RED BANK, N.J., Jan. 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 $26.7 million, or $0.55 per diluted share, for the quarter ended December 31, 2018, as compared to $10.0 million, or $0.30 per diluted share, for the corresponding prior year quarter. For the year ended December 31, 2018, net income was $71.9 million, or $1.51 per diluted share, as compared to $42.5 million, or $1.28 per diluted share, for the corresponding prior year period.

The results of operations for the quarter and year ended December 31, 2018 include merger related expenses, branch consolidation expenses and a reduction of income tax expense from the revaluation of the Company’s deferred tax asset as a result of the Tax Cuts and Jobs Act (“Tax Reform”). These items increased net income, net of tax, by $696,000 for the quarter and decreased net income, net of tax, by $22.2 million, for the year. Excluding these items, core earnings for the quarter and year ended December 31, 2018 were $26.0 million, or $0.54 per diluted share, and $94.1 million, or $1.98 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 and the impact of Tax Reform).

Highlights for the quarter are described below:

  • Achieved record quarterly core earnings, with core diluted earnings per share increasing 20% over the corresponding prior year quarter.
  • Return on average assets for the quarter ended December 31, 2018 was 1.41% and return on average tangible stockholders equity was 15.60%, while core return on average assets was 1.38% and core return on average tangible stockholders equity was 15.19%, representing increases of 27% and 14%, respectively, compared to the corresponding prior year period.
  • The Company’s net interest margin increased to 3.68%, as compared to 3.64% in the prior linked quarter, and 3.42% in the comparable prior year period.
  • Asset quality improved from the linked quarter as non-performing loans decreased $1.8 million, to $17.4 million, or 0.31% of total loans, and other real estate owned decreased $4.9 million, to $1.4 million.

“The Company delivered strong results for the quarter with continued growth in core earnings per share,” said Chairman and Chief Executive Officer, Christopher D. Maher. Mr. Maher added, “We are pleased to report core earnings of $26.0 million and core diluted earnings per share of $0.54. Our asset quality remains strong with declining non-performing loans and modest net charge-offs. The merger with Capital Bank of New Jersey has received regulatory approval and the approval of Capital’s shareholders and is scheduled to close on January 31, 2019. We look forward to welcoming Capital Bank customers, employees, and stockholders into the growing OceanFirst family.”

On October 25, 2018, the Company announced the execution of a definitive agreement and plan of merger (the “merger agreement”) with Capital Bank of New Jersey (“Capital Bank”). On January 23, 2019, Capital Bank received their requisite stockholder approval for the merger. Regulatory approval of the merger was received from the Office of the Comptroller of the Currency on December 19, 2018. Subject to the fulfillment of other customary closing conditions, the Company expects to close the transaction on January 31, 2019, and anticipates the full integration of Capital Bank’s branches and core operating systems in the second quarter of 2019.

The Company expects to consolidate three branches in the second quarter, primarily as a result of the merger. The branch consolidation will improve operating efficiency while also funding continued investment in commercial banking and electronic delivery channels. The Company expects to identify at least four additional branches for consolidation early in the third quarter of 2019.

The Company also announced that the Company’s Board of Directors declared its eighty-eighth consecutive quarterly cash dividend on common stock.  The dividend, for the quarter ended December 31, 2018, of $0.17 per share will be paid on February 15, 2019 to stockholders of record on February 4, 2019.

Board of Directors Appointment
The Company announced that on January 23, 2019 it appointed Grace Vallacchi, the Executive Vice President and Chief Risk Officer of the Company and the Bank, to the Boards of Directors of the Company and the Bank, effective immediately.  Ms. Vallacchi will retain her Executive Vice President and Chief Risk Officer positions with the Company and the Bank, and will now report directly to Chairman, President and Chief Executive Officer Christopher D. Maher.  Prior to joining OceanFirst, Ms. Vallacchi was an Associate Deputy Comptroller in the Northeastern District of the Office of the Comptroller of the Currency, where she had oversight over seven Assistant Deputy Controllers with over 180 examiners supervising 120 community banks and thrifts.  Chairman and Chief Executive Officer Christopher D. Maher said, “Grace has made a tremendous impact on OceanFirst’s risk management and she will bring valuable insight to the Board.  We look forward to her contributions as a Board member.”

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 December 31, 2018 are included in the consolidated results for the quarter and year ended December 31, 2018, but are not included in the results of operations for the corresponding prior year periods.

