OceanFirst Financial Corp. Announces Third Quarter Earnings and Financial Results

Toms River, New Jersey, UNITED STATES


RED BANK, N.J., Oct. 24, 2019 (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 $25.0 million, or $0.49 per diluted share, for the three months ended September 30, 2019, as compared to $24.1 million, or $0.50 per diluted share, for the corresponding prior year period. For the nine months ended September 30, 2019, net income was $65.1 million, or $1.28 per diluted share, as compared to $45.2 million, or $0.95 per diluted share, for the corresponding prior year period.

The results of operations for the three months ended September 30, 2019 include merger related expenses, branch consolidation expenses and non-recurring professional fees, which decreased net income, net of tax benefit, by $2.6 million. The results of operations for the nine months ended September 30, 2019 include merger related expenses, branch consolidation expenses, non-recurring professional fees, and compensation expense due to the retirement of an executive officer, which decreased net income, net of tax benefit, by $14.0 million. Excluding these items, core earnings for the three and nine months ended September 30, 2019 were $27.5 million, or $0.54 per diluted share, and $79.1 million, or $1.56 per diluted share, respectively. (Please refer to the Non-GAAP Reconciliation table at the end of this document for details on the earnings impact of merger related expenses, branch consolidation expenses, non-recurring professional fees and compensation expense due to the retirement of an executive officer).

Highlights for the quarter are described below:

  • Loan and deposit growth were both strong. Record loan originations of $482.2 million provided total loan growth of $138.2 million with a solid pipeline of $319.7 million at September 30, 2019. Deposits increased $33.4 million while the cost of deposits was 0.62%, unchanged from the prior linked quarter.
  • The efficiency ratio improved to 57.9% from 68.1% in the prior linked quarter and the core efficiency ratio improved to 53.6% from 56.3% in the prior linked quarter, as the Company begins to realize the cost savings related to the integration of Capital Bank of New Jersey (“Capital Bank”).

Chairman and Chief Executive Officer, Christopher D. Maher, commented on the Company’s results, “We are pleased to see that our organic expansion efforts in New York and Philadelphia are helping us grow the business. This strengthening organic growth helped deliver record quarterly core earnings of $27.5 million and positions us well for the fourth quarter and into 2020.”  Mr. Maher added, “During the quarter, the Company announced plans to acquire Two River Bancorp and Country Bank Holding Company, Inc.  We continue to make progress with the acquisition process and anticipate both closings in the first quarter of 2020.”

The Company announced that the Company’s Board of Directors declared its ninety-first consecutive quarterly cash dividend on common stock. The dividend, related to the three months ended September 30, 2019, of $0.17 per share will be paid on November 15, 2019 to stockholders of record on November 4, 2019.

Results of Operations

On January 31, 2018, the Company completed its acquisition of Sun Bancorp Inc. (“Sun”) and its results of operations are included in the consolidated results for the three and nine months ended September 30, 2019, but are excluded from the results of operations for the period from January 1, 2018 to January 31, 2018.

On January 31, 2019, the Company completed its acquisition of Capital Bank and its results of operations from February 1, 2019 through September 30, 2019 are included in the consolidated results for the three and nine months ended September 30, 2019, but are not included in the results of operations for the corresponding prior year periods.

Net income for the three months ended September 30, 2019, was $25.0 million, or $0.49 per diluted share, as compared to $24.1 million, or $0.50 per diluted share, for the corresponding prior year period. Net income for the nine months ended September 30, 2019, was $65.1 million, or $1.28 per diluted share, as compared to $45.2 million, or $0.95 per diluted share, for the corresponding prior year period. Net income for the three months ended September 30, 2019 included merger related expenses, branch consolidation expenses, and non-recurring professional fees which decreased net income, net of tax benefit, by $2.6 million.  Net income for the nine months ended September 30, 2019 included merger related expenses, branch consolidation expenses, non-recurring professional fees, and compensation expense due to the retirement of an executive officer, which decreased net income, net of tax benefit, by $14.0 million. Net income for the three and nine months ended September 30, 2018 included merger related and branch consolidation expenses, which decreased net income, net of tax benefit, by $1.6 million and $22.9 million, respectively. Excluding these items, net income for the three and nine months ended September 30, 2019 increased over the same prior year periods, primarily due to the acquisition of Capital Bank.

Net interest income for the three and nine months ended September 30, 2019 increased to $63.4 million and $192.6 million, respectively, as compared to $61.5 million and $178.7 million, respectively, for the same prior year periods, reflecting an increase in interest-earning assets. Average interest-earning assets increased by $436.6 million and $594.2 million for the three and nine months ended September 30, 2019, respectively, as compared to the same prior year periods. The averages for the three and nine months ended September 30, 2019 were favorably impacted by $363.1 million and $346.0 million, respectively, of interest-earning assets acquired from Capital Bank. Average loans receivable, net, increased by $474.2 million and $603.6 million for the three and nine months ended September 30, 2019, respectively, as compared to the same prior year periods. The increases attributable to the acquisition of Capital Bank were $269.6 million and $251.8 million, respectively. The net interest margin for the three and nine months ended September 30, 2019 decreased to 3.55% and 3.66%, respectively, from 3.67% and 3.71%, respectively, for the same prior year periods. For the three and nine months ended September 30, 2019, the cost of average interest-bearing liabilities increased to 0.98% and 0.95%, respectively, from 0.74% and 0.66%, respectively, in the corresponding prior year periods. The total cost of deposits (including non-interest bearing deposits) was 0.62% and 0.60% for the three and nine months ended September 30, 2019, respectively, as compared to 0.39% and 0.36%, respectively, in the same prior year periods.

