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OceanFirst Financial Corp. Announces Third Quarter Financial Results

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TOMS RIVER, N.J., Oct. 26, 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 $0.39 for the three months ended September 30, 2017, as compared to $0.35 for the corresponding prior year period. For the nine months ended September 30, 2017, diluted earnings per share were $0.98, as compared to $0.77 for the prior corresponding year period.

The results of operations for the three and nine months ended September 30, 2017 include merger related expenses and branch consolidation expenses and for the nine months ended September 30, 2017 also include the acceleration of stock award expense due to the retirement of a director. These items decreased net income, net of tax benefit, for the three and nine months ended September 30, 2017, by $2.1 million and $8.8 million, respectively.  Excluding these items, core earnings for the three and nine months ended September 30, 2017 were $14.9 million, or $0.45 per diluted share, and $41.3 million, or $1.25 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:

  • The Company achieved record quarterly core earnings and diluted earnings per share of $14.9 million and $0.45, respectively.
  • The Company grew deposits $173.4 million, reducing its loan to deposit ratio to 89.0%, while the cost of deposits increased only one basis point from the prior linked quarter, to 0.29%.
  • Asset quality improved as non-performing loans decreased to $15.1 million, and non-performing loans as a percentage of total loans decreased to 0.39%.  

"The Company delivered very strong results for the quarter with record earnings and core diluted earnings per share increasing 12.5% over the prior year quarter," said Chairman and Chief Executive Officer Christopher D. Maher. Mr. Maher added, "We are pleased to report solid deposit growth which reflects organic growth as well as retention and expansion of relationships with depositors who have joined OceanFirst from the completed acquisitions. The Company continues to focus on credit quality and realizing expense reductions from merger efficiencies and branch consolidations."

On June 30, 2017, the Company announced a definitive agreement and plan of merger (the "merger agreement") with Sun Bancorp, Inc. ("Sun") (NASDAQ:SNBC).  On October 24 and 25, 2017, Sun and the Company received their respective requisite stockholder approvals for the merger.  Regulatory approval of the merger was received from the Federal Reserve Bank of Philadelphia on October 17, 2017. The regulatory application for the transaction remains under review by the Office of the Comptroller of the Currency ("OCC").   Subject to receipt of OCC approval and other customary closing conditions, the Company expects to close the transaction in January 2018 and anticipates full integration of Sun's branches and core operating systems in the second quarter of 2018.

The Company also announced that the Company's Board of Directors declared its eighty-third consecutive quarterly cash dividend on common stock.  The dividend, for the quarter ended September 30, 2017, of $0.15 per share will be paid on November 17, 2017 to stockholders of record on November 6, 2017.

Results of Operations

On May 2, 2016, the Company completed its acquisition of Cape Bancorp, Inc. ("Cape") and its results of operations are included in the consolidated results for the three and nine months ended September 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 Holding Company ("Ocean Shore") and its results of operations are included in the consolidated results for the three and nine months ended September 30, 2017, but are excluded from the results of operations for the three and nine months ended September 30, 2016.

Net income for the quarter ended September 30, 2017, was $12.8 million, or $0.39 per diluted share, as compared to $9.1 million, or $0.35 per diluted share, for the corresponding prior year period. Net income for the nine months ended September 30, 2017 was $32.5 million, or $0.98 per diluted share, as compared to net income of $17.0 million, or $0.77 per diluted share, for the corresponding prior year period.  Net income for the three and nine months ended September 30, 2017, includes merger related and branch consolidation expenses and for the nine months ended September 30, 2017, also includes the acceleration of stock award expense due to the retirement of a director.  These items decreased net income, net of tax benefit, for the three and nine months ended September 30, 2017, by $2.1 million and $8.8 million, respectively.  Net income for the three and nine months ended September 30, 2016 includes merger related expenses of $1.3 million and $9.9 million, respectively.  Excluding these items, net income for the three and nine months ended September 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 nine months ended September 30, 2017, of $158,000 and $1.7 million, respectively.

Net interest income for the three and nine months ended September 30, 2017, increased to $43.1 million and $126.7 million, respectively, as compared to $33.9 million and $84.5 million, respectively, for the same prior year periods, reflecting an increase in interest-earning assets.  Average interest-earning assets increased $1.086 billion and $1.574 billion, respectively, for the three and nine months ended September 30, 2017, as compared to the same prior year periods. The averages for the three and nine months ended September 30, 2017, were favorably impacted by the interest-earning assets acquired in the Acquisition Transactions. The net interest margin for the three and nine months ended September 30, 2017 decreased to 3.50% and increased to 3.54%, respectively, from 3.56% and 3.51%, respectively, for the same prior year periods. The yields on average interest-earning assets decreased to 3.91% and increased to 3.93%, respectively, for the three and nine months ended September 30, 2017, from 3.92% and 3.88%, respectively, for the same prior year periods. For the three and nine months ended September 30, 2017, the cost of average interest-bearing liabilities increased to 0.50% and 0.49%, respectively, from 0.43% and 0.46%, respectively, in the corresponding prior year periods.  The total cost of deposits (including non-interest bearing deposits) was 0.29% and 0.28%, respectively, for the three and nine months ended September 30, 2017, as compared to 0.25% for both the three and nine months ended September 30, 2016.

