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OceanFirst Financial Corp. Announces Second Quarter Financial Results

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TOMS RIVER, N.J., July 27, 2017 (GLOBE NEWSWIRE) -- OceanFirst Financial Corp. (NASDAQ:OCFC), (the "Company"), the holding company for OceanFirst Bank (the "Bank"), today announced that diluted earnings per share were $0.23 for the three months ended June 30, 2017, as compared to $0.16 for the corresponding prior year period. For the six months ended June 30, 2017, diluted earnings per share were $0.59, as compared to $0.39 for the prior corresponding year period.

The results of operations for the three and six months ended June 30, 2017 include merger related expenses and branch consolidation expenses and for the six months ended June 30, 2017 also include the acceleration of stock award expense from a director retirement. These items decreased net income, net of tax benefit, for the three and six months ended June 30, 2017, by $5.6 million and $6.7 million, respectively.  Excluding these items, core earnings for the three and six months ended June 30, 2017 were $13.3 million, or $0.40 per diluted share, and $26.4 million, or $0.80 per diluted share, respectively.  (Please refer to the Non-GAAP Reconciliation table at the end of this document for details on the earnings impact of merger related expenses, branch consolidation expenses, certain other incurred expenses and quantification of core earnings).

Highlights for the quarter are described below:

  • Total loans grew $47.5 million, including $26.6 million in consumer loan growth and $20.9 million in commercial loan growth, while asset quality improved as non-performing loans decreased $5.4 million, or 25.0%, to $16.3 million, and non-performing loans as a percentage of total loans decreased to 0.42%, as compared to 0.56% in the prior linked quarter.
  • The Company maintained a loan to deposit ratio of 92.6% while cost of deposits increased one basis point from the prior linked quarter to 0.28%.
  • The Company successfully completed the consolidation of 15 branches throughout central and southern New Jersey, with total expected annualized cost savings of $6.1 million.

Chairman and Chief Executive Officer, Christopher D. Maher, commented on the Company's results, "We are pleased with the accelerated loan growth achieved this quarter and to have completed the full integration of Ocean City Home Bank which will result in material expense reductions in the coming quarters.  The systems integration of Ocean City Home Bank in May and the additional branch rationalization completed in July resulted in the consolidation of 15 branches." Mr. Maher added, "On June 30, 2017, we announced our plans to acquire Sun Bancorp, Inc. ("Sun").  The Sun transaction provides a wonderful opportunity to enhance the OceanFirst franchise and continue our strategic growth plans.  It is subject to regulatory and stockholder approvals which are not expected until the first quarter of 2018.  As part of the transaction we are considering making application to convert to a bank holding company which would operate OceanFirst as a national bank."

The Company also announced that the Company's Board of Directors declared its eighty-second consecutive quarterly cash dividend on common stock.  The dividend for the quarter ended June 30, 2017 of $0.15 per share will be paid on August 18, 2017 to stockholders of record on August 7, 2017.

The Company continues to focus on actively managing expense levels. Expense reductions associated with the successful systems integration of Ocean Shore Holding Company ("Ocean Shore") in the second quarter of 2017 will be fully realized in the third quarter of 2017. The Company also expects to realize significant cost savings from branch consolidations, which is expected to provide a total of $6.1 million in annual cost savings. The Company intends to deploy a portion of the savings by further investing in commercial banking and electronic delivery channels while meeting the efficiency targets established in connection with the recent acquisitions. The Company expects to recognize additional branch consolidation expense of $2.1 million in the third quarter of 2017 relating to branch closures in early July.

Results of Operations

On May 2, 2016, the Company completed its acquisition of Cape and its results of operations are included in the consolidated results for the three and six months ended June 30, 2017, but are excluded from the results of operations for the period from January 1, 2016 to May 1, 2016.

On November 30, 2016, the Company completed its acquisition of Ocean Shore and its results of operations are included in the consolidated results for the three and six months ended June 30, 2017, but are excluded from the results of operations for the three and six months ended June 30, 2016.

Net income for the quarter ended June 30, 2017, was $7.7 million, or $0.23 per diluted share, as compared to $3.7 million, or $0.16 per diluted share, for the corresponding prior year period. Net income for the six months ended June 30, 2017 was $19.7 million, or $0.59 per diluted share, as compared to net income of $7.9 million, or $0.39 per diluted share, for the corresponding prior year period.  Net income for the three and six months ended June 30, 2017, includes merger related and branch consolidation expenses and for the six months ended June 30, 2017, also includes the acceleration of stock award expense from a director retirement.  These items decreased net income, net of tax benefit, for the three and six months ended June 30, 2017, by $5.6 million and $6.7 million, respectively.  Net income for the three and six months ended June 30, 2016 includes merger related expenses of $7.2 million and $8.6 million, respectively, a Federal Home Loan Bank prepayment fee of $136,000 and a loss on the sale of investment securities available-for-sale of $12,000.  Excluding these items, net income for the three and six months ended June 30, 2017 increased over the prior year periods primarily due to the acquisitions of Cape and Ocean Shore ("Acquisition Transactions").  In addition, in the first quarter of 2017 the Company adopted Accounting Standards Update ("ASU") 2016-09 "Compensation - Stock Compensation" which resulted in decreases in income tax expense for the three and six months ended June 30, 2017, of $172,000 and $1.5 million, respectively.

