OceanFirst Financial Corp. Announces First Quarter

OceanFirst Financial Corp. Announces First Quarter

RED BANK, N.J., April 28, 2022 (GLOBE NEWSWIRE) — OceanFirst Financial Corp. (NASDAQ:“OCFC”), (the “Company”), the holding company for OceanFirst Bank N.A. (the “Bank”), announced net income available to common stockholders of $24.8 million, or $0.42 per diluted share, for the quarter ended March 31, 2022, as compared to $31.7 million, or $0.53 per diluted share, for the corresponding prior year period. Selected performance metrics are as follows (refer to “Selected Quarterly Financial Data” for additional information):

  For the Three Months Ended,
  March 31,   December 31,   March 31,
Performance Ratios (Annualized): 2022   2021   2021
Return on average assets 0.84 %   0.72 %   1.12 %
Return on average stockholders’ equity 6.57     5.65     8.59  
Return on average tangible stockholders’ equity (a) 9.94     8.59     13.22  
Efficiency ratio 61.77     72.04     54.73  
Net interest margin 3.18     2.99     2.93  
                 

(a) Return on average tangible stockholders’ equity, a non-GAAP (“generally accepted accounting principles”) financial measure, excludes the impact of intangible assets and goodwill from both assets and stockholders’ equity. Refer to “Explanation of Non-GAAP Financial Measures” and the “Non-GAAP Reconciliation” tables for additional information regarding non-GAAP financial measures.

Core earnings1 for the quarter ended March 31, 2022 amounted to $28.8 million, or $0.49 per diluted share. Non-core operations had an adverse impact of $4.0 million, net of tax, for the quarter ended March 31, 2022. Core earnings before income taxes and credit loss provision (“PTPP”) was $39.7 million, or $0.67 per diluted share for the quarter ended March 31, 2022.

  For the Three Months Ended,
  March 31,   December 31,   March 31,
Core Ratios1 (Annualized):   2022       2021       2021  
Return on average assets   0.98 %     0.95 %     0.94 %
Return on average tangible stockholders’ equity   11.55       11.30       11.04  
Efficiency ratio   57.51       62.57       58.37  
Core diluted earnings per share $ 0.49     $ 0.48     $ 0.44  
Core PTPP diluted earnings per share   0.67       0.56       0.58  
                       

Key developments for the recent quarter are described below:

  • Loan and Deposit Growth: Loan growth for the quarter was $486.1 million, reflecting record loan originations of $1.02 billion and the purchase of residential loan pools of $161.7 million. The committed loan pipeline remains strong at $515.4 million. In addition, deposits increased $323.4 million during the first quarter, while cost of deposits decreased four basis points to 0.16%, from 0.20%, in the prior linked quarter. The loans-to-deposits ratio increased to 90.60%, from 88.60%, in the prior linked quarter.
  • Strengthening Net Interest Income and Margin: Net interest income increased by $3.6 million to $84.2 million, from $80.6 million, in the prior linked quarter. Net interest margin increased to 3.18%, as compared to 2.99% in the prior linked quarter, largely driven by the deployment of excess liquidity to fund interest earning assets.
  • Expense Management: Total operating expenses decreased to $57.5 million, from $64.8 million in the prior linked quarter, and operating expenses excluding non-core operations decreased to $55.1 million from $57.1 million, for the same periods, reflecting improving trends in the Bank’s cost reduction initiatives. These efforts improved the efficiency ratio to 61.77%, from 72.04%, in the prior linked quarter, and core efficiency ratio improved to 57.51%, from 62.57%, in the prior linked quarter.
  • Branch Consolidations: The Company completed its consolidation of 10 branches during the first quarter for a total of 77 branches consolidated since 2013. Average deposits per branch totaled $264.6 million as of March 31, 2022.

1 Core earnings and core earnings before income taxes and credit loss provision (“PTPP”), and ratios derived from them, are non-GAAP financial measures. For the periods presented, core earnings exclude merger related expenses, net branch consolidation expenses, net loss (gain) on equity investments, and the income tax effect of these items, (collectively referred to as “non-core” operations). PTPP excludes the aforementioned pre-tax “non-core” items along with income tax expense (benefit) and credit loss provision (benefit). Refer to “Explanation of Non-GAAP Financial Measures” and the “Non-GAAP Reconciliation” tables for additional information regarding our non-GAAP financial measures.

Chairman and Chief Executive Officer, Christopher D. Maher, commented on the Company’s results, “We are pleased to report strong first quarter results, including record loan originations of over $1 billion, a material expansion in net interest margin, and decreased operating expenses. The exceptional loan growth, along with increased deposits, resulted in an increased loan to deposit ratio of 90.60%. Although deposits grew, our cost of deposits decreased to 16 basis points reflecting our continued commitment to building a high quality funding base.” Mr. Maher added, “As interest rates have begun to increase, our discipline regarding rate positions has protected our shareholders’ tangible book value position and set the stage for continued earnings growth.”

The Company’s Board of Directors declared its 101st consecutive quarterly cash dividend on common stock. The quarterly cash dividend on common stock of $0.17 per share will be paid on May 20, 2022 to common stockholders of record on May 9, 2022. The Board previously declared a quarterly cash dividend on preferred stock of $0.4375 per depositary share, representing 1/40th interest in the Series A Preferred Stock. This dividend will be paid on May 16, 2022 to preferred stockholders of record on April 29, 2022.

The Company completed its acquisition of a majority interest in Trident Abstract Title Agency, LLC on April 1, 2022.