Net interest income for the three months ended September 30, 2017, increased $882,000, as compared to the prior linked quarter, as average interest-earning assets increased $131.8 million. The net interest margin decreased to 3.50% for the three months ended September 30, 2017, from 3.57% for the prior linked quarter.

For the three and nine months ended September 30, 2017, the provision for loan losses was $1.2 million and $3.0 million, respectively, as compared to $888,000 and $2.1 million, respectively, for the corresponding prior year periods, and remained unchanged at $1.2 million when compared to the prior linked quarter. Net loan charge-offs were $1.1 million and $1.6 million, respectively, for the three and nine months ended September 30, 2017, as compared to net loan charge-offs of $1.9 million and $3.2 million, respectively, in the corresponding prior year periods, and $759,000 in the prior linked quarter. Non-performing loans totaled $15.1 million at September 30, 2017, as compared to $16.3 million at June 30, 2017, and $16.5 million at September 30, 2016. The decrease in non-performing loans from the prior linked quarter was partly due to the sale of non-performing residential loans totaling $3.5 million partially offset by the addition of one non-performing commercial loan totaling $3.2 million.

For the three and nine months ended September 30, 2017, other income increased to $7.4 million and $20.3 million, respectively, as compared to $5.9 million and $14.2 million, respectively, for the corresponding prior year periods. The increases were primarily due to the impact of the Acquisition Transactions, which added $1.1 million and $4.9 million, respectively, to other income for the three and nine months ended September 30, 2017, as compared to the same prior year periods. Excluding the Acquisition Transactions, the remaining increase in other income for the three months ended September 30, 2017, was primarily due to higher deposit and bank card related fees of $272,000 and $71,000, respectively, as compared to the same prior year period. In addition, income from other real estate operations, excluding the Acquisition Transactions, increased $364,000 which was offset by a decrease in the net gain on the sale of loans available for sale (included in other income) of $360,000. For the nine months ended September 30, 2017, excluding the Acquisition Transactions, the increase in other income was primarily due to higher deposit and bank card related fees of $1.0 million and $153,000, respectively, as compared to the same prior year period. Excluding the Acquisition Transactions, an increase in income from other real estate operations of $609,000 was offset by a decrease in the net gain on the sale of loans (included in other income) of $697,000.

For the three months ended September 30, 2017, other income increased $386,000, as compared to the prior linked quarter. The increase in other income over the prior linked quarter was primarily due to an increase in the net gain from other real estate operations of $327,000.

Operating expenses increased to $30.7 million and $98.8 million, respectively, for the three and nine months ended September 30, 2017, as compared to $25.0 million and $70.4 million, respectively, in the same prior year periods. Operating expenses for the three and nine months ended September 30, 2017, included $3.2 million and $13.2 million, respectively, of merger related and branch consolidation expenses, as compared to $1.3 million and $9.9 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 Acquisition Transactions, which added $2.4 million and $18.9 million for the three and nine months ended September 30, 2017, respectively. For the three months ended September 30, 2017, excluding the Acquisition Transaction expenses, there were increases in marketing expense and loan related expenses. For the nine months ended September 30, 2017, excluding the Acquisition Transaction expenses, there were increases in compensation and employee benefits expense, equipment expense, marketing expense and professional fees.

For the three months ended September 30, 2017, operating expenses, excluding merger and branch consolidation expenses, decreased $947,000, as compared to the prior linked quarter, primarily due to the closing of 15 branches in mid May and early July.

The provision for income taxes was $5.7 million and $12.7 million, respectively, for the three and nine months ended September 30, 2017, as compared to $4.8 million and $9.2 million, respectively, for the same prior year periods.  The effective tax rate was 30.8% and 28.0%, respectively, for the three and nine months ended September 30, 2017, as compared to 34.4% and 35.0%, respectively, for the same prior year periods.  The lower effective tax rate for the three and nine months ended September 30, 2017 resulted from the adoption of ASU 2016-09 "Compensation - Stock Compensation," which decreased income tax expense by $158,000 and $1.7 million, respectively. Excluding the impact of ASU 2016-09, the effective tax rate would have been 31.6% and 31.8% for the three and nine months ended September 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 nine months ended September 30, 2017, was related to the exercise of options assumed in the acquisition of Cape and Ocean Shore and the increase in the Company's stock price. Excluding the tax benefit of exercised stock options and vested stock awards, the lower effective tax rate for the three and nine months ended September 30, 2017, as compared to the same prior year periods, was primarily due to the deductibility of merger related expenses and an increase in tax exempt income.

