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, 20162022 (the “2016“2022 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 estimated fair value or the lower of cost or estimated fair value. Policies with respect to the methodology used to determine the allowance for loancredit losses and judgments regarding securities and goodwill impairment are the mostis a critical accounting policiespolicy and estimate because they are importantof its importance to the presentation of the Company’s financial condition and results of operations. These judgments and policies involveThe critical accounting policy involves a higher degree of complexity and requirerequires 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. TheseThe critical accounting policiespolicy and theirits application areis reviewed periodically, and at least annually, with the Audit Committee of the Board of Directors.
Impact of New Accounting Pronouncements
Accounting Pronouncements Adopted in 2023
In March 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-01 “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method”, which made targeted improvements to the optional hedge accounting model with the objective of improving hedge accounting to better portray the economic results of an entity’s risk management activities in its financial statements. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2022. Early adoption is permitted for any entity that has adopted the amendments in ASU 2017-12 for the corresponding period. The adoption of this standard did not have an impact on the Company’s consolidated financial statements, as the Company currently does not have any fair value hedges.
In March 2022, FASB issued ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”. The amendments in this ASU were issued to (1) eliminate accounting guidance for TDRs by creditors, while enhancing disclosure requirements for loan refinancings and restructurings when a borrower is experiencing financial difficulty; (2) require disclosures of current period gross write-offs by year of origination for financing receivables and net investments in leases. For entities that have adopted the amendments in ASU 2016-13, Measurement of Credit Losses on Financial Instruments, this update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2022. Early adoption is permitted. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, where there is an option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The Company adopted this guidance prospectively, and the adoption of this standard did not have an impact on the Company’s consolidated financial statements.
In December 2022, FASB issued ASU 2022-06, “Deferral of the Sunset Date of Topic 848”, which was effective upon issuance. The amendments in this ASU defer the sunset date of Topic 848 (Reference Rate Reform) from December 31, 2022 to December 31, 2024. Topic 848, originally issued in 2020 and later amended in 2021, provides optional accounting expedients and exceptions for certain loan agreements, derivatives and other transactions affected by the transition away from London Inter-Bank Offered Rate (“LIBOR”) towards alternative reference rates. As of December 31, 2021, the Company adopted certain of these practical expedients in Topic 848 and will continue to apply prospectively until December 31, 2024. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
Transition from LIBOR
As of December 31, 2021, the Company ceased issuing LIBOR-based products and transitioned to Alternative Rates. For the tenors of U.S. dollar LIBOR utilized by the Company, the administrator of LIBOR extended publication until June 30, 2023. As of June 30, 2023, the Company has transitioned substantially all of its previously existing LIBOR-based products that were not expected to mature or settle prior to the cessation date. Contract language for all remaining LIBOR-based loans, securities, and borrowings has been reviewed and updated as necessary to automatically convert to an Alternative Rate at their next rate reset date with no action required.
Recent Accounting Pronouncements Not Yet Adopted
In June 2022, FASB issued ASU 2022-03, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. In addition, this update introduces new disclosure requirements to provide information about the contractual sales restriction including the nature and remaining duration of the restriction. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2023. Early adoption is permitted. The Company does not expect this standard to have a material impact to the consolidated financial statements.
In March 2023, FASB issued ASU 2023-02, “Investments - Equity Method and Joint Venture (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method”. The amendments in this ASU permit reporting entities to account for the tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of this standard on the consolidated financial statements.
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.OceanFirst Financial Corp. (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,to: changes in interest rates, inflation, general economic conditions, potential recessionary conditions, levels of unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, future natural disasters, andpotential increases to flood insurance premiums, the current or anticipated impact of military conflict, terrorism or other geopolitical events, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System,FRB, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, changes in liquidity, including the size and composition of the Company’s deposit portfolio, including the percentage of uninsured deposits in the portfolio, competition, demand for financial services in the Company’s market area, changes in consumer spending, borrowing and savings habits, changes in accounting principles, a failure in or breach of the Company’s operational or security systems or infrastructure, including cyberattacks, the failure to maintain current technologies, failure to retain or attract employees, the impact of the COVID-19 pandemic or any other pandemic on our operations and guidelinesfinancial results and those of our customers and the Bank’s ability to successfully integrate acquired operations.
These risks and uncertainties are further discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162022, under Item 1A - Risk Factors and elsewhere, and subsequent securities filings and should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Further description
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Management of Interest Rate Risk (“IRR”)
Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from the IRR inherent in its lending, investment, deposit-taking, and funding activities. The Company’s profitability is affected by fluctuations in interest rates. Changes in interest rates may negatively or positively impact the Company’s earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis. Changes in interest rates may also negatively or positively impact the market value of the Company’s investment securities, in particular fixed-rate instruments. Net gains or losses in available-for-sale securities can increase or decrease accumulated other comprehensive income or loss and total stockholders’ equity. To that end, management actively monitors and manages IRR. The extent of the movement of interest rates, higher or lower, is an uncertainty that could have a substantial impact on the earnings and stockholders’ equity of the Company.
The principal objectives of the IRR management function are to: evaluate the IRR inherent in the Company’s business; determine the level of risk appropriate given the Company’s business focus, operating environment, capital, and liquidity requirements and performance objectives; and manage the risk consistent with Board approved guidelines. The Company’s Board has established an Asset Liability Committee (“ALCO”) consisting of members of management, responsible for reviewing asset liability policies and the IRR position. ALCO meets regularly and reports the Company’s IRR position and trends to the Board on a regular basis.