Net interest income for the three months ended September 30, 2019, decreased by $1.4 million, as compared to the prior linked quarter, as average interest-earning assets decreased by $7.4 million. The net interest margin decreased to 3.55% for the quarter ended September 30, 2019, as compared to 3.66% for the prior linked quarter. The decrease was primarily due to decreases in purchase accounting accretion of six basis points and prepayment fees of three basis points. Excluding these items, the net interest margin decreased two basis points.  The total cost of deposits (including non-interest bearing deposits) was 0.62% for the both the three months ended September 30, 2019 and June 30, 2019.

For the three and nine months ended September 30, 2019, the provision for loan losses was $305,000 and $1.3 million, respectively, as compared to $907,000 and $3.0 million, respectively, for the corresponding prior year period, and $356,000 in the prior linked quarter. Net loan recoveries were $196,000 and net loan charge-offs were $1.2 million for the three and nine months ended September 30, 2019, respectively, as compared to net loan charge-offs of $777,000 and $1.9 million, respectively, in the corresponding prior year periods, and net loan charge-offs of $926,000 in the prior linked quarter. Non-performing loans totaled $17.5 million at September 30, 2019, as compared to $17.8 million at June 30, 2019 and $19.2 million at September 30, 2018.

For the three and nine months ended September 30, 2019, other income increased to $11.5 million and $30.9 million, respectively, as compared to $8.3 million and $26.1 million, respectively, for the corresponding prior year periods. The increases were partly due to the impact of the Capital Bank acquisition, which added $435,000 and $991,000 to other income for the three and nine months ended September 30, 2019, respectively, as compared to the same prior year periods. Excluding the Capital Bank acquisition, the increase in other income for the three months ended September 30, 2019 was primarily due to a decrease in the loss from real estate operations of $1.5 million and an increase in derivative fee income of $1.5 million, as compared to the three months ended September 30, 2018. Excluding the Capital Bank acquisition, the increase in other income for the nine months ended September 30, 2019 was primarily due to a decrease in the loss from real estate operations of $2.7 million, an increase in derivative fee income of $2.5 million, and an increase in bankcard services of $679,000, partially offset by decreases in fees and service charges of $1.3 million, and rental income of $820,000 received primarily for January and February 2018 on the Company’s executive office.

For the three months ended September 30, 2019, other income increased by $1.7 million, as compared to the prior linked quarter. The increase was primarily due to an increase in derivative fee income of $1.5 million.

Operating expenses increased to $43.4 million and decreased to $141.5 million for the three and nine months ended September 30, 2019, respectively, as compared to $39.5 million and $147.3 million, respectively, in the same prior year periods. Operating expenses for the three months ended September 30, 2019 included $3.2 million of merger related expenses, branch consolidation expenses, and non-recurring professional fees. Operating expenses for the nine months ended September 30, 2019 included $17.5 million of merger related expenses, branch consolidation expenses, non-recurring professional fees, and compensation expense due to the retirement of an executive officer, as compared to $2.0 million and $28.8 million, respectively, of merger related and branch consolidation expenses, in the same prior year periods. Excluding the impact of merger related expenses, branch consolidation expenses, non-recurring professional fees, and compensation expense due to the retirement of an executive officer, the change in operating expenses over the prior year was due to the Capital Bank acquisition, which added $1.2 million and $4.5 million for the three and nine months ended September 30, 2019, respectively. Excluding the Capital Bank acquisition, the increase in operating expenses for the three months ended September 30, 2019 over the prior year period was primarily due to increases in check card processing of $803,000, professional fees of $759,000, and compensation and employee benefits expense of $550,000, partially offset by decreases in Federal Deposit Insurance Company (“FDIC”) expense of $643,000, primarily as a result of assessment credits awarded by the FDIC to banks with consolidated assets less than $10 billion, and marketing expenses of $459,000. Excluding the Capital Bank acquisition, the remaining increase in operating expenses, for the nine months ended September 30, 2019 from the prior year period, was primarily due to increases in check card processing of $1.4 million, professional fees of $1.1 million, and other operation expenses of $976,000, partially offset by decreases in compensation and employee benefits expense of $1.3 million, and FDIC expense of $1.0 million.

For the three months ended September 30, 2019, operating expenses, excluding merger related expenses, branch consolidation expenses, and non-recurring professional fees, decreased by $1.9 million from the three months ended June 30, 2019, excluding merger related expenses, branch consolidation expenses, and compensation expense due to the retirement of an executive officer. The decrease in operating expenses was primarily due to decreases in compensation and employee benefits of $1.2 million, marketing expenses of $575,000, and FDIC expense of $505,000, partially offset by an increase in professional fees of $422,000.

For the three months ended September 30, 2019, operating expenses included $750,000 of non-recurring professional fees associated with the restructuring of the Company’s primary core processor vendor contract. The revised contractual terms will result in future annual cost savings of 22%, or approximately $1.5 million annually, and the earnback on the contract restructuring charges is anticipated to occur over the next six months. During the fourth quarter, the Company plans to restructure its retail online and mobile banking vendor contract and expects to incur approximately $1.3 million in non-recurring professional fees. The restructured contractual terms are expected to result in an annual cost savings of 48%, or approximately $1.6 million annually, and the earnback on the contract restructuring charges is anticipated to occur over the next ten months.