Results of Operations
Net income for the quarter ended March 31, 2022 was adversely impacted by non-core operations of $4.0 million, net of tax, while net income for the quarter ended March 31, 2021 was favorably impacted by non-core operations of $5.2 million, net of tax. Core earnings for the quarter ended March 31, 2022 was $28.8 million, or $0.49 per diluted share, an increase from core earnings of $26.5 million, or $0.44 per diluted share, for the corresponding prior year period. Core earnings for the quarter ended March 31, 2022 increased from $28.5 million, or $0.48 per diluted share, for the prior linked quarter, which was adversely impacted by non-core operations of $6.8 million, net of tax.

Net Interest Income and Margin
Net interest income for the quarter ended March 31, 2022 increased to $84.2 million, as compared to $73.6 million for the corresponding prior year period, reflecting an increase in net interest margin. Average interest-earning assets increased by $551.7 million for the quarter ended March 31, 2022, as compared to the same prior year period, primarily due to loan and securities growth, which was primarily funded by the redeployment of excess cash. Average loans receivable, net of allowance for loan credit losses, increased by $1.07 billion for the quarter ended March 31, 2022, as compared to the same prior year period.

Net interest margin for the quarter ended March 31, 2022 increased to 3.18% from 2.93% for the same prior year period. Excluding the impact of purchase accounting accretion and prepayment fees of 0.12% and 0.18% for the quarters ended March 31, 2022 and 2021, respectively, net interest margin increased to 3.06% from 2.75%. Net interest margin expansion was primarily attributable to the decrease in excess balance sheet liquidity used to fund loan and securities growth. In addition, for the quarter ended March 31, 2022, the cost of average interest-bearing liabilities decreased to 0.35% from 0.60% for the corresponding prior year period, as a result of the downward repricing of deposits. The total cost of deposits (including non-interest bearing deposits) was 0.16% for the quarter ended March 31, 2022, as compared to 0.37% for the same prior year period.

Net interest income for the quarter ended March 31, 2022 increased by $3.6 million, as compared to the prior linked quarter, and net interest margin increased to 3.18%, as compared to 2.99% for the prior linked quarter. Excluding the impact of purchase accounting accretion and prepayment fees of 0.12% and 0.18% for the quarter ended March 31, 2022 and December 31, 2021, respectively, net interest margin increased to 3.06% from 2.81%. The net interest margin expansion was primarily attributable to the decrease in excess balance sheet liquidity used to fund loan and securities growth. The yield on average interest-earning assets increased to 3.43% from 3.28% in the prior linked quarter. The total cost of average interest-bearing liabilities was 0.35% for the quarter ended March 31, 2022, as compared to 0.40% in the prior linked quarter, partly due to a decrease in higher-costing time deposits.

Provision/Benefit for Credit Losses
For the quarter ended March 31, 2022, the credit loss expense was $1.9 million, as compared to a credit loss benefit of $620,000 for the corresponding prior year period and a credit loss benefit of $1.6 million in the prior linked quarter. The credit loss expense for the quarter ended March 31, 2022 was influenced by slowing prepayment rate assumptions primarily impacting the residential real estate portfolio, strong loan portfolio growth, and macro-economic forecast uncertainty related to the Russia-Ukraine war, partly offset by positive trends in the Bank’s criticized and classified assets and favorable employment outlook.

Net loan recoveries were $92,000 for the quarter ended March 31, 2022, as compared to $280,000 for the corresponding prior year period and $19,000 in the prior linked quarter. Refer to “Asset Quality” section for further discussion.

Non-interest Income
For the quarter ended March 31, 2022, other income decreased to $8.9 million, as compared to $20.8 million for the corresponding prior year period. Other income for the quarters ended March 31, 2022 and 2021 included net losses of $2.8 million and net gains of $8.3 million, respectively, related to the net loss/gain on equity investments, which are considered non-core operations.

Excluding non-core operations, the decrease in other income of $910,000 for the quarter ended March 31, 2022, as compared to the corresponding prior year period, was primarily due to decreases in net gain on sales of loans of $1.7 million and Paycheck Protection Program (“PPP”) loan origination referral fees of $662,000 in the prior year, partly offset by an increase in commercial loan swap income of $1.7 million.

Excluding non-core operations of $1.3 million in the prior linked quarter, other income for the quarter ended March 31, 2022 increased $976,000, primarily due to an increase in commercial loan swap income of $1.5 million.

Non-interest Expense
Operating expenses increased to $57.5 million for the quarter ended March 31, 2022, as compared to $51.7 million in the same prior year period. Operating expenses for the quarters ended March 31, 2022 and 2021 included $2.4 million and $1.4 million, respectively, of net expenses related to non-core operations.

Excluding non-core operations, the $4.8 million increase in operating expenses for the quarter ended March 31, 2022, as compared to the corresponding prior year period, was primarily due to increases in compensation and benefits expense of $2.3 million, relating to the commercial banking strategy and the commercial banking hires in expansion markets of Boston and Baltimore as well as additional hires in New Jersey, New York and Philadelphia, data processing expense of $1.7 million, as a result of the migration to a new core banking system, and occupancy expense of $683,000.

Excluding non-core operations of $7.7 million in the prior linked quarter, operating expenses for the quarter ended March 31, 2022, decreased $2.0 million, primarily due to a decrease in data processing expense of $2.0 million.

Income Tax Expense
The provision for income taxes was $8.0 million for the quarter ended March 31, 2022, as compared to $10.7 million for the same prior year period, and $4.1 million for the prior linked quarter. The effective tax rate was 23.6% for the quarter ended March 31, 2022, as compared to 24.6% for the same prior year period and 15.3% for the prior linked quarter. The lower effective tax rate in the prior linked quarter was primarily due to the allocation of more taxable income to jurisdictions other than New Jersey with lower income tax rates and other tax optimization efforts.

