RED BANK, NEW JERSEY, April 20, 2023 - 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 $26.9 million, or $0.46 per diluted share, for the quarter ended March 31, 2023, as compared to $24.8 million, or $0.42 per diluted share, for the corresponding prior year period, and $52.3 million, or $0.89 per diluted share, for the prior linked quarter. Selected performance metrics are as follows (refer to “Selected Quarterly Financial Data” for additional information):

(a) Return on average tangible stockholders’ equity and return on average tangible common equity (“ROTCE”), which are non-GAAP (“generally accepted accounting principles”) financial measures, exclude the impact of intangible assets and goodwill from both assets and stockholders’ equity. ROTCE also excludes preferred stock from 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, 2023 was $32.7 million, or $0.55 per diluted share, an increase from $28.8 million, or $0.49 per diluted share, for the corresponding prior year period, and a decrease of $6.9 million from $39.5 million, or $0.67 per diluted share, for the prior linked quarter.

Core earnings PTPP1 for the quarter ended March 31, 2023 was $46.1 million, or $0.78 per diluted share, as compared to $39.7 million, or $0.67 per diluted share, for the corresponding prior year period, and $56.5 million, or $0.96 per diluted share, for the prior linked quarter. Selected performance metrics are as follows:

Key developments for the recent quarter are described below:

•Robust Liquidity Position: The Company enhanced on-balance sheet liquidity by increasing cash and due from banks by $328.2 million with a corresponding increase in deposits of $317.9 million. Excluding a $364.2 million increase in brokered time deposits, deposits decreased less than 1%, reflecting stability in the deposit base. At March 31, 2023, the Company’s loans-to-deposit ratio was 100.5% and the Company had total available liquidity and funding capacity across multiple liquidity sources of $3.6 billion.

1 Core earnings and core earnings before income taxes and provision for credit losses (“PTPP or Pre-Tax-Pre-Provision”), and ratios derived therefrom, are non-GAAP financial measures. For the periods presented, core earnings exclude merger related expenses, net branch consolidation (benefit) expense, net loss (gain) on equity investments, net loss on sale of 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 provision for credit losses (benefit). Refer to “Explanation of Non-GAAP Financial Measures” and the “Non-GAAP Reconciliation” tables for additional information regarding non-GAAP financial measures.

•Strong Balance Sheet Quality: Stockholders’ equity increased to $1.61 billion at March 31, 2023, or 11.88% of total assets, and tangible common equity to tangible assets was 7.95%2, which were adversely impacted this quarter by the increase in on-balance sheet liquidity. Additionally, the fair values of our total debt securities portfolio improved $23.6 million and asset quality remained strong.

•Solid Margin and Earnings: Net interest margin was 3.34%, an increase from 3.18% in the prior year and a decrease from 3.64% in the prior linked quarter. The current quarter yield on interest earning assets expanded to 4.68% and the cost of funds increased to 1.76%. Costs of funds were impacted by the tightening of liquidity across the industry and, to a lesser extent, the increase in on-balance sheet liquidity. This resulted in net interest income of $98.8 million, an increase of $14.6 million from the prior year and a decrease of $7.7 million from the record prior linked quarter. While down relative to a very strong linked quarter, the current quarter results compare favorably to the preceding three quarters of 2022.

Chairman and Chief Executive Officer, Christopher D. Maher, commented on the Company’s results, “In the midst of recent industry events, we were pleased to see the strength of our existing deposit base and confidence from our customers in the safety and soundness of the Company. The Company’s deposits remain at stable levels and asset quality continues to be a source of strength. Further, we’ve deliberately bolstered our liquidity position and optimized our available funding capacity.” Mr. Maher added, “We are well positioned to navigate an uncertain, evolving environment and we are confident in the Company’s ability to prudently manage risk and ability to service our customers’ needs.”

2 Tangible common equity to tangible assets and tangible common equity per common share, non-GAAP financial measures, exclude the impact of intangible assets, goodwill, and preferred equity from both stockholders’ equity and total assets. Refer to “Explanation of Non-GAAP Financial Measures” and the “Non-GAAP Reconciliation” tables for additional information regarding non-GAAP financial measures.

The Company’s Board of Directors declared its 105th consecutive quarterly cash dividend on common stock. The quarterly cash dividend on common stock of $0.20 per share will be paid on May 19, 2023 to common stockholders of record on May 8, 2023. 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 15, 2023 to preferred stockholders of record on April 28, 2023.

