind of transactions or loans. And we've been able to decrease our CRE concentration over time as heads Flushing. By focusing on the strongest relationships that we have, so the customers we want to retain are the customers who have a full relationship with us that bring not just loans, but also deposits where we kind of see ourselves as their primary partner. So over time, as our portfolio has come to maturity and renewed. We have deepened relationships and retain those relationships or if we were not able to deepen them and they remain more transactional, we've decided to -- what those kinds of customers fall away. We would look at this opportunity the same way. And by the way, it's not just about, say, a Flushing portfolio. It's about the whole balance sheet. As we see loans mature in the coming quarters, we're going to be increasingly focused on our relationship clients, making sure we serve them, making sure they've got a full relationship with us and that they bring other products, things like deposits. That's allowed us to just kind of quietly and thoughtfully reduce our CRE concentration. I think Flushing has taken the same approach. I think there is an opportunity to look at both balance sheets at this kind of point in time and look for the same things and say, what are the relationships we want to protect and keep in the market, in which case, that's great. We'll hold on to those, or if we have a segment of clients that we were maybe aspirational about that we thought would develop into fuller relationships, but haven't, we're going to look on both of the balance sheets, and we're going to look at what is the contribution from those individual loans. What is the potential with the client. And there is -- every bank has a segment of funding that's higher cost. There are some opportunities here to kind of pare off lower-yielding transactionally focused loans with higher cost funding that will have very little impact to our net interest income, but shrink the balance sheet. I'd hesitate to put too finer point on the amount, but I would not be surprised if that's something that could approach $1 billion, maybe it's a little more than that. So we're not talking about a little opportunity. We think there's a meaningful opportunity. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. DECEMBER 30, 2025 / 1:00PM, OCFC.OQ - OceanFirst Financial Corp and Flushing Financial Corp Announce Merger Agreement But that's something that we didn't want to do in a knee-jerk and do it while we were trying to pull the deal together and add the complexity of needing to have these kind of client relationships, kind of talk one by one, understand what's best for the long-term franchise value of the company. But that's the work that will begin next week as we work together as a team. And look at the portfolios, look at the opportunity long-term, look at what they're contributing to us from a profitability standpoint. But I expect you're probably going to see by the end of 2026, a somewhat smaller balance sheet that will have better return dynamics than the ones we had in the presentation. We just -- that work has to be done thoughtfully. It has to be done as a team, and it has to be well informed by -- you want to use this scalpel, right, to make sure that you're doing the right thing there.

Question: Daniel Tamayo - Raymond James - Analyst : Okay. That's helpful, Chris, and Pat. And then maybe the other side of that, maybe, Pat, if you could help us think about the core margin here going forward that number that you guys put out there trying to think through how that is impacted. Obviously, there's meaningful purchase accounting number in there in the '27. But you've got the CRE -- CRT, excuse me, that you just did in the fourth quarter. So maybe if you could just kind of walk through the puts and takes, including the CRT impact on the margin and how you're thinking about where that could shake out on a core basis going forward.

Question: Daniel Tamayo - Raymond James - Analyst : Got it. I appreciate it, and thanks for the clarification on the CRT. I mean my only follow-up on that quickly here is just on the number that Chris talked about on the loan sales, how that would potentially factor in if you have like an initial thought.

Question: Daniel Tamayo - Raymond James - Analyst : Okay. Great.

Question: Timothy Switzer - Keefe Bruyette & Woods Inc - Analyst : Congratulations on the deal. Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank Thank you.

Question: Timothy Switzer - Keefe Bruyette & Woods Inc - Analyst : Okay. Got it. Very helpful. And then can you talk about how -- does this change your internal investments or initiatives in any way in terms of your C&I lending push or the Premier Bank at all? Are there any impacts to that? Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank I think this is really additive to our organic strategy. So this isn't like instead of this actually levers and makes us, I think, a much more desirable bank, both for clients and bankers. But Joe, maybe you could talk a little bit about kind of how you see the development, the additional bankers you'll be adding and things like that.

Question: Timothy Switzer - Keefe Bruyette & Woods Inc - Analyst : Got it. Make sense. Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank Thanks, Tim.

Question: David Bishop - Hovde Group LLC - Analyst : Chris, you touched upon maybe the -- maybe some of the details you did from a financial perspective to get comfort with the rent-regulated multifamily side. Just curious how you consider maybe some of the news coming out of the political backdrop there on the rent control issue, how you got sort of comfort level heading into the transaction? Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank That's a great question, Dave. Thank you. So if you turn to slide 20 in the presentation, we've got a couple of stats here that I think are critically important. First, like OceanFirst, Flushing has got this exceptional track record of credit quality and that matters a great deal. If you think about the credit performance of our book and Flushing's book for decades, it's been pristine and among the best in the peer group. Part of the reason for that is the portfolio is very granular. So the average rent stabilized multifamily loan is just $1.3 million. Interestingly, over 60% of the multifamily rent stabilized loans at flushing have balances less than $1 million. So we're talking a lot of small buildings, none of the kind of giant buildings that might have -- I think a little more difficulty kind of matching the environment. The second thing is that Flushing's customers are very long-term relationships. These are folks that they banked for ages. The average loan duration is about eight years, but the relationships are far deeper than that. And many of these buildings are held by generational owners. Those generational owners have a very low tax basis. So interestingly, it is better for them when needed to pay a loan down or restructure something than to take a tax event or a loss on the building because their embedded -- their capital gains would be so significant, the taxes would outweigh any investment they need to keep the current -- the property current. They have a lot of equity in there. The historical performance has been great. And the last thing is when we went through, we did a sample of the book -- we found that 38% of the loans in the book have the financial ratios that would qualify them for a GSE takeout. So there's a migration path for a lot of these loans, a lot of deep relationships, clients who have multiple loans. So we feel pretty good about it. You can never know what's coming in the political environment. We were certainly pretty happy to see that Mayor Adams made some appointments to the Rent Stabilization Board that we think kind of reduce the risk somewhat. But we took a view on this that there is additional credit risk, and that's what informed our mark. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. DECEMBER 30, 2025 / 1:00PM, OCFC.OQ - OceanFirst Financial Corp and Flushing Financial Corp Announce Merger Agreement It wasn't as much a computational mark on the assets as a reflection of the potential risk that you mentioned that some unknown things could happen in the future. The portfolio is great, no delinquencies, great borrowers, low LTVs, very granular sized, but we wanted to be careful. You don't want to get that wrong.

