10-Q 1 ocfc-63018x10q.htm 10-Q 6-30-2018 Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________________________ 
FORM 10-Q
 ________________________________________________  
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-11713
________________________________________________  
OceanFirst Financial Corp.
(Exact name of registrant as specified in its charter)
 ________________________________________________ 
Delaware
22-3412577
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
110 West Front Street, Red Bank, NJ
07701
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (732) 240-4500
________________________________________________  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   ý    NO   o.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  ý    NO  o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
ý
Accelerated Filer
 
o
 
 
 
 
 
 
Non-accelerated Filer
 
o
Smaller Reporting Company
 
o
 
 
 
 
 
 
 
 
 
Emerging Growth Company
 
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  o    NO  ý.
As of August 3, 2018 there were 48,314,556 shares of the Registrant’s Common Stock, par value $.01 per share, outstanding.



OceanFirst Financial Corp.
INDEX TO FORM 10-Q
 
 
 
PAGE
PART I.
FINANCIAL INFORMATION
 
Item 1.
Consolidated Financial Statements (unaudited)
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FINANCIAL SUMMARY
At or for the Quarters Ended
(dollars in thousands, except per share amounts)
June 30, 2018
 
March 31, 2018
 
June 30, 2017
SELECTED FINANCIAL CONDITION DATA(1):
 
 
 
 
 
Total assets
$
7,736,903

 
$
7,494,899

 
$
5,202,086

Loans receivable, net
5,553,035

 
5,413,780

 
3,868,805

Deposits
5,819,406

 
5,907,336

 
4,176,909

Stockholders’ equity
1,012,568

 
1,007,460

 
587,189

SELECTED OPERATING DATA:
 
 
 
 
 
Net interest income
61,447

 
55,711

 
42,174

Provision for loan losses
706

 
1,371

 
1,165

Other income
8,883

 
8,910

 
6,973

Operating expenses
50,904

 
56,818

 
37,133

Net income
15,702

 
5,427

 
7,679

Diluted earnings per share
0.32

 
0.12

 
0.23

SELECTED FINANCIAL RATIOS:
 
 
 
 
 
Stockholders’ equity per common share at end of period
20.97

 
20.94

 
18.05

Tangible stockholders’ equity per common share (2)
13.56

 
13.51

 
13.18

Cash dividend per share
0.15

 
0.15

 
0.15

Stockholders’ equity to total assets
13.09
%
 
13.44
%
 
11.29
%
Tangible stockholders’ equity to total tangible assets (2)
8.87

 
9.11

 
8.50

Return on average assets (3) (4)
0.84

 
0.32

 
0.59

Return on average stockholders’ equity (3) (4)
6.23

 
2.54

 
5.25

Return on average tangible stockholders’ equity  (2) (3) (4)
9.64

 
3.80

 
7.19

Net interest rate spread
3.57

 
3.58

 
3.48

Net interest margin
3.70

 
3.70

 
3.57

Operating expenses to average assets (3) (4)
2.71

 
3.37

 
2.86

Efficiency ratio (4) (5)
72.38

 
87.92

 
75.55

Loan to deposit ratio
95.42

 
91.65

 
92.62

ASSET QUALITY:
 
 
 
 
 
Non-performing loans
$
18,106

 
$
18,251

 
$
16,261

Non-performing assets
25,960

 
26,516

 
25,159

Allowance for loan losses as a percent of total loans receivable
0.30
%
 
0.31
%
 
0.42
%
Allowance for loan losses as a percent of total non-performing loans
92.18

 
92.14

 
101.82

Non-performing loans as a percent of total loans receivable
0.33

 
0.34

 
0.42

Non-performing assets as a percent of total assets
0.34

 
0.35

 
0.48

 
(1)
With the exception of end of quarter ratios, all ratios are based on average daily balances.
(2)
Tangible stockholders’ equity and tangible assets exclude intangible assets relating to goodwill and core deposit intangible.
(3)
Ratios are annualized.
(4)
Performance ratios include the net adverse impact of merger related and branch consolidation expenses of $8.4 million, or $6.7 million, net of tax benefit, for the quarter ended June 30, 2018; and $18.3 million, or $14.6 million, net of tax benefit, for the quarter ended March 31, 2018; and $8.6 million, or $5.6 million, net of tax benefit, for the quarter ended June 30, 2017.
(5)
Efficiency ratio represents the ratio of operating expenses to the aggregate of other income and net interest income.


3


Summary
OceanFirst Financial Corp. is the holding company for OceanFirst Bank N.A. (the “Bank”), a regional bank serving business and retail customers throughout New Jersey and the metropolitan areas of Philadelphia and New York City. The term “Company” refers to OceanFirst Financial Corp., OceanFirst Bank N.A. and all of their subsidiaries on a consolidated basis. The Company’s results of operations are primarily dependent on net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and investments, and the interest expense on interest-bearing liabilities, such as deposits and borrowings. The Company also generates non-interest income such as income from bankcard services, wealth management, deposit accounts, the sale of investment products, loan originations, loan sales, and other fees. The Company’s operating expenses primarily consist of compensation and employee benefits, occupancy and equipment, marketing, Federal deposit insurance, data processing and general and administrative expenses. The Company’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and the actions of regulatory agencies.

Over the past two years the Company has grown significantly through the acquisitions of Ocean Shore Holding Co. (“Ocean Shore”), and Sun Bancorp. Inc. (“Sun”). These acquisitions added $3.0 billion in assets and $2.5 billion in deposits. Additionally, effective January 31, 2018, the Bank converted to a national bank charter and the Company became a bank holding company.
Highlights of the Company’s financial results and corporate activities for the three months ended June 30, 2018 were as follows:

Total loans grew $137.4 million while asset quality improved as non-performing loans decreased to $18.1 million, or 0.33% of total loans. At the same time, the loan pipeline increased substantially to $239.7 million.

The cost of deposits increased only two basis points from the prior linked quarter, to 0.35%, while the net interest margin remained steady at 3.70%.

The integration of Sun National Bank was completed in June. The consolidation of 17 branches and the elimination of Sun’s duplicate operating systems is expected to result in cost savings in future periods.

