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OceanFirst Financial Corp. Announces Second Quarter Financial Results

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RED BANK, N.J., July 26, 2018 (GLOBE NEWSWIRE) -- OceanFirst Financial Corp. (NASDAQ:"OCFC"), (the "Company"), the holding company for OceanFirst Bank N.A. (the "Bank"), today announced that net income was $15.7 million, or $0.32 per diluted share, for the three months ended June 30, 2018, as compared to $7.7 million, or $0.23 per diluted share, for the corresponding prior year period. For the six months ended June 30, 2018, net income was $21.1 million, or $0.45 per diluted share, as compared to $19.7 million, or $0.59 per diluted share, for the corresponding prior year period.

The results of operations for the three and six months ended June 30, 2018 include merger related expenses and branch consolidation expenses, which decreased net income, net of tax benefit by $6.7 million and $21.3 million, respectively. Excluding these items, core earnings for the three and six months ended June 30, 2018 were $22.4 million, or $0.46 per diluted share, and $42.4 million, or $0.91 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 and branch consolidation expenses).

Highlights for the quarter are described below:

  • Return on average assets for the three months ended June 30, 2018 was 0.84% and return on average tangible stockholders' equity was 9.64%, while core return on average assets was 1.19% and core return on average tangible stockholders' equity was 13.73%.
  • Total loans grew by $137.4 million while asset quality improved as non-performing loans decreased to $18.1 million, or 0.33% of total loans. At the same time, the loan pipeline increased substantially to $239.7 million at June 30, 2018.
  • The cost of deposits increased only two basis points from the prior linked quarter, to 0.35%, while the net interest margin remained steady at 3.70%.
  • The integration of Sun National Bank was completed in June. The consolidation of 17 branches and the elimination of Sun's duplicate operating systems is expected to result in cost savings in future periods.

Chairman and Chief Executive Officer, Christopher D. Maher, commented on the Company's results, "This was a strong quarter with loan growth accelerating, asset quality improving and the loan pipeline rising to record levels. Net interest margin was steady and core profitability continues to meet our expectations." Mr. Maher added, "We are pleased to have completed the integration of Sun National Bank. The Company will realize material expense reductions in the coming quarters which will improve our already strong performance ratios."

The Company also announced that the Company's Board of Directors declared its eighty-sixth consecutive quarterly cash dividend on common stock. The dividend, for the three months ended June 30, 2018, of $0.15 per share will be paid on August 17, 2018 to stockholders of record on August 6, 2018.

Results of Operations

On January 31, 2018, the Company completed its acquisition of Sun Bancorp Inc. ("Sun") and its results of operations from February 1, 2018 through June 30, 2018 are included in the consolidated results for the three and six months ended June 30, 2018, but are not included in the results of operations for the corresponding prior year periods.

Net income for the three months ended June 30, 2018, was $15.7 million, or $0.32 per diluted share, as compared to $7.7 million, or $0.23 per diluted share, for the corresponding prior year period. Net income for the six months ended June 30, 2018, was $21.1 million, or $0.45 per diluted share, as compared to $19.7 million and $0.59, for the corresponding prior year period. Net income for the three and six months ended June 30, 2018, included merger related and branch consolidation expenses, which decreased net income, net of tax benefit, by $6.7 million and $21.3 million, respectively. Net income for the three and six months ended June 30, 2017 included merger related and branch consolidation expenses, which decreased net income, net of tax benefit, by $5.6 million and $6.6 million, respectively. Excluding these items, net income for the three and six months ended June 30, 2018 increased over the same prior year period, primarily due to the acquisition of Sun and the expense savings from the successful integration during 2017 of Ocean Shore Holding Co. ("Ocean Shore") which was acquired on November 30, 2016.

Net interest income for the three and six months ended June 30, 2018, increased to $61.4 million and $117.2 million, respectively, as compared to $42.2 million and $83.7 million, respectively, for the same prior year periods, reflecting an increase in interest-earning assets and a higher net interest margin. Average interest-earning assets increased by $1.919 billion and $1.650 billion for the three and six months ended June 30, 2018, respectively, as compared to the same prior year periods. The averages for the three and six months ended June 30, 2018, were favorably impacted by $1.727 billion and $1.452 billion, respectively, of interest-earning assets acquired from Sun. Average loans receivable, net, increased by $1.585 billion and $1.363 billion for the three and six months ended June 30, 2018, respectively, as compared to the same prior year periods. The increases attributable to the acquisition of Sun were $1.461 billion and $1.226 billion, respectively. The net interest margin for both the three and six months ended June 30, 2018 increased to 3.70%, from 3.57% and 3.56%, respectively, for the same prior year periods. The net interest margin benefited from the accretion of purchase accounting adjustments on the Sun acquisition of $3.0 million and $5.3 million for the three and six months ended June 30, 2018, respectively; and to a lesser extent the impact of Federal Reserve interest rate increases. For the three and six months ended June 30, 2018, the cost of average interest-bearing liabilities increased to 0.65% and 0.62%, respectively, from 0.49% in both corresponding prior year periods. The total cost of deposits (including non-interest bearing deposits) was 0.35% and 0.34% for the three and six months ended June 30, 2018, respectively, as compared to 0.28% and 0.27%, respectively, in the same prior year periods.