The current quarter results were impacted by the following matters. Cost of funds were adversely impacted by the tightening of liquidity across the industry and, to a lesser extent, the Company’s decision to increase liquidity as a result of the recent industry events. Also, the Company reviewed its investment securities portfolio and made a strategic decision to sell specific positions in two financial institutions that were adversely impacted or deemed to have an elevated risk profile caused by recent industry events. This resulted in a loss of $4.0 million, net of tax, for sales of investments during the current quarter. The operating results also included strategic investments made to conduct benchmark studies and design detailed strategies to improve future profitability and operational efficiencies.

Net interest income increased to $98.8 million, from $84.2 million, reflecting an increase in average interest-earning assets and net interest margin.

Net interest margin increased to 3.34%, from 3.18%. Excluding the impact of purchase accounting accretion and prepayment fees of 0.04% and 0.12% for the respective quarters, net interest margin increased to 3.30% from 3.06%.

Net interest margin increased due to the net impact of the rising rate environment on both interest earning assets and liabilities and total growth.

Average interest-earning assets increased by $1.28 billion for the quarter, primarily due to loan growth. Average loans receivable, net of allowance for loan credit losses, increased by $1.13 billion, primarily concentrated in commercial loan growth.

The cost of average interest-bearing liabilities increased to 1.76%, from 0.35% for the prior year, as a result of higher costs associated with the expansion in Federal Home Loan Bank (“FHLB”) advances and interest-bearing deposits, particularly time deposits, in a rising rate environment. The total cost of deposits (including non-interest bearing deposits) increased to 0.88% from 0.16% for the prior year. While the cost of deposits have increased, deposit betas are approximately 20%3.

Net interest income decreased by $7.7 million, reflecting a decrease in net interest margin to 3.34%, from 3.64% and, to a lesser extent, the number of days in each period. Excluding the impact of purchase accounting accretion and prepayment fees of 0.04% and 0.10% for the respective quarters, net interest margin decreased to 3.30%, from 3.54%. The compression in net interest margin was primarily attributable to an increase in cost of funds associated with the expansion in FHLB advances and time deposits.

Average interest-earning assets increased by $404.2 million, primarily due to loan growth and higher securities balances. The yield on average interest-earning assets increased to 4.68%, from 4.46%. The total cost of average interest-bearing liabilities increased to 1.76% from 1.09%, primarily due to higher costs associated with interest-bearing deposits and an increase in average FHLB advances. The current quarter also included a shift in deposit composition from non-interest bearing and low interest-bearing deposits to higher cost time deposits.

3 Deposit beta measures the change in the interest rates paid for interest-bearing deposit accounts versus the change in the federal funds target rate. Represents the deposit beta for total deposits (interest-bearing and non-interest bearing) for the current rate cycle (since December 31, 2021).

    Provision for credit losses for the quarter ended March 31, 2023 was $3.0 million, as compared to $1.9 million for the corresponding prior year period, and $3.6 million in the prior linked quarter. The provision for credit losses for the quarter was primarily influenced by further slowing of loan prepayment experience and, to a lesser extent, loan growth and modest migrations within risk rating categories.

Net loan recoveries were $47,000 for the quarter ended March 31, 2023, as compared to $92,000 for the corresponding prior year period, and $5,000 in the prior linked quarter. Refer to “Asset Quality” section for further discussion.

Non-interest Income4

Other income decreased to $2.1 million, as compared to $8.9 million in the prior year. Other income was impacted by non-core operations of $7.5 million and $2.8 million, for the respective quarters, primarily related to net losses on preferred stock equity investments. The current quarter’s non-core operations included $5.3 million of losses, or $4.0 million, net of tax, related to the sale of investments.

Excluding non-core operations, other income decreased $2.1 million. This decrease was primarily due to decreases in commercial loan swap income of $2.1 million, income from bankcard services of $1.6 million primarily as a result of the Durbin amendment, which became effective for the Company on July 1, 2022, and income from bank owned life insurance of $822,000. The decrease was partly offset by $2.2 million of title-related fees and service charges related to Trident compared to no activity in the prior year.