Net income for the three months ended June 30, 2018, was $15.7 million, or $0.32 per diluted share, as compared to $7.7 million, or $0.23 per diluted share, for the corresponding prior year period. Net income for the six months ended June 30, 2018, was $21.1 million, or $0.45 per diluted share, as compared to $19.7 million and $0.59 for the corresponding prior year period. Net income for the three and six months ended June 30, 2018, included merger related and branch consolidation expenses, which decreased net income, net of tax benefit, by $6.7 million and $21.3 million, respectively. Net income for the three and six months ended June 30, 2017 included merger related and branch consolidation expenses, which decreased net income, net of tax benefit, by $5.6 million and $6.6 million, respectively. Excluding these items, net income for the three and six months ended June 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 which was acquired on November 30, 2016.

Net interest income for the three and six months ended June 30, 2018, increased to $61.4 million and $117.2 million, respectively, as compared to $42.2 million and $83.7 million, respectively, for the same prior year periods, reflecting an increase in interest-earning assets and a higher net interest margin, as a result of the acquisition of Sun.

For the three months ended June 30, 2018, other income increased to $8.9 million as compared to $7.0 million for the corresponding prior year period, including an additional $2.3 million relating to Sun. Operating expenses increased to $50.9 million for the three months ended June 30, 2018 as compared to $37.1 million in the same prior year period. Operating expenses for the three months ended June 30, 2018, included $8.4 million of merger related and branch consolidation expenses, as compared to $8.6 million in the same prior year period. 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 $11.0 million.

The Company remains well-capitalized with a tangible common equity to assets ratio of 8.87% at June 30, 2018.

The Company declared a quarterly cash dividend on common stock. The dividend for the quarter ended June 30, 2018 of $0.15 per share will be paid on August 17, 2018 to stockholders of record on August 6, 2018.

4


Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them.
The following tables set forth certain information relating to the Company for the three and six months ended June 30, 2018 and June 30, 2017. The yields and costs are derived by dividing the income or expense by the average balance of the related assets or liabilities, respectively, for the periods shown except where noted otherwise. Average balances are derived from average daily balances. The yields and costs include certain fees which are considered adjustments to yields.
 
For the Three Months Ended
 
June 30, 2018
 
June 30, 2017
 
Average Balance
 
Interest
 
Average
Yield/
Cost
 
Average Balance
 
Interest
 
Average
Yield/
Cost
 
(dollars in thousands)
Assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning deposits and short-term investments
$
115,724

 
$
280

 
0.97
%
 
$
114,019

 
$
211

 
0.74
%
Securities (1)
1,119,354

 
6,663

 
2.39

 
786,964

 
4,060

 
2.07

Loans receivable, net (2)
 
 
 
 
 
 
 
 
 
 
 
Commercial
3,109,313

 
38,805

 
5.01

 
1,850,737

 
22,057

 
4.78

Residential
1,951,075

 
19,642

 
4.04

 
1,718,413

 
17,304

 
4.04

Home Equity
369,054

 
4,564

 
4.96

 
283,124

 
3,225

 
4.57

Other
7,604

 
124

 
6.54

 
1,161

 
22

 
7.60

Allowance for loan loss net of deferred loan fees
(11,076
)
 

 

 
(12,518
)
 

 

Loans Receivable, net
5,425,970

 
63,135

 
4.67

 
3,840,917

 
42,608

 
4.45

Total interest-earning assets
6,661,048

 
70,078

 
4.22

 
4,741,900

 
46,879

 
3.97

Non-interest-earning assets
871,920

 
 
 
 
 
473,736

 
 
 
 
Total assets
$
7,532,968

 
 
 
 
 
$
5,215,636

 
 
 
 
Liabilities and Stockholders’ Equity:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking
$
2,372,777

 
2,028

 
0.34
%
 
$
1,716,930

 
1,038

 
0.24
%
Money market
597,770

 
694

 
0.47

 
422,439

 
281

 
0.27

Savings
907,570

 
267

 
0.12

 
679,806

 
97

 
0.06

Time deposits
902,091

 
2,258

 
1.00

 
624,020

 
1,498

 
0.96

Total
4,780,208

 
5,247

 
0.44

 
3,443,195

 
2,914

 
0.34

FHLB Advances
376,527

 
1,900

 
2.02

 
259,291

 
1,118

 
1.73

Securities sold under agreements to repurchase
64,446

 
44

 
0.27

 
73,574

 
25

 
0.14

Other borrowings
99,383

 
1,440

 
5.81

 
56,456

 
648

 
4.60

Total interest-bearing liabilities
5,320,564

 
8,631

 
0.65

 
3,832,516

 
4,705

 
0.49

Non-interest-bearing deposits
1,149,764

 
 
 
 
 
772,739

 
 
 
 
Non-interest-bearing liabilities
51,262

 
 
 
 
 
23,260

 
 
 
 
Total liabilities
6,521,590

 
 
 
 
 
4,628,515

 
 
 
 
Stockholders’ equity
1,011,378

 
 
 
 
 
587,121

 
 
 
 
Total liabilities and equity
$
7,532,968

 
 
 
 
 
$
5,215,636

 
 
 
 
Net interest income
 
 
$
61,447

 
 
 
 
 
$
42,174

 
 
Net interest rate spread (3)
 
 
 
 
3.57
%
 
 
 
 
 
3.48
%
Net interest margin (4)
 
 
 
 
3.70
%
 
 
 
 
 
3.57
%
Total cost of deposits (including non-interest-bearing deposits)
 
 
 
 
0.35
%
 
 
 
 
 
0.28
%

5


 
For the Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
Average Balance
 
Interest
 
Average
Yield/
Cost
 
Average Balance
 
Interest
 
Average
Yield/
Cost
 
(dollars in thousands)
Assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning deposits and short-term investments
$
108,023

 
$
488

 
0.91
%
 
$
163,815

 
$
620

 
0.76
%
Securities (1)
1,088,237

 
12,694

 
2.35

 
745,568

 
7,923

 
2.14

Loans receivable, net (2)
 
 
 
 
 
 
 
 
 
 
 
