oceanfirstpressreleas04.jpg
 
Press Release

Exhibit 99.1

Company Contact:

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


FOR IMMEDIATE RELEASE


OCEANFIRST FINANCIAL CORP.
ANNOUNCES RECORD EARNINGS AND
INCREASE TO QUARTERLY DIVIDEND

RED BANK, NEW JERSEY, October 25, 2018…OceanFirst Financial Corp. (NASDAQ:“OCFC”), (the “Company”), the holding company for OceanFirst Bank N.A. (the “Bank”), today announced that net income was $24.1 million, or $0.50 per diluted share, for the three months ended September 30, 2018, as compared to $12.8 million, or $0.39 per diluted share, for the corresponding prior year period. For the nine months ended September 30, 2018, net income was $45.2 million, or $0.95 per diluted share, as compared to $32.5 million, or $0.98 per diluted share, for the corresponding prior year period.
The results of operations for the three and nine months ended September 30, 2018 include merger related expenses and branch consolidation expenses, which decreased net income, net of tax benefit, by $1.6 million and $22.9 million, respectively. Excluding these items, core earnings for the three and nine months ended September 30, 2018 were $25.7 million, or $0.53 per diluted share, and $68.1 million, or $1.44 per diluted share, respectively. (Please refer to the Non-GAAP Reconciliation table at the end of this document for details on the earnings impact of merger related and branch consolidation expenses).

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Highlights for the quarter are described below:
Achieved record quarterly core earnings, with core diluted earnings per share increasing 15% over the prior linked quarter.
Return on average assets for the three months ended September 30, 2018 of 1.26% and return on average tangible stockholders’ equity of 14.39%, while core return on average assets was 1.35% and core return on average tangible stockholders’ equity was 15.35%.
Increased the quarterly cash dividend by $0.02, or 13%, to $0.17 per share.
Announced the planned acquisition of Capital Bank of New Jersey (“Capital Bank”). Capital Bank is an in-market opportunity that provides an excellent funding base with a 0.46% average cost of deposits and a 70.0% loan-to-deposit ratio.
Chairman and Chief Executive Officer, Christopher D. Maher, commented on the Company’s results, “We are pleased to report exceptional results for the quarter with record core earnings of $25.7 million and core diluted earnings per share of $0.53. Core expenses decreased by $5.0 million, as compared to the prior linked quarter, benefiting from the branch consolidations and systems integrations completed during the second quarter, and lowering our core efficiency ratio to 53.7%. Our loan to deposit ratio remained steady at 95%, while the cost of deposits increased only four basis points to 0.39%, remaining one of the most competitive in our peer group.” Mr. Maher added, “We announced today, our plans to acquire Capital Bank of New Jersey. This acquisition provides a great opportunity to enhance OceanFirst’s deposit market share and continue our strategic growth plans.”
On October 25, 2018, the Company announced the execution of a definitive agreement and plan of merger (the “merger agreement”) with Capital Bank. The transaction is subject to receipt of the approval of Capital Bank’s stockholders and required regulatory approval. Subject to receipt of those approvals and fulfillment of other customary closing conditions, the Company expects to close the transaction in the first quarter of 2019.

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The Company also announced that the Company’s Board of Directors declared its eighty-seventh consecutive quarterly cash dividend on common stock. The dividend, related to the three months ended September 30, 2018, of $0.17 per share will be paid on November 16, 2018 to stockholders of record on November 5, 2018.
Results of Operations
On January 31, 2018, the Company completed its acquisition of Sun Bancorp Inc. (“Sun”) and its results of operations from February 1, 2018 through September 30, 2018 are included in the consolidated results for the three and nine months ended September 30, 2018, but are not included in the results of operations for the corresponding prior year periods.
Net income for the three months ended September 30, 2018, was $24.1 million, or $0.50 per diluted share, as compared to $12.8 million, or $0.39 per diluted share, for the corresponding prior year period. Net income for the nine months ended September 30, 2018, was $45.2 million, or $0.95 per diluted share, as compared to $32.5 million, or $0.98 per diluted share, for the corresponding prior year period. 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. Net income for the three and nine months ended September 30, 2017 included merger related and branch consolidation expenses, which decreased net income, net of tax benefit, by $2.1 million and $8.6 million, respectively. Excluding these items, net income for the three and nine months ended September 30, 2018 increased over the same prior year period, primarily due to the acquisition of Sun and the expense savings from the successful integration during 2017 of Ocean Shore Holding Co. (“Ocean Shore”) which was acquired on November 30, 2016.
Net interest income for the three and nine months ended September 30, 2018, increased to $61.5 million and $178.7 million, respectively, as compared to $43.1 million and $126.7 million, respectively, for the same prior year periods, reflecting an increase in interest-earning assets and a higher net interest margin. Average interest-earning assets increased by $1.830 billion and $1.700 billion for the three and

