RED BANK, N.J., April 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 $5.4 million and diluted earnings per share were $0.12 for the quarter ended March 31, 2018, as compared to $12.0 million and $0.36 for the corresponding prior year period.

The results of operations for the quarter ended March 31, 2018 include merger related expenses and branch consolidation expenses which decreased net income, net of tax benefit by $14.6 million.  Excluding these items, core earnings for the quarter ended March 31, 2018 were $20.1 million, or $0.45 per diluted share. (Please refer to the Non-GAAP Reconciliation table at the end of this document for details on the earnings impact of merger related expenses and branch consolidation expenses).

Highlights for the quarter are described below:

  • On January 31, 2018, the Company completed its acquisition of Sun Bancorp Inc. (“Sun”), the holding company of Sun National Bank, which added $2.0 billion to assets, $1.5 billion to loans, and $1.6 billion to deposits. The Company anticipates full integration of Sun’s operations and systems in June 2018.
  • The Company’s net interest margin increased to 3.70%, as compared to 3.42% in the prior linked quarter, and 3.56% in the comparable prior year period.
  • The cost of deposits increased only one basis point from the prior linked quarter, to 0.33% and the loan to deposit ratio at March 31, 2018 was 91.7%.
  • Asset quality improved as non-performing loans decreased $2.6 million, to $18.3 million, from the prior linked quarter and non-performing loans as a percentage of total loans receivable decreased to 0.34%, from 0.52%.  

Chairman and Chief Executive Officer, Christopher D. Maher said, “With Sun closing on January 31, 2018, we are pleased to include the stockholders, employees, and customers in the OceanFirst family. Sun branches and customers will be fully integrated into  OceanFirst  and the consolidation of overlapping branches will occur this June.” Mr. Maher added, “Throughout 2018, we will continue to focus on growth initiatives and improvements in operating efficiency.”         

Substantial cost savings will be realized during the second half of 2018, due to Sun’s planned systems integration and the consolidation of 17 branches, primarily as a result of the merger. These initiatives will further allow the Company to continue to invest in commercial banking and electronic delivery channels while meeting efficiency targets established in connection with the recent acquisitions.           

The Company also announced that the Company’s Board of Directors declared its eighty-fifth consecutive quarterly cash dividend on common stock.  The dividend, for the quarter ended March 31, 2018, of $0.15 per share will be paid on May 18, 2018 to stockholders of record on May 7, 2018.

Results of Operations           

On January 31, 2018, the Company completed its acquisition of Sun and its results of operations from February 1, 2018 to March 31, 2018 are included in the consolidated results for the quarter ended March 31, 2018, but are not included in the results of operations for the corresponding prior year periods.     

Net income for the quarter ended March 31, 2018, was $5.4 million, or $0.12 per diluted share, as compared to $12.0 million, or $0.36 per diluted share, for the corresponding prior year period. Net income for the quarter ended March 31, 2018, included merger related and branch consolidation expenses which decreased net income, net of tax benefit, by $14.6 million. Net income for the quarter ended March 31, 2017 included merger related and branch consolidation expenses, and an accelerated stock award expense from a director retirement, of $1.1 million, net of tax benefit. Excluding these items, net income for the quarter ended March 31, 2018 increased over the same prior year period, primarily due to the acquisition of Sun and the successful integration during 2017 of Ocean Shore Holding Co. (“Ocean Shore”) which was acquired on November 30, 2016.

Net interest income for the quarter ended March 31, 2018, increased to $55.7 million, as compared to $41.5 million for the same prior year period, reflecting an increase in interest-earning assets and a higher net interest margin. Average interest-earning assets increased by $1.378 billion for the quarter ended March 31, 2018, as compared to the same prior year period. The average for the quarter ended March 31, 2018, was favorably impacted by $1.174 billion of interest-earning assets acquired from Sun. Average loans receivable, net, increased by $1.139 billion for the quarter ended March 31, 2018, as compared to the same prior year period. The increase attributable to the acquisition of Sun was $989.5 million. The net interest margin for the quarter ended March 31, 2018 increased to 3.70%, from 3.56%, for the same prior year period. The net interest margin benefited from the accretion of purchase accounting adjustments on the Sun acquisition; and to a lesser extent, the higher-yielding interest-earning assets acquired from Sun and the impact of Federal Reserve rate increases. The total cost of deposits (including non-interest bearing deposits) was 0.33% for the quarter ended March 31, 2018, as compared to 0.27% in the same prior year period.