The provision for income taxes was $6.3 million and $15.6 million for the three and nine months ended September 30, 2019, respectively, as compared to $5.3 million and $9.3 million, respectively, for the same prior year periods. The effective tax rate was 20.2% and 19.3% for the three and nine months ended September 30, 2019, respectively, as compared to 18.0% and 17.1%, respectively, for the same prior year periods. The lower effective tax rates in the prior year periods were primarily due to larger tax benefits from employee stock option exercises and an increase in state taxes due to revisions in the New Jersey tax code.

Financial Condition

Total assets increased by $619.0 million, to $8.135 billion at September 30, 2019, from $7.516 billion at December 31, 2018, primarily as a result of the acquisition of Capital Bank, which added $494.7 million to total assets. Loans receivable, net, increased by $502.7 million, to $6.082 billion at September 30, 2019, from $5.579 billion at December 31, 2018, due to acquired loans of $307.8 million. As part of the acquisition of Capital Bank, the Company’s goodwill balance increased to $374.5 million at September 30, 2019, from $338.4 million at December 31, 2018. The core deposit intangible decreased to $16.6 million, from $17.0 million at December 31, 2018 due to amortization of core deposit intangible, partially offset by the increase from the acquisition of Capital Bank.

Deposits increased by $406.3 million, to $6.221 billion at September 30, 2019, from $5.815 billion at December 31, 2018, primarily due to acquired deposits of $449.0 million. The loan-to-deposit ratio at September 30, 2019 was 97.8%, as compared to 96.0% at December 31, 2018.

Stockholders’ equity increased to $1.145 billion at September 30, 2019, as compared to $1.039 billion at December 31, 2018. The acquisition of Capital Bank added $76.4 million to stockholders’ equity. At September 30, 2019, there were 508,986 shares available for repurchase under the Company’s stock repurchase program. For the nine months ended September 30, 2019, the Company repurchased 786,567 shares under the repurchase program at a weighted average cost of $22.95. Tangible stockholders’ equity per common share increased to $14.86 at September 30, 2019, as compared to $14.26 at December 31, 2018.

Asset Quality

The Company’s non-performing loans increased to $17.5 million at September 30, 2019, as compared to $17.4 million at December 31, 2018.  Non-performing loans do not include $13.3 million of purchased credit-impaired (“PCI”) loans acquired in the Capital Bank, Sun, Ocean Shore Holding Co. (“Ocean Shore”), Cape Bancorp, Inc. (“Cape”), and Colonial American Bank (“Colonial American”) acquisitions (“Acquisition Transactions”). The Company’s other real estate owned totaled $294,000 at September 30, 2019, as compared to $1.4 million at December 31, 2018.

At September 30, 2019, the Company’s allowance for loan losses was 0.27% of total loans, a decrease from 0.30% at December 31, 2018.  These ratios exclude existing fair value credit marks of $32.8 million at September 30, 2019 on loans acquired from the Acquisition Transactions, and $31.6 million at December 31, 2018 on loans acquired from Sun, 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 95.32% at September 30, 2019, as compared to 95.19% at December 31, 2018.

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, non-recurring professional fees, compensation expense due to the retirement of an executive officer, and the impact to income tax expense related to the revaluation of deferred tax assets as required under Tax Reform, which can vary from period to period, provides a better comparison of period to period operating performance. Additionally, the Company believes this information is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors.  These disclosures should not be viewed as a substitute for financial results in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Please refer to Non-GAAP Reconciliation table at the end of this document for details on the earnings impact of these items.

Conference Call

As previously announced, the Company will host an earnings conference call on Friday, October  25, 2019 at 11:00 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 10135355 from one hour after the end of the call until January 23, 2020. 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 an $8.1 billion regional bank operating throughout New Jersey, metropolitan Philadelphia and metropolitan New York City.  OceanFirst Bank delivers commercial and residential financing solutions, trust and asset 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, 2018, 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)

 September 30, June 30, December 31, September 30,
 2019 2019 2018 2018
 (Unaudited) (Unaudited)   (Unaudited)
Assets       
Cash and due from banks$140,901  $148,327  $120,792  $148,362 
Debt securities available-for-sale, at estimated fair value127,308  123,610  100,717  100,015 
Debt securities held-to-maturity, net (estimated fair value of $826,964 at
September 30, 2019, $869,167 at June 30, 2019, $832,815 at December 31, 2018,
and $864,173 at September 30, 2018)
819,253  863,838  846,810  883,540 
Equity investments, at estimated fair value10,145  10,002  9,655  9,519 
Restricted equity investments, at cost62,095  59,425  56,784  57,143 
Loans receivable, net6,081,938  5,943,930  5,579,222  5,543,959 
Loans held-for-sale110      732 
Interest and dividends receivable21,739  22,106  19,689  20,822 
Other real estate owned294  865  1,381  6,231 
Premises and equipment, net103,721  105,853  111,209  112,320 
Bank Owned Life Insurance236,190  235,162  222,482  221,190 
Deferred tax asset66,148  66,259  63,377  59,052 
Assets held for sale5,156  4,198  4,522  7,552 
Other assets69,033  53,276  24,101  36,094 
Core deposit intangible16,605  17,614  16,971  17,954 
Goodwill374,537  374,592  338,442  338,104 
Total assets$8,135,173  $8,029,057  $7,516,154  $7,562,589 
Liabilities and Stockholders’ Equity       
Deposits$6,220,855  $6,187,487  $5,814,569  $5,854,250 
Federal Home Loan Bank advances512,149  453,646  449,383  456,806 
Securities sold under agreements to repurchase with retail customers65,067  62,086  61,760  61,044 
Other borrowings96,667  96,533  99,530  99,473 
Advances by borrowers for taxes and insurance16,230  14,817  14,066  16,654 
Other liabilities79,677  77,193  37,488  44,518 
Total liabilities6,990,645  6,891,762  6,476,796  6,532,745 
Total stockholders’ equity1,144,528  1,137,295  1,039,358  1,029,844 
Total liabilities and stockholders’ equity$8,135,173  $8,029,057  $7,516,154  $7,562,589 
                

 OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

 For the Three Months Ended, For the Nine Months Ended,
 September 30,
 2019
 June 30,
 2019
 September 30,
 2018
 September 30,
 2019
 September 30,
 2018
 |-------------------- (Unaudited) --------------------| |---------- (Unaudited) -----------|
Interest income:         
Loans$69,715  $70,917  $64,497  $209,633  $184,229 
Mortgage-backed securities3,761  3,946  4,105  11,748  12,087 
Debt securities, equity investments and other3,411  3,547  2,780  10,338  7,980 
Total interest income76,887  78,410  71,382  231,719  204,296 
Interest expense:         
Deposits9,817  9,762  5,799  28,218  15,510 
Borrowed funds3,678  3,811  4,079  10,884  10,125 
Total interest expense13,495  13,573  9,878  39,102  25,635 
Net interest income63,392  64,837  61,504  192,617  178,661 
Provision for loan losses305  356  907  1,281  2,984 
Net interest income after provision for loan losses63,087  64,481  60,597  191,336  175,677 
Other income:         
Bankcard services revenue2,658  2,679  2,425  7,622  6,717 
Trust and asset management revenue557  569  573  1,624  1,721 
Fees and service charges4,679  4,595  4,735  13,790  14,551 
Net gain on sales of loans  7  31  15  654 
Net unrealized gain (loss) on equity investments89  133  (70) 330  (282)
Net loss from other real estate operations(108) (121) (1,582) (235) (2,975)
Income from Bank Owned Life Insurance1,431  1,293  1,337  4,045  3,813 
Other2,237  724  836  3,743  1,880 
Total other income11,543  9,879  8,285  30,934  26,079 
Operating expenses:         
Compensation and employee benefits21,276  23,704  19,694  67,394  64,189 
Occupancy4,159  4,399  4,443  13,088  13,582 
Equipment2,062  1,936  2,067  5,944  6,004 
Marketing562  1,137  1,021  2,629  2,475 
Federal deposit insurance and regulatory assessments297  802  927  1,931  2,857 
Data processing3,398  3,684  3,125  10,736  9,968 
Check card processing1,639  1,322  799  4,399  2,904 
Professional fees2,580  1,408  1,066  5,697  3,746 
Other operating expense3,902  3,882  3,366  11,153  9,928 
Amortization of core deposit intangible1,009  1,015  995  3,029  2,828 
Branch consolidation expense1,696  6,695  1,368  8,782  2,911 
Merger related expenses777  931  662  6,761  25,863 
Total operating expenses43,357  50,915  39,533  141,543  147,255 
Income before provision for income taxes31,273  23,445  29,349  80,727  54,501 
Provision for income taxes6,302  4,465  5,278  15,603  9,301 
Net income$24,971  $18,980  $24,071  $65,124  $45,200 
Basic earnings per share$0.50  $0.37  $0.50  $1.30  $0.97 
Diluted earnings per share$0.49  $0.37  $0.50  $1.28  $0.95 
Average basic shares outstanding50,491  50,687  47,685  50,242  46,451 
Average diluted shares outstanding50,966  51,290  48,572  50,830  47,403 
               

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

LOANS RECEIVABLE  At
   September 30,
2019
 June 30,
2019
 March 31,
2019
 December 31,
2018
 September 30,
2018
Commercial:                     
Commercial and industrial  $406,580  $392,336  $383,686  $304,996  $343,121 
Commercial real estate - owner - occupied 787,752  771,640  802,229  740,893  735,289 
Commercial real estate - investor 2,232,159  2,143,093  2,161,451  2,023,131  2,019,859 
Total commercial  3,426,491  3,307,069  3,347,366  3,069,020  3,098,269 
Consumer:           
Residential real estate  2,234,361  2,193,829  2,162,668  2,044,523  2,020,155 
Home equity loans and lines  330,446  341,972  351,303  353,609  359,094 
Other consumer  98,835  109,015  116,838  121,561  74,555 
Total consumer  2,663,642  2,644,816  2,630,809  2,519,693  2,453,804 
Total loans  6,090,133  5,951,885  5,978,175  5,588,713  5,552,073 
Deferred origination costs, net 8,441  8,180  7,360  7,086  8,707 
Allowance for loan losses  (16,636) (16,135) (16,705) (16,577) (16,821)
Loans receivable, net  $6,081,938  $5,943,930  $5,968,830  $5,579,222  $5,543,959 
Mortgage loans serviced for others $54,457  $90,882  $92,274  $95,100  $106,369 
 At September 30, 2019
Average Yield
          
Loan pipeline (1):           
Commercial4.70% $126,578  $212,712  $122,325  $129,839  $137,519 
Residential real estate3.45  189,403  82,555  63,598  49,800  64,841 
Home equity loans and lines5.53  3,757  2,550  4,688  6,571  11,030 
Total3.97% $319,738  $297,817  $190,611  $186,210  $213,390 