Financial Condition
Total assets increased by $425.3 million to $12.16 billion at March 31, 2022, from $11.74 billion at December 31, 2021. Total loans, excluding PPP loans of $15.0 million and $22.9 million at March 31, 2022 and December 31, 2021, respectively, increased by $494.0 million, to $9.09 billion at March 31, 2022, from $8.60 billion at December 31, 2021, primarily due to loan originations and purchases of $161.7 million of residential real estate loan pools. Total debt securities decreased by $61.5 million at March 31, 2022, as compared to December 31, 2021.

Deposits increased by $323.4 million to $10.06 billion at March 31, 2022, from $9.73 billion at December 31, 2021. Total deposits excluding time deposits increased by $211.1 million to $9.17 billion at March 31, 2022, from $8.96 billion at December 31, 2021, due to organic growth in all deposit categories. Time deposits increased to $887.3 million at March 31, 2022, from $775.0 million at December 31, 2021 primarily due to an increase in brokered time deposits, which were less costly than comparable term Federal Home Loan Bank (“FHLB”) advances. The loans-to-deposit ratio at March 31, 2022 was 90.6%, as compared to 88.6% at December 31, 2021. FHLB advances increased to $75.0 million at March 31, 2022 from $0 at December 31, 2021 to fund loan growth. Other borrowings decreased by $34.7 million to $194.4 million at March 31, 2022, from $229.1 million at December 31, 2021, primarily due to the extinguishment of $35.0 million of subordinated debt.

Stockholders’ equity was $1.52 billion at March 31, 2022 and December 31, 2021. Accumulated other comprehensive loss increased by $12.3 million to $15.2 million at March 31, 2022 from $2.8 million at December 31, 2021, primarily due to unrealized losses on debt securities available-for-sale which were impacted by higher interest rates. For the quarter ended March 31, 2022, the Company repurchased 100,444 shares under its stock repurchase programs at a weighted average cost of $21.35 and there were 3,207,217 shares available for repurchase at March 31, 2022 under the existing repurchase programs. Stockholders’ equity per common share decreased to $25.58 at March 31, 2022, as compared to $25.63 at December 31, 2021. Tangible common equity per common share increased to $15.94 at March 31, 2022, as compared to $15.93 at December 31, 2021.

Asset Quality
The Company’s non-performing loans increased to $26.9 million at March 31, 2022, as compared to $25.5 million at December 31, 2021. The Company’s non-performing loans, excluding $3.7 million and $6.5 million of non-performing purchased with credit deterioration (“PCD”) loans from prior bank acquisitions at March 31, 2022 and December 31, 2021, increased to $23.2 million at March 31, 2022, as compared to $18.9 million at December 31, 2021, primarily due to one commercial relationship of $3.2 million, which moved to non-performing loans. The allowance for loan credit losses as a percentage of total non-performing loans was 187.9% at March 31, 2022, as compared to 191.6% at December 31, 2021. The allowance for loan credit losses as a percentage of total non-performing loans, excluding PCD loans, was 218.3% at March 31, 2022, as compared to 257.8% at December 31, 2021. The level of 30 to 89 days delinquent loans expanded to $18.7 million at March 31, 2022, from $14.5 million at December 31, 2021. The level of 30 to 89 days delinquent loans, excluding non-performing and PCD loans, expanded to $15.9 million at March 31, 2022, from $13.5 million at December 31, 2021.

The Company’s allowance for loan credit losses was 0.56% of total loans at March 31, 2022, as compared to 0.57% at December 31, 2021. The allowance for loan credit losses plus the unamortized credit and PCD marks amounted to $67.5 million, or 0.74% of total loans, at March 31, 2022.

Explanation of Non-GAAP Financial Measures
Reported amounts are presented in accordance with GAAP. The Company’s management believes that the supplemental non-GAAP information, which consists of reported net income excluding non-core operations, and in some instances excluding income taxes and credit loss provision, and reporting equity and asset amounts excluding intangible assets and goodwill, 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. Refer to the Non-GAAP Reconciliation table at the end of this document for details on the earnings impact of these items.

Annual Meeting
The Annual Meeting of Stockholders will be held on Wednesday, May 25, 2022 at 9:00 a.m. Eastern Time, as previously announced. The meeting will be held in a virtual format only. Stockholders of record are invited to participate in the live webcast of the meeting, which will offer the same rights and opportunities to participate as at an in-person meeting, using online tools to ensure access and participation. The record date for stockholders to vote at the Annual Meeting was April 6, 2022. Voting before the meeting is encouraged, even for stockholders planning to participate in the live virtual broadcast. Votes may be submitted by telephone or online according to the instructions on the proxy card or by mail. A link to the live webcast, and a replay of the event, is available by visiting oceanfirst.com – Investor Relations. Access will begin at 8:45 a.m. Eastern Time to allow time for stockholders to log-in with the control number provided on the proxy card prior to the 9:00 a.m. Eastern Time scheduled start. Eligible stockholders may also vote during the live meeting online at www.virtualshareholdermeeting.com/OCFC2022 by entering the 16-digit control number included on the proxy card or notice. Whether or not stockholders plan to attend the virtual Annual Meeting, the Company encourages all eligible stockholders to vote using proxy card materials included in the meeting materials distributed beginning April 26, 2022. As a reminder, participating in the meeting is not required to vote.

Conference Call
As previously announced, the Company will host an earnings conference call on Friday, April 29, 2022 at 11:00 a.m. Eastern Time. The direct dial number for the call is (844) 200-6205, using the access code 956037. For those unable to participate in the conference call, a replay will be available. To access the replay, dial (866) 813-9403, access code 401866, from one hour after the end of the call until July 29, 2022. The conference call, as well as the replay, are also available (listen-only) by internet webcast at www.oceanfirst.com in the Investor Relations section.

