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OceanFirst Financial Corp. Announces First Quarter Financial Results

RED BANK, N.J., April 26, 2018 (GLOBE NEWSWIRE) -- OceanFirst Financial Corp. (NASDAQ:OCFC), (the “Company”), the holding company for OceanFirst Bank N.A. (the “Bank”), today announced that net income was $5.4 million and diluted earnings per share were $0.12 for the quarter ended March 31, 2018, as compared to $12.0 million and $0.36 for the corresponding prior year period.

The results of operations for the quarter ended March 31, 2018 include merger related expenses and branch consolidation expenses which decreased net income, net of tax benefit by $14.6 million.  Excluding these items, core earnings for the quarter ended March 31, 2018 were $20.1 million, or $0.45 per diluted share. (Please refer to the Non-GAAP Reconciliation table at the end of this document for details on the earnings impact of merger related expenses and branch consolidation expenses).

Highlights for the quarter are described below:

  • On January 31, 2018, the Company completed its acquisition of Sun Bancorp Inc. (“Sun”), the holding company of Sun National Bank, which added $2.0 billion to assets, $1.5 billion to loans, and $1.6 billion to deposits. The Company anticipates full integration of Sun’s operations and systems in June 2018.
  • The Company’s net interest margin increased to 3.70%, as compared to 3.42% in the prior linked quarter, and 3.56% in the comparable prior year period.
  • The cost of deposits increased only one basis point from the prior linked quarter, to 0.33% and the loan to deposit ratio at March 31, 2018 was 91.7%.
  • Asset quality improved as non-performing loans decreased $2.6 million, to $18.3 million, from the prior linked quarter and non-performing loans as a percentage of total loans receivable decreased to 0.34%, from 0.52%.  

Chairman and Chief Executive Officer, Christopher D. Maher said, “With Sun closing on January 31, 2018, we are pleased to include the stockholders, employees, and customers in the OceanFirst family. Sun branches and customers will be fully integrated into  OceanFirst  and the consolidation of overlapping branches will occur this June.” Mr. Maher added, “Throughout 2018, we will continue to focus on growth initiatives and improvements in operating efficiency.”         

Substantial cost savings will be realized during the second half of 2018, due to Sun’s planned systems integration and the consolidation of 17 branches, primarily as a result of the merger. These initiatives will further allow the Company to continue to invest in commercial banking and electronic delivery channels while meeting efficiency targets established in connection with the recent acquisitions.           

The Company also announced that the Company’s Board of Directors declared its eighty-fifth consecutive quarterly cash dividend on common stock.  The dividend, for the quarter ended March 31, 2018, of $0.15 per share will be paid on May 18, 2018 to stockholders of record on May 7, 2018.

Results of Operations           

On January 31, 2018, the Company completed its acquisition of Sun and its results of operations from February 1, 2018 to March 31, 2018 are included in the consolidated results for the quarter ended March 31, 2018, but are not included in the results of operations for the corresponding prior year periods.     

Net income for the quarter ended March 31, 2018, was $5.4 million, or $0.12 per diluted share, as compared to $12.0 million, or $0.36 per diluted share, for the corresponding prior year period. Net income for the quarter ended March 31, 2018, included merger related and branch consolidation expenses which decreased net income, net of tax benefit, by $14.6 million. Net income for the quarter ended March 31, 2017 included merger related and branch consolidation expenses, and an accelerated stock award expense from a director retirement, of $1.1 million, net of tax benefit. Excluding these items, net income for the quarter ended March 31, 2018 increased over the same prior year period, primarily due to the acquisition of Sun and the successful integration during 2017 of Ocean Shore Holding Co. (“Ocean Shore”) which was acquired on November 30, 2016.

Net interest income for the quarter ended March 31, 2018, increased to $55.7 million, as compared to $41.5 million for the same prior year period, reflecting an increase in interest-earning assets and a higher net interest margin. Average interest-earning assets increased by $1.378 billion for the quarter ended March 31, 2018, as compared to the same prior year period. The average for the quarter ended March 31, 2018, was favorably impacted by $1.174 billion of interest-earning assets acquired from Sun. Average loans receivable, net, increased by $1.139 billion for the quarter ended March 31, 2018, as compared to the same prior year period. The increase attributable to the acquisition of Sun was $989.5 million. The net interest margin for the quarter ended March 31, 2018 increased to 3.70%, from 3.56%, for the same prior year period. The net interest margin benefited from the accretion of purchase accounting adjustments on the Sun acquisition; and to a lesser extent, the higher-yielding interest-earning assets acquired from Sun and the impact of Federal Reserve rate increases. The total cost of deposits (including non-interest bearing deposits) was 0.33% for the quarter ended March 31, 2018, as compared to 0.27% in the same prior year period.

