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CST: 07/12/2019 03:04:20   

OceanFirst Financial Corp. Announces Third Quarter Earnings and Financial Results

43 Days ago

RED BANK, N.J., Oct. 24, 2019 (GLOBE NEWSWIRE) -- OceanFirst Financial Corp. (NASDAQ:“OCFC”), (the “Company”), the holding company for OceanFirst Bank N.A. (the “Bank”), today announced that net income was $25.0 million, or $0.49 per diluted share, for the three months ended September 30, 2019, as compared to $24.1 million, or $0.50 per diluted share, for the corresponding prior year period. For the nine months ended September 30, 2019, net income was $65.1 million, or $1.28 per diluted share, as compared to $45.2 million, or $0.95 per diluted share, for the corresponding prior year period.

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

Highlights for the quarter are described below:

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

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

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

Results of Operations

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

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

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

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

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

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

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

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

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

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

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

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

Financial Condition

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

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

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

Asset Quality

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

At September 30, 2019, the Company’s allowance for loan losses was 0.27% of total loans, a decrease from 0.30% at December 31, 2018.  These ratios exclude existing fair value credit marks of $32.8 million at September 30, 2019 on loans acquired from the Acquisition Transactions, and $31.6 million at December 31, 2018 on loans acquired from Sun, Ocean Shore, Cape and Colonial American. These loans were acquired at fair value with no related allowance for loan losses. The allowance for loan losses as a percent of total non-performing loans was 95.32% at September 30, 2019, as compared to 95.19% at December 31, 2018.

Explanation of Non-GAAP Financial Measures

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

Conference Call

As previously announced, the Company will host an earnings conference call on Friday, October  25, 2019 at 11:00 a.m. Eastern Time.  The direct dial number for the call is (888) 338-7143.  For those unable to participate in the conference call, a replay will be available.  To access the replay, dial (877) 344-7529, Replay Conference Number 10135355 from one hour after the end of the call until January 23, 2020. The conference call, as well as the replay, are also available (listen-only) by internet webcast at www.oceanfirst.com in the Investor Relations section.


OceanFirst Financial Corp.’s subsidiary, OceanFirst Bank N.A., founded in 1902, is an $8.1 billion regional bank operating throughout New Jersey, metropolitan Philadelphia and metropolitan New York City.  OceanFirst Bank delivers commercial and residential financing solutions, trust and asset management and deposit services and is one of the largest and oldest community-based financial institutions headquartered in New Jersey.

OceanFirst Financial Corp.’s press releases are available by visiting us at www.oceanfirst.com.

Forward-Looking Statements
           
In addition to historical information, this news release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “will,” “should,” “may,” “view,” “opportunity,” “potential,” or similar expressions or expressions of confidence. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to: changes in interest rates, general economic conditions, levels of unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, future natural disasters and increases to flood insurance premiums, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, accounting principles and guidelines and the Bank’s ability to successfully integrate acquired operations. These risks and uncertainties are further discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, under Item 1A - Risk Factors and elsewhere, and subsequent securities filings and should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

 


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

  September 30,   June 30,   December 31,   September 30,
  2019   2019   2018   2018
  (Unaudited)   (Unaudited)       (Unaudited)
Assets              
Cash and due from banks $ 140,901     $ 148,327     $ 120,792     $ 148,362  
Debt securities available-for-sale, at estimated fair value 127,308     123,610     100,717     100,015  
Debt securities held-to-maturity, net (estimated fair value of $826,964 at
September 30, 2019, $869,167 at June 30, 2019, $832,815 at December 31, 2018,
and $864,173 at September 30, 2018)
819,253     863,838     846,810     883,540  
Equity investments, at estimated fair value 10,145     10,002     9,655     9,519  
Restricted equity investments, at cost 62,095     59,425     56,784     57,143  
Loans receivable, net 6,081,938     5,943,930     5,579,222     5,543,959  
Loans held-for-sale 110             732  
Interest and dividends receivable 21,739     22,106     19,689     20,822  
Other real estate owned 294     865     1,381     6,231  
Premises and equipment, net 103,721     105,853     111,209     112,320  
Bank Owned Life Insurance 236,190     235,162     222,482     221,190  
Deferred tax asset 66,148     66,259     63,377     59,052  
Assets held for sale 5,156     4,198     4,522     7,552  
Other assets 69,033     53,276     24,101     36,094  
Core deposit intangible 16,605     17,614     16,971     17,954  
Goodwill 374,537     374,592     338,442     338,104  
Total assets $ 8,135,173     $ 8,029,057     $ 7,516,154     $ 7,562,589  
Liabilities and Stockholders’ Equity              
Deposits $ 6,220,855     $ 6,187,487     $ 5,814,569     $ 5,854,250  
Federal Home Loan Bank advances 512,149     453,646     449,383     456,806  
Securities sold under agreements to repurchase with retail customers 65,067     62,086     61,760     61,044  
Other borrowings 96,667     96,533     99,530     99,473  
Advances by borrowers for taxes and insurance 16,230     14,817     14,066     16,654  
Other liabilities 79,677     77,193     37,488     44,518  
Total liabilities 6,990,645     6,891,762     6,476,796     6,532,745  
Total stockholders’ equity 1,144,528     1,137,295     1,039,358     1,029,844  
Total liabilities and stockholders’ equity $ 8,135,173     $ 8,029,057     $ 7,516,154     $ 7,562,589  
                               