The Company utilizes a number of strategies to manage IRR including, but not limited to: (1) managing the origination, purchase, sale, and retention of various types of loans with differing IRR profiles; (2) attempting to reduce the overall interest rate sensitivity of liabilities by emphasizing core and longer-term deposits; (3) selectively purchasing interest rate swaps and caps converting the rates for customer loans to manage individual loans and the Bank’s overall IRR profile; (4) managing the investment portfolio IRR profile; (5) managing the maturities and rate structures of borrowings; and (6) purchasing interest rate swaps to manage overall balance sheet interest rate risk.
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive.” 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,IRR model, 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, the Company’s one-year gap was negative 4.38% as compared to negative 3.47% at December 31, 2016. 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 |
(dollars in thousands) | | | | | | | | | | | |
Interest-earning assets: (1) | | | | | | | | | | | |
Interest-earning deposits and short-term investments | $ | 174,079 |
| | $ | 971 |
| | $ | 2,713 |
| | $ | — |
| | $ | — |
| | $ | 177,763 |
|
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 |
|
Loans receivable (2) | 596,331 |
| | 813,588 |
| | 1,217,892 |
| | 694,223 |
| | 560,352 |
| | 3,882,386 |
|
Total interest-earning assets | 870,313 |
| | 914,213 |
| | 1,461,931 |
| | 870,545 |
| | 780,149 |
| | 4,897,151 |
|
Interest-bearing liabilities: | | | | | | | | | | | |
Money market deposit accounts | 27,938 |
| | 26,132 |
| | 60,662 |
| | 49,481 |
| | 219,893 |
| | 384,106 |
|
Savings accounts | 83,497 |
| | 51,208 |
| | 115,685 |
| | 90,608 |
| | 327,372 |
| | 668,370 |
|
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 |
|
FHLB advances | — |
| | 55,000 |
| | 159,060 |
| | 45,126 |
| | — |
| | 259,186 |
|
Securities sold under agreements to repurchase and other borrowings | 97,826 |
| | — |
| | — |
| | 33,966 |
| | — |
| | 131,792 |
|
Total interest-bearing liabilities | 1,590,716 |
| | 408,509 |
| | 642,142 |
| | 423,958 |
| | 894,869 |
| | 3,960,194 |
|
Interest sensitivity gap (3) | $ | (720,403 | ) | | $ | 505,704 |
| | $ | 819,789 |
| | $ | 446,587 |
| | $ | (114,720 | ) | | $ | 936,957 |
|
Cumulative interest sensitivity gap | $ | (720,403 | ) | | $ | (214,699 | ) | | $ | 605,090 |
| | $ | 1,051,677 |
| | $ | 936,957 |
| | $ | 936,957 |
|
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) | 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 bymeasures the change in the institution’s economic value of equity (“EVE”) and net interest income under varyingvarious interest rate shocksscenarios. EVE is the difference between the net present value of assets, liabilities and off-balance-sheet contracts. The EVE ratio, in any interest rate scenario, is defined as the EVE in that scenario divided by the fair value of assets in the same scenario. Interest rate sensitivity is monitored by management through the use of a model which measures IRR by modeling the change in EVE and net interest income over a range of interest rate scenarios. Modeled assets and liabilities are assumed to reprice at respective repricing or maturity dates. Pricing caps and floors are included in the results, where applicable. The Company uses prepayment expectations set forth by market sources as well as Company generated data where applicable. Generally, cash flows from loans and securities are assumed to be reinvested to maintain a static balance sheet. Other assumptions about balance sheet mix are generally held constant. The Company’s interest rate sensitivity should be reviewed in conjunction with the financial statements and notes thereto contained in the 2022 Form 10-K.
The Company performs a variety of EVE and twelve-month net interest income sensitivity scenarios. The following table sets forth sensitivity scenarios for a specific range of interest rate scenarios as of SeptemberJune 30, 20172023 and December 31, 2016. All methods2022 (dollars in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Change in Interest Rates in Basis Points (Rate Shock) | Economic Value of Equity | | Net Interest Income | | Economic Value of Equity | | Net Interest Income |
Amount | | % Change | | EVE Ratio | | Amount | | % Change | | Amount | | % Change | | EVE Ratio | | Amount | | % Change |
(dollars in thousands) | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
200 | $ | 1,023,376 | | | (12.9) | % | | 8.8 | % | | $ | 391,374 | | | 3.5 | % | | $ | 1,574,239 | | | (8.5) | % | | 13.7 | % | | $ | 440,916 | | | 1.2 | % |
100 | 1,090,156 | | | (7.2) | | | 9.2 | | | 384,774 | | | 1.7 | | | 1,646,301 | | | (4.3) | | | 13.9 | | | 438,280 | | | 0.6 | |
Static | 1,174,533 | | | — | | | 9.6 | | | 378,181 | | | — | | | 1,719,619 | | | — | | | 14.1 | | | 435,492 | | | — | |
(100) | 1,279,641 | | | 8.9 | | | 10.1 | | | 366,624 | | | (3.1) | | | 1,762,678 | | | 2.5 | | | 14.0 | | | 428,519 | | | (1.6) | |
(200) | 1,399,997 | | | 19.2 | | | 10.7 | | | 351,948 | | | (6.9) | | | 1,740,837 | | | 1.2 | | | 13.5 | | | 412,038 | | | (5.4) | |
The net interest income sensitivity results indicate that at both June 30, 2023 and December 31, 2022 the Company was modestly asset sensitive. The change in sensitivity between these periods was impacted by floating rate loan growth and an increase in longer-term fixed-rate funding, partially offset by the deposit mix shift into short-term time deposits.
Overall, the measure of EVE at risk increased in all rising rate scenarios from December 31, 2022 to June 30, 2023. This increase is the result of rising market rates resulting in lower market values in the loan portfolio, along with the impact of an increase in deposit costs and a shift from lower cost, long-term non-maturity deposits to higher cost time deposits.
