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OceanFirst Financial Corp. Announces Second Quarter Financial Results

TOMS RIVER, N.J., July 28, 2016 (GLOBE NEWSWIRE) -- OceanFirst Financial Corp. (NASDAQ:OCFC), (the "Company"), the holding company for OceanFirst Bank (the "Bank"), today announced that diluted earnings per share were $0.16 for the three months ended June 30, 2016, as compared to $0.31 for the corresponding prior year quarter. For the six months ended June 30, 2016, diluted earnings per share were $0.39, as compared to $0.63 for the corresponding prior year period.

On May 2, 2016, the Company completed its acquisition of Cape Bancorp, Inc. ("Cape"), which added $1.5 billion in assets, $1.2 billion in loans, and $1.2 billion in deposits. The Company anticipates that core system integration and rebranding will occur in October 2016, providing for the realization of additional cost savings entering the first quarter of 2017. The results of operations for the three and six months ended June 30, 2016 includes merger related expenses of $7.2 million and $8.6 million, respectively. In connection with the acquisition, the Bank deleveraged the combined balance sheet through the sale of lower-yielding securities and the prepayment of existing term borrowings in order to improve the net interest margin, reduce interest rate sensitivity, and increase capital ratios. The implementation of this strategy resulted in an expense of $136,000 relating to the prepayment of Federal Home Loan Bank ("FHLB") borrowings and a loss of $12,000 on the sale of investment securities available-for-sale. Excluding the after-tax impact of merger related expenses and deleveraging costs, core earnings for the three and six months ended June 30, 2016 were $8.7 million or $0.38 per diluted share, and $14.1 million, or $0.70 per diluted share, respectively. (Please refer to Non-GAAP Reconciliation table at the end of this document for details on the earnings impact of these items.)

Other highlights are described below.

  • Primarily due to the benefit of the Cape acquisition, net interest margin increased to 3.55%, as compared to 3.32% in the trailing quarter and 3.23% in the prior year quarter.
  • The Company’s strong deposit funding is reflected in the loan to deposit ratio at June 30, 2016 of 97.6% and the average cost of deposits for the quarter ended June 30, 2016 of 0.25%.
  • On July 13, 2016, the Company announced it had entered into a definitive agreement and plan of merger pursuant to which Ocean Shore Holding Company ("Ocean Shore"), the holding company and parent of Ocean City Home Bank, will merge with and into OceanFirst in a transaction valued at approximately $145.6 million. Ocean City Home Bank is one of Southern New Jersey’s oldest and largest community banks with approximately $1.1 billion in total assets, $818 million in total deposits and $796 million in gross loans.

Chief Executive Officer and President Christopher D. Maher commented, "The Company achieved substantial improvement in core earnings, as we delivered the initial expected benefits of the Cape acquisition. We anticipate additional expense savings later in the year due to core system integration and rebranding which should be fully realized as we enter the first quarter of 2017." Mr. Maher added; "Our continued investment in deposit gathering capabilities, reflected in the Cape and Ocean Shore acquisitions, support our strategy of funding loan growth with high quality, core deposits."

The Company also announced that the Board of Directors declared its seventy-eighth consecutive quarterly cash dividend on common stock. The dividend for the quarter ended June 30, 2016 of $0.13 per share will be paid on August 19, 2016 to stockholders of record on August 8, 2016.

Results of Operations

On July 31, 2015, the Company completed its acquisition of Colonial American Bank ("Colonial"), which added $142.4 million to assets, $121.2 million to loans, and $123.3 million to deposits. Colonial’s results of operations are included in the consolidated results for the three and six months ended June 30, 2016, but are excluded from the results of operations for the corresponding prior year periods.

On May 2, 2016, the Company completed its acquisition of Cape and its results of operations from May 2, 2016 through June 30, 2016 are included in the consolidated results for the three and six months ended June 30, 2016, but are excluded from the results of operations for the corresponding prior year periods.

Net income for the three months ended June 30, 2016 was $3.7 million, or $0.16 per diluted share, as compared to net income of $5.1 million, or $0.31 per diluted share, for the corresponding prior year period. Net income for the six months ended June 30, 2016 was $7.9 million, or $0.39 per diluted share, as compared to net income of $10.4 million, or $0.63 per diluted share, for the corresponding prior year period. Net income for the three and six months ended June 30, 2016 includes merger related expenses, of $7.2 million and $8.6 million, respectively. Additionally, net income for the three and six months ended June 30, 2016, includes a Federal Home Loan Bank prepayment fee of $136,000, and a loss on the sale of investment securities available-for-sale of $12,000. Excluding these items, diluted earnings per share increased over the prior year periods due to higher net interest income and other income partly offset by higher operating expenses and provision for loan losses. Net income for the three and six months ended June 30, 2016 included losses of $138,000 and $417,000, respectively, attributable to the operations of a hotel, golf and banquet facility acquired in the fourth quarter of 2015 as other real estate owned.

Excluding merger related expenses, the FHLB prepayment fee and loss on sale of investment securities, diluted earnings per share increased $0.06 from the prior linked quarter primarily due to the favorable impact of the Cape acquisition.