Net interest income for the three months ended June 30, 2018, increased by $5.7 million, as compared to the prior linked quarter, as average interest-earning assets increased by $554.0 million. The increase in average interest-earning assets over the prior linked quarter was primarily due to the inclusion of Sun balances for the full quarter. The net interest margin remained stable at 3.70% for the three months ended June 30, 2018, as compared to the prior linked quarter. The total cost of deposits (including non-interest bearing deposits) was 0.35% for the three months ended June 30, 2018, as compared to 0.33% for three months ended March 31, 2018.

For the three and six months ended June 30, 2018, the provision for loan losses was $706,000 and $2.1 million, respectively, as compared to $1.2 million and $1.9 million, respectively, for the corresponding prior year periods, and $1.4 million in the prior linked quarter. Net loan charge-offs were $832,000 and $1.1 million for the three and six months ended June 30, 2018, respectively, as compared to net loan charge-offs of $759,000 and $491,000, respectively, in the corresponding prior year periods, and net loan charge-offs of $275,000 in the prior linked quarter. Net charge-offs for the three months ended June 30, 2018 included $946,000 of specific reserves on non-performing loans established in the prior quarter, which were separately identified in the allowance for loan losses. Non-performing loans totaled $18.1 million at June 30, 2018, as compared to $18.3 million at March 31, 2018, and $16.3 million at June 30, 2017.

For the three and six months ended June 30, 2018, other income increased to $8.9 million and $17.8 million, respectively, as compared to $7.0 million and $13.0 million, respectively, for the corresponding prior year periods. The increases were primarily due to the impact of the Sun acquisition, which added $2.3 million and $3.7 million to other income for the three and six months ended June 30, 2018, respectively, as compared to the same prior year periods. Excluding the Sun acquisition, the decrease in other income for the three months ended June 30, 2018, was primarily due to an increase in the loss from real estate operations of $1.1 million, of which $500,000 related to a write-down attributable to the operations of a hotel, golf, and banquet facility, partially offset by increases in fees and service charges of $428,000 and in the gain on investment securities of $182,000. Excluding the Sun acquisition, the increase in other income for the six months ended June 30, 2018, was primarily due to increases in fees and service charges of $627,000, the gain on sales of loans of $566,000, mostly related to the sale of one non-performing commercial loan relationship during the first quarter of 2018, and rental income of $483,000 received primarily for January and February 2018 on the Company's recently acquired executive office, partially offset by the increase in the loss from real estate operations of $765,000, including the $500,000 write-down noted above.

For the three months ended June 30, 2018, other income was unchanged at $8.9 million, as compared to the prior linked quarter. Other income included an increase of $928,000 due to a full quarter of Sun activity. The remaining changes in other income were primarily due to a decrease in the net gain on sales of loans of $612,000, an increase in the loss from real estate operations of $568,000 and a decrease in rental income of $437,000, offset by increases in fees and service charges of $377,000 and the gain on investment securities of $316,000.

Operating expenses increased to $50.9 million and $107.7 million for the three and six months ended June 30, 2018, respectively, as compared to $37.1 million and $68.1 million, respectively, in the same prior year periods. Operating expenses for the three and six months ended June 30, 2018, included $8.4 million and $26.7 million, respectively, of merger related and branch consolidation expenses, as compared to $8.6 million and $10.1 million, respectively, in the same 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 Sun acquisition, which added $11.0 million and $19.2 million for the three and six months ended June 30, 2018, respectively. Excluding the Sun acquisition, the remaining increase in operating expenses for the three months ended June 30, 2018 over the prior year period was primarily due to increases in compensation and employee benefits expense of $1.7 million as a result of higher incentive and stock plan expenses, including $220,000 of accelerated stock compensation expense due to director retirements, service bureau expense of $700,000, and occupancy expense of $327,000. Excluding the Sun acquisition, the remaining increase in operating expenses for the six months ended June 30, 2018 over the prior year period was primarily due to increases in compensation and employee benefits expense of $2.3 million as a result of higher incentive and stock plan expenses, service bureau expense of $882,000 and occupancy expense of $786,000.

For the three months ended June 30, 2018, operating expenses, excluding merger and branch consolidation expenses, increased by $4.0 million, as compared to the prior linked quarter. The increase was primarily due to a full quarter of Sun which resulted in an increase by $2.7 million, as compared to the prior linked quarter. The remaining increase in operating expenses as compared to the prior linked quarter was primarily due to increases in marketing expense of $322,000, stationery and printing expense of $292,000, and compensation and employee benefits expense of $282,000, including $220,000 of accelerated stock compensation expense due to director retirements.

The provision for income taxes was $3.0 million and $4.0 million for the three and six months ended June 30, 2018, respectively, as compared to $3.2 million and $7.0 million, respectively, for the same prior year periods. The effective tax rate was 16.1% and 16.0% for the three and six months ended June 30, 2018, respectively, as compared to 29.2% and 26.1%, respectively, for the same prior year periods. The lower effective tax rate for the three and six months ended June 30, 2018 primarily resulted from the Tax Cuts and Jobs Act ("Tax Reform") enacted during the fourth quarter of 2017.

