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CST: 07/12/2019 02:43:32   

OceanFirst Financial Corp. Announces Second Quarter Earnings and Financial Results

134 Days ago

RED BANK, N.J., July 25, 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 $19.0 million, or $0.37 per diluted share, for the three months ended June 30, 2019, as compared to $15.7 million, or $0.32 per diluted share, for the corresponding prior year period. For the six months ended June 30, 2019, net income was $40.2 million, or $0.79 per diluted share, as compared to $21.1 million, or $0.45 per diluted share, for the corresponding prior year period.

The results of operations for the three and six months ended June 30, 2019 include merger related expenses, branch consolidation expenses and compensation expense due to the retirement of an executive officer, which decreased net income, net of tax benefit, by $7.0 million and $11.4 million, respectively. Excluding these items, core earnings for the three and six months ended June 30, 2019 were $26.0 million, or $0.51 per diluted share, and $51.6 million, or $1.02 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, and compensation expense due to the retirement of an executive officer).

Highlights for the quarter are described below:

  • The Bank’s expansion into metropolitan New York City and greater Philadelphia continues to progress with $43.6 million of closed loans and significant contributions to a record pipeline of $297.8 million as of June 30, 2019.
  • The integration of Capital Bank of New Jersey’s (“Capital Bank”) operating systems was completed in June, with anticipated cost savings to be realized in the second half of the year.
  • In conjunction with the integration of Capital Bank, three branches were consolidated in June.  In addition, the Bank will be consolidating an additional four branches in the third quarter; bringing the total number of branches consolidated to 40 over the past three years.

Chairman and Chief Executive Officer, Christopher D. Maher, commented on the Company’s results, “The second quarter results included strong core earnings of $26.0 million, along with a growing loan pipeline and improving asset quality.” Mr. Maher added, “With the full system integration of Capital Bank completed this quarter, we are pleased to offer enhanced financial solutions to our newest customers and expect to realize significant cost savings in the coming quarters.”

The Company announced that the Company’s Board of Directors declared its ninetieth consecutive quarterly cash dividend on common stock. The dividend, related to the three months ended June 30, 2019, of $0.17 per share will be paid on August 16, 2019 to stockholders of record on August 5, 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 six months ended June 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 June 30, 2019 are included in the consolidated results for the three and six months ended June 30, 2019, but are not included in the results of operations for the corresponding prior year periods.

Net income for the three months ended June 30, 2019, was $19.0 million, or $0.37 per diluted share, as compared to $15.7 million, or $0.32 per diluted share, for the corresponding prior year period. Net income for the six months ended June 30, 2019, was $40.2 million, or $0.79 per diluted share, as compared to $21.1 million, or $0.45 per diluted share, for the corresponding prior year period. Net income for the three and six months ended June 30, 2019 included merger related expenses, branch consolidation expenses, and compensation expense due to the retirement of an executive officer, which decreased net income, net of tax benefit, by $7.0 million and $11.4 million, respectively. Net income for the three and six months ended June 30, 2018 included merger related and branch consolidation expenses, which decreased net income, net of tax benefit, by $6.7 million and $21.3 million, respectively. Excluding these items, net income for the three and six months ended June 30, 2019, increased over the same prior year periods, primarily due to the acquisition of Capital Bank and the expense reductions driven by the integration of Sun in the second quarter of 2018.

Net interest income for the three and six months ended June 30, 2019 increased to $64.8 million and $129.2 million, respectively, as compared to $61.4 million and $117.2 million, respectively, for the same prior year periods, reflecting an increase in interest-earning assets. Average interest-earning assets increased by $492.8 million and $674.3 million for the three and six months ended June 30, 2019, respectively, as compared to the same prior year periods. The averages for the three and six months ended June 30, 2019 were favorably impacted by $401.8 million and $340.4 million, respectively, of interest-earning assets acquired from Capital Bank. Average loans receivable, net, increased by $522.3 million and $669.3 million for the three and six months ended June 30, 2019, respectively, as compared to the same prior year periods. The increases attributable to the acquisition of Capital Bank were $293.4 million and $245.9 million, respectively. The net interest margin for the three and six months ended June 30, 2019 decreased to 3.66% and 3.72%, respectively, from 3.73% in the same prior year periods. For the three and six months ended June 30, 2019, the cost of average interest-bearing liabilities increased to 0.98% and 0.94%, respectively, from 0.65% and 0.62%, 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 six months ended June 30, 2019, respectively, as compared to 0.35% and 0.34%, respectively, in the same prior year periods.

Net interest income for the three months ended June 30, 2019, increased by $449,000, as compared to the prior linked quarter, as average interest-earning assets increased by $181.3 million. The increase in average interest-earning assets over the prior linked quarter was primarily due to the inclusion of Capital Bank balances for the full quarter. The net interest margin decreased to 3.66% for the quarter ended June 30, 2019, as compared to 3.78% for the prior linked quarter. The total cost of deposits (including non-interest bearing deposits) was 0.62% for the three months ended June 30, 2019, as compared to 0.57% for three months ended March 31, 2019.