4 On April 1, 2022, the Company completed its acquisition of a majority interest in Trident Abstract Title Agency, LLC (“Trident”) and its results of operations are included in the consolidated results for the quarter ended March 31, 2023, but are excluded from the results of operations for the period from January 1, 2022 to March 31, 2022. Refer to “Supplemental Information on Trident” for the impact of Trident on the Company’s consolidated results.

Other income included non-core operations of $17.2 million related to a net gain on equity investments in the prior linked quarter, which included a $17.5 million unrealized gain on an additional investment in Auxilior Capital Partners, Inc. Excluding non-core operations, other income for the quarter decreased by $793,000. This decrease was due to fees and service charges of $617,000 primarily as a result of seasonality and market conditions impacting Trident’s performance.

Non-interest Expense4

Operating expenses increased to $61.3 million, as compared to $57.5 million in the prior year. Operating expenses for the quarters were impacted by $92,000 and $2.4 million of non-core operations, respectively.

Excluding non-core operations, operating expenses increased by $6.1 million. This increase was partly due to $2.1 million of expenses related to Trident compared to no activity in the prior year. Other increases included compensation and benefits expense of $1.9 million primarily related to a mid-year 2022 inflation adjustment and annual merit-related compensation increases, and professional fees of $1.8 million primarily due to the ongoing strategies to improve profitability and operational efficiencies discussed above in “Results of Operations.” The current quarter results were impacted by a one-time recovery of $661,000 for prior year over payments in deposit insurance fund assessments, partly offset by a net increase of approximately $500,000 in deposit insurance fund assessments and OCC assessment and fees from newly enacted rates.

Excluding non-core operations of $387,000 in the prior linked quarter, operating expenses for the quarter increased $1.9 million primarily due to an increase in data processing expense of $1.5 million, primarily driven by one-time recoveries recorded in the prior quarter.

The provision for income taxes was $8.7 million for the quarter ended March 31, 2023, as compared to $8.0 million for the same prior year period, and $17.4 million for the prior linked quarter. The effective tax rate was 23.7% for the quarter ended March 31, 2023, as compared to 23.6% for the same prior year period, and 24.6% for the prior linked quarter.

Total assets increased by $451.3 million to $13.56 billion, from $13.10 billion, due to higher cash and due from banks and loans, partially offset by lower other assets. Cash and due from banks increased $328.2 million to $496.2 million, from $167.9 million as the Company strategically increased cash on hand. Total loans increased by $121.8 million to $10.04 billion, from $9.92 billion, due to loan originations. Total debt securities increased modestly by $18.8 million, primarily due to purchases earlier in the quarter. Other assets decreased by $22.6 million to $198.4 million, from $221.1 million, primarily due to decrease in market values associated with customer interest rate swap programs.

    Total liabilities increased by $426.4 million to $11.94 billion, from $11.52 billion, due to an increase in funding across deposits and FHLB advances. Deposits increased by $317.9 million to $9.99 billion, from $9.68 billion. Time deposits increased to $2.39 billion, or 23.9% of total deposits, from $1.54 billion, or 15.9% of total deposits, due to increases of $364.2 million in brokered time deposits and $481.0 million in retail time deposits. The increase in deposits aided in reducing the loans-to-deposit ratio to 100.5%, as compared to 102.5%. FHLB advances increased by $135.4 million to $1.35 billion from $1.21 billion to increase cash liquidity reserves.

Other liabilities decreased by $38.8 million to $307.3 million, from $346.2 million, primarily due to a decrease in the market values associated with customer interest rate swap programs and related collateral received from counterparties.

    Total stockholders’ equity increased to $1.61 billion, as compared to $1.59 billion, reflecting net income available to common stockholders of $26.9 million for the quarter and a net gain on available-for-sale debt securities, which decreased accumulated other comprehensive loss by $6.7 million to $29.3 million, from $36.0 million.

For the quarter ended March 31, 2023, the Company did not repurchase shares under its stock repurchase program. There were 2,934,438 shares available for repurchase at March 31, 2023 under the existing repurchase program. Stockholders’ equity per common share increased to $27.07, as compared to $26.81. Tangible common equity per common share2 increased to $17.42, as compared to $17.08.

The Company's asset quality remained strong, as evidenced by the following credit metrics. The Company’s non-performing loans decreased to $22.4 million, from $23.3 million. The allowance for loan credit losses as a percentage of total non-performing loans was 268.28%, as compared to 244.25%. The level of 30 to 89 days delinquent loans decreased to $11.2 million, from $14.1 million. The Company’s allowance for loan credit losses was 0.60% of total loans, as compared to 0.57%.