Financial Condition

Total assets increased by $2.321 billion, to $7.737 billion at June 30, 2018, from $5.416 billion at December 31, 2017, primarily as a result of the acquisition of Sun, which added $2.043 billion to total assets. Restricted equity investments increased by $47.3 million, to $67.0 million at June 30, 2018, from $19.7 million at December 31, 2017, primarily due to the addition of Federal Reserve Bank stock as a result of converting to a national bank charter. Loans receivable, net, increased by $1.587 billion, to $5.553 billion at June 30, 2018 from $3.966 billion at December 31, 2017, primarily due to acquired loans of $1.517 billion as well as purchased loans totaling $121.7 million. As part of the acquisition of Sun, the Company's goodwill balance increased to $339.0 million at June 30, 2018, from $150.5 million at December 31, 2017, and the core deposit intangible increased to $18.9 million, from $8.9 million at December 31, 2017.

Deposits increased by $1.477 billion, to $5.819 billion at June 30, 2018, from $4.343 billion at December 31, 2017, due to acquired deposits of $1.616 billion. The loan-to-deposit ratio at June 30, 2018 was 95.4%, as compared to 91.3% at December 31, 2017. Federal Home Loan Bank Advances increased by $385.5 million, to $674.2 million at June 30, 2018, from $288.7 million at December 31, 2017 due to the acquisition of Sun, loan growth, and seasonal deposit outflows.

Stockholders' equity increased to $1.013 billion at June 30, 2018, as compared to $601.9 million at December 31, 2017. The acquisition of Sun added $402.6 million to stockholders' equity. At June 30, 2018, there were 1.8 million shares available for repurchase under the Company's stock repurchase programs. For the six months ended June 30, 2018, the Company did not repurchase any shares under these repurchase programs. During the second quarter of 2018, the Company contributed an additional $8.4 million to the existing Employee Stock Ownership Plan. The purchased shares will be allocated to employees over the next nine years. Tangible stockholders' equity per common share decreased to $13.56 at June 30, 2018, as compared to $13.58 at December 31, 2017.

Asset Quality

The Company's non-performing loans decreased to $18.1 million at June 30, 2018, as compared to $20.9 million at December 31, 2017. The decrease was primarily due to the sale of one commercial loan relationship during the first quarter of 2018. Non-performing loans do not include $13.0 million of purchased credit-impaired ("PCI") loans acquired in the Sun, Ocean Shore, Cape Bancorp, Inc. ("Cape"), and Colonial American Bank ("Colonial American") acquisitions ("Acquisition Transactions"). The Company's other real estate owned totaled $7.9 million at June 30, 2018, as compared to $8.2 million at December 31, 2017.

At June 30, 2018, the Company's allowance for loan losses was 0.30% of total loans, a decrease from 0.40% at December 31, 2017. These ratios exclude existing fair value credit marks of $37.7 million at June 30, 2018 on loans acquired from the Acquisition Transactions, and $17.5 million at December 31, 2017 on loans acquired from Ocean Shore, Cape and Colonial American. 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 92.18% at June 30, 2018 as compared to 75.35% at December 31, 2017.

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 additional income tax expense related to Tax Reform enacted in the fourth quarter of 2017, 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 27, 2018 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 10121420 from one hour after the end of the call until October 26, 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 N.A., founded in 1902, is a $7.7 billion regional bank operating throughout New Jersey, metropolitan Philadelphia and metropolitan New York City. 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, 2017, under Item 1A - Risk Factors and elsewhere, 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,
 2018
  March 31,
 2018
  December 31,
 2017
  June 30,
 2017
    (Unaudited)   (Unaudited)       (Unaudited)
Assets                
Cash and due from banks   $ 254,469     $ 119,364     $ 109,613     $ 107,660  
Debt securities available-for-sale, at estimated fair value   100,369     86,114     81,581     62,154  
Debt securities held-to-maturity, net (estimated fair value of $906,989 at
June 30, 2018, $971,399 at March 31, 2018, $761,660 at December 31,
2017, and $724,250 at June 30, 2017)
  922,756     982,857     764,062     711,650  
Equity investments, at estimated fair value   9,539     9,565     8,700     8,669  
Restricted equity investments, at cost   66,981     50,418     19,724     20,358  
Loans receivable, net   5,553,035     5,413,780     3,965,773     3,868,805  
Loans held-for-sale   919     167     241     168  
Interest and dividends receivable   19,669     19,422     14,254     13,036  
Other real estate owned   7,854     8,265     8,186     8,898  
Premises and equipment, net   113,782     121,835     101,776     59,509  
Bank Owned Life Insurance   219,853     218,673     134,847     133,572  
Deferred tax asset   59,283     60,136     1,922     29,882  
Assets held for sale   10,269     3,147     4,046     6,114  
Other assets   40,204     43,687     41,895     13,291  
Core deposit intangible   18,949     19,950     8,885     9,887  
Goodwill   338,972     337,519     150,501     148,433  
Total assets   $ 7,736,903     $ 7,494,899     $ 5,416,006     $ 5,202,086  
Liabilities and Stockholders' Equity                
Deposits   $ 5,819,406     $ 5,907,336     $ 4,342,798     $ 4,176,909  
Federal Home Loan Bank advances   674,227     341,646     288,691     277,541  
Securities sold under agreements to repurchase with retail customers   62,176     82,463     79,668     75,050  
Other borrowings   99,428     99,359     56,519     56,623  
Advances by borrowers for taxes and insurance   17,773     11,974     11,156     15,036  
Other liabilities   51,325     44,661     35,233     13,738  
Total liabilities   6,724,335     6,487,439     4,814,065     4,614,897  
Total stockholders' equity   1,012,568     1,007,460     601,941     587,189  
Total liabilities and stockholders' equity   $ 7,736,903     $ 7,494,899     $ 5,416,006     $ 5,202,086  
                                 