Net interest income for the three and six months ended June 30, 2016 increased to $30.0 million and $50.6 million, respectively, as compared to $18.4 million and $36.6 million for the same prior year periods, reflecting an increase in interest-earning assets and a higher net interest margin. Average interest-earning assets increased $1,102.2 million and $668.5 million, respectively, for the three and six months ended June 30, 2016, as compared to the same prior year periods. The three and six months ended June 30, 2016 were favorably impacted by the interest-earning assets acquired from Cape and Colonial, which averaged $980.2 million and $545.6 million, respectively. Average loans receivable, net, increased $1,009.5 million and $644.1 million, respectively, for the three and six months ended June 30, 2016, as compared to the same prior year periods. The increases attributable to Cape and Colonial were $866.4 million and $483.9 million, respectively. The net interest margin increased to 3.55% and 3.45%, respectively, for the three and six months ended June 30, 2016, as compared to 3.23% for both prior year periods. The yield on average interest-earning assets increased to 3.92% and 3.84%, respectively, for the three and six months ended June 30, 2016, as compared to 3.61% and 3.60% for the same prior year periods. The yields on average interest-earning assets for the three and six months ended June 30, 2016 benefited from the accretion of purchase accounting adjustments on Cape and Colonial of $1.3 million and $1.4 million, respectively; the higher-yielding interest-earning assets acquired from Cape; and the change in the average balance sheet mix in favor of higher-yielding loans receivable at the expense of lower-yielding securities. The cost of average interest-bearing liabilities at 0.46% for the three months ended June 30, 2016, was unchanged as compared to the prior year period. For the six months ended June 30, 2016, the cost of average interest-bearing liabilities increased to 0.48%, from 0.46% in the prior year period. The total cost of deposits (including non-interest bearing deposits) was 0.25%, for both the three and six months ended June 30, 2016, as compared to 0.22% for both prior year periods.

Net interest income for the three months ended June 30, 2016 increased $9.5 million, as compared to the prior linked quarter, as interest-earning assets increased $909.3 million, of which $876.6 million relates to Cape, and as the net interest margin increased to 3.55%, from 3.32%. The yield on average interest-earning assets increased to 3.92% for the three months ended June 30, 2016, from 3.73% for the prior linked quarter, while the cost of average interest-bearing liabilities was 0.46% for the three months ended June 30, 2016, as compared to 0.50% for the prior linked quarter.

For the three and six months ended June 30, 2016, the provision for loan losses was $662,000 and $1.2 million, respectively, as compared to $300,000 and $675,000, respectively, for the corresponding prior year periods. Net charge-offs were $198,000 and $1.3 million, respectively, for the three and six months ended June 30, 2016, as compared to net charge-offs of $185,000 and $458,000, respectively, in the corresponding prior year periods. The increase in net charge-offs for the six months ended June 30, 2016 was primarily due to first quarter charge-offs of $886,000 on two non-performing commercial loans. Non-performing loans decreased to $15.3 million at June 30, 2016, as compared to $16.2 million at March 31, 2016 and $20.9 million at June 30, 2015.

For the three and six months ended June 30, 2016, other income increased to $4.9 million and $8.3 million, respectively, as compared to $4.2 million and $8.2 million, respectively, in the same prior year periods. The increases from the prior periods were primarily due to the impact of the Cape acquisition which added $951,000 to total other income for the three and six months ended June 30, 2016, as compared to the same prior year periods. Excluding Cape, other income decreased $238,000 and $848,000, respectively, as compared to the same prior year periods. The decreases, excluding Cape, were partly due to higher net losses from other real estate operations of $196,000 and $623,000, respectively, as compared to the prior year periods. The losses were predominately due to the seasonal operations of the hotel, golf and banquet facility acquired as other real estate owned in the fourth quarter of 2015. The Bank is currently engaged in a sales process with qualified buyers. The results for the three and six months ended June 30, 2015 included gains on sale of loan servicing of $30,000 and $111,000, respectively.

For the quarter ended June 30, 2016, other income, excluding the impact from Cape, increased $557,000, as compared to the prior linked quarter. The increases were related to a lower net loss on other real estate operations of $138,000 and a $187,000 increase in fees and service charges.

Operating expenses increased to $28.6 million and $45.4 million, respectively, for the three and six months ended June 30, 2016, as compared to $14.4 million and $28.1 million, respectively, in the same prior year periods. Operating expenses for the three and six months ended June 30, 2016 include $7.2 million and $8.6 million, respectively, in merger related expenses relating to the acquisition of Cape, as compared to merger related expenses of $184,000 and $234,000, respectively, in the prior year periods relating to the acquisition of Colonial. Excluding merger related expenses, the increases in operating expenses over the prior year were primarily due to the operations of Cape and Colonial, which added $5.3 million and $5.8 million for the quarter and year-to-date, respectively; the investment in commercial lending which added expenses of $339,000 and $780,000 for the quarter and year-to-date, respectively; the impact of new branches which added expenses of $391,000 and $722,000 for the quarter and year-to-date, respectively; and the FHLB prepayment fee of $136,000.

For the three months ended June 30, 2016, operating expenses increased $6.1 million, as compared to the prior linked quarter, excluding merger related expenses. The increase was primarily due to the additional expense from the operations of Cape of $4.9 million; the FHLB prepayment fee of $136,000; higher compensation and employee benefits expense of $387,000; and higher marketing expense of $212,000.