Net interest income for the three and six months ended June 30, 2017 increased to $42.2 million and $83.7 million, respectively, as compared to $30.0 million and $50.6 million, respectively, for the same prior year periods, reflecting an increase in interest-earning assets.  Average interest-earning assets increased $1.357 billion and $1.805 billion, respectively, for the three and six months ended June 30, 2017, as compared to the same prior year periods. The averages for the three and six months ended June 30, 2017, were favorably impacted by the interest-earning assets acquired in the Acquisition Transactions. The net interest margin remained stable at 3.57% for both the three months ended June 30, 2017 and 2016, and increased to 3.56% for the six months ended June 30, 2017, from 3.47% for the same prior year period. The yields on average interest-earning assets increased to 3.97% and 3.96%, respectively, for the three and six months ended June 30, 2017, from 3.94% and 3.86%, respectively, for the same prior year periods.  The yields on average interest-earning assets for the three and six months ended June 30, 2017 benefited from an increase in the accretion of purchase accounting adjustments of $632,000 and $2.6 million, respectively, and the generally higher interest rate environment.  For both the three and six months ended June 30, 2017, the cost of average interest-bearing liabilities increased to 0.49%, from 0.47% and 0.48%, respectively, in the corresponding prior year periods.  The total cost of deposits (including non-interest bearing deposits) was 0.28% and 0.27%, respectively, for the three and six months ended June 30, 2017, as compared to 0.25% for both the three and six months ending June 30, 2016.

Net interest income for the three months ended June 30, 2017 increased $691,000, as compared to the prior linked quarter, as average interest-earning assets increased $12.9 million and the yield on average interest-earning assets increased to 3.97% for the three months ended June 30, 2017, from 3.95% for the prior linked quarter. The net interest margin increased to 3.57% for the three months ended June 30, 2017, from 3.56% for the prior linked quarter. The cost of average interest-bearing liabilities increased to 0.49% for the three months ended June 30, 2017 from 0.48% for the prior linked quarter.

For the three and six months ended June 30, 2017, the provision for loan losses was $1.2 million and $1.9 million, respectively, as compared to $662,000 and $1.2 million, respectively, for the corresponding prior year periods and $700,000 in the prior linked quarter. Net loan charge-offs were $759,000 and $491,000, respectively, for the three and six months ended June 30, 2017, as compared to net loan charge-offs of $198,000 and $1.3 million, respectively, in the corresponding prior year periods, and a $268,000 net loan recovery in the prior linked quarter. Non-performing loans totaled $16.3 million at June 30, 2017, as compared to $21.7 million at March 31, 2017, and $15.3 million at June 30, 2016. The decrease in non-performing loans from the prior quarter was primarily due to the sale of non-performing residential loans totaling $3.9 million and the payoff of two non-performing commercial loans totaling $1.7 million.

For the three and six months ended June 30, 2017, other income increased to $7.0 million and $13.0 million, respectively, as compared to $4.9 million and $8.3 million, respectively, in the same prior year periods. The increases were primarily due to the impact of the Acquisition Transactions, which added $1.7 million and $3.8 million, respectively, to other income for the three and six months ended June 30, 2017, as compared to the same prior year periods. Excluding the Acquisition Transactions, the remaining increase in other income was primarily related to higher deposit related fees of $389,000 and $902,000, respectively, for the three and six months ended June 30, 2017, as compared to the same prior year periods.

For the three months ended June 30, 2017, other income increased $978,000, as compared to the prior linked quarter. The increase in other income over the prior linked quarter was primarily due to the net gain from OREO operations for the quarter ended June 30, 2017 of $105,000, as compared to a net loss from OREO operations in the prior linked quarter of $733,000.

Operating expenses increased to $37.1 million and $68.1 million, respectively, for the three and six months ended June 30, 2017, as compared to $28.6 million and $45.4 million, respectively, in the same prior year periods. Operating expenses for the three and six months ended June 30, 2017 included $8.6 million and $10.1 million, respectively, of merger related and branch consolidation expenses, as compared to $7.2 million and $8.6 million, respectively, in the prior year periods. Excluding the impact of merger and branch consolidation expenses, the increase in operating expenses over the prior year was primarily due to the operations of the Cape and Ocean Shore, which added $5.9 million and $17.3 million for the three and six months ended June 30, 2017, respectively. For the three months ended June 30, 2017, excluding the Acquisition Transaction expenses, there were increases in salary compensation, equipment expense and professional fees. For the six months ended June 30, 2017, excluding the Acquisition Transaction expenses, there were increases in salary compensation, stock plan expense, equipment expense and professional fees.

For the three months ended June 30, 2017, operating expenses, excluding merger and branch consolidation expenses, decreased $1.0 million, as compared to the prior linked quarter, primarily due to reduced compensation and employee benefits expense.

The provision for income taxes was $3.2 million and $7.0 million, respectively, for the three and six months ended June 30, 2017, as compared to $1.9 million and $4.4 million, respectively, for the same prior year periods.  The effective tax rate was 29.2% and 26.1%, respectively, for the three and six months ended June 30, 2017, as compared to 34.5% and 35.8%, respectively, for the same prior year periods.  The lower effective tax rate for the three and six months ended June 30, 2017 resulted from the adoption of ASU 2016-09 "Compensation - Stock Compensation," which decreased income tax expense by $172,000 and $1.5 million, respectively. Excluding the impact of ASU 2016-09, the effective tax rate would have been 30.8% and 31.9% for the three and six months ended June 30, 2017, respectively. Under the ASU, the tax benefits of exercised stock options and vested stock awards are recognized as a benefit to income tax expense in the reporting period in which they occur.  The tax benefit relating to the Company's stock plans was $62,000 for the year ended December 31, 2016, which was recorded directly into stockholders equity.  The elevated tax benefit for the three and six months ended June 30, 2017 was related to the exercise of options assumed in the acquisitions of Cape and Ocean Shore and the increase in the Company's stock price.

Financial Condition

Total assets increased by $35.1 million to $5.202 billion at June 30, 2017, from $5.167 billion at December 31, 2016.  Cash and due from banks decreased by $193.7 million, to $107.7 million at June 30, 2017, from $301.4 million at December 31, 2016, as these funds were deployed into higher-yielding securities which increased $171.8 million. Loans receivable, net, increased by $65.4 million, to $3.869 billion at June 30, 2017 from $3.803 billion at December 31, 2016.  Premises and equipment decreased $11.9 million at June 30, 2017, as compared to December 31, 2016, due to the consolidation of 15 branches, of which 5 were closed in early July.  The premises and equipment at these locations were written down to their net realizable value and the remaining balance of $5.8 million was reclassified to assets held for sale.

