UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

________________________________________________

FORM 10-Q

________________________________________________



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2018



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-11713

________________________________________________

OceanFirst Financial Corp.

(Exact name of registrant as specified in its charter)

________________________________________________



Delaware	22-3412577
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)



~~975 Hooper Avenue, Toms River,~~110 West Front Street, Red Bank, NJ	~~08753~~07701
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (732) 240-4500

________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý NO o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	ý	Accelerated Filer	o

Non-accelerated Filer	o	Smaller Reporting Company	o

		Emerging Growth Company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO ý.

As of ~~November 3, 2017~~May 4, 2018 there were ~~32,582,472~~48,136,830 shares of the Registrant’s Common Stock, par value $.01 per share, outstanding.

OceanFirst Financial Corp.

INDEX TO FORM 10-Q



		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (unaudited)
	Consolidated Statements of Financial Condition as of ~~September 30, 2017~~March 31, 2018 (unaudited) and December 31, ~~2016~~2017	1615
	Consolidated Statements of Income (unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	1716
	Consolidated Statements of Comprehensive Income (unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	1817
	Consolidated Statements of Changes in ~~Stockholders'~~Stockholders’ Equity (unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	1918
	Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	2019
	Notes to Unaudited Consolidated Financial Statements	2221
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	1413
Item 4.	Controls and Procedures	1514
PART II.	Other Information	4744
Item 1.	Legal Proceedings	4744
Item 1A.	Risk Factors	4744
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4944
Item 3.	Defaults Upon Senior Securities	5044
Item 4.	Mine Safety Disclosures	5044
Item 5.	Other Information	5044
Item 6.	Exhibits	5145
Signatures		5246

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


FINANCIAL SUMMARY	At or for the Quarters Ended									At or for the Quarters Ended
(dollars in thousands, except per share amounts)	September 30, 2017			June 30, 2017			September 30, 2016			March 31, 2018			December 31, 2017			March 31, 2017
SELECTED FINANCIAL CONDITION DATA:
SELECTED FINANCIAL CONDITION DATA⁽¹⁾:
Total assets	$	5,383,912		$	5,202,200		$	4,151,017		$	7,494,899		$	5,416,006		$	5,196,203
Loans receivable, net	3,870,109			3,868,805			3,028,696			5,413,780			3,965,773			3,825,600
Deposits	4,350,259			4,176,909			3,324,681			5,907,336			4,342,798			4,198,663
Stockholders’ equity	596,252			587,303			417,244			1,007,460			601,941			582,543
SELECTED OPERATING DATA:
Net interest income	43,056			42,174			33,935			55,711			42,505			41,483
Provision for loan losses	1,165			1,165			888			1,371			1,415			700
Other income	7,359			6,973			5,896			8,910			6,745			5,995
Operating expenses	30,733			37,133			25,026			56,818			27,693			30,961
Net income	12,817			7,679			9,128			5,427			9,956			12,018
Diluted earnings per share	0.39			0.23			0.35			0.12			0.30			0.36
SELECTED FINANCIAL RATIOS:
Stockholders’ equity per common share	18.31			18.05			16.14
Stockholders’ equity per common share at end of period										20.94			18.47			17.94
Tangible stockholders’ equity per common share ⁽¹⁾⁽²⁾	13.47			13.19			13.42			13.51			13.58			13.07
Cash dividend per share	0.15			0.15			0.13			0.15			0.15			0.15
Stockholders’ equity to total assets	11.07		%	11.29		%	10.05		%	13.44		%	11.11		%	11.21		%
Tangible stockholders’ equity to total tangible assets ⁽¹⁾⁽²⁾	8.39			8.51			8.50			9.11			8.42			8.42
Return on average assets ^{(2) (3)}	0.95			0.59			0.88
Return on average stockholders’ equity ^{(2) (3)}	8.60			5.25			8.77
Return on average tangible stockholders’ equity ^{(1) (2) (3)}	11.74			7.19			10.58
Return on average assets ^{(3) (4)}										0.32			0.73			0.94
Return on average stockholders’ equity ^{(3) (4)}										2.54			6.56			8.42
Return on average tangible stockholders’ equity ^{(2) (3) (4)}										3.80			8.89			11.50
Net interest rate spread	3.41			3.48			3.49			3.58			3.32			3.47
Net interest margin	3.50			3.57			3.56			3.70			3.42			3.56
Operating expenses to average assets ^{(2) (3)}	2.29			2.86			2.43
Efficiency ratio^{(3) (4)}	60.96			75.55			62.83
Operating expenses to average assets ^{(3) (4)}										3.37			2.03			2.41
Efficiency ratio^{(4) (5)}										87.92			56.23			65.21
Loan to deposit ratio	88.96			92.62			91.10			91.65			91.32			91.11
ASSET QUALITY:
Non-performing loans	$	15,121		$	16,261		$	16,507		$	18,251		$	20,865		$	21,679
Non-performing assets	24,455			25,159			25,614			26,516			29,051			30,453
Allowance for loan losses as a percent of total loans receivable	0.42		%	0.42		%	0.51		%	0.31		%	0.40		%	0.42		%
Allowance for loan losses as a percent of total non-performing loans	109.68			101.82			94.61			92.14			75.35			74.50
Non-performing loans as a percent of total loans receivable	0.39			0.42			0.54			0.34			0.52			0.56
Non-performing assets as a percent of total assets	0.45			0.48			0.62			0.35			0.54			0.59


(1)	With the exception of end of quarter ratios, all ratios are based on average daily balances.


(2)	Tangible stockholders’ equity and tangible assets exclude intangible assets relating to goodwill and core deposit intangible.


~~(2)~~(3)	Ratios are annualized.

~~(3)~~(4)

Performance ratios include the net adverse impact of merger related and branch consolidation expenses of ~~$3.2~~$18.3 million, or ~~$2.1~~$14.6 million, net of tax benefit, for the quarter ended ~~September 30, 2017; $8.6 million, or $5.6~~March 31, 2018. Performance ratios include merger related expenses, branch consolidation expenses, and additional income tax expense related to the Tax Cuts and Jobs Act of $4.9 million, net of tax benefit, for the quarter ended ~~June 30, 2017~~;December 31, 2017. Performance ratios include the adverse impact of merger related expenses, branch consolidation expenses, and ~~$1.3~~acceleration of stock award expense due to the retirement of a director of $1.7 million, or $1.1 million, net of tax benefit, for the quarter ended ~~September 30, 2016.~~

March 31, 2017.


~~(4)~~(5)	Efficiency ratio represents the ratio of operating expenses to the aggregate of other income and net interest income.

Summary

OceanFirst Financial Corp. is the holding company for OceanFirst Bank N.A. (the “Bank”), a community bank ~~headquartered in Ocean County, New Jersey,~~ serving business and retail customers in ~~the central and southern~~ New Jersey, ~~regions.~~and the metropolitan areas of New York and Philadelphia. The term “Company” refers to OceanFirst Financial Corp., OceanFirst Bank N.A. and all of ~~the Bank’s~~their subsidiaries on a consolidated basis. The Company’s results of operations are primarily dependent on net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and investments, and the interest expense on interest-bearing liabilities, such as deposits and borrowings. The Company also generates non-interest income such as income from bankcard services, wealth management, deposit accounts, the sale of investment products, loan originations, loan sales, and other fees. The Company’s operating expenses primarily consist of compensation and employee benefits, occupancy and equipment, marketing, Federal deposit insurance, data processing and general and administrative expenses. The Company’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and the actions of regulatory agencies.

Interest-earning assets, both loans and securities, are generally priced against longer-term indices, while interest-bearing liabilities, primarily deposits and borrowings, are generally priced against shorter-term indices. The Company has attempted to mitigate the adverse impact of relatively low absolute levels of interest rates by focusing on commercial loan and core deposit growth.

Over the past two years the Company has grown significantly through acquisitions, acquiring Cape Bancorp, Inc. (“Cape”) ~~and~~, Ocean ~~City Home Bank~~Shore Holding Co. (“Ocean Shore”), and Sun Bancorp. Inc. (“Sun”) (the “Acquisition Transactions”). The Acquisition Transactions added ~~$2.5~~$4.6 billion in assets and ~~$2.1~~$3.7 billion in deposits. ~~In addition, on June 30, 2017,~~Additionally, effective January 31, 2018, the ~~Company announced it had entered into~~Bank converted to a definitive agreement (the “merger agreement”) to acquire Sun Bancorp, Inc. (“Sun”). At September 30, 2017, Sun had total assets of $2.2 billion, total loans of $1.6 billion and total deposits of $1.7 billion. On October 24 and 25, 2017, Sunnational bank charter and the Company received their respective requisite stockholder approvals for the merger. Regulatory approval of the merger was received from the Federal Reserve Bank of Philadelphia on October 17, 2017. The regulatory application for the transaction remains under review by the Office of the Comptroller of the Currency (“OCC”). Subject to receipt of OCC approval and other customary closing conditions, the Company expects to close the transaction in January 2018 and anticipates full integration of Sun’s branches and core operating systems in the second quarter of 2018.became a bank holding company.

Highlights of the Company’s financial results and corporate activities for the three months ended ~~September 30, 2017~~March 31, 2018 were as follows:

On January 31, 2018, the Company completed its acquisition of Sun, which added $2.0 billion to assets, $1.5 billion to loans, and $1.6 billion to deposits. The Company ~~grew deposits $173.4 million, reducing its loan~~anticipates full integration of Sun’s branches and core operating systems in June 2018.

The Company’s net interest margin increased to ~~deposit ratio~~3.70%, as compared to ~~89.0%, while~~3.42% in the prior linked quarter, and 3.56% in the comparable prior year period.

The cost of deposits increased only one basis point from the prior linked quarter, to ~~0.29%~~0.33% and the loan to deposit ratio at March 31, 2018 was 91.7%.

Asset quality improved as non-performing loans decreased $2.6 million, to ~~$15.1~~$18.3 million, from the prior linked quarter and non-performing loans as a percentage of total loans receivable decreased to ~~0.39%~~0.34%, from 0.52%.

Net interest income for the ~~three months~~quarter ended ~~September 30, 2017~~March 31, 2018, increased to ~~$43.1~~$55.7 million, as compared to ~~$33.9~~$41.5 million for the ~~corresponding~~same prior year period, reflecting an increase in interest-earning assets ~~primarily due to~~and a higher net interest margin, as a result of the ~~Acquisition Transactions.~~acquisition of Sun.

~~Other~~For the quarter ended March 31, 2018, other income increased to ~~$7.4~~$8.9 million, ~~for the three months ended September 30, 2017,~~ as compared to ~~$5.9~~$6.0 million for the corresponding prior year ~~period. The increase was primarily due~~period, including an additional $1.4 million relating to ~~the impact of the Acquisition Transactions, which added $1.1 million to other income.~~Sun. Operating expenses increased to ~~$30.7~~$56.8 million for the ~~three months~~quarter ended ~~September 30, 2017,~~March 31, 2018, as compared to ~~$25.0~~$31.0 million in the same prior year period. Operating expenses for the ~~three months~~quarter ended ~~September 30, 2017~~March 31, 2018, included ~~$3.2~~$18.3 million of merger related and branch consolidation expenses, as compared to ~~$1.3~~$1.5 million in the same prior year period. Excluding the impact of merger and branch consolidation expenses, the increase in operating expenses over the prior year was primarily due to the ~~Acquisition Transactions,~~Sun acquisition, which added ~~$2.4~~$8.0 million for the ~~three months~~quarter ended ~~September 30, 2017.~~March 31, 2018.

The Company remains well-capitalized with a tangible common equity ratio of 9.11% at March 31, 2018.

The Company declared a quarterly cash dividend on common stock. The dividend for the quarter ended ~~September 30, 2017~~March 31, 2018 of $0.15 per share will be paid on ~~November 17, 2017~~May 18, 2018 to stockholders of record on ~~November 6, 2017.~~May 7, 2018.

Analysis of Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them.

The following ~~tables set~~table sets forth certain information relating to the Company for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~September 30, 2016.~~March 31, 2017. The yields and costs are derived by dividing the income or expense by the average balance of the related assets or liabilities, respectively, for the periods shown except where noted otherwise. Average balances are derived from average daily balances. The yields and costs include certain fees which are considered adjustments to yields.


	FOR THE THREE MONTHS ENDED														For the Three Months Ended
	September 30, 2017							September 30, 2016							March 31, 2018							March 31, 2017
	AVERAGE BALANCE			INTEREST		AVERAGE YIELD/ COST		AVERAGE BALANCE			INTEREST		AVERAGE YIELD/ COST		Average Balance			Interest		Average Yield/ Cost		Average Balance			Interest		Average Yield/ Cost
	(dollars in thousands)														(dollars in thousands)
Assets:
Interest-earning assets:
Interest-earning deposits and short-term investments	$	183,514		$	438	0.95	%	$	168,045		$	139	0.33	%	$	100,236		$	209	0.84	%	$	214,165		$	409	0.77	%
Securities ⁽¹⁾and FHLB stock	817,867			4,263		2.07		533,809			2,561		1.91
Securities ⁽¹⁾															1,056,774			6,030		2.31		703,712			3,863		2.23
Loans receivable, net ⁽²⁾
Commercial	1,865,970			22,423		4.77		1,723,520			20,970		4.84		2,772,952			33,391		4.88		1,830,641			21,140		4.68
Residential	1,737,739			17,588		4.02		1,118,435			10,874		3.87		1,843,804			19,037		4.19		1,704,035			17,339		4.13
Home Equity	279,900			3,289		4.66		255,919			2,745		4.27		342,078			4,143		4.91		287,335			3,245		4.58
Other	1,112			29		10.35		1,163			18		6.16		1,458			27		7.51		1,248			18		5.85
Allowance for loan loss net of deferred loan fees	(12,370		)	—		—		(13,346		)	—		—		(10,285		)	—		—		(12,123		)	—		—
Loans Receivable, net	3,872,351			43,329		4.44		3,085,691			34,607		4.46		4,950,007			56,598		4.64		3,811,136			41,742		4.44
Total interest-earning assets	4,873,732			48,030		3.91		3,787,545			37,307		3.92		6,107,017			62,837		4.17		4,729,013			46,014		3.95
Non-interest-earning assets	460,795							316,290							735,676							482,058
Total assets	$	5,334,527						$	4,103,835						$	6,842,693						$	5,211,071
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing checking	$	1,852,421		1,173		0.25	%	$	1,425,350		583		0.16	%	$	2,263,318		1,758		0.32	%	$	1,668,545		876		0.21	%
Money market	389,035			299		0.30		386,490			295		0.30		525,933			550		0.42		445,186			311		0.28
Savings	672,548			59		0.03		488,749			49		0.04		825,044			195		0.10		674,721			130		0.08
Time deposits	620,308			1,595		1.02		477,496			1,156		0.96		820,834			1,961		0.97		640,269			1,464		0.93
Total	3,534,312			3,126		0.35		2,778,085			2,083		0.30		4,435,129			4,464		0.41		3,428,721			2,781		0.33
Securities sold under agreements to repurchase	74,285			30		0.16		68,540			24		0.14		78,931			40		0.21		76,351			27		0.14
FHLB Advances	264,652			1,153		1.73		264,213			1,067		1.61		322,120			1,513		1.90		250,339			1,070		1.73
Other borrowings	56,502			665		4.67		26,207			198		3.01		80,112			1,109		5.61		56,392			653		4.70
Total interest-bearing liabilities	3,929,751			4,974		0.50		3,137,045			3,372		0.43		4,916,292			7,126		0.59		3,811,803			4,531		0.48
Non-interest-bearing deposits	781,047							521,088							1,004,673							791,036
Non-interest-bearing liabilities	32,360							31,536							55,031							29,399
Total liabilities	4,743,158							3,689,669							5,975,996							4,632,238
Stockholders equity	591,369							414,166
Stockholders’ equity															866,697							578,833
Total liabilities and equity	$	5,334,527						$	4,103,835						$	6,842,693						$	5,211,071
Net interest income				$	43,056						$	33,935						$	55,711						$	41,483
Net interest rate spread ⁽³⁾						3.41	%						3.49	%						3.58	%						3.47	%
Net interest margin ⁽⁴⁾						3.50	%						3.56	%						3.70	%						3.56	%
Total cost of deposits (including non-interest-bearing deposits)						0.29	%						0.25	%						0.33	%						0.27	%

FOR THE NINE MONTHS ENDED
September 30, 2017 September 30, 2016
AVERAGE
BALANCE INTEREST AVERAGE
YIELD/
COST AVERAGE
BALANCE INTEREST AVERAGE
YIELD/
COST
(dollars in thousands)
Assets:
Interest-earning assets:
Interest-earning deposits and short-term investments $ 180,821
$ 1,058
0.78 % $ 86,007
$ 209
0.32 %
Securities ⁽¹⁾and FHLB stock
769,932
12,186
2.12
517,051
7,149
1.85
Loans receivable, net ⁽²⁾

Commercial 1,849,246
65,619
4.74
1,390,196
49,750
4.78
Residential 1,720,185
52,231
4.06
1,009,012
29,139
3.86
Home Equity 283,419
9,760
4.60
228,172
7,233
4.23
Other 1,180
69
7.82
893
41
6.13
Allowance for loan loss net of deferred loan fees (12,338 ) —
—
(13,379 ) —
—
Loans Receivable, net 3,841,692
127,679
4.44
2,614,894
86,163
4.40
Total interest-earning assets 4,792,445
140,923
3.93
3,217,952
93,521
3.88
Non-interest-earning assets 461,752
236,399

Total assets $ 5,254,197
$ 3,454,351

Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing checking $ 1,746,601
3,086
0.24 % $ 1,181,110
1,391
0.16 %
Money market 418,681
891
0.28
280,836
546
0.26
Savings 675,684
285
0.06
413,388
117
0.04
Time deposits 628,126
4,559
0.97
386,505
3,071
1.06
Total 3,469,092
8,821
0.34
2,261,839
5,125
0.30
Securities sold under agreements to repurchase 74,729
82
0.15
76,289
78
0.14
FHLB Advances 258,147
3,340
1.73
272,405
3,351
1.64
Other borrowings 56,450
1,967
4.66
23,846
459
2.57
Total interest-bearing liabilities 3,858,418
14,210
0.49
2,634,379
9,013
0.46
Non-interest-bearing deposits 781,608
448,459

Non-interest-bearing liabilities 28,351
23,650

Total liabilities 4,668,377
3,106,488

Stockholders equity 585,820
347,863

Total liabilities and equity $ 5,254,197
$ 3,454,351

Net interest income $ 126,713
$ 84,508

Net interest rate spread ⁽³⁾
3.44 % 3.42 %
Net interest margin ⁽⁴⁾
3.54 % 3.51 %
Total cost of deposits (including non-interest-bearing deposits) 0.28 % 0.25 %


(1)	Amounts represent debt and equity securities, including FHLB and Federal Reserve Bank stock, and are recorded at average amortized cost.


(2)	Amount is net of deferred loan fees, undisbursed loan funds, discounts and premiums and estimated loss allowances and includes loans held for sale and non-performing loans.


(3)	Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.


(4)	Net interest margin represents net interest income divided by average interest-earning assets.

Comparison of Financial Condition at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017

Total assets increased by ~~$216.9 million~~$2.079 billion, to ~~$5.384~~$7.495 billion at ~~September 30, 2017,~~March 31, 2018, from ~~$5.167~~$5.416 billion at December 31, ~~2016. Cash and due from banks decreased by $46.1 million,~~2017, primarily as a result of the acquisition of Sun, which added $2.045 billion to ~~$255.3 million at September 30, 2017, from $301.4 million at December 31, 2016, as these funds were deployed into higher-yielding securities which increased $199.1 million.~~total assets. Loans receivable, net, increased by ~~$66.7 million,~~$1.448 billion, to ~~$3.870~~$5.414 billion at ~~September 30, 2017~~March 31, 2018 from ~~$3.803~~$3.966 billion at December 31, ~~2016. Premises and equipment decreased $7.0~~2017, due to acquired loans of $1.518 billion from the acquisition of Sun. As part of the acquisition of Sun, the Company’s goodwill balance increased to $337.5 million at ~~September 30, 2017, as compared to~~March 31, 2018, from $150.5 million at December 31, ~~2016, due to the consolidation of 15 branches during the nine months ended September 30, 2017. The premises and equipment at these locations were written down to their net realizable value~~2017, and the ~~remaining balance was reclassified~~core deposit intangible increased to ~~assets held for sale.~~$20.0 million, from $8.9 million at December 31, 2017.

Deposits increased by ~~$162.5 million,~~$1.565 billion, to ~~$4.350~~$5.907 billion at ~~September 30, 2017,~~March 31, 2018, from ~~$4.188~~$4.343 billion at December 31, ~~2016.~~2017, due to acquired deposits of $1.616 billion. The loan-to-deposit ratio at ~~September 30, 2017~~March 31, 2018 was ~~89.0%~~91.7%, as compared to ~~90.8%~~91.3% at December 31, ~~2016.~~2017.