The provision for income taxes was $1.9 million and $4.4 million, respectively, for the three and six months ended June 30, 2016, as compared to $2.8 million and $5.5 million, respectively, for the same prior year periods. The effective tax rate was 34.5% and 35.8%, respectively, for the three and six months ended June 30, 2016 as compared to 35.1% and 34.7%, respectively, for the same prior year periods and 36.8% in the prior linked quarter. The variances in the effective tax rate were primarily due to the timing of non-deductible merger related expenses.

Financial Condition

Total assets increased by $1,454.4 million to $4,047.5 million at June 30, 2016, from $2,593.1 million at December 31, 2015 as a result of the acquisition of Cape. Loans receivable, net, increased by $1,159.3 million, to $3,130.0 million at June 30, 2016, from $1,970.7 million at December 31, 2015. Excluding the Cape acquisition, loans receivable, net, increased $2.4 million. As part of the acquisition of Cape, Colonial and the purchase of an existing retail branch in the Toms River market in the first quarter of 2016, the Company has outstanding goodwill and core deposit intangible at June 30, 2016 of $67.1 million and $3.9 million, respectively.

Deposits increased by $1,289.6 million, to $3,206.3 million at June 30, 2016, from $1,916.7 million at December 31, 2015, including deposits of $1,248.4 million acquired from Cape and $17.0 million acquired through the purchase of an existing retail branch located in the Toms River market. The loan-to-deposit ratio at June 30, 2016 was 97.6%, as compared to 102.8% at December 31, 2015. The deposit growth partly funded a decrease in FHLB advances of $11.8 million, to $312.6 million at June 30, 2016, from $324.4 million at December 31, 2015.

Stockholders' equity increased to $409.3 million at June 30, 2016, as compared to $238.4 million at December 31, 2015. The acquisition of Cape added $165.9 million to stockholder’s equity. At June 30, 2016, there were 244,804 shares available for repurchase under the stock repurchase program adopted in July of 2014. Tangible stockholders’ equity per common share decreased to $13.14 at June 30, 2016, as compared to $13.67 at December 31, 2015 due to the addition of intangible assets in the Cape acquisition.

Asset Quality

The Company's non-performing loans decreased to $15.3 million at June 30, 2016, compared to $18.3 million at December 31, 2015 and $20.9 million at June 30, 2015. Non-performing loans do not include $9.7 million of purchased credit-impaired ("PCI") loans acquired from Cape and Colonial. The Company’s other real estate owned totaled $9.8 million at June 30, 2016, as compared to $8.8 million at December 31, 2015. The amount includes $7.0 million relating to the hotel, golf and banquet facility located in New Jersey which the Company acquired in the fourth quarter of 2015. At June 30, 2016, the Company’s allowance for loan losses was 0.53% of total loans, a decrease from 0.84% at December 31, 2015. These ratios exclude existing fair value credit marks of $27.3 million at June 30, 2016 on the Cape and Colonial loans and $2.2 million at December 31, 2015 on the Colonial loans. 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 108.79% at June 30, 2016 as compared to 91.51% at December 31, 2015.

Explanation of Non-GAAP Financial Measures

Reported amounts are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Company’s management believes that the supplemental non-GAAP information, which consists of reported net income, excluding merger related expenses, loss on sale of investment securities available for sale and Federal Home Loan Bank prepayment fee, 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.

Conference Call

As previously announced, the Company will host an earnings conference call on Friday, July 29, 2016 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 10088668 from one hour after the end of the call until October 29, 2016. The conference call, as well as the replay, are also available (listen-only) by internet webcast at www.oceanfirst.com in the Investor Relations section.

OceanFirst Financial Corp.'s subsidiary, OceanFirst Bank, founded in 1902, is a community bank with $4.0 billion in assets, $3.1 billion in loans, $3.2 billion in deposits and 50 branches located throughout central and southern New Jersey. OceanFirst Bank delivers commercial and residential financing solutions, wealth management and deposit services and is one of the largest and oldest community-based financial institutions headquartered in New Jersey.