Commercial
2,942,062

 
72,195

 
4.95

 
1,840,745

 
43,197

 
4.73

Residential
1,897,736

 
38,679

 
4.11

 
1,711,263

 
34,643

 
4.08

Home Equity
355,641

 
8,707

 
4.94

 
285,208

 
6,470

 
4.57

Other
4,547

 
151

 
6.70

 
1,215

 
40

 
6.64

Allowance for loan loss net of deferred loan fees
(10,683
)
 

 

 
(12,322
)
 

 

Loans Receivable, net
5,189,303

 
119,732

 
4.65

 
3,826,109

 
84,350

 
4.45

Total interest-earning assets
6,385,563

 
132,914

 
4.20

 
4,735,492

 
92,893

 
3.96

Non-interest-earning assets
804,174

 
 
 
 
 
477,874

 
 
 
 
Total assets
$
7,189,737

 
 
 
 
 
$
5,213,366

 
 
 
 
Liabilities and Stockholders’ Equity:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking
$
2,318,751

 
3,786

 
0.33
%
 
$
1,692,820

 
1,913

 
0.23
%
Money market
562,050

 
1,244

 
0.45

 
433,750

 
591

 
0.27

Savings
866,535

 
462

 
0.11

 
677,278

 
227

 
0.07

Time deposits
861,687

 
4,219

 
0.99

 
632,099

 
2,964

 
0.95

Total
4,609,023

 
9,711

 
0.42

 
3,435,947

 
5,695

 
0.33

FHLB Advances
349,474

 
3,413

 
1.97

 
254,840

 
2,186

 
1.73

Securities sold under agreements to repurchase
71,649

 
84

 
0.24

 
74,955

 
52

 
0.14

Other borrowings
89,796

 
2,549

 
5.72

 
56,424

 
1,303

 
4.66

Total interest-bearing liabilities
5,119,942

 
15,757

 
0.62

 
3,822,166

 
9,236

 
0.49

Non-interest-bearing deposits
1,077,218

 
 
 
 
 
781,888

 
 
 
 
Non-interest-bearing liabilities
53,140

 
 
 
 
 
26,312

 
 
 
 
Total liabilities
6,250,300

 
 
 
 
 
4,630,366

 
 
 
 
Stockholders equity
939,437

 
 
 
 
 
583,000

 
 
 
 
Total liabilities and equity
$
7,189,737

 
 
 
 
 
$
5,213,366

 
 
 
 
Net interest income
 
 
$
117,157

 
 
 
 
 
$
83,657

 
 
Net interest rate spread (3)
 
 
 
 
3.58
%
 
 
 
 
 
3.47
%
Net interest margin (4)
 
 
 
 
3.70
%
 
 
 
 
 
3.56
%
Total cost of deposits (including non-interest-bearing deposits)
 
 
 
 
0.34
%
 
 
 
 
 
0.27
%
(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.

6


Comparison of Financial Condition at June 30, 2018 and December 31, 2017

Total assets increased by $2.321 billion, to $7.737 billion at June 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 $47.3 million, to $67.0 million at June 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 $1.587 billion, to $5.553 billion at June 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 $121.7 million. As part of the acquisition of Sun, the Company’s goodwill balance increased to $339.0 million at June 30, 2018, from $150.5 million at December 31, 2017, and the core deposit intangible increased to $18.9 million, from $8.9 million at December 31, 2017.

Deposits increased by $1.477 billion, to $5.819 billion at June 30, 2018, from $4.343 billion at December 31, 2017, due to acquired deposits of $1.616 billion. The loan-to-deposit ratio at June 30, 2018 was 95.4%, as compared to 91.3% at December 31, 2017. Federal Home Loan Bank Advances increased by $385.5 million, to $674.2 million at June 30, 2018, from $288.7 million at December 31, 2017 due to the acquisition of Sun, loan growth, and seasonal deposit outflows.

Stockholders’ equity increased to $1.013 billion at June 30, 2018, as compared to $601.9 million at December 31, 2017. The acquisition of Sun added $402.6 million to stockholders’ equity. At June 30, 2018, there were 1.8 million shares available for repurchase under the Company’s stock repurchase programs. For the six months ended June 30, 2018, the Company did not repurchase any shares under these repurchase programs. During the second quarter of 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 decreased to $13.56 at June 30, 2018, as compared to $13.58 at December 31, 2017.
Comparison of Operating Results for the Three and Six Months Ended June 30, 2018 and June 30, 2017
General
On January 31, 2018, the Company completed its acquisition of Sun and its results of operations from February 1, 2018 through June 30, 2018 are included in the consolidated results for the three and six months ended June 30, 2018, but are not included in the results of operations for the corresponding prior year periods.

Net income for the three months ended June 30, 2018, was $15.7 million, or $0.32 per diluted share, as compared to $7.7 million, or $0.23 per diluted share, for the corresponding prior year period. Net income for the six months ended June 30, 2018, was $21.1 million, or $0.45 per diluted share, as compared to $19.7 million and $0.59 per diluted share for the corresponding prior year period. Net income for the three and six months ended June 30, 2018, included merger related and branch consolidation expenses, which decreased net income, net of tax benefit, by $6.7 million and $21.3 million, respectively. Net income for the three and six months ended June 30, 2017 included merger related and branch consolidation expenses, which decreased net income, net of tax benefit, by $5.6 million and $6.6 million, respectively. Excluding these items, net income for the three and six months ended June 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, which was acquired on November 30, 2016.