Stockholders’ equity increased to ~~$596.3 million~~$1.007 billion at ~~September 30, 2017,~~March 31, 2018, as compared to ~~$572.0~~$601.9 million at December 31, ~~2016.~~2017. The acquisition of Sun added $402.6 million to stockholders’ equity. At ~~September 30, 2017,~~March 31, 2018, there were 1.8 million shares available for repurchase under the Company’s stock repurchase programs. InFor the ~~nine months~~quarter ended ~~September 30, 2017,~~March 31, 2018, the Company did not repurchase any shares under these repurchase programs. Tangible stockholders’ equity per common share ~~increased~~decreased to ~~$13.47~~$13.51 at ~~September 30, 2017,~~March 31, 2018, as compared to ~~$12.95~~$13.58 at December 31, ~~2016.~~2017.

Comparison of Operating Results for the ~~three~~Quarter Ended March 31, 2018 and ~~nine months ended September 30,~~March 31, 2017 ~~and September 30, 2016~~

General

On ~~May 2, 2016,~~January 31, 2018, the Company completed its acquisition of ~~Cape~~Sun and its results of operations from February 1, 2018 to March 31, 2018 are included in the consolidated results for the ~~three and nine months~~quarter ended ~~September 30, 2017,~~March 31, 2018, but are ~~excluded from~~not included in the results of operations for the ~~period from January 1, 2016 to May 1, 2016.~~corresponding prior year periods.

On November 30, 2016, the Company completed its acquisition of Ocean Shore and its results of operations are included in the consolidated results for the three and nine months ended September 30, 2017, but are excluded from the results of operations for the three and nine months ended September 30, 2016.

Net income for the quarter ended ~~September 30, 2017,~~March 31, 2018, was ~~$12.8~~$5.4 million, or ~~$0.39~~$0.12 per diluted share, as compared to ~~$9.1~~$12.0 million, or ~~$0.35~~$0.36 per diluted share, for the corresponding prior year period. Net income for the ~~nine months~~quarter ended ~~September 30, 2017 was $32.5 million, or $0.98 per diluted share, as compared to~~March 31, 2018, included merger related and branch consolidation expenses which decreased net income, net of ~~$17.0 million, or $0.77 per diluted share, for the corresponding prior year period.~~tax benefit, by $14.6 million. Net income for the ~~three and nine months~~quarter ended ~~September 30,~~March 31, 2017 ~~includes~~included merger related and branch consolidation expenses, and ~~for the nine months ended September 30, 2017, also includes the acceleration of~~an accelerated stock award expense ~~due to the~~from a director retirement, of ~~a director. These items decreased net income,~~$1.1 million, net of tax benefit, for the three and nine months ended September 30, 2017, by $2.1 million and $8.8 million, respectively. Net income for the three and nine months ended September 30, 2016 includes merger related expenses of $1.3 million and $9.9 million, respectively. The after-tax impact of these items reduced diluted earnings per share by $0.06 and $0.27 for the three and nine months ended September 30, 2017, respectively, and by $0.05 and $0.34, respectively, for the same prior year periods.benefit. Excluding these items, net income for the ~~three and nine~~quarter ended ~~September 30, 2017~~March 31, 2018 increased over the same prior year ~~periods~~period, primarily due to the ~~Acquisition Transactions. In addition, in~~acquisition of Sun and the first quarter of 2017, the Company adopted Accounting Standards Update (“ASU”) 2016-09 “Compensation - Stock Compensation” which resulted in decreases in income tax expense for the three and nine months ended September 30,successful integration during 2017 of ~~$158,000 and $1.7 million, respectively.~~Ocean Shore which was acquired on November 30, 2016.

Interest Income

Interest income for the ~~three and nine months~~quarter ended ~~September 30, 2017~~March 31, 2018 increased to ~~$48.0~~$62.8 million, ~~and $140.9 million, respectively,~~ as compared to ~~$37.3~~$46.0 million ~~and $93.5 million, respectively,~~ in the corresponding prior year ~~periods.~~period. Average interest-earning assets increased ~~$1.086~~by $1.378 billion ~~and $1.574 billion, respectively,~~ for the ~~three and nine months~~quarter ended ~~September 30, 2017,~~March 31, 2018, as compared to the same prior year ~~periods.~~period. The ~~averages~~average for the ~~three and nine months~~quarter ended ~~September 30, 2017, were~~March 31, 2018, was favorably impacted by $1.174 billion of interest-earning assets acquired from Sun. Average loans receivable, net, increased by $1.139 billion for the ~~Acquisition Transactions.~~quarter ended March 31, 2018, as compared to the same prior year period. The increase attributable to the acquisition of Sun was $989.5 million. The yield on average interest-earning assets increased to 4.17% for the quarter ended March 31, 2018, from 3.95% in the same prior year period. The yields on average interest-earning assets ~~decreased~~benefited from the accretion of purchase accounting adjustments on the Sun acquisition of $2.3 million, representing 15 basis points, and, to ~~3.91%~~a lesser extent, higher-yielding interest-earning assets acquired from Sun and ~~increased to 3.93%, respectively, for~~ the ~~three and nine months ended September 30, 2017, from 3.92% and 3.88%, respectively, for the same prior year periods.~~impact of Federal Reserve rate increases.

Interest Expense

Interest expense for the ~~three and nine months~~quarter ended ~~September 30, 2017~~March 31, 2018 was ~~$5.0~~$7.1 million, ~~and $14.2 million, respectively,~~ as compared to ~~$3.4~~$4.5 million ~~and $9.0 million, respectively,~~ in the corresponding prior year ~~periods.~~period. Average interest-bearing liabilities increased ~~$792.7 million and $1.224~~$1.104 billion ~~respectively,~~ for the ~~three and nine months~~quarter ended ~~September 30, 2017,~~March 31, 2018, as compared to the same prior year ~~periods.~~period. For the ~~three and nine months~~quarter ended ~~September 30, 2017,~~March 31, 2018, the cost of average interest-bearing liabilities increased to ~~0.50% and 0.49%, respectively,~~0.59% from ~~0.43% and 0.46%, respectively,~~0.48% in the corresponding prior year ~~periods.~~

period. The total cost of deposits (including non-interest bearing deposits) was ~~0.29% and 0.28%, respectively,~~0.33% for the ~~three and nine months~~quarter ended ~~September 30, 2017,~~March 31, 2018, as compared to ~~0.25%~~0.27% for ~~both~~ the ~~three and nine months~~quarter ended ~~September 30, 2016.~~March 31, 2017.

Net Interest Income

Net interest income for the ~~three and nine months~~quarter ended ~~September 30, 2017~~March 31, 2018, increased to ~~$43.1~~$55.7 million, ~~and $126.7 million, respectively,~~ as compared to ~~$33.9~~$41.5 million ~~and $84.5 million, respectively,~~ for the same prior year ~~periods,~~period, reflecting an increase in interest-earning ~~assets.~~assets and a higher net interest margin. The net interest margin for the ~~three and nine months~~quarter ended ~~September 30, 2017 decreased to 3.50% and~~March 31, 2018 increased to ~~3.54%~~3.70%, ~~respectively,~~ from 3.56% ~~and 3.51%~~, ~~respectively,~~ for the same prior year ~~periods.~~period.

Provision for Loan Losses

For the ~~three and nine months~~quarter ended ~~September 30, 2017,~~March 31, 2018, the provision for loan losses was ~~$1.2~~$1.4 million, ~~and $3.0 million, respectively,~~ as compared to ~~$888,000 and $2.1 million, respectively,~~$700,000 for the corresponding prior year ~~periods.~~period. Net loan charge-offs were ~~$1.1 million and $1.6 million, respectively,~~$275,000 for the ~~three and nine months~~quarter ended ~~September 30, 2017,~~March 31, 2018, as compared to net loan ~~charge-offs~~recoveries of ~~$1.9 million and $3.2 million, respectively,~~$268,000 in the corresponding prior year ~~periods.~~period. Non-performing loans ~~increased to $15.1~~totaled $18.3 million at ~~September 30, 2017,~~March 31, 2018, as compared to ~~$13.6~~$20.9 million at December 31, ~~2016.~~2017. The ~~increase~~decrease in non-performing loans from the prior linked quarter was primarily due to the addition of two commercial real estate relationships totaling $7.4 million, partially offset by the payoff of two non-performing loans totaling $1.7 million. An increase in non-performing residential mortgage loans was offset by the bulk sale of ~~$7.8 million in non-performing residential loans in the second and third quarters of 2017.~~one commercial loan relationship.

Other Income

For the ~~three and nine months~~quarter ended ~~September 30, 2017,~~March 31, 2018, other income increased to ~~$7.4~~$8.9 million ~~and $20.3 million, respectively,~~ as compared to ~~$5.9~~$6.0 million ~~and $14.2 million, respectively,~~ for the corresponding prior year ~~periods.~~period. The ~~increases were primarily~~increase was partly due to the impact of the ~~Acquisition Transactions,~~Sun acquisition, which added ~~$1.1~~$1.4 million ~~and $4.9 million, respectively,~~ to other income for the ~~three and nine months~~quarter ended September 30, 2017, as compared to the same prior year periods. Excluding the Acquisition Transactions, the remaining increase in other income for the three months ended September 30, 2017, was primarily due to higher deposit and bank card related fees of $272,000 and $71,000, respectively, as compared to the same prior year period. In addition, income from other real estate operations, excluding the Acquisition Transactions, increased $364,000 which was offset by a decrease in the net gain on the sale of loans available for sale (included in other income) of $360,000. For the nine months ended September 30, 2017, excluding the Acquisition Transactions, the increase in other income was primarily due to higher deposit and bank card related fees of $1.0 million and $153,000, respectively,March 31, 2018, as compared to the same prior year period. Excluding the ~~Acquisition Transactions, an~~Sun acquisition, the remaining increase in other income for the quarter ended March 31, 2018, was primarily due to the gain on sale of loans of $613,000, mostly related to the sale of one non-performing commercial loan relationship, rental income of $460,000 received for January and February 2018 on the Company’s recently acquired administrative office building (the building was occupied by the former owner through February 2018), and the decrease in the net loss from other real estate operations of ~~$609,000 was offset by a decrease in~~$321,000, as compared to the ~~net gain on the sale of loans (included in other income) of $697,000.~~same prior year period.

Operating Expenses

Operating expenses increased to ~~$30.7~~$56.8 million ~~and $98.8 million, respectively,~~ for the ~~three and nine months~~quarter ended ~~September 30, 2017,~~March 31, 2018, as compared to ~~$25.0~~$31.0 million ~~and $70.4 million, respectively,~~ in the same prior year ~~periods.~~period. Operating expenses for the ~~three and nine months~~quarter ended ~~September 30, 2017~~March 31, 2018, included ~~$3.2~~$18.3 million ~~and $13.2 million, respectively,~~ of merger related and branch consolidation expenses, as compared to ~~$1.3~~$1.5 million ~~and $9.9 million, respectively,~~ in the same prior year ~~periods.~~period. Excluding the impact of merger and branch consolidation expenses, the increase in operating expenses over the prior year was primarily due to the ~~Acquisition Transactions,~~Sun acquisition, which added ~~$2.4 million and $18.9~~$8.0 million for the ~~three and nine months~~quarter ended ~~September 30, 2017, respectively. For~~March 31, 2018. Excluding the ~~three months ended September 30, 2017, excluding~~Sun acquisition, the ~~Acquisition Transaction~~remaining increase in operating expenses ~~there were increases in marketing expense and loan related expenses. For~~over the ~~nine months ended September 30, 2017, excluding the Acquisition Transaction expenses, there were~~prior year period was primarily due to increases in compensation and employee benefits expense ~~equipment expense, marketing~~as a result of higher incentive plan expense, and ~~professional fees.~~occupancy expense, partly due to the cost of snow removal.

Provision for Income Taxes

The provision for income taxes was ~~$5.7~~$1.0 million ~~and $12.7 million, respectively,~~ for the ~~three and nine months~~quarter ended ~~September 30, 2017,~~March 31, 2018, as compared to ~~$4.8~~$3.8 million ~~and $9.2 million, respectively,~~ for the same prior year ~~periods.~~period. The effective tax rate was ~~30.8% and 28.0%, respectively,~~15.6% for the ~~three and nine months~~quarter ended ~~September 30, 2017,~~March 31, 2018, as compared to ~~34.4% and 35.0%, respectively,~~24.0% for the same prior year ~~periods.~~period. The lower effective tax rate for the ~~three and nine months~~quarter ended ~~September 30, 2017~~March 31, 2018 resulted from the ~~adoption~~Tax Cuts and Jobs Act (“Tax Reform”) enacted during the fourth quarter of ~~ASU 2016-09 “Compensation - Stock Compensation,” which decreased income tax expense by $158,000~~2017 and ~~$1.7 million, respectively. Excluding~~ the larger impact of ASU 2016-09, the effective tax rate would have been 31.6% and 31.8% for the three and nine months ended September 30, 2017, respectively. Under the ASU, the tax benefits of exercised stock options and vested stock awards are recognized as a benefit totax-exempt income tax expense in the reporting period in which they occur. The tax benefit relating to the Company’s stock plans was $62,000 for the year ended December 31, 2016, which was recorded directly into stockholders equity. The elevated tax benefit for the three and nine months ended September 30, 2017, was related to the

~~exercise of options assumed in the acquisitions of Cape and Ocean Shore and the increase in the Company’s stock price. Excluding the tax benefit of exercised stock options and vested stock awards,~~on the lower effective tax rate for the three and nine months ended September 30, 2017, as compared to the same prior year periods, was primarily due to the deductibility of merger related expenses and an increase in tax exempt income.income before taxes.

Liquidity and Capital Resources

The Company’s primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, Federal Home Loan Bank (FHLB) advances and other borrowings and, to a lesser extent, investment maturities and proceeds from the sale of loans. While scheduled amortization of loans is a predictable source of funds, deposit flows and loan prepayments are greatly influenced by interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including various lines of credit.

At ~~September 30, 2017 and December~~March 31, ~~2016,~~2018, the ~~company~~Company had no outstanding overnight borrowings from the ~~FHLB.~~FHLB, compared to $30.0 million of outstanding overnight borrowings at December 31, 2017. The ~~Company~~Bank utilizes overnight borrowings from time-to-time to fund short-term liquidity needs. ~~The Company had total~~ FHLB ~~borrowings,~~advances, including overnight borrowings ~~of $259.2~~totaled $341.6 million and ~~$250.5~~$288.7 million, respectively, at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

The Company’s cash needs for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 were primarily satisfied by principal payments on loans and mortgage-backed securities, proceeds from maturities and calls of investment securities, deposit growth, and increased borrowings. The cash was principally utilized for loan originations, the purchase of loans receivable and the purchase of securities. The Company’s cash needs for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 were primarily satisfied by principal payments on loans and mortgage-backed securities ~~proceeds from the sale of mortgage loans held for sale~~ and ~~the sale of higher risk loans, proceeds from maturities and calls of investment securities, proceeds from sale of available-for-sale securities,~~ deposit ~~growth and the issuance of subordinated notes.~~growth. The cash was principally utilized for loan originations, the purchase of loans receivable and ~~to reduce borrowings.~~the purchase of securities.

In the normal course of business, the Company routinely enters into various off-balance-sheet commitments. At ~~September 30, 2017,~~March 31, 2018, outstanding undrawn lines of credit totaled ~~$550.5~~$807.3 million and outstanding commitments to originate loans totaled ~~$111.5~~$156.8 million. The Company expects to have sufficient funds available to meet current commitments arising in the normal course of business.

Time deposits scheduled to mature in one year or less totaled ~~$322.7~~$555.4 million at ~~September 30, 2017.~~March 31, 2018. Based upon historical experience, management estimates that a significant portion of such time deposits will remain with the Company.

The Company has a detailed contingency funding plan and comprehensive reporting of funding trends on a monthly and quarterly basis which are reviewed by management. Management also monitors cash on a daily basis to determine the liquidity needs of the Bank. Additionally, management performs multiple liquidity stress test scenarios on a quarterly basis. The Bank continues to maintain significant liquidity under all stress scenarios.

Under the Company’s common stock repurchase programs, shares of OceanFirst Financial Corp. common stock may be purchased in the open market and through privately-negotiated transactions, from time-to-time, depending on market conditions. The repurchased shares are held asin treasury ~~stock~~ for general corporate purposes. For the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the Company did not repurchase any shares of common stock. At ~~September 30, 2017,~~March 31, 2018, there were 1,754,804 shares available to be repurchased under the stock repurchase programs authorized in July of 2014 and April of 2017.

Cash dividends on common stock declared and paid during the first ~~nine~~three months of ~~2017~~2018 were ~~$14.4~~$7.1 million, as compared to ~~$8.8~~$4.8 million in the same prior year period. The increase in dividends was a result of the additional shares issued in the ~~Acquisition Transactions.~~acquisition of Sun. On ~~October 25, 2017,~~April 26, 2018, the Company’s Board of Directors declared a quarterly cash dividend of fifteen cents ($0.15) per common share. The dividend is payable on ~~November 17, 2017~~May 18, 2018 to stockholders of record at the close of business on ~~November 6, 2017.~~May 7, 2018.

The primary sources of liquidity specifically available to OceanFirst Financial Corp., the holding company of OceanFirst Bank N.A., are capital distributions from the bank subsidiary and the issuance of preferred and common stock and debt. During the first quarter of 2017, the Company received notice from the Federal Reserve Bank of Philadelphia that it did not object to the payment of $32.0 million in dividends from the Bank to the Company over the year, although the Federal Reserve Bank reserved the right to revoke the notice of non-objection at any time if a safety and soundness concern arises. For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, the Company received a dividend payment of ~~$24.0~~$8.0 million from the ~~Bank and $8.0 million remained to be paid.~~Bank. The Company’s ability to continue to pay dividends will be largely dependent upon capital distributions from the Bank, which may be adversely affected by capital constraints imposed by the applicable regulations. The Company cannot predict whether the Bank

will be permitted under applicable regulations to pay a dividend to the Company. If applicable regulations or regulatory bodies prevent the Bank ~~is unable to pay dividends~~from paying a dividend to the Company, the Company may not have the liquidity necessary to pay a dividend in the future or pay a dividend at the same rate as historically paid, or be able to meet current debt obligations. At ~~September 30, 2017,~~March 31, 2018, OceanFirst Financial Corp. held ~~$31.1~~$37.0 million in cash.

As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company and the Bank exceed all regulatory capital requirements currently applicable as follows (in thousands):


As of September 30, 2017	Actual				For capital adequacy purposes					To be well-capitalized under prompt corrective action
														Actual					For capital adequacy purposes					To be well-capitalized under prompt corrective action
As of March 31, 2018														Amount		Ratio			Amount		Ratio			Amount		Ratio
Bank:	Amount		Ratio		Amount		Ratio			Amount		Ratio
Tier 1 capital (to average assets)	$	460,836	8.91	%	$	206,958	4.000	%		$	258,698	5.00	%	$	712,729	10.98	%	⁽¹⁾	$	259,558	4.000	%		$	324,448	5.00	%
Common equity Tier 1 (to risk-weighted assets)	460,836		12.82		206,710		5.750		⁽¹⁾	233,672		6.50		712,729		13.50			336,627		6.375		⁽²⁾	343,228		6.50
Tier 1 capital (to risk-weighted assets)	460,836		12.82		260,635		7.250		⁽¹⁾	287,597		8.00		712,729		13.50			415,833		7.875		⁽²⁾	422,434		8.00
Total capital (to risk-weighted assets)	478,047		13.30		332,534		9.250		⁽¹⁾	359,496		10.00		730,553		13.84			521,442		9.875		⁽²⁾	528,042		10.00
OceanFirst Financial Corp:
Tier 1 capital (to average assets)	$	467,540	9.02	%	$	207,380	4.000	%		N/A		N/A		$	716,099	11.03	%	⁽¹⁾	$	259,627	4.000	%		N/A		N/A
Common equity Tier 1 (to risk-weighted assets)	448,307		12.46		206,951		5.750		⁽¹⁾	N/A		N/A		658,387		12.47			336,627		6.375		⁽²⁾	N/A		N/A
Tier 1 capital (to risk-weighted assets)	467,540		12.99		260,938		7.250		⁽¹⁾	N/A		N/A		716,099		13.56			415,833		7.875		⁽²⁾	N/A		N/A
Total capital (to risk-weighted assets)	519,751		14.44		332,921		9.250		⁽¹⁾	N/A		N/A		768,923		14.56			521,442		9.875		⁽²⁾	N/A		N/A


As of December 31, 2016	Actual					For capital adequacy purposes					To be well-capitalized under prompt corrective action
															Actual				For capital adequacy purposes					To be well-capitalized under prompt corrective action
As of December 31, 2017															Amount		Ratio		Amount		Ratio			Amount		Ratio
Bank:	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier 1 capital (to average assets)	$	450,414	10.19	%	⁽²⁾	$	176,856	4.000	%		$	221,070	5.00	%	$	459,031	8.75	%	$	209,760	4.000	%		$	262,200	5.00	%
Common equity Tier 1 (to risk-weighted assets)	450,414		12.81			180,178		5.125		⁽³⁾	228,519		6.50		459,031		12.41		212,705		5.750		⁽³⁾	240,450		6.50
Tier 1 capital (to risk-weighted assets)	450,414		12.81			232,913		6.625		⁽³⁾	281,254		8.00		459,031		12.41		268,194		7.250		⁽³⁾	295,938		8.00
Total capital (to risk-weighted assets)	466,224		13.26			303,227		8.625		⁽³⁾	351,567		10.00		475,379		12.85		342,178		9.250		⁽³⁾	369,923		10.00
OceanFirst Financial Corp:
Tier 1 capital (to average assets)	$	440,552	9.96	%	⁽²⁾	$	176,897	4.000	%		N/A		N/A		$	465,554	8.87	%	$	209,943	4.000	%		N/A		N/A
Common equity Tier 1 (to risk-weighted assets)	426,855		12.12			180,512		5.125		⁽³⁾	N/A		N/A		449,991		12.15		212,907		5.750		⁽³⁾	N/A		N/A
Tier 1 capital (to risk-weighted assets)	440,552		12.51			233,345		6.625		⁽³⁾	N/A		N/A		465,554		12.57		268,448		7.250		⁽³⁾	N/A		N/A
Total capital (to risk-weighted assets)	491,362		13.95			303,788		8.625		⁽³⁾	N/A		N/A		516,902		13.96		342,502		9.250		⁽³⁾	N/A		N/A

~~(1) Includes the Capital Conservation Buffer of 1.25%.~~

(2) Tier 1 capital ratios are calculated based on outstanding capital at the end of the quarter divided by average assets for the quarter. The Tier 1 capital ratios for the Bank and the Company based on total assets as of the end of the period were 8.85% and 8.75%, respectively.