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nine months ended September 30, 2018, respectively, as compared to the same prior year periods. The averages for the three and nine months ended September 30, 2018, were favorably impacted by $1.636 billion and $1.509 billion, respectively, of interest-earning assets acquired from Sun. Average loans receivable, net, increased by $1.662 billion and $1.464 billion for the three and nine months ended September 30, 2018, respectively, as compared to the same prior year periods. The increases attributable to the acquisition of Sun were $1.398 billion and $1.279 billion, respectively. The net interest margin for the three and nine months ended September 30, 2018 increased to 3.64% and 3.68%, from 3.50% and 3.54%, respectively, for the same prior year periods. The net interest margin benefited from the accretion of purchase accounting adjustments on the Sun acquisition of $2.8 million and $8.2 million for the three and nine months ended September 30, 2018, respectively; and to a lesser extent the impact of Federal Reserve interest rate increases. For the three and nine months ended September 30, 2018, the cost of average interest-bearing liabilities increased to 0.74% and 0.66%, respectively, from 0.50% and 0.49%, respectively, in the corresponding prior year periods. The total cost of deposits (including non-interest bearing deposits) was 0.39% and 0.36% for the three and nine months ended September 30, 2018, respectively, as compared to 0.29% and 0.28%, respectively, in the same prior year periods.
Net interest income for the three months ended September 30, 2018, increased by $57,000, as compared to the prior linked quarter, as average interest-earning assets increased by $42.5 million. The net interest margin decreased to 3.64% for the three months ended September 30, 2018, as compared to 3.70% for the prior linked quarter. The total cost of deposits (including non-interest bearing deposits) was 0.39% for the three months ended September 30, 2018, as compared to 0.35% for three months ended June 30, 2018.
For the three and nine months ended September 30, 2018, the provision for loan losses was $907,000 and $3.0 million, respectively, as compared to $1.2 million and $3.0 million, respectively, for the corresponding prior year periods, and $706,000 in the prior linked quarter. Net loan charge-offs were $777,000 and $1.9 million for the three and nine months ended September 30, 2018, respectively, as

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compared to net loan charge-offs of $1.1 million and $1.6 million, respectively, in the corresponding prior year periods, and net loan charge-offs of $832,000 in the prior linked quarter. Non-performing loans totaled $19.2 million at September 30, 2018, as compared to $18.1 million at June 30, 2018 and $15.1 million at September 30, 2017.
For the three and nine months ended September 30, 2018, other income increased to $8.3 million and $26.1 million, respectively, as compared to $7.4 million and $20.3 million, respectively, for the corresponding prior year periods. The increases were primarily due to the impact of the Sun acquisition, which added $2.3 million and $6.1 million to other income for the three and nine months ended September 30, 2018, respectively, as compared to the same prior year periods. Excluding the Sun acquisition, the decrease in other income for the three months ended September 30, 2018, was primarily due to an increase in the loss from real estate operations of $2.0 million, of which $900,000 related to a write-down attributable to a hotel, golf, and banquet facility, partially offset by increases in fees and service charges of $449,000. Excluding the Sun acquisition, the decrease in other income for the nine months ended September 30, 2018, was primarily due to an increase in the loss from real estate operations of $2.8 million, of which $1.4 million related to the year-to-date write-down on the property noted above, partially offset by increases in fees and service charges of $763,000, an increase in the gain on sales of loans of $580,000, mostly related to the sale of one non-performing commercial loan relationship during the first quarter of 2018, rental income of $491,000 received primarily for January and February 2018 on the Company’s acquired administrative office, and increased bankcard services revenue of $443,000.
For the three months ended September 30, 2018, other income decreased by $598,000, as compared to the prior linked quarter. The decrease was primarily due to an increase in the loss from real estate operations of $601,000, decreases in fees and service charges of $405,000, and the decrease in the gain on investment securities of $245,000, partially offset by net fees on loan level interest rate swap transactions of $678,000. The decrease in fees and service charges is the result of the planned temporary waiver of fees and service charges on Sun accounts during the transition to the Bank’s account products.

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Operating expenses increased to $39.5 million and $147.3 million for the three and nine months ended September 30, 2018, respectively, as compared to $30.7 million and $98.8 million, respectively, in the same prior year periods. Operating expenses for the three and nine months ended September 30, 2018, included $2.0 million and $28.8 million, respectively, of merger related and branch consolidation expenses, as compared to $3.2 million and $13.2 million, respectively, in the same prior year periods. Excluding the impact of merger and branch consolidation expenses, the increase in operating expenses over the prior year was primarily due to the Sun acquisition, which added $8.2 million and $27.5 million for the three and nine months ended September 30, 2018, respectively. Excluding the Sun acquisition, the remaining increase in operating expenses for the three months ended September 30, 2018 over the prior year period was primarily due to increases in compensation and employee benefits expense of $852,000 as a result of higher incentive and stock plan expenses, occupancy expense of $402,000, equipment expense of $296,000, and marketing expenses of $208,000. Excluding the Sun acquisition, the remaining increase in operating expenses for the nine months ended September 30, 2018 over the prior year period was primarily due to increases in compensation and employee benefits expense of $3.2 million as a result of higher incentive and stock plan expenses, occupancy expenses of $1.2 million, and service bureau expense of $838,000.
For the three months ended September 30, 2018, operating expenses, excluding merger and branch consolidation expenses, decreased by $5.0 million, as compared to the prior linked quarter. The decrease was primarily due to the full integration of Sun to the Bank’s platform with decreases in compensation and employee benefits expense of $3.6 million, service bureau expenses of $542,000, professional fees of $331,000, and check card processing expense of $317,000.
The provision for income taxes was $5.3 million and $9.3 million for the three and nine months ended September 30, 2018, respectively, as compared to $5.7 million and $12.7 million, respectively, for the same prior year periods. The effective tax rate was 18.0% and 17.1% for the three and nine months ended September 30, 2018, respectively, as compared to 30.8% and 28.0%, respectively, for the same prior year periods. The lower effective tax rate for the three and nine months ended September 30, 2018 primarily