OceanFirst Financial Corp.’s subsidiary, OceanFirst Bank N.A., founded in 1902, is a $12.2 billion regional bank providing financial services throughout New Jersey and in the major metropolitan markets of Philadelphia, New York, Baltimore, Washington D.C., and Boston. OceanFirst Bank delivers commercial and residential financing, treasury management, trust and asset management, and deposit services and is one of the largest and oldest community-based financial institutions headquartered in New Jersey. To learn more about OceanFirst, go to 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: the impact of the COVID-19 or any other pandemic on our operations and financial results and those of our customers, changes in interest rates, inflation, 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 current or anticipated impact of military conflict, terrorism or other geopolitical events, 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, 2021, under Item 1A – Risk Factors and elsewhere, and subsequent securities filings and should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands)

    March 31,   December 31,   March 31,
      2022       2021       2021  
    (Unaudited)       (Unaudited)
Assets            
Cash and due from banks   $ 210,919     $ 204,949     $ 1,173,665  
Debt securities available-for-sale, at estimated fair value     546,470       568,255       268,511  
Debt securities held-to-maturity, net of allowance for securities credit losses of $1,380 at March 31, 2022, $1,467 at December 31, 2021, and $1,717 at March 31, 2021 (estimated fair value of $1,050,892 at March 31, 2022, $1,152,744 at December 31, 2021 and $1,099,745 at March 31, 2021)     1,099,514       1,139,193       1,082,326  
Equity investments     93,888       101,155       50,159  
Restricted equity investments, at cost     56,704       53,195       52,199  
Loans receivable, net of allowance for loan credit losses of $50,598 at March 31, 2022, $48,850 at December 31, 2021 and $59,976 at March 31, 2021     9,065,679       8,583,352       7,820,590  
Loans held-for-sale                 43,175  
Interest and dividends receivable     33,353       32,606       32,819  
Other real estate owned     106       106       106  
Premises and equipment, net     126,767       125,828       110,093  
Bank owned life insurance     259,121       259,207       264,548  
Assets held for sale     5,676       6,229       5,340  
Goodwill     500,319       500,319       500,319  
Core deposit intangible     17,005       18,215       22,273  
Other assets     149,424       147,007       151,349  
Total assets   $ 12,164,945     $ 11,739,616     $ 11,577,472  
Liabilities and Stockholders’ Equity            
Deposits   $ 10,056,233     $ 9,732,816     $ 9,502,812  
Federal Home Loan Bank advances     75,002              
Securities sold under agreements to repurchase with retail customers     117,782       118,769       134,465  
Other borrowings     194,396       229,141       228,176  
Advances by borrowers for taxes and insurance     25,398       20,305       20,980  
Other liabilities     176,800       122,032       192,320  
Total liabilities     10,645,611       10,223,063       10,078,753  
Total stockholders’ equity     1,519,334       1,516,553       1,498,719  
Total liabilities and stockholders’ equity   $ 12,164,945     $ 11,739,616     $ 11,577,472  
                         

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

    For the Three Months Ended,
    March 31,   December 31,   March 31,
      2022       2021       2021  
    |———————- (Unaudited) ———————-|
Interest income:            
Loans   $ 82,468     $ 81,392     $ 77,908  
Debt securities     7,504       5,654       5,355  
Equity investments and other     1,011       1,411       1,611  
Total interest income     90,983       88,457       84,874  
Interest expense:            
Deposits     4,041       5,010       8,496  
Borrowed funds     2,715       2,861       2,774  
Total interest expense     6,756       7,871       11,270  
Net interest income     84,227       80,586       73,604  
Credit loss expense (benefit)     1,851       (1,573 )     (620 )
Net interest income after credit loss expense (benefit)     82,376       82,159       74,224  
Other income:            
Bankcard services revenue     2,963       3,308       3,052  
Trust and asset management revenue     609       562       599  
Fees and service charges     3,060       3,314       3,737  
Net gain on sales of loans     177       6       1,916  
Net (loss) gain on equity investments     (2,786 )     (1,252 )     8,287  
Net loss from other real estate operations     (2 )     (3 )     (8 )
Income from bank owned life insurance     2,103       2,061       1,415  
Commercial loan swap income     2,781       1,323       1,111  
Other     (53 )     91       726  
Total other income     8,852       9,410       20,835  
Operating expenses:            
Compensation and employee benefits     30,695       31,006       28,366  
Occupancy     5,744       5,101       5,061  
Equipment     1,370       1,435       1,578  
Marketing     616       614       434  
Federal deposit insurance and regulatory assessments     1,890       1,733       1,864  
Data processing     5,736       7,774       4,031  
Check card processing     982       1,170       1,372  
Professional fees     3,322       2,726       2,837  
Amortization of core deposit intangible     1,210       1,343       1,395  
Branch consolidation expense, net     402       7,286       1,011  
Merger related expenses     1,965       451       381  
Other operating expense     3,563       4,195       3,353  
Total operating expenses     57,495       64,834       51,683  
Income before provision for income taxes     33,733       26,735       43,376  
Provision for income taxes     7,974       4,078       10,679  
Net income     25,759       22,657       32,697  
Dividends on preferred shares     1,004       1,004       1,004  
Net income available to common stockholders   $ 24,755     $ 21,653     $ 31,693  
Basic earnings per share   $ 0.42     $ 0.37     $ 0.53  
Diluted earnings per share   $ 0.42     $ 0.37     $ 0.53  
Average basic shares outstanding     58,739       58,801       59,840  
Average diluted shares outstanding     58,943       59,044       60,101  
                         