For the three and six months ended June 30, 2019, the provision for loan losses was $356,000 and $976,000, respectively, as compared to $706,000 and $2.1 million, respectively, for the corresponding prior year period, and $620,000 in the prior linked quarter. Net loan charge-offs were $926,000 and $1.4 million for the three and six months ended June 30, 2019, respectively, as compared to net loan charge-offs of $832,000 and $1.1 million in the corresponding prior year periods, and net loan charge-offs of $492,000 in the prior linked quarter. Non-performing loans totaled $17.8 million at June 30, 2019, as compared to $20.9 million at March 31, 2019 and $18.1 million at June 30, 2018.

For the three and six months ended June 30, 2019, other income increased to $9.9 million and $19.4 million, respectively, as compared to $8.9 million and $17.8 million, respectively, for the corresponding prior year periods. The increases were partly due to the impact of the Capital Bank acquisition, which added $312,000 and $557,000 to other income for the three and six months ended June 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 June 30, 2019 was primarily due to a decrease in the loss from real estate operations of $860,000, an increase in derivative fee income of $612,000, partially offset by decreases in fees and service charges of $724,000. Excluding the Capital Bank acquisition, the increase in other income for the six months ended June 30, 2019 was primarily due to a decrease in the loss from real estate operations of $1.3 million, an increase in derivative fee income of $1.1 million, an increase in bankcard services of $553,000, partially offset by decreases in fees and service charges of $1.0 million, rental income of $704,000 received primarily for January and February 2018 on the Company’s executive office, and the gain on sale of loans of $608,000 (mostly related to the sale of one non-performing commercial loan relationship during 2018).

For the three months ended June 30, 2019, other income increased by $367,000, as compared to the prior linked quarter. The increase was due to a full quarter of Capital Bank activity and an increase in bankcard services, partially offset by an increase in the loss from other real estate operations.

Operating expenses were flat at $50.9 million and decreased to $98.2 million for the three and six months ended June 30, 2019, respectively, as compared to $50.9 million and $107.7 million, respectively, in the same prior year periods. Operating expenses for the three and six months ended June 30, 2019 included $8.9 million and $14.3 million, respectively, of merger related expenses, branch consolidation expenses, and compensation expense due to the retirement of an executive officer, as compared to $8.4 million and $26.7 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, 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 $1.9 million and $3.3 million for the three and six months ended June 30, 2019, respectively. Excluding the Capital Bank acquisition, the decrease in operating expenses for the three months ended June 30, 2019 over the prior year period was primarily due to decreases in compensation and employee benefits expense of $2.2 million, occupancy expenses and federal insurance premium, partially offset by increases in check card processing and marketing expenses. Excluding the Capital Bank acquisition, the remaining decrease in operating expenses, for the six months ended June 30, 2019 from the prior year period, was primarily due to decreases in compensation and employee benefits expense of $1.8 million, a decrease in federal insurance premium and a decrease in occupancy expense, partially offset by increases in marketing expenses of $611,000, and check card processing of $597,000.

For the three months ended June 30, 2019, operating expenses, excluding merger, branch consolidation expenses, and compensation expense due to the retirement of an executive officer increased by $206,000, as compared to the prior linked quarter. The increase was primarily due to a full quarter of Capital Bank which resulted in an increase of $435,000, as compared to the prior linked quarter.

The provision for income taxes was $4.5 million and $9.3 million for the three and six months ended June 30, 2019, respectively, as compared to $3.0 million and $4.0 million, respectively, for the same prior year periods. The effective tax rate was 19.0% and 18.8% for the three and six months ended June 30, 2019, respectively, as compared to 16.1% and 16.0%, 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.

Financial Condition

Total assets increased by $512.9 million, to $8.029 billion at June 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 $364.7 million, to $5.944 billion at June 30, 2019, from $5.579 billion at December 31, 2018, due to acquired loans of $307.7 million. As part of the acquisition of Capital Bank, the Company’s goodwill balance increased to $374.6 million at June 30, 2019, from $338.4 million at December 31, 2018, and the core deposit intangible increased to $17.6 million, from $17.0 million at December 31, 2018.

Deposits increased by $372.9 million, to $6.187 billion at June 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 June 30, 2019 was 96.1%, as compared to 96.0% at December 31, 2018.

Stockholders’ equity increased to $1.137 billion at June 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 June 30, 2019, there were 986,386 shares available for repurchase under the Company’s stock repurchase program. For the six months ended June 30, 2019, the Company repurchased 309,167 shares under the repurchase program at an average cost of $23.93. Tangible stockholders’ equity per common share increased to $14.57 at June 30, 2019, as compared to $14.26 at December 31, 2018.

Asset Quality

The Company’s non-performing loans increased to $17.8 million at June 30, 2019, as compared to $17.4 million at December 31, 2018.  Non-performing loans do not include $13.4 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 $865,000 at June 30, 2019, as compared to $1.4 million at December 31, 2018.