Deposits decreased by $10.8 million, to $4.177 billion at June 30, 2017, from $4.188 billion at December 31, 2016.  The loan-to-deposit ratio at June 30, 2017 was 92.6%, as compared to 90.8% at December 31, 2016.

Stockholders' equity increased to $587.3 million at June 30, 2017, as compared to $572.0 million at December 31, 2016. At June 30, 2017, there were 1.8 million shares available for repurchase under the Company's stock repurchase programs.  In the six months ended June 30, 2017, the Company did not repurchase any shares under these repurchase programs.  Tangible stockholders' equity per common share increased to $13.19 at June 30, 2017, as compared to $12.95 at December 31, 2016.

Asset Quality

The Company's non-performing loans increased to $16.3 million at June 30, 2017, as compared to $13.6 million at December 31, 2016.  The increase was primarily due to a single commercial real estate relationship with a balance of $4.2 million, which was partly offset by the payoff of two non-performing loans totaling $1.7 million.  An increase in non-performing residential mortgage loans in the first quarter of 2017 was largely offset by the bulk sale of non-performing residential loans in the second quarter of 2017.  Non-performing loans do not include $5.0 million of purchased credit-impaired ("PCI") loans acquired in the Acquisition Transactions.  The Company's OREO totaled $8.9 million at June 30, 2017, as compared to $9.8 million at December 31, 2016.  At June 30, 2017, the Company's allowance for loan losses was 0.42% of total loans, an increase from 0.40% at December 31, 2016.  These ratios exclude existing fair value credit marks of $21.8 million at June 30, 2017 on the Ocean Shore, Cape and Colonial American Bank loans.  These loans were acquired at fair value with no related allowance for loan losses.  The allowance for loan losses as a percent of total non-performing loans was 101.82% at June 30, 2017 as compared to 111.92% at December 31, 2016.

Explanation of Non-GAAP Financial Measures

Reported amounts are presented in accordance with generally accepted accounting principles in the United States ("GAAP").  The Company's management believes that the supplemental non-GAAP information, which consists of reported net income excluding merger related expenses, branch consolidation expenses, accelerated stock award expense relating to a director retirement, loss on sale of investment securities available for sale and FHLB prepayment fee, which can vary from period to period, provides a better comparison of period to period operating performance.  Additionally, the Company believes this information is utilized by regulators and market analysts to evaluate a company's financial condition and therefore, such information is useful to investors.  These disclosures should not be viewed as a substitute for financial results in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.  Please refer to Non-GAAP Reconciliation table at the end of this document for details on the earnings impact of these items.

Conference Call

As previously announced, the Company will host an earnings conference call on Friday, July 28, 2017 at 11 a.m. Eastern time.  The direct dial number for the call is (888) 338-7143.  For those unable to participate in the conference call, a replay will be available.  To access the replay, dial (877) 344-7529, Replay Conference Number 10109403 from one hour after the end of the call until October 28, 2017.  The conference call, as well as the replay, are also available (listen-only) by internet webcast at www.oceanfirst.com in the Investor Relations section.

OceanFirst Financial Corp.'s subsidiary, OceanFirst Bank, founded in 1902, is a $5.2 billion community bank with branches located throughout central and southern New Jersey.  OceanFirst Bank delivers commercial and residential financing solutions, wealth management and deposit services and is one of the largest and oldest community-based financial institutions headquartered in New Jersey.

OceanFirst Financial Corp.'s press releases are available by visiting us at www.oceanfirst.com.

Forward-Looking Statements
           
In addition to historical information, this news release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," "will," "should," "may," "view," "opportunity," "potential," or similar expressions or expressions of confidence.  The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to:  changes in interest rates, general economic conditions, levels of unemployment in the Bank's lending area, real estate market values in the Bank's lending area, future natural disasters and increases to flood insurance premiums, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area,  accounting principles and guidelines and the Bank's ability to successfully integrate acquired operations.  These risks and uncertainties are further discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 and subsequent securities filings and should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

 
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
                 
    June 30,
2017
   March 31,
2017
  December 31,
2016
  June 30,
2016
    (Unaudited)   (Unaudited)       (Unaudited)
Assets                
Cash and due from banks   $ 107,660     $ 175,252     $ 301,373     $ 66,222  
Securities available-for-sale, at estimated fair value   62,154     47,104     12,224     12,509  
Securities held-to-maturity, net (estimated fair value of $724,250
   at June 30, 2017, $695,564 at March 31, 2017, $598,119 at
   December 31, 2016, and $520,971 at June 30, 2016)
  720,511     695,918     598,691     513,721  
Federal Home Loan Bank of New York stock, at cost   20,358     19,253     19,313     21,128  
Loans receivable, net   3,868,805     3,825,600     3,803,443     3,130,046  
Loans held-for-sale   168     283     1,551     5,310  
Interest and dividends receivable   13,036     12,258     11,989     10,143  
Other real estate owned   8,898     8,774     9,803     9,791  
Premises and equipment, net   59,509     70,806     71,385     49,392  
Servicing asset   181     203     228     664  
Bank Owned Life Insurance   133,572     132,789     132,172     105,929  
Deferred tax asset   29,804     33,652     38,787     37,052  
Assets held for sale   6,114     360     360     669  
Other assets   13,110     15,873     9,745     13,912  
Core deposit intangible   9,887     10,400     10,924     3,903  
Goodwill   148,433     147,815     145,064     67,102  
Total assets   $ 5,202,200     $ 5,196,340     $ 5,167,052     $ 4,047,493  
Liabilities and Stockholders' Equity                
Deposits   $ 4,176,909     $ 4,198,663     $ 4,187,750     $ 3,206,262  
Securities sold under agreements to repurchase with retail customers   75,050     77,207     69,935     67,673  
Federal Home Loan Bank advances   277,541     250,021     250,498     312,603  
Other borrowings   56,623     56,591     56,559     22,500  
Advances by borrowers for taxes and insurance   15,036     14,876     14,030     9,828  
Other liabilities   13,738     16,302     16,242     19,369  
Total liabilities   4,614,897     4,613,660     4,595,014     3,638,235  
Stockholders' equity:                
Preferred stock, $.01 par value, $1,000 liquidation
   preference, 5,000,000 shares authorized, no shares issued
               