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

LOANS RECEIVABLE     At
      March 31,   December 31,   September 30,   June 30,   March 31,
        2022       2021       2021       2021       2021  
Commercial:                      
Commercial real estate – investor     $ 4,607,880     $ 4,378,061     $ 3,922,983     $ 3,836,230     $ 3,804,351  
Commercial real estate – owner-occupied     1,057,246       1,055,065       1,123,973       1,045,514       1,066,351  
Commercial and industrial       502,739       449,224       457,674       474,919       498,245  
Total commercial       6,167,865       5,882,350       5,504,630       5,356,663       5,368,947  
Consumer:                      
Residential real estate       2,687,927       2,479,701       2,401,240       2,168,545       2,189,348  
Home equity loans and lines and other consumer (“other consumer”)     253,184       260,819       275,962       295,582       314,242  
Total consumer       2,941,111       2,740,520       2,677,202       2,464,127       2,503,590  
Total loans       9,108,976       8,622,870       8,181,832       7,820,790       7,872,537  
Deferred origination costs (fees), net     7,301       9,332       8,282       7,437       8,029  
Allowance for loan credit losses       (50,598 )     (48,850 )     (50,153 )     (53,876 )     (59,976 )
Loans receivable, net     $ 9,065,679     $ 8,583,352     $ 8,139,961     $ 7,774,351     $ 7,820,590  
Mortgage loans serviced for others   $ 58,089     $ 60,447     $ 64,840     $ 68,778     $ 74,037  
  At March 31, 2022 Average Yield                    
Loan pipeline (1):                      
Commercial 4.07 %   $ 385,986     $ 539,426     $ 482,942     $ 463,388     $ 154,946  
Residential real estate 3.45       116,554       123,211       160,070       153,798       178,352  
Other consumer 4.48       12,814       8,381       8,420       11,369       11,031  
Total 3.94 %   $ 515,354     $ 671,018     $ 651,432     $ 628,555     $ 344,329  
  For the Three Months Ended  
  March 31,   December 31,   September 30,   June 30,   March 31,  
  2022   2021   2021   2021   2021  
  Average Yield                      
Loan originations:                        
Commercial 3.66 %   $ 816,517   $ 780,464   $ 585,667   $ 259,163 (2) $ 547,591 (2)
Residential real estate 3.08       192,721 (3)   195,942 (3)   174,365 (3)   173,354     189,942  
Other consumer 4.35       12,718     12,552     11,782     14,870     10,278  
Total 3.56 %   $ 1,021,956   $ 988,958   $ 771,814   $ 447,387   $ 747,811  
Loans sold     $ 703 (4) $ 649   $ 1,756   $ 29,556   $ 67,500  
                                   

(1) Loan pipeline includes loans approved but not funded.
(2) Excludes loans originated through the PPP of $13 million and $60 million for the three months ended June 30, 2021 and March 31, 2021, respectively.
(3) Excludes residential real estate loan pool purchases of $161.7 million, $82.2 million and $219.7 million for the three months ended March 31, 2022, December 31, 2021 and September 30, 2021, respectively.
(4) Excludes the sale of higher risk commercial loans of $12.0 million for the three months ended March 31, 2022.

DEPOSITS At
  March 31,   December 31,   September 30,   June 30,   March 31,
    2022       2021       2021       2021       2021  
Type of Account                  
Non-interest-bearing $ 2,444,833     $ 2,412,056     $ 2,467,952     $ 2,505,355     $ 2,417,935  
Interest-bearing checking   4,287,745       4,201,736       4,013,565       3,628,741       3,623,132  
Money market   811,588       736,090       816,691       734,320       782,459  
Savings   1,624,751       1,607,933       1,620,447       1,590,441       1,568,528  
Time deposits   887,316       775,001       855,442       956,429       1,110,758  
Total deposits $ 10,056,233     $ 9,732,816     $ 9,774,097     $ 9,415,286     $ 9,502,812  
                                       

OceanFirst Financial Corp.
ASSET QUALITY
(dollars in thousands)

ASSET QUALITY March 31,   December 31,   September 30,   June 30,   March 31,
  2022       2021       2021       2021       2021  
Non-performing loans:                  
Commercial real estate – investor $ 3,575     $ 3,614     $ 8,506     $ 15,211     $ 18,520  
Commercial real estate – owner-occupied   9,632       11,904       12,524       12,100       12,345  
Commercial and industrial   2,830       277       418       1,635       1,689  
Residential real estate   7,047       6,114       5,505       6,137       6,422  
Other consumer   3,841       3,585       3,351       3,576       3,782  
Total non-performing loans   26,925       25,494       30,304       38,659       42,758  
Other real estate owned   106       106       106       106       106  
Total non-performing assets $ 27,031     $ 25,600     $ 30,410     $ 38,765     $ 42,864  
Delinquent loans 30 to 89 days $ 18,691     $ 14,546     $ 7,840     $ 6,364     $ 18,421  
Troubled debt restructuring (“TDR”):                  
Non-performing (included in total non-performing loans above) $ 11,914     $ 11,311     $ 9,962     $ 10,120     $ 5,107  
Performing   7,716       12,320       9,661       10,311       11,466  
Total TDRs $ 19,630     $ 23,631     $ 19,623     $ 20,431     $ 16,573  
Allowance for loan credit losses $ 50,598     $ 48,850     $ 50,153     $ 53,876     $ 59,976  
Allowance for loan credit losses as a percent of total loans receivable (1)   0.56 %     0.57 %     0.61 %     0.69 %     0.76 %
Allowance for loan credit losses as a percent of total non-performing loans (1)   187.92       191.61       165.50       139.36       140.27  
Non-performing loans as a percent of total loans receivable   0.30       0.30       0.37       0.49       0.54  
Non-performing assets as a percent of total assets   0.22       0.22       0.26       0.34       0.37  
PCD loans                  
PCD loans $ 37,032     $ 41,817     $ 41,372     $ 40,064     $ 44,421  
Non-performing PCD loans   3,745       6,546       6,960       6,979       8,630  
Delinquent PCD loans 30 to 89 days   2,749       1,000       1,193       1,051       1,944  
TDR PCD loans   1,033       337       345       317       322  
Asset quality, excluding PCD loans (2)                  
Non-performing loans   23,180       18,948       23,344       31,680       34,128  
Non-performing assets   23,286       19,054       23,450       31,786       34,234  
Delinquent loans 30 to 89 days   15,942       13,546       6,647       5,313       16,477  
TDRs   18,597       23,294       19,278       20,114       16,251  
Allowance for loan credit losses as a percent of total non-performing loans (1)   218.28 %     257.81 %     214.84 %     170.06 %     175.74 %
Non-performing loans as a percent of total loans receivable   0.25       0.22       0.29       0.41       0.43  
Non-performing assets as a percent of total assets   0.19       0.16       0.20       0.28       0.30  
                                       