~~(3) Includes the Capital Conservation Buffer of 0.625%.~~


(1)	Tier 1 capital ratios are calculated based on outstanding capital at the end of the quarter divided by average assets for the quarter. The March 31, 2018 Tier 1 capital ratios for the Bank and the Company based on total assets as of the end of the period are 9.98% and 10.03%, respectively.


(2)	Includes the Capital Conservation Buffer of 1.875%.


(3)	Includes the Capital Conservation Buffer of 1.25%.

The ~~Company and the~~ Bank ~~satisfy~~satisfies the criteria to be “well-capitalized” under the Prompt Corrective Action Regulations.

At ~~September 30, 2017,~~March 31, 2018, the Company maintained tangible common equity of ~~$438.7~~$650.0 million, for a tangible common equity to assets ratio of ~~8.39%~~9.11%. At December 31, ~~2016,~~2017, the Company maintained tangible common equity of ~~$416.1~~$442.6 million, for a tangible common equity to assets ratio of ~~8.30%~~8.42%.

Off-Balance-Sheet Arrangements and Contractual Obligations

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in the financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used for general corporate purposes or for customer needs. Corporate purpose transactions are used to help manage credit, interest rate and liquidity risk or to optimize capital. Customer transactions are used to manage customers’ requests for funding. These financial instruments and commitments include undrawn lines of credit and commitments to extend credit.

The Company enters into loan sale agreements with investors in the normal course of business. The loan sale agreements generally require the Company to repurchase loans previously sold in the event of a violation of various representations and warranties customary to the mortgage banking industry. The Company is also obligated under a loss sharing arrangement with the FHLB relating to loans sold into the Mortgage Partnership Finance program. In the opinion of management, the potential exposure related to the loan sale agreements and loans sold to the FHLB is adequately provided for in the reserve for repurchased loans and loss sharing obligations included in other liabilities. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the reserve for repurchased loans and loss sharing obligations amounted to ~~$463,000~~$1.5 million and ~~$846,000,~~$463,000, respectively.

The following table shows the contractual obligations of the Company by expected payment period as of ~~September 30, 2017~~March 31, 2018 (in thousands):


Contractual Obligations	Total		Less than one year		1-3 years		3-5 years		More than 5 years		Total		Less than one year		1-3 years		3-5 years		More than 5 years
Debt Obligations	$	390,978	$	130,326	$	159,060	$	45,126	$	56,466	$	523,468	$	157,106	$	192,576	$	74,914	$	98,872
Commitments to Fund Undrawn Lines of Credit
Commercial	346,159		346,159		—		—		—		431,108		431,108		—		—		—
Consumer/Construction	204,292		204,292		—		—		—		376,221		376,221		—		—		—
Commitments to Originate Loans	111,525		111,525		—		—		—		156,833		156,833		—		—		—

Debt obligations include advances from the FHLB and other borrowings and have defined terms.

Commitments to fund undrawn lines of credit and commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company’s exposure to credit risk is represented by the contractual amount of the instruments.

Non-Performing Assets

The following table sets forth information regarding the Company’s non-performing assets consisting of non-performing loans and other real estate owned. It is the policy of the Company to cease accruing interest on loans 90 days or more past due or in the process of foreclosure.


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
	(dollars in thousands)						(dollars in thousands)
Non-performing loans:
Commercial and industrial	$	63		$	441		$	1,717		$	503
Commercial real estate – owner occupied	923			2,414			862			5,962
Commercial real estate – investor	8,720			521			7,994			8,281
Residential mortgage	3,551			8,126			5,686			4,190
Home equity loans and lines	1,864			2,064			1,992			1,929
Total non-performing loans	15,121			13,566			18,251			20,865
Other real estate owned	9,334			9,803			8,265			8,186
Total non-performing assets	$	24,455		$	23,369		$	26,516		$	29,051
Purchased credit impaired loans (“PCI”)	$	4,867		$	7,575		$	14,352		$	1,712
Delinquent loans 30-89 days(1)	$	24,548		$	22,598		$	35,431		$	20,796
Allowance for loan losses as a percent of total loans receivable(2)	0.42		%	0.40		%	0.31		%	0.40		%
Allowance for loan losses as a percent of total non-performing loans(2)	109.68			111.92			92.14			75.35
Non-performing loans as a percent of total loans receivable	0.39			0.35			0.34			0.52
Non-performing assets as a percent of total assets	0.45			0.45			0.35			0.54


(1)	One commercial loan relationship, for $15.0 million, was in the process of renewal at March 31, 2018. Subsequent to quarter-end, the renewal process was completed and the loan returned to current status.


(2)	The loans acquired from Sun, Ocean Shore, Cape, and Colonial American Bank were recorded at fair value. The net credit mark on these loans, not reflected in the allowance for loan losses, was $40,717 and $17,531 at March 31, 2018 and December 31, 2017, respectively.

The Company’s non-performing loans totaled ~~$15.1~~$18.3 million at ~~September 30, 2017,~~March 31, 2018, as compared to ~~$13.6~~$20.9 million at December 31, ~~2016.~~2017. Included in the non-performing loans total was ~~$270,000~~$4.3 million and ~~$3.5~~$8.8 million of troubled debt restructured (“TDR”) loans at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. The ~~increase~~decrease in non-performing loans was primarily due to the addition of two commercial real estate relationships totaling $7.4 million, partially offset by the payoff of two non-performing loans totaling $1.7 million. An increase in non-performing residential mortgage loans was offset by the bulk sale of ~~$7.8 million in non-performing residential loans in the second and third quarters of 2017.~~one commercial loan relationship. Non-performing loans do not include ~~$4.9~~$14.4 million of PCI loans acquired in the Acquisition ~~Transactions.~~Transactions and the Colonial American Bank (“Colonial American”) acquisition. At ~~September 30, 2017,~~March 31, 2018, the allowance for loan losses totaled ~~$16.6~~$16.8 million, or ~~0.42%~~0.31% of total loans, as compared to ~~$15.2~~$15.7 million, or 0.40% of total loans at December 31, ~~2016.~~2017. These ratios exclude existing fair value credit marks on acquired loans of ~~$19.8~~$40.7 million and ~~$26.0~~$17.5 million, respectively, at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. These loans were acquired at fair value with no related allowances for loan losses. Other real estate owned includes ~~$7.0~~$6.5 million relating to the hotel, golf and banquet facility located in New Jersey which the Company acquired in the fourth quarter of 2015.

The Company classifies loans and other assets in accordance with regulatory guidelines as follows (in thousands):


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Special Mention	$	25,778	$	15,692	$	28,080	$	25,489
Substandard	58,939		70,543		54,220		60,661

Critical Accounting Policies

Note 1 to the Company’s Audited Consolidated Financial Statements ~~for the year ended December 31, 2016~~ included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 (the ~~“2016~~“2017 Form 10-K”), as supplemented by this report, contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried in the consolidated statements of financial condition at fair value or the lower of cost or estimated fair value. Policies with respect to the methodology used to determine the allowance for loan losses and judgments regarding securities ~~and goodwill impairment~~ are the most critical accounting policies because they are important to the presentation of the Company’s financial condition and results of operations. These judgments and policies involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions and estimates could result in material differences in the results of operations or financial condition. ~~Goodwill will be evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances~~

~~indicate potential impairment between annual measurement dates.~~ These critical accounting policies and their application are reviewed periodically, and at least annually, with the Audit Committee of the Board of Directors.

Private Securities Litigation Reform Act Safe Harbor Statement

In addition to historical information, this quarterly report 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 and 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, ~~2016~~2017 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. Further description of the risks and uncertainties to the business are included in Item 1, Business, and Item 1A, Risk Factors, of the Company’s ~~2016~~2017 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s interest rate sensitivity is monitored through the use of an interest rate risk (“IRR”) model. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at ~~September 30, 2017,~~March 31, 2018, which were anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown.

At ~~September 30, 2017,~~March 31, 2018, the Company’s one-year gap was ~~negative 4.38%~~positive 6.05% as compared to ~~negative 3.47%~~positive 4.62% at December 31, ~~2016.~~2017. These results were within the approved policy guidelines.


At September 30, 2017	3 Months or Less			More than 3 Months to 1 Year			More than 1 Year to 3 Years			More than 3 Years to 5 Years			More than 5 Years			Total
At March 31, 2018																			3 Months or Less			More than 3 Months to 1 Year			More than 1 Year to 3 Years			More than 3 Years to 5 Years			More than 5 Years			Total
(dollars in thousands)
Interest-earning assets: ⁽¹⁾
Interest-earning deposits and short-term investments	$	174,079		$	971		$	2,713		$	—		$	—		$	177,763		$	68,034		$	3,189		$	495		$	—		$	—		$	71,718
Investment securities	66,168			28,181			85,296			58,300			71,492			309,437
Mortgage-backed securities	33,735			71,473			156,030			118,022			129,833			509,093
FHLB stock	—			—			—			—			18,472			18,472
Debt investment securities																			66,377			56,691			101,250			48,763			62,572			335,653
Debt mortgage-backed securities																			73,316			89,788			186,973			159,357			232,873			742,307
Equity investments																			—			—			—			—			9,565			9,565
Restricted equity investments																			—			—			—			—			50,418			50,418
Loans receivable ⁽²⁾	596,331			813,588			1,217,892			694,223			560,352			3,882,386			1,130,410			902,975			1,527,484			904,644			959,499			5,425,012
Total interest-earning assets	870,313			914,213			1,461,931			870,545			780,149			4,897,151			1,338,137			1,052,643			1,816,202			1,112,764			1,314,927			6,634,673
Interest-bearing liabilities:
Interest-bearing checking accounts																			773,268			206,119			346,074			219,177			786,044			2,330,682
Money market deposit accounts	27,938			26,132			60,662			49,481			219,893			384,106			105,522			83,477			108,493			74,554			241,137			613,183
Savings accounts	83,497			51,208			115,685			90,608			327,372			668,370			72,190			128,049			184,390			125,718			406,941			917,288
Interest-bearing checking accounts	1,278,133			56,591			123,083			92,490			342,535			1,892,832
Time deposits	103,322			219,578			183,652			112,287			5,069			623,908			124,624			279,502			284,390			173,592			66,975			929,083
FHLB advances	—			55,000			159,060			45,126			—			259,186			40,000			34,618			192,429			74,599			—			341,646
Securities sold under agreements to repurchase and other borrowings	97,826			—			—			33,966			—			131,792			141,992			—			—			39,830			—			181,822
Total interest-bearing liabilities	1,590,716			408,509			642,142			423,958			894,869			3,960,194			1,257,596			731,765			1,115,776			707,470			1,501,097			5,313,704
Interest sensitivity gap ⁽³⁾	$	(720,403	)	$	505,704		$	819,789		$	446,587		$	(114,720	)	$	936,957		$	80,541		$	320,878		$	700,426		$	405,294		$	(186,170	)	$	1,320,969
Cumulative interest sensitivity gap	$	(720,403	)	$	(214,699	)	$	605,090		$	1,051,677		$	936,957		$	936,957		$	80,541		$	401,419		$	1,101,845		$	1,507,139		$	1,320,969		$	1,320,969
Cumulative interest sensitivity gap as a percent of total interest-earning assets	(14.71		)%	(4.38		)%	12.36		%	21.48		%	19.13		%	19.13		%	1.21		%	6.05		%	16.61		%	22.72		%	19.91		%	19.91		%


(1)	Interest-earning assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments, and contractual maturities.


(2)	For purposes of the gap analysis, loans receivable includes loans held for sale and non-performing loans gross of the allowance for loan losses, unamortized discounts and deferred loan fees.


(3)	Interest sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities.

Additionally, the table below sets forth the Company’s exposure to IRR as measured by the change in economic value of equity (“EVE”) and net interest income under varying rate shocks as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. All methods used to measure interest rate sensitivity involve the use of assumptions, which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. The Company’s interest rate sensitivity should be reviewed in conjunction with the financial statements and notes thereto contained in the ~~2016~~2017 Form 10-K.


	September 30, 2017										December 31, 2016										March 31, 2018										December 31, 2017
Change in Interest Rates in Basis Points (Rate Shock)	Economic Value of Equity						Net Interest Income				Economic Value of Equity						Net Interest Income				Economic Value of Equity						Net Interest Income				Economic Value of Equity						Net Interest Income
Change in Interest Rates in Basis Points (Rate Shock)	Amount		% Change		EVE Ratio		Amount		% Change		Amount		% Change		EVE Ratio		Amount		% Change		Amount		% Change		EVE Ratio		Amount		% Change		Amount		% Change		EVE Ratio		Amount		% Change
(dollars in thousands)
300	$	778,489	(0.4	)%	15.4	%	$	155,106	(9.2	)%	$	664,767	(1.1	)%	14.1	%	$	156,689	(1.0	)%	$	1,115,918	(2.0	)%	16.7	%	$	238,677	(0.5	)%	$	844,117	5.0	%	16.8	%	$	169,653	(2.3	)%
200	797,951		2.0		15.4		161,134		(5.7	)	678,347		1.0		14.0		158,078		(0.1	)	1,142,360		0.3		16.6		239,922		—		850,511		5.8		16.5		171,758		(1.1	)
100	799,982		2.3		15.1		166,414		(2.6	)	683,492		1.7		13.7		158,840		0.3		1,151,572		1.1		16.3		240,389		0.2		838,066		4.3		15.9		173,119		(0.3	)
Static	781,958		—		14.4		170,833		—		671,878		—		13.2		158,309		—		1,139,129		—		15.8		239,922		—		803,722		—		14.9		173,590		—
(100)	733,571		(6.2	)	13.2		164,993		(3.4	)	620,675		(7.6	)	11.9		152,007		(4.0	)	1,098,821		(3.5	)	14.9		236,396		(1.5	)	737,232		(8.3	)	13.3		170,383		(1.8	)

The ~~increased~~change in interest rate sensitivity ~~of net interest income in a rising interest rate environment~~ at ~~September 30, 2017,~~March 31, 2018, as compared to December 31, ~~2016,~~2017, is primarily due to the ~~result~~addition of increased holdings in fixed-rate securities and loans. Another factor in the increased net interest income sensitivity is a change in the assumption regarding the interest rate sensitivity of certain deposits without maturity dates. This change was made to reflect the Company’s reasonable expectation of the increased sensitivity of these deposits in the face of rising interest rates.Sun.

Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective. Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (“SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, there were no changes in the Company’s internal control over financial reporting during the quarter ended ~~September 30, 2017~~March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in thousands, except per share amounts)


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
	(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	255,258		$	301,373		$	119,364		$	109,613
Securities available-for-sale, at estimated fair value	67,133			12,224
Securities held-to-maturity, net (estimated fair value of $746,497 at September 30, 2017 and $598,119 at December 31, 2016)	742,886			598,691
Federal Home Loan Bank of New York stock, at cost	18,472			19,313
Debt securities available-for-sale, at estimated fair value							86,114			81,581
Debt securities held-to-maturity, net (estimated fair value of $971,399 at March 31, 2018 and $761,660 at December 31, 2017)							982,857			764,062
Equity investments, at estimated fair value							9,565			8,700
Restricted equity investments, at cost							50,418			19,724
Loans receivable, net	3,870,109			3,803,443			5,413,780			3,965,773
Loans held for sale	338			1,551
Loans held-for-sale							167			241
Interest and dividends receivable	13,627			11,989			19,422			14,254
Other real estate owned	9,334			9,803			8,265			8,186
Premises and equipment, net	64,350			71,385			121,835			101,776
Bank Owned Life Insurance	134,298			132,172			218,673			134,847
Deferred tax asset	29,718			38,787			60,136			1,922
Assets held for sale	5,241			360			3,147			4,046
Other assets	15,634			9,973			43,687			41,895
Core deposit intangible	9,380			10,924			19,950			8,885
Goodwill	148,134			145,064			337,519			150,501
Total assets	$	5,383,912		$	5,167,052		$	7,494,899		$	5,416,006
Liabilities and Stockholders’ Equity
Deposits	$	4,350,259		$	4,187,750		$	5,907,336		$	4,342,798
Securities sold under agreements to repurchase with deposit customers	75,326			69,935
Federal Home Loan Bank advances	259,186			250,498			341,646			288,691
Securities sold under agreements to repurchase with retail customers							82,463			79,668
Other borrowings	56,466			56,559			99,359			56,519
Advances by borrowers for taxes and insurance	14,371			14,030			11,974			11,156
Other liabilities	32,052			16,242			44,661			35,233
Total liabilities	4,787,660			4,595,014			6,487,439			4,814,065
Stockholders’ equity:
Preferred stock, $.01 par value, $1,000 liquidation preference, 5,000,000 shares authorized, no shares issued	—			—			—			—
Common stock, $.01 par value, 55,000,000 shares authorized, 33,566,772 shares issued and 32,567,477 and 32,136,892 shares outstanding at September 30, 2017 and December 31, 2016, respectively	336			336
Common stock, $.01 par value, 55,000,000 shares authorized, 48,105,623 shares issued and 48,105,623 and 32,596,893 shares outstanding at March 31, 2018 and December 31, 2017, respectively							481			336
Additional paid-in capital	353,817			364,433			745,480			354,377
Retained earnings	266,053			238,192			268,994			271,023
Accumulated other comprehensive loss	(5,037		)	(5,614		)	(5,306		)	(5,349		)
Less: Unallocated common stock held by Employee Stock Ownership Plan	(2,549		)	(2,761		)	(2,189		)	(2,479		)
Treasury stock, 999,295 and 1,429,880 shares at September 30, 2017 and December 31, 2016, respectively	(16,368		)	(22,548		)
Treasury stock, 0 and 969,879 shares at March 31, 2018 and December 31, 2017, respectively							—			(15,967		)
Common stock acquired by Deferred Compensation Plan	(83		)	(313		)	(84		)	(84		)
Deferred Compensation Plan Liability	83			313			84			84
Total stockholders’ equity	596,252			572,038			1,007,460			601,941
Total liabilities and stockholders’ equity	$	5,383,912		$	5,167,052		$	7,494,899		$	5,416,006

See accompanying Notes to Unaudited Consolidated Financial Statements.

OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2017		2016			2017			2016			2018			2017
	(Unaudited)					(Unaudited)						(Unaudited)
Interest income:
Loans	$	43,329	$	34,607		$	127,679		$	86,163		$	56,598		$	41,742
Mortgage-backed securities	2,738		1,700			8,189			4,823			3,685			2,660
Investment securities and other	1,963		1,000			5,055			2,535
Debt securities, equity investments and other												2,554			1,612
Total interest income	48,030		37,307			140,923			93,521			62,837			46,014
Interest expense:
Deposits	3,126		2,083			8,821			5,125			4,464			2,781
Borrowed funds	1,848		1,289			5,389			3,888			2,662			1,750
Total interest expense	4,974		3,372			14,210			9,013			7,126			4,531
Net interest income	43,056		33,935			126,713			84,508			55,711			41,483
Provision for loan losses	1,165		888			3,030			2,113			1,371			700
Net interest income after provision for loan losses	41,891		33,047			123,683			82,395			54,340			40,783
Other income:
Bankcard services revenue	1,785		1,347			5,202			3,409			1,919			1,579
Wealth management revenue	541		608			1,622			1,779			553			516
Fees and service charges	3,702		2,916			11,163			7,235			4,674			3,807
Net gain (loss) from other real estate operations	432		(63		)	(196		)	(782		)
Net gain on sales of loans												617			42
Net unrealized loss on equity investments												(138		)	—
Net loss from other real estate operations												(412		)	(733		)
Income from Bank Owned Life Insurance	881		659			2,436			1,520			1,141			772
Other	18		429			97			994			556			12
Total other income	7,359		5,896			20,324			14,155			8,910			5,995
Operating expenses:
Compensation and employee benefits	14,673		13,558			46,138			33,456			21,251			16,138
Occupancy	2,556		2,315			7,965			5,952			4,567			2,767
Equipment	1,605		1,452			5,006			3,605			1,903			1,698
Marketing	775		479			2,245			1,273			561			740
Federal deposit insurance	713		743			2,079			1,995			930			661
Data processing	2,367		2,140			6,809			5,286			3,176			2,396
Check card processing	871		623			2,640			1,548			989			953
Professional fees	846		681			2,901			1,879			1,283			960
Other operating expense	2,667		1,543			8,258			5,036			3,016			2,644
Federal Home Loan Bank prepayment fee	—		—			—			136
Amortization of core deposit intangible	507		181			1,544			319			832			524
Branch consolidation expenses	1,455		—			6,939			—
Branch consolidation (income) expense												(176		)	33
Merger related expenses	1,698		1,311			6,300			9,902			18,486			1,447
Total operating expenses	30,733		25,026			98,824			70,387			56,818			30,961
Income before provision for income taxes	18,517		13,917			45,183			26,163			6,432			15,817
Provision for income taxes	5,700		4,789			12,669			9,169			1,005			3,799
Net income	$	12,817	$	9,128		$	32,514		$	16,994		$	5,427		$	12,018
Basic earnings per share	$	0.40	$	0.36		$	1.01		$	0.79		$	0.12		$	0.38
Diluted earnings per share	$	0.39	$	0.35		$	0.98		$	0.77		$	0.12		$	0.36
Average basic shares outstanding	32,184		25,435			32,073			21,624			43,880			31,901
Average diluted shares outstanding	33,106		25,889			33,110			21,990			44,846			33,090

See accompanying Notes to Unaudited Consolidated Financial Statements.

OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,					For the Three Months Ended March 31,
	2017			2016			2017		2016			2018			2017
	(Unaudited)						(Unaudited)					(Unaudited)
Net income	$	12,817		$	9,128		$	32,514	$	16,994		$	5,427		$	12,018
Other comprehensive income:
Unrealized (loss) gain on securities (net of tax benefit of $10 and tax expense of $34 in 2017, and net of tax benefit of $27 and tax expense of $10 in 2016, respectively)	(14		)	(39		)	49		14
Accretion of unrealized loss on securities reclassified to held-to-maturity (net of tax expense of $122 and $365 in 2017 and net of tax expense of $153 and $431 in 2016, respectively)	176			221			528		623
Reclassification adjustment for losses included in net income (net of tax benefit of $5 in 2016)	—			—			—		(7		)
Unrealized (loss) gain on debt securities (net of tax benefit of $85 and tax expense of $43 in 2018 and 2017, respectively)												(321		)	62
Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $57 and $116 in 2018 and 2017, respectively)												216			168
Reclassification adjustment for gains included in net income (net of tax expense of $1 in 2018)												1			—
Total comprehensive income	$	12,979		$	9,310		$	33,091	$	17,624		$	5,323		$	12,248

See accompanying Notes to Unaudited Consolidated Financial Statements.

OceanFirst Financial Corp.

Consolidated Statements of Changes in Stockholders’ Equity

(dollars in thousands, except per share amounts)

(Unaudited)

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~


	Preferred Stock		Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Employee Stock Ownership Plan			Treasury Stock			Common Stock Acquired by Deferred Compensation Plan			Deferred Compensation Plan Liability			Total			Preferred Stock		Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Employee Stock Ownership Plan			Treasury Stock			Common Stock Acquired by Deferred Compensation Plan			Deferred Compensation Plan Liability		Total
Balance at December 31, 2015	$	—	$	336	$	269,757		$	229,140		$	(6,241	)	$	(3,045	)	$	(251,501	)	$	(314	)	$	314		$	238,446
Net income	—		—		—			16,994			—			—			—			—			—			16,994
Other comprehensive income, net of tax	—		—		—			—			630			—			—			—			—			630
Tax expense of stock plans	—		—		(228		)	—			—			—			—			—			—			(228		)
Stock awards	—		—		1,181			—			—			—			—			—			—			1,181
Treasury stock allocated to restricted stock plan	—		—		1,081			(109		)	—			—			(972		)	—			—			—
Issued 8,282,296 treasury shares to finance acquisition	—		—		36,940			—			—			—			128,961			—			—			165,901
Allocation of ESOP stock	—		—		248			—			—			213			—			—			—			461
Cash dividend $0.39 per share	—		—		—			(8,789		)	—			—			—			—			—			(8,789		)
Exercise of stock options	—		—		—			(764		)	—			—			3,412			—			—			2,648
Sale of stock for the deferred compensation plan	—		—		—			—			—			—			—			4			(4		)	—
Balance at September 30, 2016	$	—	$	336	$	308,979		$	236,472		$	(5,611	)	$	(2,832	)	$	(120,100	)	$	(310	)	$	310		$	417,244
Balance at December 31, 2016	$	—	$	336	$	364,433		$	238,192		$	(5,614	)	$	(2,761	)	$	(22,548	)	$	(313	)	$	313		$	572,038		$	—	$	336	$	364,433		$	238,192		$	(5,749	)	$	(2,761	)	$	(22,548	)	$	(313	)	$	313	$	571,903
Net income	—		—		—			32,514			—			—			—			—			—			32,514			—		—		—			12,018			—			—			—			—			—		12,018
Other comprehensive income, net of tax	—		—		—			—			577			—			—			—			—			577			—		—		—			—			230			—			—			—			—		230
Stock awards																													—		—		730			—			—			—			—			—			—		730
Effect of adopting Accounting Standards Update ("ASU") No. 2016-09	—		—		(11,129		)	11,129			—			—			—			—			—			—			—		—		(11,129		)	11,129			—			—			—			—			—		—
Stock awards	—		—		1,678			—			—			—			—			—			—			1,678
Treasury stock allocated to restricted stock plan	—		—		(1,645		)	782			—			—			863			—			—			—			—		—		(1,892		)	892			—			—			1,000			—			—		—
Allocation of ESOP stock	—		—		480			—			—			212			—			—			—			692			—		—		174			—			—			71			—			—			—		245
Cash dividend $0.45 per share	—		—		—			(14,439		)	—			—			—			—			—			(14,439		)
Cash dividend $0.15 per share																													—		—		—			(4,787		)	—			—			—			—			—		(4,787		)
Exercise of stock options	—		—		—			(2,125		)	—			—			5,317			—			—			3,192			—		—		—			(1,399		)	—			—			3,603			—			—		2,204
Sale of stock for the deferred compensation plan	—		—		—			—			—			—			—			230			(230		)	—			—		—		—			—			—			—			—			(3		)	3		—
Balance at September 30, 2017	$	—	$	336	$	353,817		$	266,053		$	(5,037	)	$	(2,549	)	$	(16,368	)	$	(83	)	$	83		$	596,252
Balance at March 31, 2017																													$	—	$	336	$	352,316		$	256,045		$	(5,519	)	$	(2,690	)	$	(17,945	)	$	(316	)	$	316	$	582,543
Balance at December 31, 2017																													$	—	$	336	$	354,377		$	271,023		$	(5,349	)	$	(2,479	)	$	(15,967	)	$	(84	)	$	84	$	601,941
Net income																													—		—		—			5,427			—			—			—			—			—		5,427
Other comprehensive income, net of tax																													—		—		—			—			(104		)	—			—			—			—		(104		)
Stock awards																													—		2		806			—			—			—			—			—			—		808
Effect of adopting Accounting Standards Update ("ASU") No. 2016-01																													—		—		—			(147		)	147			—			—			—			—		—
Allocation of ESOP stock																													—		—		193			—			—			290			—			—			—		483
Cash dividend $0.15 per share																													—		—		—			(7,105		)	—			—			—			—			—		(7,105		)
Exercise of stock options																													—		2		3,456			(204		)	—			—			202			—			—		3,456
Acquisition of Sun Bancorp Inc.																													—		141		386,648			—			—			—			15,765			—			—		402,554
Balance at March 31, 2018																													$	—	$	481	$	745,480		$	268,994		$	(5,306	)	$	(2,189	)	$	—		$	(84	)	$	84	$	1,007,460

See accompanying Notes to Unaudited Consolidated Financial Statements.

OceanFirst Financial Corp.

Consolidated Statements of Cash Flows

(dollars in thousands)


	For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2017			2016			2018			2017
	(Unaudited)						(Unaudited)
Cash flows from operating activities:
Net income	$	32,514		$	16,994		$	5,427		$	12,018
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment	4,606			3,441			2,267			1,527
Allocation of ESOP stock	692			461			483			245
Stock awards	1,678			1,181			808			730
Tax expense of stock plans	—			(228		)
Net excess tax benefit on stock compensation	(1,700		)	—			(125		)	(3,916		)
Amortization of servicing asset	67			125			57			25
Net premium amortization in excess of discount accretion on securities	2,153			1,295			1,101			468
Net amortization of deferred costs and discounts on borrowings	33			—			65			32
Amortization of core deposit intangible	1,544			319			832			524
Net accretion of purchase accounting adjustments	(6,281		)	(3,068		)	(3,865		)	(2,169		)
Net amortization (accretion) of deferred costs and discounts on loans	300			(117		)
Net amortization of deferred costs and discounts on loans							31			30
Provision for loan losses	3,030			2,113			1,371			700
Net loss on sale of other real estate owned	737			208			56			366
Write down of fixed assets held for sale to net realizable value	6,350			—			4			—
Net loss on sale of fixed assets	13			38
Net loss on sales of available-for-sale securities	—			12
Net (gain) loss on sale of fixed assets							(27		)	7
Net unrealized loss on equity securities							138			—
Net gain on sales of loans	(74		)	(696		)	(617		)	(42		)
Proceeds from sales of mortgage loans held for sale	3,837			37,687			247			1,949
Mortgage loans originated for sale	(2,551		)	(25,079		)	(170		)	(639		)
Increase in value of Bank Owned Life Insurance	(2,436		)	(1,520		)	(1,141		)	(772		)
Increase in interest and dividends receivable	(1,638		)	(24		)
Decrease (increase) in interest and dividends receivable							453			(269		)
Decrease in other assets	4,012			8,708			3,758			2,691
Increase in other liabilities	15,810			4,072
Decrease in other liabilities							(3,454		)	(1,552		)
Total adjustments	30,182			28,928			2,272			(65		)
Net cash provided by operating activities	62,696			45,922			7,699			11,953
Cash flows from investing activities:
Net (increase) decrease in loans receivable	(57,646		)	68,358
Net decrease (increase) in loans receivable							67,880			(16,292		)
Proceeds from sale of under performing loans	6,022			12,797			4,294			—
Purchase of loans receivable	(16,627		)	(12,942		)	—			(5,029		)
Purchase of investment securities available-for-sale	(54,810		)	—
Purchase of investment securities held-to-maturity	(111,593		)	(2,030		)
Purchase of mortgage-backed securities held-to-maturity	(120,210		)	—
Proceeds from maturities and calls of investment securities held-to-maturity	13,020			53,552
Proceeds from sales of securities available-for-sale	—			59,870
Principal repayments on mortgage-backed securities held-to-maturity	73,313			52,110
Purchase of debt securities available-for-sale							(980		)	(34,770		)
Purchase of debt investment securities held-to-maturity							(2,667		)	(42,497		)
Purchase of equity investments							(42		)	—
Purchase of mortgage-backed debt securities held-to-maturity							—			(79,984		)
Proceeds from maturities and calls of investment debt securities held-to-maturity							3,715			1,375
Proceeds from sales of debt securities available-for-sale							1,137			—
Principal repayments on mortgage-backed debt securities held-to-maturity							25,797			23,696
Principal repayments on investment debt securities held-to-maturity							1,835			—
Proceeds from Bank Owned Life Insurance	310			310			2,553			155
Proceeds from the redemption of Federal Home Loan Bank of New York stock	19,010			32,042
Purchases of Federal Home Loan Bank of New York stock	(18,169		)	(23,571		)
Proceeds from the redemption of restricted equity investments							23,092			60
Purchases of restricted equity investments							(36,968		)	—
Proceeds from sales of other real estate owned	2,777			3,193			238			868
Purchases of premises and equipment	(9,031		)	(4,580		)	(1,926		)	(961		)
Cash received, net of cash consideration paid for acquisition	—			(477		)
Cash acquired, net of cash paid for branch acquisition	—			16,727
Net cash (used in) provided by investing activities	(273,634		)	255,359
Cash consideration paid for acquisition, net of cash received							(3,743		)	—
Net cash provided by (used in) investing activities							84,215			(153,379		)

Continued

OceanFirst Financial Corp.

Consolidated Statements of Cash Flows (Continued)

(dollars in thousands)


	Nine Months Ended September 30,						For the Three Months Ended March 31,
	2017			2016			2018			2017
	(Unaudited)						(Unaudited)
Cash flows from financing activities:
Increase in deposits	$	163,182		$	143,104
Increase (decrease) in short-term borrowings	5,391			(175,821		)
Proceeds from Federal Home Loan Bank advances	10,000			55,000
(Decrease) increase in deposits							$	(51,139	)	$	11,204
(Decrease) increase in short-term borrowings							(27,205		)	7,271
Repayments of Federal Home Loan Bank advances	(1,438		)	(73,678		)	(521		)	(477		)
Net proceeds from issuance of subordinated notes	—			33,899
Repayments of other borrowings	—			(10,000		)
Increase in advances by borrowers for taxes and insurance	341			237			818			846
Exercise of stock options	3,192			2,648			3,456			2,204
Payment of employee taxes withheld from stock awards	(1,406		)	(244		)	(467		)	(956		)
Dividends paid	(14,439		)	(8,789		)	(7,105		)	(4,787		)
Net cash provided by (used in) financing activities	164,823			(33,644		)
Net (decrease) increase in cash and due from banks	(46,115		)	267,637
Net cash (used in) provided by financing activities							(82,163		)	15,305
Net increase (decrease) in cash and due from banks							9,751			(126,121		)
Cash and due from banks at beginning of period	301,373			43,946			109,613			301,373
Cash and due from banks at end of period	$	255,258		$	311,583		$	119,364		$	175,252
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	14,333		$	8,932		$	6,920		$	5,266
Income taxes	8			7,064			—			2
Non-cash activities:
Accretion of unrealized loss on securities reclassified to held-to-maturity	865			1,054			273			293
Net loan charge-offs	1,629			1,949			(275		)	268
Transfer of premises and equipment to assets held-for-sale	5,078			—
Transfer of loans receivable to other real estate owned	3,389			1,667			373			318
Acquisition:
Non-cash assets acquired:
Securities	$	—		$	212,156		$	254,522		$	—
Federal Home Loan Bank of New York stock	—			6,782
Restricted equity investments							16,967			—
Loans	—			1,157,753			1,517,947			—
Premises & equipment	—			21,723
Other real estate owned	—			1,996
Premises and equipment							20,301			—
Accrued interest receivable							5,621			—
Bank Owned Life Insurance							85,238			—
Deferred tax asset	—			21,664			58,352			—
Other assets	—			61,793			5,262			—
Goodwill and other intangible assets, net	—			68,179			198,915			—
Total non-cash assets acquired	$	—		$	1,552,046		$	2,163,125		$	—
Liabilities assumed:
Deposits	$	—		$	1,248,367		$	1,616,073		$	—
Federal Home Loan Bank advances	—			124,466
Borrowings							127,747			—
Other liabilities	—			12,835			13,007			—
Total liabilities assumed	$	—		$	1,385,668		$	1,756,827		$	—

See accompanying Notes to Unaudited Consolidated Financial Statements.

2120

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of OceanFirst Financial Corp. (the “Company”) and its wholly-owned subsidiaries, OceanFirst Bank N.A. (the “Bank”) and OceanFirst Risk Management, Inc. ~~and OceanFirst Bank (the “Bank”)~~, and the Bank’s ~~subsidiaries.~~

~~On May 18, 2017,a new subsidiary of the Company was incorporated under the name~~wholly-owned subsidiaries, OceanFirst ~~Risk Management,~~REIT Holdings, Inc. ~~OceanFirst Risk Management, Inc. is a captive insurance subsidiary which insures various liability and property damage policies for the Company~~, and its ~~related subsidiaries.~~wholly-owned subsidiary OceanFirst Management Corp., and its wholly-owned subsidiary OceanFirst Realty Corp., OceanFirst Services, LLC and its wholly-owned subsidiary OFB Reinsurance, Ltd., 975 Holdings, LLC, Hooper Holdings, LLC., TRREO Holdings LLC, Casaba Real Estate Holdings Corporation, Cohensey Bridge, L.L.C., and Prosperis Financial, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain amounts previously reported have been reclassified to conform to the current year’s presentation.

The interim consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 are not necessarily indicative of the results of operations that may be expected for all of ~~2017.~~2018. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and the results of operations for the period. Actual results could differ from these estimates.

Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report ~~to Stockholders~~ on Form 10-K for the year ended December 31, ~~2016.~~2017.

Note 2. Business Combinations

~~Branch Acquisition~~

On ~~March 11, 2016,~~January 31, 2018, the Company completed its acquisition of an existing retail branch in the Toms River market. Under the terms of the Purchase and Assumption Agreement dated July 31, 2015, the Company paid a deposit premium of $340,000, equal to 2.50% of core deposits; i.e., all deposits other than time deposits, government deposits, and fiduciary accounts.

The acquisition was accounted for under the acquisition method of accounting. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax. The excess of consideration paid over the estimated fair value of the net assets acquired has been recorded as goodwill.

~~The following table presents the assets acquired and liabilities assumed as of March 11, 2016 and the fair value estimates (in thousands):~~

Fair Value
Assets acquired:
Cash and cash equivalents $ 16,727
Loans 9
Other assets 15
Core deposit intangible 66
Total assets acquired $ 16,817
Liabilities assumed:
Deposits $ 16,957
Other liabilities 138
Total liabilities assumed $ 17,095
Goodwill $ 278

~~Table of Contents~~

~~OceanFirst Financial Corp.~~

~~Notes to Unaudited Consolidated Financial Statements (Continued)~~

~~Cape Bancorp Acquisition~~

~~On May 2, 2016, the Company completed its acquisition of Cape~~Sun Bancorp, Inc. (“~~Cape”~~Sun”), which after purchase accounting adjustments added ~~$1.5~~$2.0 billion to assets, ~~$1.2~~$1.5 billion to loans, and ~~$1.2~~$1.6 billion to deposits. Total consideration paid for ~~Cape~~Sun was ~~$196.4~~$474.9 million, including cash consideration of ~~$30.5~~$72.4 million. ~~Cape was merged with and into the Company as of the date of acquisition.~~

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

At May 2, 2016
Fair Value
Total Purchase Price: $ 196,403
Assets acquired:
Cash and cash equivalents $ 30,025
Securities and Federal Home Loan Bank Stock 218,938
Loans 1,156,719
Premises and equipment 25,999
Other real estate owned 1,683
Deferred tax asset 17,826
Other assets 61,793
Core deposit intangible 3,718
Total assets acquired $ 1,516,701
Liabilities assumed:
Deposits $ (1,248,367 )
Borrowings (124,466 )
Other liabilities (12,767 )
Total liabilities assumed $ (1,385,600 )
Net assets acquired $ 131,101
Goodwill recorded in the merger $ 65,302

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 becomes available. On May 2, 2017, the Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value.

~~Table of Contents~~

~~OceanFirst Financial Corp.~~

~~Notes to Unaudited Consolidated Financial Statements (Continued)~~

~~Ocean Shore Holding Co. Acquisition~~

On November 30, 2016, the Company completed its acquisition of Ocean Shore Holding Co. (“Ocean Shore”), which after purchase accounting adjustments added $994.2 million to assets, $773.6 million to loans, and $875.1 million to deposits. Total consideration paid for Ocean Shore was $180.7 million, including cash consideration of $28.4 million. Ocean ShoreSun was merged with and into the Company on the date of acquisition.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

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


	At November 30, 2016			At January 31, 2018
	Estimated Fair Value			Sun Book Value			Purchase Accounting Adjustments			Estimated Fair Value
Total Purchase Price:	$	180,732								$	474,930
Assets acquired:
Cash and cash equivalents	$	60,871		$	68,632		$	—		$	68,632
Securities and Federal Home Loan Bank Stock	94,133
Securities				254,522			—			254,522
Loans	773,641			1,541,868			(23,921		)	1,517,947
Premises and equipment	15,068
Other real estate owned	1,044
Accrued interest receivable				5,621			—			5,621
Bank Owned Life Insurance				85,238			—			85,238
Deferred tax asset	6,563			55,710			2,642			58,352
Other assets	35,364			49,561			(7,031		)	42,530
Core deposit intangible	7,506			—			11,897			11,897
Total assets acquired	$	994,190		2,061,152			(16,413		)	2,044,739
Liabilities assumed:
Deposits	$	(875,073	)	(1,614,910		)	(1,163		)	(1,616,073		)
Borrowings	(3,694		)	(142,567		)	14,820			(127,747		)
Other liabilities	(15,447		)	(14,372		)	1,365			(13,007		)
Total liabilities assumed	$	(894,214	)	(1,771,849		)	15,022			(1,756,827		)
Net assets acquired	$	99,976		$	289,303		$	(1,391	)	$	287,912
Goodwill recorded in the merger	$	80,756								$	187,018

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

Supplemental Pro Forma Financial Information

The following table presents financial information regarding the former Sun operations included in the Consolidated Statements of Income from the date of the acquisition (January 31, 2018) through March 31, 2018. In addition, the table provides unaudited condensed pro forma financial information assuming the Sun acquisition had been completed as of January 1, 2018 for the three months ended March 31, 2018 and as of January 1, 2017 for the three months ended March 31, 2017. The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings or the impact of conforming certain accounting policies of the acquired company to the Company’s policies that may have occurred as a result of the integration and consolidation of Sun’s operations. The pro forma information shown reflects adjustments related to certain purchase accounting fair value adjustments; amortization of core deposit and other intangibles; and related income tax effects.