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resulted from the Tax Cuts and Jobs Act (“Tax Reform”) enacted during the fourth quarter of 2017. In addition, the State of New Jersey enacted new legislation on July 1, 2018, creating a temporary surtax effective for tax years 2018 through 2021, and requiring companies to file combined tax returns beginning 2019. The new legislation did not impact the Company’s deferred tax asset or state income tax expense for the three and nine months ended September 30, 2018. The Company will continue to evaluate the effect of this legislation on tax expense in future periods.
Financial Condition
Total assets increased by $2.147 billion, to $7.563 billion at September 30, 2018, from $5.416 billion at December 31, 2017, primarily as a result of the acquisition of Sun, which added $2.043 billion to total assets. Restricted equity investments increased by $37.4 million, to $57.1 million at September 30, 2018, from $19.7 million at December 31, 2017, primarily due to the addition of Federal Reserve Bank stock as a result of converting to a national bank charter. Loans receivable, net, increased by $1.578 billion, to $5.544 billion at September 30, 2018 from $3.966 billion at December 31, 2017, primarily due to acquired loans of $1.517 billion as well as purchased loans totaling $146.7 million. As part of the acquisition of Sun, the Company’s goodwill balance increased to $338.1 million at September 30, 2018, from $150.5 million at December 31, 2017, and the core deposit intangible increased to $18.0 million, from $8.9 million at December 31, 2017.
Deposits increased by $1.511 billion, to $5.854 billion at September 30, 2018, from $4.343 billion at December 31, 2017, due to acquired deposits of $1.616 billion. The loan-to-deposit ratio at September 30, 2018 was 94.7%, as compared to 91.3% at December 31, 2017. Federal Home Loan Bank advances increased by $168.1 million, to $456.8 million at September 30, 2018, from $288.7 million at December 31, 2017 due to the acquisition of Sun and to fund loan growth.
Stockholders’ equity increased to $1.030 billion at September 30, 2018, as compared to $601.9 million at December 31, 2017. The acquisition of Sun added $402.6 million to stockholders’ equity. At September 30, 2018, there were 1.8 million shares available for repurchase under the Company’s stock

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repurchase programs. For the nine months ended September 30, 2018, the Company did not repurchase any shares under these repurchase programs. During 2018, the Company contributed an additional $8.4 million to the existing Employee Stock Ownership Plan. The purchased shares will be allocated to employees over the next nine years. Tangible stockholders’ equity per common share increased to $13.93 at September 30, 2018, as compared to $13.58 at December 31, 2017.
Asset Quality
The Company’s non-performing loans decreased to $19.2 million at September 30, 2018, as compared to $20.9 million at December 31, 2017. The decrease was primarily due to the sale of one commercial loan relationship during the first quarter of 2018. Non-performing loans do not include $9.7 million of purchased credit-impaired (“PCI”) loans acquired in the Sun, Ocean Shore, Cape Bancorp, Inc. (“Cape”), and Colonial American Bank (“Colonial American”) acquisitions (“Acquisition Transactions”). The Company’s other real estate owned totaled $6.2 million at September 30, 2018, as compared to $8.2 million at December 31, 2017. The decrease was primarily due to a $1.4 million write-down attributable to a hotel, golf, and banquet facility. The Company has executed a letter of intent with a qualified buyer at the current carrying value with the closing expected prior to year-end.
At September 30, 2018, the Company’s allowance for loan losses was 0.30% of total loans, a decrease from 0.40% at December 31, 2017. These ratios exclude existing fair value credit marks of $34.4 million at September 30, 2018 on loans acquired from the Acquisition Transactions, and $17.5 million at December 31, 2017 on loans acquired from Ocean Shore, Cape and Colonial American. These loans were acquired at fair value with no related allowance for loan losses. The allowance for loan losses as a percent of total non-performing loans was 87.43% at September 30, 2018 as compared to 75.35% at December 31, 2017.

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Explanation of Non-GAAP Financial Measures
Reported amounts are presented in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company’s management believes that the supplemental non-GAAP information, which consists of reported net income excluding merger related expenses, branch consolidation expenses and additional income tax expense related to Tax Reform enacted in the fourth quarter of 2017, 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 26, 2018 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 10124270 from one hour after the end of the call until January 24, 2019. The conference call, as well as the replay, are also available (listen-only) by internet webcast at www.oceanfirst.com in the Investor Relations section.
* * *

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OceanFirst Financial Corp.’s subsidiary, OceanFirst Bank N.A., founded in 1902, is a $7.6 billion regional bank operating throughout New Jersey, metropolitan Philadelphia and metropolitan New York City.  OceanFirst Bank delivers commercial and residential financing solutions, wealth management and deposit services and is one of the largest and oldest community-based financial institutions headquartered in New Jersey.
OceanFirst Financial Corp.’s press releases are available by visiting us at www.oceanfirst.com.