 For the Three Months Ended 
 September 30,
 2019
 June 30,
2019
 March 31,
2019
 December 31,
2018
 September 30,
2018
 
 Average Yield           
Loan originations:            
Commercial4.08% $315,405  $123,882  $172,233  $151,851  $136,764  
Residential real estate3.57  156,308  120,771  75,530  92,776  124,419  
Home equity loans and lines5.37  10,498  14,256  13,072  15,583  17,892  
Total3.94% $482,211  $258,909  $260,835 (2)$260,210 (3)$279,075 (4)
Loans sold  $ (5)$403 (5)$495  $728 (5)$1,349 (5)


(1)Loan pipeline includes pending loan applications and loans approved but not funded.
(2)Excludes purchased loans of $100.0 million for residential real estate.
(3)Excludes purchased loans of $49.5 million for other consumer and $753,000 for residential real estate.
(4)Excludes purchased loans of $25.0 million for other consumer.
(5)Excludes the sale of small business administration loans of $3.5 million, under-performing residential loans of $2.9 million, under-performing commercial loans of $1.7 million and under-performing residential loans of $5.1 million for the three months ended September 30, 2019, June 30, 2019, December 31, 2018, and September 30, 2018, respectively.


DEPOSITSAt
 September 30,
 2019

 June 30,
2019

 March 31,
 2019

 December 31,
2018

 September 30,
2018

Type of Account                   
Non-interest-bearing$1,406,194  $1,370,167  $1,352,520  $1,151,362  $1,196,875 
Interest-bearing checking2,400,331  2,342,913  2,400,192  2,350,106  2,332,215 
Money market deposit593,457  642,985  666,067  569,680  584,250 
Savings901,168  909,501  922,113  877,177  887,799 
Time deposits919,705  921,921  949,593  866,244  853,111 
 $6,220,855  $6,187,487  $6,290,485  $5,814,569  $5,854,250 
                    

OceanFirst Financial Corp.
ASSET QUALITY
(dollars in thousands)

ASSET QUALITYSeptember 30,
2019
 June 30,
2019
 March 31,
2019
 December 31,
2018
 September 30,
2018
Non-performing loans:                   
Commercial and industrial$207  $207  $240  $1,587  $1,727 
Commercial real estate - owner-occupied4,537  4,818  4,565  501  511 
Commercial real estate - investor4,073  4,050  4,115  5,024  8,082 
Residential real estate5,953  5,747  8,611  7,389  6,390 
Home equity loans and lines2,683  2,974  3,364  2,914  2,529 
Total non-performing loans17,453  17,796  20,895  17,415  19,239 
Other real estate owned294  865  1,594  1,381  6,231 
Total non-performing assets$17,747  $18,661  $22,489  $18,796  $25,470 
Purchased credit-impaired (“PCI”) loans$13,281  $13,432  $16,306  $8,901  $9,700 
Delinquent loans 30 to 89 days$19,905  $20,029  $21,578  $25,686  $26,691 
Troubled debt restructurings:         
Non-performing (included in total non-performing loans above)$6,152  $6,815  $6,484  $3,595  $3,568 
Performing18,977  19,314  19,690  22,877  24,230 
Total troubled debt restructurings$25,129  $26,129  $26,174  $26,472  $27,798 
Allowance for loan losses$16,636  $16,135  $16,705  $16,577  $16,821 
Allowance for loan losses as a percent of total loans receivable (1)0.27% 0.27% 0.28% 0.30% 0.30%
Allowance for loan losses as a percent of total non-performing loans95.32  90.67  79.95  95.19  87.43 
Non-performing loans as a percent of total loans receivable0.29  0.30  0.35  0.31  0.35 
Non-performing assets as a percent of total assets0.22  0.23  0.28  0.25  0.34 


(1)The loans acquired from Capital Bank, 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 $32,768, $36,026, $35,204, $31,647, and $34,357 at September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018, and September 30, 2018, respectively.


NET CHARGE-OFFSFor the Three Months Ended 
 September 30,
 2019
 June 30,
2019
 March 31,
 2019
 December 31,
2018
 September 30,
2018
 
Net Charge-offs:          
Loan charge-offs$(353) $(1,138) $(868) $(1,133) $(891) 
Recoveries on loans549  212  376  383  114  
Net loan recoveries (charge-offs)$196  $(926)(1)$(492) $(750)(1)$(777)(1)
Net loan charge-offs to average total loans
(annualized)
 NM*  0.06% 0.03% 0.05% 0.06% 
Net charge-off detail - (loss) recovery:          
Commercial$256  $(58) $(58) $(871) $(246) 
Residential real estate12  (728) (425) 210  (478) 
Home equity loans and lines(10) (121) (4) (62) (35) 
Other consumer(62) (19) (5) (27) (18) 
Net loan recoveries (charge-offs)$196  $(926)(1)$(492) $(750)(1)$(777)(1)


(1)Included in net loan charge-offs for the three months ended June 30 2019, December 31, 2018 and September 30, 2018 are $429, $243, and $430, respectively, relating to under-performing loans sold.
  