Certain shortcomings are inherent in the methodology used to measurein the EVE and net interest rate sensitivity involveincome IRR measurements. The model requires the usemaking of certain assumptions which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. TheFirst, the model assumes that the composition of the Company’s interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured. Second, the model assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Third, the model does not take into account the Company’s business or strategic plans or any steps it may take to respond to changes in rates. Fourth, prepayment, rate sensitivity, should be reviewedand average life assumptions can have a significant impact on the IRR model results. Lastly, the model utilizes data derived from historical performance. Accordingly, although the above measurements provide an indication of the Company’s IRR exposure at a particular point in conjunction withtime, such measurements are not intended to provide a precise forecast of the financial statements and notes thereto containedeffect of changes in market interest rates, given the 2016 Form 10-K.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Change in Interest Rates in Basis Points (Rate Shock) | Economic Value of Equity | | Net Interest Income | | Economic Value of Equity | | Net Interest Income |
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 | )% |
200 | 797,951 |
| | 2.0 |
| | 15.4 |
| | 161,134 |
| | (5.7 | ) | | 678,347 |
| | 1.0 |
| | 14.0 |
| | 158,078 |
| | (0.1 | ) |
100 | 799,982 |
| | 2.3 |
| | 15.1 |
| | 166,414 |
| | (2.6 | ) | | 683,492 |
| | 1.7 |
| | 13.7 |
| | 158,840 |
| | 0.3 |
|
Static | 781,958 |
| | — |
| | 14.4 |
| | 170,833 |
| | — |
| | 671,878 |
| | — |
| | 13.2 |
| | 158,309 |
| | — |
|
(100) | 733,571 |
| | (6.2 | ) | | 13.2 |
| | 164,993 |
| | (3.4 | ) | | 620,675 |
| | (7.6 | ) | | 11.9 |
| | 152,007 |
| | (4.0 | ) |
The increasedunique nature of the post-pandemic interest rate sensitivity ofenvironment and the speed with which interest rates have been changing, the projections noted above on the Company’s EVE and net interest income in a rising interest rate environment at September 30, 2017, as comparedand can be expected to December 31, 2016, is primarily the result 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.significantly differ from actual results.
Item 4. Controls and Procedures
(a) Disclosure 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
(b) Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended SeptemberJune 30, 20172023 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)
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2023 | | 2022 |
| (Unaudited) | | |
Assets | | | |
Cash and due from banks | $ | 457,747 | | | $ | 167,946 | |
| | | |
Debt securities available-for-sale, at estimated fair value | 452,016 | | | 457,648 | |
Debt securities held-to-maturity, net of allowance for securities credit losses of $964 at June 30, 2023 and $1,128 at December 31, 2022 (estimated fair value of $1,109,756 at June 30, 2023 and $1,110,041 at December 31, 2022) | 1,222,507 | | | 1,221,138 | |
Equity investments | 96,452 | | | 102,037 | |
Restricted equity investments, at cost | 105,305 | | | 109,278 | |
Loans receivable, net of allowance for loan credit losses of $61,791 at June 30, 2023 and $56,824 at December 31, 2022 | 10,030,106 | | | 9,868,718 | |
Loans held-for-sale | 4,200 | | | 690 | |
Interest and dividends receivable | 47,933 | | | 44,704 | |
| | | |
Premises and equipment, net | 124,139 | | | 126,705 | |
| | | |
Bank owned life insurance | 263,836 | | | 261,603 | |
| | | |
Assets held for sale | 3,608 | | | 2,719 | |
Goodwill | 506,146 | | | 506,146 | |
Core deposit intangible | 11,476 | | | 13,497 | |
Other assets | 213,432 | | | 221,067 | |
Total assets | $ | 13,538,903 | | | $ | 13,103,896 | |
Liabilities and Stockholders’ Equity | | | |
Deposits | $ | 10,158,337 | | | $ | 9,675,206 | |
Federal Home Loan Bank (“FHLB”) advances | 1,091,666 | | | 1,211,166 | |
Securities sold under agreements to repurchase with customers | 74,452 | | | 69,097 | |
Other borrowings | 195,925 | | | 195,403 | |
Advances by borrowers for taxes and insurance | 27,839 | | | 21,405 | |
Other liabilities | 364,401 | | | 346,155 | |
Total liabilities | 11,912,620 | | | 11,518,432 | |
Stockholders’ equity: | | | |
Preferred stock, $0.01 par value, $1,000 liquidation preference, 5,000,000 shares authorized, and 57,370 shares issued at both June 30, 2023 and December 31, 2022 | 1 | | | 1 | |
Common stock, $0.01 par value, 150,000,000 shares authorized, 62,155,942 and 61,877,686 shares issued at June 30, 2023 and December 31, 2022, respectively; and 59,420,859 and 59,144,128 shares outstanding at June 30, 2023 and December 31, 2022, respectively | 613 | | | 612 | |
Additional paid-in capital | 1,159,394 | | | 1,154,821 | |
Retained earnings | 569,867 | | | 540,507 | |
Accumulated other comprehensive loss | (30,348) | | | (35,982) | |