Net income for the quarter ended December 31, 2018, was $26.7 million, or $0.55 per diluted share, as compared to $10.0 million, or $0.30 per diluted share, for the corresponding prior year period. Net income for the year ended December 31, 2018, was $71.9 million, or $1.51 per diluted share, as compared to $42.5 million, or $1.28 per diluted share, for the corresponding prior year period.  Net income for the quarter and year ended December 31, 2018 included merger related expenses, branch consolidation expenses, and a reduction of income tax expense from the revaluation of deferred tax assets as a result of Tax Reform, which increased net income, net of tax, by $696,000 for the quarter and decreased net income, net of tax, by $22.2 million, for the year. Net income for the quarter and year ended December 31, 2017 included merger related expenses, branch consolidation expenses, and additional income tax expense related to Tax Reform, which decreased net income, net of tax, by $4.9 million and $13.5 million, respectively. Excluding these items, net income for the quarter and year ended December 31, 2018 increased over the prior year periods primarily due to the acquisitions 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 quarter and year ended December 31, 2018 increased to $61.8 million and $240.5 million, respectively, as compared to $42.5 million and $169.2 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 $1.735 billion and $1.704 billion for the quarter and year ended December 31, 2018, respectively, as compared to the same prior year periods. The averages for the quarter and year ended December 31, 2018, were favorably impacted by $1.569 billion and $1.511 billion, respectively, of interest-earning assets acquired from Sun. Average loans receivable, net, increased by $1.626 billion and $1.505 billion for the quarter and year ended December 31, 2018, respectively, as compared to the same prior year periods. The increases attributable to the acquisition of Sun were $1.335 billion and $1.290 billion, respectively. The net interest margin for both the quarter and year ended December 31, 2018 increased to 3.68%, from 3.42% and 3.50%, respectively, for the same prior year periods. The net interest margin benefited from the accretion of purchase accounting adjustments on the Sun acquisition of $2.5 million and $10.7 million for the quarter and year ended December 31, 2018, respectively; and to a lesser extent from the impact of Federal Reserve interest rate increases. For the quarter and the year ended December 31, 2018, the cost of average interest-bearing liabilities increased to 0.80% and 0.70%, respectively, from 0.54% and 0.50%, respectively, in the corresponding prior year periods.  The total cost of deposits (including non-interest bearing deposits) was 0.48% and 0.39% for the quarter and year ended December 31, 2018, respectively, as compared to 0.32% and 0.29%, respectively, for the corresponding prior year periods.

Net interest income for the quarter ended December 31, 2018, increased $337,000, as compared to the prior linked quarter, as the net interest margin increased to 3.68% for the quarter ended December 31, 2018, as compared to 3.64% for the prior linked quarter. The total cost of deposits (including non-interest bearing deposits) was 0.48% for the quarter ended December 31, 2018, as compared to 0.39% for the quarter ended September 30, 2018.

For the quarter and year ended December 31, 2018, the provision for loan losses was $506,000 and $3.5 million, respectively, as compared to $1.4 million and $4.4 million, respectively, for the corresponding prior year periods, and $907,000 in the prior linked quarter.  Net loan charge-offs were $750,000 and $2.6 million for the quarter and year ended December 31, 2018, respectively, as compared to net loan charge-offs of $2.3 million and $3.9 million, respectively, in the corresponding prior year periods, and net loan charge-offs of $777,000 in the prior linked quarter. Non-performing loans totaled $17.4 million at December 31, 2018, as compared to $19.2 million at September 30, 2018, and $20.9 million at December 31, 2017.

For the quarter and year ended December 31, 2018, other income increased to $8.7 million and $34.8 million, respectively, as compared to $6.7 million and $27.1 million, respectively, for the corresponding prior year periods. The increases were primarily due to the impact of the Sun acquisition, which added $1.9 million and $8.0 million to other income for the quarter and year ended December 31, 2018, respectively, as compared to the same prior year periods. Excluding the Sun acquisition, the slight increase in other income for the quarter ended December 31, 2018, was primarily due to increases in bankcard fees and other income, partially offset by a decrease in rental income and  an increase in loss from other real estate operations. For the year ended December 31, 2018, excluding the Sun acquisition, the slight decrease in other income was primarily due to an increase in the loss from real estate operations of $2.9 million, of which $1.7 million related to the year-to-date write-down and sale of a hotel, golf and banquet facility, offset by increases in bankcard fees of $852,000 and service charges of $700,000, mostly related to deposit fees, an increase in the gain on sales of loans of $568,000, mostly related to the sale of one non-performing commercial loan relationship during the first quarter of 2018 and an increase in other income of $653,000.

For the quarter ended December 31, 2018, other income increased $463,000, as compared to the prior linked quarter. The increase was primarily due to a decrease in the loss from other real estate operations of $745,000, an increase in fees and service charges of $175,000, an increase in the net unrealized gain on equity securities of $153,000, and an increase in bankcard revenue of $86,000, partially offset by the decrease in net fees on loan level interest rate swap transactions of $689,000.

Operating expenses increased to $39.1 million and $186.3 million for the quarter and year ended December 31, 2018, respectively, as compared to $27.7 million and $126.5 million, respectively, in the same prior year periods. Operating expenses for the quarter and year ended December 31, 2018 included $1.3 million and $30.1 million, respectively, of merger related and branch consolidation expenses, as compared to $1.3 million and $14.5 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 $7.7 million and $35.2 million for the quarter and year ended December 31, 2018, respectively. Excluding the Sun acquisition, the remaining increase in operating expenses for the quarter ended December 31, 2018 over the prior year period was primarily due to increases in compensation and employee benefits expense of $844,000, service bureau expense of $658,000, marketing expense of $505,000 and occupancy expense of $453,000. Excluding the Sun acquisition, the remaining increase in operating expenses for the year ended December 31, 2018 over the prior year period was primarily due to increases in compensation and employee benefits expense of $4.0 million as a result of higher incentive and stock plan expenses, occupancy expenses of $1.6 million, service bureau expense of $1.5 million, equipment expense of $657,000, and marketing expenses of $589,000.

