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OceanFirst Financial Corp. Announces Third Quarter Financial Results and 15% Increase to Quarterly Dividend

TOMS RIVER, N.J., Oct. 26, 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 $0.35 for the three months ended September 30, 2016, as compared to $0.28 for the corresponding prior year quarter. For the nine months ended September 30, 2016, diluted earnings per share were $0.77, as compared to $0.90 for the corresponding prior year period.

Merger related charges and deleveraging expenses adversely impacted quarterly operating results by $0.05 and year to date operating results by $0.34 after tax. On May 2, 2016, the Company completed its acquisition of Cape Bancorp, Inc. (“Cape”), which added $1.5 billion in total assets, including $1.2 billion in loans, and $1.2 billion in deposits. The results of operations for the three and nine months ended September 30, 2016 include merger related expenses of $1.3 million and $9.9 million, respectively. In connection with the acquisition, during the second quarter of 2016 the Bank deleveraged the combined balance sheet through the sale of lower-yielding investment securities and the prepayment of existing term borrowings in order to improve the net interest margin, reduce interest rate sensitivity, and increase regulatory 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 nine months ended September 30, 2016 were $10.3 million, or $0.40 per diluted share, and $24.4 million, or $1.11 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.)

Highlights for the quarter are described below.

  • Core earnings (as defined above) per share increased 25% for the three months ended September 30, 2016, as compared to the three months ended September 30, 2015, supporting a $0.02 increase in the quarterly dividend, to $0.15 per share.
  • Deposits increased $118.4 million for the quarter, an annualized growth rate of 14.8%, resulting in a loan to deposit ratio at September 30, 2016 of 91.1% and an average cost of deposits for the quarter ended September 30, 2016 of just 0.25%.
  • Cape’s core systems were fully integrated on October 15, 2016, providing for the realization of additional cost savings entering the first quarter of 2017.
  • Risk management activities related to recent acquisitions included selling 63 residential loans with a carrying value of $4.4 million and 72 SBA loans with a carrying value of $8.4 million, which represented the entire SBA portfolio. One additional pool of commercial loans was designated as held for sale with a targeted closing in the fourth quarter.

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 the Company 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 $1.0 billion in total assets, $807 million in total deposits and $791 million in net loans at June 30, 2016. Pending regulatory and shareholder approvals, the Company expects to close the transaction by the first quarter of 2017 and anticipates full integration of Ocean City Home Bank’s operations and systems in May 2017.

Chief Executive Officer and President Christopher D. Maher commented, "Our year over year growth in core earnings per share of 25%, augmented by the ongoing benefits of the Cape acquisition, was a key driver for the Board of Directors to increase the per share cash dividend by 15%. We achieved this earnings growth while also reducing our risk profile through the sale of high risk loans." Mr. Maher added, "Our strong core deposit growth, low average deposit cost and conservative loan to deposit ratio support the exceptional value of our deposit franchise and provides a platform to fund future loan growth."

The Company also announced that the Board of Directors declared its seventy-ninth consecutive quarterly cash dividend on common stock. The dividend for the quarter ended September 30, 2016 of $0.15 per share will be paid on November 18, 2016 to stockholders of record on November 7, 2016.

Results of Operations

On July 31, 2015, the Company completed its acquisition of Colonial American Bank ("Colonial American"), which added $142.4 million to assets, $121.2 million to loans, and $123.3 million to deposits. Colonial American’s results of operations are included in the consolidated results for the three and nine months ended September 30, 2016, but for 2015 Colonial American is only included in the results of operations for the period from August 1, 2015 through September 30, 2015.

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

Net income for the three months ended September 30, 2016, was $9.1 million, or $0.35 per diluted share, as compared to net income of $4.7 million, or $0.28 per diluted share, for the corresponding prior year period. Net income for the nine months ended September 30, 2016, was $17.0 million, or $0.77 per diluted share, as compared to net income of $15.1 million, or $0.90 per diluted share for the corresponding prior year period. Net income for the three and nine months ended September 30, 2016 includes merger related expenses of $1.3 million and $9.9 million, respectively, as compared to merger related expenses of $1.0 million and $1.3 million, respectively, for the same prior year periods. Additionally, net income for the nine months ended September 30, 2016, includes a FHLB 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 partially offset by higher operating expenses and provision for loan losses.

Excluding merger related expenses, the FHLB prepayment fee and loss on sale of investment securities, diluted earnings per share increased $0.02 from the prior linked quarter primarily due to the favorable impact of the Cape acquisition.