(1) Loans acquired from prior bank acquisitions were recorded at fair value. The net unamortized credit and PCD marks on these loans, not reflected in the allowance for loan credit losses, was $16.9 million, $18.9 million, $21.3 million, $23.6 million and $25.7 million at March 31, 2022, December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021, respectively.
(2) All balances and ratios below exclude PCD loans.

NET LOAN RECOVERIES (CHARGE-OFFS) For the Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,
    2022       2021       2021       2021       2021  
Net loan recoveries (charge-offs):                  
Loan charge-offs $ (143 )   $ (92 )   $ (163 )   $ (420 )   $ (356 )
Recoveries on loans   235       111       549       196       636  
Net loan recoveries (charge-offs) $ 92     $ 19     $ 386     $ (224 )   $ 280  
Net loan recoveries (charge-offs) to average total loans (annualized)   NM*       NM*       NM*       0.01 %     NM*  
Net loan recoveries (charge-offs) detail:                  
Commercial $ 25     $ (24 )   $ (33 )   $ (304 )   $ 126  
Residential real estate   94       21       280             (203 )
Other consumer   (27 )     22       139       80       357  
Net loan recoveries (charge-offs) $ 92     $ 19     $ 386     $ (224 )   $ 280  
                                       

* Not meaningful

OceanFirst Financial Corp.
ANALYSIS OF NET INTEREST INCOME

  For the Three Months Ended
  March 31,   December 31,   March 31,
    2022       2021       2021  
(dollars in thousands) Average
Balance
  Interest   Average
Yield/
Cost (1)
  Average
Balance
  Interest   Average
Yield/
Cost (1)
  Average
Balance
  Interest   Average
Yield/
Cost (1)
Assets:                                  
Interest-earning assets:                                  
Interest-earning deposits and short-term investments $ 88,826     $ 37   0.17 %   $ 698,652     $ 300   0.17 %   $ 1,138,911     $ 277   0.10 %
Securities (2)   1,846,452       8,478   1.86       1,710,143       6,765   1.57       1,311,683       6,689   2.07  
Loans receivable, net (3)                                  
Commercial   6,037,639       58,355   3.92       5,635,642       57,829   4.07       5,127,940       53,670   4.24  
Residential real estate   2,542,655       21,339   3.36       2,430,635       20,454   3.37       2,327,838       20,069   3.45  
Other consumer   257,024       2,774   4.38       273,007       3,109   4.52       326,907       4,169   5.17  
Allowance for loan credit losses, net of deferred loan costs and fees   (40,457 )             (41,889 )             (52,887 )        
Loans receivable, net   8,796,861       82,468   3.79       8,297,395       81,392   3.89       7,729,798       77,908   4.09  
Total interest-earning assets   10,732,139       90,983   3.43       10,706,190       88,457   3.28       10,180,392       84,874   3.38  
Non-interest-earning assets   1,215,071               1,247,420               1,259,109          
Total assets $ 11,947,210             $ 11,953,610             $ 11,439,501          
Liabilities and Stockholders’ Equity:                                  
Interest-bearing liabilities:                                  
Interest-bearing checking $ 4,377,368       2,149   0.20 %   $ 4,249,001       2,851   0.27 %   $ 3,711,976       4,311   0.47 %
Money market   788,063       318   0.16       790,471       282   0.14       757,634       367   0.20  
Savings   1,609,415       125   0.03       1,611,522       141   0.03       1,522,603       179   0.05  
Time deposits   767,709       1,449   0.77       819,025       1,736   0.84       1,221,123       3,639   1.21  
Total   7,542,555       4,041   0.22       7,470,019       5,010   0.27       7,213,336       8,496   0.48  
FHLB Advances   29,433       35   0.48                              
Securities sold under agreements to repurchase   117,623       42   0.14       132,520       50   0.15       129,444       95   0.30  
Other borrowings   228,522       2,638   4.68       228,980       2,811   4.87       228,368       2,679   4.76  
Total borrowings   375,578       2,715   2.93       361,500       2,861   3.14       357,812       2,774   3.14  
Total interest-bearing liabilities   7,918,133       6,756   0.35       7,831,519       7,871   0.40       7,571,148       11,270   0.60  
Non-interest-bearing deposits   2,401,797               2,467,588               2,212,273          
Non-interest-bearing liabilities   99,441               134,527               160,500          
Total liabilities   10,419,371               10,433,634               9,943,921          
Stockholders’ equity   1,527,839               1,519,976               1,495,580          
Total liabilities and equity $ 11,947,210             $ 11,953,610             $ 11,439,501          
Net interest income     $ 84,227           $ 80,586           $ 73,604    
Net interest rate spread (4)         3.08 %           2.88 %           2.78 %
Net interest margin (5)         3.18 %           2.99 %           2.93 %
Total cost of deposits (including non-interest-bearing deposits)         0.16 %           0.20 %           0.37 %
                                         