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,
 2018
  March 31,
 2018
  June 30,
 2017
  June 30,
 2018
  June 30,
 2017
                                         
    |-------------------- (Unaudited) --------------------|   |---------- (Unaudited) -----------|
Interest income:                    
Loans   $ 63,135     $ 56,598     $ 42,608     $ 119,732     $ 84,350  
Mortgage-backed securities   4,297     3,685     2,791     7,982     5,451  
Debt securities, equity investments and other   2,646     2,554     1,480     5,200     3,092  
Total interest income   70,078     62,837     46,879     132,914     92,893  
Interest expense:                    
Deposits   5,247     4,464     2,914     9,711     5,695  
Borrowed funds   3,384     2,662     1,791     6,046     3,541  
Total interest expense   8,631     7,126     4,705     15,757     9,236  
Net interest income   61,447     55,711     42,174     117,157     83,657  
Provision for loan losses   706     1,371     1,165     2,077     1,865  
Net interest income after provision for loan losses   60,741     54,340     41,009     115,080     81,792  
Other income:                    
Bankcard services revenue   2,373     1,919     1,837     4,292     3,416  
Wealth management revenue   595     553     565     1,148     1,081  
Fees and service charges   5,140     4,674     3,658     9,816     7,465  
Net gain on sales of loans   6     617     15     623     57  
Net unrealized loss on equity investments   (71 )   (140 )       (212 )    
Net (loss) gain from other real estate operations   (981 )   (412 )   105     (1,393 )   (628 )
Income from Bank Owned Life Insurance   1,335     1,141     783     2,476     1,555  
Other   486     558     10     1,044     23  
Total other income   8,883     8,910     6,973     17,794     12,969  
Operating expenses:                    
Compensation and employee benefits   23,244     21,251     15,328     44,495     31,466  
Occupancy   4,572     4,567     2,641     9,139     5,409  
Equipment   2,034     1,903     1,703     3,937     3,400  
Marketing   893     561     730     1,454     1,470  
Federal deposit insurance   1,000     930     705     1,930     1,366  
Data processing   3,667     3,176     2,046     6,843     4,442  
Check card processing   1,116     989     815     2,105     1,768  
Professional fees   1,397     1,283     1,095     2,680     2,055  
Other operating expense   3,546     3,016     2,951     6,561     5,595  
Amortization of core deposit intangible   1,001     832     513     1,834     1,037  
Branch consolidation expense (income)   1,719     (176 )   5,451     1,544     5,484  
Merger related expenses   6,715     18,486     3,155     25,200     4,602  
Total operating expenses   50,904     56,818     37,133     107,722     68,094  
Income before provision for income taxes   18,720     6,432     10,849     25,152     26,667  
Provision for income taxes   3,018     1,005     3,170     4,023     6,969  
Net income   $ 15,702     $ 5,427     $ 7,679     $ 21,129     $ 19,698  
Basic earnings per share   $ 0.33     $ 0.12     $ 0.24     $ 0.46     $ 0.62  
Diluted earnings per share   $ 0.32     $ 0.12     $ 0.23     $ 0.45     $ 0.59  
Average basic shares outstanding   47,718     43,880     32,122     45,805     32,014  
Average diluted shares outstanding   48,704     44,846     33,138     46,786     33,111  
                               

OceanFirst Financial Corp.
SELECTED LOAN AND DEPOSIT DATA
(dollars in thousands)

LOANS RECEIVABLE     At
      June 30,
 2018
  March 31,
 2018
  December 31,
2017
  September 30,
 2017
  June 30,
2017
Commercial:                      
Commercial and industrial     $ 338,436     $ 370,711     $ 187,645     $ 183,510     $ 193,759  
Commercial real estate - owner - occupied   717,061     763,261     569,624     555,429     557,734  
Commercial real estate - investor   2,076,930     2,034,708     1,187,482     1,134,416     1,122,186  
Total commercial     3,132,427     3,168,680     1,944,751     1,873,355     1,873,679  
Consumer:                      
Residential real estate     2,013,389     1,882,981     1,748,925     1,729,358     1,723,581  
Home equity loans and lines     365,448     371,340     281,143     277,909     282,402  
Other consumer     50,952     1,844     1,295     1,426     1,335  
Total consumer     2,429,789     2,256,165     2,031,363     2,008,693     2,007,318  
Total loans     5,562,216     5,424,845     3,976,114     3,882,048     3,880,997  
Deferred origination costs, net   7,510     5,752     5,380     4,645     4,365  
Allowance for loan losses     (16,691 )   (16,817 )   (15,721 )   (16,584 )   (16,557 )
Loans receivable, net     $ 5,553,035     $ 5,413,780     $ 3,965,773     $ 3,870,109     $ 3,868,805  
Mortgage loans serviced for others   $ 105,116     $ 109,273     $ 121,662     $ 121,886     $ 131,284  
  At June 30, 2018 
Average Yield
                   
Loan pipeline (1):                      
Commercial 5.06 %   $ 166,178     $ 71,982     $ 53,859     $ 58,189     $ 61,287  
Residential real estate 4.29     64,259     73,513     43,482     44,510     64,510  
Home equity loans and lines 5.19     9,240     11,338     7,412     8,826     11,194  
Total 4.86 %   $ 239,677     $ 156,833     $ 104,753     $ 111,525     $ 136,991  
                                             