Net interest income for the three and nine months ended September 30, 2016, increased to $33.9 million and $84.5 million, respectively, as compared to $19.6 million and $56.1 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 $1,388.3 million and $909.8 million, respectively, for the three and nine month ended September 30, 2016, as compared to the same prior year periods. The averages for the three and nine months ended September 30, 2016, were favorably impacted by $1,233.7 million and $776.7 million, respectively, as a result of the interest-earning assets acquired from Cape and Colonial American ("Acquisition Transactions"). Average loans receivable, net, increased $1,210.2 million and $833.9 million, respectively, for the three and nine months ended September 30, 2016, as compared to the same prior year periods. The increases attributable to the Acquisition Transactions were $1,198.7 million and $723.9 million for the three and nine months ended September 30, 2016, respectively. The net interest margin increased to 3.56% and 3.51%, respectively, for the three and nine months ended September 30, 2016, as compared to 3.24% and 3.25%, respectively for the three and nine months ended September 30, 2015. The yield on average interest-earning assets increased to 3.92% and 3.88%, respectively, for the three and nine months ended September 30, 2016, as compared to 3.63% for both the same prior year periods. The yields on average interest-earning assets for the three and nine months ended September 30, 2016 benefited from the accretion of purchase accounting adjustments on the Acquisition Transactions of $1.6 million and $3.1 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. For the three and nine months ended September 30, 2016, the cost of average interest-bearing liabilities decreased to 0.43% and 0.46%, respectively, from 0.50% and 0.47%, respectively, in the prior year periods benefitting from the change in mix in favor of lower-cost deposits at the expense of higher-cost borrowings. The total cost of deposits (including non-interest bearing deposits) was 0.25% for both the three and nine months ended September 30, 2016, as compared to 0.24% and 0.23% for the corresponding prior year periods.

Net interest income for the three months ended September 30, 2016 increased $3.9 million, as compared to the prior linked quarter, as average interest-earning assets increased $403.0 million, of which $261.9 million related to Cape. The net interest margin decreased to 3.56%, for the three months ended September 30, 2016, from 3.57% for the prior linked quarter. The yield on average interest-earning assets decreased to 3.92% for the three months ended September 30, 2016, from 3.94% for the prior linked quarter, while the cost of average interest-bearing liabilities decreased to 0.43% for the three months ended September 30, 2016, as compared to 0.47% for the prior linked quarter.

For the three and nine months ended September 30, 2016, the provision for loan losses was $888,000 and $2.1 million, respectively, as compared to $300,000 and $975,000, respectively, for the corresponding prior year periods. Net charge-offs were $1.9 million and $3.2 million, respectively, for the three and nine months ended September 30, 2016, as compared to net charge-offs of $196,000 and $654,000, respectively, in the corresponding prior year periods. The increase in net charge-offs for the three and nine months ended September 30, 2016, was primarily due to third quarter charge-offs of $1.6 million on loans sold or held for sale at September 30, 2016, and to a lesser extent, first quarter charge-offs of $886,000 on two non-performing commercial loans. Of the $1.6 million in third quarter charge-offs, $1.1 million was related to a pool of 58 higher risk commercial loans designated as held for sale at September 30, 2016, with an unpaid principal balance of $22.7 million. This pool of loans is expected to be sold in the fourth quarter. Non-performing loans totaled $16.5 million at September 30, 2016, as compared to $15.3 million at June 30, 2016, and $24.4 million at September 30, 2015. The non-performing loan amount at September 30, 2016 includes $3.2 million of loans held for sale which have been marked down to fair value.

For the three and nine months ended September 30, 2016, other income increased to $5.9 million and $14.2 million, respectively, as compared to $4.2 million and $12.3 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 $1.3 million and $2.2 million to total other income for the three and nine months ended September 30, 2016, respectively, as compared to the same prior year periods. Excluding Cape, other income increased $452,000 for the three months ended September 30, 2016, and decreased $396,000 for the nine months ended September 30, 2016, as compared to the same prior year periods. For the three and nine months ended September 30, 2016, other income included a gain of $125,000 and a loss of $292,000, respectively, attributable to the operations of a hotel, golf and banquet facility acquired as Other Real Estate Owned ("OREO") in the fourth quarter of 2015. The Bank is currently engaged in a sales process with qualified buyers for this property.

For the quarter ended September 30, 2016, other income, excluding the impact from Cape, increased $672,000, as compared to the prior linked quarter. The increase was primarily related to an improvement in OREO operations of $338,000 and an increase of $177,000 in net gains on sales of loans.

Operating expenses increased to $25.0 million and $70.4 million, respectively, for the three and nine months ended September 30, 2016, as compared to $16.1 million and $44.3 million, respectively, in the same prior year periods. Operating expenses for the three and nine months ended September 30, 2016 include $1.3 million and $9.9 million, respectively, in merger related expenses, as compared to merger related expenses of $1.0 million and $1.3 million, respectively, in the prior year periods. Excluding merger related expenses, the increases in operating expenses over the prior year were primarily due to the operations of Cape and Colonial American, which added $7.9 million and $13.7 million for the quarter and year-to-date, respectively; the investment in commercial lending which added expenses of $21,000 and $822,000 for the quarter and year-to-date, respectively; the addition of new branches which added expenses of $269,000 and $991,000 for the quarter and year-to-date, respectively; and the FHLB prepayment fee of $136,000.