Net interest income for the quarter ended March 31, 2018, increased $13.2 million, as compared to the prior linked quarter, as average interest-earning assets increased by $1.178 billion, of which $1.174 billion is related to the Sun acquisition. The net interest margin increased to 3.70% for the quarter ended March 31, 2018, from 3.42% for the prior linked quarter. The increase in net interest margin was primarily due to a 15 basis point improvement in earning asset yield exclusive of Sun and related purchase accounting accretion, and 15 basis points of purchase accounting accretion relating to Sun. The total cost of deposits (including non-interest bearing deposits) was 0.33% for the quarter ended March 31, 2018, as compared to 0.32% for quarter ended December 31, 2017.  

For the quarter ended March 31, 2018, the provision for loan losses was $1.4 million, as compared to $700,000 for the corresponding prior year period, and unchanged when compared to the prior linked quarter. Net loan charge-offs were $275,000 for the quarter ended March 31, 2018, as compared to net loan recoveries of $268,000 in the corresponding prior year period, and net loan charge-offs of $2.3 million in the prior linked quarter. For the quarter ended December 31, 2017, net charge-offs included $880,000 of specific reserves established in prior periods on non-performing loans and $1.1 million relating to the sale of under-performing loans; there were no sales of under-performing loans in the first quarter of 2018 that resulted in charge-offs. Non-performing loans totaled $18.3 million at March 31, 2018, as compared to $20.9 million at December 31, 2017, and $21.7 million at March 31, 2017. The decrease in non-performing loans from the prior linked quarter was primarily due to the sale of one commercial loan relationship.  

For the quarter ended March 31, 2018, other income increased to $8.9 million as compared to $6.0 million for the corresponding prior year period. The increase was partly due to the impact of the Sun acquisition, which added $1.4 million to other income for the quarter ended March 31, 2018, as compared to the same prior year period. Excluding the Sun acquisition, the remaining increase in other income for the quarter ended March 31, 2018, was primarily due to the gain on sale of loans of $613,000, mostly related to the sale of one non-performing commercial loan relationship, rental income of $460,000 received for January and February 2018 on the Company’s recently acquired corporate headquarters (the building was occupied by the former owner through February 2018), and the decrease in the net loss from other real estate operations of $321,000, as compared to the same prior year period.            

For the quarter ended March 31, 2018, other income increased by $2.2 million, as compared to the prior linked quarter. The increase is primarily due to the impact of the Sun acquisition and the gain on sale of loans.           

Operating expenses increased to $56.8 million for the quarter ended March 31, 2018, as compared to $31.0 million in the same prior year period. Operating expenses for the quarter ended March 31, 2018, included $18.3 million of merger related and branch consolidation expenses, as compared to $1.5 million in the same prior year period. 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 $8.0 million for the quarter ended March 31, 2018. Excluding the Sun acquisition, the remaining increase in operating expenses over the prior year period was primarily due to increases in compensation and employee benefits expense as a result of higher incentive plan expense, and occupancy expense, partly due to costs of snow removal.               

For the quarter ended March 31, 2018, operating expenses, excluding merger and branch consolidation expenses, increased $12.1 million, as compared to the prior linked quarter. The increase was primarily related to the additional expense from the operations of Sun, as well as increases in compensation and employee benefits expense, primarily higher incentive plan expense and higher salary, data processing expense and occupancy expense, partly due to costs of snow removal.                

The provision for income taxes was $1.0 million for the quarter ended March 31, 2018, as compared to $3.8 million for the same prior year period.  The effective tax rate was 15.6% for the quarter ended March 31, 2018, as compared to 24.0% for the same prior year period.  The lower effective tax rate for the quarter ended March 31, 2018 resulted from the Tax Cuts and Jobs Act (“Tax Reform”) enacted during the fourth quarter of 2017 and the larger impact of tax-exempt income on the smaller income before taxes.