Less: Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") | (4,986) | | | (6,191) | |
Treasury stock, 2,735,083 shares at both June 30, 2023 and December 31, 2022 | (69,106) | | | (69,106) | |
| | | |
| | | |
OceanFirst Financial Corp. stockholders’ equity | 1,625,435 | | | 1,584,662 | |
Non-controlling interest | 848 | | | 802 | |
Total stockholders’ equity | 1,626,283 | | | 1,585,464 | |
Total liabilities and stockholders’ equity | $ | 13,538,903 | | | $ | 13,103,896 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (Unaudited) | | |
Assets | | | |
Cash and due from banks | $ | 255,258 |
| | $ | 301,373 |
|
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 |
|
Loans receivable, net | 3,870,109 |
| | 3,803,443 |
|
Loans held for sale | 338 |
| | 1,551 |
|
Interest and dividends receivable | 13,627 |
| | 11,989 |
|
Other real estate owned | 9,334 |
| | 9,803 |
|
Premises and equipment, net | 64,350 |
| | 71,385 |
|
Bank Owned Life Insurance | 134,298 |
| | 132,172 |
|
Deferred tax asset | 29,718 |
| | 38,787 |
|
Assets held for sale | 5,241 |
| | 360 |
|
Other assets | 15,634 |
| | 9,973 |
|
Core deposit intangible | 9,380 |
| | 10,924 |
|
Goodwill | 148,134 |
| | 145,064 |
|
Total assets | $ | 5,383,912 |
| | $ | 5,167,052 |
|
Liabilities and Stockholders’ Equity | | | |
Deposits | $ | 4,350,259 |
| | $ | 4,187,750 |
|
Securities sold under agreements to repurchase with deposit customers | 75,326 |
| | 69,935 |
|
Federal Home Loan Bank advances | 259,186 |
| | 250,498 |
|
Other borrowings | 56,466 |
| | 56,559 |
|
Advances by borrowers for taxes and insurance | 14,371 |
| | 14,030 |
|
Other liabilities | 32,052 |
| | 16,242 |
|
Total liabilities | 4,787,660 |
| | 4,595,014 |
|
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 |
|
Additional paid-in capital | 353,817 |
| | 364,433 |
|
Retained earnings | 266,053 |
| | 238,192 |
|
Accumulated other comprehensive loss | (5,037 | ) | | (5,614 | ) |
Less: Unallocated common stock held by Employee Stock Ownership Plan | (2,549 | ) | | (2,761 | ) |
Treasury stock, 999,295 and 1,429,880 shares at September 30, 2017 and December 31, 2016, respectively | (16,368 | ) | | (22,548 | ) |
Common stock acquired by Deferred Compensation Plan | (83 | ) | | (313 | ) |
Deferred Compensation Plan Liability | 83 |
| | 313 |
|
Total stockholders’ equity | 596,252 |
| | 572,038 |
|
Total liabilities and stockholders’ equity | $ | 5,383,912 |
| | $ | 5,167,052 |
|
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 June 30, | | For the Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2023 | | 2022 | | 2023 | | 2022 |
| (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) |
Interest income: | | | | | | | | Interest income: | |
Loans | $ | 43,329 |
| | $ | 34,607 |
| | $ | 127,679 |
| | $ | 86,163 |
| Loans | $ | 129,104 | | | $ | 90,731 | | | $ | 250,824 | | | $ | 173,199 | |
Mortgage-backed securities | 2,738 |
| | 1,700 |
| | 8,189 |
| | 4,823 |
| |
Investment securities and other | 1,963 |
| | 1,000 |
| | 5,055 |
| | 2,535 |
| |
Debt securities | | Debt securities | 14,320 | | | 7,473 | | | 28,606 | | | 14,977 | |
Equity investments and other | | Equity investments and other | 6,672 | | | 1,212 | | | 9,700 | | | 2,223 | |
Total interest income | 48,030 |
| | 37,307 |
| | 140,923 |
| | 93,521 |
| Total interest income | 150,096 | | | 99,416 | | | 289,130 | | | 190,399 | |
Interest expense: | | | | | | | | Interest expense: | | | | | | | |
Deposits | 3,126 |
| | 2,083 |
| | 8,821 |
| | 5,125 |
| Deposits | 37,934 | | | 4,317 | | | 59,264 | | | 8,358 | |
Borrowed funds | 1,848 |
| | 1,289 |
| | 5,389 |
| | 3,888 |
| Borrowed funds | 20,053 | | | 4,302 | | | 38,955 | | | 7,017 | |
Total interest expense | 4,974 |
| | 3,372 |
| | 14,210 |
| | 9,013 |
| Total interest expense | 57,987 | | | 8,619 | | | 98,219 | | | 15,375 | |
Net interest income | 43,056 |
| | 33,935 |
| | 126,713 |
| | 84,508 |
| Net interest income | 92,109 | | | 90,797 | | | 190,911 | | | 175,024 | |
Provision for loan losses | 1,165 |
| | 888 |
| | 3,030 |
| | 2,113 |
| |
Net interest income after provision for loan losses | 41,891 |
| | 33,047 |
| | 123,683 |
| | 82,395 |
| |
Provision for credit losses | | Provision for credit losses | 1,229 | | | 1,254 | | | 4,242 | | | 3,105 | |
Net interest income after provision for credit losses | | Net interest income after provision for credit losses | 90,880 | | | 89,543 | | | 186,669 | | | 171,919 | |
Other income: | | | | | | | | Other income: | | | | | | | |
Bankcard services revenue | 1,785 |
| | 1,347 |
| | 5,202 |
| | 3,409 |
| Bankcard services revenue | 1,544 | | | 3,310 | | | 2,874 | | | 6,273 | |
Wealth management revenue | 541 |
| | 608 |
| | 1,622 |
| | 1,779 |
| |
Trust and asset management revenue | | Trust and asset management revenue | 645 | | | 658 | | | 1,257 | | | 1,267 | |
Fees and service charges | 3,702 |
| | 2,916 |
| | 11,163 |
| | 7,235 |
| Fees and service charges | 5,602 | | | 7,646 | | | 10,761 | | | 10,706 | |
Net gain (loss) from other real estate operations | 432 |