*Not Meaningful
  

OceanFirst Financial Corp.
ANALYSIS OF NET INTEREST INCOME

 For the Three Months Ended
 September 30, 2019 June 30, 2019  September 30, 2018    
(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$40,932  $264  2.56% $67,214  $372  2.22% $37,354  $172  1.83%
Securities (1)1,039,560  6,908  2.64  1,080,690  7,121  2.64  1,080,784  6,713  2.46 
Loans receivable, net (2)                 
Commercial3,350,868  42,104  4.99  3,309,869  42,579  5.16  3,101,665  38,726  4.95 
Residential2,225,837  21,527  3.87  2,187,417  22,329  4.08  2,027,880  20,438  4.03 
Home Equity335,691  4,678  5.53  347,028  4,656  5.38  361,127  4,628  5.08 
Other104,310  1,406  5.35  113,153  1,353  4.80  52,764  705  5.30 
Allowance for loan loss net of deferred loan fees(8,381)     (9,155)     (9,350)    
Loans Receivable, net6,008,325  69,715  4.60  5,948,312  70,917  4.78  5,534,086  64,497  4.62 
Total interest-earning assets7,088,817  76,887  4.30  7,096,216  78,410  4.43  6,652,224  71,382  4.26 
Non-interest-earning assets984,421      972,683      916,406     
Total assets$8,073,238      $8,068,899      $7,568,630     
Liabilities and Stockholders’ Equity:                 
Interest-bearing liabilities:                 
Interest-bearing checking$2,467,879  4,311  0.69% $2,504,541  4,240  0.68% $2,300,270  2,313  0.40%
Money market597,896  1,208  0.80  631,297  1,358  0.86  578,446  680  0.47 
Savings905,605  300  0.13  915,701  301  0.13  896,682  265  0.12 
Time deposits920,032  3,998  1.72  934,470  3,863  1.66  864,264  2,541  1.17 
Total4,891,412  9,817  0.80  4,986,009  9,762  0.79  4,639,662  5,799  0.50 
FHLB Advances394,124  2,208  2.22  404,951  2,320  2.30  475,536  2,542  2.12 
Securities sold under agreements to repurchase62,296  73  0.46  62,243  64  0.41  61,336  41  0.27 
Other borrowings96,578  1,397  5.74  99,591  1,427  5.75  99,438  1,496  5.97 
Total interest-bearing liabilities5,444,410  13,495  0.98  5,552,794  13,573  0.98  5,275,972  9,878  0.74 
Non-interest-bearing deposits1,396,259      1,302,147      1,210,650     
Non-interest-bearing liabilities88,868      82,793      61,272     
Total liabilities6,929,537      6,937,734      6,547,894     
Stockholders’ equity1,143,701      1,131,165      1,020,736     
Total liabilities and equity$8,073,238      $8,068,899      $7,568,630     
Net interest income  $63,392      $64,837      $61,504   
Net interest rate spread (3)    3.32%     3.45%     3.52%
Net interest margin (4)    3.55%     3.66%     3.67%
Total cost of deposits (including non-interest-bearing deposits)    0.62%     0.62%     0.39%


 For the Nine Months Ended
 September 30, 2019
 September 30, 2018
 Average
Balance
 Interest Average
Yield/
Cost
 Average
Balance
 Interest Average
Yield/
Cost
(dollars in thousands)           
Assets:           
Interest-earning assets:           
Interest-earning deposits and short-term investments$62,543  $1,103  2.36% $48,562  $660  1.82%
Securities (1)1,062,366  20,983  2.64  1,085,725  19,407  2.39 
Loans receivable, net (2)           
Commercial3,291,189  126,091  5.12  2,995,847  110,920  4.95 
Residential2,169,611  65,260  4.01  1,941,594  59,117  4.06 
Home Equity345,294  14,041  5.44  357,490  13,335  4.99 
Other112,162  4,241  5.06  20,796  857  5.51 
Allowance for loan loss net of deferred loan fees(9,200)     (10,233)    
Loans Receivable, net5,909,056  209,633  4.74  5,305,494  184,229  4.64 
Total interest-earning assets7,033,965  231,719  4.40  6,439,781  204,296  4.24 
Non-interest-earning assets960,709      877,642     
Total assets$7,994,674      $7,317,423     
Liabilities and Stockholders’ Equity:           
Interest-bearing liabilities:           
Interest-bearing checking$2,501,660  12,343  0.66% $2,313,012  6,099  0.35%
Money market610,153  3,676  0.81  567,575  1,924  0.45 
Savings908,457  887  0.13  876,695  727  0.11 
Time deposits928,903  11,312  1.63  862,555  6,760  1.05 
Total4,949,173  28,218  0.76  4,619,837  15,510  0.45 
FHLB Advances379,786  6,367  2.24  391,956  5,954  2.03 
Securities sold under agreements to repurchase63,267  192  0.41  68,173  125  0.25 
Other borrowings98,562  4,325  5.87  93,046  4,046  5.81 
Total interest-bearing liabilities5,490,788  39,102  0.95  5,173,012  25,635  0.66 
Non-interest-bearing deposits1,303,447      1,121,695     
Non-interest-bearing liabilities75,988      55,881     
Total liabilities6,870,223      6,350,588     
Stockholders’ equity1,124,451      966,835     
Total liabilities and equity$7,994,674      $7,317,423     
Net interest income  $192,617      $178,661   
Net interest rate spread (3)    3.45%     3.58%
Net interest margin (4)    3.66%     3.71%
Total cost of deposits (including non-interest-bearing deposits)    0.60%     0.36%


(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.
  

Certain amounts previously reported have been reclassified to conform to the current year’s presentation.