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

Forward-Looking Statements

In addition to historical information, this news release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," "will," "should," "may," "view," "opportunity," "potential," or similar expressions or expressions of confidence. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to: changes in interest rates, general economic conditions, levels of unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, future natural disasters and increases to flood insurance premiums, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles and guidelines. These risks and uncertainties are further discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 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,
2016 2016 2015 2015
ASSETS(unaudited) (unaudited) (unaudited)
Cash, due from banks and interest-bearing deposits$ 66,222 $ 34,261 $ 43,946 $ 40,359
Securities available-for-sale, at estimated fair value 12,509 30,085 29,902 30,030
Securities held-to-maturity, net (estimated fair value of $520,971 at June 30, 2016, $378,613 at March 31, 2016, $397,763 at December 31, 2015, and $420,409 at June 30, 2015) 513,721 375,616 394,813 414,625
Federal Home Loan Bank of New York stock, at cost 21,128 16,645 19,978 18,740
Loans receivable, net 3,130,046 1,996,993 1,970,703 1,772,879
Mortgage loans held for sale 5,310 3,386 2,697 1,454
Interest and dividends receivable 10,143 6,036 5,860 5,550
Other real estate owned 9,791 9,029 8,827 3,357
Premises and equipment, net 49,392 28,322 28,419 24,931
Servicing asset 664 544 589 487
Bank Owned Life Insurance 105,929 57,868 57,549 56,858
Deferred tax asset 37,052 16,786 16,807 15,234
Other assets 14,581 10,485 10,900 10,596
Core deposit intangible 3,903 310 256 0
Goodwill 67,102 2,081 1,822 0
Total Assets$4,047,493 $2,588,447 $ 2,593,068 $2,395,100
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits$3,206,262 $1,971,360 $ 1,916,678 $1,761,675
Securities sold under agreements to repurchase with retail customers 67,673 83,913 75,872 71,687
Federal Home Loan Bank advances 312,603 251,917 324,385 295,616
Other borrowings 22,500 22,500 22,500 27,500
Advances by borrowers for taxes and insurance 9,828 7,271 7,121 7,845
Other liabilities 19,369 10,410 8,066 9,242
Total liabilities 3,638,235 2,347,371 2,354,622 2,173,565
Stockholders' equity:
Preferred stock, $.01 par value, $1,000 liquidation preference, 5,000,000 shares authorized, no shares issued
Common stock, $.01 par value, 55,000,000 shares authorized, 33,566,772 shares issued and 25,748,898, 17,358,005, 17,286,557 and 16,722,632, shares outstanding at June 30, 2016, March 31, 2016, December 31, 2015, and June 30, 2015, respectively 336 336 336 336
Additional paid-in capital 308,460 271,003 269,757 267,248
Retained earnings 230,895 231,016 229,140 223,644
Accumulated other comprehensive loss (5,798) (5,923) (6,241) (6,587)
Less: Unallocated common stock held by Employee Stock Ownership Plan (2,903) (2,974) (3,045) (3,187)
Treasury stock, 7,817,874, 16,208,767, 16,280,215, and 16,844,140 shares at June 30, 2016, March 31, 2016, December 31, 2015,and June 30, 2015, respectively (121,732) (252,382) (251,501) (259,919)
Common stock acquired by Deferred Compensation Plan (308) (305) (314) (309)
Deferred Compensation Plan Liability 308 305 314 309
Total stockholders' equity 409,258 241,076 238,446 221,535
Total liabilities and stockholders' equity$4,047,493 $2,588,447 $ 2,593,068 $2,395,100


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,
2016 2016 2015 2016 2015
-------------(unaudited)------------------------------(unaudited)------------
Interest income:
Loans$30,521 $ 21,035 $ 18,548 $51,556 $ 36,577
Mortgage-backed securities 1,708 1,415 1,519 3,123 3,142
Investment securities and other 912 623 509 1,535 1,026
Total interest income 33,141 23,073 20,576 56,214 40,745
Interest expense:
Deposits 1,771 1,271 967 3,042 1,922
Borrowed funds 1,356 1,243 1,176 2,599 2,257
Total interest expense 3,127 2,514 2,143 5,641 4,179
Net interest income 30,014 20,559 18,433 50,573 36,566
Provision for loan losses 662 563 300 1,225 675
Net interest income after provision for loan losses 29,352 19,996 18,133 49,348 35,891
Other income:
Bankcard services revenue 1,211 851 899 2,062 1,682
Wealth management revenue 621 550 629 1,171 1,157
Fees and service charges 2,502 1,817 2,059 4,319 3,949
Loan servicing income 95 56 59 151 111
Net loss on sale of investment securities available for sale (12) (12)
Net gain on sale of loan servicing 30 111
Net gain on sales of loans available for sale 170 179 185 349 377
Net loss from other real estate operations (313) (406) (72) (719) (51)
Income from Bank Owned Life Insurance 542 319 364 861 810
Other 67 10 18 77 11
Total other income 4,883 3,376 4,171 8,259 8,157
Operating expenses:
Compensation and employee benefits 11,432 8,466 7,700 19,898 15,239
Occupancy 2,011 1,626 1,242 3,637 2,696
Equipment 1,184 969 813 2,153 1,611
Marketing 543 251 415 794 689
Federal deposit insurance 723 529 506 1,252 1,004
Data processing 1,881 1,265 1,101 3,146 2,189
Check card processing 505 420 423 925 898
Professional fees 700 498 539 1,198 934
Other operating expense 2,217 1,277 1,469 3,493 2,636
Federal Home Loan Bank prepayment fee 136 136
Amortization of core deposit intangible 125 13 138
Merger related expense 7,189 1,402 184 8,591 234
Total operating expenses 28,646 16,716 14,392 45,361 28,130
Income before provision for income taxes 5,589 6,656 7,912 12,246 15,918
Provision for income taxes 1,928 2,451 2,779 4,380 5,523
Net income$ 3,661 $ 4,205 $ 5,133 $ 7,866 $ 10,395
Basic earnings per share$ 0.16 $ 0.25 $ 0.31 $ 0.40 $ 0.63
Diluted earnings per share$ 0.16 $ 0.25 $ 0.31 $ 0.39 $ 0.63
Average basic shares outstanding 22,478 16,906 16,401 19,694 16,433
Average diluted shares outstanding 22,880 17,118 16,593 19,996 16,613


OceanFirst Financial Corp.