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

 

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

    March 31,   December 31,   September 30,   June 30,   March 31,
      2022       2021       2021       2021       2021  
Selected Financial Condition Data:                    
Total assets   $ 12,164,945     $ 11,739,616     $ 11,829,688     $ 11,483,901     $ 11,577,472  
Debt securities available-for-sale, at estimated fair value     546,470       568,255       314,620       249,330       268,511  
Debt securities held-to-maturity, net of allowance for securities credit losses     1,099,514       1,139,193       1,125,382       1,146,735       1,082,326  
Equity investments     93,888       101,155       101,314       90,917       50,159  
Restricted equity investments, at cost     56,704       53,195       53,017       52,519       52,199  
Loans receivable, net of allowance for loan credit losses     9,065,679       8,583,352       8,139,961       7,774,351       7,820,590  
Deposits     10,056,233       9,732,816       9,774,097       9,415,286       9,502,812  
Federal Home Loan Bank advances     75,002                          
Securities sold under agreements to repurchase and other borrowings     312,178       347,910       372,179       370,039       362,641  
Stockholders’ equity     1,519,334       1,516,553       1,513,249       1,508,789       1,498,719  
    For the Three Months Ended,
    March 31,   December 31,   September 30,   June 30,   March 31,
      2022       2021       2021       2021       2021  
Selected Operating Data:                    
Interest income   $ 90,983     $ 88,457     $ 85,420     $ 83,341     $ 84,874  
Interest expense     6,756       7,871       8,288       9,325       11,270  
Net interest income     84,227       80,586       77,132       74,016       73,604  
Credit loss expense (benefit)     1,851       (1,573 )     (3,179 )     (6,460 )     (620 )
Net interest income after credit loss expense (benefit)     82,376       82,159       80,311       80,476       74,224  
Other income (excluding net (loss) gain on equity investments)     11,638       10,662       10,349       11,227       12,548  
Net (loss) gain on equity investments     (2,786 )     (1,252 )     (466 )     576       8,287  
Operating expenses (excluding merger related and branch consolidation expenses, net)     55,128       57,097       54,434       51,198       50,291  
Branch consolidation expense, net     402       7,286       4,014       26       1,011  
Merger related expenses     1,965       451       225       446       381  
Income before provision for income taxes     33,733       26,735       31,521       40,609       43,376  
Provision for income taxes     7,974       4,078       7,354       10,054       10,679  
Net income   $ 25,759     $ 22,657     $ 24,167     $ 30,555     $ 32,697  
Net income available to common stockholders   $ 24,755     $ 21,653     $ 23,163     $ 29,551     $ 31,693  
Diluted earnings per share   $ 0.42     $ 0.37     $ 0.39     $ 0.49     $ 0.53  
Net accretion/amortization of purchase accounting adjustments included in net interest income   $ 2,953     $ 3,610     $ 3,644     $ 2,835     $ 3,650  
                                         
    At or For the Three Months Ended
    March 31,   December 31,   September 30,   June 30,   March 31,
    2022   2021   2021   2021   2021
Selected Financial Ratios and Other Data(1):                    
Performance Ratios (Annualized):                    
Return on average assets (2)   0.84 %   0.72 %   0.78 %   1.03 %   1.12 %
Return on average tangible assets (2) (3)   0.88     0.75     0.82     1.08     1.18  
Return on average stockholders’ equity (2)   6.57     5.65     6.05     7.88     8.59  
Return on average tangible stockholders’ equity (2) (3)   9.94     8.59     9.20     12.07     13.22  
Stockholders’ equity to total assets   12.49     12.92     12.79     13.14     12.95  
Tangible stockholders’ equity to tangible assets (3)   8.60     8.89     8.78     9.01     8.83  
Tangible common equity to tangible assets (3)   8.13     8.40     8.29     8.50     8.33  
Net interest rate spread   3.08     2.88     2.80     2.75     2.78  
Net interest margin   3.18     2.99     2.93     2.89     2.93  
Operating expenses to average assets (2)   1.95     2.15     1.98     1.80     1.83  
Efficiency ratio (2) (4)   61.77     72.04     67.43     60.21     54.73  
Loans-to-deposits   90.60     88.60     83.71     83.06     82.84  
                               
    At or For the Three Months Ended
    March 31,   December 31,   September 30,   June 30,   March 31,
      2022       2021       2021       2021       2021  
Trust and Asset Management:                    
Wealth assets under administration and management (“AUA/M”)   $ 296,818     $ 287,404     $ 274,807     $ 278,785     $ 274,172  
Nest Egg AUA/M     415,478       428,558       423,563       425,921       410,497  
Total AUA/M     712,296       715,962       698,370       704,706       684,669  
Per Share Data:                    
Cash dividends per common share   $ 0.17     $ 0.17     $ 0.17     $ 0.17     $ 0.17  
Stockholders’ equity per common share at end of period     25.58       25.63       25.47       25.22       24.84  
Tangible common equity per common share at end of period (3)     15.94       15.93       15.78       15.58       15.26  
Common shares outstanding at end of period     59,388,983       59,175,046       59,417,266       59,834,018       60,329,504  
Preferred shares outstanding at end of period     57,370       57,370       57,370       57,370       57,370  
Number of full-service customer facilities:     38       47       58       58       62  
Quarterly Average Balances                    
Total securities   $ 1,846,452     $ 1,710,143     $ 1,542,630     $ 1,501,484     $ 1,311,683  
Loans receivable, net     8,796,861       8,297,395       7,864,720       7,788,919       7,729,798  
Total interest-earning assets     10,732,139       10,706,190       10,461,147       10,282,888       10,180,392  
Total goodwill and core deposit intangible     518,106       519,401       520,765       522,122       523,499  
Total assets     11,947,210       11,953,610       11,738,037       11,539,732       11,439,501  
Time deposits     767,709       819,025       904,384       1,002,086       1,221,123  
Total deposits (including non-interest-bearing deposits)     9,944,352       9,937,607       9,699,033       9,507,392       9,425,609  
Total borrowed funds     375,578       361,500       371,189       363,531       357,812  
Total interest-bearing liabilities     7,918,133       7,831,519       7,494,099       7,408,720       7,571,148  
Non-interest bearing deposits     2,401,797       2,467,588       2,576,123       2,462,203       2,212,273  
Stockholders’ equity     1,527,839       1,519,976       1,519,488       1,504,035       1,495,580  
Tangible stockholders’ equity     1,009,733       1,000,575       998,723       981,913       972,081  
                     