At June 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 $36.0 million at June 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 90.67% at June 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, 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, July 26, 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 10132661 from one hour after the end of the call until October 24, 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 an $8.0 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)

  June 30,   March 31,   December 31,   June 30,
  2019   2019   2018   2018
  (Unaudited)   (Unaudited)       (Unaudited)
Assets              
Cash and due from banks $ 148,327     $ 134,235     $ 120,792     $ 254,469  
Federal funds sold     18,733          
Debt securities available-for-sale, at estimated fair value 123,610     122,558     100,717     100,369  
Debt securities held-to-maturity, net (estimated fair value of $869,167 at June 30, 2019, $896,812 at March 31, 2019, $832,815 at December 31, 2018, and $906,989 at June 30, 2018) 863,838     900,614     846,810     922,756  
Equity investments, at estimated fair value 10,002     9,816     9,655     9,539  
Restricted equity investments, at cost 59,425     55,663     56,784     66,981  
Loans receivable, net 5,943,930     5,968,830     5,579,222     5,553,035  
Loans held-for-sale             919  
Interest and dividends receivable 22,106     22,294     19,689     19,669  
Other real estate owned 865     1,594     1,381     7,854  
Premises and equipment, net 105,853     113,226     111,209     113,782  
Bank Owned Life Insurance 235,162     234,183     222,482     219,853  
Deferred tax asset 66,259     66,689     63,377     59,283  
Assets held for sale 4,198     4,522     4,522     10,269  
Other assets 53,276     46,266     24,101     40,204  
Core deposit intangible 17,614     18,629     16,971     18,949  
Goodwill 374,592     375,096     338,442     338,972  
Total assets $ 8,029,057     $ 8,092,948     $ 7,516,154     $ 7,736,903  
Liabilities and Stockholders’ Equity              
Deposits $ 6,187,487     $ 6,290,485     $ 5,814,569     $ 5,819,406  
Federal Home Loan Bank advances 453,646     418,016     449,383     674,227  
Securities sold under agreements to repurchase with retail customers 62,086     66,174     61,760     62,176  
Other borrowings 96,533     99,579     99,530     99,428  
Advances by borrowers for taxes and insurance 14,817     15,138     14,066     17,773  
Other liabilities 77,193     76,393     37,488     51,325  
Total liabilities 6,891,762     6,965,785     6,476,796     6,724,335  
Total stockholders’ equity 1,137,295     1,127,163     1,039,358     1,012,568  
Total liabilities and stockholders’ equity $ 8,029,057     $ 8,092,948     $ 7,516,154     $ 7,736,903  
 

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

  For the Three Months Ended,   For the Six Months Ended,
  June 30,   March 31,   June 30,   June 30,   June 30,
  2019   2019   2018   2019   2018
                   
  |-------------------- (Unaudited) --------------------|   |---------- (Unaudited) -----------|
Interest income:                  
Loans $ 70,917     $ 69,001     $ 63,135     $ 139,918     $ 119,732  
Mortgage-backed securities 3,946     4,041     4,297     7,987     7,982  
Debt securities, equity investments and other 3,547     3,380     2,646     6,927     5,200  
Total interest income 78,410     76,422     70,078     154,832     132,914  
Interest expense:                  
Deposits 9,762     8,639     5,247     18,401     9,711  
Borrowed funds 3,811     3,395     3,384     7,206     6,046  
Total interest expense 13,573     12,034     8,631     25,607     15,757  
Net interest income 64,837     64,388     61,447     129,225     117,157  
Provision for loan losses 356     620     706     976     2,077  
Net interest income after provision for loan losses 64,481     63,768     60,741     128,249     115,080  
Other income:                  
Bankcard services revenue 2,679     2,285     2,373     4,964     4,292  
Trust and asset management revenue 569     498     595     1,067     1,148  
Fees and service charges 4,595     4,516     5,140     9,111     9,816  
Net gain on sales of loans 7     8     6     15     623  
Net unrealized gain (loss) on equity investments 133     108     (71 )   241     (212 )
Net loss from other real estate operations (121 )   (6 )   (981 )   (127 )   (1,393 )
Income from Bank Owned Life Insurance 1,293     1,321     1,335     2,614     2,476  
Other 724     782     486     1,506     1,044  
Total other income 9,879     9,512     8,883     19,391     17,794  
Operating expenses:                  
Compensation and employee benefits 23,704     22,414     23,244     46,118     44,495  
Occupancy 4,399     4,530     4,572     8,929     9,139  
Equipment 1,936     1,946     2,034     3,882     3,937  
Marketing 1,137     930     893     2,067     1,454  
Federal deposit insurance 802     832     1,000     1,634     1,930  
Data processing 3,684     3,654     3,667     7,338     6,843  
Check card processing 1,322     1,438     1,116     2,760     2,105  
Professional fees 1,408     1,709     1,397     3,117     2,680  
Other operating expense 3,882     3,369     3,546     7,251     6,561  
Amortization of core deposit intangible 1,015     1,005     1,001     2,020     1,834  
Branch consolidation expense 6,695     391     1,719     7,086     1,544  
Merger related expenses 931     5,053     6,715     5,984     25,200  
Total operating expenses 50,915     47,271     50,904     98,186     107,722  
Income before provision for income taxes 23,445     26,009     18,720     49,454     25,152  
Provision for income taxes 4,465     4,836     3,018     9,301     4,023  
Net income $ 18,980     $ 21,173     $ 15,702     $ 40,153     $ 21,129  
Basic earnings per share $ 0.37     $ 0.43     $ 0.33     $ 0.80     $ 0.46  
Diluted earnings per share $ 0.37     $ 0.42     $ 0.32     $ 0.79     $ 0.45  
Average basic shares outstanding 50,687     49,526     47,718     50,115     45,805  
Average diluted shares outstanding 51,290     50,150     48,704     50,728     46,786  
 

