OceanFirst Financial Corp. Announces First Quarter Earnings and Financial Results

RED BANK, N.J., April 23, 2020 (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 $16.5 million, or $0.27 per diluted share, for the quarter ended March 31, 2020, as compared to $21.2 million, or $0.42 per diluted share, for the corresponding prior year period.

The results of operations for the quarter ended March 31, 2020 include merger related expenses, branch consolidation expenses, and the Two River Bancorp (“Two River”) and Country Bank Holding Company, Inc. (“Country Bank”) opening credit loss expense under the Current Expected Credit Loss (“CECL”) model, which decreased net income, net of tax benefit, by $10.4 million. Excluding these items, core earnings for the quarter ended March 31, 2020 was $27.0 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, branch consolidation, and the Two River and Country Bank opening credit loss expenses). The first quarter results were also impacted by the COVID-19 outbreak, through both higher credit loss expense and increased operating expense.

Highlights for the quarter are described below:

• Strong organic loan originations of $426.2 million provided total loan growth of $158.4 million (excluding acquired loans) with a record pipeline of $525.3 million at March 31, 2020.
• On January 1, 2020, the Company completed its acquisitions of Two River and Country Bank. Two River added $1.2 billion to assets, $940.8 million to loans, $85.2 million to goodwill, and $941.8 million to deposits. Country Bank added $832.8 million to assets, $618.7 million to loans, $39.9 million to goodwill, and $652.7 million to deposits.
• The Company anticipates full integration of operations and the elimination of eight duplicate branches in Two River’s market area in May 2020, resulting in cost savings in future periods. The Bank expects to consolidate an additional five branches, also in May, independent of the acquisitions; bringing the total number of branches consolidated to 53 over the past four years.
• The Company adopted Accounting Standards Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments,” which increased credit loss expense by $9.6 million from the prior linked quarter.
• The Company’s first quarter results were adversely impacted by the COVID-19 outbreak, including an estimated increase in credit loss expense of $7.2 million and an increase in operating expense of $1.0 million. Refer to exhibits filed with the earnings release on Form 8-K for prospective information related to the impact of COVID-19.

“Since the beginning of March, our efforts have largely focused on mitigating the impact of COVID-19 on our employees, customers, and community. We have emphasized employee safety through our work from home initiatives, temporary branch closures, and dispersion of key functions,” said Chairman and Chief Executive Officer, Christopher D. Maher. Mr. Maher added, “We are supporting borrowers impacted by COVID-19 with payment relief programs, as well as waiving certain fees for our loan and deposit customers. Subsequent to quarter end, we have actively participated in the SBA’s Paycheck Protection Program, assisting local businesses to retain an estimated 36,000 employees.”

The Company announced that the Company’s Board of Directors declared its ninety-third consecutive quarterly cash dividend on common stock. The dividend, related to the three months ended March 31, 2020, of $0.17 per share will be paid on May 15, 2020 to stockholders of record on May 4, 2020.

Results of Operations

On January 31, 2019, the Company completed its acquisition of Capital Bank of New Jersey (“Capital Bank”) and its results of operations are included in the consolidated results for the quarter ended March 31, 2020, but are excluded from the results of operations for the period from January 1, 2019 to January 31, 2019.

On January 1, 2020, the Company completed its acquisitions of Two River and Country Bank and their respective results of operations from January 1, 2020 through March 31, 2020 are included in the consolidated results for the quarter ended March 31, 2020, but are not included in the results of operations for the corresponding prior year period.

Net income for the quarter ended March 31, 2020, was $16.5 million, or $0.27 per diluted share, as compared to $21.2 million, or $0.42 per diluted share, for the corresponding prior year period. Net income for the quarter ended March 31, 2020 included merger related expenses, branch consolidation expenses, and the Two River and Country Bank opening credit loss expense under the CECL model, which decreased net income, net of tax benefit, by $10.4 million. Net income for the quarter ended March 31, 2019 included merger related and branch consolidation expenses, which decreased net income, net of tax benefit, by $4.4 million. Excluding these items, net income for the quarter ended March 31, 2020 increased over the same prior year period, primarily due to the acquisitions of Two River and Country Bank.

Net interest income for the quarter ended March 31, 2020 increased to $79.6 million, as compared to $64.4 million for the same prior year period, reflecting an increase in interest-earning assets. Average interest-earning assets increased by $2.186 billion for the quarter ended March 31, 2020, as compared to the same prior year period. The average for the quarter ended March 31, 2020 was favorably impacted by $1.762 billion of interest-earning assets acquired from Two River and Country Bank. Average loans receivable, net, increased by $2.083 billion for the quarter ended March 31, 2020, as compared to the same prior year period. The increase attributable to the acquisitions of Two River and Country Bank were $1.546 billion. The net interest margin for the quarter ended March 31, 2020 decreased to 3.52% from 3.78%, for the same prior year period. For the quarter ended March 31, 2020, the cost of average interest-bearing liabilities increased to 1.05%, from 0.89% in the corresponding prior year period. The total cost of deposits (including non-interest bearing deposits) was 0.70% for the quarter ended March 31, 2020, as compared to 0.57%, in the same prior year period. Deposit costs increased primarily due to the addition of higher priced deposits as a result of the Two River and Country Bank acquisitions.