OceanFirst Financial Corp.
SELECTED QUARTERLY FINANCIAL DATA
(in thousands, except per share amounts)

 September 30, June 30, March 31, December 31, September 30,
 2019 2019 2019 2018 2018
          
Selected Financial Condition Data:         
Total assets$8,135,173  $8,029,057  $8,092,948  $7,516,154  $7,562,589 
Debt securities available-for-sale, at estimated fair value127,308  123,610  122,558  100,717  100,015 
Debt securities held-to-maturity, net819,253  863,838  900,614  846,810  883,540 
Equity investments, at estimated fair value10,145  10,002  9,816  9,655  9,519 
Restricted equity investments, at cost62,095  59,425  55,663  56,784  57,143 
Loans receivable, net6,081,938  5,943,930  5,968,830  5,579,222  5,543,959 
Deposits6,220,855  6,187,487  6,290,485  5,814,569  5,854,250 
Federal Home Loan Bank advances512,149  453,646  418,016  449,383  456,806 
Securities sold under agreements to repurchase and other borrowings161,734  158,619  165,753  161,290  160,517 
Stockholders’ equity1,144,528  1,137,295  1,127,163  1,039,358  1,029,844 


 For the Three Months Ended,
 September 30,
 June 30,
 March 31,
 December 31,
 September 30,
 2019
 2019
 2019
 2018
 2018
Selected Operating Data:              
Interest income$76,887  $78,410  $76,422  $72,358  $71,382 
Interest expense13,495  13,573  12,034  10,517  9,878 
Net interest income63,392  64,837  64,388  61,841  61,504 
Provision for loan losses305  356  620  506  907 
Net interest income after provision for loan losses63,087  64,481  63,768  61,335  60,597 
Other income11,543  9,879  9,512  8,748  8,285 
Operating expenses40,884  43,289  41,827  37,794  37,503 
Branch consolidation expense1,696  6,695  391  240  1,368 
Merger related expenses777  931  5,053  1,048  662 
Income before provision for income taxes31,273  23,445  26,009  31,001  29,349 
Provision for income taxes6,302  4,465  4,836  4,269  5,278 
Net income$24,971  $18,980  $21,173  $26,732  $24,071 
Diluted earnings per share$0.49  $0.37  $0.42  $0.55  $0.50 
Net accretion/amortization of purchase accounting adjustments included in net interest income$2,769  $3,663  $4,027  $3,918  $4,036 

(continued)

 At or For the Three Months Ended
 September 30,
 June 30,
 March 31,
 December 31,
 September 30,
 2019
 2019
 2019
 2018
 2018
Selected Financial Ratios and Other Data(1):              
               
Performance Ratios (Annualized):              
Return on average assets (2)1.23% 0.94% 1.10% 1.41% 1.26%
Return on average stockholders’ equity (2)8.66  6.73  7.82  10.24  9.36 
Return on average tangible stockholders’ equity (2) (3)13.18  10.32  11.97  15.60  14.39 
Stockholders’ equity to total assets14.07  14.16  13.93  13.83  13.62 
Tangible stockholders’ equity to tangible assets (3)9.73  9.76  9.53  9.55  9.35 
Net interest rate spread3.32  3.45  3.59  3.54  3.52 
Net interest margin3.55  3.66  3.78  3.71  3.67 
Operating expenses to average assets (2)2.13  2.53  2.45  2.07  2.07 
Efficiency ratio (2) (4)57.86  68.14  63.97  55.37  56.65 
Loans to deposits97.77  96.06  94.89  95.95  94.70 


 For the Nine Months Ended September 30,
 2019 2018
Performance Ratios (Annualized):   
Return on average assets (2)1.09% 0.83%
Return on average stockholders’ equity (2)7.74  6.25 
Return on average tangible stockholders’ equity (2) (3)11.83  9.56 
Net interest rate spread3.45  3.58 
Net interest margin3.66  3.71 
Operating expenses to average assets (2)2.37  2.69 
Efficiency ratio (2) (4)63.32  71.92 

(continued)

 At or For the Three Months Ended
 September 30, June 30, March 31, December 31, September 30,
 2019 2019 2019 2018 2018
Trust and Asset Management:                   
Wealth assets under administration$194,137  $199,554  $200,130  $184,476  $209,796 
Nest Egg23,946  9,755  4,052     
Per Share Data:         
Cash dividends per common share$0.17  $0.17  $0.17  $0.17  $0.15 
Stockholders’ equity per common share at end of  period22.57  22.24  22.00  21.68  21.29 
Tangible stockholders’ equity per common share at end of period (3)14.86  14.57  14.32  14.26  13.93 
Common shares outstanding at end of period 50,700,586   51,131,804   51,233,944  47,951,168  48,382,370 
Number of full-service customer facilities:56  60  63  59  59 
Quarterly Average Balances         
Total securities$1,039,560  $1,080,690  $1,067,150  $1,037,039  $1,080,784 
Loans, receivable, net6,008,325  5,948,312  5,767,887  5,523,745  5,534,086 
Total interest-earning assets7,088,817  7,096,216  6,914,948  6,613,807  6,652,224 
Total assets8,073,238  8,068,899  7,839,316  7,504,111  7,568,630 
Interest-bearing transaction deposits3,971,380  4,051,539  4,036,584  3,871,134  3,775,398 
Time deposits920,032  934,470  932,341  848,361  864,264 
Total borrowed funds552,998  566,785  504,498  514,628  636,310 
Total interest-bearing liabilities5,444,410  5,552,794  5,473,423  5,234,123  5,275,972 
Non-interest bearing deposits1,396,259  1,302,147  1,211,934  1,177,321  1,210,650 
Stockholders’ equity1,143,701  1,131,165  1,097,984  1,035,962  1,020,736 
Total deposits6,287,671  6,288,156  6,180,859  5,896,816  5,850,312 
Quarterly Yields         
Total securities2.64% 2.64% 2.64% 2.60% 2.46%
Loans, receivable, net4.60  4.78  4.85  4.69  4.62 
Total interest-earning assets4.30  4.43  4.48  4.34  4.26 
Interest-bearing transaction deposits0.58  0.58  0.52  0.44  0.34 
Time deposits1.72  1.66  1.50  1.31  1.17 
Borrowed funds2.64  2.70  2.73  2.66  2.54 
Total interest-bearing liabilities0.98  0.98  0.89  0.80  0.74 
Net interest spread3.32  3.45  3.59  3.54  3.52 
Net interest margin3.55  3.66  3.78  3.71  3.67 
Total deposits0.62  0.62  0.57  0.48  0.39 