Financial Condition           

Total assets increased by $2.079 billion, to $7.495 billion at March 31, 2018, from $5.416 billion at December 31, 2017, primarily as a result of the acquisition of Sun, which added $2.045 billion to total assets. Loans receivable, net, increased by $1.448 billion, to $5.414 billion at March 31, 2018 from $3.966 billion at December 31, 2017, due to acquired loans of $1.518 billion from the acquisition of Sun. As part of the acquisition of Sun, the Company’s goodwill balance increased to $337.5 million at March 31, 2018, from $150.5 million, and the core deposit intangible increased to $20.0 million, from $8.9 million.               

Deposits increased by $1.565 billion, to $5.907 billion at March 31, 2018, from $4.343 billion at December 31, 2017, due to acquired deposits of $1.616 billion. The loan-to-deposit ratio at March 31, 2018 was 91.7%, as compared to 91.3% at December 31, 2017.                

Stockholders’ equity increased to $1.007 billion at March 31, 2018, as compared to $601.9 million at December 31, 2017. The acquisition of Sun added $402.6 million to stockholders’ equity. At March 31, 2018, there were 1.8 million shares available for repurchase under the Company’s stock repurchase programs. For the quarter ended March 31, 2018, the Company did not repurchase any shares under these repurchase programs. Tangible stockholders’ equity per common share decreased to $13.51 at March 31, 2018, as compared to $13.58 at December 31, 2017.

Asset Quality           

The Company’s non-performing loans decreased to $18.3 million at March 31, 2018, as compared to $20.9 million at December 31, 2017.  The decrease was primarily due to the sale of one commercial loan relationship. Non-performing loans do not include $14.4 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 $8.3 million at March 31, 2018, as compared to $8.2 million at December 31, 2017.           

The Company’s delinquent loans 30 - 89 days were $35.4 million at March 31, 2018, as compared to $20.8 million at December 31, 2017. The increase was related to one $15.0 million commercial relationship which was in the process of renewal at March 31, 2018. Subsequent to quarter-end, the renewal process was completed and the loan returned to current status.            

At March 31, 2018, the Company’s allowance for loan losses was 0.31% of total loans, a decrease from 0.40% at December 31, 2017.  These ratios exclude existing fair value credit marks of $40.7 million at March 31, 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 92.14% at March 31, 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, additional income tax expense related to Tax Reform enacted in the fourth quarter of 2017, 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, April 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 10118488 from one hour after the end of the call until July 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 $7.5 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, 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)
 
  March 31,
 December 31,
 March 31,
   2018 2017 2017
  (Unaudited)   (Unaudited)
Assets      
Cash and due from banks $119,364  $109,613  $175,252 
Debt securities available-for-sale, at estimated fair value 86,114  81,581  47,104 
Debt securities held-to-maturity, net (estimated fair value of $971,399 at March 31, 2018, $761,660 at December 31, 2017, and $695,564 at March 31, 2017) 982,857  764,062  687,098 
Equity investments, at estimated fair value 9,565  8,700  8,588 
Restricted equity investments, at cost 50,418  19,724  19,253 
Loans receivable, net 5,413,780  3,965,773  3,825,600 
Loans held-for-sale 167  241  283 
Interest and dividends receivable 19,422  14,254  12,258 
Other real estate owned 8,265  8,186  8,774 
Premises and equipment, net 121,835  101,776  70,806 
Bank Owned Life Insurance 218,673  134,847  132,789 
Deferred tax asset 60,136  1,922  33,747 
Assets held for sale 3,147  4,046  360 
Other assets 43,687  41,895  16,076 
Core deposit intangible 19,950  8,885  10,400 
Goodwill 337,519  150,501  147,815 
Total assets $7,494,899  $5,416,006  $5,196,203 
Liabilities and Stockholders’ Equity      
Deposits $5,907,336  $4,342,798  $4,198,663 
Federal Home Loan Bank advances 341,646  288,691  250,021 
Securities sold under agreements to repurchase with retail customers 82,463  79,668  77,207 
Other borrowings 99,359  56,519  56,591 
Advances by borrowers for taxes and insurance 11,974  11,156  14,876 
Other liabilities 44,661  35,233  16,302 
Total liabilities 6,487,439  4,814,065  4,613,660 
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, 48,105,623 shares issued and 48,105,623, 32,596,893,
and 32,465,413  shares outstanding at March 31, 2018, December 31, 2017, and March 31, 2017, respectively		 481  336  336 
Additional paid-in capital 751,695  354,377  352,316 
Retained earnings 262,779  271,023  256,045 
Accumulated other comprehensive loss (5,306) (5,349) (5,519)
Less: Unallocated common stock held by Employee Stock Ownership Plan (2,189) (2,479) (2,690)
Treasury stock, 0, 969,879, and 1,101,359 shares at March 31, 2018, December 31, 2017, and March 31, 2017, respectively —  (15,967) (17,945)
Common stock acquired by Deferred Compensation Plan (84) (84) (316)
Deferred Compensation Plan Liability 84  84  316 
Total stockholders’ equity 1,007,460  601,941  582,543 
Total liabilities and stockholders’ equity $7,494,899  $5,416,006  $5,196,203 
 