Financial Condition

Total assets increased by $216.9 million to $5.384 billion at September 30, 2017, from $5.167 billion at December 31, 2016.  Cash and due from banks decreased by $46.1 million, to $255.3 million at September 30, 2017, from $301.4 million at December 31, 2016, as these funds were deployed into higher-yielding securities which increased $199.1 million. Loans receivable, net, increased by $66.7 million, to $3.870 billion at September 30, 2017 from $3.803 billion at December 31, 2016.  Premises and equipment decreased $7.0 million at September 30, 2017, as compared to December 31, 2016, due to the consolidation of 15 branches during the nine months ended September 30, 2017. The premises and equipment at these locations were written down to their net realizable value and the remaining balance was reclassified to assets held for sale. 

Deposits increased by $162.5 million, to $4.350 billion at September 30, 2017, from $4.188 billion at December 31, 2016.  The loan-to-deposit ratio at September 30, 2017 was 89.0%, as compared to 90.8% at December 31, 2016.

Stockholders' equity increased to $596.3 million at September 30, 2017, as compared to $572.0 million at December 31, 2016. At September 30, 2017, there were 1.8 million shares available for repurchase under the Company's stock repurchase programs.  In the nine months ended September 30, 2017, the Company did not repurchase any shares under these repurchase programs.  Tangible stockholders' equity per common share increased to $13.47 at September 30, 2017, as compared to $12.95 at December 31, 2016.

Asset Quality

The Company's non-performing loans increased to $15.1 million at September 30, 2017, as compared to $13.6 million at December 31, 2016.  The increase was primarily due to the addition of two commercial real estate relationships totaling $7.4 million, partially 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. The decrease in non-performing residential loans in the third quarter of 2017 was due to a bulk sale of $3.5 million in non-performing residential loans. Non-performing loans do not include $4.9 million of purchased credit-impaired ("PCI") loans acquired in the Acquisition Transactions.  The Company's other real estate owned totaled $9.3 million at September 30, 2017, as compared to $9.8 million at December 31, 2016.  At September 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 $19.8 million and $26.0 million at September 30, 2017 and December 31, 2016, respectively, 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 109.68% at September 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, and accelerated stock award expense relating to a director retirement, 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, October 27, 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 10112558 from one hour after the end of the call until January 27, 2018.  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 $5.4 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)
 
    September 30,
 2017
  June 30,
 2017
  December 31,
 2016
  September 30,
 2016
      (Unaudited)   (Unaudited)       (Unaudited)
Assets                
Cash and due from banks   $ 255,258     $ 107,660     $ 301,373     $ 311,583  
Securities available-for-sale, at estimated fair value   67,133     62,154     12,224     2,497  
Securities held-to-maturity, net (estimated fair value of $746,497 at September 30, 2017, $724,250 at June 30, 2017, $598,119 at December 31, 2016, and $478,727 at September 30, 2016)   742,886     720,511     598,691     470,642  
Federal Home Loan Bank of New York stock, at cost   18,472     20,358     19,313     18,289  
Loans receivable, net   3,870,109     3,868,805     3,803,443     3,028,696  
Loans held-for-sale   338     168     1,551     21,679  
Interest and dividends receivable   13,627     13,036     11,989     9,396  
Other real estate owned   9,334     8,898     9,803     9,107  
Premises and equipment, net   64,350     59,509     71,385     51,243  
Bank Owned Life Insurance   134,298     133,572     132,172     106,433  
Deferred tax asset   29,718     29,804     38,787     39,391  
Assets held for sale   5,241     6,114     360     451  
Other assets   15,634     13,291     9,973     11,351  
Core deposit intangible   9,380     9,887     10,924     3,722  
Goodwill   148,134     148,433     145,064     66,537  
Total assets   $ 5,383,912     $ 5,202,200     $ 5,167,052     $ 4,151,017  
Liabilities and Stockholders' Equity                
Deposits   $ 4,350,259     $ 4,176,909     $ 4,187,750     $ 3,324,681  
Securities sold under agreements to repurchase with retail customers   75,326     75,050     69,935     69,078  
Federal Home Loan Bank advances   259,186     277,541     250,498     251,146  
Other borrowings   56,466     56,623     56,559     56,399  
Advances by borrowers for taxes and insurance   14,371     15,036     14,030     8,287  
Other liabilities   32,052     13,738     16,242     24,182  
Total liabilities   4,787,660     4,614,897     4,595,014     3,733,773  
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 32,567,477, 32,528,658, 32,136,892, and 25,850,956 shares outstanding at September 30, 2017, June 30, 2017, December 31, 2016, and September 30, 2016, respectively   336     336     336     336  
Additional paid-in capital   353,817     353,296     364,433     308,979  
Retained earnings   266,053     258,470     238,192     236,472  
Accumulated other comprehensive loss   (5,037 )   (5,198 )   (5,614 )   (5,611 )
Less: Unallocated common stock held by Employee Stock Ownership Plan   (2,549 )   (2,620 )   (2,761 )   (2,832 )
Treasury stock, 999,295; 1,038,114; 1,429,880; and 7,715,816 shares at September 30, 2017, June 30, 2017, December 31, 2016, and September 30, 2016, respectively   (16,368 )   (16,981 )   (22,548 )   (120,100 )
Common stock acquired by Deferred Compensation Plan   (83 )   (176 )   (313 )   (310 )
Deferred Compensation Plan Liability   83     176     313     310  
Total stockholders' equity   596,252     587,303     572,038     417,244  
Total liabilities and stockholders' equity   $ 5,383,912     $ 5,202,200     $ 5,167,052     $ 4,151,017  


OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
 
    For the Three Months Ended,   For the Nine Months Ended,
    September 30,
 2017
  June 30,
 2017
  September 30,
 2016
  September 30,
 2017
  September 30,
 2016
    |-------------------- (unaudited) --------------------|         |---------- (unaudited) -----------|     
Interest income:                    
Loans   $ 43,329     $    42,608     $ 34,607     $ 127,679     $ 86,163  
Mortgage-backed securities   2,738     2,791     1,700     8,189     4,823  
Investment securities and other   1,963     1,480     1,000     5,055     2,535  
Total interest income   48,030     46,879     37,307     140,923     93,521  
Interest expense:                    
Deposits   3,126     2,914     2,083     8,821     5,125  
Borrowed funds   1,848     1,791     1,289     5,389     3,888  
Total interest expense   4,974     4,705     3,372     14,210     9,013  
Net interest income   43,056     42,174     33,935     126,713     84,508  
Provision for loan losses   1,165     1,165     888     3,030     2,113  
Net interest income after provision for loan losses            41,891     41,009     33,047     123,683     82,395  
Other income:                    
Bankcard services revenue   1,785     1,837     1,347     5,202     3,409  
Wealth management revenue   541     565     608     1,622     1,779  
Fees and service charges   3,702     3,658     2,916     11,163     7,235  
Net gain (loss) from other real estate operations   432     105     (63 )   (196 )   (782 )
Income from Bank Owned Life Insurance   881     783     659     2,436     1,520  
Other   18     25     429     97     994  
Total other income   7,359     6,973     5,896     20,324     14,155  
Operating expenses:                    
Compensation and employee benefits   14,673     15,328     13,558     46,138     33,456  
Occupancy   2,556     2,641     2,315     7,965     5,952  
Equipment   1,605     1,703     1,452     5,006     3,605  
Marketing   775     730     479     2,245     1,273  
Federal deposit insurance   713     705     743     2,079     1,995  
Data processing   2,367     2,046     2,140     6,809     5,286  
Check card processing   871     815     623     2,640     1,548  
Professional fees   846     1,095     681     2,901     1,879  
Other operating expense   2,667     2,951     1,543     8,258     5,036  
Federal Home Loan Bank prepayment fee                   136  
Amortization of core deposit intangible   507     513     181     1,544     319  
Branch consolidation expenses   1,455     5,451         6,939      
Merger related expenses   1,698     3,155     1,311     6,300     9,902  
Total operating expenses   30,733     37,133     25,026     98,824     70,387  
Income before provision for income taxes   18,517     10,849     13,917     45,183     26,163  
Provision for income taxes   5,700     3,170     4,789     12,669     9,169  
Net income   $ 12,817     $ 7,679     $ 9,128     $ 32,514     $ 16,994  
Basic earnings per share   $ 0.40     $ 0.24     $ 0.36     $ 1.01     $ 0.79  
Diluted earnings per share   $ 0.39     $ 0.23     $ 0.35     $ 0.98     $ 0.77  
Average basic shares outstanding   32,184     32,122     25,435     32,073     21,624  
Average diluted shares outstanding   33,106     33,138     25,889     33,110     21,990  


OceanFirst Financial Corp.
SELECTED LOAN AND DEPOSIT DATA
(dollars in thousands)
 
LOANS RECEIVABLE     At
      September 30,
 2017
  June 30,
2017
  March 31,
2017
  December 31,
2016
  September 30,
2016
Commercial:                      
Commercial and industrial     $ 183,510     $ 193,759     $ 205,720     $ 152,810     $ 185,633  
Commercial real estate - owner- occupied     555,429     557,734     533,052     534,365     493,157  
Commercial real estate - investor     1,134,416     1,122,186     1,113,964     1,134,507     1,014,699  
Total commercial     1,873,355     1,873,679     1,852,736     1,821,682     1,693,489  
Consumer:                      
Residential mortgage     1,678,092     1,667,831     1,639,611     1,651,695     1,061,752  
Residential construction     73,812     78,339     76,985     65,408     46,813  
Home equity loans and lines     277,909     282,402     285,149     289,110     251,421  
Other consumer     1,426     1,335     1,560     1,566     1,273  
Total consumer     2,031,239     2,029,907     2,003,305     2,007,779     1,361,259  
Total loans     3,904,594     3,903,586     3,856,041     3,829,461     3,054,748  
Loans in process     (22,546 )   (22,589 )   (17,976 )   (14,249 )   (13,842 )
Deferred origination costs, net   4,645     4,365     3,686     3,414     3,407  
Allowance for loan losses     (16,584 )   (16,557 )   (16,151 )   (15,183 )   (15,617 )
Loans receivable, net     $ 3,870,109     $ 3,868,805     $ 3,825,600     $ 3,803,443     $ 3,028,696  
Mortgage loans serviced for others   $ 121,886     $ 131,284     $ 132,973     $ 137,881     $ 143,657  
  At September 30, 2017 
Average Yield
                   