(in thousands)	Sun Actual from February 1, 2018 to March 31, 2018		Pro forma Three Months Ended March 31, 2018			Pro forma Three Months Ended March 31, 2017
Net interest income	$	12,976	$	62,190		$	59,773
Provision for loan losses	221		1,371			700
Non-interest income	1,409		9,725			9,426
Non-interest expense	7,994		74,101			47,180
Net income	$	4,874	$	(3,998	)	$	16,104
Fully diluted earnings per share			$	(0.08	)	$	0.33

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Fair Value Measurement of Assets Assumed and Liabilities Assumed

The methods used to determine the fair value of the assets acquired and liabilities assumed in the ~~Cape and Ocean Shore acquisitions~~Sun acquisition were as follows. Refer to Note 8, Fair Value Measurements, for a discussion of the fair value hierarchy.

Securities

The estimated fair values of the securities were calculated utilizing Level 2 inputs. The securities acquired are bought and sold in active markets. Prices for these instruments were obtained through security industry sources that actively participate in the buying and selling of securities.

Loans

The acquired loan portfolio was valued utilizing Level 3 inputs and included the use of present value techniques employing cash flow estimates and incorporated assumptions that marketplace participants would use in estimating fair values. In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine reasonable fair value. Specifically, the Company utilized three separate fair value analyses which a market participant would employ in estimating

~~Table of Contents~~

~~OceanFirst Financial Corp.~~

~~Notes to Unaudited Consolidated Financial Statements (Continued)~~

the total fair value adjustment. The three separate fair valuation methodologies used were: 1) interest rate loan fair value analysis; 2) general credit fair value adjustment; and 3) specific credit fair value adjustment.

To prepare the interest rate fair value analysis, loans were grouped by characteristics such as loan type, term, collateral and rate. Market rates for similar loans were obtained from various external data sources and reviewed by Company management for reasonableness. The average of these rates was used as the fair value interest rate a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value adjustment.

The general credit fair value adjustment was calculated using a two part general credit fair value analysis: 1) expected lifetime losses and 2) estimated fair value adjustment for qualitative factors. The expected lifetime losses were calculated using an average of historical losses of the acquired bank. The adjustment related to qualitative factors was impacted by general economic conditions and the risk related to lack of experience with the originator’s underwriting process.

To calculate the specific credit fair value adjustment, the Company reviewed the acquired loan portfolio for loans meeting the definition of an impaired loan with deteriorated credit quality. Loans meeting these criteria were reviewed by comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition date fair value resulted in an accretable yield amount which will be recognized over the life of the loans on a level yield basis as an adjustment to yield.

Premises and Equipment

Fair values are based upon appraisals from independent third parties. In addition to owned properties, ~~Cape~~Sun operated ~~eight properties subject to lease agreements, and Ocean Shore operated two~~twenty-one properties subject to lease agreements.

Deposits and Core Deposit Premium

Core deposit premium represents the value assigned to non-interest-bearing demand deposits, interest-bearing checking, money market and saving accounts acquired as part of the acquisition. The core deposit premium value represents the future economic benefit, including the present value of future tax benefits, of the potential cost saving from acquiring the core deposits as part of an acquisition compared to the cost of alternative funding sources and is valued utilizing Level 2 inputs. The core deposit premium totaled ~~$66,000, $3.7 million, and $7.5~~$11.9 million for the ~~branch, Cape, and Ocean Shore acquisitions, respectively,~~acquisition of Sun, and is being amortized over its estimated useful life of approximately 10 years using an accelerated method.

Time deposits are not considered to be core deposits as they are assumed to have a low expected average life upon acquisition. The fair value of time deposits represents the present value of the expected contractual payments discounted by market rates for similar time deposits and is valued utilizing Level 2 inputs.

Borrowings

Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements

Note 3. Earnings per Share

The following reconciles shares outstanding for basic and diluted earnings per share for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2018		2017
Weighted average shares issued net of Treasury shares	32,545		25,823		32,456		22,010
Weighted average shares outstanding									44,227		32,318
Less: Unallocated ESOP shares	(306	)	(340	)	(315	)	(348	)	(290	)	(323	)
Unallocated incentive award shares and shares held by deferred compensation plan	(55	)	(48	)	(68	)	(38	)	(57	)	(94	)
Average basic shares outstanding	32,184		25,435		32,073		21,624		43,880		31,901
Add: Effect of dilutive securities:
Stock options	912		434		1,023		347
Shares held by deferred compensation plan	10		20		14		19
Incentive awards and shares held by deferred compensation plan									966		1,189
Average diluted shares outstanding	33,106		25,889		33,110		21,990		44,846		33,090

For the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ antidilutive stock options of ~~476,000~~656,000 and ~~914,000, respectively, were excluded from earnings per share calculations. For the nine months ended September 30, 2017 and 2016, antidilutive stock options of 244,000 and 1,132,000,~~335,000, respectively, were excluded from earnings per share calculations.

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements

Note 4. Securities

The amortized cost and estimated fair value of debt securities available-for-sale and held-to-maturity at ~~September 30, 2017,~~March 31, 2018, and December 31, ~~2016,~~2017, are as follows (in thousands):

At September 30, 2017

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value
Available-for-sale:
Investment securities:
U.S. agency obligations $ 67,367
$ 88
$ (322 ) $ 67,133
Held-to-maturity:
Investment securities:
U.S. agency obligations $ 14,966
$ 41
$ —
$ 15,007
State and municipal obligations 142,168
610
(579 ) 142,199
Corporate debt securities 76,033
361
(3,753 ) 72,641
Other investments 8,903
—
(189 ) 8,714
Total investment securities 242,070
1,012
(4,521 ) 238,561
Mortgage-backed securities:
FHLMC 179,890
447
(1,674 ) 178,663
FNMA 244,279
1,892
(1,474 ) 244,697
GNMA 78,441
96
(505 ) 78,032
SBA 6,483
61
—
6,544
Total mortgage-backed securities 509,093
2,496
(3,653 ) 507,936
Total held-to-maturity $ 751,163
$ 3,508
$ (8,174 ) $ 746,497
Total securities $ 818,530
$ 3,596
$ (8,496 ) $ 813,630


	At December 31, 2016									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale:
Investment securities:
U.S. agency obligations	$	12,542	$	—	$	(318	)	$	12,224
Held-to-maturity:
At March 31, 2018
Debt securities available-for-sale:
Investment securities - U.S. agency obligations										$	85,861	$	—	$	(1,261	)	$	84,600
Mortgage-backed securities - FNMA										1,517		—		(3		)	1,514
Total debt securities available-for-sale										$	87,378	$	—	$	(1,264	)	$	86,114
Debt securities held-to-maturity:
Investment securities:
U.S. agency obligations	$	19,960	$	69	$	—		$	20,029	$	14,970	$	—	$	(154	)	$	14,816
State and municipal obligations	39,155		10		(856		)	38,309		149,055		2		(2,636		)	146,421
Corporate debt securities	77,057		85		(6,001		)	71,141		85,767		650		(3,877		)	82,540
Other investments	8,778		—		(228		)	8,550
Total investment securities	144,950		164		(7,085		)	138,029		249,792		652		(6,667		)	243,777
Mortgage-backed securities:
FHLMC	144,016		195		(2,457		)	141,754		277,110		73		(5,789		)	271,394
FNMA	217,445		2,175		(2,524		)	217,096		317,419		1,028		(6,679		)	311,768
GNMA	92,475		119		(364		)	92,230		141,218		153		(1,952		)	139,419
SBA	8,947		28		—			8,975		5,043		—		(2		)	5,041
Total mortgage-backed securities	462,883		2,517		(5,345		)	460,055		740,790		1,254		(14,422		)	727,622
Total held-to-maturity	$	607,833	$	2,681	$	(12,430	)	$	598,084
Total securities	$	620,375	$	2,681	$	(12,748	)	$	610,308
Total debt securities held-to-maturity										$	990,582	$	1,906	$	(21,089	)	$	971,399
Total debt securities										$	1,077,960	$	1,906	$	(22,353	)	$	1,057,513
At December 31, 2017
Debt securities available-for-sale:
Investment securities - U.S. agency obligations										$	82,378	$	—	$	(797	)	$	81,581
Debt securities held-to-maturity:
Investment securities:
U.S. agency obligations										$	14,968	$	—	$	(65	)	$	14,903
State and municipal obligations										149,958		219		(1,475		)	148,702
Corporate debt securities										76,024		312		(3,962		)	72,374
Total investment securities										240,950		531		(5,502		)	235,979
Mortgage-backed securities:
FHLMC										186,921		151		(2,937		)	184,135
FNMA										263,103		1,193		(3,000		)	261,296
GNMA										75,243		64		(928		)	74,379
SBA										5,843		28		—			5,871
Total mortgage-backed securities										531,110		1,436		(6,865		)	525,681
Total debt securities held-to-maturity										$	772,060	$	1,967	$	(12,367	)	$	761,660
Total debt securities										$	854,438	$	1,967	$	(13,164	)	$	843,241

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements

During the third quarter 2013, the Bank transferred $536.0 million of previously designated available-for-sale securities to a held-to-maturity designation at estimated fair value. The securities transferred had an unrealized net loss of $13.3 million at the time of transfer which continues to be reflected in accumulated other comprehensive loss on the consolidated balance sheet, net of subsequent amortization, which is being recognized over the life of the securities. The carrying value of the debt securities held-to-maturity ~~investment securities~~ at ~~September 30, 2017,~~March 31, 2018, and December 31, ~~2016, are~~2017, is as follows (in thousands):


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Amortized cost	$	751,163		$	607,833		$	990,582		$	772,060
Net loss on date of transfer from available-for-sale	(13,347		)	(13,347		)	(13,347		)	(13,347		)
Accretion of net unrealized loss on securities reclassified as held-to-maturity	5,070			4,205			5,622			5,349
Carrying value	$	742,886		$	598,691		$	982,857		$	764,062

~~There~~Realized gains were ~~no realized gains or losses on the sale of securities~~$2,000 for the three ~~and nine~~ months ended ~~September 30, 2017. There~~March 31, 2018 and there were no realized gains or losses on the sale of securities for the three months ended ~~September 30, 2016 and there were $75,000 in realized gains and $87,000 in realized losses on the sale of available-for-sale securities for the nine months ended September 30, 2016.~~March 31, 2017.

The amortized cost and estimated fair value of investment securities at ~~September 30, 2017~~March 31, 2018 by contractual maturity are shown below (in thousands). Actual maturities may differ from contractual maturities in instances where issuers have the right to call or prepay obligations with or without call or prepayment penalties. At ~~September 30, 2017, investment securities~~March 31, 2018, corporate debt with an amortized cost of ~~$60.9~~$59.9 million and estimated fair value of ~~$57.5~~$56.3 million were callable prior to the maturity date.


September 30, 2017	Amortized Cost		Estimated Fair Value
March 31, 2018					Amortized Cost		Estimated Fair Value
Less than one year	$	35,395	$	35,384	$	56,691	$	56,586
Due after one year through five years	145,590		145,528		152,009		149,604
Due after five years through ten years	89,509		88,277		91,202		87,763
Due after ten years	30,000		27,751		35,751		34,424
	$	300,494	$	296,940	$	335,653	$	328,377

~~Other investments which consist of two open-end funds are excluded from the above table since there are no contractual maturity dates.~~ Mortgage-backed securities are excluded from the above table since their effective lives are expected to be shorter than the contractual maturity date due to principal prepayments.

The estimated fair value of securities pledged as required security for deposits and for other purposes required by law amounted to $641.3 million and $466.4 million, at March 31, 2018 and December 31, 2017, respectively. The estimated fair value of securities pledged as collateral for reverse repurchase agreements amounted to $85.7 million and $58.0 million at March 31, 2018 and December 31, 2017, respectively.

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements

The estimated fair value and unrealized losses of debt securities available-for-sale and held-to-maturity at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, segregated by the duration of the unrealized losses, are as follows (in thousands):


	At September 30, 2017															At March 31, 2018
	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Available-for-sale:
Debt securities available-for-sale:
Investment securities - U.S. agency obligations																$	62,502	$	(853	)	$	22,098	$	(408	)	$	84,600	$	(1,261	)
Mortgage-backed securities - FNMA																1,514		(3		)	—		—			1,514		(3		)
Total debt securities available-for-sale																64,016		(856		)	22,098		(408		)	86,114		(1,264		)
Debt securities held-to-maturity:
Investment securities:
U.S. agency obligations	$	52,276	$	(322	)	$	—	$	—		$	52,276	$	(322	)	14,816		(154		)	—		—			14,816		(154		)
Held-to-maturity:
Investment securities:
State and municipal obligations	77,979		(531		)	9,908		(48		)	87,887		(579		)	120,101		(2,083		)	13,547		(553		)	133,648		(2,636		)
Corporate debt securities	5,028		(11		)	53,260		(3,742		)	58,288		(3,753		)	7,414		(95		)	55,252		(3,782		)	62,666		(3,877		)
Other investments	—		—			8,714		(189		)	8,714		(189		)
Total investment securities																142,331		(2,332		)	68,799		(4,335		)	211,130		(6,667		)
Mortgage-backed securities:
FHLMC																202,453		(2,921		)	64,716		(2,868		)	267,169		(5,789		)
FNMA																199,147		(3,877		)	61,253		(2,802		)	260,400		(6,679		)
GNMA																66,529		(849		)	43,190		(1,103		)	109,719		(1,952		)
SBA																5,041		(2		)	—		—			5,041		(2		)
Total mortgage-backed securities																473,170		(7,649		)	169,159		(6,773		)	642,329		(14,422		)
Total debt securities held-to-maturity																615,501		(9,981		)	237,958		(11,108		)	853,459		(21,089		)
Total debt securities																$	679,517	$	(10,837	)	$	260,056	$	(11,516	)	$	939,573	$	(22,353	)

																At December 31, 2017
																Less than 12 months					12 months or longer					Total
																Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Debt securities available-for-sale:
Investment securities - U.S. agency obligations																$	69,375	$	(496	)	$	12,206	$	(301	)	$	81,581	$	(797	)
Debt securities held-to-maturity:
Investment securities:
U.S. agency obligations																14,903		(65		)	—		—			14,903		(65		)
State and municipal obligations																104,883		(1,153		)	14,363		(322		)	119,246		(1,475		)
Corporate debt securities																4,035		(30		)	56,106		(3,932		)	60,141		(3,962		)
Total investment securities	83,007		(542		)	71,882		(3,979		)	154,889		(4,521		)	123,821		(1,248		)	70,469		(4,254		)	194,290		(5,502		)
Mortgage-backed securities:
FHLMC	67,059		(892		)	30,684		(782		)	97,743		(1,674		)	98,138		(781		)	68,238		(2,156		)	166,376		(2,937		)
FNMA	96,886		(954		)	19,878		(520		)	116,764		(1,474		)	132,982		(1,058		)	65,060		(1,942		)	198,042		(3,000		)
GNMA	65,565		(477		)	741		(28		)	66,306		(505		)	26,105		(223		)	45,281		(705		)	71,386		(928		)
Total mortgage-backed securities	229,510		(2,323		)	51,303		(1,330		)	280,813		(3,653		)	257,225		(2,062		)	178,579		(4,803		)	435,804		(6,865		)
Total held-to-maturity	312,517		(2,865		)	123,185		(5,309		)	435,702		(8,174		)
Total securities	$	364,793	$	(3,187	)	$	123,185	$	(5,309	)	$	487,978	$	(8,496	)

	At December 31, 2016
	Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Available-for-sale:
Investment securities:
U.S. agency obligations	$	12,224	$	(318	)	$	—	$	—		$	12,224	$	(318	)
Held-to-maturity:
Investment securities:
State and municipal obligations	32,995		(856		)	—		—			32,995		(856		)
Corporate debt securities	12,450		(120		)	49,119		(5,881		)	61,569		(6,001		)
Other Investments	8,551		(228		)	—		—			8,551		(228		)
Total investment securities	53,996		(1,204		)	49,119		(5,881		)	103,115		(7,085		)
Mortgage-backed securities:
FHLMC	102,461		(1,665		)	26,898		(792		)	129,359		(2,457		)
FNMA	124,403		(2,185		)	8,925		(339		)	133,328		(2,524		)
GNMA	79,116		(364		)	—		—			79,116		(364		)
Total mortgage-backed securities	305,980		(4,214		)	35,823		(1,131		)	341,803		(5,345		)
Total held-to-maturity	359,976		(5,418		)	84,942		(7,012		)	444,918		(12,430		)
Total securities	$	372,200	$	(5,736	)	$	84,942	$	(7,012	)	$	457,142	$	(12,748	)
Total debt securities held-to-maturity																381,046		(3,310		)	249,048		(9,057		)	630,094		(12,367		)
Total debt securities																$	450,421	$	(3,806	)	$	261,254	$	(9,358	)	$	711,675	$	(13,164	)

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements

At ~~September 30, 2017,~~March 31, 2018, the amortized cost, estimated fair value and credit rating of the individual corporate debt securities in an unrealized loss position for greater than one year are as follows (in thousands):


Security Description	Amortized Cost		Estimated Fair Value		Credit Rating Moody’s/ S&P	Amortized Cost		Estimated Fair Value		Credit Rating Moody’s/ S&P
BankAmerica Capital	$	15,000	$	14,155	Ba1/BB+	$	15,000	$	14,044	Baa3/BBB-
Chase Capital	10,000		9,355		Baa2/BBB-	10,000		9,250		Baa2/BBB-
Wells Fargo Capital	5,000		4,706		A1/BBB+	5,000		4,725		A1/BBB
Huntington Capital	5,000		4,463		Baa2/BB	5,000		4,525		Baa2/BB
Keycorp Capital	5,000		4,715		Baa2/BB+	5,000		4,663		Baa2/BB+
PNC Capital	5,000		4,663		Baa1/BBB-	5,000		4,700		Baa1/BBB-
State Street Capital	5,000		4,613		A3/BBB	5,000		4,734		A3/BBB
SunTrust Capital	5,000		4,592		Not Rated/BB+	5,000		4,642		Not Rated/BB+
MetLife Global Funding	1,000		999		Aa3/AA-
Southern Company						1,521		1,487		Baa2/BBB+
AT&T Inc.						1,513		1,483		Baa1/BBB+
State Street Corporation	1,000		999		A1/A	1,000		999		A1/A
	$	57,000	$	53,260		$	59,034	$	55,252

At ~~September 30, 2017~~,March 31, 2018, the estimated fair value of each of the above corporate debt securities was below cost. The Company concluded that these corporate debt securities were only temporarily impaired at ~~September 30, 2017.~~March 31, 2018. In concluding that the impairments were only temporary, the Company considered several factors in its analysis. The Company noted that each issuer made all the contractually due payments when required. There were no defaults on principal or interest payments and no interest payments were deferred. Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements over the life of the security. Furthermore, the Company does not have the intent to sell these corporate debt securities and it is more likely than not that the Company will not be required to sell the securities. Historically, the Company has not utilized securities sales as a source of liquidity. The Company’s long range liquidity plans indicate adequate sources of liquidity outside the securities portfolio.

The mortgage-backed securities are issued and guaranteed by either the Federal Home Loan Mortgage Corporation (“FHLMC”), the Federal National Mortgage Association (“FNMA”), the Government National Mortgage Association (“GNMA”), or the Small Business Administration (“SBA”) corporations which are chartered by the United States Government and whose debt obligations are typically rated AA+ by one of the internationally-recognized credit rating services. The Company considers the unrealized losses to be the result of changes in interest rates which over time can have both a positive and negative impact on the estimated fair value of the mortgage-backed securities. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost. As a result, the Company concluded that these securities were only temporarily impaired at ~~September 30, 2017.~~March 31, 2018.

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Note 5. Loans Receivable, Net

Loans receivable, net at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 consisted of the following (in thousands):


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Commercial:
Commercial and industrial	$	183,420		$	152,569		$	369,840		$	187,645
Commercial real estate – owner occupied	553,971			534,214			762,641			569,497
Commercial real estate – investor	1,133,118			1,132,075			2,025,551			1,186,302
Total commercial	1,870,509			1,818,858			3,158,032			1,943,444
Consumer:
Residential mortgage	1,676,143			1,647,154			1,880,287			1,748,590
Residential construction	73,812			65,319
Home equity loans and lines	277,909			288,991			371,340			281,143
Other consumer	1,354			1,564			834			1,225
Total consumer	2,029,218			2,003,028			2,252,461			2,030,958
	3,899,727			3,821,886			5,410,493			3,974,402
Purchased credit impaired (“PCI”) loans	4,867			7,575			14,352			1,712
Total Loans	3,904,594			3,829,461			5,424,845			3,976,114
Loans in process	(22,546		)	(14,249		)
Deferred origination costs, net	4,645			3,414			5,752			5,380
Allowance for loan losses	(16,584		)	(15,183		)	(16,817		)	(15,721		)
Total loans, net	$	3,870,109		$	3,803,443		$	5,413,780		$	3,965,773

At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, loans in the amount of ~~$15.1~~$18.3 million and ~~$13.6~~$20.9 million, respectively, were three or more months delinquent or in the process of foreclosure and the Company was not accruing interest income on these loans. At ~~September 30, 2017,~~March 31, 2018, there were no loans that were ninety days or greater past due and still accruing interest. Non-accrual loans include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified impaired loans.