 


OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
 
  For the Three Months Ended,
  March 31,
  2018		 December 31,
 2017		 March 31,
 2017
  |-------------------- (unaudited) --------------------|
Interest income:      
Loans $56,598  $42,909  $41,742 
Mortgage-backed securities 3,685  2,919  2,660 
Debt securities, equity investments and other 2,554  2,078  1,612 
Total interest income 62,837  47,906  46,014 
Interest expense:      
Deposits 4,464  3,515  2,781 
Borrowed funds 2,662  1,886  1,750 
Total interest expense 7,126  5,401  4,531 
Net interest income 55,711  42,505  41,483 
Provision for loan losses 1,371  1,415  700 
Net interest income after provision for loan losses 54,340  41,090  40,783 
Other income:      
Bankcard services revenue 1,919  1,764  1,579 
Wealth management revenue 553  528  516 
Fees and service charges 4,674  3,891  3,807 
Net gain on sales of loans 617  26  42 
Net unrealized loss on equity investments (138) —  — 
Net loss from other real estate operations (412) (678) (733)
Income from Bank Owned Life Insurance 1,141  863  772 
Other 556  351  12 
Total other income 8,910  6,745  5,995 
Operating expenses:      
Compensation and employee benefits 21,251  13,961  16,138 
Occupancy 4,567  2,693  2,767 
Equipment 1,903  1,763  1,698 
Marketing 561  433  740 
Federal deposit insurance 930  485  661 
Data processing 3,176  2,040  2,396 
Check card processing 989  922  953 
Professional fees 1,283  1,094  960 
Other operating expense 3,016  2,548  2,644 
Amortization of core deposit intangible 832  495  524 
Branch consolidation (income) expense (176) (734) 33 
Merger related expenses 18,486  1,993  1,447 
Total operating expenses 56,818  27,693  30,961 
Income before provision for income taxes 6,432  20,142  15,817 
Provision for income taxes 1,005  10,186  3,799 
Net income $5,427  $9,956  $12,018 
Basic earnings per share $0.12  $0.31  $0.38 
Diluted earnings per share $0.12  $0.30  $0.36 
Average basic shares outstanding 43,880  32,225  31,901 
Average diluted shares outstanding 44,846  33,168  33,090 
 
 


OceanFirst Financial Corp.
SELECTED LOAN AND DEPOSIT DATA
(dollars in thousands)
 
LOANS RECEIVABLE  At
    March 31,
 2018		 December 31,
2017		 September 30,
 2017		 June 30,
2017		 March 31,
2017
Commercial:            
Commercial and industrial   $370,711  $187,645  $183,510  $193,759  $205,720 
Commercial real estate - owner - occupied   763,261  569,624  555,429  557,734  533,052 
Commercial real estate - investor   2,034,708  1,187,482  1,134,416  1,122,186  1,113,964 
Total commercial  3,168,680  1,944,751  1,873,355  1,873,679  1,852,736 
Consumer:           
Residential real estate  1,882,981  1,748,925  1,729,358  1,723,581  1,698,620 
Home equity loans and lines  371,340  281,143  277,909  282,402  285,149 
Other consumer  1,844  1,295  1,426  1,335  1,560 
Total consumer  2,256,165  2,031,363  2,008,693  2,007,318  1,985,329 
Total loans  5,424,845  3,976,114  3,882,048  3,880,997  3,838,065 
Deferred origination costs, net   5,752  5,380  4,645  4,365  3,686 
Allowance for loan losses  (16,817) (15,721) (16,584) (16,557) (16,151)
Loans receivable, net  $5,413,780  $3,965,773  $3,870,109  $3,868,805  $3,825,600 
Mortgage loans serviced for others   $109,273  $121,662  $121,886  $131,284  $132,973 
 At March 31, 2018  Average Yield          
Loan pipeline (1):           
Commercial5.00% $71,982  $53,859  $58,189  $61,287  $73,793 
Residential mortgage and construction4.18  73,513  43,482  44,510  64,510  57,600 
Home equity loans and lines5.05  11,338  7,412  8,826  11,194  7,879 
Total4.62% $156,833  $104,753  $111,525  $136,991  $139,272 
 
