OceanFirst Financial Corp. Announces Quarterly and Annual Earnings and Financial Results

RED BANK, N.J., Jan. 18, 2024 (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 $26.7 million, or $0.46 per diluted share, for the quarter ended December 31, 2023, as compared to $52.3 million, or $0.89 per diluted share, for the corresponding prior year period, and $19.7 million, or $0.33 per diluted share, for the prior linked quarter. For the year ended December 31, 2023, the Company reported net income available to common stockholders of $100.0 million, or $1.70 per diluted share, as compared to $142.6 million, or $2.42 per diluted share, for the prior year. 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”) are non-GAAP (“generally accepted accounting principles”) financial measures and 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 and year ended December 31, 2023 were $26.3 million and $104.7 million, respectively, or $0.45 and $1.78 per diluted share, a decrease from $39.5 million and $138.0 million, or $0.67 and $2.34 per diluted share, for the corresponding prior year periods, and an increase from $18.6 million, or $0.32 per diluted share, for the prior linked quarter.

Core earnings PTPP¹ for the quarter and year ended December 31, 2023 were $37.9 million and $156.6 million, respectively, or $0.65 and $2.66 per diluted share, as compared to $56.5 million and $190.7 million, or $0.96 and $3.24 per diluted share, for the corresponding prior year periods, and $35.0 million, or $0.59 per diluted share, for the prior linked quarter. Selected performance metrics are as follows:

Key developments for the recent quarter are described below:

• Deposits: Total deposits remained stable decreasing less than 1% for the quarter to $10.4 billion, and grew 8% for the year. Additionally, the loan-to-deposit ratio was 97.70% at December 31, 2023.
• Capital: The Company’s estimated common equity tier 1 capital ratio increased to 10.88%, as compared to 9.93% in the prior year. Book value and tangible book value per share were $27.96 and $18.35, respectively, increasing $1.15 and $1.27 from the prior year.²
• Expenses: Non-interest expense decreased by 7% to $60.2 million from the prior linked quarter and remained relatively flat compared to the prior year period. Non-interest expense included a $1.7 million FDIC special assessment charge in the current quarter.

Chairman and Chief Executive Officer, Christopher D. Maher, commented on the Company’s results, “We are pleased to report on our current quarter results; rounding out the year positively and executing on our strategies to improve operating expenses, diversify and strengthen our deposit base, and bolster our capital position during a tumultuous year for the industry.” Mr. Maher added, “As we turn to 2024, the Company is well positioned to create shareholder value and will remain focused on high quality growth, expense discipline, and prudent balance sheet management.”

The Company’s Board of Directors declared its 108th consecutive quarterly cash dividend on common stock. The quarterly cash dividend on common stock of $0.20 per share will be paid on February 16, 2024 to common stockholders of record on February 5, 2024. The Company’s Board of Directors also 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, 2024 to preferred stockholders of record on January 31, 2024.

_{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 expense (benefit), net (gain) loss on equity investments, net loss on sale of investments, Federal Deposit Insurance Corporation (“FDIC”) special assessment, 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.
² Tangible book value per common share and tangible common equity to tangible assets are non-GAAP financial measures and 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.}

Results of Operations

The current quarter results were impacted by the following matters. Net interest income and margin were adversely impacted by a continued mix-shift to and repricing of higher cost deposits that outpaced the increase in yields on interest-earning assets. Deposit betas increased modestly to 38%, from 35% in the prior linked quarter.³ Operating expenses included a special assessment charge of $1.7 million related to the Federal Deposit Insurance Corporation’s final rule to recover the loss to the Deposit Insurance Fund in 2023. Additionally, operating expenses reflect the net realization of the Company’s performance improvement initiatives and strategic investments made over the past year.

_{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).}

Net Interest Income and Margin

Quarter ended December 31, 2023 vs. December 31, 2022

Net interest income decreased to $87.8 million, from $106.5 million, primarily reflecting the net impact of the higher interest rate environment.