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

  For the Three Months Ended,   For the Nine Months Ended,
  September 30,
 2019
  June 30,
 2019
  September 30,
 2018
  September 30,
 2019
  September 30,
 2018
  |-------------------- (Unaudited) --------------------|   |---------- (Unaudited) -----------|
Interest income:                  
Loans $ 69,715     $ 70,917     $ 64,497     $ 209,633     $ 184,229  
Mortgage-backed securities 3,761     3,946     4,105     11,748     12,087  
Debt securities, equity investments and other 3,411     3,547     2,780     10,338     7,980  
Total interest income 76,887     78,410     71,382     231,719     204,296  
Interest expense:                  
Deposits 9,817     9,762     5,799     28,218     15,510  
Borrowed funds 3,678     3,811     4,079     10,884     10,125  
Total interest expense 13,495     13,573     9,878     39,102     25,635  
Net interest income 63,392     64,837     61,504     192,617     178,661  
Provision for loan losses 305     356     907     1,281     2,984  
Net interest income after provision for loan losses 63,087     64,481     60,597     191,336     175,677  
Other income:                  
Bankcard services revenue 2,658     2,679     2,425     7,622     6,717  
Trust and asset management revenue 557     569     573     1,624     1,721  
Fees and service charges 4,679     4,595     4,735     13,790     14,551  
Net gain on sales of loans     7     31     15     654  
Net unrealized gain (loss) on equity investments 89     133     (70 )   330     (282 )
Net loss from other real estate operations (108 )   (121 )   (1,582 )   (235 )   (2,975 )
Income from Bank Owned Life Insurance 1,431     1,293     1,337     4,045     3,813  
Other 2,237     724     836     3,743     1,880  
Total other income 11,543     9,879     8,285     30,934     26,079  
Operating expenses:                  
Compensation and employee benefits 21,276     23,704     19,694     67,394     64,189  
Occupancy 4,159     4,399     4,443     13,088     13,582  
Equipment 2,062     1,936     2,067     5,944     6,004  
Marketing 562     1,137     1,021     2,629     2,475  
Federal deposit insurance and regulatory assessments 297     802     927     1,931     2,857  
Data processing 3,398     3,684     3,125     10,736     9,968  
Check card processing 1,639     1,322     799     4,399     2,904  
Professional fees 2,580     1,408     1,066     5,697     3,746  
Other operating expense 3,902     3,882     3,366     11,153     9,928  
Amortization of core deposit intangible 1,009     1,015     995     3,029     2,828  
Branch consolidation expense 1,696     6,695     1,368     8,782     2,911  
Merger related expenses 777     931     662     6,761     25,863  
Total operating expenses 43,357     50,915     39,533     141,543     147,255  
Income before provision for income taxes 31,273     23,445     29,349     80,727     54,501  
Provision for income taxes 6,302     4,465     5,278     15,603     9,301  
Net income $ 24,971     $ 18,980     $ 24,071     $ 65,124     $ 45,200  
Basic earnings per share $ 0.50     $ 0.37     $ 0.50     $ 1.30     $ 0.97  
Diluted earnings per share $ 0.49     $ 0.37     $ 0.50     $ 1.28     $ 0.95  
Average basic shares outstanding 50,491     50,687     47,685     50,242     46,451  
Average diluted shares outstanding 50,966     51,290     48,572     50,830     47,403  
                             