Loan pipeline (1):                      
Commercial                       4.42 %   $ 58,189     $ 61,287     $ 73,793     $ 99,060     $ 64,976  
Residential mortgage and construction 3.75     44,510     64,510     57,600     38,486     39,252  
Home equity loans and lines 4.67     8,826     11,194     7,879     6,522     5,099  
Total 4.17     $ 111,525     $ 136,991     $ 139,272     $ 144,068     $ 109,327  

 

  For the Three Months Ended  
  September 30,
 2017
  June 30,
2017
  March 31,
2017
    December 31,
2016
  September 30,
2016
 
  Average Yield                      
Loan originations:                        
Commercial 4.09 %   $ 97,420     $    115,048   (3 ) $    106,896     105,062     $ 63,310    
Residential mortgage and construction    3.72     80,481     79,610     64,452     62,087     41,170    
Home equity loans and lines 4.58     17,129     20,539     12,500     11,790     11,007    
Total 3.98     $ 195,030     $ 215,197     $ 183,848     $ 178,939     $ 115,487    
Loans sold     $ 991   (2 ) $ 865   (4 ) $ 1,907     $ 12,098   (5 ) $ 17,787   (6 )
(1)   Loan pipeline includes pending loan applications and loans approved but not funded
(2)   Excludes the sale of under-performing residential loans of $3.5 million
(3)   Includes purchased loans totaling $16.6 million
(4)   Excludes the sale of under-performing residential loans of $4.3 million
(5)   Excludes the sale of  under-performing loans of $21.0 million
(6)   Excludes the sale of  under-performing loans of $12.8 million

 

DEPOSITS At
  September 30,
 2017
  June 30,
2017
  March 31,
2017
  December 31,
2016
  September 30,
2016
Type of Account                  
Non-interest-bearing $ 781,043     $ 770,057     $ 806,728     $ 782,504     $ 512,957  
Interest-bearing checking                    1,892,832     1,727,828     1,629,589     1,626,713     1,451,083  
Money market deposit 384,106     378,538     448,093     458,911     400,054  
Savings 668,370     677,939     681,853     672,519     489,173  
Time deposits 623,908     622,547     632,400     647,103     471,414  
  $ 4,350,259     $ 4,176,909     $ 4,198,663     $ 4,187,750     $ 3,324,681  

 

OceanFirst Financial Corp.
ASSET QUALITY
(dollars in thousands)
 
  September 30,
 2017
  June 30,
2017
  March 31,
2017
  December 31,
2016
  September 30,
2016
ASSET QUALITY                  
Non-performing loans:                  
Commercial and industrial $    63     $    68     $    231     $      441     $        1,152  
Commercial real estate - owner-occupied 923     943     2,383     2,414     5,213  
Commercial real estate - investor 8,720     5,608     5,118     521     1,675  
Residential mortgage 3,551     7,936     11,993     8,126     7,017  
Home equity loans and lines 1,864     1,706     1,954     2,064     1,450  
Total non-performing loans 15,121     16,261     21,679     13,566     16,507  
Other real estate owned 9,334     8,898     8,774     9,803     9,107  
Total non-performing assets $ 24,455     $ 25,159     $ 30,453     $ 23,369     $ 25,614  
Purchased credit-impaired ("PCI") loans $ 4,867     $ 4,969     $ 7,118     $ 7,575     $ 5,836  
Delinquent loans 30 to 89 days $ 24,548     $ 25,224     $ 18,516     $ 22,598     $ 8,553  
Troubled debt restructurings:                  
Non-performing (included in total non-performing loans above) $ 270     $ 1,251     $ 3,547     $ 3,471     $ 3,520  
Performing 35,808     34,130     26,974     27,042     26,396  
Total troubled debt restructurings $ 36,078     $ 35,381     $ 30,521     $ 30,513     $ 29,916  
Allowance for loan losses $ 16,584     $ 16,557     $ 16,151     $ 15,183     $ 15,617  
Allowance for loan losses as a percent of total loans receivable (1) 0.42 %   0.42 %   0.42 %   0.40 %   0.51 %
Allowance for loan losses as a percent of total non-performing loans 109.68     101.82     74.50     111.92     94.61  
Non-performing loans as a percent of total loans receivable 0.39     0.42     0.56     0.35     0.54  
Non-performing assets as a percent of total assets 0.45     0.48     0.59     0.45     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 $19,810, $21,794, $24,002, $25,973, and $17,051, at September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016, and September 30, 2016, respectively.