Quarterly Yields                    
Total securities     1.86 %     1.57 %     1.57 %     1.62 %     2.07 %
Loans receivable, net     3.79       3.89       3.98       3.97       4.09  
Total interest-earning assets     3.43       3.28       3.24       3.25       3.38  
Time deposits     0.77       0.84       0.94       1.03       1.21  
Total cost of deposits (including non-interest-bearing deposits)     0.16       0.20       0.22       0.27       0.37  
Total borrowed funds     2.93       3.14       3.11       3.31       3.14  
Total interest-bearing liabilities     0.35       0.40       0.44       0.50       0.60  
Net interest spread     3.08       2.88       2.80       2.75       2.78  
Net interest margin     3.18       2.99       2.93       2.89       2.93  
                                         

(1) With the exception of end of quarter ratios, all ratios are based on average daily balances.
(2) Performance ratios for each period are presented on a GAAP basis and include non-core operations. Refer to “Non-GAAP Reconciliation.”
(3) Tangible stockholders’ equity and tangible assets exclude intangible assets related to goodwill and core deposit intangible. Tangible common equity excludes goodwill, core deposit intangible and preferred equity. Refer to “Non-GAAP Reconciliation.”
(4) Efficiency ratio represents the ratio of operating expenses to the aggregate of other income and net interest income.

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

NON-GAAP RECONCILIATION

    For the Three Months Ended
    March 31,   December 31,   September 30,   June 30,   March 31,
      2022       2021       2021       2021       2021  
Core Earnings:                    
Net income available to common stockholders (GAAP)   $ 24,755     $ 21,653     $ 23,163     $ 29,551     $ 31,693  
Add (less) non-recurring and non-core items:                    
Merger related expenses     1,965       451       225       446       381  
Branch consolidation expense, net (1)     402       7,286       4,014       26       1,011  
Net loss (gain) on equity investments     2,786       1,252       466       (576 )     (8,287 )
Income tax (benefit) expense on items     (1,141 )     (2,144 )     (1,138 )     26       1,666  
Core earnings (Non-GAAP)   $ 28,767     $ 28,498     $ 26,730     $ 29,473     $ 26,464  
Income tax expense     7,974       4,078       7,354       10,054       10,679  
Credit loss provision (benefit)     1,851       (1,573 )     (3,179 )     (6,460 )     (620 )
Income tax (benefit) expense on non-core items     (1,141 )     (2,144 )     (1,138 )     26       1,666  
Core earnings PTPP (Non-GAAP)   $ 39,733     $ 33,147     $ 32,043     $ 33,041     $ 34,857  
Core earnings diluted earnings per share   $ 0.49     $ 0.48     $ 0.45     $ 0.49     $ 0.44  
Core earnings PTPP diluted earnings per share   $ 0.67     $ 0.56     $ 0.54     $ 0.55     $ 0.58  
                     
Core Ratios (Annualized):                    
Return on average assets     0.98 %     0.95 %     0.90 %     1.02 %     0.94 %
Return on average tangible stockholders’ equity     11.55       11.30       10.62       12.04       11.04  
Efficiency ratio     57.51       62.57       62.22       60.06       58.37  
 

(1) Includes $2.0 million of gains related to the sale of two branches for the three months ended December 31, 2021.  

    March 31,   December 31,   September 30,   June 30,   March 31,
      2022       2021       2021       2021       2021  
Tangible Equity:                    
Total stockholders’ equity   $ 1,519,334     $ 1,516,553     $ 1,513,249     $ 1,508,789     $ 1,498,719  
Less:                    
Goodwill     500,319       500,319       500,319       500,319       500,319  
Core deposit intangible     17,005       18,215       19,558       20,912       22,273  
Tangible stockholders’ equity     1,002,010       998,019       993,372       987,558       976,127  
Less:                    
Preferred stock     55,527       55,527       55,527       55,527       55,527  
Tangible common equity   $ 946,483     $ 942,492     $ 937,845     $ 932,031     $ 920,600  
                     
Tangible Assets:                    
Total assets   $ 12,164,945     $ 11,739,616     $ 11,829,688     $ 11,483,901     $ 11,577,472  
Less:                    
Goodwill     500,319       500,319       500,319       500,319       500,319  
Core deposit intangible     17,005       18,215       19,558       20,912       22,273  
Tangible assets   $ 11,647,621     $ 11,221,082     $ 11,309,811     $ 10,962,670     $ 11,054,880  
                     
Tangible stockholders’ equity to tangible assets     8.60 %     8.89 %     8.78 %     9.01 %     8.83 %
Tangible common equity to tangible assets     8.13 %     8.40 %     8.29 %     8.50 %     8.33 %
                                         

Company Contact:

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

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