| | (63 | ) | | (196 | ) | | (782 | ) | |
Income from Bank Owned Life Insurance | 881 |
| | 659 |
| | 2,436 |
| | 1,520 |
| |
| Net gain on sales of loans | | Net gain on sales of loans | 33 | | | 3 | | | 53 | | | 180 | |
Net loss on equity investments | | Net loss on equity investments | (559) | | | (8,078) | | | (7,360) | | | (10,864) | |
Net gain from other real estate operations | | Net gain from other real estate operations | — | | | 50 | | | — | | | 48 | |
Income from bank owned life insurance | | Income from bank owned life insurance | 1,182 | | | 1,422 | | | 2,463 | | | 3,525 | |
Commercial loan swap income | | Commercial loan swap income | — | | | 2,294 | | | 701 | | | 5,075 | |
Other | 18 |
| | 429 |
| | 97 |
| | 994 |
| Other | 481 | | | 236 | | | 252 | | | 183 | |
Total other income | 7,359 |
| | 5,896 |
| | 20,324 |
| | 14,155 |
| Total other income | 8,928 | | | 7,541 | | | 11,001 | | | 16,393 | |
Operating expenses: | | | | | | | | Operating expenses: | | | | | | | |
Compensation and employee benefits | 14,673 |
| | 13,558 |
| | 46,138 |
| | 33,456 |
| Compensation and employee benefits | 34,222 | | | 33,153 | | | 68,142 | | | 63,848 | |
Occupancy | 2,556 |
| | 2,315 |
| | 7,965 |
| | 5,952 |
| Occupancy | 5,265 | | | 4,758 | | | 10,504 | | | 10,502 | |
Equipment | 1,605 |
| | 1,452 |
| | 5,006 |
| | 3,605 |
| Equipment | 1,101 | | | 1,336 | | | 2,306 | | | 2,706 | |
Marketing | 775 |
| | 479 |
| | 2,245 |
| | 1,273 |
| Marketing | 961 | | | 971 | | | 1,943 | | | 1,587 | |
Federal deposit insurance | 713 |
| | 743 |
| | 2,079 |
| | 1,995 |
| |
Federal deposit insurance and regulatory assessments | | Federal deposit insurance and regulatory assessments | 2,465 | | | 1,788 | | | 4,214 | | | 3,678 | |
Data processing | 2,367 |
| | 2,140 |
| | 6,809 |
| | 5,286 |
| Data processing | 6,165 | | | 6,170 | | | 12,319 | | | 11,906 | |
Check card processing | 871 |
| | 623 |
| | 2,640 |
| | 1,548 |
| Check card processing | 1,214 | | | 1,515 | | | 2,495 | | | 2,497 | |
Professional fees | 846 |
| | 681 |
| | 2,901 |
| | 1,879 |
| Professional fees | 5,083 | | | 2,472 | | | 10,181 | | | 5,794 | |
| Amortization of core deposit intangible | | Amortization of core deposit intangible | 994 | | | 1,178 | | | 2,021 | | | 2,388 | |
Branch consolidation expense, net | | Branch consolidation expense, net | — | | | 546 | | | 70 | | | 948 | |
Merger related expenses | | Merger related expenses | — | | | 196 | | | 22 | | | 2,161 | |
Other operating expense | 2,667 |
| | 1,543 |
| | 8,258 |
| | 5,036 |
| Other operating expense | 5,460 | | | 4,578 | | | 10,022 | | | 8,141 | |
Federal Home Loan Bank prepayment fee | — |
| | — |
| | — |
| | 136 |
| |
Amortization of core deposit intangible | 507 |
| | 181 |
| | 1,544 |
| | 319 |
| |
Branch consolidation expenses | 1,455 |
| | — |
| | 6,939 |
| | — |
| |
Merger related expenses | 1,698 |
| | 1,311 |
| | 6,300 |
| | 9,902 |
| |
Total operating expenses | 30,733 |
| | 25,026 |
| | 98,824 |
| | 70,387 |
| Total operating expenses | 62,930 | | | 58,661 | | | 124,239 | | | 116,156 | |
Income before provision for income taxes | 18,517 |
| | 13,917 |
| | 45,183 |
| | 26,163 |
| Income before provision for income taxes | 36,878 | | | 38,423 | | | 73,431 | | | 72,156 | |
Provision for income taxes | 5,700 |
| | 4,789 |
| | 12,669 |
| | 9,169 |
| Provision for income taxes | 8,996 | | | 8,940 | | | 17,650 | | | 16,914 | |
Net income | $ | 12,817 |
| | $ | 9,128 |
| | $ | 32,514 |
| | $ | 16,994 |
| Net income | 27,882 | | | 29,483 | | | 55,781 | | | 55,242 | |
Net income attributable to non-controlling interest | | Net income attributable to non-controlling interest | 85 | | | 522 | | | 101 | | | 522 | |
Net income attributable to OceanFirst Financial Corp. | | Net income attributable to OceanFirst Financial Corp. | 27,797 | | | 28,961 | | | 55,680 | | | 54,720 | |
Dividends on preferred shares | | Dividends on preferred shares | 1,004 | | | 1,004 | | | 2,008 | | | 2,008 | |
Net income available to common stockholders | | Net income available to common stockholders | $ | 26,793 | | | $ | 27,957 | | | $ | 53,672 | | | $ | 52,712 | |
Basic earnings per share | $ | 0.40 |
| | $ | 0.36 |
| | $ | 1.01 |
| | $ | 0.79 |
| Basic earnings per share | $ | 0.45 | | | $ | 0.48 | | | $ | 0.91 | | | $ | 0.90 | |
Diluted earnings per share | $ | 0.39 |
| | $ | 0.35 |
| | $ | 0.98 |
| | $ | 0.77 |
| Diluted earnings per share | $ | 0.45 | | | $ | 0.47 | | | $ | 0.91 | | | $ | 0.89 | |
Average basic shares outstanding | 32,184 |
| | 25,435 |
| | 32,073 |
| | 21,624 |
| Average basic shares outstanding | 59,147 | | | 58,894 | | | 58,988 | | | 58,823 | |
Average diluted shares outstanding | 33,106 |
| | 25,889 |
| | 33,110 |
| | 21,990 |
| Average diluted shares outstanding | 59,153 | | | 58,995 | | | 59,038 | | | 58,975 | |
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, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Unaudited) | | (Unaudited) |
Net income | $ | 12,817 |
| | $ | 9,128 |
| | $ | 32,514 |
| | $ | 16,994 |
|