 

NET CHARGE-OFFS
 
  For the Three Months Ended
  September 30,
 2017
  June 30,
2017
  March 31,
2017
  December 31,
2016
  September 30,
2016
Net Charge-offs:                  
Loan charge-offs $        (1,357 )   $            (1,299 )   $        (205 )   $        (979 )   $          (2,116 )
Recoveries on loans 219     540     473     35     167  
Net loan (charge-offs) recoveries $ (1,138 )   $ (759 )   $ 268     $ (944 )   $      (1,949 )
Net loan charge-offs to average total loans (annualized)                            0.12 %   0.08 %   NM*     0.11 %   0.25 %
Net charge-off detail - (loss) recovery:                  
Commercial $ 68     $ (81 )   $ 311     $ (510 )   $ (1,707 )
Residential mortgage and construction (1,156 )   (716 )   (49 )   (233 )   (161 )
Home equity loans and lines (51 )   39     24     (194 )   (83 )
Other consumer 1     (1 )   (18 )   (7 )   2  
Net loan (charge-offs) recoveries $ (1,138 )   $ (759 )   $ 268     $ (944 )   $ (1,949 )
Note:  Included in net loan charge-offs for the three months ended September 30, 2017, June 30, 2017, December 31, 2016 and September 30, 2016 are $907, $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
  September 30, 2017   June 30, 2017   September 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 $ 183,514     $ 438     0.95 %   114,019     211     0.74 %   168,045     139     0.33 %
Securities (1) and FHLB stock 817,867     4,263     2.07     786,964     4,060     2.07     533,809     2,561     1.91  
Loans receivable, net (2)                                  
Commercial 1,865,970     22,423     4.77     1,850,737     22,057     4.78     1,723,520     20,970     4.84  
Residential 1,737,739     17,588     4.02     1,718,413     17,304     4.04     1,118,435     10,874     3.87  
Home Equity 279,900     3,289     4.66     283,124     3,225     4.57     255,919     2,745     4.27  
Other 1,112     29     10.35     1,161     22     7.60     1,163     18     6.16  
Allowance for loan loss net of deferred loan fees (12,370 )           (12,518 )           (13,346 )        
Loans Receivable, net 3,872,351     43,329     4.44     3,840,917     42,608     4.45     3,085,691     34,607     4.46  
Total interest-earning assets 4,873,732     48,030     3.91     4,741,900     46,879     3.97     3,787,545     37,307     3.92  
Non-interest-earning assets 460,795             473,736             316,290          
Total assets 5,334,527             $ 5,215,636             $ 4,103,835          
Liabilities and Stockholders' Equity:                                  
Interest-bearing liabilities:                                  
Interest-bearing checking $ 1,852,421     1,173     0.25 %   $ 1,716,930     1,038     0.24 %   $ 1,425,350     583     0.16 %
Money market 389,035     299     0.30     422,439     281     0.27     386,490     295     0.30  
Savings 672,548     59     0.03     679,806     97     0.06     488,749     49     0.04  
Time deposits 620,308     1,595     1.02     624,020     1,498     0.96     477,496     1,156     0.96  
Total 3,534,312     3,126     0.35     3,443,195     2,914     0.34     2,778,085     2,083     0.30  
Securities sold under agreements to repurchase 74,285     30     0.16     73,574     25     0.14     68,540     24     0.14  
FHLB Advances 264,652     1,153     1.73     259,291     1,118     1.73     264,213     1,067     1.61  
Other borrowings 56,502     665     4.67     56,456     648     4.60     26,207     198     3.01  
Total interest-bearing
liabilities
3,929,751     4,974     0.50     3,832,516     4,705     0.49     3,137,045     3,372     0.43  
Non-interest-bearing deposits 781,047             772,739             521,088          
Non-interest-bearing liabilities 32,360             23,260             31,536          
Total liabilities 4,743,158             4,628,515             3,689,669          
Stockholders' equity 591,369             587,121             414,166          
Total liabilities and equity $ 5,334,527             $ 5,215,636             $ 4,103,835          
Net interest income     43,056             $ 42,174             $ 33,935      
Net interest rate spread (3)         3.41 %           3.48 %           3.49 %
Net interest margin (4)         3.50 %           3.57 %           3.56 %
Total cost of deposits (including non-interest-bearing deposits)            0.29 %           0.28 %           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 Nine Months Ended
  September 30, 2017   September 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 $ 180,821     $ 1,058     0.78 %   $ 86,007     $ 209     0.32 %
Securities (1) and FHLB stock 769,932     12,186     2.12     517,051     7,149     1.85  
Loans receivable, net (2)                      
Commercial 1,849,246     65,619     4.74     1,390,196     49,750     4.78  
Residential 1,720,185     52,231     4.06     1,009,012     29,139     3.86  
Home Equity 283,419     9,760     4.60     228,172     7,233     4.23  
Other 1,180     69     7.82     893     41     6.13  
Allowance for loan loss net of deferred loan fees (12,338 )           (13,379 )        
Loans Receivable, net 3,841,692     127,679     4.44     2,614,894     86,163     4.40  
Total interest-earning assets 4,792,445     140,923     3.93     3,217,952     93,521     3.88  
Non-interest-earning assets 461,752             236,399          
Total assets $ 5,254,197             $ 3,454,351          
Liabilities and Stockholders' Equity:                      
Interest-bearing liabilities:                      
Interest-bearing checking $ 1,746,601     3,086     0.24 %   $ 1,181,110     1,391     0.16 %
Money market 418,681     891     0.28     280,836     546     0.26  
Savings 675,684     285     0.06     413,388     117     0.04  
Time deposits 628,126     4,559     0.97     386,505     3,071     1.06  
Total 3,469,092     8,821     0.34     2,261,839     5,125     0.30  
Securities sold under agreements to repurchase 74,729     82     0.15     76,289     78     0.14  
FHLB Advances 258,147     3,340     1.73     272,405     3,351     1.64  
Other borrowings 56,450     1,967     4.66     23,846     459     2.57  
Total interest-bearing liabilities 3,858,418     14,210     0.49     2,634,379     9,013     0.46  
Non-interest-bearing deposits 781,608             448,459          
Non-interest-bearing liabilities 28,351             23,650          
Total liabilities 4,668,377             3,106,488          
Stockholders' equity 585,820             347,863          
Total liabilities and equity $ 5,254,197             $ 3,454,351          
Net interest income     $ 126,713             $ 84,508      
Net interest rate spread (3)         3.44 %           3.42 %
Net interest margin (4)         3.54 %           3.51 %
Total cost of deposits (including non-interest-bearing deposits)         0.28 %           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)
 