  For the Three Months Ended  
  June 30,
 2018
  March 31,
2018
  December 31,
2017
  September 30,
2017
  June 30,
2017
 
  Average Yield                      
Loan originations:                        
Commercial 4.36 %   $ 67,297     $ 59,150     $ 141,346     $ 97,420     $ 115,048    
Residential real estate 4.17     109,357     68,835     73,729     80,481     79,610    
Home equity loans and lines 5.01     20,123     14,891     18,704     17,129     20,539    
Total 4.32 %   $ 196,777   (2 ) $ 142,876     $ 233,779     $ 195,030     $ 215,197    
Loans sold     $ 422     $ 241   (3 ) $ 1,422   (4 ) $ 991   (4 ) $ 865   (4 )

(1) Loan pipeline includes pending loan applications and loans approved but not funded.
(2) Excludes purchased loans of $23.6 million for commercial, $49.0 million for residential real estate, and $49.1 million for other consumer.
(3) Excludes the sale of SBA loans acquired from Sun and under-performing loans totaling $8.5 million.
(4) Excludes the sale of under-performing residential loans of $5.8 million, $3.5 million, and $4.3 million for the three months ended December 31, 2017, September 30, 2017, and June 30, 2017, respectively.

DEPOSITS At
  June 30,
 2018
  March 31,
2018
  December 31,
2017
  September 30,
2017
  June 30,
2017
Type of Account                  
Non-interest-bearing $ 1,195,980     $ 1,117,100     $ 756,513     $ 781,043     $ 770,057  
Interest-bearing checking 2,265,971     2,330,682     1,954,358     1,892,832     1,727,828  
Money market deposit 574,269     613,183     363,656     384,106     378,538  
Savings 903,777     917,288     661,167     668,370     677,939  
Time deposits 879,409     929,083     607,104     623,908     622,547  
  $ 5,819,406     $ 5,907,336     $ 4,342,798     $ 4,350,259     $ 4,176,909  
                                       
                                       

OceanFirst Financial Corp.
ASSET QUALITY
(dollars in thousands)

ASSET QUALITY June 30,
 2018
  March 31,
2018
  December 31,
2017
  September 30,
2017
  June 30,
2017
Non-performing loans:                  
Commercial and industrial $ 1,947     $ 1,717     $ 503     $ 63     $ 68  
Commercial real estate - owner-occupied 522     862     5,962     923     943  
Commercial real estate - investor 6,364     7,994     8,281     8,720     5,608  
Residential real estate 6,858     5,686     4,190     3,551     7,936  
Home equity loans and lines 2,415     1,992     1,929     1,864     1,706  
Total non-performing loans 18,106     18,251     20,865     15,121     16,261  
Other real estate owned 7,854     8,265     8,186     9,334     8,898  
Total non-performing assets $ 25,960     $ 26,516     $ 29,051     $ 24,455     $ 25,159  
Purchased credit-impaired ("PCI") loans $ 12,995     $ 14,352     $ 1,712     $ 4,867     $ 4,969  
Delinquent loans 30 to 89 days $ 36,010     $ 35,431     $ 20,796     $ 24,548     $ 25,224  
Troubled debt restructurings:                  
Non-performing (included in total non-performing loans above) $ 4,190     $ 4,306     $ 8,821     $ 270     $ 1,251  
Performing 24,272     33,806     33,313     35,808     34,130  
Total troubled debt restructurings $ 28,462     $ 38,112     $ 42,134     $ 36,078     $ 35,381  
Allowance for loan losses $ 16,691     $ 16,817     $ 15,721     $ 16,584     $ 16,557  
Allowance for loan losses as a percent of total loans receivable (1) 0.30 %   0.31 %   0.40 %   0.42 %   0.42 %
Allowance for loan losses as a percent of total non-performing loans 92.18     92.14     75.35     109.68     101.82  
Non-performing loans as a percent of total loans receivable 0.33     0.34     0.52     0.39     0.42  
Non-performing assets as a percent of total assets 0.34     0.35     0.54     0.45     0.48  

(1) The loans acquired from Sun, 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 $37,679, $40,717, $17,531, $19,810, and $21,794 at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively.

   
NET CHARGE-OFFS For the Three Months Ended
  June 30,
 2018
  March 31,
 2018
  December 31,
2017
  September 30,
 2017
  June 30,
2017
 
Net Charge-offs:                    
Loan charge-offs $ (1,284 )   $ (533 )   $ (2,523 )   $ (1,357 )   $ (1,299 )  
Recoveries on loans 452     258     245     219     540    
Net loan charge-offs $ (832 )   $ (275 )   $ (2,278 ) (1 ) $ (1,138 ) (1 ) $ (759 ) (1 )
Net loan charge-offs to average total loans
(annualized)
0.06 %   0.02 %   0.23 %   0.12 %   0.08 %  
Net charge-off detail - (loss) recovery:                    
Commercial $ (846 )   $ (10 )   $ (1,036 )   $ 68     $ (81 )  
Residential real estate (20 )   (159 )   (1,262 )   (1,156 )   (716 )  
Home equity loans and lines 31     (99 )   28     (51 )   39    
Other consumer 3     (7 )   (8 )   1     (1 )  
Net loan charge-offs $ (832 )   $ (275 )   $ (2,278 ) (1 ) $ (1,138 ) (1 ) $ (759 ) (1 )

(1) Included in net loan charge-offs for the three months ended December 31, 2017, September 30, 2017, and June 30, 2017 are $1,124, $907, and $925, respectively, relating to under-performing loans sold or held-for-sale.