Forward-Looking Statements
    
In addition to historical information, this news release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “will,” “should,” “may,” “view,” “opportunity,” “potential,” or similar expressions or expressions of confidence. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to: changes in interest rates, general economic conditions, levels of unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, future natural disasters and increases to flood insurance premiums, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, accounting principles and guidelines and the Bank’s ability to successfully integrate acquired operations. These risks and uncertainties are further discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, under Item 1A - Risk Factors and elsewhere, and subsequent securities filings and should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.


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

 
 
September 30,
2018
 
June 30,
2018
 
December 31,
2017
 
September 30,
2017
 
 
(Unaudited)
 
(Unaudited)
 
 
 
(Unaudited)
Assets
 
 
 
 
 
 
 
 
Cash and due from banks
 
$
148,362

 
$
254,469

 
$
109,613

 
$
255,258

Debt securities available-for-sale, at estimated fair value
 
100,015

 
100,369

 
81,581

 
67,133

Debt securities held-to-maturity, net (estimated fair value of $864,173 at September 30, 2018, $906,989 at June 30, 2018, $761,660 at December 31, 2017, and $746,497 at September 30, 2017)
 
883,540

 
922,756

 
764,062

 
733,983

Equity investments, at estimated fair value
 
9,519

 
9,539

 
8,700

 
8,714

Restricted equity investments, at cost
 
57,143

 
66,981

 
19,724

 
18,472

Loans receivable, net
 
5,543,959

 
5,553,035

 
3,965,773

 
3,870,109

Loans held-for-sale
 
732

 
919

 
241

 
338

Interest and dividends receivable
 
20,822

 
19,669

 
14,254

 
13,627

Other real estate owned
 
6,231

 
7,854

 
8,186

 
9,334

Premises and equipment, net
 
112,320

 
113,782

 
101,776

 
64,350

Bank Owned Life Insurance
 
221,190

 
219,853

 
134,847

 
134,298

Deferred tax asset
 
59,052

 
59,283

 
1,922

 
29,795

Assets held for sale
 
7,552

 
10,269

 
4,046

 
5,241

Other assets
 
36,094

 
40,204

 
41,895

 
15,634

Core deposit intangible
 
17,954

 
18,949

 
8,885

 
9,380

Goodwill
 
338,104

 
338,972

 
150,501

 
148,134

Total assets
 
$
7,562,589

 
$
7,736,903

 
$
5,416,006

 
$
5,383,800

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
Deposits
 
$
5,854,250

 
$
5,819,406

 
$
4,342,798

 
$
4,350,259

Federal Home Loan Bank advances
 
456,806

 
674,227

 
288,691

 
259,186

Securities sold under agreements to repurchase with retail customers
 
61,044

 
62,176

 
79,668

 
75,326

Other borrowings
 
99,473

 
99,428

 
56,519

 
56,466

Advances by borrowers for taxes and insurance
 
16,654

 
17,773

 
11,156

 
14,371

Other liabilities
 
44,518

 
51,325

 
35,233

 
32,052

Total liabilities
 
6,532,745

 
6,724,335

 
4,814,065

 
4,787,660

Total stockholders’ equity
 
1,029,844

 
1,012,568

 
601,941

 
596,140

Total liabilities and stockholders’ equity
 
$
7,562,589

 
$
7,736,903

 
$
5,416,006

 
$
5,383,800


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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,
2018
 
June 30,
2018
 
September 30,
2017
 
September 30,
2018
 
September 30,
2017
 
 
|-------------------- (Unaudited) --------------------|
 
|---------- (Unaudited) -----------|
Interest income:
 
 
 
 
 
 
 
 
 
 
Loans
 
$
64,497

 
$
63,135

 
$
43,329

 
$
184,229

 
$
127,679

Mortgage-backed securities
 
4,105

 
4,297

 
2,738

 
12,087

 
8,189

Debt securities, equity investments and other
 
2,780

 
2,646

 
1,963

 
7,980

 
5,055

Total interest income
 
71,382

 
70,078

 
48,030

 
204,296

 
140,923

Interest expense:
 
 
 
 
 
 
 
 
 
 
Deposits
 
5,799

 
5,247

 
3,126

 
15,510

 
8,821

Borrowed funds
 
4,079

 
3,384

 
1,848

 
10,125

 
5,389

Total interest expense
 
9,878

 
8,631

 
4,974

 
25,635

 
14,210

Net interest income
 
61,504

 
61,447

 
43,056

 
178,661

 
126,713

Provision for loan losses
 
907

 
706

 
1,165

 
2,984

 
3,030

Net interest income after provision for loan losses
 
60,597

 
60,741

 
41,891

 
175,677

 
123,683

Other income:
 
 
 
 
 
 
 
 
 
 
Bankcard services revenue
 
2,425

 
2,373

 
1,785

 
6,717

 
5,202

Wealth management revenue
 
573

 
595

 
541

 
1,721

 
1,622

Fees and service charges
 
4,735

 
5,140

 
3,702

 
14,551

 
11,163

Net gain on sales of loans
 
31

 
6

 
17

 
654

 
74

Net unrealized loss on equity investments
 
(70
)
 
(71
)
 

 
(282
)
 

Net (loss) gain from other real estate operations
 
(1,582
)
 
(981
)
 
432

 
(2,975
)
 
(196
)
Income from Bank Owned Life Insurance
 
1,337

 
1,335

 
881

 
3,813

 
2,436

Other
 
836

 
486

 
1

 
1,880

 
23

Total other income
 
8,285

 
8,883

 
7,359

 
26,079

 
20,324

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Compensation and employee benefits
 