    September 30,   June 30,   March 31,   December 31,   September 30,
    2017   2017   2017   2016   2016
                     
Selected Financial Condition Data:                    
Total assets   $ 5,383,912     $ 5,202,200     $ 5,196,340     $ 5,167,052     $ 4,151,017  
Securities available-for-sale, at estimated fair value   67,133     62,154     47,104     12,224     2,497  
Securities held-to-maturity, net   742,886     720,511     695,918     598,691     470,642  
Federal Home Loan Bank of New York stock   18,472     20,358     19,253     19,313     18,289  
Loans receivable, net   3,870,109     3,868,805     3,825,600     3,803,443     3,028,696  
Deposits   4,350,259     4,176,909     4,198,663     4,187,750     3,324,681  
Federal Home Loan Bank advances   259,186     277,541     250,021     250,498     251,146  
Securities sold under agreements to repurchase and other borrowings        131,792     131,673     133,798     126,494     125,477  
Stockholders' equity   596,252     587,303     582,680     572,038     417,244  

 


 

    For the Three Months Ended,
    September 30,   June 30,   March 31,   December 31,   September 30,
    2017   2017   2017   2016   2016
Selected Operating Data:                    
Interest income   $ 48,030     $ 46,879     $ 46,014     $ 39,904     $ 37,307  
Interest expense   4,974     4,705     4,531     4,150     3,372  
Net interest income   43,056     42,174     41,483     35,754     33,935  
Provision for loan losses   1,165     1,165     700     510     888  
Net interest income after provision for loan losses   41,891     41,009     40,783     35,244     33,047  
Other income   7,359     6,973     5,995     6,257     5,896  
Operating expenses   27,580     28,527     29,481     25,833     23,715  
Branch consolidation expenses   1,455     5,451     33          
Merger related expenses   1,698     3,155     1,447     6,632     1,311  
Income before provision for income taxes   18,517     10,849     15,817     9,036     13,917  
Provision for income taxes   5,700     3,170     3,799     2,984     4,789  
Net income   $ 12,817     $ 7,679     $ 12,018     $ 6,052     $ 9,128  
Diluted earnings per share   $ 0.39     $ 0.23     $ 0.36     $ 0.22     $ 0.35  
Net accretion/amortization of purchase accounting adjustments included in net interest income        $ 2,227     $ 1,899     $ 2,175     $ 1,385     $ 1,637  

 

    At or For the Three Months Ended
    September 30,   June 30,   March 31,   December 31,   September 30,
    2017   2017   2017   2016   2016
Selected Financial Ratios and Other Data(1):                    
                     
Performance Ratios (Annualized):                    
Return on average assets (2)   0.95 %           0.59 %           0.94 %       0.53 %   0.88 %
Return on average stockholders' equity (2)   8.60     5.25     8.42     5.10     8.77  
Return on average tangible stockholders' equity (2) (3)   11.74     7.19     11.50     6.48     10.58  
Stockholders' equity to total assets   11.07     11.29     11.21     11.07     10.05  
Tangible stockholders' equity to tangible assets (3)   8.39     8.51     8.43      8.30     8.50  
Net interest rate spread   3.41     3.48     3.47     3.31     3.49  
Net interest margin   3.50     3.57     3.56     3.40     3.56  
Operating expenses to average assets (2)   2.29     2.86     2.41     2.83     2.43  
Efficiency ratio (2) (4)   60.96     75.55     65.21     77.28     62.83  
Loans to deposits             88.96      92.62     91.11             90.82              91.10  

 