For the three months ended September 30, 2016, operating expenses, excluding merger related expenses, increased $2.3 million, as compared to the prior linked quarter. The increase was primarily related to the additional expense from the operations of Cape of $2.2 million.

The provision for income taxes was $4.8 million and $9.2 million, respectively, for the three and nine months ended September 30, 2016, as compared to $2.6 million and $8.1 million, respectively, for the same prior year periods. The effective tax rate was 34.4% and 35.0%, respectively, for the three and nine months ended September 30, 2016 as compared to 35.5% and 34.9%, respectively, for the same prior year periods and 34.5% 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 $1.558 billion to $4.151 billion at September 30, 2016, from $2.593 billion at December 31, 2015, primarily as a result of the acquisition of Cape. Cash, due from banks and interest-bearing deposits increased by $267.6 million, to $311.6 million at September 30, 2016, from $43.9 million at December 31, 2015. The increase was primarily due to third quarter cash flows relating to deposit growth, the issuance of subordinated notes and the reduction in loans receivable. Loans receivable, net, increased by $1.058 billion, to $3.029 billion at September 30, 2016, from $1.971 billion at December 31, 2015. Excluding the Cape acquisition, loans receivable, net, decreased $99.8 million, partly due to the sale and pending sale, of $30.7 million in higher risk loans. As part of the acquisitions of Cape and Colonial American, and the purchase of an existing retail branch in the Toms River market in the first quarter of 2016, at September 30, 2016, the Company had outstanding goodwill of $66.5 million and core deposit intangibles of $3.7 million.

Deposits increased by $1.408 billion, to $3.325 billion at September 30, 2016, from $1.917 billion at December 31, 2015, including deposits of $1.248 billion acquired from Cape and $17.0 million acquired through the purchase of an existing retail branch located in the Toms River market. Excluding the Cape acquisition, deposits increased $159.6 million, while core deposits (all deposits excluding time deposits) increased $178.4 million. The loan-to-deposit ratio at September 30, 2016 was 91.1%, as compared to 102.8% at December 31, 2015. The deposit growth funded a decrease in FHLB advances of $73.2 million at September 30, 2016, to $251.1 million at September 30, 2016, from $324.4 million at December 31, 2015. The increase in other borrowings relates to the September 2016 issuance of $35.0 million in subordinated notes at an initial rate of 5.125% and a stated maturity of September 30, 2026.

Stockholders' equity increased to $417.2 million at September 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 September 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 $13.42 at September 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 $16.5 million at September 30, 2016, as compared to $18.3 million at December 31, 2015 and $24.4 million at September 30, 2015. Non-performing loans do not include $5.8 million of purchased credit-impaired ("PCI") loans acquired from Cape and Colonial American. The Company's OREO totaled $9.1 million at September 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 September 30, 2016, the Company's allowance for loan losses was 0.51% of total loans, a decrease from 0.84% at December 31, 2015. These ratios exclude existing fair value credit marks of $17.1 million at September 30, 2016 on the Cape and Colonial American loans and $2.2 million at December 31, 2015 on the Colonial American 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 94.61% at September 30, 2016 as compared to 91.51% at December 31, 2015.

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, loss on sale of investment securities available for sale and FHLB 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. 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 Thursday, October 27, 2016 at 9:00 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 10093578 from one hour after the end of the call until January 27, 2017. 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 $4.2 billion in total assets, $3.1 billion in total loans, $3.3 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)
September 30, June 30, December 31, September 30,
2016 2016 2015 2015
ASSETS(unaudited) (unaudited) (unaudited)
Cash, due from banks and interest-bearing deposits$311,583 $66,222 $43,946 $50,576
Securities available-for-sale, at estimated fair value 2,497 12,509 29,902 30,108
Securities held-to-maturity, net (estimated fair value of
$478,727 at September 30, 2016, $520,971 at June 30, 2016,
$397,763 at December 31, 2015, and $400,852 at
at September 30, 2015) 470,642 513,721 394,813 392,932
Federal Home Loan Bank of New York stock, at cost 18,289 21,128 19,978 15,970
Loans receivable, net 3,028,696 3,130,046 1,970,703 1,938,972
Loans held for sale 21,679 5,310 2,697 2,306
Interest and dividends receivable 9,396 10,143 5,860 5,978
Other real estate owned 9,107 9,791 8,827 3,262
Premises and equipment, net 51,243 49,392 28,419 28,721
Servicing asset 259 664 589 639
Bank Owned Life Insurance 106,433 105,929 57,549 57,206
Deferred tax asset 39,391 37,052 16,807 18,298
Other assets 11,543 14,581 10,900 10,816
Core deposit intangible 3,722 3,903 256 269
Goodwill 66,537 67,102 1,822 1,845
Total assets$4,151,017 $4,047,493 $2,593,068 $2,557,898
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits$3,324,681 $3,206,262 $1,916,678 $1,967,771
Securities sold under agreements to repurchase
with retail customers 69,078 67,673 75,872 77,993
Federal Home Loan Bank advances 251,146 312,603 324,385 233,006
Other borrowings 56,399 22,500 22,500 27,500
Advances by borrowers for taxes and insurance 8,287 9,828 7,121 7,808
Other liabilities 24,182 19,369 8,066 9,132
Total liabilities 3,733,773 3,638,235 2,354,622 2,323,210
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 25,850,956, 25,748,898, 17,286,557 and 17,276,677, shares outstanding at September 30, 2016,
June 30, 2016, December 31, 2015,
and September 30, 2015, respectively 336 336 336 336
Additional paid-in capital 308,979 308,460 269,757 269,332
Retained earnings 236,472 230,895 229,140 226,115
Accumulated other comprehensive loss (5,611) (5,798) (6,241) (6,326)
Less: Unallocated common stock held by
Employee Stock Ownership Plan (2,832) (2,903) (3,045) (3,116)
Treasury stock, 7,715,816, 7,817,874, 16,280,215,
and 16,290,095 shares at September 30, 2016, June 30, 2016, December 31, 2015, and September 30, 2015,
respectively (120,100) (121,732) (251,501) (251,653)
Common stock acquired by Deferred Compensation Plan (310) (305) (314) (311)
Deferred Compensation Plan Liability 310 305 314 311
Total stockholders' equity 417,244 409,258 238,446 234,688
Total liabilities and stockholders' equity$4,151,017 $4,047,493 $2,593,068 $2,557,898