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

LOANS RECEIVABLE     At
      September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
Commercial:                                          
Commercial and industrial     $ 406,580     $ 392,336     $ 383,686     $ 304,996     $ 343,121  
Commercial real estate - owner - occupied   787,752     771,640     802,229     740,893     735,289  
Commercial real estate - investor   2,232,159     2,143,093     2,161,451     2,023,131     2,019,859  
Total commercial     3,426,491     3,307,069     3,347,366     3,069,020     3,098,269  
Consumer:                      
Residential real estate     2,234,361     2,193,829     2,162,668     2,044,523     2,020,155  
Home equity loans and lines     330,446     341,972     351,303     353,609     359,094  
Other consumer     98,835     109,015     116,838     121,561     74,555  
Total consumer     2,663,642     2,644,816     2,630,809     2,519,693     2,453,804  
Total loans     6,090,133     5,951,885     5,978,175     5,588,713     5,552,073  
Deferred origination costs, net   8,441     8,180     7,360     7,086     8,707  
Allowance for loan losses     (16,636 )   (16,135 )   (16,705 )   (16,577 )   (16,821 )
Loans receivable, net     $ 6,081,938     $ 5,943,930     $ 5,968,830     $ 5,579,222     $ 5,543,959  
Mortgage loans serviced for others   $ 54,457     $ 90,882     $ 92,274     $ 95,100     $ 106,369  
  At September 30, 2019
Average Yield
                   
Loan pipeline (1):                      
Commercial 4.70 %   $ 126,578     $ 212,712     $ 122,325     $ 129,839     $ 137,519  
Residential real estate 3.45     189,403     82,555     63,598     49,800     64,841  
Home equity loans and lines 5.53     3,757     2,550     4,688     6,571     11,030  
Total 3.97 %   $ 319,738     $ 297,817     $ 190,611     $ 186,210     $ 213,390  


  For the Three Months Ended  
  September 30,
 2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
 
  Average Yield                      
Loan originations:                        
Commercial 4.08 %   $ 315,405     $ 123,882     $ 172,233     $ 151,851     $ 136,764    
Residential real estate 3.57     156,308     120,771     75,530     92,776     124,419    
Home equity loans and lines 5.37     10,498     14,256     13,072     15,583     17,892    
Total 3.94 %   $ 482,211     $ 258,909     $ 260,835   (2) $ 260,210   (3) $ 279,075   (4)
Loans sold     $   (5) $ 403   (5) $ 495     $ 728   (5) $ 1,349   (5)


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


DEPOSITS At
  September 30,
 2019

  June 30,
2019

  March 31,
 2019

  December 31,
2018

  September 30,
2018

Type of Account                                      
Non-interest-bearing $ 1,406,194     $ 1,370,167     $ 1,352,520     $ 1,151,362     $ 1,196,875  
Interest-bearing checking 2,400,331     2,342,913     2,400,192     2,350,106     2,332,215  
Money market deposit 593,457     642,985     666,067     569,680     584,250  
Savings 901,168     909,501     922,113     877,177     887,799  
Time deposits 919,705     921,921     949,593     866,244     853,111  
  $ 6,220,855     $ 6,187,487     $ 6,290,485     $ 5,814,569     $ 5,854,250  
                                       

OceanFirst Financial Corp.
ASSET QUALITY
(dollars in thousands)

ASSET QUALITY September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
Non-performing loans:                                      
Commercial and industrial $ 207     $ 207     $ 240     $ 1,587     $ 1,727  
Commercial real estate - owner-occupied 4,537     4,818     4,565     501     511  
Commercial real estate - investor 4,073     4,050     4,115     5,024     8,082  
Residential real estate 5,953     5,747     8,611     7,389     6,390  
Home equity loans and lines 2,683     2,974     3,364     2,914     2,529  
Total non-performing loans 17,453     17,796     20,895     17,415     19,239  
Other real estate owned 294     865     1,594     1,381     6,231  
Total non-performing assets $ 17,747     $ 18,661     $ 22,489     $ 18,796     $ 25,470  
Purchased credit-impaired (“PCI”) loans $ 13,281     $ 13,432     $ 16,306     $ 8,901     $ 9,700  
Delinquent loans 30 to 89 days $ 19,905     $ 20,029     $ 21,578     $ 25,686     $ 26,691  
Troubled debt restructurings:                  
Non-performing (included in total non-performing loans above) $ 6,152     $ 6,815     $ 6,484     $ 3,595     $ 3,568  
Performing 18,977     19,314     19,690     22,877     24,230  
Total troubled debt restructurings $ 25,129     $ 26,129     $ 26,174     $ 26,472     $ 27,798  
Allowance for loan losses $ 16,636     $ 16,135     $ 16,705     $ 16,577     $ 16,821  
Allowance for loan losses as a percent of total loans receivable (1) 0.27 %   0.27 %   0.28 %   0.30 %   0.30 %
Allowance for loan losses as a percent of total non-performing loans 95.32     90.67     79.95     95.19     87.43  
Non-performing loans as a percent of total loans receivable 0.29     0.30     0.35     0.31     0.35  
Non-performing assets as a percent of total assets 0.22     0.23     0.28     0.25     0.34  


(1) The loans acquired from Capital Bank, Sun, Ocean Shore, Cape, and Colonial American were recorded at fair value.  The net credit mark on these loans, not reflected in the allowance for loan losses, was $32,768, $36,026, $35,204, $31,647, and $34,357 at September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018, and September 30, 2018, respectively.


NET CHARGE-OFFS For the Three Months Ended  
  September 30,
 2019
  June 30,
2019
  March 31,
 2019
  December 31,
2018
  September 30,
2018
 
Net Charge-offs:                    
Loan charge-offs $ (353 )   $ (1,138 )   $ (868 )   $ (1,133 )   $ (891 )  
Recoveries on loans 549     212     376     383     114    
Net loan recoveries (charge-offs) $ 196     $ (926 ) (1) $ (492 )   $ (750 ) (1) $ (777 ) (1)
Net loan charge-offs to average total loans
(annualized)
  NM*     0.06 %   0.03 %   0.05 %   0.06 %  
Net charge-off detail - (loss) recovery:                    
Commercial $ 256     $ (58 )   $ (58 )   $ (871 )   $ (246 )  
Residential real estate 12     (728 )   (425 )   210     (478 )  
Home equity loans and lines (10 )   (121 )   (4 )   (62 )   (35 )  
Other consumer (62 )   (19 )   (5 )   (27 )   (18 )  
Net loan recoveries (charge-offs) $ 196     $ (926 ) (1) $ (492 )   $ (750 ) (1) $ (777 ) (1)


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

OceanFirst Financial Corp.
ANALYSIS OF NET INTEREST INCOME

  For the Three Months Ended
  September 30, 2019   June 30, 2019    September 30, 2018        
(dollars in thousands) Average
Balance
  Interest   Average
Yield/
Cost
  Average
Balance
  Interest   Average
Yield/
Cost
  Average
Balance
  Interest   Average
Yield/
Cost
Assets:                                  
Interest-earning assets:                                  
Interest-earning deposits and short-term investments $ 40,932     $ 264     2.56 %   $ 67,214     $ 372     2.22 %   $ 37,354     $ 172     1.83 %
Securities (1) 1,039,560     6,908     2.64     1,080,690     7,121     2.64     1,080,784     6,713     2.46  
Loans receivable, net (2)                                  
Commercial 3,350,868     42,104     4.99     3,309,869     42,579     5.16     3,101,665     38,726     4.95  
Residential 2,225,837     21,527     3.87     2,187,417     22,329     4.08     2,027,880     20,438     4.03  
Home Equity 335,691     4,678     5.53     347,028     4,656     5.38     361,127     4,628     5.08  
Other 104,310     1,406     5.35     113,153     1,353     4.80     52,764     705     5.30  
Allowance for loan loss net of deferred loan fees (8,381 )           (9,155 )           (9,350 )        
Loans Receivable, net 6,008,325     69,715     4.60     5,948,312     70,917     4.78     5,534,086     64,497     4.62  
Total interest-earning assets 7,088,817     76,887     4.30     7,096,216     78,410     4.43     6,652,224     71,382     4.26  
Non-interest-earning assets 984,421             972,683             916,406          
Total assets $ 8,073,238             $ 8,068,899             $ 7,568,630          
Liabilities and Stockholders’ Equity:                                  
Interest-bearing liabilities:                                  
Interest-bearing checking $ 2,467,879     4,311     0.69 %   $ 2,504,541     4,240     0.68 %   $ 2,300,270     2,313     0.40 %
Money market 597,896     1,208     0.80     631,297     1,358     0.86     578,446     680     0.47  
Savings 905,605     300     0.13     915,701     301     0.13     896,682     265     0.12  
Time deposits 920,032     3,998     1.72     934,470     3,863     1.66     864,264     2,541     1.17  
Total 4,891,412     9,817     0.80     4,986,009     9,762     0.79     4,639,662     5,799     0.50  
FHLB Advances 394,124     2,208     2.22     404,951     2,320     2.30     475,536     2,542     2.12  
Securities sold under agreements to repurchase 62,296     73     0.46     62,243     64     0.41     61,336     41     0.27  
Other borrowings 96,578     1,397     5.74     99,591     1,427     5.75     99,438     1,496     5.97  
Total interest-bearing liabilities 5,444,410     13,495     0.98     5,552,794     13,573     0.98     5,275,972     9,878     0.74  
Non-interest-bearing deposits 1,396,259             1,302,147             1,210,650          
Non-interest-bearing liabilities 88,868             82,793             61,272          
Total liabilities 6,929,537             6,937,734             6,547,894          
Stockholders’ equity 1,143,701             1,131,165             1,020,736          
Total liabilities and equity $ 8,073,238             $ 8,068,899             $ 7,568,630          
Net interest income     $ 63,392             $ 64,837             $ 61,504      
Net interest rate spread (3)         3.32 %           3.45 %           3.52 %
Net interest margin (4)         3.55 %           3.66 %           3.67 %
Total cost of deposits (including non-interest-bearing deposits)         0.62 %           0.62 %           0.39 %


  For the Nine Months Ended
  September 30, 2019
  September 30, 2018
  Average
Balance
  Interest   Average
Yield/
Cost
  Average
Balance
  Interest   Average
Yield/
Cost
(dollars in thousands)                      
Assets:                      
Interest-earning assets:                      
Interest-earning deposits and short-term investments $ 62,543     $ 1,103     2.36 %   $ 48,562     $ 660     1.82 %
Securities (1) 1,062,366     20,983     2.64     1,085,725     19,407     2.39  
Loans receivable, net (2)                      
Commercial 3,291,189     126,091     5.12     2,995,847     110,920     4.95  
Residential 2,169,611     65,260     4.01     1,941,594     59,117     4.06  
Home Equity 345,294     14,041     5.44     357,490     13,335     4.99  
Other 112,162     4,241     5.06     20,796     857     5.51  
Allowance for loan loss net of deferred loan fees (9,200 )           (10,233 )        
Loans Receivable, net 5,909,056     209,633     4.74     5,305,494     184,229     4.64  
Total interest-earning assets 7,033,965     231,719     4.40     6,439,781     204,296     4.24  
Non-interest-earning assets 960,709             877,642          
Total assets $ 7,994,674             $ 7,317,423          
Liabilities and Stockholders’ Equity:                      
Interest-bearing liabilities:                      
Interest-bearing checking $ 2,501,660     12,343     0.66 %   $ 2,313,012     6,099     0.35 %
Money market 610,153     3,676     0.81     567,575     1,924     0.45  
Savings 908,457     887     0.13     876,695     727     0.11  
Time deposits 928,903     11,312     1.63     862,555     6,760     1.05  
Total 4,949,173     28,218     0.76     4,619,837     15,510     0.45  
FHLB Advances 379,786     6,367     2.24     391,956     5,954     2.03  
Securities sold under agreements to repurchase 63,267     192     0.41     68,173     125     0.25  
Other borrowings 98,562     4,325     5.87     93,046     4,046     5.81  
Total interest-bearing liabilities 5,490,788     39,102     0.95     5,173,012     25,635     0.66  
Non-interest-bearing deposits 1,303,447             1,121,695          
Non-interest-bearing liabilities 75,988             55,881          
Total liabilities 6,870,223             6,350,588          
Stockholders’ equity 1,124,451             966,835          
Total liabilities and equity $ 7,994,674             $ 7,317,423          
Net interest income     $ 192,617             $ 178,661      
Net interest rate spread (3)         3.45 %           3.58 %
Net interest margin (4)         3.66 %           3.71 %
Total cost of deposits (including non-interest-bearing deposits)         0.60 %           0.36 %


(1) Amounts represent debt and equity securities, including FHLB and Federal Reserve Bank stock, and are recorded at average amortized cost.
(2) Amount is net of deferred loan fees, undisbursed loan funds, discounts and premiums and estimated loss allowances and includes loans held for sale and non-performing loans.
(3) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average interest-earning assets.
   

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

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

  September 30,   June 30,   March 31,   December 31,   September 30,
  2019   2019   2019   2018   2018
                   
Selected Financial Condition Data:                  
Total assets $ 8,135,173     $ 8,029,057     $ 8,092,948     $ 7,516,154     $ 7,562,589  
Debt securities available-for-sale, at estimated fair value 127,308     123,610     122,558     100,717     100,015  
Debt securities held-to-maturity, net 819,253     863,838     900,614     846,810     883,540  
Equity investments, at estimated fair value 10,145     10,002     9,816     9,655     9,519  
Restricted equity investments, at cost 62,095     59,425     55,663     56,784     57,143  
Loans receivable, net 6,081,938     5,943,930     5,968,830     5,579,222     5,543,959  
Deposits 6,220,855     6,187,487     6,290,485     5,814,569     5,854,250  
Federal Home Loan Bank advances 512,149     453,646     418,016     449,383     456,806  
Securities sold under agreements to repurchase and other borrowings 161,734     158,619     165,753     161,290     160,517  
Stockholders’ equity 1,144,528     1,137,295     1,127,163     1,039,358     1,029,844  


  For the Three Months Ended,
  September 30,
  June 30,
  March 31,
  December 31,
  September 30,
  2019
  2019
  2019
  2018
  2018
Selected Operating Data:                            
Interest income $ 76,887     $ 78,410     $ 76,422     $ 72,358     $ 71,382  
Interest expense 13,495     13,573     12,034     10,517     9,878  
Net interest income 63,392     64,837     64,388     61,841     61,504  
Provision for loan losses 305     356     620     506     907  
Net interest income after provision for loan losses 63,087     64,481     63,768     61,335     60,597  
Other income 11,543     9,879     9,512     8,748     8,285  
Operating expenses 40,884     43,289     41,827     37,794     37,503  
Branch consolidation expense 1,696     6,695     391     240     1,368  
Merger related expenses 777     931     5,053     1,048     662  
Income before provision for income taxes 31,273     23,445     26,009     31,001     29,349  
Provision for income taxes 6,302     4,465     4,836     4,269     5,278  
Net income $ 24,971     $ 18,980     $ 21,173     $ 26,732     $ 24,071  
Diluted earnings per share $ 0.49     $ 0.37     $ 0.42     $ 0.55     $ 0.50  
Net accretion/amortization of purchase accounting adjustments included in net interest income $ 2,769     $ 3,663     $ 4,027     $ 3,918     $ 4,036  

(continued)

  At or For the Three Months Ended
  September 30,
  June 30,
  March 31,
  December 31,
  September 30,
  2019
  2019
  2019
  2018
  2018
Selected Financial Ratios and Other Data(1):                            
                             
Performance Ratios (Annualized):                            
Return on average assets (2) 1.23 %   0.94 %   1.10 %   1.41 %   1.26 %
Return on average stockholders’ equity (2) 8.66     6.73     7.82     10.24     9.36  
Return on average tangible stockholders’ equity (2) (3) 13.18     10.32     11.97     15.60     14.39  
Stockholders’ equity to total assets 14.07     14.16     13.93     13.83     13.62  
Tangible stockholders’ equity to tangible assets (3) 9.73     9.76     9.53     9.55     9.35  
Net interest rate spread 3.32     3.45     3.59     3.54     3.52  
Net interest margin 3.55     3.66     3.78     3.71     3.67  
Operating expenses to average assets (2) 2.13     2.53     2.45     2.07     2.07  
Efficiency ratio (2) (4) 57.86     68.14     63.97     55.37     56.65  
Loans to deposits 97.77     96.06     94.89     95.95     94.70  


  For the Nine Months Ended September 30,
  2019   2018
Performance Ratios (Annualized):      
Return on average assets (2) 1.09 %   0.83 %
Return on average stockholders’ equity (2) 7.74     6.25  
Return on average tangible stockholders’ equity (2) (3) 11.83     9.56  
Net interest rate spread 3.45     3.58  
Net interest margin 3.66     3.71  
Operating expenses to average assets (2) 2.37     2.69  
Efficiency ratio (2) (4) 63.32     71.92  

(continued)

  At or For the Three Months Ended
  September 30,   June 30,   March 31,   December 31,   September 30,
  2019   2019   2019   2018   2018
Trust and Asset Management:                                      
Wealth assets under administration $ 194,137     $ 199,554     $ 200,130     $ 184,476     $ 209,796  
Nest Egg 23,946     9,755     4,052          
Per Share Data:                  
Cash dividends per common share $ 0.17     $ 0.17     $ 0.17     $ 0.17     $ 0.15  
Stockholders’ equity per common share at end of  period 22.57     22.24     22.00     21.68     21.29  
Tangible stockholders’ equity per common share at end of period (3) 14.86     14.57     14.32     14.26     13.93  
Common shares outstanding at end of period   50,700,586       51,131,804       51,233,944     47,951,168     48,382,370  
Number of full-service customer facilities: 56     60     63     59     59  
Quarterly Average Balances                  
Total securities $ 1,039,560     $ 1,080,690     $ 1,067,150     $ 1,037,039     $ 1,080,784  
Loans, receivable, net 6,008,325     5,948,312     5,767,887     5,523,745     5,534,086  
Total interest-earning assets 7,088,817     7,096,216     6,914,948     6,613,807     6,652,224  
Total assets 8,073,238     8,068,899     7,839,316     7,504,111     7,568,630  
Interest-bearing transaction deposits 3,971,380     4,051,539     4,036,584     3,871,134     3,775,398  
Time deposits 920,032     934,470     932,341     848,361     864,264  
Total borrowed funds 552,998     566,785     504,498     514,628     636,310  
Total interest-bearing liabilities 5,444,410     5,552,794     5,473,423     5,234,123     5,275,972  
Non-interest bearing deposits 1,396,259     1,302,147     1,211,934     1,177,321     1,210,650  
Stockholders’ equity 1,143,701     1,131,165     1,097,984     1,035,962     1,020,736  
Total deposits 6,287,671     6,288,156     6,180,859     5,896,816     5,850,312  
Quarterly Yields                  
Total securities 2.64 %   2.64 %   2.64 %   2.60 %   2.46 %
Loans, receivable, net 4.60     4.78     4.85     4.69     4.62  
Total interest-earning assets 4.30     4.43     4.48     4.34     4.26  
Interest-bearing transaction deposits 0.58     0.58     0.52     0.44     0.34  
Time deposits 1.72     1.66     1.50     1.31     1.17  
Borrowed funds 2.64     2.70     2.73     2.66     2.54  
Total interest-bearing liabilities 0.98     0.98     0.89     0.80     0.74  
Net interest spread 3.32     3.45     3.59     3.54     3.52  
Net interest margin 3.55     3.66     3.78     3.71     3.67  
Total deposits 0.62     0.62     0.57     0.48     0.39  


(1) With the exception of end of quarter ratios, all ratios are based on average daily balances.
(2) Performance ratios for each period include merger related expenses, branch consolidation expenses, non-recurring professional fees, compensation expense due to the retirement of an executive officer and the impact to income tax expense related to Tax Reform. Refer to Other Items - Non-GAAP Reconciliation for impact of these items.
(3) Tangible stockholders’ equity and tangible assets exclude intangible assets relating to goodwill and core deposit intangible.
(4) Efficiency ratio represents the ratio of operating expenses to the aggregate of other income and net interest income.
   

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

NON-GAAP RECONCILIATION

  For the Three Months Ended
  September 30,
  June 30,
  March 31,
  December 31,
  September 30,
  2019
  2019
  2019
  2018
  2018
Core earnings:                                      
Net income $ 24,971     $ 18,980     $ 21,173     $ 26,732     $ 24,071  
Non-recurring items:                                      
Add:  Merger related expenses 777     931     5,053     1,048     662  
Branch consolidation expenses 1,696     6,695     391     240     1,368  
Non-recurring professional fees 750                  
Compensation expense due to the retirement of an executive officer     1,256              
Income tax benefit related to Tax Reform             (1,854 )    
Less:  Income tax expense on items (663 )   (1,867 )   (1,039 )   (130 )   (426 )
Core earnings $ 27,531     $ 25,995     $ 25,578     $ 26,036     $ 25,675  
Core diluted earnings per share $ 0.54     $ 0.51     $ 0.51     $ 0.54     $ 0.53  
                   
Core ratios (Annualized):                  
Return on average assets 1.35 %   1.29 %   1.32 %   1.38 %   1.35 %
Return on average tangible stockholders’ equity 14.53     14.14     14.46     15.19     15.35  
Efficiency ratio 53.56     56.26     56.60     53.54     53.74  


  For the Nine Months Ended September 30,
  2019
  2018
Core earnings:              
Net income $ 65,124     $ 45,200  
Non-recurring items:              
Add:  Merger related expenses 6,761     25,863  
Branch consolidation expenses 8,782     2,911  
Non-recurring professional fees 750      
Compensation expense due to the retirement of an executive officer 1,256      
Less:  Income tax expense on items (3,569 )   (5,861 )
Core earnings $ 79,104     $ 68,113  
Core diluted earnings per share $ 1.56     $ 1.44  
       
Core ratios (Annualized):      
Return on average assets 1.32 %   1.24 %
Return on average tangible stockholders’ equity 14.37     14.40  
Efficiency ratio 55.47     57.87  
           

(continued)

COMPUTATION OF TOTAL TANGIBLE EQUITY TO TOTAL TANGIBLE ASSETS

  September 30,   June 30,   March 31,   December 31,   September 30,
  2019   2019   2019   2018   2018
Total stockholders’ equity $ 1,144,528     $ 1,137,295     $ 1,127,163     $ 1,039,358     $ 1,029,844  
Less:                                      
Goodwill 374,537     374,592     375,096     338,442     338,104  
Core deposit intangible 16,605     17,614     18,629     16,971     17,954  
Tangible stockholders’ equity $ 753,386     $ 745,089     $ 733,438     $ 683,945     $ 673,786  
                   
Total assets $ 8,135,173     $ 8,029,057     $ 8,092,948     $ 7,516,154     $ 7,562,589  
Less:                  
Goodwill 374,537     374,592     375,096     338,442     338,104  
Core deposit intangible 16,605     17,614     18,629     16,971     17,954  
Tangible assets $ 7,744,031     $ 7,636,851     $ 7,699,223     $ 7,160,741     $ 7,206,531  
Tangible stockholders’ equity to tangible assets 9.73 %   9.76 %   9.53 %   9.55 %   9.35 %
                             

(continued)

ACQUISITION DATE - FAIR VALUE BALANCE SHEET

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

  At January 31, 2019
  Capital Bank
Book Value
  Purchase
Accounting
Adjustments
  Estimated Fair
Value
Total Purchase Price:         $ 76,834  
Assets acquired:          
Cash and cash equivalents $ 59,748     $     $ 59,748  
Securities 103,798     (23 )   103,775  
Loans 312,320     (4,542 )   307,778  
Accrued interest receivable 1,387     3     1,390  
Bank Owned Life Insurance 10,460         10,460  
Deferred tax asset 1,605     2,224     3,829  
Other assets 9,384     (4,277 )   5,107  
Core deposit intangible     2,662     2,662  
Total assets acquired 498,702     (3,953 )   494,749  
Liabilities assumed:          
Deposits (448,792 )   (226 )   (449,018 )
Other liabilities (827 )   (4,188 )   (5,015 )
Total liabilities assumed (449,619 )   (4,414 )   (454,033 )
Net assets acquired $ 49,083     $ (8,367 )   $ 40,716  
Goodwill recorded in the merger         $ 36,118  
               

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

Company Contact:

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

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