 


 For the Three Months Ended
 March 31,
 2018		 December 31,
2017		 September 30,
2017		 June 30,
2017		 March 31,
2017
 Average Yield          
Loan originations:           
Commercial4.71% $59,150  $141,346  $97,420  $115,048  $106,896 
Residential mortgage and construction3.74  68,835  73,729  80,481  79,610  64,452 
Home equity loans and lines4.79  14,891  18,704  17,129  20,539  12,500 
Total4.25% $142,876  $233,779  $195,030  $215,197  $183,848 
Loans sold  $241 (2)$1,422 (3)$991 (4)$865 (5)$1,907 

(1) Loan pipeline includes pending loan applications and loans approved but not funded
(2) Excludes the sale of SBA loans acquired from Sun and under-performing loans totaling $8.5 million
(3) Excludes the sale of under-performing residential loans of $5.8 million
(4) Excludes the sale of under-performing residential loans of $3.5 million
(5) Excludes the sale of under-performing residential loans of $4.3 million

  
DEPOSITSAt
 March 31,
 2018		 December 31,
2017		 September 30,
2017		 June 30,
2017		 March 31,
2017
Type of Account         
Non-interest-bearing$1,117,100  $756,513  $781,043  $770,057  $806,728 
Interest-bearing checking2,330,682  1,954,358  1,892,832  1,727,828  1,629,589 
Money market deposit613,183  363,656  384,106  378,538  448,093 
Savings917,288  661,167  668,370  677,939  681,853 
Time deposits929,083  607,104  623,908  622,547  632,400 
 $5,907,336  $4,342,798  $4,350,259  $4,176,909  $4,198,663 
 
 


OceanFirst Financial Corp.
ASSET QUALITY
(dollars in thousands)
 
ASSET QUALITYMarch 31,
 2018		 December 31,
2017		 September 30,
2017		 June 30,
2017		 March 31,
2017
Non-performing loans:         
Commercial and industrial$1,717  $503  $63  $68  $231 
Commercial real estate - owner-occupied862  5,962  923  943  2,383 
Commercial real estate - investor7,994  8,281  8,720  5,608  5,118 
Residential mortgage5,686  4,190  3,551  7,936  11,993 
Home equity loans and lines1,992  1,929  1,864  1,706  1,954 
Total non-performing loans18,251  20,865  15,121  16,261  21,679 
Other real estate owned8,265  8,186  9,334  8,898  8,774 
Total non-performing assets$26,516  $29,051  $24,455  $25,159  $30,453 
Purchased credit-impaired (“PCI”) loans$14,352  $1,712  $4,867  $4,969  $7,118 
Delinquent loans 30 to 89 days$35,431 (1)$20,796  $24,548  $25,224  $18,516 
Troubled debt restructurings:         
Non-performing (included in total non-performing loans above)$4,306  $8,821  $270  $1,251  $3,547 
Performing33,806  33,313  35,808  34,130  26,974 
Total troubled debt restructurings$38,112  $42,134  $36,078  $35,381  $30,521 
Allowance for loan losses$16,817  $15,721  $16,584  $16,557  $16,151 
Allowance for loan losses as a percent of total loans receivable (2)0.31% 0.40% 0.42% 0.42% 0.42%
Allowance for loan losses as a percent of total non-performing loans92.14  75.35  109.68  101.82  74.50 
Non-performing loans as a percent of total loans receivable0.34  0.52  0.39  0.42  0.56 
Non-performing assets as a percent of total assets0.35  0.54  0.45  0.48  0.59 

(1) One commercial loan relationship, for $15.0 million, was in the process of renewal at March 31, 2018. Subsequent to quarter-end, the renewal process was completed and the loan returned to current status.
(2) 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 $40,717, $17,531, $19,810, $21,794, and $24,002 at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017, and  March 31, 2017, respectively.