Common stock, $.01 par value, 55,000,000 shares
   authorized, 33,566,772 shares issued and 32,528,658,
   32,465,413, 32,136,892, and 25,748,898 shares
   outstanding at June 30, 2017, March 31, 2017, December
   31, 2016, and June 30, 2016, respectively
  336     336     336     336  
Additional paid-in capital   353,296     352,316     364,433     308,460  
Retained earnings   258,470     256,045     238,192     230,895  
Accumulated other comprehensive loss   (5,198 )   (5,382 )   (5,614 )   (5,798 )
Less: Unallocated common stock held by Employee Stock Ownership Plan             (2,620 )   (2,690 )   (2,761 )   (2,903 )
Treasury stock, 1,038,114, 1,101,359, 1,429,880, and
7,817,874 shares at June 30, 2017, March 31, 2017,
December 31, 2016, and June 30, 2016, respectively
  (16,981 )   (17,945 )   (22,548 )   (121,732 )
Common stock acquired by Deferred Compensation Plan   (176 )   (316 )   (313 )   (308 )
Deferred Compensation Plan Liability   176     316     313     308  
Total stockholders' equity   587,303     582,680     572,038     409,258  
Total liabilities and stockholders' equity   $ 5,202,200     $ 5,196,340     $ 5,167,052     $ 4,047,493  


OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
         
    For the Three Months Ended,   For the Six Months Ended
    June 30,
2017
  March 31,
2017
  June 30,
2016
  June 30,
2017
  June 30,
2016
    |-------------------- (unaudited) --------------------|   |------------- (unaudited) -------------|
Interest income:                    
Loans   $ 42,608     $ 41,742     $ 30,521     $ 84,350     $ 51,556  
Mortgage-backed securities   2,791     2,660     1,708     5,451     3,123  
Investment securities and other   1,480     1,612     912     3,092     1,535  
Total interest income   46,879     46,014     33,141     92,893     56,214  
Interest expense:                    
Deposits   2,914     2,781     1,771     5,695     3,042  
Borrowed funds   1,791     1,750     1,356     3,541     2,599  
Total interest expense   4,705     4,531     3,127     9,236     5,641  
Net interest income   42,174     41,483     30,014     83,657     50,573  
Provision for loan losses   1,165     700     662     1,865     1,225  
Net interest income after provision for loan losses   41,009     40,783     29,352     81,792     49,348  
Other income:                    
Bankcard services revenue   1,837     1,579     1,211     3,416     2,062  
Wealth management revenue   565     516     621     1,081     1,171  
Fees and service charges   3,658     3,807     2,597     7,465     4,470  
Net loss on sale of investment securities available-for-sale           (12 )       (12 )
Net gain on sales of loans available-for-sale   15     42     170     57     349  
Net gain (loss) from other real estate operations   105     (733 )   (313 )   (628 )   (719 )
Income from Bank Owned Life Insurance   783     772     542     1,555     861  
Other   10     12     67     23     77  
Total other income   6,973     5,995     4,883     12,969     8,259  
Operating expenses:                    
Compensation and employee benefits   15,328     16,138     11,432     31,466     19,898  
Occupancy   2,641     2,767     2,011     5,409     3,637  
Equipment   1,703     1,698     1,184     3,400     2,153  
Marketing   730     740     543     1,470     794  
Federal deposit insurance   705     661     723     1,366     1,252  
Data processing   2,046     2,396     1,881     4,442     3,146  
Check card processing   815     953     505     1,768     925  
Professional fees   1,095     960     700     2,055     1,198  
Other operating expense   2,951     2,644     2,217     5,595     3,493  
Federal Home Loan Bank prepayment fee           136         136  
Amortization of core deposit intangible   513     524     125     1,037     138  
Branch consolidation expenses   5,451     33         5,484      
Merger related expenses   3,155     1,447     7,189     4,602     8,591  
Total operating expenses   37,133     30,961     28,646     68,094     45,361  
Income before provision for income taxes                                 10,849     15,817     5,589     26,667     12,246  
Provision for income taxes   3,170     3,799     1,928     6,969     4,380  
Net income   $ 7,679     $ 12,018     $ 3,661     $ 19,698     $ 7,866  
Basic earnings per share   $ 0.24     $ 0.38     $ 0.16     $ 0.62     $ 0.40  
Diluted earnings per share   $ 0.23     $ 0.36     $ 0.16     $ 0.59     $ 0.39  
Average basic shares outstanding   32,122     31,901     22,478     32,014     19,694  
Average diluted shares outstanding   33,138     33,090     22,880     33,111     19,996  


OceanFirst Financial Corp.
SELECTED LOAN AND DEPOSIT DATA
(dollars in thousands)
       