SELECTED LOAN AND DEPOSIT DATA

(in thousands)

LOANS RECEIVABLE
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
June 30,
2015
Commercial:
Commercial and industrial$ 222,355 $ 141,364 $ 144,788 $ 129,379 $ 111,229
Commercial real estate – owner-occupied 523,662 308,666 307,509 317,438 281,178
Commercial real estate – investor 1,011,354 536,754 510,936 486,625 417,108
Total commercial 1,757,371 986,784 963,233 933,442 809,515
Consumer:
Residential mortgage 1,096,091 796,139 793,946 789,517 749,416
Residential construction 48,266 54,259 50,757 51,580 52,428
Home equity loans and lines 258,398 190,621 192,368 193,587 191,708
Other consumer 1,586 570 792 719 643
Total consumer 1,404,341 1,041,589 1,037,863 1,035,403 994,195
Total loans 3,161,712 2,028,373 2,001,096 1,968,845 1,803,710
Loans in process (13,119) (15,033) (14,206) (14,145) (16,073)
Deferred origination costs, net 3,441 3,253 3,232 3,216 3,230
Allowance for loan losses (16,678) (16,214) (16,722) (16,638) (16,534)
Total loans, net 3,135,356 2,000,379 1,973,400 1,941,278 1,774,333
Less: mortgage loans held for sale 5,310 3,386 2,697 2,306 1,454
Loans receivable, net$3,130,046 $1,996,993 $ 1,970,703 $ 1,938,972 $1,772,879
Mortgage loans serviced for others $ 145,903 $ 152,653 $ 158,244 $ 164,488 $ 173,090
Loan pipeline:Average Yield
Commercial 4.14%$ 48,897 $ 57,571 $ 53,785 $ 71,944 $ 58,613
Residential mortgage and construction 3.79 30,520 28,528 31,860 39,894 26,854
Home equity loans and lines 4.38 5,594 8,082 5,481 8,859 8,059
Total 4.03 $ 85,011 $ 94,181 $ 91,126 $ 120,697 $ 93,526


For the Three Months Ended,
June 30,March 31,December 31,September 30,June 30,
2016 2016 2015 2015 2015
Loan originations:
Commercial 4.25%$ 59,543 $ 58,005 $ 72,534 $ 70,378 $ 52,037
Residential mortgage and construction 3.66 40,295 34,361 43,616 35,994 47,261
Home equity loans and lines 4.32 10,067 10,915 10,431 13,841 13,259
Total 4.04 $109,905 $ 103,281 $ 126,581 $ 120,213 $ 112,557
Loans sold $ 10,303 $ 8,901 $ 9,784 $ 11,063 $ 16,788


DEPOSITS
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
June 30,
2015
Type of Account
Non-interest-bearing$ 554,709 $ 351,743 $ 337,143 $ 362,079 $ 328,175
Interest-bearing checking 1,310,290 860,468 859,927 883,940 794,310
Money market deposit 366,942 163,885 153,196 151,657 123,017
Savings 489,132 327,845 310,989 310,009 306,079
Time deposits 485,189 267,420 255,423 260,086 210,094
$3,206,262 $1,971,361 $ 1,916,678 $ 1,967,771 $1,761,675

OceanFirst Financial Corp.
ASSET QUALITY
(in thousands)

June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
June 30,
2015
ASSET QUALITY
Non-performing loans:
Commercial and industrial$ 964 $ 909 $ 123 $ 115 $ 115
Commercial real estate – owner-occupied 4,363 4,354 7,684 15,666 13,139
Commercial real estate – investor 1,675 940 3,112 1,391 1,462
Residential mortgage 7,102 8,788 5,779 5,481 4,288
Home equity loans and lines 1,226 1,202 1,574 1,738 1,899
Other consumer 2 3 2
Total non-performing loans 15,330 16,193 18,274 24,394 20,905
Other real estate owned 9,791 9,029 8,827 3,262 3,357
Total non-performing assets$ 25,121 $ 25,222 $ 27,101 $ 27,656 $ 24,262
Purchased credit-impaired ("PCI") loans$ 9,673 $ 376 $ 461 $ 1,019 $
Delinquent loans 30 to 89 days$ 15,643 $ 6,996 $ 9,087 $ 8,025 $ 7,258
Troubled debt restructurings:
Non-performing (included in total non-performing loans above)$ 2,990 $ 4,775 $ 4,918 $ 3,819 $ 3,832
Performing 28,173 26,689 26,344 26,935 27,618
Total troubled debt restructurings$ 31,163 $ 31,464 $ 31,262 $ 30,754 $ 31,450
Allowance for loan losses$ 16,678 $ 16,214 $ 16,722 $ 16,638 $ 16,534
Allowance for loan losses as a percent of total loans receivable 0.53% 0.80% 0.84% 0.85% 0.92
%
Allowance for loan losses and fair value credit marks as a percent of total loans receivable (1) 1.39% 0.91% 0.95% 1.01% 0.92
%
Allowance for loan losses as a percent of total non-performing loans
108.79 100.13 91.51 68.21 79.09
Non-performing loans as a percent of total loans receivable 0.48 0.80 0.91 1.24 1.16
Non-performing assets as a percent of total assets 0.62 0.97 1.05 1.08 1.01
(1) The loans acquired from Cape and Colonial were recorded at fair value. The net credit mark on these loans, not reflected in the allowance for loans losses, was $27,281,000, $2,013,000, $2,202,000 and $3,046,000 at June 30, 2016, March 31, 2016, December 31, 2015 and September 30, 2015, respectively.