The recorded investment in mortgage and consumer loans collateralized by residential real estate, which are in the process of foreclosure, amounted to ~~$2.5~~$1.2 million at ~~September 30, 2017.~~March 31, 2018. The amount of foreclosed residential real estate property held by the Company was ~~$1.2 million~~$941,000 at ~~September 30, 2017.~~March 31, 2018.

The Company defines an impaired loan as non-accrual commercial real estate, multi-family, land, construction and commercial loans in excess of $250,000. Impaired loans also include all loans modified as troubled debt restructurings. At ~~September 30, 2017,~~March 31, 2018, the impaired loan portfolio totaled ~~$44.9~~$44.1 million for which there was a specific allocation in the allowance for loan losses of ~~$616,000.~~$1.6 million. At December 31, ~~2016,~~2017, the impaired loan portfolio totaled ~~$31.0~~$47.0 million for which there was ano specific allocation in the allowance for loan ~~losses of $510,000.~~losses. The average balance of impaired loans for the three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ was ~~$43.1~~$45.5 million and ~~$34.5 million, respectively. The average balance of impaired loans for the nine months ended September 30, 2017 and 2016 was $38.0 million and $34.3~~$33.2 million, respectively.

An analysis of the allowance for loan losses for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ is as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
Balance at beginning of period	$	16,557		$	16,678		$	15,183		$	16,722		$	15,721		$	15,183
Provision charged to operations	1,165			888			3,030			2,113			1,371			700
Charge-offs	(1,357		)	(2,116		)	(2,861		)	(3,511		)	(533		)	(205		)
Recoveries	219			167			1,232			293			258			473
Balance at end of period	$	16,584		$	15,617		$	16,584		$	15,617		$	16,817		$	16,151

3129

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The following table presents an analysis of the allowance for loan losses for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, excluding PCI loans (in thousands):


	Residential Real Estate			Commercial Real Estate – Owner Occupied			Commercial Real Estate – Investor			Consumer			Commercial and Industrial			Unallocated			Total			Residential Real Estate			Commercial Real Estate – Owner Occupied			Commercial Real Estate – Investor			Consumer			Commercial and Industrial			Unallocated			Total
For the three months ended September 30, 2017
For the three months ended March 31, 2018
Allowance for loan losses:
Balance at beginning of period	$	1,492		$	3,097		$	8,367		$	930		$	2,253		$	418		$	16,557		$	1,804		$	3,175		$	7,952		$	614		$	1,801		$	375		$	15,721
Provision (benefit) charged to operations	1,465			119			81			(122		)	(180		)	(198		)	1,165			493			(307		)	879			(1		)	470			(163		)	1,371
Charge-offs	(1,284		)	—			—			(67		)	(6		)	—			(1,357		)	(244		)	—			(123		)	(122		)	(44		)	—			(533		)
Recoveries	128			—			24			17			50			—			219			85			3			130			16			24			—			258
Balance at end of period	$	1,801		$	3,216		$	8,472		$	758		$	2,117		$	220		$	16,584		$	2,138		$	2,871		$	8,838		$	507		$	2,251		$	212		$	16,817
For the three months ended September 30, 2016
For the three months ended March 31, 2017
Allowance for loan losses:
Balance at beginning of period	$	6,006		$	2,711		$	4,713		$	1,107		$	1,209		$	932		$	16,678		$	2,245		$	2,999		$	6,361		$	1,110		$	2,037		$	431		$	15,183
Provision (benefit) charged to operations	(376		)	(168		)	104			(130		)	1,949			(491		)	888			(627		)	390			993			20			(201		)	125			700
Charge-offs	(167		)	—			—			(80		)	(1,869		)	—			(2,116		)	(49		)	(50		)	—			(18		)	(88		)	—			(205		)
Recoveries	6			—			—			—			161			—			167			—			110			7			24			332			—			473
Balance at end of period	$	5,469		$	2,543		$	4,817		$	897		$	1,450		$	441		$	15,617		$	1,569		$	3,449		$	7,361		$	1,136		$	2,080		$	556		$	16,151
For the nine months ended September 30, 2017
Allowance for loan losses:
Balance at beginning of period	$	2,245		$	2,999		$	6,361		$	1,110		$	2,037		$	431		$	15,183
Provision (benefit) charged to operations	1,477			167			2,164			(346		)	(221		)	(211		)	3,030
Charge-offs	(2,485		)	(73		)	(84		)	(125		)	(94		)	—			(2,861		)
Recoveries	564			123			31			119			395			—			1,232
Balance at end of period	$	1,801		$	3,216		$	8,472		$	758		$	2,117		$	220		$	16,584
For the nine months ended September 30, 2016
Allowance for loan losses:
Balance at beginning of period	$	6,590		$	2,292		$	4,873		$	1,095		$	1,639		$	233		$	16,722
Provision (benefit) charged to operations	(867		)	1,261			(56		)	(98		)	1,665			208			2,113
Charge-offs	(319		)	(1,010		)	—			(146		)	(2,036		)	—			(3,511		)
Recoveries	65			—			—			46			182			—			293
Balance at end of period	$	5,469		$	2,543		$	4,817		$	897		$	1,450		$	441		$	15,617
September 30, 2017
March 31, 2018
Allowance for loan losses:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	—		$	—		$	616		$	—		$	—		$	—		$	616		$	—		$	—		$	930		$	—		$	675		$	—		$	1,605
Collectively evaluated for impairment	1,801			3,216			7,856			758			2,117			220			15,968			2,138			2,871			7,908			507			1,576			212			15,212
Total ending allowance balance	$	1,801		$	3,216		$	8,472		$	758		$	2,117		$	220		$	16,584		$	2,138		$	2,871		$	8,838		$	507		$	2,251		$	212		$	16,817
Loans:
Loans individually evaluated for impairment	$	12,484		$	11,537		$	17,535		$	2,478		$	893		$	—		$	44,927		$	11,406		$	9,811		$	18,085		$	2,489		$	2,269		$	—		$	44,060
Loans collectively evaluated for impairment	1,737,471			542,434			1,115,583			276,785			182,527			—			3,854,800			1,868,881			752,830			2,007,466			369,685			367,571			—			5,366,433
Total ending loan balance	$	1,749,955		$	553,971		$	1,133,118		$	279,263		$	183,420		$	—		$	3,899,727		$	1,880,287		$	762,641		$	2,025,551		$	372,174		$	369,840		$	—		$	5,410,493
December 31, 2017
Allowance for loan losses:
Ending allowance balance attributed to loans:
Individually evaluated for impairment																						$	—		$	—		$	—		$	—		$	—		$	—		$	—
Collectively evaluated for impairment																						1,804			3,175			7,952			614			1,801			375			15,721
Total ending allowance balance																						$	1,804		$	3,175		$	7,952		$	614		$	1,801		$	375		$	15,721
Loans:
Loans individually evaluated for impairment																						$	10,605		$	15,132		$	17,923		$	2,464		$	864		$	—		$	46,988
Loans collectively evaluated for impairment																						1,737,985			554,365			1,168,379			279,904			186,781			—			3,927,414
Total ending loan balance																						$	1,748,590		$	569,497		$	1,186,302		$	282,368		$	187,645		$	—		$	3,974,402

~~Table of Contents~~

~~OceanFirst Financial Corp.~~

~~Notes to Unaudited Consolidated Financial Statements (Continued)~~

Residential
Real Estate

Commercial
Real Estate –
Owner
Occupied

Commercial
Real Estate –
Investor
Consumer
Commercial
and Industrial
Unallocated Total
December 31, 2016
Allowance for loan losses:
Ending allowance balance attributed to loans:
Individually evaluated for impairment $ 266
$ —
$ 119
$ 125
$ —
$ —
$ 510
Collectively evaluated for impairment 1,979
2,999
6,242
985
2,037
431
14,673
Total ending allowance balance $ 2,245
$ 2,999
$ 6,361
$ 1,110
$ 2,037
$ 431
$ 15,183
Loans:
Loans individually evaluated for impairment $ 13,306
$ 11,123
$ 3,789
$ 2,556
$ 268
$ —
$ 31,042
Loans collectively evaluated for impairment 1,699,167
523,091
1,128,286
287,999
152,301
—
3,790,844
Total ending loan balance $ 1,712,473
$ 534,214
$ 1,132,075
$ 290,555
$ 152,569
$ —
$ 3,821,886

3330

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

A summary of impaired loans at ~~September 30, 2017,~~March 31, 2018, and December 31, ~~2016,~~2017, is as follows, excluding PCI loans (in thousands):


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Impaired loans with no allocated allowance for loan losses	$	40,386	$	25,228	$	39,235	$	46,988
Impaired loans with allocated allowance for loan losses	4,541		5,814		4,825		—
	$	44,927	$	31,042	$	44,060	$	46,988
Amount of the allowance for loan losses allocated	$	616	$	510	$	1,605	$	—

At ~~September 30, 2017,~~March 31, 2018, impaired loans included troubled debt restructured (“TDR”) loans of ~~$36.1~~$38.1 million, of which ~~$35.8~~$33.8 million were performing in accordance with their restructured terms for a minimum of six months and were accruing interest. At December 31, ~~2016,~~2017, impaired loans included TDR loans of ~~$30.5~~$42.1 million, of which ~~$27.0~~$33.3 million were performing in accordance with their restructured terms for a minimum of six months and were accruing interest.

The summary of loans individually evaluated for impairment by loan portfolio segment as of ~~September 30, 2017,~~March 31, 2018, and December 31, ~~2016~~2017 and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ is as follows, excluding PCI loans (in thousands):


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
As of September 30, 2017
As of March 31, 2018
With no related allowance recorded:
Residential real estate	$	12,896	$	12,484	$	—	$	11,820	$	11,406	$	—
Commercial real estate – owner occupied	12,233		11,537		—		9,920		9,811		—
Commercial real estate – investor	13,938		12,994		—		15,669		14,732		—
Consumer	2,939		2,478		—		2,970		2,489		—
Commercial and industrial	925		893		—		807		797		—
	$	42,931	$	40,386	$	—	$	41,186	$	39,235	$	—
With an allowance recorded:
Residential real estate	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate – owner occupied	—		—		—		—		—		—
Commercial real estate – investor	4,556		4,541		616		3,857		3,353		930
Consumer	—		—		—		—		—		—
Commercial and industrial	—		—		—		1,472		1,472		675
	$	4,556	$	4,541	$	616	$	5,329	$	4,825	$	1,605
As of December 31, 2016
As of December 31, 2017
With no related allowance recorded:
Residential real estate	$	9,848	$	9,694	$	—	$	10,951	$	10,605	$	—
Commercial real estate – owner occupied	11,886		11,123		—		15,832		15,132		—
Commercial real estate – investor	2,239		1,897		—		19,457		17,923		—
Consumer	2,559		2,246		—		2,941		2,464		—
Commercial and industrial	300		268		—		895		864		—
	$	26,832	$	25,228	$	—	$	50,076	$	46,988	$	—
With an allowance recorded:
Residential real estate	$	3,998	$	3,612	$	266	$	—	$	—	$	—
Commercial real estate – owner occupied	—		—		—		—		—		—
Commercial real estate – investor	2,011		1,892		119		—		—		—
Consumer	581		310		125		—		—		—
Commercial and industrial	—		—		—		—		—		—
	$	6,590	$	5,814	$	510	$	—	$	—	$	—

3431

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)


	Three Months Ended September 30,								Three Months Ended March 31,
	2017				2016				2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	12,791	$	128	$	13,451	$	171	$	11,006	$	125	$	9,227	$	86
Commercial real estate – owner occupied	11,217		335		17,198		119		12,471		115		10,943		161
Commercial real estate – investor	11,147		240		281		3		16,328		154		2,340		26
Consumer	2,495		36		2,340		44		2,477		37		2,242		28
Commercial and industrial	908		26		269		—		830		16		268		5
	$	38,558	$	765	$	33,539	$	337	$	43,112	$	447	$	25,020	$	306
With an allowance recorded:
Residential real estate	$	—	$	—	$	107	$	1	$	—	$	—	$	3,962	$	62
Commercial real estate – owner occupied	—		—		—		—		—		—		—		—
Commercial real estate – investor	4,551		13		896		—		1,677		—		3,914		55
Consumer	—		—		—		—		—		—		297		6
Commercial and industrial	—		—		—		—		736		—		—		—
	$	4,551	$	13	$	1,003	$	1	$	2,413	$	—	$	8,173	$	123

Nine Months Ended September 30,
2017 2016
Average
Recorded
Investment Interest
Income
Recognized Average
Recorded
Investment Interest
Income
Recognized
With no related allowance recorded:
Residential real estate $ 11,009
$ 401
$ 13,326
$ 437
Commercial real estate – owner occupied 11,080
520
17,333
406
Commercial real estate – investor 6,550
487
303
9
Consumer 2,368
106
2,220
105
Commercial and industrial 588
50
270
—
$ 31,595
$ 1,564
$ 33,452
$ 957
With an allowance recorded:
Residential real estate $ 1,981
$ 62
$ 108
$ 3
Commercial real estate – owner occupied —
—
—
—
Commercial real estate – investor 4,233
81
755
—
Consumer 148
6
—
—
Commercial and industrial —
—
—
—
$ 6,362
$ 149
$ 863
$ 3

The following table presents the recorded investment in non-accrual loans by loan portfolio segment as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, excluding PCI loans (in thousands):


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Residential real estate	$	3,551	$	8,126	$	5,686	$	4,190
Commercial real estate – owner occupied	923		2,414		862		5,962
Commercial real estate – investor	8,720		521		7,994		8,281
Consumer	1,864		2,064		1,992		1,929
Commercial and industrial	63		441		1,717		503
	$	15,121	$	13,566	$	18,251	$	20,865

The following table presents the aging of the recorded investment in past due loans as of March 31, 2018 and December 31, 2017 by loan portfolio segment, excluding PCI loans (in thousands):



	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
March 31, 2018
Residential real estate	$	11,766	$	3,142	$	1,863	$	16,771	$	1,863,516	$	1,880,287
Commercial real estate – owner occupied	17,634		—		292		17,926		744,715		762,641
Commercial real estate – investor	4,503		403		4,352		9,258		2,016,293		2,025,551
Consumer	1,794		570		1,678		4,042		368,132		372,174
Commercial and industrial	214		—		1,485		1,699		368,141		369,840
	$	35,911	$	4,115	$	9,670	$	49,696	$	5,360,797	$	5,410,493
December 31, 2017
Residential real estate	$	13,197	$	2,351	$	3,372	$	18,920	$	1,729,670	$	1,748,590
Commercial real estate – owner occupied	222		—		5,402		5,624		563,873		569,497
Commercial real estate – investor	135		1,426		4,507		6,068		1,180,234		1,186,302
Consumer	1,067		310		1,687		3,064		279,304		282,368
Commercial and industrial	2,694		36		503		3,233		184,412		187,645
	$	17,315	$	4,123	$	15,471	$	36,909	$	3,937,493	$	3,974,402

3532

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

~~The following table presents the aging of the recorded investment in past due loans as of September 30, 2017 and December 31, 2016 by loan portfolio segment, excluding PCI loans (in thousands):~~

30-59
Days
Past Due

60-89
Days
Past Due

Greater
than
90 Days
Past Due

Total
Past Due

Loans Not
Past Due
Total
September 30, 2017
Residential real estate $ 12,736
$ 6,872
$ 2,277
$ 21,885
$ 1,728,070
$ 1,749,955
Commercial real estate – owner occupied 711
—
289
1,000
552,971
553,971
Commercial real estate – investor 2,301
173
8,146
10,620
1,122,498
1,133,118
Consumer 768
491
1,486
2,745
276,518
279,263
Commercial and industrial —
1,874
64
1,938
181,482
183,420
$ 16,516
$ 9,410
$ 12,262
$ 38,188
$ 3,861,539
$ 3,899,727
December 31, 2016
Residential real estate $ 9,532
$ 3,038
$ 7,159
$ 19,729
$ 1,692,744
$ 1,712,473
Commercial real estate – owner occupied 3,962
1,032
890
5,884
528,330
534,214
Commercial real estate – investor —
—
521
521
1,131,554
1,132,075
Consumer 1,519
436
1,963
3,918
286,637
290,555
Commercial and industrial 5,548
181
384
6,113
146,456
152,569
$ 20,561
$ 4,687
$ 10,917
$ 36,165
$ 3,785,721
$ 3,821,886

The Company categorizes all commercial and commercial real estate loans, except for small business loans, into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation and current economic trends, among other factors. The Company uses the following definitions for risk ratings:

Pass: Loans classified as Pass are well protected by the paying capacity and net worth of the borrower.

Special Mention: Loans classified as Special Mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date.

Substandard: Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, and based on the most recent analysis performed, the risk category of loans by loan portfolio segment follows, excluding PCI loans (in thousands) is as follows:

Pass
Special
Mention
Substandard Doubtful Total
September 30, 2017
Commercial real estate – owner occupied $ 531,493
$ 4,349
$ 18,129
$ —
$ 553,971
Commercial real estate – investor 1,100,142
10,768
22,208
—
1,133,118
Commercial and industrial 176,619
3,520
3,281
—
183,420
$ 1,808,254
$ 18,637
$ 43,618
$ —
$ 1,870,509
December 31, 2016
Commercial real estate – owner occupied $ 501,652
$ 7,680
$ 24,882
$ —
$ 534,214
Commercial real estate – investor 1,106,747
713
24,615
—
1,132,075
Commercial and industrial 150,474
757
1,338
—
152,569
$ 1,758,873
$ 9,150
$ 50,835
$ —
$ 1,818,858

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~~OceanFirst Financial Corp.~~

~~Notes to Unaudited Consolidated Financial Statements (Continued)~~



	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2018
Commercial real estate – owner occupied	$	744,157	$	3,150	$	15,334	$	—	$	762,641
Commercial real estate – investor	1,984,332		17,216		23,073		930		2,025,551
Commercial and industrial	363,257		3,849		2,059		675		369,840
	$	3,091,746	$	24,215	$	40,466	$	1,605	$	3,158,032
December 31, 2017
Commercial real estate – owner occupied	$	546,569	$	4,337	$	18,591	$	—	$	569,497
Commercial real estate – investor	1,146,630		14,644		25,028		—		1,186,302
Commercial and industrial	181,438		3,153		3,054		—		187,645
	$	1,874,637	$	22,134	$	46,673	$	—	$	1,943,444

For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans based on payment activity as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, excluding PCI loans (in thousands):


	Residential Real Estate				Residential		Consumer
	Residential		Consumer
September 30, 2017
March 31, 2018
Performing	$	1,746,404	$	277,399	$	1,874,601	$	370,182
Non-performing	3,551		1,864		5,686		1,992
	$	1,749,955	$	279,263	$	1,880,287	$	372,174
December 31, 2016
December 31, 2017
Performing	$	1,704,347	$	288,491	$	1,744,400	$	280,439
Non-performing	8,126		2,064		4,190		1,929
	$	1,712,473	$	290,555	$	1,748,590	$	282,368

The Company classifies certain loans as troubled debt restructurings when credit terms to a borrower in financial difficulty are modified. The modifications may include a reduction in rate, an extension in term, the capitalization of past due amounts and/or the restructuring of scheduled principal payments. One-to-four family and consumer loans where the borrower’s debt is discharged in a bankruptcy filing are also considered troubled debt restructurings. For these loans, the Bank retains its security interest in the real estate collateral. Included in the non-accrual loan total at ~~September 30, 2017,~~March 31, 2018, and December 31, ~~2016,~~2017, were ~~$270,000~~$4.3 million and ~~$3.5~~$8.8 million, respectively, of troubled debt restructurings. At ~~September 30,~~March 31, 2018 and December 31, 2017, the Company had no specific reserves allocated ~~to loans that are classified as troubled debt restructurings. At December 31, 2016, the Company had allocated $510,000 of specific reserves~~ to loans that are classified as troubled debt restructurings. Non-accrual loans which become troubled debt restructurings are generally returned to accrual status after six months of performance. In addition to the troubled debt restructurings

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

included in non-accrual loans, the Company also has loans classified as accruing troubled debt restructurings at ~~September 30, 2017,~~March 31, 2018, and December 31, ~~2016,~~2017, which totaled ~~$35.8~~$33.8 million and ~~$27.0~~$33.3 million, respectively. Troubled debt restructurings are considered in the allowance for loan losses similar to other impaired loans.