LOANS RECEIVABLE     At
      June 30,
2017
  March 31,
2017
  December 31,
2016
  September 30,
2016
  June 30,
2016
Commercial:                      
Commercial and industrial     $ 193,759     $ 205,720     $ 152,810     $ 185,633     $ 222,355  
Commercial real estate - owner-
occupied
    557,734     533,052     534,365     493,157     523,662  
Commercial real estate - investor     1,122,186     1,113,964     1,134,507     1,014,699     1,011,354  
Total commercial     1,873,679     1,852,736     1,821,682     1,693,489     1,757,371  
Consumer:                      
Residential mortgage     1,667,831     1,639,611     1,651,695     1,061,752     1,090,781  
Residential construction     78,339     76,985     65,408     46,813     48,266  
Home equity loans and lines     282,402     285,149     289,110     251,421     258,398  
Other consumer     1,335     1,560     1,566     1,273     1,586  
Total consumer     2,029,907     2,003,305     2,007,779     1,361,259     1,399,031  
Total loans     3,903,586     3,856,041     3,829,461     3,054,748     3,156,402  
Loans in process     (22,589 )   (17,976 )   (14,249 )   (13,842 )   (13,119 )
Deferred origination costs, net     4,365     3,686     3,414     3,407     3,441  
Allowance for loan losses     (16,557 )   (16,151 )   (15,183 )   (15,617 )   (16,678 )
Loans receivable, net     $ 3,868,805     $ 3,825,600     $ 3,803,443     $ 3,028,696     $ 3,130,046  
Mortgage loans serviced for others     $ 131,284     $ 132,973     $ 137,881     $ 143,657     $ 145,903  
  At June 30, 2017
Average Yield
                   
Loan pipeline (1):                      
Commercial 4.20 %   $ 61,287     $ 73,793     $ 99,060     $ 64,976     $ 48,897  
Residential mortgage and construction               3.74     64,510     57,600     38,486     39,252     30,520  
Home equity loans and lines 4.40     11,194     7,879     6,522     5,099     5,594  
Total 4.00     $ 136,991     $ 139,272     $ 144,068     $ 109,327     $ 85,011  


  For the three months ended
  June 30,   March 31,   December 31,   September 30,   June 30,
  2017   2017   2016   2016   2016
  Average Yield                    
Loan originations:                      
Commercial          4.52 %   $ 115,048   (2 ) $ 106,896     $ 105,062     $ 63,310     $ 59,543  
Residential mortgage and construction                   3.97     79,610
    64,452     62,087     41,170     40,295  
Home equity loans and lines 4.38     20,539     12,500     11,790     11,007     10,067  
Total 4.30     $ 215,197     $ 183,848     $ 178,939     $ 115,487     $ 109,905  
Loans sold     $ 865   (3 ) $ 1,907     $ 12,098   (4 ) $ 17,787   (5 ) $ 10,303  
(1)  Loan pipeline includes pending loan applications and loans approved but not funded
(2)  Includes purchased loans totaling $16.6 million
(3)  Excludes the sale of under-performing residential loans of $4.3 million
(4)  Excludes the sale of  under-performing loans of $21.0 million
(5)  Excludes the sale of  under-performing loans of $12.8 million


DEPOSITS At
  June 30,
2017
  March 31,
2017
  December 31,
2016
  September 30,
2016
  June 30,
2016
Type of Account                  
Non-interest-bearing $ 770,057     $ 806,728     $ 782,504     $ 512,957     $ 554,709  
Interest-bearing checking                                                               1,727,828     1,629,589     1,626,713     1,451,083     1,310,290  
Money market deposit                                                                           378,538     448,093     458,911     400,054     366,942  
Savings 677,939     681,853     672,519     489,173     489,132  
Time deposits 622,547     632,400     647,103     471,414     485,189  
  $ 4,176,909     $ 4,198,663     $ 4,187,750     $ 3,324,681     $ 3,206,262  


OceanFirst Financial Corp.
ASSET QUALITY
(dollars in thousands)
                   
  June 30,
2017
  March 31,
2017
  December 31,
2016
  September 30,
2016
  June 30,
2016
ASSET QUALITY                  
Non-performing loans:                  
Commercial and industrial $ 68     $ 231     $ 441     $ 1,152     $ 964  
Commercial real estate - owner-occupied 943     2,383     2,414     5,213     4,363  
Commercial real estate - investor 5,608     5,118     521     1,675     1,675  
Residential mortgage 7,936     11,993     8,126     7,017     7,102  
Home equity loans and lines 1,706     1,954     2,064     1,450     1,226  
Total non-performing loans 16,261     21,679     13,566     16,507     15,330  
Other real estate owned 8,898     8,774     9,803     9,107     9,791  
Total non-performing assets $ 25,159     $ 30,453     $ 23,369     $ 25,614     $ 25,121  
Purchased credit-impaired ("PCI") loans $ 4,969     $ 7,118     $ 7,575     $ 5,836     $ 9,673  
Delinquent loans 30 to 89 days $ 25,224     $ 18,516     $ 22,598     $ 8,553     $ 15,643  
Troubled debt restructurings:                  
Non-performing (included in total non-performing loans above)       $ 1,251     $ 3,547     $ 3,471     $ 3,520     $ 2,990  
Performing 34,130     26,974     27,042     26,396     28,173  
Total troubled debt restructurings $ 35,381     $ 30,521     $ 30,513     $ 29,916     $ 31,163  
Allowance for loan losses $ 16,557     $ 16,151     $ 15,183     $ 15,617     $ 16,678  
Allowance for loan losses as a percent of total loans receivable (1) 0.42 %   0.42 %   0.40 %   0.51 %   0.53 %
Allowance for loan losses as a percent of total non-performing loans           101.82     74.50     111.92     94.61     108.79  
Non-performing loans as a percent of total loans receivable 0.42     0.56     0.35     0.54     0.48  
Non-performing assets as a percent of total assets 0.48     0.59     0.45     0.62     0.62  


(1)           The loans acquired from Ocean Shore, Cape, and Colonial American were recorded at fair value. The net credit mark on these loans, not
reflected in the allowance for loan losses, was $21,794, $24,002, $25,973, $17,051, and $27,281, at June 30, 2017, March 31, 2017,
December 31, 2016, September 30, 2016, and June 30, 2016, respectively.

NET CHARGE-OFFS

  For the three months ended
  June 30,   March 31,   December 31,   September 30,   June 30,
  2017   2017   2016   2016   2016
Net Charge-offs:                      
Loan charge-offs $ (1,299 )   $ (205 )   $ (979 )   $ (2,116 )   $ (223 )
Recoveries on loans 540     473     35     167     25  
Net loan (charge-offs) recoveries $ (759 )   $ 268     $ (944 )   $ (1,949 )   $ (198 )
Net loan charge-offs to average total loans
(annualized)
0.08 %     NM*     0.11 %   0.25 %   0.03 %
Net charge-off detail - (loss) recovery:                  
Commercial $ (81 )   $ 311     $ (510 )   $ (1,707 )   $ (84 )
Residential mortgage and construction                                                           (716 )   (49 )   (233 )   (161 )   (69 )
Home equity loans and lines 39     24     (194 )   (83 )   (45 )
Other consumer (1 )   (18 )   (7 )   2      
Net loan (charge-offs) recoveries  $ (759 )   $ 268     $ (944 )   $ (1,949 )   $ (198 )
 
Note:  Included in net loan charge-offs for the three months ended June 30, 2017, December 31, 2016 and September 30, 2016 are $925, $535 and
   $1,627, respectively, relating to under-performing loans sold or held-for-sale.
 
* Not meaningful


OceanFirst Financial Corp.
ANALYSIS OF NET INTEREST INCOME
   
  For the Three Months Ended
  June 30, 2017   March 31, 2017   June 30, 2016
(dollars in thousands) Average
Balance
  Interest   Average
Yield/
Cost
  Average
Balance
  Interest   Average
Yield/
Cost
  Average
Balance
  Interest   Average
Yield/
Cost
Assets:                                  
Interest-earning assets:                                  
Interest-earning deposits and short-
term investments
$ 114,019     $ 211     0.74 %   $ 214,165     $ 409     0.77 %   $ 40,567     $ 41     0.41 %
Securities (1) and FHLB stock 786,964     4,060     2.07     703,712     3,863     2.23     571,463     2,579     1.82  
Loans receivable, net (2)                                  
Commercial 1,850,737     22,057     4.78     1,830,641     21,140     4.68     1,471,159     17,783     4.86  
Residential 1,718,413     17,304     4.04     1,704,035     17,339     4.13     1,076,557     10,225     3.82  
Home Equity 283,124     3,225     4.57     287,335     3,245     4.58     236,937     2,498     4.24  
Other 1,161     22     7.60     1,248     18     5.85     1,011     15     5.97  
Allowance for loan loss net of
deferred loan fees
(12,518 )           (12,123 )           (13,146 )        
Loans Receivable, net 3,840,917     42,608     4.45     3,811,136     41,742     4.44     2,772,518     30,521     4.43  
Total interest-earning assets 4,741,900     46,879     3.97     4,729,013     46,014     3.95     3,384,548     33,141     3.94  
Non-interest-earning assets 473,736             482,058             262,554          
Total assets $ 5,215,636             $ 5,211,071             $ 3,647,102          
Liabilities and Stockholders'
Equity:
                                 
Interest-bearing liabilities:                                  
Interest-bearing checking $ 1,716,930     1,038     0.24 %   $ 1,668,545     876     0.21 %   $ 1,166,298     503     0.17 %
Money market 422,439     281     0.27     445,186     311     0.28     298,530     180     0.24  
Savings 679,806     97     0.06     674,721     130     0.08     434,438     41     0.04  
Time deposits 624,020     1,498     0.96     640,269     1,464     0.93     417,301     1,047     1.01  
Total 3,443,195     2,914     0.34     3,428,721     2,781     0.33     2,316,567     1,771     0.31  
Securities sold under agreements
to repurchase
73,574     25     0.14     76,351     27     0.14     76,907     26     0.14  
FHLB Advances 259,291     1,118     1.73     250,339     1,070     1.73     287,171     1,201     1.68  
Other borrowings 56,456     648     4.60     56,392     653     4.70     22,500     129     2.31  
Total interest-bearing
liabilities
3,832,516     4,705     0.49     3,811,803     4,531     0.48     2,703,145     3,127     0.47  
Non-interest-bearing deposits 772,739             791,036             529,230          
Non-interest-bearing liabilities 23,260             29,399             26,033          
Total liabilities 4,628,515             4,632,238             3,258,408          
Stockholders' equity 587,121             578,833             388,694          
Total liabilities and equity $ 5,215,636             $ 5,211,071             $ 3,647,102          
Net interest income     $ 42,174             $ 41,483             $ 30,014      
Net interest rate spread (3)         3.48 %           3.47 %           3.47 %
Net interest margin (4)         3.57 %           3.56 %           3.57 %
Total cost of deposits (including non-
interest-bearing deposits)
        0.28 %           0.27 %           0.25 %
(1)  Amounts are recorded at average amortized cost.
(2)  Amount is net of deferred loan fees, undisbursed loan funds, discounts and premiums and estimated loss allowances and includes loans held
      for sale and non-performing loans.
(3)  Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(4)  Net interest margin represents net interest income divided by average interest-earning assets.


  For the Six Months Ended,
  June 30, 2017   June 30, 2016
(dollars in thousands) Average
Balance
  Interest   Average
Yield/
Cost
  Average
Balance
  Interest   Average
Yield/
Cost
Assets:                      
Interest-earning assets:                      
Interest-earning deposits and short-term investments $ 163,815     $ 620     0.76 %   $ 44,533     $ 70     0.32 %
Securities (1) and FHLB stock 745,568     7,923     2.14     508,590     4,588     1.81  
Loans receivable, net (2)                      
Commercial 1,840,745     43,197     4.73     1,221,604     28,780     4.74  
Residential 1,711,263     34,643     4.08     954,059     18,265     3.85  
Home Equity 285,208     6,470     4.57     214,146     4,488     4.21  
Other 1,215     40     6.64     756     23     6.12  
Allowance for loan loss net of deferred loan fees (12,322 )           (13,396 )        
Loans Receivable, net 3,826,109     84,350     4.45     2,377,169     51,556     4.36  
Total interest-earning assets 4,735,492     92,893     3.96     2,930,292     56,214     3.86  
Non-interest-earning assets 477,874             195,768          
Total assets $ 5,213,366             $ 3,126,060          
Liabilities and Stockholders' Equity:                      
Interest-bearing liabilities:                      
Interest-bearing checking $ 1,692,820     1,913     0.23 %   $ 1,033,091     808     0.16 %
Money market 433,750     591     0.27     227,428     250     0.22  
Savings 677,278     227     0.07     375,293     67     0.04  
Time deposits 632,099     2,964     0.95     340,511     1,917     1.13  
Total 3,435,947     5,695     0.33     1,976,323     3,042     0.31  
Securities sold under agreements to repurchase 74,955     52     0.14     80,207     54     0.14  
FHLB Advances 254,840     2,186     1.73     276,547     2,284     1.66  
Other borrowings 56,424     1,303     4.66     22,500     261     2.33  
Total interest-bearing liabilities 3,822,166     9,236     0.49     2,355,577     5,641     0.48  
Non-interest-bearing deposits 781,888             436,300          
Non-interest-bearing liabilities 26,312             19,836          
Total liabilities 4,630,366             2,811,713          
Stockholders' equity 583,000             314,347          
Total liabilities and equity $ 5,213,366             $ 3,126,060          
Net interest income     $ 83,657             $ 50,573      
Net interest rate spread (3)         3.47 %           3.38 %
Net interest margin (4)         3.56 %           3.47 %
Total cost of deposits (including non-interest-bearing deposits)         0.27 %           0.25 %
 
(1)  Amounts are recorded at average amortized cost.
(2)  Amount is net of deferred loan fees, undisbursed loan funds, discounts and premiums and estimated loss allowances and includes loans held for
      sale and non-performing loans.
(3)  Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(4)  Net interest margin represents net interest income divided by average interest-earning assets.


OceanFirst Financial Corp.
SELECTED QUARTERLY FINANCIAL DATA
(in thousands, except per share amounts)
                     
    June 30,   March 31,   December 31,   September 30,   June 30,
    2017   2017   2016   2016   2016
                     
Selected Financial Condition Data:                    
Total assets   $ 5,202,200     $ 5,196,340     $ 5,167,052     $ 4,151,017     $ 4,047,493  
Securities available-for-sale, at estimated fair value   62,154     47,104     12,224     2,497     12,509  
Securities held-to-maturity, net   720,511     695,918     598,691     470,642     513,721  
Federal Home Loan Bank of New York stock   20,358     19,253     19,313     18,289     21,128  
Loans receivable, net   3,868,805     3,825,600     3,803,443     3,028,696     3,130,046  
Deposits   4,176,909     4,198,663     4,187,750     3,324,681     3,206,262  
Federal Home Loan Bank advances   277,541     250,021     250,498     251,146     312,603  
Securities sold under agreements to repurchase and other borrowings    131,673     133,798     126,494     125,477     90,173  
Stockholders' equity   587,303     582,680     572,038     417,244     409,258  


    For the Three Months Ended,
    June 30,   March 31,   December 31,   September 30,   June 30,
    2017   2017   2016   2016   2016
Selected Operating Data:                    
Interest income   $ 46,879     $ 46,014     $ 39,904     $ 37,307     $ 33,141  
Interest expense   4,705     4,531     4,150     3,372     3,127  
Net interest income   42,174     41,483     35,754     33,935     30,014  
Provision for loan losses   1,165     700     510     888     662  
Net interest income after provision for loan losses                                                   41,009     40,783     35,244     33,047     29,352  
Other income   6,973     5,995     6,257     5,896     4,883  
Operating expenses   28,527     29,481     25,833     23,715     21,457  
Branch consolidation expenses   5,451     33              
Merger related expenses   3,155     1,447     6,632     1,311     7,189  
Income before provision for income taxes   10,849     15,817     9,036     13,917     5,589  
Provision for income taxes   3,170     3,799     2,984     4,789     1,928  
Net income   $ 7,679     $ 12,018     $ 6,052     $ 9,128     $ 3,661  
Diluted earnings per share   $ 0.23     $ 0.36     $ 0.22     $ 0.35     $ 0.16  
Net accretion/amortization of purchase accounting adjustments included
in net interest income  
  $ 1,899     $ 2,175     $ 1,385     $ 1,637     $ 1,267  


  At or For the Three Months Ended
  June 30,   March 31,   December 31,   September 30,   June 30,
  2017   2017   2016   2016   2016
Selected Financial Ratios and Other Data(1):                  
                   
Performance Ratios (Annualized):                  
Return on average assets (2) 0.59 %   0.94 %   0.53 %   0.88 %   0.40 %
Return on average stockholders' equity (2) 5.25     8.42     5.10     8.77     3.79  
Return on average tangible stockholders' equity (2) (3)                                                           7.19     11.50     6.48     10.58     4.32  
Stockholders' equity to total assets 11.29     11.21     11.07     10.05     10.11  
Tangible stockholders' equity to tangible assets (3) 8.51     8.43     8.30     8.50     8.51  
Net interest rate spread 3.48     3.47     3.31     3.49     3.47  
Net interest margin 3.57     3.56     3.40     3.56     3.57  
Operating expenses to average assets (2) 2.86     2.41     2.83     2.43     3.16  
Efficiency ratio (2) (4) 75.55     65.21     77.28     62.83     82.09  
Loans to deposits 92.62     91.11     90.82     91.10     97.62  


  For the Six Months Ended June 30,
  2017   2016
Performance Ratios (Annualized):      
Return on average assets (2) 0.76 %   0.51 %
Return on average stockholders' equity (2) 6.81     5.03  
Return on average tangible stockholders' equity (2) (3)                                                           9.32     5.47  
Net interest rate spread 3.47     3.38  
Net interest margin 3.56     3.47  
Operating expenses to average assets (2) 2.63     2.92  
Efficiency ratio (2) (4) 70.47     77.10  


    At or For the Three Months Ended
    June 30,   March 31,   December 31,   September 30,   June 30,
    2017   2017   2016   2016   2016
Wealth Management:                    
Assets under administration   $ 214,479     $ 215,593     $ 218,336     $ 221,612     $ 221,277  
Per Share Data:                    
Cash dividends per common share   $ 0.15     $ 0.15     $ 0.15     $ 0.13     $ 0.13  
Stockholders' equity per common share at end of  period   18.05     17.95     17.80     16.14     15.89  
Tangible stockholders' equity per common share at end of period (3)    13.19     13.07     12.95     13.42     13.14  
Number of full-service customer facilities:   51     61     61     50     50  
Quarterly Average Balances                    
Total securities   $ 786,964     $ 703,712     $ 545,302     $ 533,809     $ 571,463  
Loans, receivable, net   3,840,917     3,811,136     3,282,703     3,085,691     2,772,518  
Total interest-earning assets   4,741,900     4,729,013     4,187,809     3,787,545     3,384,548  
Total assets   5,215,636     5,211,071     4,556,774     4,103,835     3,647,102  
Interest-bearing transaction deposits   2,819,175     2,788,452     2,512,351     2,300,589     1,899,266  
Time deposits   624,020     640,269     527,817     477,496     417,301  
Total borrowed funds   389,321     383,082     379,289     358,960     386,578  
Total interest-bearing liabilities   3,832,516     3,811,803     3,419,457     3,137,045     2,703,145  
Non-interest bearing deposits   772,739     791,036     622,882     521,088     529,230  
Stockholder's equity   587,121     578,833     471,662     414,166     388,694  
Total deposits   4,215,934     4,219,757     3,663,050     3,299,173     2,845,797  
Quarterly Yields                    
Total securities   2.07 %   2.23 %   1.91 %   1.91 %   1.82 %
Loans, receivable, net   4.45     4.44     4.46     4.46     4.43  
Total interest-earning assets   3.97     3.95     3.79     3.92     3.94  
Interest-bearing transaction deposits   0.20     0.18     0.18     0.16     0.15  
Time deposits   0.96     0.93     0.97     0.96     1.01  
Total borrowed funds   1.85     1.85     1.84     1.43     1.41  
Total interest-bearing liabilities   0.49     0.48     0.48     0.43     0.47  
Net interest spread   3.48     3.47     3.31     3.49     3.47  
Net interest margin   3.57     3.56     3.40     3.56     3.57  
Total deposits   0.28     0.27     0.26     0.25     0.25  
 
(1)    With the exception of end of quarter ratios, all ratios are based on average daily balances.
(2)    Performance ratios for each period include merger related and branch consolidation expenses.  Refer to Other Items - Non-GAAP Reconciliation for
         impact of merger related and branch consolidation expenses.
(3)    Tangible stockholders' equity and tangible assets exclude intangible assets relating to goodwill and core deposit intangible.
(4)    Efficiency ratio represents the ratio of operating expenses to the aggregate of other income and net interest income.


                                                                                            OceanFirst Financial Corp.
OTHER ITEMS
(dollars in thousands, except per share amounts)

NON-GAAP RECONCILIATION

  For the three months ended
    June 30,   March 31,   December 31,   September 30,   June 30,
    2017   2017   2016   2016   2016
Core earnings:                    
Net income   $ 7,679     $ 12,018     $ 6,052     $ 9,128     $ 3,661  
Add:  Merger related expenses   3,155     1,447     6,632     1,311     7,189  
Branch consolidation expense   5,451     33              
Accelerated stock award expense       242              
Loss on sale of investment securities available for sale                                               12  
Federal Home Loan Bank prepayment fee                   136  
Less:  Income tax benefit on items   (3,012 )   (587 )   (2,108 )   (172 )   (2,311 )
Core earnings   $ 13,273     $ 13,153     $ 10,576     $ 10,267     $ 8,687  
Core diluted earnings per share   $ 0.40     $ 0.40     $ 0.38     $ 0.40     $ 0.38  
                     
Core ratios (Annualized):                    
Return on average assets   1.02 %   1.02 %   0.92 %   1.00 %   0.96 %
Return on average tangible stockholder's equity   12.42     12.56     11.33     11.90     10.26  
Efficiency ratio   58.04     61.58     61.49     59.54     61.06  

COMPUTATION OF TOTAL TANGIBLE EQUITY TO TOTAL TANGIBLE ASSETS

    June 30,   March 31,   December 31,   September 30,   June 30,
    2017   2017   2016   2016   2016
Total stockholders' equity   $ 587,303     $ 582,680     $ 572,038     $ 417,244     $ 409,258  
Less:                    
Goodwill   148,433     147,815     145,064     66,537     67,102  
Core deposit intangible   9,887     10,400     10,924     3,722     3,903  
Tangible stockholders' equity   $ 428,983     $ 424,465     $ 416,050     $ 346,985     $ 338,253  
                     
Total assets   $ 5,202,200     $ 5,196,340     $ 5,167,052     $ 4,151,017     $ 4,047,493  
Less:                    
Goodwill   148,433     147,815     145,064     66,537     67,102  
Core deposit intangible   9,887     10,400     10,924     3,722     3,903  
Tangible assets   $ 5,043,880     $ 5,038,125     $ 5,011,064     $ 4,080,758     $ 3,976,488  
Tangible stockholders' equity to tangible assets                                 8.51 %   8.43 %   8.30 %   8.50 %   8.51 %

 

Company Contact:

Michael J. Fitzpatrick
Chief Financial Officer
OceanFirst Financial Corp.
Tel:  (732) 240-4500, ext. 7506
Fax: (732) 349-5070
Email: Mfitzpatrick@oceanfirst.com

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