Interest Income
Interest income for the three and six months ended June 30, 2018 increased to $70.1 million and $132.9 million, respectively, as compared to $46.9 million and $92.9 million, respectively, in the corresponding prior year periods. Average interest-earning assets increased by $1.919 billion and $1.650 billion for the three and six months ended June 30, 2018, respectively, as compared to the same prior year periods. The averages for the three and six months ended June 30, 2018, were favorably impacted by $1.727 billion and $1.452 billion, respectively, of interest-earning assets acquired from Sun. Average loans receivable, net, increased by $1.585 billion and $1.363 billion for the three and six months ended June 30, 2018, respectively, as compared to the same prior year periods. The increases attributable to the acquisition of Sun were $1.461 billion and $1.226 billion, respectively. For the three and six months ended June 30, 2018, the yield on average interest-earning assets increased to 4.22% and 4.20%, respectively, from 3.97% and 3.96% in the corresponding prior periods. The yields on average interest-earning assets benefited from the accretion of purchase accounting adjustments on the Sun acquisition and to a lesser extent the impact of Federal Reserve rate increases.
Interest Expense
Interest expense for the three and six months ended June 30, 2018 was $8.6 million and $15.8 million, respectively, as compared to $4.7 million and $9.2 million, respectively, in the corresponding prior year periods. Average interest-bearing liabilities increased $1.488 billion and $1.298 billion for the three and six months ended June 30, 2018, respectively, as compared to the same prior year periods. For the three and six months ended June 30, 2018, the cost of average interest-bearing liabilities increased to 0.65% and 0.62%, respectively, from 0.49% in both corresponding prior year periods. The total cost of deposits (including non-interest

7


bearing deposits) was 0.35% and 0.34% for the three and six months ended June 30, 2018, respectively, as compared to 0.28% and 0.27%, respectively, in the same prior year periods.
Net Interest Income

Net interest income for the three and six months ended June 30, 2018, increased to $61.4 million and $117.2 million, respectively, as compared to $42.2 million and $83.7 million, respectively, for the same prior year periods, reflecting an increase in interest-earning assets and a higher net interest margin. The net interest margin for both the three and six months ended June 30, 2018 increased to 3.70%, from 3.57% and 3.56%, respectively, for the same prior year periods. The net interest margin benefited from the accretion of purchase accounting adjustments on the Sun acquisition of $3.0 million and $5.3 million for the three and six months ended June 30, 2018, respectively.
Provision for Loan Losses
For the three and six months ended June 30, 2018, the provision for loan losses was $706,000 and $2.1 million, respectively, as compared to $1.2 million and $1.9 million, respectively, for the corresponding prior year periods. Net loan charge-offs were $832,000 and $1.1 million for the three and six months ended June 30, 2018, respectively, as compared to net loan charge-offs of $759,000 and $491,000, respectively, in the corresponding prior year periods. Net charge-offs for the three months ended June 30, 2018, included $946,000 of specific reserves on non-performing loans established in the prior quarter, which were separately identified in the allowance for loan losses. Non-performing loans totaled $18.1 million at June 30, 2018, as compared to $16.3 million at June 30, 2017.
Other Income
For the three and six months ended June 30, 2018, other income increased to $8.9 million and $17.8 million, respectively, as compared to $7.0 million and $13.0 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 $3.7 million to other income for the three and six months ended June 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 June 30, 2018, was primarily due to an increase in the loss from real estate operations of $1.1 million, of which $500,000 related to a write-down attributable to the operations of a hotel, golf, and banquet facility, partially offset by increases in fees and service charges of $428,000 and in the gain on investment securities of $182,000. Excluding the Sun acquisition, the increase in other income for the six months ended June 30, 2018, was primarily due to increases in fees and service charges of $627,000, the gain on sales of loans of $566,000, mostly related to the sale of one non-performing commercial loan relationship during the first quarter of 2018, and rental income of $483,000 received primarily for January and February 2018 on the Company’s recently acquired executive office building, partially offset by the increase in the loss from real estate operations of $765,000, including the $500,000 write-down noted above.
Operating Expenses
Operating expenses increased to $50.9 million and $107.7 million for the three and six months ended June 30, 2018, respectively, as compared to $37.1 million and $68.1 million, respectively, in the same prior year periods. Operating expenses for the three and six months ended June 30, 2018, included $8.4 million and $26.7 million, respectively, of merger related and branch consolidation expenses, as compared to $8.6 million and $10.1 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 $11.0 million and $19.2 million for the three and six months ended June 30, 2018, respectively. Excluding the Sun acquisition, the remaining increase in operating expenses for the three months ended June 30, 2018 over the prior year period was primarily due to increases in compensation and employee benefits expense of $1.7 million as a result of higher incentive and stock plan expenses, including $220,000 of accelerated stock compensation expense due to director retirements, service bureau expense of $700,000, and occupancy expense of $327,000. Excluding the Sun acquisition, the remaining increase in operating expenses for the six months ended June 30, 2018 over the prior year period was primarily due to increases in compensation and employee benefits expense of $2.3 million as a result of higher incentive and stock plan expenses, service bureau expense of $882,000 and occupancy expense of $786,000.
Provision for Income Taxes
The provision for income taxes was $3.0 million and $4.0 million for the three and six months ended June 30, 2018, respectively, as compared to $3.2 million and $7.0 million, respectively, for the same prior year periods. The effective tax rate was 16.1% and 16.0% for the three and six months ended June 30, 2018, respectively, as compared to 29.2% and 26.1%, respectively, for the same prior year periods. The lower effective tax rate for the three and six months ended June 30, 2018 primarily resulted from the Tax Cuts and Jobs Act (“Tax Reform”) enacted during the fourth quarter of 2017.