19,694

 
23,244

 
14,673

 
64,189

 
46,138

Occupancy
 
4,443

 
4,572

 
2,556

 
13,582

 
7,965

Equipment
 
2,067

 
2,034

 
1,605

 
6,004

 
5,006

Marketing
 
1,021

 
893

 
775

 
2,475

 
2,245

Federal deposit insurance
 
927

 
1,000

 
713

 
2,857

 
2,079

Data processing
 
3,125

 
3,667

 
2,367

 
9,968

 
6,809

Check card processing
 
799

 
1,116

 
871

 
2,904

 
2,640

Professional fees
 
1,066

 
1,397

 
846

 
3,746

 
2,901

Other operating expense
 
3,366

 
3,546

 
2,667

 
9,928

 
8,258

Amortization of core deposit intangible
 
995

 
1,001

 
507

 
2,828

 
1,544

Branch consolidation expense
 
1,368

 
1,719

 
1,455

 
2,911

 
6,939

Merger related expenses
 
662

 
6,715

 
1,698

 
25,863

 
6,300

Total operating expenses
 
39,533

 
50,904

 
30,733

 
147,255

 
98,824

Income before provision for income taxes
 
29,349

 
18,720

 
18,517

 
54,501

 
45,183

Provision for income taxes
 
5,278

 
3,018

 
5,700

 
9,301

 
12,669

Net income
 
$
24,071

 
$
15,702

 
$
12,817

 
$
45,200

 
$
32,514

Basic earnings per share
 
$
0.50

 
$
0.33

 
$
0.40

 
$
0.97

 
$
1.01

Diluted earnings per share
 
$
0.50

 
$
0.32

 
$
0.39

 
$
0.95

 
$
0.98

Average basic shares outstanding
 
47,685

 
47,718

 
32,184

 
46,451

 
32,073

Average diluted shares outstanding
 
48,572

 
48,704

 
33,106

 
47,403

 
33,110


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OceanFirst Financial Corp.
SELECTED LOAN AND DEPOSIT DATA
(dollars in thousands)
LOANS RECEIVABLE
 
 
At
 
 
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
$
343,121

 
$
338,436

 
$
370,711

 
$
187,645

 
$
183,510

Commercial real estate - owner - occupied
 
735,289

 
717,061

 
763,261

 
569,624

 
555,429

Commercial real estate - investor
 
2,019,859

 
2,076,930

 
2,034,708

 
1,187,482

 
1,134,416

Total commercial
 
 
3,098,269

 
3,132,427

 
3,168,680

 
1,944,751

 
1,873,355

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
 
2,020,155

 
2,013,389

 
1,882,981

 
1,748,925

 
1,729,358

Home equity loans and lines
 
 
359,094

 
365,448

 
371,340

 
281,143

 
277,909

Other consumer
 
 
74,555

 
50,952

 
1,844

 
1,295

 
1,426

Total consumer
 
 
2,453,804

 
2,429,789

 
2,256,165

 
2,031,363

 
2,008,693

Total loans
 
 
5,552,073

 
5,562,216

 
5,424,845

 
3,976,114

 
3,882,048

Deferred origination costs, net
 
8,707

 
7,510

 
5,752

 
5,380

 
4,645

Allowance for loan losses
 
 
(16,821
)
 
(16,691
)
 
(16,817
)
 
(15,721
)
 
(16,584
)
Loans receivable, net
 
 
$
5,543,959

 
$
5,553,035

 
$
5,413,780

 
$
3,965,773

 
$
3,870,109

Mortgage loans serviced for others
 
$
106,369

 
$
105,116

 
$
109,273

 
$
121,662

 
$
121,886

 
At September 30, 2018 Average Yield
 
 
 
 
 
 
 
 
 
 
Loan pipeline (1):
 
 
 
 
 
 
 
 
 
 
 
Commercial
5.30
%
 
$
137,519

 
$
166,178

 
$
71,982

 
$
53,859

 
$
58,189

Residential real estate
4.34

 
64,841

 
64,259

 
73,513

 
43,482

 
44,510

Home equity loans and lines
5.25

 
11,030

 
9,240

 
11,338

 
7,412

 
8,826

Total
5.01
%
 
$
213,390

 
$
239,677

 
$
156,833

 
$
104,753

 
$
111,525

 
For the Three Months Ended
 
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
 
 
Average Yield
 
 
 
 
 
 
 
 
 
 
 
Loan originations:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
5.34
%
 
$
136,764

 
$
67,297

 
$
59,150

 
$
141,346

 
$
97,420

 
Residential real estate
4.25

 
124,419

 
109,357

 
68,835

 
73,729

 
80,481

 
Home equity loans and lines
5.25

 
17,892

 
20,123

 
14,891

 
18,704

 
17,129

 
Total
4.85
%
 
$
279,075

(2) 
$
196,777

(4) 
$
142,876

 
$
233,779

 
$
195,030

 
Loans sold
 
 
$
1,349

(3) 
$
422

 
$
241

(5) 
$
1,422

(3) 
$
991

(3) 
(1)
Loan pipeline includes pending loan applications and loans approved but not funded.
(2)
Excludes purchased loans of $25.0 million for other consumer.
(3)
Excludes the sale of under-performing residential loans of $5.1 million, $5.8 million and $3.5 million for the three months ended September 30, 2018, December 31, 2017, and September 30, 2017, respectively.
(4)
Excludes purchased loans of $23.6 million for commercial, $49.0 million for residential real estate, and $49.1 million for other consumer.
(5)
Excludes the sale of SBA loans acquired from Sun and under-performing loans totaling $8.5 million.
DEPOSITS
At
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
Type of Account
 