OceanFirst Financial Corp.
ANALYSIS OF NET INTEREST INCOME

  For the Three Months Ended
  June 30, 2018   March 31, 2018   June 30, 2017
(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 $ 115,724     $ 280     0.97 %   $ 100,236     $ 209     0.84 %   $ 114,019     $ 211     0.74 %
Securities (1) 1,119,354     6,663     2.39     1,056,774     6,030     2.31     786,964     4,060     2.07  
Loans receivable, net (2)                                  
Commercial 3,109,313     38,805     5.01     2,772,952     33,391     4.88     1,850,737     22,057     4.78  
Residential 1,951,075     19,642     4.04     1,843,804     19,037     4.19     1,718,413     17,304     4.04  
Home Equity 369,054     4,564     4.96     342,078     4,143     4.91     283,124     3,225     4.57  
Other 7,604     124     6.54     1,458     27     7.51     1,161     22     7.60  
Allowance for loan loss net of deferred loan fees (11,076 )           (10,285 )           (12,518 )        
Loans Receivable, net 5,425,970     63,135     4.67     4,950,007     56,598     4.64     3,840,917     42,608     4.45  
Total interest-earning assets 6,661,048     70,078     4.22     6,107,017     62,837     4.17     4,741,900     46,879     3.97  
Non-interest-earning assets 871,920             735,676             473,736          
Total assets $ 7,532,968             $ 6,842,693             $ 5,215,636          
Liabilities and Stockholders' Equity:                                  
Interest-bearing liabilities:                                  
Interest-bearing checking $ 2,372,777     2,028     0.34 %   $ 2,263,318     1,758     0.32 %   $ 1,716,930     1,038     0.24 %
Money market 597,770     694     0.47     525,933     550     0.42     422,439     281     0.27  
Savings 907,570     267     0.12     825,044     195     0.10     679,806     97     0.06  
Time deposits 902,091     2,258     1.00     820,834     1,961     0.97     624,020     1,498     0.96  
Total 4,780,208     5,247     0.44     4,435,129     4,464     0.41     3,443,195     2,914     0.34  
FHLB Advances 376,527     1,900     2.02     322,120     1,513     1.90     259,291     1,118     1.73  
Securities sold under agreements to repurchase 64,446     44     0.27     78,931     40     0.21     73,574     25     0.14  
Other borrowings 99,383     1,440     5.81     80,112     1,109     5.61     56,456     648     4.60  
Total interest-bearing
liabilities
5,320,564     8,631     0.65     4,916,292     7,126     0.59     3,832,516     4,705     0.49  
Non-interest-bearing deposits 1,149,764             1,004,673             772,739          
Non-interest-bearing liabilities 51,262             55,031             23,260          
Total liabilities 6,521,590             5,975,996             4,628,515          
Stockholders' equity 1,011,378             866,697             587,121          
Total liabilities and equity $ 7,532,968             $ 6,842,693             $ 5,215,636          
Net interest income     $ 61,447             $ 55,711             $ 42,174      
Net interest rate spread (3)         3.57 %           3.58 %           3.48 %
Net interest margin (4)         3.70 %           3.70 %           3.57 %
Total cost of deposits (including non-interest-bearing deposits)         0.35 %           0.33 %           0.28 %


  For the Six Months Ended
  June 30, 2018   June 30, 2017
(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 $ 108,023     $ 488     0.91 %   $ 163,815     $ 620     0.76 %
Securities (1) 1,088,237     12,694     2.35     745,568     7,923     2.14  
Loans receivable, net (2)                      
Commercial 2,942,062     72,195     4.95     1,840,745     43,197     4.73  
Residential 1,897,736     38,679     4.11     1,711,263     34,643     4.08  
Home Equity 355,641     8,707     4.94     285,208     6,470     4.57  
Other 4,547     151     6.70     1,215     40     6.64  
Allowance for loan loss net of deferred loan fees (10,683 )           (12,322 )        
Loans Receivable, net 5,189,303     119,732     4.65     3,826,109     84,350     4.45  
Total interest-earning assets 6,385,563     132,914     4.20     4,735,492     92,893     3.96  
Non-interest-earning assets 804,174             477,874          
Total assets $ 7,189,737             $ 5,213,366          
Liabilities and Stockholders' Equity:                      
Interest-bearing liabilities:                      
Interest-bearing checking $ 2,318,751     3,786     0.33 %   $ 1,692,820     1,913     0.23 %
Money market 562,050     1,244     0.45     433,750     591     0.27  
Savings 866,535     462     0.11     677,278     227     0.07  
Time deposits 861,687     4,219     0.99     632,099     2,964     0.95  
Total 4,609,023     9,711     0.42     3,435,947     5,695     0.33  
FHLB Advances 349,474     3,413     1.97     254,840     2,186     1.73  
Securities sold under agreements to repurchase 71,649     84     0.24     74,955     52     0.14  
Other borrowings 89,796     2,549     5.72     56,424     1,303     4.66  
Total interest-bearing liabilities 5,119,942     15,757     0.62     3,822,166     9,236     0.49  
Non-interest-bearing deposits 1,077,218             781,888          
Non-interest-bearing liabilities 53,140             26,312          
Total liabilities 6,250,300             4,630,366          
Stockholders' equity 939,437             583,000          
Total liabilities and equity $ 7,189,737             $ 5,213,366          
Net interest income     $ 117,157             $ 83,657      
Net interest rate spread (3)         3.58 %           3.47 %
Net interest margin (4)         3.70 %           3.56 %
Total cost of deposits (including non-interest-bearing deposits)         0.34 %           0.27 %
                           