The following table presents information about troubled debt restructurings which occurred during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ and troubled debt restructurings modified within the previous year and which defaulted during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ (dollars in thousands):

Number of Loans
Pre-modification
Recorded Investment

Post-modification
Recorded Investment
Three months ended September 30, 2017
Troubled Debt Restructurings:
Residential real estate 2
$ 328
$ 357
Commercial real estate - owner occupied 1
700
700
Commercial real estate - investor 1
700
700



	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Three months ended March 31, 2018
Troubled Debt Restructurings:
Residential real estate	2	$	257	$	270
Commercial real estate – investor	1	179		180
Commercial and industrial	1	237		243



	Number of Loans	Recorded Investment
Troubled Debt Restructurings
Which Subsequently Defaulted:	None	None

Number of Loans Pre-modification
Recorded Investment Post-modification
Recorded Investment
Nine months ended September 30, 2017
Troubled Debt Restructurings:
Residential real estate 6
$ 1,354
$ 1,356
Commercial real estate - owner occupied 4
3,309
3,309
Commercial real estate – investor 4
6,362
6,484
Commercial and industrial 1
665
665



	~~Number of Loans~~	~~Recorded Investment~~
~~Troubled Debt Restructurings~~
~~Which Subsequently Defaulted:~~	~~None~~	~~None~~

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~~OceanFirst Financial Corp.~~

~~Notes to Unaudited Consolidated Financial Statements (Continued)~~


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment		Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Three months ended September 30, 2016
Three months ended March 31, 2017
Troubled Debt Restructurings:
Residential real estate	1	$	455	$	455	2	$	368	$	341
Consumer	1	602		602
Commercial real estate - owner occupied						2	1,643		1,643
Commercial real estate – investor						1	626		773



	~~Number of Loans~~	~~Recorded Investment~~
~~Troubled Debt Restructurings~~
~~Which Subsequently Defaulted:~~	~~None~~	~~None~~

Number of Loans
Pre-modification
Recorded Investment

Post-modification
Recorded Investment
Nine months ended September 30, 2016
Troubled Debt Restructurings:
Residential real estate 3
$ 674
$ 673
Commercial real estate – investor 1
256
270
Consumer 3
665
665



	~~Number of Loans~~	~~Recorded Investment~~
~~Troubled Debt Restructurings~~
~~Which Subsequently Defaulted:~~	~~None~~	~~None~~

As part of the ~~Cape, Ocean Shore and Colonial American Bank acquisitions,~~Sun acquisition, PCI loans were acquired at a discount primarily due to deteriorated credit quality. PCI loans are accounted for at fair value, based upon the present value of expected future cash flows, with no related allowance for loan losses.

The following table presents information regarding the estimates of the contractually required payments, the cash flows expected to be collected and the estimated fair value of the PCI loans acquired from ~~Ocean Shore~~Sun at ~~December 1, 2016, Cape at May 2, 2016, and Colonial American Bank at July~~January 31, ~~2015~~2018 (in thousands):


	Ocean Shore December 1, 2016			Cape May 2, 2016			Colonial American July 31, 2015
Contractually required principal and interest	$	7,385		$	21,345		$	3,263		$	22,556
Contractual cash flows not expected to be collected (non-accretable discount)	(4,666		)	(12,387		)	(1,854		)	(6,115		)
Expected cash flows to be collected at acquisition	2,719			8,958			1,409			16,441
Interest component of expected cash flows (accretable yield)	(401		)	(576		)	(109		)	(3,535		)
Fair value of acquired loans	$	2,318		$	8,382		$	1,300		$	12,906

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The following table summarizes the changes in accretable yield for PCI loans during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ (in thousands):


	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016			Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
Beginning balance	$	1,465		$	749		$	503		$	75		$	161		$	749
Acquisition	—			—			—			576			3,535			—
Accretion	(328		)	(642		)	(196		)	(344		)	(222		)	(162		)
Reclassification from non-accretable difference	13			1,043			—			—			18			106
Ending balance	$	1,150		$	1,150		$	307		$	307		$	3,492		$	693

Note 6. Deposits

The major types of deposits at March 31, 2018 and December 31, 2017 were as follows (in thousands):



Type of Account	March 31, 2018		December 31, 2017
Non-interest-bearing	$	1,117,100	$	756,513
Interest-bearing checking	2,330,682		1,954,358
Money market deposit	613,183		363,656
Savings	917,288		661,167
Time deposits	929,083		607,104
Total deposits	$	5,907,336	$	4,342,798

Included in time deposits at March 31, 2018 and December 31, 2017, is $119.9 million and $84.9 million, respectively, in deposits of $250,000 and over.

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Notes to Unaudited Consolidated Financial Statements (Continued)

~~Note 6. Deposits~~

~~The major types of deposits at September 30, 2017 and December 31, 2016 were as follows (in thousands):~~

Type of Account September 30, 2017 December 31, 2016
Non-interest-bearing $ 781,043
$ 782,504
Interest-bearing checking 1,892,832
1,626,713
Money market deposit 384,106
458,911
Savings 668,370
672,519
Time deposits 623,908
647,103
Total deposits $ 4,350,259
$ 4,187,750

~~Included in time deposits at September 30, 2017 and December 31, 2016, is $273.6 million and $269.0 million, respectively, in deposits of $100,000 and over.~~

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~~OceanFirst Financial Corp.~~

~~Notes to Unaudited Consolidated Financial Statements (Continued)~~

Note 7. Recent Accounting Pronouncements

In May 2014, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU” or “Update”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” and subsequent related Updates modifies the guidance used to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other guidance. The ~~updates~~Updates also ~~requires~~require new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. The amendments in this update were effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. On January 1, 2018, the Company adopted ASU 2014-09 and all subsequent amendments to the ASU (collectively, “ASC 606”).

The majority of the Company’s revenues are not subject to ASC 606, including revenue generated from financial instruments, such as interest and dividend income, including loans and securities, as these activities are subject to other U.S. Generally Accepted Accounting Principles (“GAAP”). Revenue generating activities that are within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as the Company satisfies its obligation to the customer. Descriptions of revenue generating activities that are within the scope of ASC 606, which are presented in the Consolidated Statements of Income as components of other income are as follows:

Bankcard services revenue - The Company generates other non-interest income from Bankcard services, which includes interchange revenue and merchant services revenue. The calculation of the revenue collected is based on customer transactions, which do not have a fixed duration. When there is a transaction, the performance obligation is fulfilled. The Company recognizes revenue per underlying transaction and recognizes the revenue when the performance obligation is satisfied at a point in time.

Wealth management revenue - The Company provides customers with sound financial solutions and comprehensive wealth management products. Wealth management accounts earn minimum annual fees and may earn additional fees and service charges. Fees and service charges from wealth management accounts may include numerous fees such as Bill Pay fees, extraordinary service fees, unique asset fees, and transaction fees. The Company will ~~adopt~~recognize the ~~guidance~~fee when received because the Company provided the service to its customer at that time, and has no future performance obligation. Therefore, each month the Company will accrue and recognize the monthly portion of the minimum annual fee as a result of providing advisory services. If a customer utilizes additional services such as a wire transfer or bill pay, or any other advisory service outlined in ~~first quarter~~their respective agreements, the Company will recognize revenue at that time, since there are no future performance obligations during the existing contract.

Fees and service charges - The Company has multiple types of ~~2018~~deposit accounts that may earn fees and service charges. Fees and service charges from deposit accounts represent general service fees for monthly account maintenance and activity-or-transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when the performance obligation is satisfied, which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are typically received at the time the performance obligations are satisfied.

The Company adopted the ASU using the modified retrospective method ~~with~~as of January 1, 2018. The adoption of this ASU did not result in a ~~cumulative-effect~~change to the accounting for any of the in-scope revenue streams; as such no cumulative effect adjustment to opening retained earnings. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other U.S. GAAP, the new revenue recognition standard does not have a material impactwas recorded on the Company’s consolidated financial statements. The Company’s implementation efforts include the identification of revenue within the scope of the guidance, as well as the evaluation of revenue contracts. While we have not identified any material changes related to the timing or amount of revenue recognition, the Company will continue to evaluate disaggregation for significant categories of revenue in the scope of the guidance.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities.” The main objective in developing this new ASU is to enhance the reporting model for financial instruments to provide users of financial statements with more useful information. The update requires equity investments to be measured at fair value with changes in fair value recognized in net income. It simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a quantitative assessment to identify impairment. The amendment eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. It requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Financial assets and financial liabilities are to be presented separately by measurement category and the need for a valuation allowance on a deferred tax asset related to available-for-sale securities should be evaluated with other deferred tax assets. The amendments in this update ~~are~~were effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The ~~adoption of~~Company adopted this ~~update is not expected to have a material impact~~ASU in its entirety on January 1, 2018, and has appropriately reflected the changes throughout the Company’s consolidated financial statements. The adoption of this ASU resulted in an impact to retained earnings and other comprehensive income of $147,000.

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU requires all lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. Lessor accounting remains largely unchanged under the new guidance. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period, with early adoption permitted. A modified retrospective approach must be applied for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently assessing the impact that the guidance will have on the Company’s consolidated financial statements. The Company has begun its evaluation of the amended guidance including the potential impact on its consolidated financial statements. To date, the Company has identified its leased real estate as within the scope of the ~~guidance. The Company~~guidance and continues to evaluate the impact of the guidance, including determining whether other contracts exist that are deemed to be in scope. ~~As such, no conclusions have yet been reached regarding the potential impact of adoption on the Company’s consolidated financial statements.~~The Company expects total assets and total liabilities will increase by similar amounts. Further, to date, no guidance has been issued by either the Company’s or the Bank’s primary regulator with respect to how the impact of the amended standard is to be treated for regulatory capital purposes.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718).” The objective of the Update is to simplify accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the Update, all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current accounting) or account for forfeitures when they occur. Within the Cash Flow Statement, excess tax benefits should be classified along with other income tax cash flows as an operating activity, and cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity. The amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted this ASU on January 1, 2017 and it did not have a material impact on the Company’s consolidated financial statements, resulting in a balance sheet reclassification.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses

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~~OceanFirst Financial Corp.~~

~~Notes to Unaudited Consolidated Financial Statements (Continued)~~

and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company has begun its evaluation of the amended guidance including the potential impact on its consolidated financial statements. As a result of the required change in approach toward determining estimated credit losses from the current “incurred loss” model to one based on estimated cash flows over a loan’s contractual life, adjusted for prepayments (a “life of loan” model), the Company expects that the new guidance will result in an increase in the allowance for loan losses, particularly for longer duration loan portfolios. The Company also expects that the new guidance may result in an allowance for debt securities. In both cases, the extent of the change is indeterminable at this time as it will be dependent upon portfolio composition and credit quality at the adoption date, as well as economic conditions and forecasts at that time. Further, to date, no guidance has been issued by either the Company’s or the Bank’s primary regulator with respect to how the impact of the amended standard is to be treated for regulatory purposes.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.” This ASU is intended to reduce diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, with early adoption permitted, including adoption in an interim period. A retrospective transition method should be applied to each period presented, unless it is impracticable to apply the amendments retrospectively for some of the issues, then the amendments for those issues would be applied prospectively as of the earliest date practicable. ~~The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.~~

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) - Clarifying the Definition of a Business.” This ASU narrows the definition of a business and clarifies that, to be considered a business, the fair value of the gross assets acquired (or disposed of) may not be substantially all concentrated in a single identifiable asset or group of similar assets. In addition, in order to be considered a business, a set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. This ASU iswas effective for fiscal years beginning after December 15, 2017; early adoption iswas permitted on a limited basis. The ~~adoption of~~Company adopted this ~~update is~~guidance on January 1, 2018 and it did not ~~expected to~~ have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” This ASU intends to simplify the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test. Instead, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge by which the carrying amount exceeds the reporting unit’s fair value; however the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The ASU also eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. ASU No. 2017-04 is effective for fiscal years beginning after December 15, 2019; early adoption is permitted for annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this update iswill not ~~expected to~~ have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities.” This ASU requires the amortization of premiums to the earliest call date on debt securities with call features that are explicit, noncontingent and callable at fixed prices and on preset dates. This ASU does not impact securities held as a discount, as the discount continues to be amortized to the contractual maturity. The guidance is

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

effective for fiscal years beginning after December 15, 2018, with early adoption permitted, including adoption in an interim period. The amendments in this ASU should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.” The amendments in this ASU was issued to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. As a result, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Current GAAP contains limitations on how an entity can designate the hedged risk in certain cash flow and fair value hedging relationships. To address those current limitations, the amendments in this ASU permit hedge accounting for risk components in hedging relationships involving nonfinancial risk and interest rate risk. In addition, the amendments in this ASU change the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company does not enter into derivatives that are designated as hedging instruments and as such, the adoption of this ASU is not expected to have an impact on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU was issued to address a narrow-scope financial reporting issue that arose as a result of the enactment of the Tax Cuts and Jobs Act (“Tax Reform”) on December 22, 2017. The objective of ASU 2018-02 is to address the tax effects of items within accumulated other comprehensive income (referred to as “stranded tax effects”) that do not reflect the appropriate tax rate enacted in the Tax Reform. As a result, the ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate. The amount of the reclassification would be the difference between the historical corporate income tax rate of 35 percent and the newly enacted corporate income tax rate of 21 percent. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted, including adoption in an interim period. The amendments in this ASU may be applied retrospectively to each period in which the effect of the change in the U.S. Federal corporate income tax rate in the Tax Reform is recognized. The Company has early adopted ASU 2018-02 for the year ended December 31, 2017, and has elected not to reclassify the income tax effects of the Tax Reform from accumulated other comprehensive loss to retained earnings.

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Notes to Unaudited Consolidated Financial Statements (Continued)

Note 8. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or the most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The Company uses valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability and developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability and developed based on the best information available in the circumstances. In that regard, a fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Movements within the fair value hierarchy are recognized at the end of the applicable reporting period. There were no transfers between the levels of the fair value hierarchy for the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2018. The fair value hierarchy is as follows:

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlations or other means.

Level 3 Inputs – Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.

Assets and Liabilities Measured at Fair Value

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

Debt Securities Available-For-Sale

~~Securities~~Debt securities classified as available-for-sale are reported at fair value. Fair value for these debt securities ~~all of which are U. S. agency obligations,~~ is determined ~~using a quoted price in an active market or exchange (Level 1) or estimated by~~ using inputs other than quoted prices that are based on market observable information (Level 2). Level 2 debt securities are priced through third-party pricing services or security industry sources that actively participate in the buying and selling of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain debt securities without relying exclusively on quoted prices for the specific securities, but comparing the debt securities to benchmark or comparable debt securities.

Equity Investments

Equity investments are reported at fair value. Fair value for these investments is determined using a quoted price in an active market or exchange (Level 1).

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Interest Rate Swaps

The Company’s interest rate swaps, acquired from Sun, are reported at fair value utilizing models provided by an independent, third-party and observable market data. When entering into an interest rate swap agreement, the Company is exposed to fair value changes due to interest rate movements, and also the potential nonperformance of our contract counterparty.

Other Real Estate Owned and Impaired Loans

Other real estate owned and loans measured for impairment based on the fair value of the underlying collateral are recorded at estimated fair value, less estimated selling costs. Fair value is based on independent appraisals.

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~~OceanFirst Financial Corp.~~

~~Notes to Unaudited Consolidated Financial Statements (Continued)~~

The following table summarizes financial assets and financial liabilities measured at fair value as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

Fair Value Measurements at Reporting Date Using:
September 30, 2017
Total Fair
Value

Level 1
Inputs

Level 2
Inputs

Level 3
Inputs
Items measured on a recurring basis:
Investment securities available-for-sale:
U.S. agency obligations $ 67,133
$ —
$ 67,133
$ —
Items measured on a non-recurring basis:
Other real estate owned 9,334
—
—
9,334
Loans measured for impairment based on the fair value of the underlying collateral 12,065
—
—
12,065


			Fair Value Measurements at Reporting Date Using:									Fair Value Measurements at Reporting Date Using:
December 31, 2016	Total Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
									Total Fair Value			Level 1 Inputs		Level 2 Inputs			Level 3 Inputs
March 31, 2018
Items measured on a recurring basis:
Investment securities available-for-sale:
U.S. agency obligations	$	12,224	$	—	$	12,224	$	—
Debt securities available-for-sale									$	86,114		$	—	$	86,114		$	—
Equity investments									9,565			9,565		—			—
Interest rate swap asset									415			—		415			—
Interest rate swap liability									(416		)	—		(416		)	—
Items measured on a non-recurring basis:
Other real estate owned	9,803		—		—		9,803		8,265			—		—			8,265
Loans measured for impairment based on the fair value of the underlying collateral	2,419		—		—		2,419		12,633			—		—			12,633
December 31, 2017
Items measured on a recurring basis:
Debt securities available-for-sale									$	81,581		$	—	$	81,581		$	—
Equity investments									8,700			8,700		—			—
Items measured on a non-recurring basis:
Other real estate owned									8,186			—		—			8,186
Loans measured for impairment based on the fair value of the underlying collateral									16,496			—		—			16,496

Assets and Liabilities Disclosed at Fair Value

A description of the valuation methodologies used for assets and liabilities disclosed at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy is set forth below.

Cash and Due from Banks

For cash and due from banks, the carrying amount approximates fair value.

Debt Securities Held-to-Maturity

~~Securities~~Debt securities classified as held-to-maturity are carried at amortized cost, as the Company has the positive intent and ability to hold these debt securities to maturity. The Company determines the fair value of the debt securities utilizing Level 1, Level 2 and, infrequently, Level 3 inputs. In general, fair value is based upon quoted market prices, where available. Most of the Company’s investment and mortgage-backed securities, however, are fixed income instruments that are not quoted on an exchange, but are bought and sold in active markets. Prices for these instruments are obtained through third-party pricing vendors or security industry sources that actively participate in the buying and selling of debt securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain debt securities without relying exclusively on quoted prices for the specific debt securities, but comparing the debt securities to benchmark or comparable debt securities.

Fair value estimates are made at a point in time, based on relevant market data as well as the best information available about the security. Fair value estimates for securities for which limited observable market data is available are based on judgments regarding current economic conditions, liquidity discounts, credit and interest rate risks, and other factors. These estimates involve significant uncertainties and judgments and cannot be determined with precision. As a result, such calculated fair value estimates may not be realizable in a current sale or immediate settlement

Table of ~~the security.~~Contents

~~The Company utilizes third-party pricing services~~OceanFirst Financial Corp.

Notes to ~~obtain fair values for most of its securities held-to-maturity.~~ Unaudited Consolidated Financial Statements (Continued)

Management’s policy is to obtain and review all available documentation from the ~~third-party~~third party pricing service relating to their fair value determinations, including their methodology and summary of inputs. Management reviews this documentation, makes inquiries of the third-party pricing service and makes a determination as to the level of the valuation inputs. Based on the Company’s review of the available documentation from the third-party pricing service, management concluded that Level 2 inputs were utilized for

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~~OceanFirst Financial Corp.~~

~~Notes to Unaudited Consolidated Financial Statements (Continued)~~

all securities except for ~~certain investments classified as Level 1, which are derived from quoted market prices in active markets and~~ certain state and municipal obligations known as bond anticipation notes (“BANs”) where management utilized Level 3 inputs. In the case of the Level 2 securities, the significant observable inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, other market information and observations of equity and credit default swap curves related to the issuer. Management based its fair value estimate of the BANs on the local nature of the issuing entities, the short-term life of the security and current economic conditions.

~~Federal Home Loan Bank of New York Stock~~Restricted Equity Investments

The fair value for Federal Home Loan Bank of New York and Federal Reserve Bank stock is its carrying value since this is the amount for which it could be redeemed. There is no active market for this stock and the Company is required to maintain a minimum investment ~~based upon~~as stipulated by the ~~outstanding balance of mortgage related assets and outstanding borrowings.~~respective agencies.

Loans

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage, consumer and commercial. Each loan category is further segmented into fixed and adjustable rate interest terms.

Fair value of performing and non-performing loans was estimated by discounting the future cash flows, net of estimated prepayments, at a rate for which similar loans would be originated to new borrowers with similar terms. ~~Fair values estimated in this manner do not fully incorporate an exit price approach to fair value, but instead are based on a comparison to current market rates for comparable loans.~~

Deposits Other than Time Deposits

The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, and interest-bearing checking accounts and money market accounts ~~and saving accounts are,~~is, by definition, equal to the amount payable on demand. The related insensitivity of the majority of these deposits to interest rate changes creates a significant inherent value which is not reflected in the fair value reported.

Time Deposits

The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Securities Sold Under Agreements to Repurchase with Retail Customers

Fair value approximates the carrying amount as these borrowings are payable on demand and the interest rate adjusts monthly.

Borrowed Funds

Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.