    For the Nine Months Ended September 30,
    2017   2016
Performance Ratios (Annualized):        
Return on average assets (2)   0.83 %   0.66 %
Return on average stockholders' equity (2)   7.42     6.52  
Return on average tangible stockholders' equity (2) (3)                              10.14     7.39  
Net interest rate spread   3.44     3.42  
Net interest margin   3.54     3.51  
Operating expenses to average assets (2)   2.51     2.72  
Efficiency ratio (2) (4)                67.21              71.34  

 


 

    At or For the Three Months Ended
    September 30,   June 30,   March 31,   December 31,   September 30,
    2017   2017   2017   2016   2016
Wealth Management:                    
Assets under administration   $ 225,904     214,479     215,593     $ 218,336     $ 221,612  
Per Share Data:                    
Cash dividends per common share   $ 0.15     $ 0.15     $ 0.15     $ 0.15     $ 0.13  
Stockholders' equity per common share at end of  period   18.31     18.05     17.95     17.80     16.14  
Tangible stockholders' equity per common share at end of period (3)        13.47     13.19     13.07     12.95     13.42  
Number of full-service customer facilities:   46     51     61     61     50  
Quarterly Average Balances                    
Total securities   $ 817,867     $ 786,964     $ 703,712     $ 545,302     $ 533,809  
Loans, receivable, net   3,872,351     3,840,916     3,811,136     3,282,703     3,085,691  
Total interest-earning assets   4,873,732     4,741,900     4,729,013     4,187,809     3,787,545  
Total assets   5,334,527     5,215,636     5,211,071     4,556,774     4,103,835  
Interest-bearing transaction deposits   2,914,004     2,819,175     2,788,452     2,512,351     2,300,589  
Time deposits   620,308     624,020     640,269     527,817     477,496  
Total borrowed funds   395,439     389,321     383,082     379,289     358,960  
Total interest-bearing liabilities   3,929,751     3,832,516     3,811,803     3,419,457     3,137,045  
Non-interest bearing deposits   781,047     772,739     791,036     622,882     521,088  
Stockholders' equity   591,369     587,121     578,833     471,662     414,166  
Total deposits   4,315,359     4,215,934     4,219,757     3,663,050     3,299,173  
Quarterly Yields                    
Total securities   2.07 %   2.07 %   2.23 %   1.91 %   1.91 %
Loans, receivable, net   4.44     4.45     4.44     4.46     4.46  
Total interest-earning assets   3.91     3.97     3.95     3.79     3.92  
Interest-bearing transaction deposits   0.21     0.20     0.18     0.18     0.16  
Time deposits   1.02     0.96     0.93     0.97     0.96  
Total borrowed funds   1.87     1.85     1.85     1.84     1.43  
Total interest-bearing liabilities   0.50     0.49     0.48     0.48     0.43  
Net interest spread   3.41     3.48     3.47     3.31     3.49  
Net interest margin   3.50     3.57     3.56     3.40     3.56  
Total deposits   0.29     0.28     0.27     0.26     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
    September 30,   June 30,   March 31,   December 31,   September 30,
    2017   2017   2017   2016   2016
Core earnings:                    
Net income    $ 12,817     $ 7,679     $ 12,018     $ 6,052     $ 9,128  
Add:  Merger related expenses   1,698     3,155     1,447     6,632     1,311  
Branch consolidation expenses   1,455     5,451     33          
Accelerated stock award expense           242          
Less:  Income tax benefit on items   (1,084 )   (3,012 )   (587 )   (2,108 )   (172 )
Core earnings   $ 14,886     $ 13,273     $ 13,153     $ 10,576     $ 10,267  
Core diluted earnings per share   $ 0.45     $ 0.40     $ 0.40     $ 0.38     $ 0.40  
                     
Core ratios (Annualized):                    
Return on average assets   1.11 %   1.02 %   1.02 %   0.92 %   1.00 %
Return on average tangible stockholders' equity   13.63     12.42     12.56     11.33     11.90  
Efficiency ratio   54.71     58.04     61.58     61.49     59.54  

 

COMPUTATION OF TOTAL TANGIBLE EQUITY TO TOTAL TANGIBLE ASSETS
 
    September 30,   June 30,   March 31,   December 31,   September 30,
    2017   2017   2017   2016   2016
Total stockholders' equity   $ 596,252     $ 587,303     $ 582,680     $ 572,038     $ 417,244  
Less:                    
Goodwill   148,134     148,433     147,815     145,064     66,537  
Core deposit intangible   9,380     9,887     10,400     10,924     3,722  
Tangible stockholders' equity   $ 438,738     $ 428,983     $ 424,465     $ 416,050     $ 346,985  
                     
Total assets   $ 5,383,912     $ 5,202,200     $ 5,196,340     $ 5,167,052     $ 4,151,017  
Less:                    
Goodwill   148,134     148,433     147,815     145,064     66,537  
Core deposit intangible   9,380     9,887     10,400     10,924     3,722  
Tangible assets   $ 5,226,398     $ 5,043,880     $ 5,038,125     $ 5,011,064     $ 4,080,758  
Tangible stockholders' equity to tangible assets                8.39 %   8.51 %   8.43 %   8.30 %   8.50 %


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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