For the quarter ended December 31, 2018, operating expenses, excluding merger and branch consolidation expenses, increased $291,000, as compared to the prior linked quarter.  The increase was primarily due to check card processing expense of $506,000 and increases in branch administration expense and equipment expense, offset by decreases in compensation and employee benefits expense of $748,000.

The provision for income taxes was $4.3 million and $13.6 million for the quarter and year ended December 31, 2018, respectively, as compared to $10.2 million and $22.9 million, respectively, for the same prior year periods. The effective tax rate was 13.8% and 15.9% for the quarter and year ended December 31, 2018, respectively, as compared to 50.6% and 35.0%, respectively, for the same prior year periods. The lower effective tax rate for the quarter and year ended December 31, 2018 was due to Tax Reform which lowered the Company’s statutory tax rate in 2018. Additionally, Tax Reform required the Company to revalue its deferred tax asset, resulting in a tax benefit of $1.9 million, for the quarter and year ended December 31, 2018, and a tax expense of $3.6 million for the quarter ended December 31, 2017. Excluding the impact of Tax Reform, the effective tax rate for the quarter and year ended December 31, 2018 was 19.8% and 18.0%, respectively, as compared to 32.5% and 29.4%, respectively for the same prior year periods.

Financial Condition
Total assets increased by $2.100 billion to $7.516 billion at December 31, 2018, from $5.416 billion at December 31, 2017, primarily as a result of the acquisition of Sun, which added $2.044 billion to total assets. Restricted equity investments increased by $37.1 million, to $56.8 million at December 31, 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 $1.613 billion, to $5.579 billion at December 31, 2018, from $3.966 billion at December 31, 2017, primarily due to acquired loans of $1.517 billion as well as purchased loans totaling $197.0 million. As part of the acquisition of Sun, the Company’s goodwill balance increased to $338.4 million at December 31, 2018, from $150.5 million at December 31, 2017, and the core deposit intangible increased to $17.0 million at December 31, 2018, from $8.9 million at December 31, 2017.

Deposits increased by $1.472 billion, to $5.815 billion at December 31, 2018, from $4.343 billion at December 31, 2017, due to acquired deposits of $1.616 billion. The loan-to-deposit ratio at December 31, 2018 was 96.0%, as compared to 91.3% at December 31, 2017. Federal Home Loan Bank advances increased by $160.7 million, to $449.4 million at December 31, 2018, from $288.7 million at December 31, 2017 due to the acquisition of Sun and to fund loan growth.

Stockholders’ equity increased to $1.039 billion at December 31, 2018, as compared to $601.9 million at December 31, 2017. The acquisition of Sun added $402.6 million to stockholders’ equity. At December 31, 2018, there were 1.3 million shares available for repurchase under the Company’s stock repurchase programs. During the year ended December 31, 2018, the Company repurchased 459,251 shares under these repurchase programs. During 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 increased to $14.26 at December 31, 2018, as compared to $13.58 at December 31, 2017.

Asset Quality
The Company’s non-performing loans decreased to $17.4 million at December 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 during the first quarter of 2018. Non-performing loans do not include $8.9 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 $1.4 million at December 31, 2018, as compared to $8.2 million at December 31, 2017. The decrease was primarily due to the sale of a hotel, golf, and banquet facility.

At December 31, 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 $31.6 million at December 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 95.2% at December 31, 2018, as compared to 75.4% 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 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.

Annual Meeting
The Company also announced today that its Annual Meeting of Stockholders will be held on Wednesday, May 29, 2019 at 6:00 p.m. Eastern time, at the OceanFirst Bank Administrative Offices located at 110 West Front Street, Red Bank, New Jersey. The record date for stockholders to vote at the Annual Meeting is April 10, 2019.

Conference Call
As previously announced, the Company will host an earnings conference call on Friday, January 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 10127192 from one hour after the end of the call until April 25, 2019.  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 $7.5 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)
       
  December 31, 2018 September 30, 2018 December 31, 2017
  (Unaudited) (Unaudited)  
Assets      
Cash and due from banks $120,792  $148,362  $109,613 
Debt securities available-for-sale, at estimated fair value 100,717  100,015  81,581 
Debt securities held-to-maturity, net (estimated fair value of $832,815 at December 31, 2018, $864,173 at September 30, 2018, and $761,660 at December 31, 2017) 846,810  883,540  764,062 
Equity investments, at estimated fair value 9,655  9,519  8,700 
Restricted equity investments, at cost 56,784  57,143  19,724 
Loans receivable, net 5,579,222  5,543,959  3,965,773 
Loans held-for-sale —  732  241 
Interest and dividends receivable 19,689  20,822  14,254 
Other real estate owned 1,381  6,231  8,186 
Premises and equipment, net 111,209  112,320  101,776 
Bank Owned Life Insurance 222,482  221,190  134,847 
Deferred tax asset 63,377  59,052  1,922 
Assets held for sale 4,522  7,552  4,046 
Other assets 24,101  36,094  41,895 
Core deposit intangible 16,971  17,954  8,885 
Goodwill 338,442  338,104  150,501 
Total assets $7,516,154  $7,562,589  $5,416,006 
Liabilities and Stockholders’ Equity      
Deposits $5,814,569  $5,854,250  $4,342,798 
Federal Home Loan Bank advances 449,383  456,806  288,691 
Securities sold under agreements to repurchase with retail customers 61,760  61,044  79,668 
Other borrowings 99,530  99,473  56,519 
Advances by borrowers for taxes and insurance 14,066  16,654  11,156 
Other liabilities 37,488  44,518  35,233 
Total liabilities 6,476,796  6,532,745  4,814,065 
Total stockholders’ equity 1,039,358  1,029,844  601,941 
Total liabilities and stockholders’ equity $7,516,154  $7,562,589  $5,416,006 
             