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 | ) |
Total comprehensive income | $ | 12,979 |
| | $ | 9,310 |
| | $ | 33,091 |
| | $ | 17,624 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (Unaudited) | | (Unaudited) |
Net income | $ | 27,882 | | | $ | 29,483 | | | $ | 55,781 | | | $ | 55,242 | |
Other comprehensive (loss) income: | | | | | | | |
Net unrealized gain (loss) on debt securities (net of tax expense of $92 and $1,858 in 2023 and tax benefit of $4,460 and $8,388 in 2022, respectively) | 282 | | | (13,996) | | | 5,829 | | | (26,368) | |
Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $54 and $110 in 2023 and tax expense of $61 and $126 in 2022, respectively) | 82 | | | 89 | | | 161 | | | 178 | |
Unrealized loss on derivative hedges (net of tax benefit of $506 and $375 in 2023) | (1,588) | | | — | | | (1,176) | | | — | |
Reclassification adjustment for losses (gains) included in net income (net of tax expense of $61 and $262 in 2023 and benefit of $5 and $26 in 2022, respectively) | 191 | | | (16) | | | 820 | | | (82) | |
| | | | | | | |
Total other comprehensive (loss) income, net of tax | (1,033) | | | (13,923) | | | 5,634 | | | (26,272) | |
Total comprehensive income | 26,849 | | | 15,560 | | | 61,415 | | | 28,970 | |
Less: comprehensive income attributable to non-controlling interest | 85 | | | 522 | | | 101 | | | 522 | |
Comprehensive income attributable to OceanFirst Financial Corp. | 26,764 | | | 15,038 | | | 61,314 | | | 28,448 | |
Less: Dividends on preferred shares | 1,004 | | | 1,004 | | | 2,008 | | | 2,008 | |
Total comprehensive income available to common stockholders | $ | 25,760 | | | $ | 14,034 | | | $ | 59,306 | | | $ | 26,440 | |
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 NineThree Months Ended SeptemberJune 30, 20172023 and 20162022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Employee Stock Ownership Plan | | Treasury Stock | | Non-Controlling Interest | | | | | | Total |
Balance at March 31, 2022 | $ | 1 | | | $ | 612 | | | $ | 1,149,503 | | | $ | 456,251 | | | $ | (15,170) | | | $ | (8,009) | | | $ | (63,854) | | | $ | — | | | | | | | $ | 1,519,334 | |
Net income | — | | | — | | | — | | | 28,961 | | | — | | | — | | | — | | | 522 | | | | | | | 29,483 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (13,923) | | | — | | | — | | | — | | | | | | | (13,923) | |
Stock compensation | — | | | — | | | 1,848 | | | — | | | — | | | — | | | — | | | — | | | | | | | 1,848 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Allocation of ESOP stock | — | | | — | | | (30) | | | — | | | — | | | 606 | | | — | | | — | | | | | | | 576 | |
Cash dividend $0.17 per share | — | | | — | | | — | | | (10,022) | | | — | | | — | | | — | | | — | | | | | | | (10,022) | |
Exercise of stock options | — | | | — | | | 42 | | | (80) | | | — | | | — | | | — | | | — | | | | | | | (38) | |
| | | | | | | | | | | | | | | | | | | | | |
Repurchase 272,779 shares of common stock | — | | | — | | | — | | | — | | | — | | | — | | | (5,252) | | | — | | | | | | | (5,252) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Preferred stock dividend | — | | | — | | | — | | | (1,004) | | | — | | | — | | | — | | | — | | | | | | | (1,004) | |
Acquisition of Trident Abstract Title Agency, LLC (“Trident”) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 836 | | | | | | | 836 | |
Distributions to non-controlling interest | — | | | — | | | — | | | 8 | | | — | | | — | | | — | | | (414) | | | | | | | (406) | |
Balance at June 30, 2022 | $ | 1 | | | $ | 612 | | | $ | 1,151,363 | | | $ | 474,114 | | | $ | (29,093) | | | $ | (7,403) | | | $ | (69,106) | | | $ | 944 | | | | | | | $ | 1,521,432 | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2023 | $ | 1 | | | $ | 613 | | | $ | 1,158,007 | | | $ | 554,941 | | | $ | (29,315) | | | $ | (5,588) | | | $ | (69,106) | | | $ | 818 | | | | | | | $ | 1,610,371 | |
Net income | — | | | — | | | — | | | 27,797 | | | — | | | — | | | — | | | 85 | | | | | | | 27,882 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (1,033) | | | — | | | — | | | — | | | | | | | (1,033) | |
Stock compensation | — | | | — | | | 1,508 | | | — | | | — | | | — | | | — | | | — | | | | | | | 1,508 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Allocation of ESOP stock | — | | | — | | | (136) | | | — | | | — | | | 602 | | | — | | | — | | | | | | | 466 | |
Cash dividend $0.20 per share | — | | | — | | | — | | | (11,837) | | | — | | | — | | | — | | | — | | | | | | | (11,837) | |
Exercise of stock options | — | | | — | | | 15 | | | (30) | | | — | | | — | | | — | | | — | | | | | | | (15) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Preferred stock dividend | — | | | — | | | — | | | (1,004) | | | — | | | — | | | — | | | — | | | | | | | (1,004) | |
| | | | | | | | | | | | | | | | | | | | | |
Distributions to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (55) | | | | | | | (55) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2023 | $ | 1 | | | $ | 613 | | | $ | 1,159,394 | | | $ | 569,867 | | | $ | (30,348) | | | $ | (4,986) | | | $ | (69,106) | | | $ | 848 | | | | | | | $ | 1,626,283 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
|
Net income | — |
| | — |
| | — |
| | 32,514 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 32,514 |
|
Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | 577 |
| | — |
| | — |
| | — |
| | — |
| | 577 |
|
Effect of adopting Accounting Standards Update ("ASU") No. 2016-09 | — |
| | — |
| | (11,129 | ) | | 11,129 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Stock awards | — |
| | — |
| | 1,678 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,678 |
|
Treasury stock allocated to restricted stock plan | — |
| | — |
| | (1,645 | ) | | 782 |
| | — |
| | — |
| | 863 |
| | — |
| | — |
| | — |
|
Allocation of ESOP stock | — |
| | — |
| | 480 |
| | — |
| | — |
| | 212 |
| | — |
| | — |
| | — |
| | 692 |
|
Cash dividend $0.45 per share | — |
| | — |
| | — |
| | (14,439 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (14,439 | ) |
Exercise of stock options | — |
| | — |
| | — |
| | (2,125 | ) | | — |
| | — |
| | 5,317 |
| | — |
| | — |
| | 3,192 |
|
Sale of stock for the deferred compensation plan | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 230 |
| | (230 | ) | | — |
|
Balance at September 30, 2017 | $ | — |
| | $ | 336 |
| | $ | 353,817 |
| | $ | 266,053 |
| | $ | (5,037 | ) | | $ | (2,549 | ) | | $ | (16,368 | ) | | $ | (83 | ) | | $ | 83 |
| | $ | 596,252 |
|
OceanFirst Financial Corp.Consolidated Statements of Changes in Stockholders’ Equity
(dollars in thousands, except per share amounts)
(Unaudited)
For the Six Months Ended June 30, 2023 and 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Employee Stock Ownership Plan | | Treasury Stock | | Non-Controlling Interest | | | | | | | Total |
Balance at December 31, 2021 | $ | 1 | | | $ | 611 | | | $ | 1,146,781 | | | $ | 442,306 | | | $ | (2,821) | | | $ | (8,615) | | | $ | (61,710) | | | $ | — | | | | | | | | $ | 1,516,553 | |
Net income | — | | | — | | | — | | | 54,720 | | | — | | | — | | | — | | | 522 | | | | | | | | 55,242 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (26,272) | | | — | | | — | | | — | | | | | | | | (26,272) | |
Stock compensation | — | | | — | | | 3,400 | | | — | | | — | | | — | | | — | | | — | | | | | | | | 3,400 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Allocation of ESOP stock | — | | | — | | | 35 | | | — | | | — | | | 1,212 | | | — | | | — | | | | | | | | 1,247 | |
Cash dividend $0.34 per share | — | | | — | | | — | | | (20,015) | | | — | | | — | | | — | | | — | | | | | | | | (20,015) | |
Exercise of stock options | — | | | 1 | | | 1,147 | | | (897) | | | — | | | — | | | — | | | — | | | | | | | | 251 | |
Repurchase 373,223 shares of common stock | — | | | — | | | — | | | — | | | — | | | — | | | (7,396) | | | — | | | | | | | | (7,396) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Preferred stock dividend | — | | | — | | | — | | | (2,008) | | | — | | | — | | | — | | | — | | | | | | | | (2,008) | |
Acquisition of Trident | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 836 | | | | | | | | 836 | |
Distributions to non-controlling interest | — | | | — | | | — | | | 8 | | | — | | | — | | | — | | | (414) | | | | | | | | (406) | |
Balance at June 30, 2022 | $ | 1 | | | $ | 612 | | | $ | 1,151,363 | | | $ | 474,114 | | | $ | (29,093) | | | $ | (7,403) | | | $ | (69,106) | | | $ | 944 | | | | | | | | $ | 1,521,432 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2022 | $ | 1 | | | $ | 612 | | | $ | 1,154,821 | | | $ | 540,507 | | | $ | (35,982) | | | $ | (6,191) | | | $ | (69,106) | | | $ | 802 | | | | | | | | $ | 1,585,464 | |
Net income | — | | | — | | | — | | | 55,680 | | | — | | | — | | | — | | | 101 | | | | | | | | 55,781 | |
Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | 5,634 | | | — | | | — | | | — | | | | | | | | 5,634 | |
Stock compensation | — | | | — | | | 3,336 | | | — | | | — | | | — | | | — | | | — | | | | | | | | 3,336 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Allocation of ESOP stock | — | | | — | | | (75) | | | — | | | — | | | 1,205 | | | — | | | — | | | | | | | | 1,130 | |
Cash dividend $0.40 per share | — | | | — | | | — | | | (23,592) | | | — | | | — | | | — | | | — | | | | | | | | (23,592) | |
Exercise of stock options | — | | | 1 | | | 1,312 | | | (720) | | | — | | | — | | | — | | | — | | | | | | | | 593 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Preferred stock dividend | — | | | — | | | — | | | (2,008) | | | — | | | — | | | — | | | — | | | | | | | | (2,008) | |
| | | | | | | | | | | | | | | | | | | | | | |
Distributions to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (55) | | | | | | | | (55) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2023 | $ | 1 | | | $ | 613 | | | $ | 1,159,394 | | | $ | 569,867 | | | $ | (30,348) | | | $ | (4,986) | | | $ | (69,106) | | | $ | 848 | | | | | | | | $ | 1,626,283 | |
See accompanying Notes to Unaudited Consolidated Financial Statements.
OceanFirst Financial Corp.