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,June 30,September 30,September 30,September 30,
20162016201520162015
-------------(unaudited)------------------------------(unaudited)------------
Interest income:
Loans$34,607 $30,521 $19,976 $86,163 $56,553
Mortgage-backed securities 1,700 1,708 1,460 4,823 4,602
Investment securities and other 1,000 912 534 2,535 1,560
Total interest income 37,307 33,141 21,970 93,521 62,715
Interest expense:
Deposits 2,083 1,771 1,162 5,125 3,084
Borrowed funds 1,289 1,356 1,233 3,888 3,490
Total interest expense 3,372 3,127 2,395 9,013 6,574
Net interest income 33,935 30,014 19,575 84,508 56,141
Provision for loan losses 888 662 300 2,113 975
Net interest income after provision
for loan losses 33,047 29,352 19,275 82,395 55,166
Other income:
Bankcard services revenue 1,347 1,211 929 3,409 2,611
Wealth management revenue 608 621 501 1,779 1,657
Fees and service charges 2,916 2,502 2,091 7,235 6,042
Loan servicing income 26 95 75 177 186
Net loss on sale of investment securities available for sale (12) (12)
Net gain on sale of loan servicing 111
Net gain on sales of loans available for sale 347 170 260 696 637
Net loss from other real estate operations (63) (313) (59) (782) (111)
Income from Bank Owned Life Insurance 659 542 348 1,520 1,158
Other 56 67 7 133 18
Total other income 5,896 4,883 4,152 14,155 12,309
Operating expenses:
Compensation and employee benefits 13,558 11,432 8,269 33,456 23,508
Occupancy 2,315 2,011 1,508 5,952 4,204
Equipment 1,452 1,184 951 3,605 2,562
Marketing 479 543 398 1,273 1,087
Federal deposit insurance 743 723 541 1,995 1,545
Data processing 2,140 1,881 1,193 5,286 3,382
Check card processing 623 505 490 1,548 1,388
Professional fees 681 700 390 1,879 1,324
Other operating expense 1,543 2,217 1,369 5,036 4,005
Federal Home Loan Bank prepayment fee 136 136
Amortization of core deposit intangible 181 125 8 319 8
Merger related expense 1,311 7,189 1,030 9,902 1,264
Total operating expenses 25,026 28,646 16,147 70,387 44,277
Income before provision for income taxes 13,917 5,589 7,280 26,163 23,198
Provision for income taxes 4,789 1,928 2,582 9,169 8,105
Net income$9,128 $3,661 $4,698 $16,994 $15,093
Basic earnings per share$0.36 $0.16 $0.28 $0.79 $0.91
Diluted earnings per share$0.35 $0.16 $0.28 $0.77 $0.90
Average basic shares outstanding 25,435 22,478 16,733 21,624 16,522
Average diluted shares outstanding 25,889 22,880 16,953 21,990 16,746



OceanFirst Financial Corp.
SELECTED LOAN AND DEPOSIT DATA
(dollars in thousands)
LOANS RECEIVABLEAt
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
Commercial:
Commercial and industrial$185,633 $222,355 $141,364 $144,788 $129,379
Commercial real estate – owner-occupied 493,157 523,662 308,666 307,509 317,438
Commercial real estate – investor 1,014,699 1,011,354 536,754 510,936 486,625
Total commercial 1,693,489 1,757,371 986,784 963,233 933,442
Consumer:
Residential mortgage 1,061,752 1,090,781 792,753 791,249 787,211
Residential construction 46,813 48,266 54,259 50,757 51,580
Home equity loans and lines 251,421 258,398 190,621 192,368 193,587
Other consumer 1,273 1,586 570 792 719
Total consumer 1,361,259 1,399,031 1,038,203 1,035,166 1,033,097
Total loans 3,054,748 3,156,402 2,024,987 1,998,399 1,966,539
Loans in process (13,842) (13,119) (15,033) (14,206) (14,145)
Deferred origination costs, net 3,407 3,441 3,253 3,232 3,216
Allowance for loan losses (15,617) (16,678) (16,214) (16,722) (16,638)
Loans receivable, net$3,028,696 $3,130,046 $1,996,993 $1,970,703 $1,938,972
Mortgage loans serviced for others$143,657 $145,903 $152,653 $158,244 $164,488


Loan pipeline (1):
At September 30, 2016
Average Yield
Commercial 4.19%$64,976 $48,897 $57,571 $53,785 $71,944
Residential mortgage
and construction 3.75 39,252 30,520 28,528 31,860 39,894
Home equity loans and lines 4.51 5,099 5,594 8,082 5,481 8,859
Total 4.04 $109,327 $85,011 $94,181 $91,126 $120,697


For the Three Months Ended,
September 30,June 30,March 31,December 31,September 30,
2016 2016 2016 2015 2015
Loan originations:Average Yield
Commercial 3.97%$63,310 $59,543 $58,005 $72,534 $70,378
Residential mortgage and
and construction 3.65 41,170 40,295 34,361 43,616 35,994
Home equity loans and lines 4.30 11,007 10,067 10,915 10,431 13,841
Total 3.89 $115,487 $109,905 $103,281 $126,581 $120,213
Loans sold $ 17,787 (2)$10,303 $8,901 $9,784 $11,063

(1) Loan pipeline includes pending loan applications and loans approved but not funded
(2) Excludes the sale of credit-impaired loans of $12.8 million

DEPOSITSAt
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
Type of Account
Non-interest-bearing$512,957 $554,709 $351,743 $337,143 $362,079
Interest-bearing checking 1,451,083 1,310,290 860,468 859,927 883,940
Money market deposit 400,054 366,942 163,885 153,196 151,657
Savings 489,173 489,132 327,845 310,989 310,009
Time deposits 471,414 485,189 267,420 255,423 260,086
$3,324,681 $3,206,262 $1,971,361 $1,916,678 $1,967,771


OceanFirst Financial Corp.
ASSET QUALITY
(dollars in thousands)
September 30,June 30,March 31,December 31,September 30,
2016 2016 2016 2015 2015
ASSET QUALITY
Non-performing loans:
Commercial and industrial $1,152 $964 $909 $123 $115
Commercial real estate – owner-occupied 5,213 4,363 4,354 7,684 15,666
Commercial real estate – investor 1,675 1,675 940 3,112 1,391
Residential mortgage 7,017 7,102 8,788 5,779 5,481
Home equity loans and lines 1,450 1,226 1,202 1,574 1,738
Other consumer 2 3
Total non-performing loans 16,507 15,330 16,193 18,274 24,394
Other real estate owned 9,107 9,791 9,029 8,827 3,262
Total non-performing assets $25,614 $25,121 $25,222 $27,101 $27,656
Purchased credit-impaired ("PCI") loans $5,836 $9,673 $376 $461 $1,019
Delinquent loans 30 to 89 days $8,553 $15,643 $6,996 $9,087 $8,025
Troubled debt restructurings:
Non-performing (included in total non-
performing loans above) $3,520 $2,990 $4,775 $4,918 $3,819
Performing 26,396 28,173 26,689 26,344 26,935
Total troubled debt restructurings $29,916 $31,163 $31,464 $31,262 $30,754
Allowance for loan losses $15,617 $16,678 $16,214 $16,722 $16,638
Allowance for loan losses as a percent of total
loans receivable (1) 0.51% 0.53% 0.80% 0.84% 0.85%
Allowance for loan losses as a percent of total
non-performing loans 94.61 108.79 100.13 91.51 68.21
Non-performing loans as a percent of total
loans receivable 0.54 0.48 0.80 0.91 1.24
Non-performing assets as a percent of total assets 0.62 0.62 0.97 1.05 1.08
(1) The loans acquired from 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 $17,051, $27,281, $2,013, $2,202 and $3,046 at September 30, 2016, June 30, 2016, March 31, 2016, December 31, 2015 and September 30, 2015, respectively.
NET CHARGE-OFFS
For the three months ended
September 30,June 30,March 31,December 31,September 30,
2016 2016 2016 2015 2015
Net Charge-offs:
Loan charge-offs $(2,116)$(223)$(1,172)$(236)$(210)
Recoveries on loans 167 25 101 19 14
Net loan charge-offs $(1,949)$(198)$(1,071)$(217)$(196)
Net loan charge-offs to average total loans (annualized) 0.25% 0.03% 0.21% 0.04% 0.04%
Net charge-off detail - (loss) recovery:
Commercial $(1,707)$(84)$(1,073)$12 $(47)
Residential mortgage and construction (161) (69) (24) (117) (51)
Home equity loans and lines (83) (45) 28 (109) (98)
Other consumer 2 (2) (3)
Net loans charged-off $(1,949)$(198)$(1,071)$(217)$(196)
Note: Included in net loan charge-offs for the three months ended September 30, 2016 is $1,627 relating to credit-impaired loans sold or held-for-sale.


OceanFirst Financial Corp.
ANALYSIS OF NET INTEREST INCOME

FOR THE THREE MONTHS ENDED,
SEPTEMBER 30, 2016JUNE 30, 2016SEPTEMBER 30, 2015
AVERAGE
BALANCE
INTERESTAVERAGE YIELD/
COST
AVERAGE
BALANCE
INTERESTAVERAGE YIELD/
COST
AVERAGE
BALANCE
INTERESTAVERAGE YIELD/
COST
(dollars in thousands)
Assets
Interest-earning assets:
Interest-earning deposits and
short-term investments$168,045 $139 0.33%$40,567 $41 0.41%$55,047 $17 0.12%
Securities (1) and FHLB stock 533,809 2,561 1.91 571,463 2,579 1.82 468,707 1,977 1.67
Loans receivable, net (2):
Commercial 1,723,520 20,970 4.84 1,471,159 17,783 4.86 885,769 9,980 4.47
Residential 1,118,435 10,874 3.87 1,076,557 10,225 3.82 810,103 7,939 3.89
Home equity 255,919 2,745 4.27 236,937 2,498 4.24 193,483 2,050 4.20
Other 1,163 18 6.16 1,011 15 5.97 513 7 5.41
Allowance for loan loss net of
deferred loan fees (13,346) (13,146) (14,410)
Loans receivable, net 3,085,691 34,607 4.46 2,772,518 30,521 4.43 1,875,458 19,976 4.23
Total interest- earning assets 3,787,545 37,307 3.92 3,384,548 33,141 3.94 2,399,212 21,970 3.63
Non-interest-earning assets 316,290 262,554 122,269
Total assets$4,103,835 $3,647,102 $2,521,481
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing checking$1,425,350 583 0.16 $1,166,298 503 0.17 $870,115 291 0.13
Money market 386,490 295 0.30 298,530 180 0.24 142,063 65 0.18
Savings 488,749 49 0.04 434,438 41 0.04 306,928 27 0.03
Time deposits 477,496 1,156 0.96 417,301 1,047 1.01 244,325 779 1.26
Total 2,778,085 2,083 0.30 2,316,567 1,771 0.31 1,563,431 1,162 0.29
Securities sold under agreements
to repurchase 68,540 24 0.14 76,907 26 0.14 78,516 30 0.15
FHLB advances 264,213 1,067 1.61 287,171 1,201 1.68 249,623 998 1.59
Other borrowings 26,207 198 3.01 22,500 129 2.31 27,500 205 2.96
Total interest-bearing liabilities 3,137,045 3,372 0.43 2,703,145 3,127 0.47 1,919,070 2,395 0.50
Non-interest-bearing deposits 521,088 529,230 354,411
Non-interest-bearing liabilities 31,536 26,033 13,827
Total liabilities 3,689,669 3,258,408 2,287,308
Stockholders' equity 414,166 388,694 234,173
Total liabilities and
stockholders' equity$4,103,835 $3,647,102 $2,521,481
Net interest income $33,935 $30,014 $19,575
Net interest rate spread (3) 3.49% 3.47% 3.13%
Net interest margin (4) 3.56% 3.57% 3.24%
Total cost of deposits (including
non-interest-bearing deposits) 0.25% 0.25% 0.24%

(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 NINE MONTHS ENDED,
SEPTEMBER 30, 2016 SEPTEMBER 30, 2015
AVERAGE
BALANCE
INTERESTAVERAGE YIELD/
COST
AVERAGE
BALANCE
INTERESTAVERAGE YIELD/
COST
(dollars in thousands)
Assets
Interest-earning assets:
Interest-earning deposits and
short-term investments$86,007 $209 0.32% $37,409 $29 0.10%
Securities (1) and FHLB stock 517,051 7,149 1.85 489,671 6,133 1.67
Loans receivable, net (2):
Commercial 1,390,196 49,750 4.78 805,961 27,034 4.50
Residential 1,009,012 29,139 3.86 793,512 23,469 3.95
Home equity 228,172 7,233 4.23 194,743 6,027 4.14
Other 893 41 6.13 461 23 6.67
Allowance for loan loss net of
deferred loan fees (13,379) (13,654)
Loans receivable, net 2,614,894 86,163 4.40 1,781,023 56,553 4.25
Total interest-earning assets 3,217,952 93,521 3.88 2,308,103 62,715 3.63
Non-interest-earning assets 236,399 115,577
Total assets$3,454,351 $2,423,680
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing checking$1,181,110 1,391 0.16 $864,054 673 0.10
Money market 280,836 546 0.26 122,038 111 0.12
Savings 413,388 117 0.04 304,799 75 0.03
Time deposits 386,505 3,071 1.06 220,827 2,225 1.35
Total 2,261,839 5,125 0.30 1,511,718 3,084 0.27
Securities sold under agreements to
repurchase 76,289 78 0.14 71,054 73 0.14
FHLB advances 272,405 3,351 1.64 254,189 2,810 1.48
Other borrowings 23,846 459 2.57 27,500 607 2.95
Total interest-bearing liabilities 2,634,379 9,013 0.46 1,864,461 6,574 0.47
Non-interest-bearing deposits 448,459 319,797
Non-interest-bearing liabilities 23,650 14,407
Total liabilities 3,106,488 2,198,665
Stockholders' equity 347,863 225,015
Total liabilities and stockholders'
equity$3,454,351 $2,423,680
Net interest income $84,508 $56,141
Net interest rate spread (3) 3.42% 3.16%
Net interest margin (4) 3.51% 3.25%
Total cost of deposits (including
non-interest-bearing deposits) 0.25% 0.23%

(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)
September 30,June 30,March 31,December 31,
September 30,
2016 2016 2016 2015 2015
Selected Financial Condition Data:
Total assets$4,151,017 $ 4,047,493 $ 2,588,447 $ 2,593,068 $ 2,557,898
Securities available-for-sale, at estimated fair value 2,497 12,509 30,085 29,902 30,108
Securities held-to-maturity, net 470,642 513,721 375,616 394,813 392,932
Federal Home Loan Bank of New York stock 18,289 21,128 16,645 19,978 15,970
Loans receivable, net 3,028,696 3,130,046 1,996,993 1,970,703 1,938,972
Loans held-for-sale 21,679 5,310 3,386 2,697 2,306
Deposits 3,324,681 3,206,262 1,971,360 1,916,678 1,967,771
Federal Home Loan Bank advances 251,146 312,603 251,917 324,385 233,006
Securities sold under agreements to repurchase
and other borrowings 125,477 90,173 106,413 98,372 105,493
Stockholders' equity 417,244 409,258 241,076 238,446 234,688


For the Three Months Ended
September 30,June 30,March 31,December 31,September 30,
2016 2016 2016 2015 2015
Selected Operating Data:
Interest income$37,307 $33,141 $23,073 $23,149 $21,970
Interest expense 3,372 3,127 2,514 2,461 2,395
Net interest income 33,935 30,014 20,559 20,688 19,575
Provision for loan losses 888 662 563 300 300
Net interest income after provision for loan losses 33,047 29,352 19,996 20,388 19,275
Other income 5,896 4,883 3,376 4,118 4,152
Operating expenses 23,715 21,457 15,314 15,885 15,117
Merger related expenses 1,311 7,189 1,402 614 1,030
Income before provision for income taxes 13,917 5,589 6,656 8,007 7,280
Provision for income taxes 4,789 1,928 2,451 2,777 2,582
Net income$9,128 $3,661 $4,205 $5,230 $4,698
Diluted earnings per share$0.35 $0.16 $0.25 $0.31 $0.28
Net accretion/amortization of purchase accounting
adjustments included in net interest income$1,637 $1,267 $164 $177 $140


At or For the Three Months Ended
September 30,June 30,March 31,December 31,September 30,
2016 2016 2016 2015 2015
Selected Financial Ratios and Other Data(1):
Performance Ratios (Annualized):
Return on average assets (2) 0.88% 0.40% 0.65% 0.80% 0.74%
Return on average stockholders' equity (2) 8.77 3.79 7.05 8.77 7.96
Return on average tangible stockholders' equity (2) (3) 10.58 4.32 7.59 8.86 8.02
Stockholders' equity to total assets 10.05 10.11 9.31 9.19 9.18
Tangible stockholders' equity to tangible assets (3) 8.50 8.51 9.23 9.12 9.10
Net interest rate spread 3.49 3.47 3.25 3.25 3.13
Net interest margin 3.56 3.57 3.34 3.35 3.24
Operating expenses to average assets (2) 2.43 3.16 2.58 2.53 2.54
Efficiency ratio (2) (4) 62.83 82.09 69.84 66.51 68.05


For the Nine Months Ended September 30,
2016 2015
Performance Ratios (Annualized):
Return on average assets (2) 0.66% 0.83%
Return on average stockholders' equity (2) 6.52 8.97
Return on average tangible stockholders' equity (2) (3) 7.39 8.99
Net interest rate spread 3.42 3.16
Net interest margin 3.51 3.25
Operating expenses to average assets (2) 2.72 2.45
Efficiency ratio (2) (4) 71.34 64.69