 
 
 
 
 
 
 
 
Non-interest-bearing
$
1,196,875

 
$
1,195,980

 
$
1,117,100

 
$
756,513

 
$
781,043

Interest-bearing checking
2,332,215

 
2,265,971

 
2,330,682

 
1,954,358

 
1,892,832

Money market deposit
584,250

 
574,269

 
613,183

 
363,656

 
384,106

Savings
887,799

 
903,777

 
917,288

 
661,167

 
668,370

Time deposits
853,111

 
879,409

 
929,083

 
607,104

 
623,908

 
$
5,854,250

 
$
5,819,406

 
$
5,907,336

 
$
4,342,798

 
$
4,350,259


13


OceanFirst Financial Corp.
ASSET QUALITY
(dollars in thousands)
ASSET QUALITY
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
Non-performing loans:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
1,727

 
$
1,947

 
$
1,717

 
$
503

 
$
63

Commercial real estate - owner-occupied
511

 
522

 
862

 
5,962

 
923

Commercial real estate - investor
8,082

 
6,364

 
7,994

 
8,281

 
8,720

Residential real estate
6,390

 
6,858

 
5,686

 
4,190

 
3,551

Home equity loans and lines
2,529

 
2,415

 
1,992

 
1,929

 
1,864

Total non-performing loans
19,239

 
18,106

 
18,251

 
20,865

 
15,121

Other real estate owned
6,231

 
7,854

 
8,265

 
8,186

 
9,334

Total non-performing assets
$
25,470

 
$
25,960

 
$
26,516

 
$
29,051

 
$
24,455

Purchased credit-impaired (“PCI”) loans
$
9,700

 
$
12,995

 
$
14,352

 
$
1,712

 
$
4,867

Delinquent loans 30 to 89 days
$
26,691

 
$
36,010

 
$
35,431

 
$
20,796

 
$
24,548

Troubled debt restructurings:
 
 
 
 
 
 
 
 
 
Non-performing (included in total non-performing loans above)
$
3,568

 
$
4,190

 
$
4,306

 
$
8,821

 
$
270

Performing
24,230

 
24,272

 
33,806

 
33,313

 
35,808

Total troubled debt restructurings
$
27,798

 
$
28,462

 
$
38,112

 
$
42,134

 
$
36,078

Allowance for loan losses
$
16,821

 
$
16,691

 
$
16,817

 
$
15,721

 
$
16,584

Allowance for loan losses as a percent of total loans receivable (1)
0.30
%
 
0.30
%
 
0.31
%
 
0.40
%
 
0.42
%
Allowance for loan losses as a percent of total non-performing loans
87.43

 
92.18

 
92.14

 
75.35

 
109.68

Non-performing loans as a percent of total loans receivable
0.35

 
0.33

 
0.34

 
0.52

 
0.39

Non-performing assets as a percent of total assets
0.34

 
0.34

 
0.35

 
0.54

 
0.45

(1)
The loans acquired from Sun, Ocean Shore, Cape, and Colonial American were recorded at fair value. The net credit mark on these loans, not reflected in the allowance for loan losses, was $34,357, $37,679, $40,717, $17,531, and $19,810 at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively.

NET CHARGE-OFFS
For the Three Months Ended
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
 
Net Charge-offs:
 
 
 
 
 
 
 
 
 
 
Loan charge-offs
$
(891
)
 
$
(1,284
)
 
$
(533
)
 
$
(2,523
)
 
$
(1,357
)
 
Recoveries on loans
114

 
452

 
258

 
245

 
219

 
Net loan charge-offs
$
(777
)
(1) 
$
(832
)
 
$
(275
)
 
$
(2,278
)
(1) 
$
(1,138
)
(1) 
Net loan charge-offs to average total loans
(annualized)
0.06
%
 
0.06
%
 
0.02
%
 
0.23
%
 
0.12
%
 
Net charge-off detail - (loss) recovery:
 
 
 
 
 
 
 
 
 
 
Commercial
$
(246
)
 
$
(846
)
 
$
(10
)
 
$
(1,036
)
 
$
68

 
Residential real estate
(478
)
 
(20
)
 
(159
)
 
(1,262
)
 
(1,156
)
 
Home equity loans and lines
(35
)
 
31

 
(99
)
 
28

 
(51
)
 
Other consumer
(18
)
 
3

 
(7
)
 
(8
)
 
1

 
Net loan charge-offs
$
(777
)
(1) 
$
(832
)
 
$
(275
)
 
$
(2,278
)
(1) 
$
(1,138
)
(1) 
(1)
Included in net loan charge-offs for the three months ended September 30, 2018, December 31, 2017, and September 30, 2017 are $430, $1,124, and $907, respectively, relating to under-performing loans sold or held-for-sale.