(1)   Amounts represent debt and equity securities, including FHLB and Federal Reserve Bank stock, and 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,
    2018   2018   2017   2017   2017
                     
Selected Financial Condition Data:                    
Total assets   $ 7,736,903     $ 7,494,899     $ 5,416,006     $ 5,383,800     $ 5,202,086  
Debt securities available-for-sale, at estimated fair value   100,369     86,114     81,581     67,133     62,154  
Debt securities held-to-maturity, net   922,756     982,857     764,062     733,983     711,650  
Equity investments, at estimated fair value   9,539     9,565     8,700     8,714     8,669  
Restricted equity investments, at cost   66,981     50,418     19,724     18,472     20,358  
Loans receivable, net   5,553,035     5,413,780     3,965,773     3,870,109     3,868,805  
Loans held-for-sale   919     167     241     338     168  
Deposits   5,819,406     5,907,336     4,342,798     4,350,259     4,176,909  
Federal Home Loan Bank advances   674,227     341,646     288,691     259,186     277,541  
Securities sold under agreements to repurchase and other borrowings   161,604     181,822     136,187     131,792     131,673  
Stockholders' equity   1,012,568     1,007,460     601,941     596,140     587,189  


    For the Three Months Ended,
    June 30,   March 31,   December 31,   September 30,   June 30,
    2018   2018   2017   2017   2017
Selected Operating Data:                    
Interest income   $ 70,078     $ 62,837     $ 47,906     $ 48,030     $ 46,879  
Interest expense   8,631     7,126     5,401     4,974     4,705  
Net interest income   61,447     55,711     42,505     43,056     42,174  
Provision for loan losses   706     1,371     1,415     1,165     1,165  
Net interest income after provision for loan losses   60,741     54,340     41,090     41,891     41,009  
Other income   8,883     8,910     6,745     7,359     6,973  
Operating expenses   42,470     38,508     26,434     27,580     28,527  
Branch consolidation expense (income)   1,719     (176 )   (734 )   1,455     5,451  
Merger related expenses   6,715     18,486     1,993     1,698     3,155  
Income before provision for income taxes   18,720     6,432     20,142     18,517     10,849  
Provision for income taxes   3,018     1,005     10,186     5,700     3,170  
Net income   $ 15,702     $ 5,427     $ 9,956     $ 12,817     $ 7,679  
Diluted earnings per share   $ 0.32     $ 0.12     $ 0.30     $ 0.39     $ 0.23  
Net accretion/amortization of purchase accounting adjustments included in net interest income   $ 4,883     $ 3,930     $ 1,956     $ 2,227     $ 1,899  
                                         


    At or For the Three Months Ended
    June 30,   March 31,   December 31,   September 30,   June 30,
    2018   2018   2017   2017   2017
Selected Financial Ratios and Other Data(1):                    
                     
Performance Ratios (Annualized):                    
Return on average assets (2)   0.84 %   0.32 %   0.73 %   0.95 %   0.59 %
Return on average stockholders' equity (2)   6.23     2.54     6.56     8.60     5.25  
Return on average tangible stockholders' equity (2) (3)   9.64     3.80     8.89     11.74     7.19  
Stockholders' equity to total assets   13.09     13.44     11.11     11.07     11.29  
Tangible stockholders' equity to tangible assets (3)   8.87     9.11     8.42     8.39     8.50  
Net interest rate spread   3.57     3.58     3.32     3.41     3.48  
Net interest margin   3.70     3.70     3.42     3.50     3.57  
Operating expenses to average assets (2)   2.71     3.37     2.03     2.29     2.86  
Efficiency ratio (2) (4)   72.38     87.92     56.23     60.96     75.55  
Loans to deposits   95.42     91.65     91.32     88.96     92.62  


    For the Six Months Ended June 30,
    2018   2017
Performance Ratios (Annualized):        
Return on average assets (2)   0.59 %   0.76 %
Return on average stockholders' equity (2)   4.54     6.81  
Return on average tangible stockholders' equity (2) (3)   6.91     9.32  
Net interest rate spread   3.58     3.47  
Net interest margin   3.70     3.56  
Operating expenses to average assets (2)   3.02     2.63  
Efficiency ratio (2) (4)   79.82     70.47  