NET CHARGE-OFFS

For the quarters ended
June 30,March 31,December 31,September 30,June 30,
2016 2016 2015 2015 2015
Net Charge-offs:
Loan charge-offs$ (223)$ (1,172)$ (236)$ (210)$ (331)
Recoveries on loans 25 101 19 14 146
Net loan charge-offs$ (198)$ (1,071)$ (217)$ (196)$ (185)
Net loan charge-offs to average total loans (annualized) 0.03% 0.21% 0.04% 0.04% 0.04%
Net charge-off detail - (loss) recovery:
Commercial$ (84)$ (1,073)$ 12 $ (47)$ (3)
Residential mortgage and construction (69) (24) (117) (51) 11
Home equity loans and lines (45) 28 (109) (98) (192)
Other consumer (2) (3) (1)
Net loans charged-off$ (198)$ (1,071)$ (217)$ (196)$ (185)



OceanFirst Financial Corp.

ANALYSIS OF NET INTEREST INCOME

FOR THE THREE MONTHS ENDED,
JUNE 30, 2016MARCH 31, 2016JUNE 30, 2015
AVERAGE BALANCE
INTERESTAVERAGE YIELD/ COST AVERAGE BALANCEINTERESTAVERAGE YIELD/ COSTAVERAGE BALANCEINTERESTAVERAGE YIELD/ COST
(dollars in thousands)
Assets
Interest-earning assets:
Interest-earning deposits and short-term investments$ 40,567 $ 41 0.40%$ 48,501 $ 28 0.23%$ 28,636 $ 6 0.08%
Securities (1) and FHLB stock 571,463 2,579 1.81 445,696 2,010 1.80 490,760 2,022 1.65
Loans receivable, net (2):
Commercial 1,471,159 17,783 4.84 972,050 10,998 4.53 790,055 8,759 4.43
Residential 1,076,557 10,225 3.80 830,840 8,039 3.87 791,603 7,799 3.94
Home equity 236,937 2,498 4.22 191,355 1,990 4.16 194,250 1,982 4.08
Other 1,011 15 5.93 501 8 6.39 436 8 7.00
Allowance for loan loss net of deferred loan fees (13,146) (13,645) (13,349)
Total loans 2,772,518 30,521 4.40 1,981,101 21,035 4.25 1,762,995 18,548 4.21
Total interest-earning assets
3,384,548 33,141 3.92 2,475,298 23,073 3.73 2,282,391 20,576 3.61
Non-interest-earning assets 262,554 129,719 112,445
Total assets$3,647,102 $2,605,017 $2,394,836
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing checking$1,166,298 503 0.17 $ 899,883 305 0.14 $845,871 187 0.09
Money market 298,530 180 0.24 156,326 70 0.18 122,668 26 0.08
Savings 434,438 41 0.04 316,148 26 0.03 305,173 25 0.03
Time deposits 417,301 1,047 1.00 263,722 870 1.32 212,166 729 1.37
Total 2,316,567 1,771 0.31 1,636,079 1,271 0.31 1,485,878 967 0.26
Securities sold under agreements to repurchase 76,907 26 0.14 83,506 28 0.13 67,873 22 0.13
FHLB advances 287,171 1,201 1.67 266,234 1,084 1.63 270,432 952 1.41
Other borrowings 22,500 129 2.29 22,500 131 2.33 27,500 202 2.94
Total interest-bearing liabilities 2,703,145 3,127 0.46 2,008,319 2,514 0.50 1,851,683 2,143 0.46
Non-interest-bearing deposits 529,230 343,371 307,528
Non-interest-bearing liabilities 26,033 13,328 14,705
Total liabilities 3,258,408 2,365,018 2,173,916
Stockholders' equity 388,694 239,999 220,920
Total liabilities and stockholders' equity$3,647,102 $2,605,017 $2,394,836
Net interest income $30,014 $ 20,559 $ 18,433
Net interest rate spread (3) 3.46% 3.23% 3.15%
Net interest margin (4) 3.55% 3.32% 3.23%
Total cost of deposits (including non-interest bearing deposits) 0.25% 0.26% 0.22%

(1) Amounts 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.