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

LOANS RECEIVABLE     At
      June 30,   March 31,   December 31,   September 30,   June 30,
      2019   2019   2018   2018   2018
Commercial:                                          
Commercial and industrial     $ 392,336     $ 383,686     $ 304,996     $ 343,121     $ 338,436  
Commercial real estate - owner - occupied   771,640     802,229     740,893     735,289     717,061  
Commercial real estate - investor   2,143,093     2,161,451     2,023,131     2,019,859     2,076,930  
Total commercial     3,307,069     3,347,366     3,069,020     3,098,269     3,132,427  
Consumer:                      
Residential real estate     2,193,829     2,162,668     2,044,523     2,020,155     2,013,389  
Home equity loans and lines     341,972     351,303     353,609     359,094     365,448  
Other consumer     109,015     116,838     121,561     74,555     50,952  
Total consumer     2,644,816     2,630,809     2,519,693     2,453,804     2,429,789  
Total loans     5,951,885     5,978,175     5,588,713     5,552,073     5,562,216  
Deferred origination costs, net   8,180     7,360     7,086     8,707     7,510  
Allowance for loan losses     (16,135 )   (16,705 )   (16,577 )   (16,821 )   (16,691 )
Loans receivable, net     $ 5,943,930     $ 5,968,830     $ 5,579,222     $ 5,543,959     $ 5,553,035  
Mortgage loans serviced for others   $ 90,882     $ 92,274     $ 95,100     $ 106,369     $ 105,116  
  At June 30, 2019                    
  Average Yield                    
Loan pipeline (1):                      
Commercial 4.90 %   $ 212,712     $ 122,325     $ 129,839     $ 137,519     $ 166,178  
Residential real estate 3.74     82,555     63,598     49,800     64,841     64,259  
Home equity loans and lines 5.33     2,550     4,688     6,571     11,030     9,240  
Total 4.58 %   $ 297,817     $ 190,611     $ 186,210     $ 213,390     $ 239,677  


  For the Three Months Ended  
  June 30,   March 31,   December 31,   September 30,   June 30,  
  2019   2019   2018   2018   2018  
  Average Yield                      
Loan originations:                        
Commercial 4.44 %   $ 123,882     $ 172,233     $ 151,851     $ 136,764     $ 67,297    
Residential real estate 3.93     120,771     75,530     92,776     124,419     109,357    
Home equity loans and lines 5.46     14,256     13,072     15,583     17,892     20,123    
Total 4.26 %   $ 258,909     $ 260,835   (2) $ 260,210   (3) $ 279,075   (4) $ 196,777   (6)
Loans sold     $ 403   (5) $ 495     $ 728   (5) $ 1,349   (5) $ 422    


  (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 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 June 30, 2019, December 31, 2018, and September 30, 2018, respectively.
  (6)     Excludes purchased loans of $23.6 million for commercial, $49.0 million for residential real estate, and $49.1 million for other consumer.


DEPOSITS At
  June 30,   March 31,   December 31,   September 30,   June 30,
  2019   2019   2018   2018   2018
Type of Account                                      
Non-interest-bearing $ 1,370,167     $ 1,352,520     $ 1,151,362     $ 1,196,875     $ 1,195,980  
Interest-bearing checking 2,342,913     2,400,192     2,350,106     2,332,215     2,265,971  
Money market deposit 642,985     666,067     569,680     584,250     574,269  
Savings 909,501     922,113     877,177     887,799     903,777  
Time deposits 921,921     949,593     866,244     853,111     879,409  
  $ 6,187,487     $ 6,290,485     $ 5,814,569     $ 5,854,250     $ 5,819,406  
 

OceanFirst Financial Corp.
ASSET QUALITY
(dollars in thousands)