           
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
           
  For the Three Months Ended, For the Year Ended
  December 31, September 30, December 31, December 31,
  2018 2018 2017 2018 2017
 |---------------------- (Unaudited) -----------------------| (Unaudited)  
Interest income:          
Loans $65,320  $64,497  $42,909  $249,549  $170,588 
Mortgage-backed securities 3,947  4,105  2,919  16,034  11,108 
Investment securities and other 3,091  2,780  2,078  11,071  7,133 
Total interest income 72,358  71,382  47,906  276,654  188,829 
Interest expense:          
Deposits 7,068  5,799  3,515  22,578  12,336 
Borrowed funds 3,449  4,079  1,886  13,574  7,275 
Total interest expense 10,517  9,878  5,401  36,152  19,611 
Net interest income 61,841  61,504  42,505  240,502  169,218 
Provision for loan losses 506  907  1,415  3,490  4,445 
Net interest income after provision for loan losses 61,335  60,597  41,090  237,012  164,773 
Other income:          
Bankcard services revenue 2,511  2,425  1,764  9,228  6,965 
Wealth management revenue 524  573  528  2,245  2,150 
Fees and services charges 4,910  4,735  3,891  19,461  15,058 
Net gain on sales of loans 14  31  26  668  100 
Net unrealized gain (loss) on equity investments 83  (70) —  (199) — 
Net loss from other real estate operations (837) (1,582) (678) (3,812) (874)
Income from Bank Owned Life Insurance 1,292  1,337  863  5,105  3,299 
Other 251  836  351  2,131  374 
Total other income 8,748  8,285  6,745  34,827  27,072 
Operating expenses:          
Compensation and employee benefits 18,946  19,694  13,961  83,135  60,100 
Occupancy 4,333  4,443  2,693  17,915  10,657 
Equipment 2,315  2,067  1,763  8,319  6,769 
Marketing 940  1,021  433  3,415  2,678 
Federal deposit insurance 856  927  485  3,713  2,564 
Data processing 3,318  3,125  2,040  13,286  8,849 
Check card processing 1,305  799  922  4,209  3,561 
Professional fees 1,217  1,066  1,094  4,963  3,995 
Other operating expense 3,581  3,366  2,548  13,509  10,810 
Amortization of core deposit intangible 983  995  495  3,811  2,039 
Branch consolidation expense 240  1,368  (734) 3,151  6,205 
Merger related expenses 1,048  662  1,993  26,911  8,293 
Total operating expenses 39,082  39,533  27,693  186,337  126,520 
Income before provision for income taxes 31,001  29,349  20,142  85,502  65,325 
Provision for income taxes 4,269  5,278  10,186  13,570  22,855 
Net income $26,732  $24,071  $9,956  $71,932  $42,470 
Basic earnings per share $0.56  $0.50  $0.31  $1.54  $1.32 
Diluted earnings per share $0.55  $0.50  $0.30  $1.51  $1.28 
Average basic shares outstanding 47,709  47,685  32,225  46,773  32,113 
Average diluted shares outstanding 48,411  48,572  33,168  47,657  33,125 
                


                      
OceanFirst Financial Corp.
SELECTED LOAN AND DEPOSIT DATA
(dollars in thousands)
                      
LOANS RECEIVABLE   At 
    December 31,
 2018		   September 30,
2018		   June 30,
2018		   March 31,
2018		   December 31,
2017		 
Commercial:                     
Commercial and industrial  $304,996  $343,121  $338,436  $370,711  $187,645 
Commercial real estate - owner-occupied 740,893  735,289  717,061  763,261  569,624 
Commercial real estate - investor   2,023,131  2,019,859  2,076,930  2,034,708  1,187,482 
Total commercial  3,069,020  3,098,269  3,132,427  3,168,680  1,944,751 
Consumer:           
Residential real estate  2,044,523  2,020,155  2,013,389  1,882,981  1,748,925 
Home equity loans and lines  353,609  359,094  365,448  371,340  281,143 
Other consumer  121,561  74,555  50,952  1,844  1,295 
Total consumer  2,519,693  2,453,804  2,429,789  2,256,165  2,031,363 
Total loans  5,588,713  5,552,073  5,562,216  5,424,845  3,976,114 
Deferred origination costs, net 7,086  8,707  7,510  5,752  5,380 
Allowance for loan losses  (16,577) (16,821) (16,691) (16,817) (15,721)
Loans receivable, net  $5,579,222  $5,543,959  $5,553,035  $5,413,780  $3,965,773 
Mortgage loans serviced for others   $95,100  $106,369  $105,116  $109,273  $121,662 
 At December 31, 2018
Average Yield		          
Loan pipeline (1):           
Commercial5.22% $129,839
  $137,519  $166,178  $71,982  $53,859 
Residential real estate4.45  49,800  64,841  64,259  73,513  43,482 
Home equity loans and lines5.14  6,571  11,030  9,240  11,338  7,412 
Total5.01% $186,210  $213,390  $239,677  $156,833  $104,753 


