OceanFirst Financial Corp. Announces Third Quarter Financial Results

TOMS RIVER, N.J., Oct. 26, 2017 (GLOBE NEWSWIRE) -- OceanFirst Financial Corp. 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") 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.

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