8


Liquidity and Capital Resources
The Company’s primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, Federal Home Loan Bank (“FHLB”) advances and other borrowings and, to a lesser extent, investment maturities and proceeds from the sale of loans. While scheduled amortization of loans is a predictable source of funds, deposit flows and loan prepayments are greatly influenced by interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including various lines of credit.
At June 30, 2018, the Company had $373.0 million of outstanding overnight borrowings from the FHLB, compared to $30.0 million of outstanding overnight borrowings at December 31, 2017. The Bank utilizes overnight borrowings from time-to-time to fund short-term liquidity needs. FHLB advances, including overnight borrowings totaled $674.2 million and $288.7 million, respectively, at June 30, 2018 and December 31, 2017.
The Company’s cash needs for the six months ended June 30, 2018 were primarily satisfied by principal payments on loans and mortgage-backed securities, proceeds from maturities and calls of investment securities, and increased borrowings. The cash was principally utilized for the purchase of loans receivable, loan originations, the purchase of securities, and to fund deposit outflows. The Company’s cash needs for the six months ended June 30, 2017 were primarily satisfied by principal payments on loans and mortgage-backed securities, proceeds from maturities and calls of investment securities, and increased borrowings. The cash was principally utilized for loan originations, the purchase of loans receivable and the purchase of securities.
In the normal course of business, the Company routinely enters into various off-balance-sheet commitments. At June 30, 2018, outstanding undrawn lines of credit totaled $856.8 million and outstanding commitments to originate loans totaled $239.7 million. The Company expects to have sufficient funds available to meet current commitments arising in the normal course of business.
Time deposits scheduled to mature in one year or less totaled $493.7 million at June 30, 2018. Based upon historical experience, management estimates that a significant portion of such time deposits will remain with the Company.
The Company has a detailed contingency funding plan and comprehensive reporting of funding trends on a monthly and quarterly basis which are reviewed by management. Management also monitors cash on a daily basis to determine the liquidity needs of the Bank. Additionally, management performs multiple liquidity stress test scenarios on a quarterly basis. The Bank continues to maintain significant liquidity under all stress scenarios.
Under the Company’s common stock repurchase programs, shares of OceanFirst Financial Corp. common stock may be purchased in the open market and through privately-negotiated transactions, from time-to-time, depending on market conditions. The repurchased shares are held in treasury for general corporate purposes. For the six months ended June 30, 2018 and 2017, the Company did not repurchase any shares of common stock. At June 30, 2018, there were 1,754,804 shares available to be repurchased under the stock repurchase programs authorized in July of 2014 and April of 2017.
Cash dividends on common stock declared and paid during the first six months of 2018 were $14.3 million, as compared to $9.6 million in the same prior year period. The increase in dividends was a result of the additional shares issued in the acquisition of Sun. On July 26, 2018, the Company’s Board of Directors declared a quarterly cash dividend of fifteen cents ($0.15) per common share. The dividend is payable on August 17, 2018 to stockholders of record at the close of business on August 6, 2018.
The primary sources of liquidity specifically available to OceanFirst Financial Corp., the holding company of OceanFirst Bank N.A., are capital distributions from the bank subsidiary and the issuance of preferred and common stock and debt. For the six months ended June 30, 2018, the Company received a dividend payment of $16.0 million from the Bank. The Company’s ability to continue to pay dividends will be largely dependent upon capital distributions from the Bank, which may be adversely affected by capital constraints imposed by the applicable regulations. The Company cannot predict whether the Bank will be permitted under applicable regulations to pay a dividend to the Company. If applicable regulations or regulatory bodies prevent the Bank from paying a dividend to the Company, the Company may not have the liquidity necessary to pay a dividend in the future or pay a dividend at the same rate as historically paid, or be able to meet current debt obligations. At June 30, 2018, OceanFirst Financial Corp. held $28.9 million in cash.

9


As of June 30, 2018 and December 31, 2017, the Company and the Bank exceed all regulatory capital requirements currently applicable as follows (in thousands):
 
 
Actual
 
For capital  adequacy
purposes
 
To be well-capitalized
under prompt
corrective action
As of June 30, 2018
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
Bank:
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital (to average assets)
 
$
667,378

 
9.35
%
 
$
285,430

 
4.000
%
 
$
356,788

 
5.00
%
Common equity Tier 1 (to risk-weighted assets)
 
667,378

 
12.60

 
337,562

 
6.375

(1) 
344,181

 
6.50

Tier 1 capital (to risk-weighted assets)
 
667,378

 
12.60

 
416,988

 
7.875

(1) 
423,607

 
8.00

Total capital (to risk-weighted assets)
 
685,076

 
12.94

 
522,890

 
9.875

(1) 
529,509

 
10.00

OceanFirst Financial Corp:
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital (to average assets)
 
$
676,882

 
9.48
%
 
$
285,693

 
4.000
%
 
N/A

 
N/A

Common equity Tier 1 (to risk-weighted assets)
 
614,901

 
11.61

 
337,561

 
6.375

(1) 
N/A

 
N/A

Tier 1 capital (to risk-weighted assets)
 
676,882

 
12.78

 
416,987

 
7.875

(1) 
N/A

 
N/A

Total capital (to risk-weighted assets)
 
729,580

 
13.78

 
522,888

 
9.875

(1) 
N/A

 
N/A

 
 
Actual
 
For capital  adequacy
purposes
 
To be well-capitalized
under prompt
corrective action
As of December 31, 2017
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
Bank:
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital (to average assets)
 
$
459,031

 
8.75
%
 
$
209,760

 
4.000
%
 
$
262,200

 
5.00
%
Common equity Tier 1 (to risk-weighted assets)
 
459,031

 
12.41

 
212,705

 
5.750

(2) 
240,450

 
6.50

Tier 1 capital (to risk-weighted assets)
 
459,031

 
12.41

 
268,194

 
7.250

(2) 
295,938

 
8.00

Total capital (to risk-weighted assets)
 
475,379

 
12.85

 
342,178

 
9.250

(2) 
369,923

 
10.00

OceanFirst Financial Corp:
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital (to average assets)
 
$
465,554

 
8.87
%
 
$
209,943

 
4.000
%
 
N/A

 
N/A

Common equity Tier 1 (to risk-weighted assets)
 
449,991

 
12.15

 
212,907

 
5.750

(2) 
N/A

 
N/A

Tier 1 capital (to risk-weighted assets)
 
465,554

 
12.57

 
268,448

 
7.250

(2) 
N/A

 
N/A

Total capital (to risk-weighted assets)
 
516,902

 
13.96

 
342,502

 
9.250

(2) 
N/A

 
N/A

(1)
Includes the Capital Conservation Buffer of 1.875%.
(2)
Includes the Capital Conservation Buffer of 1.25%.
The Bank satisfies the criteria to be “well-capitalized” under the Prompt Corrective Action Regulations.
At June 30, 2018, the Company maintained tangible common equity of $654.6 million, for a tangible common equity to assets ratio of 8.87%. At December 31, 2017, the Company maintained tangible common equity of $442.6 million, for a tangible common equity to assets ratio of 8.42%.