(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 expenses, branch consolidation expenses, non-recurring professional fees, compensation expense due to the retirement of an executive officer and the impact to income tax expense related to Tax Reform. Refer to Other Items - Non-GAAP Reconciliation for impact of these items.
(3)Tangible stockholders’ equity and tangible assets exclude intangible assets relating to goodwill and core deposit intangible.
(4)Efficiency ratio represents the ratio of operating expenses to the aggregate of other income and net interest income.
  

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

NON-GAAP RECONCILIATION

 For the Three Months Ended
 September 30,
 June 30,
 March 31,
 December 31,
 September 30,
 2019
 2019
 2019
 2018
 2018
Core earnings:                   
Net income$24,971  $18,980  $21,173  $26,732  $24,071 
Non-recurring items:                   
Add:  Merger related expenses777  931  5,053  1,048  662 
Branch consolidation expenses1,696  6,695  391  240  1,368 
Non-recurring professional fees750         
Compensation expense due to the retirement of an executive officer  1,256       
Income tax benefit related to Tax Reform      (1,854)  
Less:  Income tax expense on items(663) (1,867) (1,039) (130) (426)
Core earnings$27,531  $25,995  $25,578  $26,036  $25,675 
Core diluted earnings per share$0.54  $0.51  $0.51  $0.54  $0.53 
          
Core ratios (Annualized):         
Return on average assets1.35% 1.29% 1.32% 1.38% 1.35%
Return on average tangible stockholders’ equity14.53  14.14  14.46  15.19  15.35 
Efficiency ratio53.56  56.26  56.60  53.54  53.74 


 For the Nine Months Ended September 30,
 2019
 2018
Core earnings:       
Net income$65,124  $45,200 
Non-recurring items:       
Add:  Merger related expenses6,761  25,863 
Branch consolidation expenses8,782  2,911 
Non-recurring professional fees750   
Compensation expense due to the retirement of an executive officer1,256   
Less:  Income tax expense on items(3,569) (5,861)
Core earnings$79,104  $68,113 
Core diluted earnings per share$1.56  $1.44 
    
Core ratios (Annualized):   
Return on average assets1.32% 1.24%
Return on average tangible stockholders’ equity14.37  14.40 
Efficiency ratio55.47  57.87 
      

(continued)

COMPUTATION OF TOTAL TANGIBLE EQUITY TO TOTAL TANGIBLE ASSETS

 September 30, June 30, March 31, December 31, September 30,
 2019 2019 2019 2018 2018
Total stockholders’ equity$1,144,528  $1,137,295  $1,127,163  $1,039,358  $1,029,844 
Less:                   
Goodwill374,537  374,592  375,096  338,442  338,104 
Core deposit intangible16,605  17,614  18,629  16,971  17,954 
Tangible stockholders’ equity$753,386  $745,089  $733,438  $683,945  $673,786 
          
Total assets$8,135,173  $8,029,057  $8,092,948  $7,516,154  $7,562,589 
Less:         
Goodwill374,537  374,592  375,096  338,442  338,104 
Core deposit intangible16,605  17,614  18,629  16,971  17,954 
Tangible assets$7,744,031  $7,636,851  $7,699,223  $7,160,741  $7,206,531 
Tangible stockholders’ equity to tangible assets9.73% 9.76% 9.53% 9.55% 9.35%
               

(continued)

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 Capital Bank, net of the total consideration paid (in thousands):

 At January 31, 2019
 Capital Bank
Book Value
 Purchase
Accounting
Adjustments
 Estimated Fair
Value
Total Purchase Price:    $76,834 
Assets acquired:     
Cash and cash equivalents$59,748  $  $59,748 
Securities103,798  (23) 103,775 
Loans312,320  (4,542) 307,778 
Accrued interest receivable1,387  3  1,390 
Bank Owned Life Insurance10,460    10,460 
Deferred tax asset1,605  2,224  3,829 
Other assets9,384  (4,277) 5,107 
Core deposit intangible  2,662  2,662 
Total assets acquired498,702  (3,953) 494,749 
Liabilities assumed:     
Deposits(448,792) (226) (449,018)
Other liabilities(827) (4,188) (5,015)
Total liabilities assumed(449,619) (4,414) (454,033)
Net assets acquired$49,083  $(8,367) $40,716 
Goodwill recorded in the merger    $36,118 
        

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