FOR THE SIX MONTHS ENDED,
JUNE 30, 2016 JUNE 30, 2015
AVERAGE BALANCEINTERESTAVERAGE YIELD/ COST AVERAGE BALANCEINTERESTAVERAGE YIELD/ COST
(dollars in thousands)
Assets
Interest-earning assets:
Interest-earning deposits and short-term investments$ 44,533 $ 70 0.31% $ 28,443 $ 11 0.08%
Securities (1) and FHLB stock 508,590 4,588 1.80 500,326 4,157 1.66
Loans receivable, net (2):
Commercial 1,221,604 28,780 4.71 765,396 17,058 4.46
Residential 954,059 18,265 3.83 785,079 15,530 3.96
Home equity 214,146 4,488 4.19 195,384 3,973 4.07
Other 756 23 6.08 434 15 6.91
Allowance for loan loss net of deferred loan fees (13,396) (13,269)
Total loans 2,377,169 51,556 4.34 1,733,024 36,576 4.22
Total interest-earning assets 2,930,292 56,214 3.84 2,261,793 40,744 3.60
Non-interest-earning assets 195,768 112,176
Total assets$3,126,060 $ 2,373,969
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing checking$1,033,091 808 0.16 $ 859,312 382 0.09
Money market 227,428 250 0.22 111,860 46 0.08
Savings 375,293 67 0.04 303,717 49 0.03
Time deposits 340,511 1,917 1.13 208,324 1,444 1.39
Total 1,976,323 3,042 0.31 1,483,213 1,921 0.26
Securities sold under agreements to repurchase 80,207 54 0.13 67,260 43 0.13
FHLB advances 276,547 2,284 1.65 256,511 1,812 1.41
Other borrowings 22,500 261 2.32 27,500 402 2.92
Total interest-bearing liabilities 2,355,577 5,641 0.48 1,834,484 4,179 0.46
Non-interest-bearing deposits 436,300 302,490
Non-interest-bearing liabilities 19,836 14,701
Total liabilities 2,811,713 2,151,675
Stockholders' equity 314,347 222,294
Total liabilities and stockholders' equity$3,126,060 $ 2,373,969
Net interest income $ 50,573 $36,566
Net interest rate spread (3) 3.36% 3.14%
Net interest margin (4) 3.45% 3.23%
Total cost of deposits (including non-interest bearing deposits) 0.25% 0.22%

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

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

June 30,March 31,December 31,September 30,
June 30,
2016 2016 2015 2015 2015
Selected Financial Condition Data:
Total assets$4,047,493 $ 2,588,447 $ 2,593,068 $ 2,557,898 $ 2,395,100
Securities available-for-sale, at estimated fair value 12,509 30,085 29,902 30,108 30,030
Securities held-to-maturity, net 513,721 375,616 394,813 392,932 414,625
Federal Home Loan Bank of New York stock 21,128 16,645 19,978 15,970 18,740
Loans receivable, net 3,130,046 1,996,993 1,970,703 1,938,972 1,772,879
Mortgage loans held-for-sale 5,310 3,386 2,697 2,306 1,454
Deposits 3,206,262 1,971,360 1,916,678 1,967,771 1,761,675
Federal Home Loan Bank advances 312,603 251,917 324,385 233,006 295,616
Securities sold under agreements to repurchase and other borrowings 90,173 106,413 98,372 105,493 99,187
Stockholders' equity 409,258 241,076 238,446 234,688 221,535


For the quarters ended
June 30,March 31,December 31,September 30,June 30,
2016 2016 2015 2015 2015
Selected Operating Data:
Interest income$ 33,141 $ 23,073 $ 23,149 $ 21,970 $ 20,576
Interest expense 3,127 2,514 2,461 2,395 2,143
Net interest income 30,014 20,559 20,688 19,575 18,433
Provision for loan losses 662 563 300 300 300
Net interest income after provision for loan losses 29,352 19,996 20,388 19,275 18,133
Other income 4,883 3,376 4,118 4,152 4,171
Operating expenses 21,457 15,314 15,885 15,117 14,208
Merger related expenses 7,189 1,402 614 1,030 184
Income before provision for income taxes 5,589 6,656 8,007 7,280 7,912
Provision for income taxes 1,928 2,451 2,777 2,582 2,779
Net income$ 3,661 $ 4,205 $ 5,230 $ 4,698 $ 5,133
Diluted earnings per share$ 0.16 $ 0.25 $ 0.31 $ 0.28 $ 0.31


At or For the Quarters Ended
June 30,March 31,December 31,September 30, June 30,
2016 2016 2015 2015 2015
Selected Financial Ratios and Other Data(1):
Performance Ratios (Annualized):
Return on average assets (2) 0.40% 0.65% 0.81% 0.75% 0.86%
Return on average stockholders' equity (2) 3.77 7.01 8.85 8.02 9.29
Return on average tangible stockholders' equity (2)(3) 4.30 7.07 8.93 8.07 9.29
Stockholders' equity to total assets 10.11 9.31 9.19 9.18 9.25
Tangible stockholders' equity to tangible assets (3) 8.51 9.23 9.12 9.10 9.25
Net interest rate spread 3.46 3.23 3.27 3.16 3.15
Net interest margin 3.55 3.32 3.37 3.26 3.23
Operating expenses to average assets (2) 3.14 2.57 2.55 2.56 2.40
Efficiency ratio (2) (4) 82.09 69.84 66.51 68.05 63.67
Wealth Management:
Assets under administration (000’s)$221,277 $203,723 $229,039 $205,087 $216,533


Per Share Data:
Cash dividends per common share$ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.13
Stockholders' equity per common share at end of period 15.89 13.89 13.79 13.58 13.25
Tangible stockholders' equity per common share at end of period (3) 13.14 13.75 13.67 13.46 13.25
Number of full-service customer facilities: 50 28 27 27 24