10


Off-Balance-Sheet Arrangements and Contractual Obligations
In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in the financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used for general corporate purposes or for customer needs. Corporate purpose transactions are used to help manage credit, interest rate and liquidity risk or to optimize capital. Customer transactions are used to manage customers’ requests for funding. These financial instruments and commitments include undrawn lines of credit and commitments to extend credit. 
The Company enters into loan sale agreements with investors in the normal course of business. The loan sale agreements generally require the Company to repurchase loans previously sold in the event of a violation of various representations and warranties customary to the mortgage banking industry. The Company is also obligated under a loss sharing arrangement with the FHLB relating to loans sold into the Mortgage Partnership Finance program. In the opinion of management, the potential exposure related to the loan sale agreements and loans sold to the FHLB is adequately provided for in the reserve for repurchased loans and loss sharing obligations included in other liabilities. At June 30, 2018 and December 31, 2017, the reserve for repurchased loans and loss sharing obligations amounted to $1.5 million and $463,000, respectively.
The following table shows the contractual obligations of the Company by expected payment period as of June 30, 2018 (in thousands):
Contractual Obligations
Total
 
Less than
one year
 
1-3 years
 
3-5 years
 
More than
5 years
Debt Obligations
$
835,831

 
$
514,791

 
$
167,158

 
$
54,989

 
$
98,893

Commitments to Fund Undrawn Lines of Credit
 
 
 
 
 
 
 
 
 
Commercial
522,904

 
522,904

 

 

 

Consumer/Construction
333,943

 
333,943

 

 

 

Commitments to Originate Loans
239,677

 
239,677

 

 

 

Debt obligations include advances from the FHLB and other borrowings and have defined terms.
Commitments to fund undrawn lines of credit and commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company’s exposure to credit risk is represented by the contractual amount of the instruments.

11


Non-Performing Assets
The following table sets forth information regarding the Company’s non-performing assets consisting of non-performing loans and other real estate owned. It is the policy of the Company to cease accruing interest on loans 90 days or more past due or in the process of foreclosure.
 
June 30, 2018
 
December 31, 2017
 
(dollars in thousands)
Non-performing loans:
 
 
 
Commercial and industrial
$
1,947

 
$
503

Commercial real estate – owner occupied
522

 
5,962

Commercial real estate – investor
6,364

 
8,281

Residential mortgage
6,858

 
4,190

Home equity loans and lines
2,415

 
1,929

Total non-performing loans
18,106

 
20,865

Other real estate owned
7,854

 
8,186

Total non-performing assets
$
25,960

 
$
29,051

Purchased credit impaired loans (“PCI”)
$
12,995

 
$
1,712

Delinquent loans 30-89 days
$
36,010

 
$
20,796

Allowance for loan losses as a percent of total loans receivable
0.30
%
 
0.40
%
Allowance for loan losses as a percent of total non-performing loans
92.18

 
75.35

Non-performing loans as a percent of total loans receivable
0.33

 
0.52

Non-performing assets as a percent of total assets
0.34

 
0.54


The Company’s non-performing loans totaled $18.1 million at June 30, 2018, as compared to $20.9 million at December 31, 2017. Included in the non-performing loans total was $4.2 million and $8.8 million of troubled debt restructured (“TDR”) loans at June 30, 2018 and December 31, 2017, respectively. The decrease in non-performing loans was primarily due to the sale of one commercial loan relationship. Non-performing loans do not include $13.0 million of acquired PCI loans. At June 30, 2018, the allowance for loan losses totaled $16.7 million, or 0.30% of total loans, as compared to $15.7 million, or 0.40% of total loans at December 31, 2017. These ratios exclude existing fair value credit marks on acquired loans of $37.7 million and $17.5 million at June 30, 2018 and December 31, 2017, respectively. These loans were acquired at fair value with no related allowances for loan losses. Other real estate owned includes $6.0 million relating to the hotel, golf and banquet facility located in New Jersey which the Company acquired in the fourth quarter of 2015.

The Company classifies loans and other assets in accordance with regulatory guidelines as follows (in thousands):
 
June 30, 2018
 
December 31, 2017
Special Mention
$
33,644

 
$
25,489

Substandard
51,700

 
60,661

Critical Accounting Policies
Note 1 to the Company’s Audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”), as supplemented by this report, contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried in the consolidated statements of financial condition at fair value or the lower of cost or estimated fair value. Policies with respect to the methodology used to determine the allowance for loan losses and judgments regarding securities are the most critical accounting policies because they are important to the presentation of the Company’s financial condition and results of operations. These judgments and policies involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions and estimates could result in material differences in the results of operations or financial condition. These critical accounting policies and their application are reviewed periodically, and at least annually, with the Audit Committee of the Board of Directors.

12


Private Securities Litigation Reform Act Safe Harbor Statement
In addition to historical information, this quarterly report 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 and the Company’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 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. Further description of the risks and uncertainties to the business are included in Item 1, Business, and Item 1A, Risk Factors, of the Company’s 2017 Form 10-K, as amended by its subsequent SEC filings.


13


Item 3.    Quantitative and Qualitative Disclosures About Market Risk
The Company’s interest rate sensitivity is monitored through the use of an interest rate risk (“IRR”) model. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at June 30, 2018, which were anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown.

At June 30, 2018, the Company’s one-year gap was positive 5.27% as compared to positive 4.62% at December 31, 2017. These results were within the approved policy guidelines.
 
At June 30, 2018
3 Months
or Less
 
More than
3 Months to
1 Year
 
More than
1 Year to
3 Years
 
More than
3 Years to
5 Years
 
More than
5 Years
 
Total
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets: (1)
 
 
 
 
 
 
 
 
 
 
 
Interest-earning deposits and short-term investments
$
193,115

 
$
481

 
$
2,223

 
$
2,941

 
$

 
$
198,760

Debt investment securities
59,078

 
43,228

 
120,123

 
44,697

 
55,095

 
322,221

Debt mortgage-backed securities
72,705

 
75,487

 
192,381

 
141,289

 
225,939

 
707,801

Equity investments

 

 

 

 
9,539

 
9,539

Restricted equity investments

 

 

 

 
66,981

 
66,981

Loans receivable (2)
1,211,487

 
862,098

 
1,536,356

 
891,028

 
1,062,166

 
5,563,135

Total interest-earning assets
1,536,385

 
981,294

 
1,851,083

 
1,079,955

 
1,419,720

 
6,868,437

Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking accounts
739,484

 
127,438

 
286,209

 
224,081

 
888,759

 
2,265,971

Money market deposit accounts
41,163

 
38,454

 
89,520

 
73,319

 
331,813

 
574,269

Savings accounts
47,737

 
79,875

 
168,357

 
131,862

 
475,946

 
903,777

Time deposits
146,000

 
348,275

 
256,166

 
125,420

 
3,548

 
879,409

FHLB advances
388,000

 
64,577

 
166,987

 
54,663

 

 
674,227

Securities sold under agreements to repurchase and other borrowings
62,176

 
72,538

 
171

 
326

 
26,393

 
161,604

Total interest-bearing liabilities
1,424,560

 
731,157

 
967,410

 
609,671

 
1,726,459

 
5,459,257

Interest sensitivity gap (3)
$
111,825

 
$
250,137

 
$
883,673

 
$
470,284

 
$
(306,739
)
 
$
1,409,180

Cumulative interest sensitivity gap
$
111,825

 
$
361,962

 
$
1,245,635

 
$
1,715,919

 
$
1,409,180

 
$
1,409,180

Cumulative interest sensitivity gap as a percent of total interest-earning assets
1.63
%
 
5.27
%
 
18.14
%
 
24.98
%
 
20.52
%
 
20.52
%
 
(1)
Interest-earning assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments, and contractual maturities.
(2)
For purposes of the gap analysis, loans receivable includes loans held for sale and non-performing loans gross of the allowance for loan losses, unamortized discounts and deferred loan fees.
(3)
Interest sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities.

14


Additionally, the table below sets forth the Company’s exposure to IRR as measured by the change in economic value of equity (“EVE”) and net interest income under varying rate shocks as of June 30, 2018 and December 31, 2017. All methods used to measure interest rate sensitivity involve the use of assumptions, which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. The Company’s interest rate sensitivity should be reviewed in conjunction with the financial statements and notes thereto contained in the 2017 Form 10-K.
 
 
June 30, 2018
 
December 31, 2017
Change in Interest Rates in Basis Points (Rate Shock)
Economic Value of Equity
 
Net Interest Income
 
Economic Value of Equity
 
Net Interest Income
Amount
 
% Change
 
EVE Ratio
 
Amount
 
% Change
 
Amount
 
% Change
 
EVE Ratio
 
Amount
 
% Change
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
300
$
1,339,300

 
3.4
 %
 
19.1
%
 
$
270,271

 
3.9
 %
 
$
844,117

 
5.0
 %
 
16.8
%
 
$
169,653

 
(2.3
)%
200
1,352,763

 
4.5

 
18.7

 
267,810

 
2.9

 
850,511

 
5.8

 
16.5

 
171,758

 
(1.1
)
100
1,338,576

 
3.4

 
18.0

 
264,482

 
1.6

 
838,066

 
4.3

 
15.9

 
173,119

 
(0.3
)
Static
1,294,693

 

 
17.0

 
260,225

 

 
803,722

 

 
14.9

 
173,590

 

(100)
1,230,220

 
(5.0
)
 
15.8

 
255,601

 
(1.8
)
 
737,232

 
(8.3
)
 
13.3

 
170,383

 
(1.8
)
The change in interest rate sensitivity at June 30, 2018, as compared to December 31, 2017, is primarily due to the full integration of Sun into the Bank’s operations.

Item 4.    Controls and Procedures
The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective. Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (“SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, there were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


15



OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
 
June 30, 2018
 
December 31, 2017
 
(Unaudited)
 
 
Assets
 
 
 
Cash and due from banks
$
254,469

 
$
109,613

Debt securities available-for-sale, at estimated fair value
100,369

 
81,581

Debt securities held-to-maturity, net (estimated fair value of $906,989 at June 30, 2018 and $761,660 at December 31, 2017)
922,756

 
764,062

Equity investments, at estimated fair value
9,539

 
8,700

Restricted equity investments, at cost
66,981

 
19,724

Loans receivable, net
5,553,035

 
3,965,773

Loans held-for-sale
919

 
241

Interest and dividends receivable
19,669

 
14,254

Other real estate owned
7,854

 
8,186

Premises and equipment, net
113,782

 
101,776

Bank Owned Life Insurance
219,853

 
134,847

Deferred tax asset
59,283

 
1,922

Assets held for sale
10,269

 
4,046

Other assets
40,204

 
41,895

Core deposit intangible
18,949

 
8,885

Goodwill
338,972

 
150,501

Total assets
$
7,736,903

 
$
5,416,006

Liabilities and Stockholders’ Equity
 
 
 
Deposits
$
5,819,406

 
$
4,342,798

Federal Home Loan Bank advances
674,227

 
288,691

Securities sold under agreements to repurchase with retail customers
62,176

 
79,668

Other borrowings
99,428

 
56,519

Advances by borrowers for taxes and insurance
17,773

 
11,156

Other liabilities
51,325

 
35,233

Total liabilities
6,724,335

 
4,814,065

Stockholders’ equity:
 
 
 
Preferred stock, $.01 par value, $1,000 liquidation preference, 5,000,000 shares authorized, no shares issued

 

Common stock, $.01 par value, 150,000,000 shares authorized, 48,283,500 shares issued and 48,283,500 and 32,596,893 shares outstanding at June 30, 2018 and December 31, 2017, respectively
482

 
336

Additional paid-in capital
752,223

 
354,377

Retained earnings
273,749

 
271,023

Accumulated other comprehensive loss
(3,654
)
 
(5,349
)
Less: Unallocated common stock held by Employee Stock Ownership Plan
(10,232
)
 
(2,479
)
  Treasury stock, 0 and 969,879 shares at June 30, 2018 and December 31, 2017, respectively

 
(15,967
)
Common stock acquired by Deferred Compensation Plan
(84
)
 
(84
)
Deferred Compensation Plan Liability
84

 
84

Total stockholders’ equity
1,012,568

 
601,941

Total liabilities and stockholders’ equity
$
7,736,903

 
$
5,416,006


See accompanying Notes to Unaudited Consolidated Financial Statements.

16


OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(Unaudited)
 
(Unaudited)
Interest income:
 
 
 
 
 
 
 
Loans
$
63,135

 
$
42,608

 
$
119,732

 
$
84,350

Mortgage-backed securities
4,297

 
2,791

 
7,982

 
5,451

Debt securities, equity investments and other
2,646

 
1,480

 
5,200

 
3,092

Total interest income
70,078

 
46,879

 
132,914

 
92,893

Interest expense:
 
 
 
 
 
 
 
Deposits
5,247

 
2,914

 
9,711

 
5,695

Borrowed funds
3,384

 
1,791

 
6,046

 
3,541

Total interest expense
8,631

 
4,705

 
15,757

 
9,236

Net interest income
61,447

 
42,174

 
117,157

 
83,657

Provision for loan losses
706

 
1,165

 
2,077

 
1,865

Net interest income after provision for loan losses
60,741

 
41,009

 
115,080

 
81,792

Other income:
 
 
 
 
 
 
 
Bankcard services revenue
2,373

 
1,837

 
4,292

 
3,416

Wealth management revenue
595

 
565

 
1,148

 
1,081

Fees and service charges
5,140

 
3,658

 
9,816

 
7,465

Net gain on sales of loans
6

 
15

 
623

 
57

Net unrealized loss on equity investments
(71
)
 

 
(212
)
 

Net (loss) income from other real estate operations
(981
)
 
105

 
(1,393
)
 
(628
)
Income from Bank Owned Life Insurance
1,335

 
783

 
2,476

 
1,555

Other
486

 
10

 
1,044

 
23

Total other income
8,883

 
6,973

 
17,794

 
12,969

Operating expenses:
 
 
 
 
 
 
 
Compensation and employee benefits
23,244

 
15,328

 
44,495

 
31,466

Occupancy
4,572

 
2,641

 
9,139

 
5,409

Equipment
2,034

 
1,703

 
3,937

 
3,400

Marketing
893

 
730

 
1,454

 
1,470

Federal deposit insurance
1,000

 
705

 
1,930

 
1,366

Data processing
3,667

 
2,046

 
6,843

 
4,442

Check card processing
1,116

 
815

 
2,105

 
1,768

Professional fees
1,397

 
1,095

 
2,680

 
2,055

Other operating expense
3,546

 
2,951

 
6,561

 
5,595

Amortization of core deposit intangible
1,001

 
513

 
1,834

 
1,037

Branch consolidation expense
1,719

 
5,451

 
1,544

 
5,484

Merger related expenses
6,715

 
3,155

 
25,200

 
4,602

Total operating expenses
50,904

 
37,133

 
107,722

 
68,094

Income before provision for income taxes
18,720

 
10,849

 
25,152

 
26,667

Provision for income taxes
3,018

 
3,170

 
4,023

 
6,969

Net income
$
15,702

 
$
7,679

 
$
21,129

 
$
19,698

Basic earnings per share
$
0.33

 
$
0.24

 
$
0.46

 
$
0.62

Diluted earnings per share
$
0.32

 
$
0.23

 
$
0.45

 
$
0.59

Average basic shares outstanding
47,718

 
32,122

 
45,805

 
32,014

Average diluted shares outstanding
48,704

 
33,138

 
46,786

 
33,111

See accompanying Notes to Unaudited Consolidated Financial Statements.

17


OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(Unaudited)
 
(Unaudited)
Net income
$
15,702

 
$
7,679

 
$
21,129

 
$
19,698

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized (loss) gain on debt securities (net of tax benefit of $74 and $159 in 2018, and net of tax expense of $15 and $58 in 2017, respectively)
(272
)
 
22

 
(593
)
 
84

Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $460 and $518 in 2018, and net of tax expense of $128 and $244 in 2017, respectively)
1,730

 
185

 
1,946

 
353

Reclassification adjustment for gains included in net income (net of tax expense of $52 and $53 in 2018)
194

 

 
195

 

Total comprehensive income
$
17,354

 
$
7,886

 
$
22,677

 
$
20,135

See accompanying Notes to Unaudited Consolidated Financial Statements.

18


OceanFirst Financial Corp.
Consolidated Statements of Changes in Stockholders’ Equity
(dollars in thousands, except per share amounts)
(Unaudited)
For the Six Months Ended June 30, 2018 and 2017
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Employee
Stock
Ownership
Plan
 
Treasury
Stock
 
Common
Stock
Acquired by
Deferred
Compensation
Plan
 
Deferred
Compensation
Plan Liability
 
Total
Balance at December 31, 2016
$

 
$
336

 
$
364,433

 
$
238,192

 
$
(5,749
)
 
$
(2,761
)
 
$
(22,548
)
 
$
(313
)
 
$
313

 
$
571,903

Net income

 

 

 
19,698

 

 

 

 

 

 
19,698

Other comprehensive income, net of tax

 

 

 

 
437

 

 

 

 

 
437

Stock awards

 

 
1,204

 

 

 

 

 

 

 
1,204

Effect of adopting Accounting Standards Update ("ASU") No. 2016-09

 

 
(11,129
)
 
11,129

 

 

 

 

 

 

Treasury stock allocated to restricted stock plan

 

 
(1,544
)
 
747

 

 

 
797

 

 

 

Allocation of ESOP stock

 

 
332

 

 

 
141

 

 

 

 
473

Cash dividend $0.30 per share

 

 

 
(9,557
)
 

 

 

 

 

 
(9,557
)
Exercise of stock options

 

 

 
(1,739
)
 

 

 
4,770

 

 

 
3,031

Sale of stock for the deferred compensation plan

 

 

 

 

 

 

 
137

 
(137
)
 

Balance at June 30, 2017
$

 
$
336

 
$
353,296

 
$
258,470

 
$
(5,312
)
 
$
(2,620
)
 
$
(16,981
)
 
$
(176
)
 
$
176

 
$
587,189

Balance at December 31, 2017
$

 
$
336

 
$
354,377

 
$
271,023

 
$
(5,349
)
 
$
(2,479
)
 
$
(15,967
)
 
$
(84
)
 
$
84

 
$
601,941

Net income

 

 

 
21,129

 

 

 

 

 

 
21,129

Other comprehensive income, net of tax