At or For the Three Months Ended
September 30,June 30,March 31,December 31,September 30,
2016 2016 2016 2015 2015
Wealth Management:
Assets under administration$221,612 $221,277 $203,723 $229,039 $205,087
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
16.14 15.89 13.89 13.79 13.58
Tangible stockholders' equity per common share
at end of period (3) 13.42 13.14 13.75 13.67 13.46
Number of full-service customer facilities: 50 50 28 27 27
Quarterly Average Balances
Total securities$533,809 $571,463 $445,696 $456,486 $468,707
Loans, receivable, net 3,085,691 2,772,518 1,981,101 1,960,099 1,875,458
Total interest-earning assets 3,787,545 3,384,548 2,475,298 2,457,812 2,399,212
Total assets 4,103,835 3,647,102 2,605,017 2,587,109 2,521,481
Interest-bearing transaction deposits 2,300,589 1,899,266 1,372,357 1,371,415 1,319,106
Time deposits 477,496 417,301 263,722 256,378 244,325
Total borrowed funds 358,960 386,578 372,240 357,171 355,639
Total interest-bearing liabilities 3,137,045 2,703,145 2,008,319 1,984,964 1,919,070
Non-interest bearing deposits 521,088 529,230 343,371 349,473 354,411
Stockholder’s equity 414,166 388,694 239,999 236,498 234,173
Total deposits 3,299,173 2,845,797 1,979,450 1,977,266 1,917,842
Quarterly Yields
Total securities 1.91% 1.82% 1.81% 1.73% 1.67%
Loans, receivable, net 4.46 4.43 4.27 4.28 4.23
Total interest-earning assets 3.92 3.94 3.75 3.74 3.63
Interest-bearing transaction deposits 0.16 0.15 0.12 0.11 0.12
Time deposits 0.96 1.01 1.33 1.29 1.26
Borrowed funds 1.43 1.41 1.34 1.38 1.38
Total interest-bearing liabilities 0.43 0.47 0.50 0.49 0.50
Net interest spread 3.49 3.47 3.25 3.25 3.13
Net interest margin 3.56 3.57 3.34 3.34 3.24
Total deposits 0.25 0.25 0.26 0.24 0.24

(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 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,
2016 2016 2016 2015 2015


Core earnings:
Net income$9,128 $3,661 $4,205 $5,230 $4,698
Add: Merger related expenses 1,311 7,189 1,402 614 1,030
Loss on sale of investment securities available
for sale 12
Federal Home Loan Bank prepayment fee 136
Less: Income tax benefit on items (172) (2,311) (171) (173) (316)
Core earnings$10,267 $8,687 $5,436 $5,671 $5,412
Core diluted earnings per share$0.40 $0.38 $0.32 $0.33 $0.32
Core ratios:
Return on average assets 1.00% 0.96% 0.84% 0.87% 0.85%
Return on average tangible stockholder's equity 11.90 10.26 9.19 9.60 9.24

COMPUTATION OF TOTAL TANGIBLE EQUITY TO TOTAL TANGIBLE ASSETS

September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
Total stockholders' equity$417,244 $409,258 $241,076 $238,446 $234,688
Less:
Goodwill 66,537 67,102 2,081 1,822 1,845
Core deposit intangible 3,722 3,903 310 256 269
Tangible stockholders’ equity$346,985 $338,253 $238,685 $236,368 $232,574
Total Assets$4,151,017 $4,047,493 $2,588,447 $2,593,068 $2,557,898
Less:
Goodwill 66,537 67,102 2,081 1,822 1,845
Core deposit intangible 3,722 3,903 310 256 269
Tangible assets$4,080,758 $3,976,488 $2,586,056 $2,590,990 $2,555,784
Tangible stockholders' equity to tangible assets 8.50% 8.51% 9.23% 9.12% 9.10%

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
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 1,169,568
Specific credit fair value on credit impaired loans (4,925) (4,925)
General credit fair value (20,533) (20,533)
Interest rate fair value 1,888 1,888
Reverse allowance for loan losses 9,931 9,931
Reverse net deferred fees, premiums and discounts 1,824 1,824
Premises and equipment 27,972 (6,249) 21,723
Other real estate owned 2,343 (347) 1,996
Deferred tax asset 9,407 12,257 21,664
Other assets 61,793 61,793
Core deposit intangible 831 2,887 3,718
Total assets acquired 1,520,516 (2,906) 1,517,610
Liabilities assumed:
Deposits (1,247,688) (679) (1,248,367)
Borrowings (123,587) (879) (124,466)
Other liabilities (7,611) (5,224)(a) (12,835)
Total liabilities assumed (1,378,886) (6,782) (1,385,668)
Net assets acquired 141,630 (9,688) 131,942
Goodwill recorded in the merger $64,461
(a) 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.