Net interest margin decreased to 2.82%, from 3.64%. Excluding the impact of purchase accounting accretion and prepayment fees of 0.05% and 0.10% for the respective quarters, net interest margin decreased to 2.77%, from 3.54%. Net interest margin decreased primarily due to the increase in cost of funds outpacing the increase in yield on average interest earning assets.

Average interest-earning assets increased by $743.2 million, primarily driven by increases of $326.8 million in interest-earning deposits and short-term investments and $318.1 million in total loans. The yield on average interest earning assets increased to 5.16%, from 4.46%.

The cost of average interest-bearing liabilities increased to 2.91%, from 1.09%, primarily due to higher cost of deposits. The total cost of deposits (including non-interest bearing deposits) increased to 2.22%, from 0.53%.

Year ended December 31, 2023 vs. December 31, 2022

Net interest income decreased to $369.7 million, from $377.5 million, reflecting the net impact of the higher interest rate environment.

Net interest margin decreased to 3.02%, from 3.37%. Excluding the impact of purchase accounting accretion and prepayment fees of 0.05% and 0.11% for the respective years, net interest margin decreased to 2.97%, from 3.26%.

Average interest-earning assets increased by $1.06 billion, primarily driven by increases in total loans of $693.2 million and interest-earning deposits and short-term investments of $254.6 million. The yield on average interest earning assets increased to 4.96%, from 3.85%.

The cost of average interest-bearing liabilities increased to 2.45%, from 0.65%, primarily due to higher cost of deposits and Federal Home Loan Bank (“FHLB”) advances. The total cost of deposits (including non-interest bearing deposits) increased to 1.68%, from 0.31%.

Quarter ended December 31, 2023 vs. September 30, 2023

Net interest income decreased by $3.2 million, reflecting a decrease in net interest margin to 2.82%, from 2.91%, as the increase in cost of funds outpaced the increase in yield of average interest earning assets. Excluding the impact of purchase accounting accretion and prepayment fees of 0.05% and 0.06% for the respective quarters, net interest margin decreased to 2.77%, from 2.85%.

Average interest-earning assets decreased by $35.7 million, while the yield on average interest-earning assets increased to 5.16%, from 5.08%.

The total cost of average interest-bearing liabilities increased to 2.91%, from 2.71%, primarily due to higher cost of deposits. Total cost of deposits (including non-interest bearing deposits) increased to 2.22%, from 1.99%. Average interest-bearing liabilities increased $30.6 million, primarily due to an increase in total deposits, partially offset by a decrease in FHLB advances.

Provision for Credit Losses

Provision for credit losses for the quarter and year ended December 31, 2023, was $3.2 million and $17.7 million, respectively, as compared to $3.6 million and $7.8 million for the corresponding prior year periods, and $10.3 million in the prior linked quarter. The current quarter provision was impacted by the net effect of credit rating migrations, declines in prepayment assumptions, and use of an external downside macro-economic forecast scenario.

Net loan charge-offs were $35,000 and $8.4 million for the quarter and year ended December 31, 2023, respectively. Net loan recoveries were $5,000 and $340,000 for the quarter and year ended December 31, 2022, respectively. Net loan charge-offs were $8.3 million in the prior linked quarter, which primarily related to a partial charge-off of $8.4 million on a single credit relationship. Refer to “Asset Quality” section for further discussion.

Non-interest Income

Quarter ended December 31, 2023 vs. December 31, 2022

Other income decreased to $11.9 million, as compared to $27.6 million. Other income was favorably impacted by non-core operations of $2.2 million and $17.2 million, for the respective quarters, related to net gains on equity investments, which included a $17.5 million unrealized gain on the Company’s investment in Auxilior Capital Partners, Inc. in the prior year.

Excluding non-core operations, other income decreased $679,000. The primary driver was a decrease in commercial loan swap income of $490,000, which was adversely impacted by the current interest rate environment resulting in lower swap volume.