  
  
NET CHARGE-OFFSFor the Three Months Ended
 March 31,
 2018		 December 31,
2017		 September 30,
 2017		 June 30,
2017		 March 31,
2017
Net Charge-offs:         
Loan charge-offs$(533) $(2,523) $(1,357) $(1,299) $(205)
Recoveries on loans258  245  219  540  473 
Net loan (charge-offs) recoveries$(275) $(2,278) $(1,138) $(759) $268 
Net loan charge-offs to average total loans
(annualized)		0.02% 0.23% 0.12% 0.08% NM* 
Net charge-off detail - (loss) recovery:         
Commercial$(10) $(1,036) $68  $(81) $311 
Residential mortgage and construction(159) (1,262) (1,156) (716) (49)
Home equity loans and lines(99) 28  (51) 39  24 
Other consumer(7) (8) 1  (1) (18)
Net loan (charge-offs) recoveries$(275) $(2,278) $(1,138) $(759) $268 
 

Note:  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.

* Not meaningful

 
 
OceanFirst Financial Corp.
ANALYSIS OF NET INTEREST INCOME
 
 For the Three Months Ended
 March 31, 2018 December 31, 2017 March 31, 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$100,236  $209  0.84% $155,987  $391  0.99% $214,165  $409  0.77%
Securities (1)1,056,774  6,030  2.31  874,910  4,606  2.09  703,712  3,863  2.23 
Loans receivable, net (2)                 
Commercial2,772,952  33,391  4.88  1,887,319  22,087  4.64  1,830,641  21,140  4.68 
Residential1,843,804  19,037  4.19  1,743,334  17,552  3.99  1,704,035  17,339  4.13 
Home Equity342,078  4,143  4.91  278,294  3,243  4.62  287,335  3,245  4.58 
Other1,458  27  7.51  1,086  27  9.86  1,248  18  5.85 
Allowance for loan loss net of deferred loan fees(10,285) —  —  (11,993) —  —  (12,123) —  — 
Loans Receivable, net4,950,007  56,598  4.64  3,898,040  42,909  4.37  3,811,136  41,742  4.44 
Total interest-earning assets6,107,017  62,837  4.17  4,928,937  47,906  3.86  4,729,013  46,014  3.95 
Non-interest-earning assets735,676      475,927      482,058     
Total assets$6,842,693      $5,404,864      $5,211,071     
Liabilities and Stockholders’ Equity:                 
Interest-bearing liabilities:                 
Interest-bearing checking$2,263,318  1,758  0.32% $1,944,223  1,447  0.30% $1,668,545  876  0.21%
Money market525,933  550  0.42  385,720  322  0.33  445,186  311  0.28 
Savings825,044  195  0.10  662,318  59  0.04  674,721  130  0.08 
Time deposits820,834  1,961  0.97  619,087  1,687  1.08  640,269  1,464  0.93 
Total4,435,129  4,464  0.41  3,611,348  3,515  0.39  3,428,721  2,781  0.33 
Securities sold under agreements to repurchase78,931  40  0.21  74,661  39  0.21  76,351  27  0.14 
FHLB Advances322,120  1,513  1.90  261,018  1,146  1.74  250,339  1,070  1.73 
Other borrowings80,112  1,109  5.61  56,475  701  4.92  56,392  653  4.70 
Total interest-bearing
liabilities		4,916,292  7,126  0.59  4,003,502  5,401  0.54  3,811,803  4,531  0.48 
Non-interest-bearing deposits1,004,673      760,552      791,036     
Non-interest-bearing liabilities55,031      38,880      29,399     
Total liabilities5,975,996      4,802,934      4,632,238     
Stockholders’ equity866,697      601,930      578,833     
Total liabilities and equity$6,842,693      $5,404,864      $5,211,071     
Net interest income  $55,711      $42,505      $41,483   
Net interest rate spread (3)    3.58%     3.32%     3.47%
Net interest margin (4)    3.70%     3.42%     3.56%
Total cost of deposits (including non-interest-bearing deposits)    0.33%     0.32%     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)
 