14


OceanFirst Financial Corp.
ANALYSIS OF NET INTEREST INCOME
 
For the Three Months Ended
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
(dollars in thousands)
Average
Balance
 
Interest
 
Average
Yield/
Cost
 
Average
Balance
 
Interest
 
Average
Yield/
Cost
 
Average
Balance
 
Interest
 
Average
Yield/
Cost
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning deposits and short-term investments
$
88,706

 
$
172

 
0.77
%
 
$
115,724

 
$
280

 
0.97
%
 
$
183,514

 
$
438

 
0.95
%
Securities (1)
1,080,784

 
6,713

 
2.46

 
1,119,354

 
6,663

 
2.39

 
817,867

 
4,263

 
2.07

Loans receivable, net (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
3,101,665

 
38,726

 
4.95

 
3,109,313

 
38,805

 
5.01

 
1,865,970

 
22,423

 
4.77

Residential
2,027,880

 
20,438

 
4.03

 
1,951,075

 
19,642

 
4.03

 
1,737,739

 
17,588

 
4.05

Home Equity
361,127

 
4,628

 
5.08

 
369,054

 
4,564

 
4.96

 
279,900

 
3,289

 
4.66

Other
52,764

 
705

 
5.30

 
7,604

 
124

 
6.54

 
1,112

 
29

 
10.35

Allowance for loan loss net of deferred loan fees
(9,350
)
 

 

 
(11,076
)
 

 

 
(12,370
)
 

 

Loans Receivable, net
5,534,086

 
64,497

 
4.62

 
5,425,970

 
63,135

 
4.67

 
3,872,351

 
43,329

 
4.44

Total interest-earning assets
6,703,576

 
71,382

 
4.22

 
6,661,048

 
70,078

 
4.22

 
4,873,732

 
48,030

 
3.91

Non-interest-earning assets
865,054

 
 
 
 
 
871,920

 
 
 
 
 
460,795

 
 
 
 
Total assets
$
7,568,630

 
 
 
 
 
$
7,532,968

 
 
 
 
 
$
5,334,527

 
 
 
 
Liabilities and Stockholders’ Equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking
$
2,300,270

 
2,313

 
0.40
%
 
$
2,372,777

 
2,028

 
0.34
%
 
$
1,852,421

 
1,173

 
0.25
%
Money market
578,446

 
680

 
0.47

 
597,770

 
694

 
0.47

 
389,035

 
299

 
0.30

Savings
896,682

 
265

 
0.12

 
907,570

 
267

 
0.12

 
672,548

 
59

 
0.03

Time deposits
864,264

 
2,541

 
1.17

 
902,091

 
2,258

 
1.00

 
620,308

 
1,595

 
1.02

Total
4,639,662

 
5,799

 
0.50

 
4,780,208

 
5,247

 
0.44

 
3,534,312

 
3,126

 
0.35

FHLB Advances
475,536

 
2,542

 
2.12

 
376,527

 
1,900

 
2.02

 
264,652

 
1,153

 
1.73

Securities sold under agreements to repurchase
61,336

 
41

 
0.27

 
64,446

 
44

 
0.27

 
74,285

 
30

 
0.16

Other borrowings
99,438

 
1,496

 
5.97

 
99,383

 
1,440

 
5.81

 
56,502

 
665

 
4.67

Total interest-bearing
liabilities
5,275,972

 
9,878

 
0.74

 
5,320,564

 
8,631

 
0.65

 
3,929,751

 
4,974

 
0.50

Non-interest-bearing deposits
1,210,650

 
 
 
 
 
1,149,764

 
 
 
 
 
781,047

 
 
 
 
Non-interest-bearing liabilities
61,272

 
 
 
 
 
51,262

 
 
 
 
 
32,360

 
 
 
 
Total liabilities
6,547,894

 
 
 
 
 
6,521,590

 
 
 
 
 
4,743,158

 
 
 
 
Stockholders’ equity
1,020,736

 
 
 
 
 
1,011,378

 
 
 
 
 
591,369

 
 
 
 
Total liabilities and equity
$
7,568,630

 
 
 
 
 
$
7,532,968

 
 
 
 
 
$
5,334,527

 
 
 
 
Net interest income
 
 
$
61,504

 
 
 
 
 
$
61,447

 
 
 
 
 
$
43,056

 
 
Net interest rate spread (3)
 
 
 
 
3.48
%
 
 
 
 
 
3.57
%
 
 
 
 
 
3.41
%
Net interest margin (4)
 
 
 
 
3.64
%
 
 
 
 
 
3.70
%
 
 
 
 
 
3.50
%
Total cost of deposits (including non-interest-bearing deposits)
 
 
 
 
0.39
%
 
 
 
 
 
0.35
%
 
 
 
 
 
0.29
%







15


(continued)

 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
(dollars in thousands)
Average
Balance
 
Interest
 
Average
Yield/
Cost
 
Average
Balance
 
Interest
 
Average
Yield/
Cost
Assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning deposits and short-term investments
$
101,513

 
$
660

 
0.87
%
 
$
180,821

 
$
1,058

 
0.78
%
Securities (1)
1,085,725

 
19,407

 
2.39

 
769,932

 
12,186

 
2.12

Loans receivable, net (2)
 
 
 
 
 
 
 
 
 
 
 