Question: Matthew Breese - Stephens Inc - Analyst : Chris and Pat, one thing I'm struggling with a bit here is just balance sheet size, dynamics pro forma, and I get it, there's some optimization consideration going on. Maybe you could just as Betsy can help us out with the loan and deposit growth outlook? And maybe give us some sense, even if it's a range of expected balance sheet size as we get into mid to late 2027, assuming some of this optimization has taken place? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. DECEMBER 30, 2025 / 1:00PM, OCFC.OQ - OceanFirst Financial Corp and Flushing Financial Corp Announce Merger Agreement

Question: Matthew Breese - Stephens Inc - Analyst : Great. I appreciate that. And then maybe tying into it a bit. As I consider these two balance sheets, the one thing that becomes a little bit of a glaring kind of mismatch is the $1.4 billion of rent-regulated multifamily. You all have just -- you haven't done that business, not to that size. And so I guess, first of all, how did you arrive at that Mark? I'd be curious if you have any sort of anecdotes around cap rates potential cap rate changes considering [Mandani] or implied kind of valuation change considering the LTVs 55% here? And then, Chris, you had mentioned of these loans, I think you said something like they had GSE characteristics. Is that to imply you could securitize them through a Freddie Q program or something like that? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. DECEMBER 30, 2025 / 1:00PM, OCFC.OQ - OceanFirst Financial Corp and Flushing Financial Corp Announce Merger Agreement Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank You might be able to do that. I was more referring to the fact that if they at maturity, would need to refinance, they could refinance through a GSE program, and we wouldn't have that risk. It was great questions, Matt. Let me just walk you through. First, just for those who have not spent as much time with us, Dan Harris, who's our Chief CRE, Credit Risk Officer, has some of the best experience in these markets, particularly around rent-stabilized multifamily. He was historically the Chief Lending Officer over at Dime Community and has done several billion dollars worth of this asset class. So we had the internal expertise to be able to look at it from our own perspective. We then looked at it through SRA, who we contracted to take a look at it. We did review not just the debt coverage we looked at NOI shortfalls, how much that would impact the portfolio over time. We looked at debt yield. We looked at cap rates. We stressed on each of these aspects to understand -- there's really two factors here, the probability of default and then the loss given default. So 86% of that Flushing book carries a debt service, a current debt service over a 1.2, a very strong debt service. So the probability of default for a loan that's debt serving over 1.2 is very low, maybe 0. So that leaves just a small piece that we would have to go out and kind of think about the risk on. Secondly, we did find interesting the work that was done by our capital partner for their own use, but they brought Maverick in. Maverick is probably the best in this asset class in understanding that. We went out, obviously, given the importance to keep confidentiality. We only went out to a limited number of partners, but we did get two indicative bids on segments of the portfolio that helped inform our marks as well. And then I mentioned it earlier, but I want to just double down on the small size of the loans and the relative modesty of the buildings. We're able to go through -- we're able to look at things like none of the New York City kind of bad landlords are in the list. We went through to make sure all the borrowers are kind of clean borrowers, we looked at building violations. This is a really, really clean portfolio, well underwritten. We stressed -- we had SRA look at it. Our partners did their research and -- is this kind of like a mosaic. You look at all these different inputs and you come up with a mark. And we think that mark is, if anything, probably in the conservative side.

Question: Matthew Breese - Stephens Inc - Analyst : Understood. Okay. Last one for me is more of a culture question. You have two relatively heavy CRE institutions. You're putting them together. You want to keep the employees happy. Can you just talk a little bit about how you navigate that while also trying to shrink one of the primary asset classes and reduce the CRE concentration, working with the model, should we be expecting owner-occupied CRE growth, but -- or yes, owner [occupied] CRE growth, but not multifamily and nonowner-occupied CRE growth? Is that the way to think about it? And how do you kind of navigate that culturally? That's all I had. Christopher Maher - OceanFirst Financial Corp - Chairman of the Board, President, Chief Executive Officer of the Company, Chairman and Chief Executive Officer of the Bank Yes. I'd make two comments on that, Matt, and then I'll ask Joe to chime in as well. You think about really, you're going to think about that CRE book. owner-occupied, we love, and then we love CRE clients that have their full relationship with us and bring deposits. So we're going to protect those. We've done CRE really well. Flushing has done CRE really well. We comply with all the regulatory requirements around concentration management and all that. So we're not worried about it as a concentration. But we also know that for our -- for us to maximize our valuation. It needs to be a smaller part of the overall business. So this is something that happens gradually and over time, and I think in a very thoughtful way. But Joe, maybe talk about the investments you've already made in C&I and how you're going to lean into this with even more investment?