  June 30,   March 31,   December 31,   September 30,   June 30,
ASSET QUALITY 2019   2019   2018   2018   2018
Non-performing loans:                                      
Commercial and industrial $ 207     $ 240     $ 1,587     $ 1,727     $ 1,947  
Commercial real estate - owner-occupied 4,818     4,565     501     511     522  
Commercial real estate - investor 4,050     4,115     5,024     8,082     6,364  
Residential real estate 5,747     8,611     7,389     6,390     6,858  
Home equity loans and lines 2,974     3,364     2,914     2,529     2,415  
Total non-performing loans 17,796     20,895     17,415     19,239     18,106  
Other real estate owned 865     1,594     1,381     6,231     7,854  
Total non-performing assets $ 18,661     $ 22,489     $ 18,796     $ 25,470     $ 25,960  
Purchased credit-impaired (“PCI”) loans $ 13,432     $ 16,306     $ 8,901     $ 9,700     $ 12,995  
Delinquent loans 30 to 89 days $ 20,029     $ 21,578     $ 25,686     $ 26,691     $ 36,010  
Troubled debt restructurings:                  
Non-performing (included in total non-performing loans above) $ 6,815     $ 6,484     $ 3,595     $ 3,568     $ 4,190  
Performing 19,314     19,690     22,877     24,230     24,272  
Total troubled debt restructurings $ 26,129     $ 26,174     $ 26,472     $ 27,798     $ 28,462  
Allowance for loan losses $ 16,135     $ 16,705     $ 16,577     $ 16,821     $ 16,691  
Allowance for loan losses as a percent of total loans receivable (1) 0.27 %   0.28 %   0.30 %   0.30 %   0.30 %
Allowance for loan losses as a percent of total non-performing loans 90.67     79.95     95.19     87.43     92.18  
Non-performing loans as a percent of total loans receivable 0.30     0.35     0.31     0.35     0.33  
Non-performing assets as a percent of total assets 0.23     0.28     0.25     0.34     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 $36,026, $35,204, $31,647, $34,357, and $37,679 at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018, and  June 30, 2018, respectively.


NET CHARGE-OFFS For the Three Months Ended
  June 30,   March 31,   December 31,   September 30,   June 30,
  2019   2019   2018   2018   2018
Net Charge-offs:                                      
Loan charge-offs $ (1,138 )   $ (868 )   $ (1,133 )   $ (891 )   $ (1,284 )
Recoveries on loans 212     376     383     114     452  
Net loan charge-offs $ (926 ) (1) $ (492 )   $ (750 ) (1) $ (777 ) (1) $ (832 )
Net loan charge-offs to average total loans
(annualized)
0.06 %   0.03 %   0.05 %   0.06 %   0.06 %
Net charge-off detail - (loss) recovery:                  
Commercial $ (58 )   $ (58 )   $ (871 )   $ (246 )   $ (846 )
Residential real estate (728 )   (425 )   210     (478 )   (20 )
Home equity loans and lines (121 )   (4 )   (62 )   (35 )   31  
Other consumer (19 )   (5 )   (27 )   (18 )   3  
Net loan charge-offs $ (926 ) (1) $ (492 )   $ (750 ) (1) $ (777 ) (1) $ (832 )


  (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.
         

OceanFirst Financial Corp.
ANALYSIS OF NET INTEREST INCOME

  For the Three Months Ended
  June 30, 2019   March 31, 2019   June 30, 2018
          Average           Average           Average
  Average       Yield/   Average       Yield/   Average       Yield/
(dollars in thousands) Balance   Interest   Cost   Balance   Interest   Cost   Balance   Interest   Cost
Assets:                                  
Interest-earning assets:                                  
Interest-earning deposits and short-term investments $ 67,214     $ 372     2.22 %   $ 79,911     $ 467     2.37 %   $ 58,091     $ 280     1.93 %
Securities (1) 1,080,690     7,121     2.64     1,067,150     6,954     2.64     1,119,354     6,663     2.39  
Loans receivable, net (2)                                  
Commercial 3,309,869     42,579     5.16     3,211,296     41,408     5.23     3,109,313     38,805     5.01  
Residential 2,187,417     22,329     4.08     2,094,131     21,404     4.09     1,951,075     19,642     4.04  
Home Equity 347,028     4,656     5.38     353,358     4,707     5.40     369,054     4,564     4.96  
Other 113,153     1,353     4.80     119,185     1,482     5.04     7,604     124     6.54  
Allowance for loan loss net of deferred loan fees (9,155 )           (10,083 )           (11,076 )        
Loans Receivable, net 5,948,312     70,917     4.78     5,767,887     69,001     4.85     5,425,970     63,135     4.67  
Total interest-earning assets 7,096,216     78,410     4.43     6,914,948     76,422     4.48     6,603,415     70,078     4.26  
Non-interest-earning assets 972,683             924,368             929,553          
Total assets $ 8,068,899             $ 7,839,316             $ 7,532,968          
Liabilities and Stockholders’ Equity:                                  
Interest-bearing liabilities:                                  
Interest-bearing checking $ 2,504,541     4,240     0.68 %   $ 2,508,669     3,745     0.61 %   $ 2,372,777     2,028     0.34 %
Money market 631,297     1,358     0.86     623,868     1,157     0.75     597,770     694     0.47  
Savings 915,701     301     0.13     904,047     286     0.13     907,570     267     0.12  
Time deposits 934,470     3,863     1.66     932,341     3,451     1.50     902,091     2,258     1.00  
Total 4,986,009     9,762     0.79     4,968,925     8,639     0.71     4,780,208     5,247     0.44  
FHLB Advances 404,951     2,320     2.30     339,686     1,839     2.20     376,527     1,900     2.02  
Securities sold under agreements to repurchase 62,243     64     0.41     65,295     55     0.34     64,446     44     0.27  
Other borrowings 99,591     1,427     5.75     99,517     1,501     6.12     99,383     1,440     5.81  
Total interest-bearing
liabilities
5,552,794     13,573     0.98     5,473,423     12,034     0.89     5,320,564     8,631     0.65  
Non-interest-bearing deposits 1,302,147             1,211,934             1,149,764          
Non-interest-bearing liabilities 82,793             55,975             51,262          
Total liabilities 6,937,734             6,741,332             6,521,590          
Stockholders’ equity 1,131,165             1,097,984             1,011,378          
Total liabilities and equity $ 8,068,899             $ 7,839,316             $ 7,532,968          
Net interest income     $ 64,837             $ 64,388             $ 61,447      
Net interest rate spread (3)         3.45 %           3.59 %           3.61 %
Net interest margin (4)         3.66 %           3.78 %           3.73 %
Total cost of deposits (including non-interest-bearing deposits)         0.62 %           0.57 %           0.35 %


  For the Six Months Ended
  June 30, 2019   June 30, 2018
          Average           Average
  Average       Yield/   Average       Yield/
(dollars in thousands) Balance   Interest   Cost   Balance   Interest   Cost
Assets:                      
Interest-earning assets:                      
Interest-earning deposits and short-term investments $ 73,527     $ 839     2.30 %   $ 54,195     $ 488     1.82 %
Securities (1) 1,073,957     14,075     2.64     1,088,237     12,694     2.35  
Loans receivable, net (2)                      
Commercial 3,260,855     83,987     5.19     2,942,062     72,195     4.95  
Residential 2,141,032     43,733     4.09     1,897,736     38,679     4.11  
Home Equity 350,175     9,363     5.39     355,641     8,707     4.94  
Other 116,153     2,835     4.92     4,547     151     6.70  
Allowance for loan loss net of deferred loan fees (9,616 )           (10,683 )        
Loans Receivable, net 5,858,599     139,918     4.82     5,189,303     119,732     4.65  
Total interest-earning assets 7,006,083     154,832     4.46     6,331,735     132,914     4.23  
Non-interest-earning assets 948,658             858,002          
Total assets $ 7,954,741             $ 7,189,737          
Liabilities and Stockholders’ Equity:                      
Interest-bearing liabilities:                      
Interest-bearing checking $ 2,518,062     8,032     0.64 %   $ 2,318,751     3,786     0.33 %
Money market 616,384     2,468     0.81     562,050     1,244     0.45  
Savings 909,906     587     0.13     866,535     462     0.11  
Time deposits 933,410     7,314     1.58     861,687     4,219     0.99  
Total 4,977,762     18,401     0.75     4,609,023     9,711     0.42  
FHLB Advances 372,499     4,160     2.25     349,474     3,413     1.97  
Securities sold under agreements to repurchase 63,761     119     0.38     71,649     84     0.24  
Other borrowings 99,569     2,927     5.93     89,796     2,549     5.72  
Total interest-bearing liabilities 5,513,591     25,607     0.94     5,119,942     15,757     0.62  
Non-interest-bearing deposits 1,257,041             1,077,218          
Non-interest-bearing liabilities 69,443             53,140          
Total liabilities 6,840,075             6,250,300          
Stockholders’ equity 1,114,666             939,437          
Total liabilities and equity $ 7,954,741             $ 7,189,737          
Net interest income     $ 129,225             $ 117,157      
Net interest rate spread (3)         3.52 %           3.61 %
Net interest margin (4)         3.72 %           3.73 %
Total cost of deposits (including non-interest-bearing deposits)         0.60 %           0.34 %


  (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)

  June 30,   March 31,   December 31,   September 30,   June 30,
  2019   2019   2018   2018   2018
Selected Financial Condition Data:                  
Total assets $ 8,029,057     $ 8,092,948     $ 7,516,154     $ 7,562,589     $ 7,736,903  
Debt securities available-for-sale, at estimated fair value 123,610     122,558     100,717     100,015     100,369  
Debt securities held-to-maturity, net 863,838     900,614     846,810     883,540     922,756  
Equity investments, at estimated fair value 10,002     9,816     9,655     9,519     9,539  
Restricted equity investments, at cost 59,425     55,663     56,784     57,143     66,981  
Loans receivable, net 5,943,930     5,968,830     5,579,222     5,543,959     5,553,035  
Deposits 6,187,487     6,290,485     5,814,569     5,854,250     5,819,406  
Federal Home Loan Bank advances 453,646     418,016     449,383     456,806     674,227  
Securities sold under agreements to repurchase and other borrowings 158,619     165,753     161,290     160,517     161,604  
Stockholders’ equity 1,137,295     1,127,163     1,039,358     1,029,844     1,012,568  


  For the Three Months Ended,
  June 30,   March 31,   December 31,   September 30,   June 30,
  2019   2019   2018   2018   2018
Selected Operating Data:                                      
Interest income $ 78,410     $ 76,422     $ 72,358     $ 71,382     $ 70,078  
Interest expense 13,573     12,034     10,517     9,878     8,631  
Net interest income 64,837     64,388     61,841     61,504     61,447  
Provision for loan losses 356     620     506     907     706  
Net interest income after provision for loan losses 64,481     63,768     61,335     60,597     60,741  
Other income 9,879     9,512     8,748     8,285     8,883  
Operating expenses 43,289     41,827     37,794     37,503     42,470  
Branch consolidation expense 6,695     391     240     1,368     1,719  
Merger related expenses 931     5,053     1,048     662     6,715  
Income before provision for income taxes 23,445     26,009     31,001     29,349     18,720  
Provision for income taxes 4,465     4,836     4,269     5,278     3,018  
Net income $ 18,980     $ 21,173     $ 26,732     $ 24,071     $ 15,702  
Diluted earnings per share $ 0.37     $ 0.42     $ 0.55     $ 0.50     $ 0.32  
Net accretion/amortization of purchase accounting adjustments included in net interest income $ 3,663     $ 4,027     $ 3,918     $ 4,036     $ 4,883  

(continued)

  At or For the Three Months Ended
  June 30,   March 31,   December 31,   September 30,   June 30,
  2019   2019   2018   2018   2018
Selected Financial Ratios and Other Data(1):                  
                   
Performance Ratios (Annualized):                  
Return on average assets (2) 0.94 %   1.10 %   1.41 %   1.26 %   0.84 %
Return on average stockholders’ equity (2) 6.73     7.82     10.24     9.36     6.23  
Return on average tangible stockholders’ equity (2) (3) 10.32     11.97     15.60     14.39     9.64  
Stockholders’ equity to total assets 14.16     13.93     13.83     13.62     13.09  
Tangible stockholders’ equity to tangible assets (3) 9.76     9.53     9.55     9.35     8.87  
Net interest rate spread 3.45     3.59     3.54     3.51     3.61  
Net interest margin 3.66     3.78     3.71     3.67     3.73  
Operating expenses to average assets (2) 2.53     2.45     2.07     2.07     2.71  
Efficiency ratio (2) (4) 68.14     63.97     55.37     56.65     72.38  
Loans to deposits 96.06     94.89     95.95     94.70     95.42  


  For the Six Months Ended June 30,
  2019   2018
Performance Ratios (Annualized):      
Return on average assets (2) 1.02 %   0.59 %
Return on average stockholders’ equity (2) 7.26     4.54  
Return on average tangible stockholders’ equity (2) (3) 11.13     6.91  
Net interest rate spread 3.52     3.61  
Net interest margin 3.72     3.73  
Operating expenses to average assets (2) 2.49     3.02  
Efficiency ratio (2) (4) 66.07     79.82  

(continued)

  At or For the Three Months Ended
  June 30,   March 31,   December 31,   September 30,
  June 30,
  2019   2019   2018   2018   2018
Trust and Asset Management:                                      
Wealth assets under administration $ 199,554     $ 200,130     $ 184,476     $ 209,796     $ 210,690  
Nest Egg    9,755     4,052              
Per Share Data:                  
Cash dividends per common share $ 0.17     $ 0.17     $ 0.17     $ 0.15     $ 0.15  
Stockholders’ equity per common share at end of  period 22.24     22.00     21.68     21.29     20.97  
Tangible stockholders’ equity per common share at end of period (3) 14.57     14.32     14.26     13.93     13.56  
Common shares outstanding at end of period 51,131,804     51,233,944     47,951,168     48,382,370     48,283,500  
Number of full-service customer facilities: 60     63     59     59     59  
Quarterly Average Balances                  
Total securities $ 1,080,690     $ 1,067,150     $ 1,037,039     $ 1,080,784     $ 1,119,354  
Loans, receivable, net 5,948,312     5,767,887     5,523,745     5,534,086     5,425,970  
Total interest-earning assets 7,096,216     6,914,948     6,613,807     6,652,224     6,603,415  
Total assets 8,068,899     7,839,316     7,504,111     7,568,630     7,532,968  
Interest-bearing transaction deposits 4,051,539     4,036,584     3,871,134     3,775,398     3,878,117  
Time deposits 934,470     932,341     848,361     864,264     902,091  
Total borrowed funds 566,785     504,498     514,628     636,310     540,356  
Total interest-bearing liabilities 5,552,794     5,473,423     5,234,123     5,275,972     5,320,564  
Non-interest bearing deposits 1,302,147     1,211,934     1,177,321     1,210,650     1,149,764  
Stockholders’ equity 1,131,165     1,097,984     1,035,962     1,020,736     1,011,378  
Total deposits 6,288,156     6,180,859     5,896,816     5,850,312     5,929,972  
Quarterly Yields                  
Total securities 2.64 %   2.64 %   2.60 %   2.46 %   2.39 %
Loans, receivable, net 4.78     4.85     4.69     4.62     4.67  
Total interest-earning assets 4.43     4.48     4.34     4.26     4.26  
Interest-bearing transaction deposits 0.58     0.52     0.44     0.34     0.31  
Time deposits 1.66     1.50     1.31     1.17     1.00  
Borrowed funds 2.70     2.73     2.66     2.54     2.51  
Total interest-bearing liabilities 0.98     0.89     0.80     0.74     0.65  
Net interest spread 3.45     3.59     3.54     3.51     3.61  
Net interest margin 3.66     3.78     3.71     3.67     3.73  
Total deposits 0.62     0.57     0.48     0.39     0.35  


  (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, 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
  June 30,   March 31,   December 31,   September 30,   June 30,
  2019   2019   2018   2018   2018
Core earnings:                                      
Net income $ 18,980     $ 21,173     $ 26,732     $ 24,071     $ 15,702  
Non-recurring items:                  
Add:  Merger related expenses 931     5,053     1,048     662     6,715  
Branch consolidation expenses 6,695     391     240     1,368     1,719  
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 (1,867 )   (1,039 )   (130 )   (426 )   (1,771 )
Core earnings $ 25,995     $ 25,578     $ 26,036     $ 25,675     $ 22,365  
Core diluted earnings per share $ 0.51     $ 0.51     $ 0.54     $ 0.53     $ 0.46  
                   
Core ratios (Annualized):                  
Return on average assets 1.29 %   1.32 %   1.38 %   1.35 %   1.19 %
Return on average tangible stockholders’ equity 14.14     14.46     15.19     15.35     13.73  
Efficiency ratio 56.26     56.60     53.54     53.74     60.39  


  For the Six Months Ended June 30,
  2019   2018
Core earnings:              
Net income $ 40,153     $ 21,129  
Non-recurring items:      
Add:  Merger related expenses 5,984     25,200  
Branch consolidation expenses 7,086     1,544  
Compensation expense due to the retirement of an executive officer 1,256      
Less:  Income tax expense on items (2,906 )   (5,435 )
Core earnings $ 51,573     $ 42,438  
Core diluted earnings per share $ 1.02     $ 0.91  
       
Core ratios (Annualized):      
Return on average assets 1.31 %   1.19 %
Return on average tangible stockholders’ equity 14.29     13.89  
Efficiency ratio 56.43     60.01  

(continued)

COMPUTATION OF TOTAL TANGIBLE EQUITY TO TOTAL TANGIBLE ASSETS

  June 30,   March 31,   December 31,   September 30,   June 30,
  2019   2019   2018   2018   2018
Total stockholders’ equity $ 1,137,295     $ 1,127,163     $ 1,039,358     $ 1,029,844     $ 1,012,568  
Less:                                      
Goodwill   374,592       375,096       338,442       338,104       338,972  
Core deposit intangible   17,614       18,629       16,971       17,954       18,949  
Tangible stockholders’ equity $ 745,089     $ 733,438     $ 683,945     $ 673,786     $ 654,647  
                   
Total assets $ 8,029,057     $ 8,092,948     $ 7,516,154     $ 7,562,589     $ 7,736,903  
Less:                  
Goodwill 374,592     375,096     338,442     338,104     338,972  
Core deposit intangible 17,614     18,629     16,971     17,954     18,949  
Tangible assets $ 7,636,851     $ 7,699,223     $ 7,160,741     $ 7,206,531     $ 7,378,982  
Tangible stockholders’ equity to tangible assets 9.76 %   9.53 %   9.55 %   9.35 %   8.87 %

(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
      Purchase    
  Capital Bank   Accounting   Estimated
  Book Value   Adjustments   Fair Value
Total Purchase Price:                  76,834  
Assets acquired:                       
Cash and cash equivalents $ 59,748     $     $ 59,748  
Securities 103,798     (23 )   103,775  
Loans 312,320     (4,617 )   307,703  
Accrued interest receivable 1,387     3     1,390  
Bank Owned Life Insurance 10,460         10,460  
Deferred tax asset 1,605     2,239     3,844  
Other assets 9,384     (4,277 )   5,107  
Core deposit intangible     2,662     2,662  
Total assets acquired 498,702     (4,013 )   494,689  
Liabilities assumed:          
Deposits (448,792 )   (226 )   (449,018 )
Other liabilities (827 )   (4,183 )   (5,010 )
Total liabilities assumed (449,619 )   (4,409 )   (454,028 )
Net assets acquired $ 49,083     $ (8,422 )   $ 40,661  
Goodwill recorded in the merger         $ 36,173  

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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