    At or For the Three Months Ended
    June 30,   March 31,   December 31,   September 30,   June 30,
    2018   2018   2017   2017   2017
Wealth Management:                    
Assets under administration   $ 210,690     $ 221,493     $ 233,185     $ 225,904     $ 214,479  
Per Share Data:                    
Cash dividends per common share   $ 0.15     $ 0.15     $ 0.15     $ 0.15     $ 0.15  
Stockholders' equity per common share at end of  period   20.97     20.94     18.47     18.30     18.05  
Tangible stockholders' equity per common share at end of period (3)   13.56     13.51     13.58     13.47     13.18  
Common shares outstanding at end of period     48,283,500       48,105,623       32,596,893       32,567,477       32,528,658  
Number of full-service customer facilities:   59     76     46     46     51  
Quarterly Average Balances                    
Total securities   $ 1,119,354     $ 1,056,774     $ 874,910     $ 817,867     $ 786,964  
Loans, receivable, net   5,425,970     4,950,007     3,898,040     3,872,351     3,840,916  
Total interest-earning assets   6,661,048     6,107,017     4,928,937     4,873,732     4,741,900  
Total assets   7,532,968     6,842,693     5,404,864     5,334,527     5,215,636  
Interest-bearing transaction deposits   3,878,117     3,614,295     2,992,261     2,914,004     2,819,175  
Time deposits   902,091     820,834     619,087     620,308     624,020  
Total borrowed funds   540,356     481,163     392,154     395,439     389,321  
Total interest-bearing liabilities   5,320,564     4,916,292     4,003,502     3,929,751     3,832,516  
Non-interest bearing deposits   1,149,764     1,004,673     760,552     781,047     772,739  
Stockholders' equity   1,011,378     866,697     601,930     591,369     587,121  
Total deposits   5,929,972     5,439,802     4,371,900     4,315,359     4,215,934  
Quarterly Yields                    
Total securities   2.39 %   2.31 %   2.09 %   2.07 %   2.07 %
Loans, receivable, net   4.67     4.64     4.37     4.44     4.45  
Total interest-earning assets   4.22     4.17     3.86     3.91     3.97  
Interest-bearing transaction deposits   0.31     0.28     0.25     0.21     0.20  
Time deposits   1.00     0.97     1.08     1.02     0.96  
Total borrowed funds   2.51     2.24     1.91     1.87     1.85  
Total interest-bearing liabilities   0.65     0.59     0.54     0.50     0.49  
Net interest spread   3.57     3.58     3.32     3.41     3.48  
Net interest margin   3.70     3.70     3.42     3.50     3.57  
Total deposits   0.35     0.33     0.32     0.29     0.28  

(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,
    2018   2018   2017   2017   2017
Core earnings:                    
Net income   $ 15,702     $ 5,427     $ 9,956     $ 12,817     $ 7,679  
Add:  Merger related expenses   6,715     18,486     1,993     1,698     3,155  
Branch consolidation expenses   1,719     (176 )   (734 )   1,455     5,451  
Income tax expense related to Tax Reform           3,643          
Less:  Income tax (expense) benefit on items   (1,771 )   (3,664 )   2     (1,084 )   (3,012 )
Core earnings   $ 22,365     $ 20,073     $ 14,860     $ 14,886     $ 13,273  
Core diluted earnings per share   $ 0.46     $ 0.45     $ 0.45     $ 0.45     $ 0.40  
                     
Core ratios (Annualized):                    
Return on average assets   1.19 %   1.19 %   1.09 %   1.11 %   1.02 %
Return on average tangible stockholders' equity   13.73     14.07     13.27     13.63     12.42  
Efficiency ratio   60.39     59.59     53.67     54.71     58.04  

COMPUTATION OF TOTAL TANGIBLE EQUITY TO TOTAL TANGIBLE ASSETS

    June 30,   March 31,   December 31,   September 30,   June 30,
    2018   2018   2017   2017   2017
Total stockholders' equity   $ 1,012,568     $ 1,007,460     $ 601,941     $ 596,140     $ 587,189  
Less:                    
Goodwill   338,972     337,519     150,501     148,134     148,433  
Core deposit intangible   18,949     19,950     8,885     9,380     9,887  
Tangible stockholders' equity   $ 654,647     $ 649,991     $ 442,555     $ 438,626     $ 428,869  
                     
Total assets   $ 7,736,903     $ 7,494,899     $ 5,416,006     $ 5,383,800     $ 5,202,086  
Less:                    
Goodwill   338,972     337,519     150,501     148,134     148,433  
Core deposit intangible   18,949     19,950     8,885     9,380     9,887  
Tangible assets   $ 7,378,982     $ 7,137,430     $ 5,256,620     $ 5,226,286     $ 5,043,766  
Tangible stockholders' equity to tangible assets   8.87 %   9.11 %   8.42 %   8.39 %   8.50 %
                               

 ACQUISITION DATE - FAIR VALUE BALANCE SHEET

The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the acquisition for Sun, net of the total consideration paid (in thousands):

  At January 31, 2018
  Sun
Book Value
  Purchase
Accounting
Adjustments
  Estimated
Fair Value
Total Purchase Price:         $ 474,930  
Assets acquired:          
Cash and cash equivalents $ 68,632     $     $ 68,632  
Securities 254,522         254,522  
Loans 1,541,868     (24,522 )   1,517,346  
Accrued interest receivable 5,621         5,621  
Bank Owned Life Insurance 85,238         85,238  
Deferred tax asset 55,710     2,233     57,943  
Other assets 49,561     (7,440 )   42,121  
Core deposit intangible     11,897     11,897  
Total assets acquired 2,061,152     (17,832 )   2,043,320  
Liabilities assumed:          
Deposits (1,614,910 )   (1,163 )   (1,616,073 )
Borrowings (142,567 )   14,820     (127,747 )
Other liabilities (14,372 )   1,330     (13,042 )
Total liabilities assumed (1,771,849 )   14,987     (1,756,862 )
Net assets acquired $ 289,303     $ (2,845 )   $ 286,458  
Goodwill recorded in the merger         $ 188,472  
               

The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available. As the Company finalizes its review of the acquired assets and liabilities, certain adjustments to the recorded carrying values may be required.

Company Contact:

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

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