Net interest income for the quarter ended March 31, 2020, increased by $16.3 million, as compared to the prior linked quarter, as average interest-earning assets increased by $1.886 billion. The net interest margin increased to 3.52% for the quarter ended March 31, 2020, as compared to 3.48% for the prior linked quarter. The increase was primarily due to a net increase in purchase accounting accretion of eight basis points as a result of the acquisition of Two River and Country Bank. Excluding the impact of purchase accounting and prepayment fees, the core net interest margin expanded by one basis point. The total cost of deposits (including non-interest bearing deposits) was 0.70% for the quarter ended March 31, 2020, as compared to 0.64% for the quarter ended December 31, 2019.

For the quarter ended March 31, 2020, the credit loss expense was $10.0 million, as compared to $620,000 for the corresponding prior year period, and $355,000 in the prior linked quarter. Net loan charge-offs were $1.2 million for the quarter ended March 31, 2020, as compared to $492,000 in the corresponding prior year period, and $139,000 in the prior linked quarter. Quarterly net charge-offs included $949,000 taken on the sale of higher risk residential loans. Non-performing loans totaled $16.2 million at March 31, 2020, as compared to $17.8 million at December 31, 2019 and $20.9 million at March 31, 2019. Credit expense was significantly influenced by actual and expected economic conditions due to the COVID-19 outbreak. Refer to exhibits filed with the earnings release on Form 8-K for detailed information on credit loss expense.

For the quarter ended March 31, 2020, other income increased to $13.7 million, as compared to $9.5 million, for the corresponding prior year period. The increase was partly due to the impact of the Two River and Country Bank acquisitions, which added $558,000 and $162,000, respectively, to other income for the quarter ended March 31, 2020. Excluding the Two River and Country Bank acquisitions, the increase in other income for the quarter ended March 31, 2020 was primarily due to an increase in commercial loan swap fee income of $3.6 million, as compared to the corresponding prior year period.

For the quarter ended March 31, 2020, other income increased by $2.5 million, as compared to the prior linked quarter. The increase was partially due to the impact of the Two River and Country Bank acquisitions and an increase in commercial loan swap fee income of $2.0 million.

Operating expenses increased to $62.8 million for the quarter ended March 31, 2020, as compared to $47.3 million in the same prior year period. Operating expenses for the quarter ended March 31, 2020 included $11.1 million of merger related and branch consolidation expenses, as compared to $5.4 million of merger related and branch consolidation expenses, in the same prior year period. Excluding the impact of merger related and branch consolidation expenses, the change in operating expenses over the prior year were due to the Two River and Country Bank acquisitions, which added $5.3 million and $3.2 million, respectively, for the quarter ended March 31, 2020. The remaining increase in operating expenses was primarily due to expenses relating to the COVID-19 outbreak of $1.0 million.

For the quarter ended March 31, 2020, operating expenses increased by $9.4 million, as compared to the prior linked quarter, excluding merger related and branch consolidation expenses for both periods and non-recurring professional fees of $1.3 million for the quarter ended December 31, 2019. The increase in operating expenses was due to the Two River and Country Bank acquisitions and the expenses relating to the COVID-19 outbreak.

The provision for income taxes was $4.0 million for the quarter ended March 31, 2020, as compared to $4.8 million, for the same prior year period. The effective tax rate was 19.7% for the quarter ended March 31, 2020, as compared to 18.6% for the same prior year period. The higher effective tax rate in the current year period is primarily due to the impact of a New Jersey tax code change.

Financial Condition

Total assets increased by $2.243 billion, to $10.489 billion at March 31, 2020, from $8.246 billion at December 31, 2019, primarily as a result of the acquisitions of Two River and Country Bank, which added $2.031 billion to total assets. Loans receivable, net of allowance for credit losses, increased by $1.706 billion, to $7.914 billion at March 31, 2020, from $6.208 billion at December 31, 2019, due to acquired loans from Two River and Country Bank of $1.559 billion. As part of the acquisitions of Two River and Country Bank, the Company’s goodwill balance increased to $500.1 million at March 31, 2020, from $374.6 million at December 31, 2019 and the core deposit intangible increased to $28.3 million, from $15.6 million.

Deposits increased by $1.563 billion, to $7.892 billion at March 31, 2020, from $6.329 billion at December 31, 2019, primarily due to acquired deposits from Two River and Country Bank of $1.594 billion. The loan-to-deposit ratio at March 31, 2020 was 100.3%, as compared to 98.1% at December 31, 2019.

Stockholders’ equity increased to $1.410 billion at March 31, 2020, as compared to $1.153 billion at December 31, 2019. The acquisitions of Two River and Country Bank added $261.4 million to stockholders’ equity. At March 31, 2020, there were 2,019,145 shares available for repurchase under the Company’s stock repurchase program. For the quarter ended March 31, 2020, the Company repurchased 648,851 shares under the repurchase program at a weighted average cost of $22.83. The Company suspended its repurchase activity on February 28, 2020. Tangible stockholders’ equity per common share decreased to $14.62 at March 31, 2020, as compared to $15.13 at December 31, 2019.

Asset Quality

The Company’s non-performing loans decreased to $16.2 million at March 31, 2020, as compared to $17.8 million at December 31, 2019. Non-performing loans do not include $58.3 million of purchased with credit deterioration (“PCD”) loans acquired in the Two River, Country Bank, Capital Bank, Sun Bancorp, Inc. (“Sun”), Ocean Shore Holding Co. (“Ocean Shore”), Cape Bancorp, Inc. (“Cape”), and Colonial American Bank (“Colonial American”) acquisitions (“Acquisition Transactions”). The Company’s other real estate owned totaled $484,000 at March 31, 2020, as compared to $264,000 at December 31, 2019.

At March 31, 2020, the Company’s allowance for loan losses was 0.37% of total loans, an increase from 0.27% at December 31, 2019. The allowance for credit losses as a percent of total non-performing loans was 183.4% at March 31, 2020, as compared to 94.4% at December 31, 2019.

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, Two River and Country Bank opening credit loss expense under the CECL model, non-recurring professional fees, compensation expense due to the retirement of an executive officer, and reduction in income tax expense from the revaluation of state deferred tax assets as a result of a change in the New Jersey tax code, 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 24, 2020 at 11:00 a.m. Eastern Time.  The direct dial number for the call is [phone].  For those unable to participate in the conference call, a replay will be available.  To access the replay, dial [phone], Replay Conference Number 10141831 from one hour after the end of the call until July 24, 2020. 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 $10.5 billion regional bank operating throughout New Jersey, metropolitan Philadelphia and metropolitan New York City.  OceanFirst Bank delivers commercial and residential financing solutions, trust and asset 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, 2019, 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,  2020			December 31,  2019			March 31,  2019
		(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	256,470		$	120,544		$	134,235
Federal funds sold		—			—			18,733
Debt securities available-for-sale, at estimated fair value		153,738			150,960			122,558
Debt securities held-to-maturity, net of allowance for credit losses of $2,529 at March 31, 2020 (estimated fair value of $928,582 at March 31, 2020, $777,290 at December 31, 2019, and $896,812 at March 31, 2019)		914,255			768,873			900,614
Equity investments, at estimated fair value		14,409			10,136			9,816
Restricted equity investments, at cost		81,005			62,356			55,663
Loans receivable, net of allowance for credit losses of $29,635 at March 31, 2020, $16,852 at December 31, 2019 and $16,705 at March 31, 2019		7,913,541			6,207,680			5,968,830
Loans held-for-sale		17,782			—			—
Interest and dividends receivable		27,930			21,674			22,294
Other real estate owned		484			264			1,594
Premises and equipment, net		104,560			102,691			113,226
Bank Owned Life Insurance		261,270			237,411			234,183
Assets held for sale		3,785			3,785			4,522
Other assets		211,476			169,532			112,955
Core deposit intangible		28,276			15,607			18,629
Goodwill		500,093			374,632			375,096
Total assets	$	10,489,074		$	8,246,145		$	8,092,948
Liabilities and Stockholders’ Equity
Deposits	$	7,892,067		$	6,328,777		$	6,290,485
Federal Home Loan Bank advances		825,824			519,260			418,016
Securities sold under agreements to repurchase with retail customers		90,175			71,739			66,174
Other borrowings		120,213			96,801			99,579
Advances by borrowers for taxes and insurance		24,931			13,884			15,138
Other liabilities		126,030			62,565			76,393
Total liabilities		9,079,240			7,093,026			6,965,785
Total stockholders’ equity		1,409,834			1,153,119			1,127,163
Total liabilities and stockholders’ equity	$	10,489,074		$	8,246,145		$	8,092,948

OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts)
	For the Three Months Ended,
		March 31,  2020				December 31,  2019				March 31,  2019
	|--------------------------- (Unaudited) ---------------------------|
Interest income:
Loans	$	89,944			$	70,298			$	69,001
Mortgage-backed securities		3,844				3,552				4,041
Debt securities, equity investments and other		4,419				3,225				3,380
Total interest income		98,207				77,075				76,422
Interest expense:
Deposits		13,936				10,214				8,639
Borrowed funds		4,626				3,507				3,395
Total interest expense		18,562				13,721				12,034
Net interest income		79,645				63,354				64,388
Credit loss expense		9,969				355				620
Net interest income after credit loss expense		69,676				62,999				63,768
Other income:
Bankcard services revenue		2,481				2,641				2,285
Trust and asset management revenue		515				478				498
Fees and service charges		4,873				4,710				4,516
Net gain on sales of loans		173				1				8
Net unrealized gain (loss) on equity investments		155				(63	)			108
Net loss from other real estate operations		(150	)			(95	)			(6	)
Income from Bank Owned Life Insurance		1,575				1,375				1,321
Commercial loan swap income		4,050				2,062				472
Other		25				122				310
Total other income		13,697				11,231				9,512
Operating expenses:
Compensation and employee benefits		29,885				22,518				22,414
Occupancy		5,276				4,071				4,530
Equipment		1,943				1,775				1,946
Marketing		769				840				930
Federal deposit insurance and regulatory assessments		667				296				832
Data processing		4,177				4,078				3,654
Check card processing		1,276				1,557				1,438
Professional fees		2,302				3,641				1,709
Other operating expense		3,802				3,815				3,369
Amortization of core deposit intangible		1,578				998				1,005
Branch consolidation expense		2,594				268				391
Merger related expenses		8,527				3,742				5,053
Total operating expenses		62,796				47,599				47,271
Income before provision for income taxes		20,577				26,631				26,009
Provision for income taxes		4,044				3,181				4,836
Net income	$	16,533			$	23,450			$	21,173
Basic earnings per share	$	0.28			$	0.47			$	0.43
Diluted earnings per share	$	0.27			$	0.47			$	0.42
Average basic shares outstanding		59,876				49,890				49,526
Average diluted shares outstanding		60,479				50,450				50,150

OceanFirst Financial Corp. SELECTED LOAN AND DEPOSIT DATA (dollars in thousands)
LOANS RECEIVABLE				At
					March 31,  2020				December 31, 2019				September 30, 2019				June 30, 2019				March 31, 2019
Commercial:
Commercial and industrial				$	502,760			$	396,434			$	406,580			$	392,336			$	383,686
Commercial real estate - owner - occupied					1,220,983				792,653				787,752				771,640				802,229
Commercial real estate - investor					3,331,662				2,296,410				2,232,159				2,143,093				2,161,451
Total commercial					5,055,405				3,485,497				3,426,491				3,307,069				3,347,366
Consumer:
Residential real estate					2,458,641				2,321,157				2,234,361				2,193,829				2,162,668
Home equity loans and lines					335,624				318,576				330,446				341,972				351,303
Other consumer					82,920				89,422				98,835				109,015				116,838
Total consumer					2,877,185				2,729,155				2,663,642				2,644,816				2,630,809
Total loans					7,932,590				6,214,652				6,090,133				5,951,885				5,978,175
Deferred origination costs, net					10,586				9,880				8,441				8,180				7,360
Allowance for credit losses					(29,635	)			(16,852	)			(16,636	)			(16,135	)			(16,705	)
Loans receivable, net				$	7,913,541			$	6,207,680			$	6,081,938			$	5,943,930			$	5,968,830
Mortgage loans serviced for others				$	51,399			$	50,042			$	54,457			$	90,882			$	92,274
	At March 31, 2020 Average Yield
Loan pipeline (1):
Commercial	3.95	%		$	293,820			$	219,269			$	126,578			$	212,712			$	122,325
Residential real estate	3.42				223,032				105,396				189,403				82,555				63,598
Home equity loans and lines	4.40				8,429				3,049				3,757				2,550				4,688
Total	3.73	%		$	525,281			$	327,714			$	319,738			$	297,817			$	190,611

		For the Three Months Ended
		March 31,  2020							December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019
		Average Yield
Loan originations:
Commercial		3.49	%		$	266,882		$	264,938		$	315,405		$	123,882		$	172,233
Residential real estate		3.51				148,675			226,492			156,308			120,771			75,530
Home equity loans and lines		5.13				10,666			12,961			10,498			14,256			13,072
Total		3.54	%			426,223			504,391			482,211			258,909			260,835	(2)
Loans sold					$	7,500	(3)	$	110		$	—	(3)	$	403	(3)	$	495
(1) Loan pipeline includes loans approved but not funded.
(2) Excludes purchased loans of $100.0 million for residential real estate.
(3) Excludes the sale of under-performing residential loans of $4.0 million and commercial loans of $5.1 million for the three months ended March 31, 2020, and small business administration loans of $3.5 million and under-performing
residential loans of $2.9 million for the three months ended September 30, 2019, and June 30, 2019, respectively.

DEPOSITS		At
		March 31,  2020			December 31,  2019			September 30, 2019			June 30, 2019			March 31, 2019
Type of Account
Non-interest-bearing	$	1,783,216		$	1,377,396		$	1,406,194		$	1,370,167		$	1,352,520
Interest-bearing checking		2,647,487			2,539,428			2,400,331			2,342,913			2,400,192
Money market deposit		620,145			578,147			593,457			642,985			666,067
Savings		1,420,628			898,174			901,168			909,501			922,113
Time deposits		1,420,591			935,632			919,705			921,921			949,593
	$	7,892,067		$	6,328,777		$	6,220,855		$	6,187,487		$	6,290,485

OceanFirst Financial Corp. ASSET QUALITY (dollars in thousands)
ASSET QUALITY	March 31,					December 31,				September 30,				June 30,					March 31,
	2020					2019				2019				2019					2019
Non-performing loans:
Commercial and industrial	$	207				$	207			$	207			$	207				$	240
Commercial real estate - owner-occupied	4,219					4,811				4,537				4,818					4,565
Commercial real estate - investor	3,384					2,917				4,073				4,050					4,115
Residential real estate	5,920					7,181				5,953				5,747					8,611
Home equity loans and lines	2,533					2,733				2,683				2,974					3,364
Total non-performing loans	16,263					17,849				17,453				17,796					20,895
Other real estate owned	484					264				294				865					1,594
Total non-performing assets	$	16,747				$	18,113			$	17,747			$	18,661				$	22,489
Purchased with credit deterioration (“PCD”) loans (1)	$	59,783				$	13,265			$	13,281			$	13,432				$	16,306
Delinquent loans 30 to 89 days	$	48,905				$	14,798			$	19,905			$	20,029				$	21,578
Troubled debt restructurings:
Non-performing (included in total non-performing loans above)	$	6,249				$	6,566			$	6,152			$	6,815				$	6,484
Performing	16,102					18,042				18,977				19,314					19,690
Total troubled debt restructurings	$	22,351				$	24,608			$	25,129			$	26,129				$	26,174
Allowance for credit losses	$	29,635				$	16,852			$	16,636			$	16,135				$	16,705
Allowance for credit losses as a percent of total loans receivable	0.37		%			0.27		%		0.27		%		0.27		%			0.28		%
Allowance for credit losses as a percent of total non-performing loans	182.22					94.41				95.32				90.67					79.95
Non-performing loans as a percent of total loans receivable	0.21					0.29				0.29				0.30					0.35
Non-performing assets as a percent of total assets	0.16					0.22				0.22				0.23					0.28
NET CHARGE-OFFS	For the Three Months Ended
	March 31,					December 31,				September 30,				June 30,					March 31,
	2020					2019				2019				2019					2019
Net charge-offs:
Loan charge-offs	$	(1,384	)			$	(445	)		$	(353	)		$	(1,138	)			$	(868	)
Recoveries on loans	230					306				549				212					376
Net loan recoveries (charge-offs)	$	(1,154	)	(2)		$	(139	)		$	196			$	(926	)	(2)		$	(492	)
Net loan charge-offs to average total loans (annualized)		0.06	%				0.01	%			NM*				0.06	%				0.03	%
Net charge-off detail - (loss) recovery:
Commercial	$	59				$	163			$	256			$	(58	)			$	(58	)
Residential real estate	(1,112		)			(61		)		12				(728		)			(425		)
Home equity loans and lines	(36		)			(240		)		(10		)		(121		)			(4		)
Other consumer	(65		)			(1		)		(62		)		(19		)			(5		)
Net loan recoveries (charge-offs)	$	(1,154	)	(2)		$	(139	)		$	196			$	(926	)	(2)		$	(492	)

 

(1) PCD loans are not included in non-performing loans or delinquent loans totals.
(2) Included in net loan charge-offs for the three months ended March 31, 2020 and June 30, 2019 are $949 and $429, respectively, relating to under-performing loans sold.

        *   Not Meaningful

OceanFirst Financial Corp. ANALYSIS OF NET INTEREST INCOME
	For the Three Months Ended
	March 31, 2020											December 31, 2019											March 31, 2019
(dollars in thousands)	Average Balance				Interest				Average Yield/ Cost			Balance				Interest				Average Yield/ Cost			Average Balance				Interest				Average Yield/ Cost
Assets:
Interest-earning assets:
Interest-earning deposits and short-term investments	$	63,726			$	342			2.16	%		$	43,495			$	196			1.79	%		$	79,911			$	467			2.37	%
Securities (1)	1,186,535				7,921				2.68			1,008,461				6,581				2.59			1,067,150				6,954				2.64
Loans receivable, net (2)
Commercial	4,960,991				59,875				4.85			3,442,771				42,416				4.89			3,211,296				41,408				5.23
Residential	2,473,410				24,628				3.98			2,309,741				22,469				3.89			2,094,131				21,404				4.09
Home Equity	339,003				4,070				4.83			323,878				4,243				5.20			353,358				4,707				5.40
Other	87,478				1,371				6.30			94,350				1,170				4.92			119,185				1,482				5.04
Allowance for credit losses net of deferred loan fees	(10,220		)		—				—			(7,932		)		—				—			(10,083		)		—				—
Loans Receivable, net	7,850,662				89,944				4.61			6,162,808				70,298				4.53			5,767,887				69,001				4.85
Total interest-earning assets	9,100,923				98,207				4.34			7,214,764				77,075				4.24			6,914,948				76,422				4.48
Non-interest-earning assets	1,231,886											977,413											924,368
Total assets	$	10,332,809										$	8,192,177										$	7,839,316
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing checking	$	2,807,793			5,132				0.74	%		$	2,562,059			4,477				0.69	%		$	2,508,669			3,745				0.61	%
Money market	614,062				1,040				0.68			592,116				1,243				0.83			623,868				1,157				0.75
Savings	1,403,338				1,555				0.45			899,051				308				0.14			904,047				286				0.13
Time deposits	1,459,348				6,209				1.71			931,228				4,186				1.78			932,341				3,451				1.50
Total	6,284,541				13,936				0.89			4,984,454				10,214				0.81			4,968,925				8,639				0.71
FHLB Advances	631,329				2,824				1.80			412,073				2,075				2.00			339,686				1,839				2.20
Securities sold under agreements to repurchase	82,105				95				0.47			68,257				85				0.49			65,295				55				0.34
Other borrowings	118,851				1,707				5.78			96,712				1,347				5.53			99,517				1,501				6.12
Total interest-bearing	7,116,826				18,562				1.05			5,561,496				13,721				0.98			5,473,423				12,034				0.89
liabilities
Non-interest-bearing deposits	1,687,582											1,393,002											1,211,934
Non-interest-bearing liabilities	113,477											92,014											55,975
Total liabilities	8,917,885											7,046,512											6,741,332
Stockholders’ equity	1,414,924											1,145,665											1,097,984
Total liabilities and equity	$	10,332,809										$	8,192,177										$	7,839,316
Net interest income					$	79,645										$	63,354										$	64,388
Net interest rate spread (3)									3.29	%										3.26	%										3.59	%
Net interest margin (4)									3.52	%										3.48	%										3.78	%
Total cost of deposits (including non-interest-bearing deposits)									0.70	%										0.64	%										0.57	%

(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 credit 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
(dollars in thousands, except per share amounts)
		March 31,				December 31,				September 30,				June 30,				March 31,
		2020				2019				2019				2019				2019
Selected Financial Condition Data:
Total assets		$	10,489,074			$	8,246,145			$	8,135,173			$	8,029,057			$	8,092,948
Debt securities available-for-sale, at estimated fair value		153,738				150,960				127,308				123,610				122,558
Debt securities held-to-maturity, net of allowance for credit losses		914,255				768,873				819,253				863,838				900,614
Equity investments, at estimated fair value		14,409				10,136				10,145				10,002				9,816
Restricted equity investments, at cost		81,005				62,356				62,095				59,425				55,663
Loans receivable, net of allowance for credit losses		7,913,541				6,207,680				6,081,938				5,943,930				5,968,830
Deposits		7,892,067				6,328,777				6,220,855				6,187,487				6,290,485
Federal Home Loan Bank advances		825,824				519,260				512,149				453,646				418,016
Securities sold under agreements to repurchase and other borrowings		210,388				168,540				161,734				158,619				165,753
Stockholders’ equity		1,409,834				1,153,119				1,144,528				1,137,295				1,127,163
		For the Three Months Ended,
		March 31,				December 31,				September 30,				June 30,				March 31,
		2020				2019				2019				2019				2019
Selected Operating Data:
Interest income		$	98,207			$	77,075			$	76,887			$	78,410			$	76,422
Interest expense		18,562				13,721				13,495				13,573				12,034
Net interest income		79,645				63,354				63,392				64,837				64,388
Credit loss expense		9,969				355				305				356				620
Net interest income after credit loss expense		69,676				62,999				63,087				64,481				63,768
Other income		13,697				11,231				11,543				9,879				9,512
Operating expenses (excluding branch consolidation and merger related expenses)		51,675				43,589				40,884				43,289				41,827
Branch consolidation expense		2,594				268				1,696				6,695				391
Merger related expenses		8,527				3,742				777				931				5,053
Income before provision for income taxes		20,577				26,631				31,273				23,445				26,009
Provision for income taxes		4,044				3,181				6,302				4,465				4,836
Net income		$	16,533			$	23,450			$	24,971			$	18,980			$	21,173
Diluted earnings per share		$	0.27			$	0.47			$	0.49			$	0.37			$	0.42
Net accretion/amortization of purchase accounting adjustments included in net interest income		$	5,533			$	3,501			$	2,769			$	3,663			$	4,027

(continued)
		At or For the Three Months Ended
		March 31,			December 31,			September 30,			June 30,			March 31,
		2020			2019			2019			2019			2019
Selected Financial Ratios and Other Data(1):
Performance Ratios (Annualized):
Return on average assets (2)		0.64	%		1.14	%		1.23	%		0.94	%		1.10	%
Return on average tangible assets (2) (3)		0.68			1.19			1.29			0.99			1.15
Return on average stockholders’ equity (2)		4.70			8.12			8.66			6.73			7.82
Return on average tangible stockholders’ equity (2) (3)		7.50			12.33			13.18			10.32			11.97
Stockholders’ equity to total assets		13.44			13.98			14.07			14.16			13.93
Tangible stockholders’ equity to tangible assets (3)		8.85			9.71			9.73			9.76			9.53
Net interest rate spread		3.29			3.26			3.32			3.45			3.59
Net interest margin		3.52			3.48			3.55			3.66			3.78
Operating expenses to average assets (2)		2.44			2.31			2.13			2.53			2.45
Efficiency ratio (2) (4)		67.28			63.82			57.86			68.14			63.97
Loans to deposits		100.27			98.09			97.77			96.06			94.89

		(continued)
		At or For the Three Months Ended
		March 31,				December 31,				September 30,				June 30,				March 31,
		2020				2019				2019				2019				2019
Trust and Asset Management:
Wealth assets under administration		$	173,856			$	195,415			$	194,137			$	199,554			$	200,130
Nest Egg		43,528				34,865				23,946				9,755				4,052
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		23.38				22.88				22.57				22.24				22.00
Tangible stockholders’ equity per common share at end of period (3)		14.62				15.13				14.86				14.57				14.32
Common shares outstanding at end of period			60,311,717				50,405,048				50,700,586				51,131,804				51,233,944
Number of full-service customer facilities:			75				56				56				60				63
Quarterly Average Balances
Total securities		$	1,186,535			$	1,008,461			$	1,039,560			$	1,080,690			$	1,067,150
Loans receivable, net		7,850,662				6,162,808				6,008,325				5,948,312				5,767,887
Total interest-earning assets		9,100,923				7,214,764				7,088,817				7,096,216				6,914,948
Total assets		10,332,809				8,192,177				8,073,238				8,068,899				7,839,316
Interest-bearing transaction deposits		4,825,193				4,053,226				3,971,380				4,051,539				4,036,584
Time deposits		1,459,348				931,228				920,032				934,470				932,341
Total borrowed funds		832,285				577,042				552,998				566,785				504,498
Total interest-bearing liabilities		7,116,826				5,561,496				5,444,410				5,552,794				5,473,423
Non-interest bearing deposits		1,687,582				1,393,002				1,396,259				1,302,147				1,211,934
Stockholders’ equity		1,414,924				1,145,665				1,143,701				1,131,165				1,097,984
Total deposits		7,972,123				6,377,456				6,287,671				6,288,156				6,180,859
Quarterly Yields
Total securities		2.68		%		2.59		%		2.64		%		2.64		%		2.64		%
Loans receivable, net		4.61				4.53				4.60				4.78				4.85
Total interest-earning assets		4.34				4.24				4.30				4.43				4.48
Interest-bearing transaction deposits		0.64				0.59				0.58				0.58				0.52
Time deposits		1.71				1.78				1.72				1.66				1.50
Borrowed funds		2.24				2.41				2.64				2.70				2.73
Total interest-bearing liabilities		1.05				0.98				0.98				0.98				0.89
Net interest spread		3.29				3.26				3.32				3.45				3.59
Net interest margin		3.52				3.48				3.55				3.66				3.78
Total deposits		0.70				0.64				0.62				0.62				0.57
(1) With the exception of end of quarter ratios, all ratios are based on average daily balances.
(2) Performance ratios for each period include merger related expenses, branch consolidation expenses, opening credit loss expense, non-recurring professional fees, compensation expense due to the retirement of an executive officer, the
reduction in income tax expense from the revaluation of state deferred tax assets as a result of a change in the New Jersey tax code. Refer to Other Items - Non-GAAP Reconciliation for impact of these items.
(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,
		2020				2019				2019				2019				2019
Core earnings:
Net income		$	16,533			$	23,450			$	24,971			$	18,980			$	21,173
Non-recurring items:
Add: Merger related expenses		8,527				3,742				777				931				5,053
Branch consolidation expenses		2,594				268				1,696				6,695				391
Two River & Country Bank opening credit loss expense under the CECL model		2,447				—				—				—				—
Non-recurring professional fees		—				1,274				750				—				—
Compensation expense due to the retirement of an executive officer		—				—				—				1,256				—
Income tax benefit related to change in New Jersey tax code		—				(2,205		)		—				—				—
Less: Income tax expense on items		(3,121		)		(793		)		(663		)		(1,867		)		(1,039		)
Core earnings		$	26,980			$	25,736			$	27,531			$	25,995			$	25,578
Core diluted earnings per share		$	0.45			$	0.51			$	0.54			$	0.51			$	0.51
Core ratios (Annualized):
Return on average assets		1.05		%		1.25		%		1.35		%		1.29		%		1.32		%
Return on average tangible assets		1.11				1.31				1.42				1.36				1.39
Return on average tangible stockholders’ equity		12.25				13.53				14.53				14.14				14.46
Efficiency ratio		55.36				56.73				53.56				56.26				56.60

(continued)
COMPUTATION OF TOTAL TANGIBLE EQUITY TO TOTAL TANGIBLE ASSETS
		March 31,				December 31,				September 30,				June 30,				March 31,
		2020				2019				2019				2019				2019
Total stockholders’ equity		$	1,409,834			$	1,153,119			$	1,144,528			$	1,137,295			$	1,127,163
Less:
Goodwill		500,093				374,632				374,537				374,592				375,096
Core deposit intangible		28,276				15,607				16,605				17,614				18,629
Tangible stockholders’ equity		$	881,465			$	762,880			$	753,386			$	745,089			$	733,438
Total assets		$	10,489,074			$	8,246,145			$	8,135,173			$	8,029,057			$	8,092,948
Less:
Goodwill		500,093				374,632				374,537				374,592				375,096
Core deposit intangible		28,276				15,607				16,605				17,614				18,629
Tangible assets		$	9,960,705			$	7,855,906			$	7,744,031			$	7,636,851			$	7,699,223
Tangible stockholders’ equity to tangible assets		8.85		%		9.71		%		9.73		%		9.76		%		9.53		%

(continued)

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 Capital Bank, net of the total consideration paid (in thousands):

	At January 31, 2019
	Capital Bank Book Value				Purchase Accounting Adjustments				Fair Value
Total Purchase Price:									$	76,834
Assets acquired:
Cash and cash equivalents	$	59,748			$	—			$	59,748
Securities	103,798				(23		)		103,775
Loans	312,320				(5,020		)		307,300
Accrued interest receivable	1,387				3				1,390
Bank Owned Life Insurance	10,460				—				10,460
Deferred tax asset	1,605				2,496				4,101
Other assets	9,384				(4,404		)		4,980
Core deposit intangible	—				2,662				2,662
Total assets acquired	498,702				(4,286		)		494,416
Liabilities assumed:
Deposits	(448,792		)		(226		)		(449,018		)
Other liabilities	(827		)		(4,383		)		(5,210		)
Total liabilities assumed	(449,619		)		(4,609		)		(454,228		)
Net assets acquired	$	49,083			$	(8,895	)		$	40,188
Goodwill recorded in the merger									$	36,646

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. On January 31, 2020, the Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value.

(continued)

The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the acquisition for Two River, net of the total consideration paid (in thousands):

	At January 1, 2020
	Two River Book Value				Purchase Accounting Adjustments				Estimated Fair Value
Total Purchase Price:									$	197,050
Assets acquired:
Cash and cash equivalents	$	51,102			$	—			$	51,102
Securities	62,832				1,549				64,381
Loans	940,885				(49		)		940,836
Accrued interest receivable	2,382				—				2,382
Bank Owned Life Insurance	22,440				—				22,440
Deferred tax asset	5,201				(1,850		)		3,351
Other assets	18,662				(2,700		)		15,962
Core deposit intangible	—				12,130				12,130
Total assets acquired	1,103,504				9,080				1,112,584
Liabilities assumed:
Deposits	(939,132		)		(2,618		)		(941,750		)
Other liabilities	(58,935		)		(21		)		(58,956		)
Total liabilities assumed	(998,067		)		(2,639		)		(1,000,706		)
Net assets acquired	$	105,437			$	6,441			$	111,878
Goodwill recorded in the merger									$	85,172

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 recorded carrying values may be required.

(continued)

The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the acquisition for Country Bank, net of the total consideration paid (in thousands):

	At January 1, 2020
	Country Bank Book Value				Purchase Accounting Adjustments				Estimated Fair Value
Total Purchase Price:									$	112,836
Assets acquired:
Cash and cash equivalents	$	20,799			$	—			$	20,799
Securities	144,460				39				144,499
Loans	614,285				4,376				618,661
Accrued interest receivable	1,779				—				1,779
Bank Owned Life Insurance	—				—				—
Deferred tax asset	(3,254		)		(897		)		(4,151		)
Other assets	10,327				(1,134		)		9,193
Core deposit intangible	—				2,117				2,117
Total assets acquired	788,396				4,501				792,897
Liabilities assumed:
Deposits	(649,399		)		(3,254		)		(652,653		)
Other liabilities	(69,244		)		1,980				(67,264		)
Total liabilities assumed	(718,643		)		(1,274		)		(719,917		)
Net assets acquired	$	69,753			$	3,227			$	72,980
Goodwill recorded in the merger									$	39,856

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 recorded carrying values may be required.

Company Contact:

Michael J. Fitzpatrick
Chief Financial Officer
OceanFirst Financial Corp.
Tel:  [phone], ext. 7506
Email: [e-mail]