Net interest income for the quarter ended March 31, 2018, increased $13.2 million, as compared to the prior linked quarter, as average interest-earning assets increased by $1.178 billion, of which $1.174 billion is related to the Sun acquisition. The net interest margin increased to 3.70% for the quarter ended March 31, 2018, from 3.42% for the prior linked quarter. The increase in net interest margin was primarily due to a 15 basis point improvement in earning asset yield exclusive of Sun and related purchase accounting accretion, and 15 basis points of purchase accounting accretion relating to Sun. The total cost of deposits (including non-interest bearing deposits) was 0.33% for the quarter ended March 31, 2018, as compared to 0.32% for quarter ended December 31, 2017.  

For the quarter ended March 31, 2018, the provision for loan losses was $1.4 million, as compared to $700,000 for the corresponding prior year period, and unchanged when compared to the prior linked quarter. Net loan charge-offs were $275,000 for the quarter ended March 31, 2018, as compared to net loan recoveries of $268,000 in the corresponding prior year period, and net loan charge-offs of $2.3 million in the prior linked quarter. For the quarter ended December 31, 2017, net charge-offs included $880,000 of specific reserves established in prior periods on non-performing loans and $1.1 million relating to the sale of under-performing loans; there were no sales of under-performing loans in the first quarter of 2018 that resulted in charge-offs. Non-performing loans totaled $18.3 million at March 31, 2018, as compared to $20.9 million at December 31, 2017, and $21.7 million at March 31, 2017. The decrease in non-performing loans from the prior linked quarter was primarily due to the sale of one commercial loan relationship.  

For the quarter ended March 31, 2018, other income increased to $8.9 million as compared to $6.0 million for the corresponding prior year period. The increase was partly due to the impact of the Sun acquisition, which added $1.4 million to other income for the quarter ended March 31, 2018, as compared to the same prior year period. Excluding the Sun acquisition, the remaining increase in other income for the quarter ended March 31, 2018, was primarily due to the gain on sale of loans of $613,000, mostly related to the sale of one non-performing commercial loan relationship, rental income of $460,000 received for January and February 2018 on the Company’s recently acquired corporate headquarters (the building was occupied by the former owner through February 2018), and the decrease in the net loss from other real estate operations of $321,000, as compared to the same prior year period.            

For the quarter ended March 31, 2018, other income increased by $2.2 million, as compared to the prior linked quarter. The increase is primarily due to the impact of the Sun acquisition and the gain on sale of loans.           

Operating expenses increased to $56.8 million for the quarter ended March 31, 2018, as compared to $31.0 million in the same prior year period. Operating expenses for the quarter ended March 31, 2018, included $18.3 million of merger related and branch consolidation expenses, as compared to $1.5 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 $8.0 million for the quarter ended March 31, 2018. Excluding the Sun acquisition, the remaining increase in operating expenses over the prior year period was primarily due to increases in compensation and employee benefits expense as a result of higher incentive plan expense, and occupancy expense, partly due to costs of snow removal.               

For the quarter ended March 31, 2018, operating expenses, excluding merger and branch consolidation expenses, increased $12.1 million, as compared to the prior linked quarter. The increase was primarily related to the additional expense from the operations of Sun, as well as increases in compensation and employee benefits expense, primarily higher incentive plan expense and higher salary, data processing expense and occupancy expense, partly due to costs of snow removal.                

The provision for income taxes was $1.0 million for the quarter ended March 31, 2018, as compared to $3.8 million for the same prior year period.  The effective tax rate was 15.6% for the quarter ended March 31, 2018, as compared to 24.0% for the same prior year period.  The lower effective tax rate for the quarter ended March 31, 2018 resulted from the Tax Cuts and Jobs Act (“Tax Reform”) enacted during the fourth quarter of 2017 and the larger impact of tax-exempt income on the smaller income before taxes.

Financial Condition           

Total assets increased by $2.079 billion, to $7.495 billion at March 31, 2018, from $5.416 billion at December 31, 2017, primarily as a result of the acquisition of Sun, which added $2.045 billion to total assets. Loans receivable, net, increased by $1.448 billion, to $5.414 billion at March 31, 2018 from $3.966 billion at December 31, 2017, due to acquired loans of $1.518 billion from the acquisition of Sun. As part of the acquisition of Sun, the Company’s goodwill balance increased to $337.5 million at March 31, 2018, from $150.5 million, and the core deposit intangible increased to $20.0 million, from $8.9 million.               

Deposits increased by $1.565 billion, to $5.907 billion at March 31, 2018, from $4.343 billion at December 31, 2017, due to acquired deposits of $1.616 billion. The loan-to-deposit ratio at March 31, 2018 was 91.7%, as compared to 91.3% at December 31, 2017.                

Stockholders’ equity increased to $1.007 billion at March 31, 2018, as compared to $601.9 million at December 31, 2017. The acquisition of Sun added $402.6 million to stockholders’ equity. At March 31, 2018, there were 1.8 million shares available for repurchase under the Company’s stock repurchase programs. For the quarter ended March 31, 2018, the Company did not repurchase any shares under these repurchase programs. Tangible stockholders’ equity per common share decreased to $13.51 at March 31, 2018, as compared to $13.58 at December 31, 2017.

Asset Quality           

The Company’s non-performing loans decreased to $18.3 million at March 31, 2018, as compared to $20.9 million at December 31, 2017.  The decrease was primarily due to the sale of one commercial loan relationship. Non-performing loans do not include $14.4 million of purchased credit-impaired (“PCI”) loans acquired in the Sun, Ocean Shore, Cape Bancorp, Inc. (“Cape”), and Colonial American Bank (“Colonial American”) acquisitions (“Acquisition Transactions”). The Company’s other real estate owned totaled $8.3 million at March 31, 2018, as compared to $8.2 million at December 31, 2017.           

The Company’s delinquent loans 30 - 89 days were $35.4 million at March 31, 2018, as compared to $20.8 million at December 31, 2017. The increase was related to one $15.0 million commercial relationship which was in the process of renewal at March 31, 2018. Subsequent to quarter-end, the renewal process was completed and the loan returned to current status.            

At March 31, 2018, the Company’s allowance for loan losses was 0.31% of total loans, a decrease from 0.40% at December 31, 2017.  These ratios exclude existing fair value credit marks of $40.7 million at March 31, 2018 on loans acquired from the Acquisition Transactions, and $17.5 million at December 31, 2017 on loans acquired from Ocean Shore, Cape and Colonial American.  These loans were acquired at fair value with no related allowance for loan losses. The allowance for loan losses as a percent of total non-performing loans was 92.14% at March 31, 2018 as compared to 75.35% at December 31, 2017.

Explanation of Non-GAAP Financial Measures           

Reported amounts are presented in accordance with generally accepted accounting principles in the United States (“GAAP”).  The Company’s management believes that the supplemental non-GAAP information, which consists of reported net income excluding merger related expenses, branch consolidation expenses, additional income tax expense related to Tax Reform enacted in the fourth quarter of 2017, and accelerated stock award expense relating to a director retirement, which can vary from period to period, provides a better comparison of period to period operating performance. Additionally, the Company believes this information is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors.  These disclosures should not be viewed as a substitute for financial results in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.  Please refer to Non-GAAP Reconciliation table at the end of this document for details on the earnings impact of these items.

Conference Call                

As previously announced, the Company will host an earnings conference call on Friday, April 27, 2018 at 11 a.m. Eastern time.  The direct dial number for the call is (888) 338-7143.  For those unable to participate in the conference call, a replay will be available.  To access the replay, dial (877) 344-7529, Replay Conference Number 10118488 from one hour after the end of the call until July 27, 2018. The conference call, as well as the replay, are also available (listen-only) by internet webcast at www.oceanfirst.com in the Investor Relations section.                

OceanFirst Financial Corp.’s subsidiary, OceanFirst Bank, founded in 1902, is a $7.5 billion community bank with branches located throughout central and southern New Jersey.  OceanFirst Bank delivers commercial and residential financing solutions, wealth management and deposit services and is one of the largest and oldest community-based financial institutions headquartered in New Jersey.                

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

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

 

OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
 
    March 31,
  December 31,
  March 31,
     2018   2017   2017
    (Unaudited)       (Unaudited)
Assets            
Cash and due from banks   $ 119,364     $ 109,613     $ 175,252  
Debt securities available-for-sale, at estimated fair value   86,114     81,581     47,104  
Debt securities held-to-maturity, net (estimated fair value of $971,399 at March 31, 2018, $761,660 at December 31, 2017, and $695,564 at March 31, 2017)   982,857     764,062     687,098  
Equity investments, at estimated fair value   9,565     8,700     8,588  
Restricted equity investments, at cost   50,418     19,724     19,253  
Loans receivable, net   5,413,780     3,965,773     3,825,600  
Loans held-for-sale   167     241     283  
Interest and dividends receivable   19,422     14,254     12,258  
Other real estate owned   8,265     8,186     8,774  
Premises and equipment, net   121,835     101,776     70,806  
Bank Owned Life Insurance   218,673     134,847     132,789  
Deferred tax asset   60,136     1,922     33,747  
Assets held for sale   3,147     4,046     360  
Other assets   43,687     41,895     16,076  
Core deposit intangible   19,950     8,885     10,400  
Goodwill   337,519     150,501     147,815  
Total assets   $ 7,494,899     $ 5,416,006     $ 5,196,203  
Liabilities and Stockholders’ Equity            
Deposits   $ 5,907,336     $ 4,342,798     $ 4,198,663  
Federal Home Loan Bank advances   341,646     288,691     250,021  
Securities sold under agreements to repurchase with retail customers   82,463     79,668     77,207  
Other borrowings   99,359     56,519     56,591  
Advances by borrowers for taxes and insurance   11,974     11,156     14,876  
Other liabilities   44,661     35,233     16,302  
Total liabilities   6,487,439     4,814,065     4,613,660  
Stockholders’ equity:            
Preferred stock, $.01 par value, $1,000 liquidation preference, 5,000,000 shares authorized, no shares issued            
Common stock, $.01 par value, 55,000,000 shares authorized, 48,105,623 shares issued and 48,105,623, 32,596,893,
and 32,465,413  shares outstanding at March 31, 2018, December 31, 2017, and March 31, 2017, respectively
  481     336     336  
Additional paid-in capital   751,695     354,377     352,316  
Retained earnings   262,779     271,023     256,045  
Accumulated other comprehensive loss   (5,306 )   (5,349 )   (5,519 )
Less: Unallocated common stock held by Employee Stock Ownership Plan   (2,189 )   (2,479 )   (2,690 )
Treasury stock, 0, 969,879, and 1,101,359 shares at March 31, 2018, December 31, 2017, and March 31, 2017, respectively       (15,967 )   (17,945 )
Common stock acquired by Deferred Compensation Plan   (84 )   (84 )   (316 )
Deferred Compensation Plan Liability   84     84     316  
Total stockholders’ equity   1,007,460     601,941     582,543  
Total liabilities and stockholders’ equity   $ 7,494,899     $ 5,416,006     $ 5,196,203  
 
 


OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
 
    For the Three Months Ended,
    March 31,
  2018
  December 31,
 2017
  March 31,
 2017
    |-------------------- (unaudited) --------------------|
Interest income:            
Loans   $ 56,598     $ 42,909     $ 41,742  
Mortgage-backed securities   3,685     2,919     2,660  
Debt securities, equity investments and other   2,554     2,078     1,612  
Total interest income   62,837     47,906     46,014  
Interest expense:            
Deposits   4,464     3,515     2,781  
Borrowed funds   2,662     1,886     1,750  
Total interest expense   7,126     5,401     4,531  
Net interest income   55,711     42,505     41,483  
Provision for loan losses   1,371     1,415     700  
Net interest income after provision for loan losses   54,340     41,090     40,783  
Other income:            
Bankcard services revenue   1,919     1,764     1,579  
Wealth management revenue   553     528     516  
Fees and service charges   4,674     3,891     3,807  
Net gain on sales of loans   617     26     42  
Net unrealized loss on equity investments   (138 )        
Net loss from other real estate operations   (412 )   (678 )   (733 )
Income from Bank Owned Life Insurance   1,141     863     772  
Other   556     351     12  
Total other income   8,910     6,745     5,995  
Operating expenses:            
Compensation and employee benefits   21,251     13,961     16,138  
Occupancy   4,567     2,693     2,767  
Equipment   1,903     1,763     1,698  
Marketing   561     433     740  
Federal deposit insurance   930     485     661  
Data processing   3,176     2,040     2,396  
Check card processing   989     922     953  
Professional fees   1,283     1,094     960  
Other operating expense   3,016     2,548     2,644  
Amortization of core deposit intangible   832     495     524  
Branch consolidation (income) expense   (176 )   (734 )   33  
Merger related expenses   18,486     1,993     1,447  
Total operating expenses   56,818     27,693     30,961  
Income before provision for income taxes   6,432     20,142     15,817  
Provision for income taxes   1,005     10,186     3,799  
Net income   $ 5,427     $ 9,956     $ 12,018  
Basic earnings per share   $ 0.12     $ 0.31     $ 0.38  
Diluted earnings per share   $ 0.12     $ 0.30     $ 0.36  
Average basic shares outstanding   43,880     32,225     31,901  
Average diluted shares outstanding   44,846     33,168     33,090  
 
 


OceanFirst Financial Corp.
SELECTED LOAN AND DEPOSIT DATA
(dollars in thousands)
 
LOANS RECEIVABLE     At
        March 31,
 2018
  December 31,
2017
  September 30,
 2017
  June 30,
2017
  March 31,
2017
Commercial:                        
Commercial and industrial       $ 370,711     $ 187,645     $ 183,510     $ 193,759     $ 205,720  
Commercial real estate - owner - occupied       763,261     569,624     555,429     557,734     533,052  
Commercial real estate - investor       2,034,708     1,187,482     1,134,416     1,122,186     1,113,964  
Total commercial     3,168,680     1,944,751     1,873,355     1,873,679     1,852,736  
Consumer:                      
Residential real estate     1,882,981     1,748,925     1,729,358     1,723,581     1,698,620  
Home equity loans and lines     371,340     281,143     277,909     282,402     285,149  
Other consumer     1,844     1,295     1,426     1,335     1,560  
Total consumer     2,256,165     2,031,363     2,008,693     2,007,318     1,985,329  
Total loans     5,424,845     3,976,114     3,882,048     3,880,997     3,838,065  
Deferred origination costs, net       5,752     5,380     4,645     4,365     3,686  
Allowance for loan losses     (16,817 )   (15,721 )   (16,584 )   (16,557 )   (16,151 )
Loans receivable, net     $ 5,413,780     $ 3,965,773     $ 3,870,109     $ 3,868,805     $ 3,825,600  
Mortgage loans serviced for others       $ 109,273     $ 121,662     $ 121,886     $ 131,284     $ 132,973  
  At March 31, 2018  Average Yield                    
Loan pipeline (1):                      
Commercial 5.00 %   $ 71,982     $ 53,859     $ 58,189     $ 61,287     $ 73,793  
Residential mortgage and construction 4.18     73,513     43,482     44,510     64,510     57,600  
Home equity loans and lines 5.05     11,338     7,412     8,826     11,194     7,879  
Total 4.62 %   $ 156,833     $ 104,753     $ 111,525     $ 136,991     $ 139,272  
 
 


  For the Three Months Ended
  March 31,
 2018
  December 31,
2017
  September 30,
2017
  June 30,
2017
  March 31,
2017
  Average Yield                    
Loan originations:                      
Commercial 4.71 %   $ 59,150     $ 141,346     $ 97,420     $ 115,048     $ 106,896  
Residential mortgage and construction 3.74     68,835     73,729     80,481     79,610     64,452  
Home equity loans and lines 4.79     14,891     18,704     17,129     20,539     12,500  
Total 4.25 %   $ 142,876     $ 233,779     $ 195,030     $ 215,197     $ 183,848  
Loans sold     $ 241   (2 ) $ 1,422   (3 ) $ 991   (4 ) $ 865   (5 ) $ 1,907  

(1) Loan pipeline includes pending loan applications and loans approved but not funded
(2) Excludes the sale of SBA loans acquired from Sun and under-performing loans totaling $8.5 million
(3) Excludes the sale of under-performing residential loans of $5.8 million
(4) Excludes the sale of under-performing residential loans of $3.5 million
(5) Excludes the sale of under-performing residential loans of $4.3 million

   
DEPOSITS At
  March 31,
 2018
  December 31,
2017
  September 30,
2017
  June 30,
2017
  March 31,
2017
Type of Account                  
Non-interest-bearing $ 1,117,100     $ 756,513     $ 781,043     $ 770,057     $ 806,728  
Interest-bearing checking 2,330,682     1,954,358     1,892,832     1,727,828     1,629,589  
Money market deposit 613,183     363,656     384,106     378,538     448,093  
Savings 917,288     661,167     668,370     677,939     681,853  
Time deposits 929,083     607,104     623,908     622,547     632,400  
  $ 5,907,336     $ 4,342,798     $ 4,350,259     $ 4,176,909     $ 4,198,663  
 
 


OceanFirst Financial Corp.
ASSET QUALITY
(dollars in thousands)
 
ASSET QUALITY March 31,
 2018
  December 31,
2017
  September 30,
2017
  June 30,
2017
  March 31,
2017
Non-performing loans:                  
Commercial and industrial $ 1,717     $ 503     $ 63     $ 68     $ 231  
Commercial real estate - owner-occupied 862     5,962     923     943     2,383  
Commercial real estate - investor 7,994     8,281     8,720     5,608     5,118  
Residential mortgage 5,686     4,190     3,551     7,936     11,993  
Home equity loans and lines 1,992     1,929     1,864     1,706     1,954  
Total non-performing loans 18,251     20,865     15,121     16,261     21,679  
Other real estate owned 8,265     8,186     9,334     8,898     8,774  
Total non-performing assets $ 26,516     $ 29,051     $ 24,455     $ 25,159     $ 30,453  
Purchased credit-impaired (“PCI”) loans $ 14,352     $ 1,712     $ 4,867     $ 4,969     $ 7,118  
Delinquent loans 30 to 89 days $ 35,431   (1 ) $ 20,796     $ 24,548     $ 25,224     $ 18,516  
Troubled debt restructurings:                  
Non-performing (included in total non-performing loans above) $ 4,306     $ 8,821     $ 270     $ 1,251     $ 3,547  
Performing 33,806     33,313     35,808     34,130     26,974  
Total troubled debt restructurings $ 38,112     $ 42,134     $ 36,078     $ 35,381     $ 30,521  
Allowance for loan losses $ 16,817     $ 15,721     $ 16,584     $ 16,557     $ 16,151  
Allowance for loan losses as a percent of total loans receivable (2) 0.31 %   0.40 %   0.42 %   0.42 %   0.42 %
Allowance for loan losses as a percent of total non-performing loans 92.14     75.35     109.68     101.82     74.50  
Non-performing loans as a percent of total loans receivable 0.34     0.52     0.39     0.42     0.56  
Non-performing assets as a percent of total assets 0.35     0.54     0.45     0.48     0.59  

(1) One commercial loan relationship, for $15.0 million, was in the process of renewal at March 31, 2018. Subsequent to quarter-end, the renewal process was completed and the loan returned to current status.
(2) The loans acquired from Sun, Ocean Shore, Cape, and Colonial American were recorded at fair value.  The net credit mark on these loans, not reflected in the allowance for loan losses, was $40,717, $17,531, $19,810, $21,794, and $24,002 at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017, and  March 31, 2017, respectively.

   
   
NET CHARGE-OFFS For the Three Months Ended
  March 31,
 2018
  December 31,
2017
  September 30,
 2017
  June 30,
2017
  March 31,
2017
Net Charge-offs:                  
Loan charge-offs $ (533 )   $ (2,523 )   $ (1,357 )   $ (1,299 )   $ (205 )
Recoveries on loans 258     245     219     540     473  
Net loan (charge-offs) recoveries $ (275 )   $ (2,278 )   $ (1,138 )   $ (759 )   $ 268  
Net loan charge-offs to average total loans
(annualized)
0.02 %   0.23 %   0.12 %   0.08 %   NM*  
Net charge-off detail - (loss) recovery:                  
Commercial $ (10 )   $ (1,036 )   $ 68     $ (81 )   $ 311  
Residential mortgage and construction (159 )   (1,262 )   (1,156 )   (716 )   (49 )
Home equity loans and lines (99 )   28     (51 )   39     24  
Other consumer (7 )   (8 )   1     (1 )   (18 )
Net loan (charge-offs) recoveries $ (275 )   $ (2,278 )   $ (1,138 )   $ (759 )   $ 268  
 

Note:  Included in net loan charge-offs for the three months ended December 31, 2017, September 30, 2017, and June 30, 2017 are $1,124, $907, and $925, respectively, relating to under-performing loans sold or held-for-sale.

* Not meaningful

 
 
OceanFirst Financial Corp.
ANALYSIS OF NET INTEREST INCOME
 
  For the Three Months Ended
  March 31, 2018   December 31, 2017   March 31, 2017
(dollars in thousands) Average
Balance
  Interest   Average
Yield/
Cost
  Average
Balance
  Interest   Average
Yield/
Cost
  Average
Balance
  Interest   Average
Yield/
Cost
Assets:                                  
Interest-earning assets:                                  
Interest-earning deposits and short-term investments $ 100,236     $ 209     0.84 %   $ 155,987     $ 391     0.99 %   $ 214,165     $ 409     0.77 %
Securities (1) 1,056,774     6,030     2.31     874,910     4,606     2.09     703,712     3,863     2.23  
Loans receivable, net (2)                                  
Commercial 2,772,952     33,391     4.88     1,887,319     22,087     4.64     1,830,641     21,140     4.68  
Residential 1,843,804     19,037     4.19     1,743,334     17,552     3.99     1,704,035     17,339     4.13  
Home Equity 342,078     4,143     4.91     278,294     3,243     4.62     287,335     3,245     4.58  
Other 1,458     27     7.51     1,086     27     9.86     1,248     18     5.85  
Allowance for loan loss net of deferred loan fees (10,285 )           (11,993 )           (12,123 )        
Loans Receivable, net 4,950,007     56,598     4.64     3,898,040     42,909     4.37     3,811,136     41,742     4.44  
Total interest-earning assets 6,107,017     62,837     4.17     4,928,937     47,906     3.86     4,729,013     46,014     3.95  
Non-interest-earning assets 735,676             475,927             482,058          
Total assets $ 6,842,693             $ 5,404,864             $ 5,211,071          
Liabilities and Stockholders’ Equity:                                  
Interest-bearing liabilities:                                  
Interest-bearing checking $ 2,263,318     1,758     0.32 %   $ 1,944,223     1,447     0.30 %   $ 1,668,545     876     0.21 %
Money market 525,933     550     0.42     385,720     322     0.33     445,186     311     0.28  
Savings 825,044     195     0.10     662,318     59     0.04     674,721     130     0.08  
Time deposits 820,834     1,961     0.97     619,087     1,687     1.08     640,269     1,464     0.93  
Total 4,435,129     4,464     0.41     3,611,348     3,515     0.39     3,428,721     2,781     0.33  
Securities sold under agreements to repurchase 78,931     40     0.21     74,661     39     0.21     76,351     27     0.14  
FHLB Advances 322,120     1,513     1.90     261,018     1,146     1.74     250,339     1,070     1.73  
Other borrowings 80,112     1,109     5.61     56,475     701     4.92     56,392     653     4.70  
Total interest-bearing
liabilities
4,916,292     7,126     0.59     4,003,502     5,401     0.54     3,811,803     4,531     0.48  
Non-interest-bearing deposits 1,004,673             760,552             791,036          
Non-interest-bearing liabilities 55,031             38,880             29,399          
Total liabilities 5,975,996             4,802,934             4,632,238          
Stockholders’ equity 866,697             601,930             578,833          
Total liabilities and equity $ 6,842,693             $ 5,404,864             $ 5,211,071          
Net interest income     $ 55,711             $ 42,505             $ 41,483      
Net interest rate spread (3)         3.58 %           3.32 %           3.47 %
Net interest margin (4)         3.70 %           3.42 %           3.56 %
Total cost of deposits (including non-interest-bearing deposits)         0.33 %           0.32 %           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.

 
 
OceanFirst Financial Corp.
SELECTED QUARTERLY FINANCIAL DATA
(in thousands, except per share amounts)
 
    March 31,   December 31,   September 30,   June 30,   March 31,
    2018   2017   2017   2017   2017
                     
Selected Financial Condition Data:                    
Total assets   $ 7,494,899     $ 5,416,006     $ 5,383,800     $ 5,202,086     $ 5,196,203  
Debt securities available-for-sale, at estimated fair value   86,114     81,581     67,133     62,154     47,104  
Debt securities held-to-maturity, net   982,857     764,062     733,983     711,650     687,098  
Equity investments, at estimated fair value   9,565     8,700     8,714     8,669     8,588  
Restricted equity investments, at cost   50,418     19,724     18,472     20,358     19,253  
Loans receivable, net   5,413,780     3,965,773     3,870,109     3,868,805     3,825,600  
Loans held-for-sale   167     241     338     168     283  
Deposits   5,907,336     4,342,798     4,350,259     4,176,909     4,198,663  
Federal Home Loan Bank advances   341,646     288,691     259,186     277,541     250,021  
Securities sold under agreements to repurchase and other borrowings   181,822     136,187     131,792     131,673     133,798  
Stockholders’ equity   1,007,460     601,941     596,140     587,189     582,543  
                               
                               


    For the Three Months Ended,
    March 31,   December 31,   September 30,   June 30,   March 31,
    2018   2017   2017   2017   2017
Selected Operating Data:                    
Interest income   $ 62,837     $ 47,906     $ 48,030     $ 46,879     $ 46,014  
Interest expense   7,126     5,401     4,974     4,705     4,531  
Net interest income   55,711     42,505     43,056     42,174     41,483  
Provision for loan losses   1,371     1,415     1,165     1,165     700  
Net interest income after provision for loan losses   54,340     41,090     41,891     41,009     40,783  
Other income   8,910     6,745     7,359     6,973     5,995  
Operating expenses   38,508     26,434     27,580     28,527     29,481  
Branch consolidation (income) expense   (176 )   (734 )   1,455     5,451     33  
Merger related expenses   18,486     1,993     1,698     3,155     1,447  
Income before provision for income taxes   6,432     20,142     18,517     10,849     15,817  
Provision for income taxes   1,005     10,186     5,700     3,170     3,799  
Net income   $ 5,427     $ 9,956     $ 12,817     $ 7,679     $ 12,018  
Diluted earnings per share   $ 0.12     $ 0.30     $ 0.39     $ 0.23     $ 0.36  
Net accretion/amortization of purchase accounting adjustments included in net interest income   $ 3,930     $ 1,956     $ 2,227     $ 1,899     $ 2,175  
 
 

 

     
    At or For the Three Months Ended
    March 31,   December 31,   September 30,   June 30,   March 31,
    2018   2017   2017   2017   2017
Selected Financial Ratios and Other Data(1):                    
                     
Performance Ratios (Annualized):                    
Return on average assets (2)   0.32 %   0.73 %   0.95 %   0.59 %   0.94 %
Return on average stockholders’ equity (2)   2.54     6.56     8.60     5.25     8.42  
Return on average tangible stockholders’ equity (2) (3)   3.80     8.89     11.74     7.19     11.50  
Stockholders' equity to total assets   13.44     11.11     11.07     11.29     11.21  
Tangible stockholders’ equity to tangible assets (3)   9.11     8.42     8.39     8.50     8.42  
Net interest rate spread   3.58     3.32     3.41     3.48     3.47  
Net interest margin   3.70     3.42     3.50     3.57     3.56  
Operating expenses to average assets (2)   3.37     2.03     2.29     2.86     2.41  
Efficiency ratio (2) (4)   87.92     56.23     60.96     75.55     65.21  
Loans to deposits   91.65     91.32     88.96     92.62     91.11  
                               
                               


     
    At or For the Three Months Ended
    March 31,   December 31,   September 30,   June 30,   March 31,
    2018   2017   2017   2017   2017
Wealth Management:                    
Assets under administration   $ 221,493     $ 233,185     $ 225,904     $ 214,479     $ 215,593  
Per Share Data:                    
Cash dividends per common share   $ 0.15     $ 0.15     $ 0.15     $ 0.15     $ 0.15  
Stockholders’ equity per common share at end of  period   20.94     18.47     18.30     18.05     17.94  
Tangible stockholders’ equity per common share at end of period (3)   13.51     13.58     13.47     13.18     13.07  
Number of full-service customer facilities:   76     46     46     51     61  
Quarterly Average Balances                    
Total securities   $ 1,056,774     $ 874,910     $ 817,867     $ 786,964     $ 703,712  
Loans, receivable, net   4,950,007     3,898,040     3,872,351     3,840,916     3,811,136  
Total interest-earning assets   6,107,017     4,928,937     4,873,732     4,741,900     4,729,013  
Total assets   6,842,693     5,404,864     5,334,527     5,215,636     5,211,071  
Interest-bearing transaction deposits   3,614,295     2,992,261     2,914,004     2,819,175     2,788,452  
Time deposits   820,834     619,087     620,308     624,020     640,269  
Total borrowed funds   481,163     392,154     395,439     389,321     383,082  
Total interest-bearing liabilities   4,916,292     4,003,502     3,929,751     3,832,516     3,811,803  
Non-interest bearing deposits   1,004,673     760,552     781,047     772,739     791,036  
Stockholders’ equity   866,697     601,930     591,369     587,121     578,833  
Total deposits   5,439,802     4,371,900     4,315,359     4,215,934     4,219,757  
Quarterly Yields                    
Total securities   2.31 %   2.09 %   2.07 %   2.07 %   2.23 %
Loans, receivable, net   4.64     4.37     4.44     4.45     4.44  
Total interest-earning assets   4.17     3.86     3.91     3.97     3.95  
Interest-bearing transaction deposits   0.28     0.25     0.21     0.20     0.18  
Time deposits   0.97     1.08     1.02     0.96     0.93  
Total borrowed funds   2.24     1.91     1.87     1.85     1.85  
Total interest-bearing liabilities   0.59     0.54     0.50     0.49     0.48  
Net interest spread   3.58     3.32     3.41     3.48     3.47  
Net interest margin   3.70     3.42     3.50     3.57     3.56  
                               