The Company’s asset quality excluding purchased with credit deterioration (“PCD”) loans from prior bank acquisitions were as follows. Non-performing loans decreased to $18.5 million, from $19.3 million. The allowance for loan credit losses as a percentage of total non-performing loans was 325.24%, as compared to 294.10%. The level of 30 to 89 days delinquent loans decreased to $9.0 million, from $10.5 million. The allowance for loan credit losses plus the unamortized credit and PCD marks amounted to $70.7 million, or 0.70% of total loans, as compared to $68.2 million, or 0.69% of total loans.

    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 provision for credit losses, and reporting equity and asset amounts excluding intangible assets, goodwill or preferred stock, which can vary from period to period, provides a better comparison of period-to-period operating performance. In addition, a non-GAAP table has been presented excluding the results associated with the acquisition of a majority interest in Trident for better comparison period over period. 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.

The Annual Meeting of Stockholders will be held on Tuesday, May 23, 2023 at 8:00 a.m. Eastern Time, as previously announced. The meeting will be held virtually through a live webcast. Stockholders as of the record date of April 4, 2023 are invited to participate in the live event. Voting before the meeting is encouraged, even for stockholders planning to participate in the virtual webcast. 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 is available by visiting oceanfirst.com - Investor Relations. Access will begin at 7:45 a.m. Eastern Time to allow time for stockholders to log-in with the control number provided on the proxy card prior to the 8:00 a.m. Eastern Time scheduled start. Eligible stockholders may also vote during the live meeting online at www.virtualshareholdermeeting.com/OCFC2023 by entering the 16-digit control number included on the proxy card or notice.

As a reminder, participating in the meeting is not required to vote.

    As previously announced, the Company will host an earnings conference call on Friday, April 21, 2023 at 11:00 a.m. Eastern Time. The direct dial number for the call is (833) 470-1428, using the access code 948220. For those unable to participate in the conference call, a replay will be available. To access the replay, dial (866) 813-9403, access code 264971, from one hour after the end of the call until July 20, 2023. The conference call, as well as the replay, are also available (listen-only) by internet webcast at www.oceanfirst.com in the Investor Relations section.

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    OceanFirst Financial Corp.’s subsidiary, OceanFirst Bank N.A., founded in 1902, is a $13.6 billion regional bank providing financial services throughout New Jersey and in the major metropolitan markets of Philadelphia, New York, Baltimore, 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 pandemic or any other pandemic on our operations and financial results and those of our customers, changes in interest rates, inflation, general economic conditions, potential recessionary conditions, levels of unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, future natural disasters, potential 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, changes in liquidity, including the size and composition of the Company’s deposit portfolio, including the percentage of uninsured deposits in the portfolio, competition, demand for financial services in the Company’s market area, changes in consumer spending, borrowing and saving habits, changes in accounting principles, a failure in or breach of the Company’s operational or security systems or infrastructure, including cyberattacks, the failure to maintain current technologies, failure to retain or attract employees 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, 2022, 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.

(1)Loan pipeline includes loans approved but not funded.

(2)Excludes residential real estate loan pool purchases of $9.9 million and $161.7 million for the three months ended December 31, 2022 and March 31, 2022, respectively.

(3)Excludes the sale of a small business administration loan of $1.2 million for the three months ended September 30, 2022.    

(4)Excludes the sale of higher risk commercial loans of $12.0 million for the three months ended March 31, 2022.

(1)As of March 31, 2023 balance includes both modifications to borrowers experiencing financial difficulty, in accordance with ASU 2022-02 adopted on January 1, 2023, and previously existing troubled debt restructurings. For periods in 2022, the balances only include troubled debt restructurings.

(2)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 $10.5 million, $11.4 million, $13.6 million, $15.5 million and $16.9 million at March 31, 2023, December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, respectively.

(3)All balances and ratios exclude PCD loans.

(continued)

* Not meaningful as amounts are net loan recoveries.

(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.

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(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)    Ratios for each period are based on net income available to common stockholders.

(4)    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.”

(5)    Efficiency ratio represents the ratio of operating expenses to the aggregate of other income and net interest income.

(dollars in thousands, except per share amounts)