4441

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OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The book value and estimated fair value of the Bank’s significant financial instruments not recorded at fair value as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 are presented in the following tables (in thousands):


			Fair Value Measurements at Reporting Date Using:								Fair Value Measurements at Reporting Date Using:
September 30, 2017	Book Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
March 31, 2018									Book Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Financial Assets:
Cash and due from banks	$	255,258	$	255,258	$	—	$	—	$	119,364	$	119,364	$	—	$	—
Securities held-to-maturity	742,886		8,714		734,990		2,793
Federal Home Loan Bank of New York stock	18,472		—		—		18,472
Debt securities held-to-maturity									982,857		—		959,574		11,825
Restricted equity investments									50,418		—		—		50,418
Loans receivable, net and mortgage loans held for sale(1)	3,870,447		—		—		3,935,093		5,413,947		—		—		5,326,600
Financial Liabilities:
Deposits other than time deposits	3,726,351		—		3,726,351		—		4,978,253		—		4,978,253		—
Time deposits	623,908		—		619,619		—		929,083		—		921,845		—
Securities sold under agreements to repurchase with retail customers	75,326		75,326		—		—		82,463		82,463		—		—
Federal Home Loan Bank advances and other borrowings	315,652		—		314,021		—		441,005		—		432,368		—


			Fair Value Measurements at Reporting Date Using:								Fair Value Measurements at Reporting Date Using:
December 31, 2016	Book Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
December 31, 2017									Book Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Financial Assets:
Cash and due from banks	$	301,373	$	301,373	$	—	$	—	$	109,613	$	109,613	$	—	$	—
Securities held-to-maturity	598,691		8,550		586,504		3,030
Federal Home Loan Bank of New York stock	19,313		—		—		19,313
Loans receivable and mortgage loans held for sale	3,804,994		—		—		3,834,677
Debt securities held-to-maturity									764,062		—		751,182		10,478
Restricted equity investments									19,724		—		—		19,724
Loans receivable, net and mortgage loans held for sale ⁽¹⁾									3,966,014		—		—		3,962,689
Financial Liabilities:
Deposits other than time deposits	3,540,647		—		3,540,647		—		3,735,694		—		3,735,694		—
Time deposits	647,103		—		644,354		—		607,104		—		599,677		—
Securities sold under agreements to repurchase with retail customers	69,935		69,935		—		—		79,668		79,668		—		—
Federal Home Loan Bank advances and other borrowings	307,057		—		304,901		—		345,210		—		341,820		—

(1) In accordance with the prospective adoption of ASU 2016-01, the fair value of loans was measured using the exit price notion as of March 31, 2018. The fair value of loans was measured using the entry price notion as of December 31, 2017.

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because a limited market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other significant unobservable inputs. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include premises and equipment, Bank Owned Life Insurance, deferred tax assets and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Note 9. ~~Subsequent Event~~Derivatives, Hedging Activities and Other Financial Instruments

~~On June 30, 2017,~~As a result of the Sun acquisition, the Company ~~announced~~acquired derivative financial instruments which involve, to varying degrees, interest rate, market and credit risk. The Company manages these risks as part of its asset and liability management process and through credit policies and procedures, seeking to minimize counterparty credit risk by establishing credit limits and collateral agreements. The Company utilizes certain derivative financial instruments to enhance its ability to manage interest rate risk that exists as part of its ongoing business operations. The derivative financial instruments acquired by the Company are an economic hedge of a derivative offering to Bank customers. The Company does not use derivative financial instruments for trading purposes.

Customer Derivatives – Interest Rate Swaps

As a result of the Sun acquisition, the Company acquired interest rate swaps that allow commercial loan customers to effectively convert a variable-rate commercial loan agreement to ~~acquire Sun Bancorp, Inc. (“Sun”), headquartered in Mount Laurel, New Jersey, in~~ a ~~transaction valued at approximately $487 million.~~fixed-rate commercial loan agreement. Under ~~the terms of the agreement, Sun stockholders will be entitled to receive $3.78 in cash and 0.7884 shares of the Company’s common stock, for each share of Sun common stock. Sun and~~these agreements, the Company ~~received their respective requisite stockholder approvals for~~enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the ~~merger. Regulatory approval~~customer’s variable-rate loan into a fixed-rate loan. The Company then enters into a corresponding swap agreement with a third party in order to economically hedge its exposure through the customer agreement. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging, and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of the merger was received from the Federal Reserve Bank of Philadelphia on October 17, 2017. The regulatory application for the transaction remains under review by the Office of the Comptroller of the Currency (“OCC”). Subjectthese instruments do not result in an impact to ~~receipt of OCC approval and other customary closing conditions, the Company expects to close the transaction in January 2018.~~

~~On November 1, 2017 the Company closed on its previously announced acquisition of an office building in Red Bank, New Jersey~~earnings; however, there may be fair value adjustments related to ~~its back-office consolidation, at a purchase price~~credit quality variations between counterparties, which may impact earnings as required by FASB ASC Topic 820, Fair Value Measurements. The Company recognized $2,000 in other income resulting from fair value adjustments during the three months ended March 31, 2018.

The table below presents the notional and fair value of ~~$42.5 million. Included in the acquisition is a structured parking facility~~derivatives not designated as hedging instruments as well as their location on the ~~existing furniture, fixtures~~consolidated statements of financial condition as of March 31, 2018 (in thousands):



	March 31, 2018
Balance Sheet Location	Notional		Fair Value
Other assets	$	19,863	$	415
Other liabilities	19,863		416

Credit risk-related Contingent Features

As a result of the Sun acquisition, the Company is a party to an International Swaps and ~~equipment. Occupancy~~Derivatives Association agreement with a third party broker-dealer that requires a minimum dollar transfer amount upon a margin call. This requirement is ~~expected~~dependent on certain specified credit measures. The amount of collateral posted with the third party at March 31, 2018 was $2.1 million. The amount of collateral posted with the third party is deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the ~~first half~~specified credit measures. The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with the third party was $416,000 at March 31, 2018.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not engaged in any legal proceedings of a material nature at the present time. From time to time, the Company is a party to routine legal proceedings within the normal course of business. Such routine legal proceedings in the aggregate are believed by management to be immaterial to the Company’s financial condition or results of operations.

Item 1A. Risk Factors

~~In addition to the~~For a summary of risk factors relevant to the Company, ~~set forth in~~see Part I, Item 1A, “Risk Factors,” in the ~~2016~~2017 Form 10-K stockholders and investors of the Company should consider the following risk factors related to the pending merger with Sun. For more information regarding the pending merger with Sun, stockholders and investors of the Company should read the joint proxy statement/prospectus included in the registration statement (File No. 333-220235) on Form S-4 that was filed with the SEC on August 29, 2017, as amended by that certain Amendment No. 1 to Form S-4, filed with the SEC on September 19, 2017, and declared effective by the SEC on September 20, 2017, in connection with such pending merger.10-K. There were no ~~other~~ material changes to risk factors relevant to the Company’s operations since December 31, ~~2016.~~

Because the market price of the Company’s common stock may fluctuate, neither the Company’s stockholders nor Sun shareholders can be certain of the market value of the stock portion of the merger consideration that will be payable by the Company to the Sun shareholders. At the time of the completion of the merger of Mercury Merger Sub Corp. into Sun (the “first-step merger”), each outstanding share of Sun common stock, except for certain shares of Sun common stock owned by Sun or the Company, will be converted into the right to receive the “merger consideration” which is either (i) the cash consideration, which is an amount in cash equal to the sum of (A) $3.78 plus (B) the product of 0.7884 multiplied by the volume weighted-average trading price of shares of common stock of the Company for the five trading days immediately prior to the effective time of the first-step merger (the “Company share closing price”), or (ii) the stock consideration, which will be a number of shares of Company common stock equal to the exchange ratio, which is the quotient of (A) the cash consideration divided by (B) the Company share closing price. The right to receive the cash consideration or the stock consideration will be made at the election of each holder of shares of Sun common stock, subject to the allocation and proration provisions of the merger agreement. The merger agreement provides that the aggregate amount of cash consideration will not exceed the product of (x) $3.78 and (y) the total number of shares of Sun common stock issued and outstanding immediately prior to the effective time of the first-step merger (the “effective time”). There will be a lapse of time between the date of this report and the date on which the first-step merger is completed. The market value of the Company common stock may fluctuate during this period as a result of a variety of factors, including general market and economic conditions, changes in the Company’s businesses, operations and prospects and regulatory considerations. Many of these factors are outside of the control of the Company.

Because the merger consideration is primarily based on the Company share closing price, any changes in the market price of Company common stock prior to the completion of the first-step merger will have a corresponding effect on the amount of per share cash consideration payable by the Company and the value of the per share stock consideration. There will be no adjustment to the computation of the merger consideration for changes in the market price of either shares of Company common stock or shares of Sun common stock.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the proposed transaction with Sun. Before the proposed transaction with Sun can be completed, the Company and Sun must obtain approvals from the Board of Governors of the Federal Reserve System (the “FRS”) and the OCC. The Company and Sun obtained approval from the Board of Governors of the FRS on October 17, 2017. In evaluating an application for approval, the OCC takes into consideration a number of factors, including (i) the competitive impact of the transaction; (ii) financial and managerial resources of the bank parties to the bank merger or integrated mergers both on a current and pro forma basis; (iii) the convenience and needs of the community to be served and the record of the banks under the Community Reinvestment Act (the “CRA”), including their CRA ratings; (iv) the banks’ effectiveness in combating money laundering activities; and (v) the extent to which the bank merger or integrated mergers would result in greater or more concentrated risks to the stability of the U.S. banking or financial system. Other approvals, as well as waivers or consents, from regulators may also be required. An adverse development in either party’s regulatory standing or these factors could result in an inability to obtain approval or delay their receipt. These regulators may impose conditions on the completion of the proposed transaction or require changes to the terms of the proposed transaction. Such conditions or changes could have the effect of delaying or preventing completion of the proposed transaction with Sun or imposing additional costs on or limiting the revenues of the combined company following the completion of the proposed transaction, any of which might have an adverse effect on the combined company following the completion of the proposed transaction. However, under the terms of the merger agreement, in connection with obtaining such regulatory approvals or waivers, neither party is required to take any action, or commit to take

any action, or agree to any condition or restriction, that would reasonably be expected to have a material adverse effect (measured on a scale relative to Sun) on any of the Company, Sun or the surviving corporation, after giving effect to the proposed transaction. In addition, subject to approval from the OCC, prior to the completion of the proposed transaction, OceanFirst Bank intends to convert from a federal savings association into a national banking association, and the Company intends to cease being a savings and loan holding company and become a bank holding company. The approval process for the conversion application could delay the completion of the proposed transaction with Sun.

~~Combining the two companies may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the proposed transaction with Sun may not be realized~~. The Company and Sun have operated and, until the completion of the proposed transaction, will continue to operate, independently. The success of the proposed transaction with Sun, including anticipated benefits and cost savings, will depend, in part, on the Company’s ability to successfully combine and integrate the businesses of the Company and Sun in a manner that permits growth opportunities and does not materially disrupt existing customer relations nor result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors, employees and other constituents or to achieve the anticipated benefits and cost savings of the proposed transaction with Sun. The loss of key employees could adversely affect the Company’s ability to successfully conduct its business, which could have an adverse effect on the Company’s financial results and the value of its common stock. If the Company experiences difficulties with the integration process, the anticipated benefits of the proposed transaction with Sun may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause the Company and/or Sun to lose customers or cause customers to remove their accounts from the Company and/or Sun and move their business to competing financial institutions. Integration efforts between the two companies, as well as the Company’s ongoing integration efforts relating to the Cape acquisition and the Ocean Shore acquisition, will also divert management attention and resources. These integration matters could have an adverse effect on each of Sun and the Company during this transition period and for an undetermined period after completion of the proposed transaction on the combined company. In addition, the actual cost savings of the proposed transaction could be less than anticipated.

~~Termination of the merger agreement could negatively impact the Company~~. If the merger agreement is terminated, there may be various consequences. For example, the Company’s businesses may have been impacted adversely by the failure to pursue other opportunities due to management’s focus on the proposed transaction with Sun, without realizing any of the anticipated benefits of completing the proposed transaction. Additionally, if the merger agreement is terminated, the market price of the Company common stock could decline to the extent that the current market prices reflect a market assumption that the proposed transaction will be completed. If the merger agreement is terminated under certain circumstances, Sun or the Company may be required to pay to the other party a termination fee of $17.045 million.

~~The Company will be subject to business uncertainties and contractual restrictions while the proposed transaction is pending~~. Uncertainty about the effect of the proposed transaction with Sun on employees and customers may have an adverse effect on the Company. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the proposed transaction is completed, and could cause customers and others that deal with the Company to seek to change existing business relationships with the Company. Retention of certain employees by the Company may be challenging while the proposed transaction is pending, as certain employees may experience uncertainty about their future roles with the Company. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the Company, the Company’s business could be harmed. In addition, subject to certain exceptions, the Company has agreed to certain restrictive covenants.

~~Litigation relating to the proposed transaction with Sun could require the Company to incur significant costs and suffer management distraction, as well as delay and/or enjoin the proposed transaction~~. Following the announcement of the transaction with Sun, three stockholders filed purported class actions in state court which were consolidated under the caption In re Sun Bancorp, Inc. Consolidated Stockholder Litigation, Case No. BUR-L-2060-17 (N.J. Super. Ct. Law Div.). Plaintiffs alleged that members of the Sun board breached their fiduciary duties by approving the merger agreement because the transaction was procedurally flawed and financially inadequate, and by failing to disclose material information about the transaction. Plaintiffs further alleged that OceanFirst and Merger Sub aided and abetted such alleged breaches, and sought to enjoin the merger, as well as unspecified money damages, costs and attorneys' fees and expenses. A purported class action was also filed in federal court captioned Parshall v. Sun Bancorp, Inc., Case No. 1:17-cv-07368 (D.N.J.) alleging defendants violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, and certain rules and regulations promulgated thereunder, by not disclosing certain allegedly material facts about the transaction. On October 13, 2017, the parties to the various actions entered into a Memorandum of Understanding to resolve the named plaintiffs' individual claims in the state and federal actions.

~~If the proposed transaction with Sun is not completed, the Company will have incurred substantial expenses without realizing the expected benefits of the proposed transaction~~. The Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of filing, printing and mailing the joint proxy statement/prospectus and all filing and other fees paid to the SEC in connection with the first-step merger. If the proposed transaction with Sun is not completed, the Company would have to recognize these expenses without realizing the expected benefits of the proposed transaction.

~~Holders of Company common stock will have a reduced ownership and voting interest after the first-step merger and will exercise less influence over management~~. Holders of Company common stock currently have the right to vote in the election of the board of directors of the Company and on other matters affecting the Company. Upon the completion of the first-step merger, each Sun shareholder who receives the stock consideration (either because such Sun shareholder elects to receive stock consideration or because of the allocation and proration provisions of the merger agreement) will become a Company stockholder. It is currently expected that the former Sun shareholders as a group will receive shares in the first-step merger constituting approximately 32% of the outstanding shares of Company common stock immediately after the first-step merger. As a result, current Company stockholders as a group will own approximately 68% of the outstanding shares of Company common stock immediately after the first-step merger. Because of this reduced ownership percentage, Company stockholders may have less influence on the management and policies of the Company than they now have on the management and policies of the Company. Upon consummation of the proposed transaction with Sun, the Company has agreed to increase the size of the board of directors of the Company and the board of directors of OceanFirst Bank to fourteen members and appoint two current members of the board of directors of Sun, to be selected by the Leadership Committee of the Company in consultation with the board of directors of the Company and the board of directors of Sun, to the board of directors of the Company and the board of directors of OceanFirst Bank. Each such appointee will be appointed to a class of the board of directors of the Company and the board of directors of OceanFirst Bank to be selected by the Company in its discretion (provided that such appointees shall be allocated among the classes as evenly as possible).

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On July 24, 2014, the Company announced the authorization of the Board of Directors to repurchase up to 5% of the Company’s outstanding common stock, or 867,923 shares of which 154,804 shares remain available for repurchase. On April 27, 2017, the Company announced the authorization of the Board of Directors to repurchase up to an additional 5% of the Company’s outstanding common stock, or 1.6 million shares of which all shares authorized for repurchase remain available at ~~September 30, 2017. Information regarding the Company’s~~March 31, 2018. There were 1,754,804 shares available for repurchase at March 31, 2018 under these two stock repurchase programs. The Company did not repurchase shares of its common stock ~~repurchases for~~during the three month period ended ~~September 30, 2017 is as follows:~~March 31, 2018.



~~Period~~	~~Total~~ ~~Number of~~ ~~Shares~~ ~~Purchased~~	~~Average Price~~ ~~Paid per Share~~	~~Total Number of~~ ~~Shares Purchased as~~ ~~Part of Publicly~~ ~~Announced Plans or~~ ~~Programs~~	~~Maximum~~ ~~Number of Shares~~ ~~that May Yet Be~~ ~~Purchased Under the~~ ~~Plans or Programs~~
~~July 1, 2017 through July 31, 2017~~	—	—	—	~~1,754,804~~
~~August 1, 2017 through August 31, 2017~~	—	—	—	~~1,754,804~~
~~September 1, 2017 through September 30, 2017~~	—	—	—	~~1,754,804~~

Item 3. Defaults Upon Senior Securities

Not ~~Applicable~~Applicable.

Item 4. Mine Safety Disclosures

Not ~~Applicable~~Applicable.

Item 5. Other Information

On November 1, 2017 the Company closed on its previously announced acquisition of an office building in Red Bank, New Jersey related to its back-office consolidation, at a purchase price of $42.5 million. Included in the acquisition is a structured parking facility as well as the existing furniture, fixtures and equipment. Occupancy is expected in the first half of 2018.Not Applicable.

Item 6. Exhibits



~~Exhibits:~~Exhibit No:
~~2.1~~ Exhibit Description	~~Agreement and Plan of Merger, dated as of June 30, 2017, by and among OceanFirst Financial Corp., Sun Bancorp, Inc. and Mercury Merger Sub Corp.~~ ⁽¹⁾
~~3.1~~	~~Amended Bylaws of OceanFirst~~ ⁽²⁾ Reference
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed here within this document
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed here within this document
32.0		Certification pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002	Filed here within this document
101.0		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2017,~~March 31, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements

~~(1) Incorporated by reference from Exhibit 2.1 to current report on Form 8-K filed July 3, 2017.~~

~~(2) Incorporated by reference from Exhibit 3.1 to current report on Form 10-Q filed August 9, 2017.~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	OceanFirst Financial Corp.
	Registrant



DATE: ~~November 8, 2017~~	May 9, 2018	/s/ Christopher D. Maher
		Christopher D. Maher
		Chairman, President and Chief Executive Officer



DATE: ~~November 8, 2017~~	May 9, 2018	/s/ Michael J. Fitzpatrick
		Michael J. Fitzpatrick
		Executive Vice President and Chief Financial Officer

Exhibit Index



Exhibit			Description

31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.0			Certification pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002
101.0			The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30 2017,~~March 31, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

5347



	FOR THE NINE MONTHS ENDED
	September 30, 2017							September 30, 2016
	AVERAGE BALANCE			INTEREST		AVERAGE YIELD/ COST		AVERAGE BALANCE			INTEREST		AVERAGE YIELD/ COST
	(dollars in thousands)
Assets:
Interest-earning assets:
Interest-earning deposits and short-term investments	$	180,821		$	1,058	0.78	%	$	86,007		$	209	0.32	%
Securities ⁽¹⁾and FHLB stock	769,932			12,186		2.12		517,051			7,149		1.85
Loans receivable, net ⁽²⁾
Commercial	1,849,246			65,619		4.74		1,390,196			49,750		4.78
Residential	1,720,185			52,231		4.06		1,009,012			29,139		3.86
Home Equity	283,419			9,760		4.60		228,172			7,233		4.23
Other	1,180			69		7.82		893			41		6.13
Allowance for loan loss net of deferred loan fees	(12,338		)	—		—		(13,379		)	—		—
Loans Receivable, net	3,841,692			127,679		4.44		2,614,894			86,163		4.40
Total interest-earning assets	4,792,445			140,923		3.93		3,217,952			93,521		3.88
Non-interest-earning assets	461,752							236,399
Total assets	$	5,254,197						$	3,454,351
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing checking	$	1,746,601		3,086		0.24	%	$	1,181,110		1,391		0.16	%
Money market	418,681			891		0.28		280,836			546		0.26
Savings	675,684			285		0.06		413,388			117		0.04
Time deposits	628,126			4,559		0.97		386,505			3,071		1.06
Total	3,469,092			8,821		0.34		2,261,839			5,125		0.30
Securities sold under agreements to repurchase	74,729			82		0.15		76,289			78		0.14
FHLB Advances	258,147			3,340		1.73		272,405			3,351		1.64
Other borrowings	56,450			1,967		4.66		23,846			459		2.57
Total interest-bearing liabilities	3,858,418			14,210		0.49		2,634,379			9,013		0.46
Non-interest-bearing deposits	781,608							448,459
Non-interest-bearing liabilities	28,351							23,650
Total liabilities	4,668,377							3,106,488
Stockholders equity	585,820							347,863
Total liabilities and equity	$	5,254,197						$	3,454,351
Net interest income				$	126,713						$	84,508
Net interest rate spread ⁽³⁾						3.44	%						3.42	%
Net interest margin ⁽⁴⁾						3.54	%						3.51	%
Total cost of deposits (including non-interest-bearing deposits)						0.28	%						0.25	%



	At May 2, 2016
	Fair Value
Total Purchase Price:	$	196,403
Assets acquired:
Cash and cash equivalents	$	30,025
Securities and Federal Home Loan Bank Stock	218,938
Loans	1,156,719
Premises and equipment	25,999
Other real estate owned	1,683
Deferred tax asset	17,826
Other assets	61,793
Core deposit intangible	3,718
Total assets acquired	$	1,516,701
Liabilities assumed:
Deposits	$	(1,248,367	)
Borrowings	(124,466		)
Other liabilities	(12,767		)
Total liabilities assumed	$	(1,385,600	)
Net assets acquired	$	131,101
Goodwill recorded in the merger	$	65,302

Number of Loans

Recorded Investment

Troubled Debt Restructurings

Which Subsequently Defaulted: