News Details

RED BANK, N.J., Jan. 27, 2022 (GLOBE NEWSWIRE) -- OceanFirst Financial Corp. (NASDAQ:“OCFC”), (the “Company”), the holding company for OceanFirst Bank N.A. (the “Bank”), announced net income available to common stockholders of $21.7 million, or $0.37 per diluted share, for the quarter ended December 31, 2021, as compared to $32.1 million, or $0.54 per diluted share, for the corresponding prior year period. For the year ended December 31, 2021, the Company reported net income available to common stockholders of $106.1 million, or $1.78 per diluted share, as compared to $61.2 million, or $1.02 per diluted share, for the prior year. Selected performance metrics are as follows (refer to “Selected Quarterly Financial Data” for additional information regarding the metrics):

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

Core earnings¹ for the quarter and year ended December 31, 2021 amounted to $28.5 million and $111.2 million, respectively, or $0.48 and $1.86 per diluted share, respectively. Non-core operations had an adverse impact, net of tax, of $6.8 million and $5.1 million for the quarter and year ended December 31, 2021, respectively.

Key developments for the recent quarter are described below:

• Loan Growth: Total loan growth for the quarter was $441.0 million. Excluding the impact of Paycheck Protection Program (“PPP”) loans of $29.6 million, total loan growth was $470.6 million for the quarter, reflecting record loan originations of $989.0 million and the purchase of a residential loan pool of $82.2 million. The committed loan pipeline remains strong at a record level of $671.0 million.
• Strengthening Margin: Net interest margin increased to 2.99%, from 2.93% in the prior linked quarter, largely driven by the reduction in excess liquidity to fund loan growth. Cost of deposits decreased two basis points to 0.20%, from 0.22% for the prior linked quarter, reflecting improved deposit quality.
• Branch Consolidations: The Company consolidated nine branches during the fourth quarter for a total of 67 branches consolidated. The branch consolidation expense was $7.3 million for the quarter ended December 31, 2021. Average deposits per branch totaled $207.1 million as of December 31, 2021. Additionally, the Company expects to consolidate another 10 branches in the first quarter of 2022.
• Subordinated Debt: The Company has provided notice to its trustee that it will redeem $35.0 million of subordinated debt due September 30, 2026 as of March 30, 2022. The debt currently carries an interest rate of 4.14% based on a floating rate of three months LIBOR plus 392 basis points.

¹ _{Core earnings, a non-GAAP measure, and ratios derived from core earnings, for the periods presented, excludes merger related expenses, branch consolidation expenses, net loss (gain) on equity investments, Federal Home Loan Bank (“FHLB”) advance prepayment fees, gain on sale of Paycheck Protection Program (“PPP”) loans, the opening credit loss expense under the Current Expected Credit Loss (“CECL”) model related to the acquisitions of Two River Bancorp (“Two River”) and Country Bank Holding Company, Inc. (“Country Bank”) and the income tax effect of these items, (collectively referred to as “non-core” operations). Refer to “Explanation of Non-GAAP Financial Measures” and the “Non-GAAP Reconciliation” tables for additional information regarding our non-GAAP measures and impact per period.}

Chairman and Chief Executive Officer, Christopher D. Maher, commented on the Company’s results, “During the fourth quarter, OceanFirst delivered exceptional loan growth with $989.0 million of loan originations while maintaining a robust committed pipeline of $671.0 million. This represents strong results from all of our commercial banking teams including our newest groups in Boston and Baltimore, which will add important momentum into 2022.” Mr. Maher added, “All of us at OceanFirst are proud to acknowledge our continued commitment to providing shareholder value as our Board of Directors has declared the Company’s 100th consecutive quarterly cash dividend for common stockholders.”

The Company’s Board of Directors declared its 100th consecutive quarterly cash dividend on common stock. The quarterly cash dividend on common stock of $0.17 per share will be paid on February 18, 2022 to common stockholders of record on February 7, 2022. The Board previously declared a quarterly cash dividend on preferred stock of $0.4375 per depositary share, representing 1/40th interest in the Series A Preferred Stock. This dividend will be paid on February 15, 2022 to preferred stockholders of record on January 31, 2022.

Results of Operations
Net income for the quarter ended December 31, 2021 was adversely impacted by non-core operations of $6.8 million, net of tax, while net income for the quarter ended December 31, 2020 was favorably impacted by non-core operations of $8.9 million, net of tax. Net income for the years ended December 31, 2021 and 2020 was adversely impacted by non-core operations of $5.1 million, net of tax, and $11.0 million, net of tax, respectively. Core earnings for the quarter ended December 31, 2021 were $28.5 million, or $0.48 per diluted share, representing an increase from core earnings of $23.2 million, or $0.39 per diluted share, for the corresponding prior year period. Core earnings for the year ended December 31, 2021 were $111.2 million, or $1.86 per diluted share, an increase from $72.2 million, or $1.20 per diluted share, for the prior year. Core earnings for the quarter ended December 31, 2021 increased from $26.7 million, or $0.45 per diluted share, for the prior linked quarter, which was adversely impacted by non-core operations of $3.6 million, net of tax.

Net Interest Income and Margin
Net interest income for the quarter ended December 31, 2021 increased to $80.6 million, as compared to $77.9 million for the corresponding prior year period. Net interest income for the year ended December 31, 2021 decreased to $305.3 million, as compared to $313.0 million for the prior year, as a result of the lower interest rate environment. Average interest-earning assets increased by $280.8 million for the quarter ended December 31, 2021, as compared to the corresponding prior year period, due to securities and loan growth, which was partly funded by the redeployment of excess cash. Average interest-earning assets increased by $512.9 million for the year ended December 31, 2021, as compared to the prior year, primarily concentrated in excess balance sheet liquidity and increased securities. Average loans receivable, net of allowance for loan credit losses, increased by $305.0 million and decreased by $201.0 million for the quarter and year ended December 31, 2021, respectively, as compared to the same prior year periods. Loans receivable, net was $8.58 billion at December 31, 2021, as compared to an average balance of $8.30 billion for the quarter ended December 31, 2021.

Net interest margin for the quarter and year ended December 31, 2021 increased to 2.99% and decreased to 2.93%, respectively, from 2.97% and 3.16% for the same prior year periods, respectively. The net interest margin expansion for the quarter ended December 31, 2021 was primarily attributable to the decrease in excess balance sheet liquidity used to fund securities and loan growth. The net interest margin compression for the year ended December 31, 2021 was primarily due to the excess balance sheet liquidity and the lower interest rate environment. For the quarter and year ended December 31, 2021, the cost of average interest-bearing liabilities decreased to 0.40% and 0.49%, respectively, from 0.74% and 0.88% in the corresponding prior year periods, respectively, as a result of the lower interest rate environment. For the quarter and year ended December 31, 2021, the total cost of deposits (including non-interest bearing deposits) was 0.20% and 0.26%, respectively, as compared to 0.45% and 0.55% in the same prior year periods, respectively.

Net interest income for the quarter ended December 31, 2021 increased by $3.5 million, as compared to the prior linked quarter, and net interest margin increased to 2.99%, compared to 2.93% for the prior linked quarter. Excluding the impact of purchase accounting accretion and prepayment fees of 0.18% for each of the quarters ended December 31, 2021 and September 30, 2021, net interest margin increased to 2.81%, from 2.75%. The yield on average interest-earning assets increased to 3.28%, from 3.24% in the prior linked quarter. The total cost of average interest-bearing liabilities was 0.40% for the quarter ended December 31, 2021, as compared to 0.44% in the prior linked quarter, partly due to maturities of higher-yielding time deposits.

Benefit/Provision for Credit Loss
For the quarter and year ended December 31, 2021, the credit loss benefit was $1.6 million and $11.8 million, respectively, as compared to credit loss expense of $4.1 million and $59.4 million, respectively, for the corresponding prior year periods and a credit loss benefit of $3.2 million in the prior linked quarter. The credit loss benefit for the quarter and year ended December 31, 2021 and the quarter ended September 30, 2021 was influenced by positive trends in the Bank’s asset quality combined with stabilizing trends in economic forecasts, including strong employment levels and modest GDP growth, partly offset by the continuing economic uncertainty related to COVID-19 variants.

Net loan recoveries were $19,000 and $461,000 for the quarter and year ended December 31, 2021, respectively, as compared to net loan charge-offs of $2.9 million and $18.9 million, respectively, for the corresponding prior year periods and net loan recoveries of $386,000 in the prior linked quarter. The quarter ended December 31, 2020 included $2.3 million of charge-offs related to the sale of under-performing residential and consumer loans. The year ended December 31, 2020 included $14.6 million of charge-offs related to the sale of higher risk commercial loans and $3.3 million of charge-offs related to the sale of under-performing residential and consumer loans. Non-performing loans totaled $18.9 million at December 31, 2021, as compared to $23.3 million at September 30, 2021 and $36.4 million at December 31, 2020.

Non-interest Income
For the quarter and year ended December 31, 2021, other income decreased to $9.4 million and $51.9 million, respectively, as compared to $40.6 million and $73.9 million, respectively, for the corresponding prior year periods. Other income for the quarter and year ended December 31, 2021 included net losses of $1.3 million and net gains of $7.1 million, respectively, related to non-core operations. Other income for the quarter and year ended December 31, 2020 included $29.6 million and $26.0 million, respectively, of net gains related to non-core operations. The net gain on equity investments was primarily a result of several programs implemented by the Company in 2020 to invest excess liquidity in high quality equity securities with attractive dividend yields which were subsequently sold in 2020 and 2021.

Excluding non-core operations, the decrease in other income of $370,000 for the quarter ended December 31, 2021, as compared to the corresponding prior year period, was primarily due to decreases in net gain on sale of loans of $1.2 million and fees and service charges of $636,000, partly offset by an increase in commercial loan swap income of $1.2 million.

Excluding non-core operations, the decrease in other income of $3.1 million for the year ended December 31, 2021, as compared to the prior year, was primarily due to decreases in commercial loan swap income of $4.0 million and fees and service charges of $2.0 million, partly offset by increases in bankcard services of $1.9 million, due to lower card activity in the prior year period as a result of the pandemic, and income from bank owned life insurance of $408,000.

Excluding non-core operations, other income for the quarter ended December 31, 2021 increased $313,000, as compared to the prior linked quarter, primarily due to an increase in income from bank owned life insurance of $421,000.

Non-interest Expense
Operating expenses decreased to $64.8 million and $226.9 million for the quarter and year ended December 31, 2021, respectively, as compared to $70.9 million and $246.4 million, respectively, for the same prior year periods. Operating expenses for the quarter and year ended December 31, 2021 included $7.7 million and $13.8 million, respectively, of net expenses related to non-core operations. Operating expenses for the quarter and year ended December 31, 2020 included $17.9 million and $37.8 million, respectively, of net expenses related to non-core operations.

Excluding non-core operations, the $4.0 million increase in operating expenses for the quarter ended December 31, 2021, as compared to the corresponding prior year period, was primarily due to increases in compensation and benefits expense of $3.7 million, and data processing expense of $3.2 million, partly offset by decreases in professional fees of $1.2 million, other operating expense of $573,000, and equipment expense of $503,000.

Excluding non-core operations, the $4.4 million increase in operating expenses for the year ended December 31, 2021, as compared to the prior year, was primarily due to increases in compensation and benefits expense of $5.9 million, primarily related to higher benefit costs, data processing expense of $4.1 million, and federal deposit insurance and regulatory assessments of $1.3 million, partly offset by decreases in equipment expense of $2.3 million, professional fees of $1.2 million, other operating expense of $1.0 million, marketing expense of $948,000, and amortization of core deposit intangible of $733,000.        

Excluding non-core operations, operating expenses for the quarter ended December 31, 2021 increased $2.7 million, as compared to the prior linked quarter. The change was primarily due to an increase in data processing expense of $2.4 million.

Income Tax Expense
The provision for income taxes was $4.1 million and $32.2 million for the quarter and year ended December 31, 2021, respectively, as compared to $10.4 million and $17.7 million, respectively, for the same prior year periods and $7.4 million for the prior linked quarter. The effective tax rate was 15.3% and 22.6% for the quarter and year ended December 31, 2021, respectively, as compared to 24.0% and 21.9%, respectively, for the same prior year periods and 23.3% for the prior linked quarter. The lower effective tax rate for the quarter ended December 31, 2021, as compared to the corresponding prior year periods and prior linked quarter, was primarily due to allocation of taxable income to jurisdictions other than New Jersey, which is tied to our commercial banking strategy, and other tax optimization efforts.

Financial Condition
Total assets increased by $291.3 million to $11.74 billion at December 31, 2021, from $11.45 billion at December 31, 2020. Cash and due from banks decreased by $1.07 billion to $204.9 million at December 31, 2021, from $1.27 billion at December 31, 2020, as excess liquidity was primarily used to fund loan growth and purchase securities. Total debt securities increased by $586.9 million at December 31, 2021, as compared to December 31, 2020. Total loans, excluding PPP loans of $22.9 million and $95.4 million at December 31, 2021 and December 31, 2020, respectively, increased by $939.2 million, to $8.60 billion at December 31, 2021, from $7.66 billion at December 31, 2020, primarily due to loan originations and purchases of residential real estate loan pools.

Deposits increased by $305.2 million, to $9.73 billion at December 31, 2021, from $9.43 billion at December 31, 2020. Total deposits, excluding time deposits of $775.0 million at December 31, 2021 and $1.37 billion at December 31, 2020, increased by $903.0 million to $8.96 billion at December 31, 2021, from $8.05 billion at December 31, 2020 as a result of the Company’s efforts to improve the quality of deposits. The loans-to-deposits ratio at December 31, 2021 was 88.6%, as compared to 82.3% at December 31, 2020.

Stockholders’ equity increased to $1.52 billion at December 31, 2021, as compared to $1.48 billion at December 31, 2020. On June 25, 2021, the Company announced the authorization by the Board of Directors of the 2021 Stock Repurchase Program to repurchase up to an additional 3.0 million shares, which was approximately 5% of the Company’s outstanding common stock. For the year ended December 31, 2021, the Company repurchased 1,711,484 shares under its stock repurchase programs, at a weighted average cost of $21.07, and there were 3,307,661 shares available for repurchase at December 31, 2021 under the existing stock repurchase programs. Stockholders’ equity per common share increased to $25.63 at December 31, 2021, as compared to $24.57 at December 31, 2020. Tangible common equity per common share increased by 6.3%, to $15.93 at December 31, 2021, as compared to $14.98 at December 31, 2020.

Asset Quality
The Company’s non-performing loans decreased to $18.9 million at December 31, 2021, as compared to $36.4 million at December 31, 2020. Non-performing loans at December 31, 2021 do not include $41.8 million of purchased with credit deterioration (“PCD”) loans from prior bank acquisitions. The allowance for loan credit losses as a percentage of total non-performing loans was 257.8% at December 31, 2021, as compared to 166.8% at December 31, 2020. The Company’s level of 30 to 89 days delinquent loans, excluding non-performing and PCD loans, improved to $13.5 million at December 31, 2021, from $34.7 million at December 31, 2020. The Company’s proactive management of higher risk loans in 2020 has proven valuable, as credit trends have steadily improved throughout 2021.

The Company’s allowance for loan credit losses was 0.57% of total loans at December 31, 2021, as compared to 0.78% at December 31, 2020. The allowance for loan credit losses plus the unamortized credit and PCD marks amounted to $67.8 million, or 0.79% of total loans, at December 31, 2021.

Explanation of Non-GAAP Financial Measures
Reported amounts are presented in accordance with GAAP. The Company’s management believes that the supplemental non-GAAP information, which consists of reported net income excluding non-core operations and reporting equity and asset amounts excluding intangible assets and goodwill, which can vary from period to period, provides a better comparison of period to period operating performance. Additionally, the Company believes this information is utilized by regulators and market analysts to evaluate a company’s financial condition and, therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Refer to the Non-GAAP Reconciliation table at the end of this document for details on the earnings impact of these items.

Annual Meeting
The Company also announced today that its Annual Meeting of Stockholders will be held on Wednesday, May 25, 2022 at 9:00 a.m. Eastern Time. The record date for stockholders to vote at the Annual Meeting is April 6, 2022. Additional information regarding virtual access to the meeting will be distributed prior to the meeting.

Conference Call
As previously announced, the Company will host an earnings conference call on Friday, January 28, 2022 at 11:00 a.m. Eastern Time. The direct dial number for the call is 1-844-200-6205, toll free, using the access code 733688. For those unable to participate in the conference call, a replay will be available. To access the replay, dial 1-866-813-9403, access code 549028, from one hour after the end of the call until April 28, 2022. The conference call will also be available (listen-only) via the Internet by accessing the Company’s Web address: www.oceanfirst.com - Investor Relations. The webcast will be available for 90 days.

OceanFirst Financial Corp.’s subsidiary, OceanFirst Bank N.A., founded in 1902, is a $11.7 billion regional bank providing financial services throughout New Jersey and in the major metropolitan markets of Philadelphia, New York, Baltimore, Washington D.C and Boston. OceanFirst Bank delivers commercial and residential financing, treasury management, trust and asset management, and deposit services and is one of the largest and oldest community-based financial institutions headquartered in New Jersey. To learn more about OceanFirst, go to www.oceanfirst.com.

Forward-Looking Statements
        
In addition to historical information, this news release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “will,” “should,” “may,” “view,” “opportunity,” “potential,” or similar expressions or expressions of confidence. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to: the impact of the COVID-19 or any other pandemic on our operations and financial results and those of our customers, changes in interest rates, 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, 2020, 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.

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