 For the Three Months Ended 
 December 31,
 2018		 September 30,
2018		 June 30,
2018		 March 31,
2018		 December 31,
2017		 
 Average Yield           
Loan originations:            
Commercial5.39% $151,851  $136,764  $67,297  $59,150  $141,346  
Residential real estate4.36  92,776  124,419  109,357  68,835  73,729  
Home equity loans and lines5.19  15,583  17,892  20,123  14,891  18,704  
Total5.01% $260,210 (2)$279,075 (3)$196,777 (5)$142,876  $233,779  
Loans sold  $728 (4)$1,349 (4)$422  $241 (6)$1,422 (4)

(1)  Loan pipeline includes pending loan applications and loans approved but not funded.
(2)  Excludes purchased loans of $49.5 million for other consumer and $753,000 for residential real estate.
(3)  Excludes purchased loans of $25.0 million for other consumer.
(4)  Excludes the sale of under-performing commercial loans of $1.7 million and under-performing residential loans of $5.1 million and $5.8 million for the three months ended December 31, 2018, September 30, 2018,  and December 31, 2017, respectively.
(5)  Excludes purchased loans of $23.6 million for commercial, $49.0 million for residential real estate, and $49.1 million for other consumer.
(6)  Excludes the sale of SBA loans acquired from Sun and under-performing loans totaling $8.5 million.

   
DEPOSITSAt 
  December 31,
 2018		   September 30,
2018		   June 30,
2018		   March 31,
2018		   December 31,
2017		 
                    
Type of Account                   
Non-interest-bearing$1,151,362  $1,196,875  $1,195,980  $1,117,100  $756,513 
Interest-bearing checking2,350,106  2,332,215  2,265,971  2,330,682  1,954,358 
Money market deposit569,680  584,250  574,269  613,183  363,656 
Savings877,177  887,799  903,777  917,288  661,167 
Time deposits866,244  853,111  879,409  929,083  607,104 
 $5,814,569  $5,854,250  $5,819,406  $5,907,336  $4,342,798 
                    


                    
OceanFirst Financial Corp.
ASSET QUALITY
(dollars in thousands)
                    
ASSET QUALITY December 31,
 2018		   September 30,
2018		   June 30,
2018		   March 31,
2018		   December 31,
2017		 
Non-performing loans:                   
Commercial and industrial$1,587  $1,727  $1,947  $1,717  $503 
Commercial real estate - owner-occupied501  511  522  862  5,962 
Commercial real estate - investor5,024  8,082  6,364  7,994  8,281 
Residential real estate7,389  6,390  6,858  5,686  4,190 
Home equity loans and lines2,914  2,529  2,415  1,992  1,929 
Total non-performing loans17,415  19,239  18,106  18,251  20,865 
Other real estate owned1,381  6,231  7,854  8,265  8,186 
Total non-performing assets$18,796  $25,470  $25,960  $26,516  $29,051 
Purchased credit-impaired (“PCI”) loans$8,901  $9,700  $12,995  $14,352  $1,712 
Delinquent loans 30 to 89 days$25,686  $26,691  $36,010  $35,431  $20,796 
Troubled debt restructurings:         
Non-performing (included in total non-performing loans above)$3,595  $3,568  $4,190  $4,306  $8,821 
Performing22,877  24,230  24,272  33,806  33,313 
Total troubled debt restructurings$26,472  $27,798  $28,462  $38,112  $42,134 
Allowance for loan losses$16,577  $16,821  $16,691  $16,817  $15,721 
Allowance for loan losses as a percent of total loans receivable (1)0.30% 0.30% 0.30% 0.31% 0.40%
Allowance for loan losses as a percent of total non-performing
loans		95.19  87.43  92.18  92.14  75.35 
Non-performing loans as a percent of total loans receivable0.31  0.35  0.33  0.34  0.52 
Non-performing assets as a percent of total assets0.25  0.34  0.34  0.35  0.54 

(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 $31,647, $34,357, $37,679, $40,717, and $17,531 at December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018, and December 31, 2017, respectively.

            
NET CHARGE-OFFS For the Three Months Ended
  December 31,
 2018		 September 30,
2018		 June 30,
2018		 March 31,
2018		 December 31,
2017		 
            
Net Charge-offs:           
Loan charge-offs $(1,133) $(891) $(1,284) $(533) $(2,523) 
Recoveries on loans 383  114  452  258  245  
Net loan charge-offs $(750)(1)$(777)(1)$(832) $(275) $(2,278)(1)
Net loan charge-offs to average total loans (annualized) 0.05% 0.06% 0.06% 0.02% 0.23% 
Net charge-off detail - (loss) recovery:           
Commercial $(871) $(246) $(846) $(10) $(1,036) 
Residential mortgage and construction 210  (478) (20) (159) (1,262) 
Home equity loans and lines (62) (35) 31  (99) 28  
Other consumer (27) (18) 3  (7) (8) 
Net loan (charge-offs) recoveries $(750)(1)$(777)(1)$(832) $(275) $(2,278)(1)

(1)  Included in net loan charge-offs for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017 are $243, $430, and $1,124, respectively, relating to under-performing loans sold.

                  
OceanFirst Financial Corp.
ANALYSIS OF NET INTEREST INCOME
                  
 For the Three Months Ended
 December 31, 2018
 September 30, 2018 December 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$103,449  $236  0.91% $88,706  $172  0.77% $155,987  $391  0.99%
Securities (1)1,037,039  6,802  2.60  1,080,784  6,713  2.46  874,910  4,606  2.09 
Loans receivable, net (2)                 
Commercial3,061,999  39,045  5.06  3,101,665  38,726  4.95  1,887,319  22,087  4.64 
Residential2,036,024  20,688  4.06  2,027,880  20,438  4.03  1,743,334  17,552  4.03 
Home Equity356,088  4,656  5.19  361,127  4,628  5.08  278,294  3,243  4.62 
Other78,832  931  4.69  52,764  705  5.30  1,086  27  9.86 
Allowance for loan loss net of deferred loan fees(9,198) —  —  (9,350) —  —  (11,993) —  — 
Loans Receivable, net5,523,745  65,320  4.69  5,534,086  64,497  4.62  3,898,040  42,909  4.37 
Total interest-earning assets6,664,233  72,358  4.31  6,703,576  71,382  4.22  4,928,937  47,906  3.86 
Non-interest-earning assets839,878      865,054      475,927     
Total assets$7,504,111      $7,568,630      $5,404,864     
Liabilities and Stockholders’ Equity:                 
Interest-bearing liabilities:                 
Interest-bearing checking$2,407,400  3,120  0.51% $2,300,270  2,313  0.40% $1,944,223  1,447  0.30%
Money market585,117  894  0.61  578,446  680  0.47  385,720  322  0.33 
Savings878,617  263  0.12  896,682  265  0.12  662,318  59  0.04 
Time deposits848,361  2,791  1.31  864,264  2,541  1.17  619,087  1,687  1.08 
Total4,719,495  7,068  0.59  4,639,662  5,799  0.50  3,611,348  3,515  0.39 
FHLB Advances354,296  1,930  2.16  475,536  2,542  2.12  261,018  1,146  1.74 
Securities sold under agreements to repurchase60,901  43  0.28  61,336  41  0.27  74,661  39  0.21 
Other borrowings99,431  1,476  5.89  99,438  1,496  5.97  56,475  701  4.92 
Total interest-bearing liabilities5,234,123  10,517  0.80  5,275,972  9,878  0.74  4,003,502  5,401  0.54 
Non-interest-bearing deposits1,177,321      1,210,650      760,552     
Non-interest-bearing liabilities56,705      61,272      38,880     
Total liabilities6,468,149      6,547,894      4,802,934     
Stockholders’ equity1,035,962      1,020,736      601,930     
Total liabilities and equity$7,504,111      $7,568,630      $5,404,864     
Net interest income  $61,841      $61,504      $42,505   
Net interest rate spread (3)    3.51%     3.48%     3.32%
Net interest margin (4)    3.68%     3.64%     3.42%
Total cost of deposits (including non-interest-bearing deposits)    0.48%     0.39%     0.32%

(continued)

            
 For the Year Ended
 December 31, 2018 December 31, 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$102,001  $896  0.88% $179,960  $1,449  0.81%
Securities (1)1,073,454  26,209  2.44  796,392  16,792  2.11 
Loans receivable, net (2)           
Commercial3,012,521  149,965  4.98  1,858,842  87,706  4.72 
Residential1,965,395  79,805  4.06  1,726,020  69,784  4.04 
Home Equity357,137  17,991  5.04  282,128  13,003  4.61 
Other35,424  1,788  5.05  1,156  95  8.22 
Allowance for loan loss net of deferred loan fees(9,972) —  —  (12,251) —  — 
Loans Receivable, net5,360,505  249,549  4.66  3,855,895  170,588  4.42 
Total interest-earning assets6,535,960  276,654  4.23  4,832,247  188,829  3.91 
Non-interest-earning assets828,518      459,926     
Total assets$7,364,478      $5,292,173     
Liabilities and Stockholders’ Equity:           
Interest-bearing liabilities:           
Interest-bearing checking$2,336,917  9,219  0.39% $1,796,370  4,533  0.25%
Money market571,997  2,818  0.49  410,373  1,213  0.30 
Savings877,179  990  0.11  672,315  345  0.05 
Time deposits858,978  9,551  1.11  625,847  6,245  1.00 
Total4,645,071  22,578  0.49  3,504,905  12,336  0.35 
FHLB Advances382,464  7,885  2.06  258,870  4,486  1.73 
Securities sold under agreements to repurchase66,340  168  0.25  74,712  121  0.16 
Other borrowings94,644  5,521  5.83  56,457  2,668  4.73 
Total interest-bearing liabilities5,188,519  36,152  0.70  3,894,944  19,611  0.50 
Non-interest-bearing deposits1,135,602      776,344     
Non-interest-bearing liabilities56,098      31,004     
Total liabilities6,380,219      4,702,292     
Stockholders’ equity984,259      589,881     
Total liabilities and equity$7,364,478      $5,292,173     
Net interest income  $240,502      $169,218   
Net interest rate spread (3)    3.53%     3.41%
Net interest margin (4)    3.68%     3.50%
Total cost of deposits (including non-interest-bearing deposits)    0.39%     0.29%

(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
(dollars in thousands, except per share amounts)
                     
   December 31,
 2018		   September 30,
2018		   June 30,
2018		   March 31,
2018		   December 31,
2017		 
Selected Financial Condition Data:                    
Total assets $7,516,154  $7,562,589  $7,736,903  $7,494,899  $5,416,006 
Debt securities available-for-sale, at estimated fair value 100,717  100,015  100,369  86,114  81,581 
Debt securities held-to-maturity, net 846,810  883,540  922,756  982,857  764,062 
Equity investments, at estimated fair value 9,655  9,519  9,539  9,565  8,700 
Restricted equity investments, at cost 56,784  57,143  66,981  50,418  19,724 
Loans receivable, net 5,579,222  5,543,959  5,553,035  5,413,780  3,965,773 
Loans held-for-sale —  732  919  167  241 
Deposits 5,814,569  5,854,250  5,819,406  5,907,336  4,342,798 
Federal Home Loan Bank advances 449,383  456,806  674,227  341,646  288,691 
Securities sold under agreements to repurchase and other borrowings 161,290  160,517  161,604  181,822  136,187 
Stockholders’ equity 1,039,358  1,029,844  1,012,568  1,007,460  601,941 


  For the Three Months Ended 
   December 31,
 2018		   September 30,
2018		   June 30,
2018		   March 31,
2018		   December 31,
2017		 
Selected Operating Data:                    
Interest income $72,358  $71,382  $70,078  $62,837  $47,906 
Interest expense 10,517  9,878  8,631  7,126  5,401 
Net interest income 61,841  61,504  61,447  55,711  42,505 
Provision for loan losses 506  907  706  1,371  1,415 
Net interest income after provision for loan losses 61,335  60,597  60,741  54,340  41,090 
Other income 8,748  8,285  8,883  8,910  6,745 
Operating expenses 37,794  37,503  42,470  38,508  26,434 
Branch consolidation expenses 240  1,368  1,719  (176) (734)
Merger related expenses 1,048  662  6,715  18,486  1,993 
Income before provision for income taxes 31,001  29,349  18,720  6,432  20,142 
Provision for income taxes 4,269  5,278  3,018  1,005  10,186 
Net income $26,732  $24,071  $15,702  $5,427  $9,956 
Diluted earnings per share $0.55  $0.50  $0.32  $0.12  $0.30 
Net accretion/amortization of purchase accounting adjustments included in net interest income $3,918  $4,036  $4,883  $3,930  $1,956 

(continued)

  At or For the Three Months Ended
  December 31,
 2018		 September 30,
2018		 June 30,
2018		 March 31,
2018		 December 31,
2017
Selected Financial Ratios and Other Data(1):          
           
Performance Ratios (Annualized):          
Return on average assets (2) 1.41% 1.26% 0.84% 0.32% 0.73%
Return on average stockholders' equity (2) 10.24  9.36  6.23  2.54  6.56 
Return on average tangible stockholders' equity (2) (3) 15.60  14.39  9.64  3.80  8.89 
Stockholders' equity to total assets 13.83  13.62  13.09  13.44  11.11 
Tangible stockholders' equity to tangible assets (3) 9.55  9.35  8.87  9.11  8.42 
Net interest rate spread 3.51  3.48  3.57  3.58  3.32 
Net interest margin 3.68  3.64  3.70  3.70  3.42 
Operating expenses to average assets (2) 2.07  2.07  2.71  3.37  2.03 
Efficiency ratio (2) (4) 55.37  56.65  72.38  87.92  56.23 
Loans to deposits 95.95  94.70  95.42  91.65  91.32 


  At or For the Year Ended December 31,
  2018 2017
Performance Ratios:    
Return on average assets (2) 0.98% 0.80%
Return on average stockholders' equity (2) 7.31  7.20 
Return on average tangible stockholders' equity (2) (3) 11.16  9.82 
Net interest rate spread 3.53  3.41 
Net interest margin 3.68  3.50 
Operating expenses to average assets (2) 2.53  2.39 
Efficiency ratio (2) (4) 67.68  64.46 

(continued)

 At or For the Three Months Ended
   December 31,   September 30,   June 30,   March 31,   December 31, 
   2018   2018   2018   2018   2017 
Wealth Management:                    
Assets under administration $184,476  $209,796  $210,690  $221,493  $233,185 
Per Share Data:          
Cash dividends per common share $0.17  $0.15  $0.15  $0.15  $0.15 
Stockholders’ equity per common share at end of  period 21.68  21.29  20.97  20.94  18.47 
Tangible stockholders’ equity per common share at end of period (3) 14.26  13.93  13.56  13.51  13.58 
Common shares outstanding at end of period 47,951,168  48,382,370  48,283,500  48,105,623  32,596,893 
Number of full-service customer facilities: 59  59  59  76  46 
Quarterly Average Balances          
Total securities $1,037,039  $1,080,784  $1,119,354  $1,056,774  $874,910 
Loans, receivable, net 5,523,745  5,534,086  5,425,970  4,950,007  3,898,040 
Total interest-earning assets 6,664,233  6,703,576  6,661,048  6,107,017  4,928,937 
Total assets 7,504,111  7,568,630  7,532,968  6,842,693  5,404,864 
Interest-bearing transaction deposits 3,871,134  3,775,398  3,878,117  3,614,295  2,992,261 
Time deposits 848,361  864,264  902,091  820,834  619,087 
Total borrowed funds 514,628  636,310  540,356  481,163  392,154 
Total interest-bearing liabilities 5,234,123  5,275,972  5,320,564  4,916,292  4,003,502 
Non-interest bearing deposits 1,177,321  1,210,650  1,149,764  1,004,673  760,552 
Stockholder’s equity 1,035,962  1,020,736  1,011,378  866,697  601,930 
Total deposits 5,896,816  5,850,312  5,929,972  5,439,802  4,371,900 
Quarterly Yields          
Total securities 2.60% 2.46% 2.39% 2.31% 2.09%
Loans, receivable, net 4.69  4.62  4.67  4.64  4.37 
Total interest-earning assets 4.31  4.22  4.22  4.17  3.86 
Interest-bearing transaction deposits 0.44  0.34  0.31  0.28  0.25 
Time deposits 1.31  1.17  1.00  0.97  1.08 
Borrowed funds 2.66  2.54  2.51  2.24  1.91 
Total interest-bearing liabilities 0.80  0.74  0.65  0.59  0.54 
Net interest spread 3.51  3.48  3.57  3.58  3.32 
Net interest margin 3.68  3.64  3.70  3.70  3.42 
Total deposits 0.48  0.39  0.35  0.33  0.32 

(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
    December 31,
 2018		   September 30,
2018		   June 30,
2018		   March 31,
2018		   December 31,
2017		 
Core earnings:                    
Net income $26,732  $24,071  $15,702  $5,427  $9,956 
Add:Merger related expenses 1,048  662  6,715  18,486  1,993 
 Branch consolidation expenses 240  1,368  1,719  (176) (734)
 Income tax (benefit) expense related to Tax Reform (1,854) —  —  —  3,643 
Less:Income tax (benefit) expense on items (130) (426) (1,771) (3,664) 2 
Core earnings $26,036  $25,675  $22,365  $20,073  $14,860 
Core diluted earnings per share $0.54  $0.53  $0.46  $0.45  $0.45 
            
Core ratios (annualized):          
Return on average assets 1.38% 1.35% 1.19% 1.19% 1.09%
Return on average tangible stockholders’ equity 15.19  15.35  13.73  14.07  13.27 
Efficiency ratio 53.54  53.74  60.39  59.59  53.67 


         
  For the Years Ended December 31,
   2018   2017 

Core earnings:		       

Net income		$71,932  $42,470 
Add:Merger related expenses26,911  8,293 
 Branch consolidation expenses3,151  6,205 
 Income tax (benefit) expense related to Tax Reform(1,854) 3,643 
Less:Income tax (benefit) expense on items(5,991) (4,596)
Core earnings$94,149  $56,015 
Core diluted earnings per share$1.98  $1.70 
     

Core ratios:		   
Return on average assets1.28% 1.06%
Return on average tangible stockholders’ equity14.61  12.95 
Efficiency ratio56.76  57.07 


           
COMPUTATION OF TOTAL TANGIBLE EQUITY TO TOTAL TANGIBLE ASSETS
           
  December 31, September 30, June 30, March 31, December 31,
  2018 2018 2018 2018 2017
Total stockholders’ equity $1,039,358  $1,029,844  $1,012,568  $1,007,460  $601,941 
Less:          
Goodwill 338,442  338,104  338,972  337,519  150,501 
Core deposit intangible 16,971  17,954  18,949  19,950  8,885 
Tangible stockholders’ equity $683,945  $673,786  $654,647  $649,991  $442,555 
           
Total assets $7,516,154  $7,562,589  $7,736,903  $7,494,899  $5,416,006 
Less:          
Goodwill 338,442  338,104  338,972  337,519  150,501 
Core deposit intangible 16,971  17,954  18,949  19,950  8,885 
Tangible assets $7,160,741  $7,206,531  $7,378,982  $7,137,430  $5,256,620 
Tangible stockholders’ equity to tangible assets 9.55% 9.35% 8.87% 9.11% 8.42%

(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 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  (24,523) 1,517,345 
Accrued interest receivable 5,621  —  5,621 
Bank Owned Life Insurance 85,238  —  85,238 
Deferred tax asset 55,710  1,864  57,574 
Other assets 49,561  (6,359) 43,202 
Core deposit intangible —  11,897  11,897 
Total assets acquired 2,061,152  (17,121) 2,044,031 
Liabilities assumed:      
Deposits (1,614,910) (1,163) (1,616,073)
Borrowings (142,567) 14,840  (127,727)
Other liabilities (14,372) 1,130  (13,242)
Total liabilities assumed (1,771,849) 14,807  (1,757,042)
Net assets acquired $289,303  $(2,314) $286,989 
Goodwill recorded in the merger     $187,941 

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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