For the quarters ended
June 30,March 31,December 31,September 30,June 30,
2016 2016 2015 2015 2015
Quarterly Average Balances
Total securities$ 571,463 $ 445,696 $ 456,486 $ 468,707 $ 490,760
Loans, receivable, net 2,772,518 1,981,101 1,960,099 1,875,458 1,762,995
Total interest-earning assets 3,384,548 2,475,298 2,457,812 2,399,212 2,282,391
Total assets 3,647,102 2,605,017 2,587,109 2,521,481 2,394,836
Interest-bearing transaction deposits 1,899,266 1,372,357 1,371,415 1,319,106 1,273,717
Time deposits 417,301 263,722 256,378 244,325 212,160
Total borrowed funds 386,578 372,240 357,171 355,639 365,804
Total interest-bearing liabilities 2,703,145 2,008,319 1,984,964 1,919,070 1,851,681
Non-interest bearing deposits 529,230 343,371 349,473 354,411 307,528
Stockholder’s equity 388,694 239,999 236,498 234,173 220,920
Total deposits 2,845,797 1,979,450 1,977,266 1,917,842 1,793,405
Quarterly Yields
Total securities 1.81% 1.80% 1.74% 1.69% 1.65%
Loans, receivable, net 4.40 4.25 4.31 4.26 4.21
Total interest-earning assets 3.92 3.73 3.77 3.66 3.61
Interest-bearing transaction deposits 0.15 0.12 0.11 0.12 0.07
Time deposits 1.00 1.32 1.30 1.28 1.37
Borrowed funds 1.40 1.34 1.39 1.39 1.29
Total interest-bearing liabilities 0.46 0.50 0.50 0.50 0.46
Net interest spread 3.46 3.23 3.27 3.16 3.15
Net interest margin 3.55 3.32 3.37 3.26 3.23
Total deposits 0.25 0.26 0.25 0.24 0.22

(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. Refer to Other Items – Non-GAAP Reconciliation for impact of merger related expenses.
(3) Tangible stockholder’s 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
(in thousands, except per share amounts)

NON-GAAP RECONCILIATION

For the quarters ended
June 30,March 31,December 31,September 30, June 30,
2016 2016 2015 2015 2015
Core earnings:
Net income$ 3,661 $ 4,205 $ 5,230 $ 4,698 $ 5,133
Add: Merger related expenses 7,189 1,402 614 1,030 184
Loss on sale of investment securities available for sale 12
Federal Home Loan Bank prepayment fee 136
Less: Income tax benefit on items (2,311) (171) (173) (316) (33)
Core earnings$ 8,687 $ 5,436 $ 5,671 $ 5,412 $ 5,284
Core diluted earnings per share$ 0.38 $ 0.32 $ 0.33 $ 0.32 $ 0.32

COMPUTATION OF TOTAL TANGIBLE EQUITY TO TOTAL TANGIBLE ASSETS

June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
June 30,
2015
Total stockholder’s equity$ 409,258 $ 241,076 $ 238,446 $ 234,688 $ 221,535
Less:
Goodwill 67,102 2,081 1,822 1,845
Core deposit intangible 3,903 310 256 269
Tangible stockholders’ equity$ 338,253 $ 238,685 $ 236,368 $ 232,574 $ 221,535
Total Assets$4,047,493 $2,588,447 $2,593,068 $2,557,898 $2,395,100
Less:
Goodwill 67,102 2,081 1,822 1,845
Core deposit intangible 3,903 310 256 269
Tangible assets$3,976,488 $2,586,056 $2,590,990 $2,555,784 $2,395,100
Tangible stockholders’ equity to tangible assets 8.51% 9.23% 9.12% 9.10% 9.25%
Net accretion/amortization of purchase accounting adjustments included in net interest income$ 1,267 $ 164 $ 177 $ 140 $

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

At May 2, 2016
(in thousands)Cape
Book Value
Purchase
Accounting Adjustments
Estimated
Fair Value
Total Purchase Price: $196,403
Assets acquired:
Cash and cash equivalents$ 30,025 $ $ 30,025
Securities and Federal Home Loan Bank Stock 218,577 361 218,938
Loans: 1,169,568 1,156,980
Specific credit fair value on credit impaired loans (7,256)
General credit fair value (19,069)
Interest rate fair value 1,982
Reverse allowance for loan losses 9,931
Reverse net deferred fees, premiums and discounts 1,824
Premises and equipment 27,972 (6,249) 21,723
Other real estate owned 2,343 (408) 1,935
Deferred tax asset 9,407 12,647 22,054
Other assets 61,793 61,793
Core deposit intangible 831 2,887 3,718
Total assets acquired 1,520,516 (3,350) 1,517,166
Liabilities assumed:
Deposits (1,247,688) (679)(a) (1,248,367)
Borrowings (123,587) (879) (124,466)
Other liabilities (7,611) (5,340)(b) (12,951)
Total liabilities assumed (1,378,886) (6,898) (1,385,784)
Net assets acquired 141,630 (10,248) 131,382
Goodwill recorded in the merger $ 65,021
The following provides an explanation of certain fair value adjustments presented in the above table:



(a) Represents fair value adjustment on time deposits of $1,024, net of reversal of prior acquisition purchase accounting adjustments of $346.
(b) Represents accrued liability related to the Pension Plan.


Company Contact: Michael J. Fitzpatrick Chief Financial Officer OceanFirst Financial Corp. Tel: (732) 240-4500, ext. 7506 Fax: (732) 349-5070 Email: Mfitzpatrick@oceanfirst.com

Source:OceanFirst Financial Corp.