Year ended December 31, 2023 vs. December 31, 2022

Other income decreased to $33.6 million, as compared to $59.1 million. Other income was adversely impacted by non-core operations of $4.4 million for the current year, primarily related to $5.3 million of losses related to the sale of investments in the first quarter. Other income for the prior year was favorably impacted by non-core operations of $9.7 million, primarily related to net gains on equity investments.

Excluding non-core operations, other income decreased $11.4 million. The primary drivers were decreases in commercial loan swap income of $6.3 million on lower volume, fees and service charges of $1.5 million primarily due to lower title activity, and bank owned life insurance of $1.3 million related to non-recurring death benefits recognized in the prior year. Additionally, bankcard services revenue decreased $3.3 million due to the Durbin Amendment, which became effective for the Company on July 1, 2022.

Quarter ended December 31, 2023 vs. September 30, 2023

Other income in the prior linked quarter was $10.8 million, which included non-core operations of $1.5 million related to net gains on equity investments. Excluding non-core operations, other income increased by $375,000 primarily due to gain on sales of loans.

Non-interest Expense

Quarter ended December 31, 2023 vs. December 31, 2022

Operating expenses increased to $60.2 million, as compared to $59.7 million. Operating expenses were adversely impacted by non-core items of $1.7 million from the FDIC special assessment in the current year and $387,000 from merger related and branch consolidation expenses in the prior year.

Excluding non-core operations, operating expenses decreased $815,000. The primary drivers were decreases in compensation and benefits of $1.8 million due to lower incentive compensation and professional fees of $1.8 million tied to the Company’s performance improvement initiatives and strategic investments. This was partly offset by increases in data processing expense of $1.8 million, partly driven by one-time recoveries recorded in the prior year, and federal deposit insurance and regulatory assessments of $799,000, primarily due to new assessment rates that went into effect on January 1, 2023.

Year ended December 31, 2023 vs. December 31, 2022

Operating expenses increased to $248.9 million, as compared to $234.9 million. Operating expenses for the years were adversely impacted by $1.8 million and $3.4 million of non-core operations, respectively.

Excluding non-core operations, operating expenses increased by $15.7 million. This was due to increases in professional fees of $5.3 million and compensation and benefits of $3.9 million related to the Company’s performance improvement initiatives and strategic investments, and related severance and other program costs. Additionally, there were increases in federal deposit insurance and regulatory assessments of $2.1 million and data processing expense of $1.7 million, which were driven by the same factors as the three months ended. Marketing expense also increased $1.3 million due to the Company’s enhanced digital strategy efforts, and other operating expenses included higher expenses of $1.1 million primarily related to real estate charges on assets sold during the period from assets held for sale.

Quarter ended December 31, 2023 vs. September 30, 2023

Excluding non-core operations, operating expenses decreased by $6.0 million. This was primarily due to decreases in compensation and benefits expense of $3.4 million and professional fees of $2.4 million due to the Company’s improvement initiatives and strategic investments noted above.

Income Tax Expense

The provision for income taxes was $8.6 million and $32.7 million for the quarter and year ended December 31, 2023, respectively, as compared to $17.4 million and $46.6 million, for the same prior year periods, and $6.5 million for the prior linked quarter. The effective tax rate was 23.6% and 23.9% for the quarter and year ended December 31, 2023, respectively, as compared to 24.6% and 24.0% for the same prior year periods, and 23.9% for the prior linked quarter.

Financial Condition

December 31, 2023 vs. December 31, 2022        

Total assets increased by $434.4 million to $13.54 billion, from $13.10 billion, primarily due to purchases of available-for-sale debt securities and loan growth. Available-for-sale debt securities increased by $296.2 million to $753.9 million, from $457.6 million, primarily due to purchases of variable-rate mortgage-backed securities in the fourth quarter of 2023. Total loans increased by $276.5 million to $10.19 billion, from $9.92 billion, due to loan originations and growth.

Other assets decreased by $41.4 million to $179.7 million, from $221.1 million, primarily due to a decrease in market values associated with customer interest rate swap programs.