Total deposits   0.33     0.32     0.29     0.28     0.27  

(1)   With the exception of end of quarter ratios, all ratios are based on average daily balances.
(2)   Performance ratios for each period include merger related and branch consolidation expenses.  Refer to Other Items - Non-GAAP Reconciliation for impact of merger related and branch consolidation expenses.
(3)   Tangible stockholders’ equity and tangible assets exclude intangible assets relating to goodwill and core deposit intangible.
(4)   Efficiency ratio represents the ratio of operating expenses to the aggregate of other income and net interest income.

OceanFirst Financial Corp.
OTHER ITEMS
(dollars in thousands, except per share amounts)
 
NON-GAAP RECONCILIATION                                        
    For the Three Months Ended
    March 31,   December 31,   September 30,   June 30,   March 31,
    2018   2017   2017   2017   2017
Core earnings:                    
Net income   $ 5,427     $ 9,956     $ 12,817     $ 7,679     $ 12,018  
Add:  Merger related expenses   18,486     1,993     1,698     3,155     1,447  
Branch consolidation expenses   (176 )   (734 )   1,455     5,451     33  
Accelerated stock award expense                   242  
Income tax expense related to Tax Reform       3,643              
Less:  Income tax (expense) benefit on items   (3,664 )   2     (1,084 )   (3,012 )   (587 )
Core earnings   $ 20,073     $ 14,860     $ 14,886     $ 13,273     $ 13,153  
Core diluted earnings per share   $ 0.45     $ 0.45     $ 0.45     $ 0.40     $ 0.40  
                     
Core ratios (Annualized):                    
Return on average assets   1.19 %   1.09 %   1.11 %   1.02 %   1.02 %
Return on average tangible stockholders’ equity   14.07     13.27     13.63     12.42     12.56  
Efficiency ratio   59.59     53.67     54.71     58.04     61.58  
                               
                               


COMPUTATION OF TOTAL TANGIBLE EQUITY TO TOTAL TANGIBLE ASSETS 
    March 31,   December 31,   September 30,   June 30,   March 31,
    2018   2017   2017   2017   2017
Total stockholders’ equity   $ 1,007,460     $ 601,941     $ 596,140     $ 587,189     $ 582,543  
Less:                    
Goodwill   337,519     150,501     148,134     148,433     147,815  
Core deposit intangible   19,950     8,885     9,380     9,887     10,400  
Tangible stockholders’ equity   $ 649,991     $ 442,555     $ 438,626     $ 428,869     $ 424,328  
                     
Total assets   $ 7,494,899     $ 5,416,006     $ 5,383,800     $ 5,202,086     $ 5,196,203  
Less:                    
Goodwill   337,519     150,501     148,134     148,433     147,815  
Core deposit intangible   19,950     8,885     9,380     9,887     10,400  
Tangible assets   $ 7,137,430     $ 5,256,620     $ 5,226,286     $ 5,043,766     $ 5,037,988  
Tangible stockholders’ equity to tangible assets   9.11 %   8.42 %   8.39 %   8.50 %   8.42 %
 
 

 

 
ACQUISITION DATE - FAIR VALUE BALANCE SHEET
The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the acquisition for Sun, net of the total consideration paid (in thousands):
  At January 31, 2018
  Sun Book Value   Purchase
Accounting
Adjustments
  Estimated
Fair Value
Total Purchase Price:         $ 474,930  
Assets acquired:          
Cash and cash equivalents $ 68,632     $     $ 68,632  
Securities and Federal Home Loan Bank Stock 254,522         254,522  
Loans 1,541,868     (23,921 )   1,517,947  
Accrued interest receivable 5,621         5,621  
Bank Owned Life Insurance 85,238         85,238  
Deferred tax asset 55,710     2,642     58,352  
Other assets 49,561     (7,031 )   42,530  
Core deposit intangible     11,897     11,897  
Total assets acquired 2,061,152     (16,413 )   2,044,739  
Liabilities assumed:          
Deposits (1,614,910 )   (1,163 )   (1,616,073 )
Borrowings (142,567 )   14,820     (127,747 )
Other liabilities (14,372 )   1,365     (13,007 )
Total liabilities assumed (1,771,849 )   15,022     (1,756,827 )
Net assets acquired $ 289,303     $ (1,391 )   $ 287,912  
Goodwill recorded in the merger         $ 187,018  

The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available. As the Company finalizes its review of the acquired assets and liabilities, certain adjustments to the recorded carrying values may be required.

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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