Commercial
2,995,847

 
110,920

 
4.95

 
1,849,246

 
65,619

 
4.74

Residential
1,941,594

 
59,117

 
4.06

 
1,720,185

 
52,231

 
4.05

Home Equity
357,490

 
13,335

 
4.99

 
283,419

 
9,760

 
4.60

Other
20,796

 
857

 
5.51

 
1,180

 
69

 
7.82

Allowance for loan loss net of deferred loan fees
(10,233
)
 

 

 
(12,338
)
 

 

Loans Receivable, net
5,305,494

 
184,229

 
4.64

 
3,841,692

 
127,679

 
4.44

Total interest-earning assets
6,492,732

 
204,296

 
4.21

 
4,792,445

 
140,923

 
3.93

Non-interest-earning assets
824,691

 
 
 
 
 
461,752

 
 
 
 
Total assets
$
7,317,423

 
 
 
 
 
$
5,254,197

 
 
 
 
Liabilities and Stockholders’ Equity:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking
$
2,313,012

 
6,099

 
0.35
%
 
$
1,746,601

 
3,086

 
0.24
%
Money market
567,575

 
1,924

 
0.45

 
418,681

 
891

 
0.28

Savings
876,695

 
727

 
0.11

 
675,684

 
285

 
0.06

Time deposits
862,555

 
6,760

 
1.05

 
628,126

 
4,559

 
0.97

Total
4,619,837

 
15,510

 
0.45

 
3,469,092

 
8,821

 
0.34

FHLB Advances
391,956

 
5,954

 
2.03

 
258,147

 
3,340

 
1.73

Securities sold under agreements to repurchase
68,173

 
125

 
0.25

 
74,729

 
82

 
0.15

Other borrowings
93,046

 
4,046

 
5.81

 
56,450

 
1,967

 
4.66

Total interest-bearing liabilities
5,173,012

 
25,635

 
0.66

 
3,858,418

 
14,210

 
0.49

Non-interest-bearing deposits
1,121,695

 
 
 
 
 
781,608

 
 
 
 
Non-interest-bearing liabilities
55,881

 
 
 
 
 
28,351

 
 
 
 
Total liabilities
6,350,588

 
 
 
 
 
4,668,377

 
 
 
 
Stockholders’ equity
966,835

 
 
 
 
 
585,820

 
 
 
 
Total liabilities and equity
$
7,317,423

 
 
 
 
 
$
5,254,197

 
 
 
 
Net interest income
 
 
$
178,661

 
 
 
 
 
$
126,713

 
 
Net interest rate spread (3)
 
 
 
 
3.55
%
 
 
 
 
 
3.44
%
Net interest margin (4)
 
 
 
 
3.68
%
 
 
 
 
 
3.54
%
Total cost of deposits (including non-interest-bearing deposits)
 
 
 
 
0.36
%
 
 
 
 
 
0.28
%

(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.


16


OceanFirst Financial Corp.
SELECTED QUARTERLY FINANCIAL DATA
(in thousands, except per share amounts)
 
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
 
2018
 
2018
 
2018
 
2017
 
2017
 
 
 
 
 
 
 
 
 
 
 
Selected Financial Condition Data:
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
7,562,589

 
$
7,736,903

 
$
7,494,899

 
$
5,416,006

 
$
5,383,800

Debt securities available-for-sale, at estimated fair value
 
100,015

 
100,369

 
86,114

 
81,581

 
67,133

Debt securities held-to-maturity, net
 
883,540

 
922,756

 
982,857

 
764,062

 
733,983

Equity investments, at estimated fair value
 
9,519

 
9,539

 
9,565

 
8,700

 
8,714

Restricted equity investments, at cost
 
57,143

 
66,981

 
50,418

 
19,724

 
18,472

Loans receivable, net
 
5,543,959

 
5,553,035

 
5,413,780

 
3,965,773

 
3,870,109

Loans held-for-sale
 
732

 
919

 
167

 
241

 
338

Deposits
 
5,854,250

 
5,819,406

 
5,907,336

 
4,342,798

 
4,350,259

Federal Home Loan Bank advances
 
456,806

 
674,227

 
341,646

 
288,691

 
259,186

Securities sold under agreements to repurchase and other borrowings
 
160,517

 
161,604

 
181,822

 
136,187

 
131,792

Stockholders’ equity
 
1,029,844

 
1,012,568

 
1,007,460

 
601,941

 
596,140


 
 
For the Three Months Ended,
 
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
 
2018
 
2018
 
2018
 
2017
 
2017
Selected Operating Data:
 
 
 
 
 
 
 
 
 
 
Interest income
 
$
71,382

 
$
70,078

 
$
62,837

 
$
47,906

 
$
48,030

Interest expense
 
9,878

 
8,631

 
7,126

 
5,401

 
4,974

Net interest income
 
61,504

 
61,447

 
55,711

 
42,505

 
43,056

Provision for loan losses
 
907

 
706

 
1,371

 
1,415

 
1,165

Net interest income after provision for loan losses
 
60,597

 
60,741

 
54,340

 
41,090

 
41,891

Other income
 
8,285

 
8,883

 
8,910

 
6,745

 
7,359

Operating expenses
 
37,503

 
42,470

 
38,508

 
26,434

 
27,580

Branch consolidation expense
 
1,368

 
1,719

 
(176
)
 
(734
)
 
1,455

Merger related expenses
 
662

 
6,715

 
18,486

 
1,993

 
1,698

Income before provision for income taxes
 
29,349</