Total liabilities increased by $357.9 million to $11.88 billion, from $11.52 billion. Deposits increased by $759.7 million to $10.43 billion, from $9.68 billion. Time deposits increased by $903.4 million to $2.45 billion, from $1.54 billion, or 23.4% and 15.9% of total deposits, respectively. Retail time deposits increased $1.13 billion, while brokered time deposits decreased $242.0 million. The loans-to-deposit ratio was 97.7%, as compared to 102.5%. FHLB advances decreased by $362.5 million to $848.6 million, from $1.21 billion due to mix shift in funding sources from FHLB advances to deposits.

Other liabilities decreased by $45.4 million to $300.7 million, from $346.2 million, primarily due to a decrease in the market values associated with customer interest rate swaps and related collateral received from counterparties.

Total stockholders’ equity increased to $1.66 billion, as compared to $1.59 billion, primarily reflecting net income, net of dividends, for the year ended December 31, 2023. Additionally, accumulated other comprehensive loss decreased by $15.1 million primarily due to increases in fair market value of available-for-sale debt securities, net of tax.

The Company's estimated common equity tier 1 capital ratio increased to 10.88%, which included an estimated 30 bps improvement due to balance sheet optimization efforts completed in the fourth quarter.

For the year ended December 31, 2023, the Company did not repurchase shares under its stock repurchase program. There were 2,934,438 shares available for repurchase at December 31, 2023 under the existing repurchase program. Book value per common share increased to $27.96, as compared to $26.81. Tangible book value per common share² increased to $18.35, as compared to $17.08.

Asset Quality

December 31, 2023 vs. December 31, 2022

The Company’s non-performing loans increased to $29.5 million from $23.3 million and represented 0.29% and 0.23% of total loans, respectively. The increase in non-performing loans was primarily driven by the remaining exposure of $8.8 million on a single credit relationship reported in the prior quarter.

The allowance for loan credit losses as a percentage of total non-performing loans was 227.21%, as compared to 244.25%. The level of 30 to 89 days delinquent loans increased to $19.2 million, from $14.1 million. The Company’s allowance for loan credit losses was 0.66% of total loans as compared to 0.57%. Refer to “Provision for Credit Losses” section for further discussion.

The Company’s asset quality, excluding purchased with credit deterioration (“PCD”) loans, were as follows. Non-performing loans increased to $26.4 million, from $19.3 million. The allowance for loan credit losses as a percentage of total non-performing loans was 254.64%, as compared to 294.10%. The level of 30 to 89 days delinquent loans, excluding non-performing loans, increased to $17.7 million, from $10.5 million. The allowance for loan credit losses plus the unamortized credit and PCD marks amounted to $74.7 million, or 0.73% of total loans, as compared to $68.2 million, or 0.69% of total loans.

Explanation of Non-GAAP Financial Measures

Reported amounts are presented in accordance with GAAP. The Company’s management believes that the supplemental non-GAAP information, which consists of reported net income excluding non-core operations and in some instances excluding income taxes and 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. 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 that 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 Tuesday, May 21, 2024 at 8:00 a.m. Eastern Time. The record date for stockholders to vote at the Annual Meeting is Monday, March 25, 2024. 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 19, 2024 at 11:00 a.m. Eastern Time. The direct dial number for the call is 1-833-470-1428, toll free, using the access code 040735. 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 247218, from one hour after the end of the call until February 16, 2024. The conference call will also be 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 $13.5 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: 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, potential goodwill impairment, 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, the effect of our rating under the Community Reinvestment Act, the impact of the COVID-19 pandemic or any other pandemic on our operations and financial results and those of our customers 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.

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

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

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

OceanFirst Financial Corp.
ASSET QUALITY
(dollars in thousands)

_{^* Not meaningful as amounts are net loan recoveries.}

OceanFirst Financial Corp.
ANALYSIS OF NET INTEREST INCOME

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

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

NON-GAAP RECONCILIATION