  March 31, December 31, September 30, June 30, March 31,
  2018 2017 2017 2017 2017
           
Selected Financial Condition Data:          
Total assets $7,494,899  $5,416,006  $5,383,800  $5,202,086  $5,196,203 
Debt securities available-for-sale, at estimated fair value 86,114  81,581  67,133  62,154  47,104 
Debt securities held-to-maturity, net 982,857  764,062  733,983  711,650  687,098 
Equity investments, at estimated fair value 9,565  8,700  8,714  8,669  8,588 
Restricted equity investments, at cost 50,418  19,724  18,472  20,358  19,253 
Loans receivable, net 5,413,780  3,965,773  3,870,109  3,868,805  3,825,600 
Loans held-for-sale 167  241  338  168  283 
Deposits 5,907,336  4,342,798  4,350,259  4,176,909  4,198,663 
Federal Home Loan Bank advances 341,646  288,691  259,186  277,541  250,021 
Securities sold under agreements to repurchase and other borrowings 181,822  136,187  131,792  131,673  133,798 
Stockholders’ equity 1,007,460  601,941  596,140  587,189  582,543 
                
                


  For the Three Months Ended,
  March 31, December 31, September 30, June 30, March 31,
  2018 2017 2017 2017 2017
Selected Operating Data:          
Interest income $62,837  $47,906  $48,030  $46,879  $46,014 
Interest expense 7,126  5,401  4,974  4,705  4,531 
Net interest income 55,711  42,505  43,056  42,174  41,483 
Provision for loan losses 1,371  1,415  1,165  1,165  700 
Net interest income after provision for loan losses 54,340  41,090  41,891  41,009  40,783 
Other income 8,910  6,745  7,359  6,973  5,995 
Operating expenses 38,508  26,434  27,580  28,527  29,481 
Branch consolidation (income) expense (176) (734) 1,455  5,451  33 
Merger related expenses 18,486  1,993  1,698  3,155  1,447 
Income before provision for income taxes 6,432  20,142  18,517  10,849  15,817 
Provision for income taxes 1,005  10,186  5,700  3,170  3,799 
Net income $5,427  $9,956  $12,817  $7,679  $12,018 
Diluted earnings per share $0.12  $0.30  $0.39  $0.23  $0.36 
Net accretion/amortization of purchase accounting adjustments included in net interest income $3,930  $1,956  $2,227  $1,899  $2,175 
 
 

 

   
  At or For the Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2018 2017 2017 2017 2017
Selected Financial Ratios and Other Data(1):          
           
Performance Ratios (Annualized):          
Return on average assets (2) 0.32% 0.73% 0.95% 0.59% 0.94%
Return on average stockholders’ equity (2) 2.54  6.56  8.60  5.25  8.42 
Return on average tangible stockholders’ equity (2) (3) 3.80  8.89  11.74  7.19  11.50 
Stockholders' equity to total assets 13.44  11.11  11.07  11.29  11.21 
Tangible stockholders’ equity to tangible assets (3) 9.11  8.42  8.39  8.50  8.42 
Net interest rate spread 3.58  3.32  3.41  3.48  3.47 
Net interest margin 3.70  3.42  3.50  3.57  3.56 
Operating expenses to average assets (2) 3.37  2.03  2.29  2.86  2.41 
Efficiency ratio (2) (4) 87.92  56.23  60.96  75.55  65.21 
Loans to deposits 91.65  91.32  88.96  92.62  91.11 
                
                


   
  At or For the Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2018 2017 2017 2017 2017
Wealth Management:          
Assets under administration $221,493  $233,185  $225,904  $214,479  $215,593 
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 20.94  18.47  18.30  18.05  17.94 
Tangible stockholders’ equity per common share at end of period (3) 13.51  13.58  13.47  13.18  13.07 
Number of full-service customer facilities: 76  46  46  51  61 
Quarterly Average Balances          
Total securities $1,056,774  $874,910  $817,867  $786,964  $703,712 
Loans, receivable, net 4,950,007  3,898,040  3,872,351  3,840,916  3,811,136 
Total interest-earning assets 6,107,017  4,928,937  4,873,732  4,741,900  4,729,013 
Total assets 6,842,693  5,404,864  5,334,527  5,215,636  5,211,071 
Interest-bearing transaction deposits 3,614,295  2,992,261  2,914,004  2,819,175  2,788,452 
Time deposits 820,834  619,087  620,308  624,020  640,269 
Total borrowed funds 481,163  392,154  395,439  389,321  383,082 
Total interest-bearing liabilities 4,916,292  4,003,502  3,929,751  3,832,516  3,811,803 
Non-interest bearing deposits 1,004,673  760,552  781,047  772,739  791,036 
Stockholders’ equity 866,697  601,930  591,369  587,121  578,833 
Total deposits 5,439,802  4,371,900  4,315,359  4,215,934  4,219,757 
Quarterly Yields          
Total securities 2.31% 2.09% 2.07% 2.07% 2.23%
Loans, receivable, net 4.64  4.37  4.44  4.45  4.44 
Total interest-earning assets 4.17  3.86  3.91  3.97  3.95 
Interest-bearing transaction deposits 0.28  0.25  0.21  0.20  0.18 
Time deposits 0.97  1.08  1.02  0.96  0.93 
Total borrowed funds 2.24  1.91  1.87  1.85  1.85 
Total interest-bearing liabilities 0.59  0.54  0.50  0.49  0.48 
Net interest spread 3.58  3.32  3.41  3.48  3.47 
Net interest margin 3.70  3.42  3.50  3.57  3.56 
                
Total deposits 0.33  0.32  0.29  0.28  0.27 

(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
  March 31, December 31, September 30, June 30, March 31,
  2018 2017 2017 2017 2017
Core earnings:          
Net income $5,427  $9,956  $12,817  $7,679  $12,018 
Add:  Merger related expenses 18,486  1,993  1,698  3,155  1,447 
Branch consolidation expenses (176) (734) 1,455  5,451  33 
Accelerated stock award expense —  —  —  —  242 
Income tax expense related to Tax Reform —  3,643  —  —  — 
Less:  Income tax (expense) benefit on items (3,664) 2  (1,084) (3,012) (587)
Core earnings $20,073  $14,860  $14,886  $13,273  $13,153 
Core diluted earnings per share $0.45  $0.45  $0.45  $0.40  $0.40 
           
Core ratios (Annualized):          
Return on average assets 1.19% 1.09% 1.11% 1.02% 1.02%
Return on average tangible stockholders’ equity 14.07  13.27  13.63  12.42  12.56 
Efficiency ratio 59.59  53.67  54.71  58.04  61.58 
                
                


COMPUTATION OF TOTAL TANGIBLE EQUITY TO TOTAL TANGIBLE ASSETS 
  March 31, December 31, September 30, June 30, March 31,
  2018 2017 2017 2017 2017
Total stockholders’ equity $1,007,460  $601,941  $596,140  $587,189  $582,543 
Less:          
Goodwill 337,519  150,501  148,134  148,433  147,815 
Core deposit intangible 19,950  8,885  9,380  9,887  10,400 
Tangible stockholders’ equity $649,991  $442,555  $438,626  $428,869  $424,328 
           
Total assets $7,494,899  $5,416,006  $5,383,800  $5,202,086  $5,196,203 
Less:          
Goodwill 337,519  150,501  148,134  148,433  147,815 
Core deposit intangible 19,950  8,885  9,380  9,887  10,400 
Tangible assets $7,137,430  $5,256,620  $5,226,286  $5,043,766  $5,037,988 
Tangible stockholders’ equity to tangible assets 9.11% 8.42% 8.39% 8.50% 8.42%
 
 

 

 
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 and Federal Home Loan Bank Stock254,522  —  254,522 
Loans1,541,868  (23,921) 1,517,947 
Accrued interest receivable5,621  —  5,621 
Bank Owned Life Insurance85,238  —  85,238 
Deferred tax asset55,710  2,642  58,352 
Other assets49,561  (7,031) 42,530 
Core deposit intangible—  11,897  11,897 
Total assets acquired2,061,152  (16,413) 2,044,739 
Liabilities assumed:     
Deposits(1,614,910) (1,163) (1,616,073)
Borrowings(142,567) 14,820  (127,747)
Other liabilities(14,372) 1,365  (13,007)
Total liabilities assumed(1,771,849) 15,022  (1,756,827)
Net assets acquired$289,303  $(1,391) $287,912 
Goodwill recorded in the merger    $187,018 

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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