Consolidated Statements of Cash Flows
(dollars in thousands)
| | | | | | | | | | | |
| For the Six Months Ended June 30, |
| 2023 | | 2022 |
| (Unaudited) |
Cash flows from operating activities: | | | |
Net income | $ | 55,781 | | | $ | 55,242 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization of premises and equipment | 6,082 | | | 5,627 | |
Allocation of ESOP stock | 1,130 | | | 1,247 | |
Stock compensation | 3,336 | | | 3,400 | |
| | | |
Net excess tax expense on stock compensation | 244 | | | 217 | |
Amortization of servicing asset | 20 | | | 12 | |
Net premium amortization in excess of discount accretion on securities | 2,012 | | | 3,714 | |
Net amortization of deferred costs on borrowings | 297 | | | 276 | |
Amortization of core deposit intangible | 2,021 | | | 2,388 | |
Net accretion of purchase accounting adjustments | (2,448) | | | (5,384) | |
Net amortization of deferred fees/costs and premiums/discounts on loans | (818) | | | 414 | |
Provision for credit losses | 4,242 | | | 3,105 | |
Net gain on sale of other real estate owned | — | | | (54) | |
Net write down of fixed assets held-for-sale to net realizable value | 459 | | | 1,403 | |
Net gain on sale of fixed assets | (26) | | | (63) | |
Net loss on sales of available-for-sale securities | 697 | | | — | |
Net loss on equity investments | 7,360 | | | 10,864 | |
Net gain on sales of loans | (53) | | | (180) | |
Proceeds from sales of residential loans held for sale | 22,578 | | | 727 | |
Residential loans originated for sale | (26,035) | | | (703) | |
Increase in value of bank owned life insurance | (2,463) | | | (3,525) | |
Net loss (gain) on sale of assets held for sale | 44 | | | (1,394) | |
Increase in interest and dividends receivable | (3,229) | | | (1,578) | |
Deferred tax benefit | (33) | | | (47) | |
| | | |
| | | |
Decrease (increase) in other assets | 6,424 | | | (55,494) | |
Increase in other liabilities | 18,640 | | | 106,082 | |
Total adjustments | 40,481 | | | 71,054 | |
Net cash provided by operating activities | 96,262 | | | 126,296 | |
Cash flows from investing activities: | | | |
Net increase in loans receivable | (163,714) | | | (646,428) | |
Proceeds from sale of loans | — | | | 12,167 | |
Purchase of residential loan pool | — | | | (161,701) | |
Premiums paid on purchased loan pool | — | | | (495) | |
Purchase of debt securities available-for-sale | (4,287) | | | (63,568) | |
Purchase of debt securities held-to-maturity | (63,661) | | | (25,204) | |
Purchase of equity investments | (7,175) | | | (3,298) | |
Proceeds from maturities and calls of debt securities available-for-sale | 15,800 | | | 63,750 | |
Proceeds from maturities and calls of debt securities held-to-maturity | 11,465 | | | 17,700 | |
Proceeds from sales of debt securities available-for-sale | 1,300 | | | 25,257 | |
| | | |
Proceeds from sale of equity investments | 4,822 | | | 17,734 | |
| | | |
Principal repayments on debt securities held-to-maturity | 51,012 | | | 77,510 | |
Proceeds from bank owned life insurance | 230 | | | 2,502 | |
Proceeds from the redemption of restricted equity investments | 105,427 | | | 109,543 | |
Purchases of restricted equity investments | (101,449) | | | (132,395) | |
Proceeds from sale of other real estate owned | — | | | 160 | |
Proceeds from sales of assets held-for-sale | 328 | | | 6,100 | |
Purchases of premises and equipment | (4,717) | | | (11,745) | |
| | | |
Net cash consideration received for acquisition | — | | | 38,609 | |
| | | |
Net cash used in investing activities | (154,619) | | | (673,802) | |
|
| | | | | | | |
| For the Nine Months Ended September 30, |
| 2017 | | 2016 |
| (Unaudited) |
Cash flows from operating activities: | | | |
Net income | $ | 32,514 |
| | $ | 16,994 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization of premises and equipment | 4,606 |
| | 3,441 |
|
Allocation of ESOP stock | 692 |
| | 461 |
|
Stock awards | 1,678 |
| | 1,181 |
|
Tax expense of stock plans | — |
| | (228 | ) |
Net excess tax benefit on stock compensation | (1,700 | ) | | — |
|
Amortization of servicing asset | 67 |
| | 125 |
|
Net premium amortization in excess of discount accretion on securities | 2,153 |
| | 1,295 |
|
Net amortization of deferred costs and discounts on borrowings | 33 |
| | — |
|
Amortization of core deposit intangible | 1,544 |
| | 319 |
|
Net accretion of purchase accounting adjustments | (6,281 | ) | | (3,068 | ) |
Net amortization (accretion) of deferred costs and discounts on loans | 300 |
| | (117 | ) |
Provision for loan losses | 3,030 |
| | 2,113 |
|
Net loss on sale of other real estate owned | 737 |
| | 208 |
|
Write down of fixed assets held for sale to net realizable value | 6,350 |
| | — |
|
Net loss on sale of fixed assets | 13 |
| | 38 |
|
Net loss on sales of available-for-sale securities | — |
| | 12 |
|
Net gain on sales of loans | (74 | ) | | (696 | ) |
Proceeds from sales of mortgage loans held for sale | 3,837 |
| | 37,687 |
|
Mortgage loans originated for sale | (2,551 | ) | | (25,079 | ) |
Increase in value of Bank Owned Life Insurance | (2,436 | ) | | (1,520 | ) |
Increase in interest and dividends receivable | (1,638 | ) | | (24 | ) |
Decrease in other assets | 4,012 |
| | 8,708 |
|
Increase in other liabilities | 15,810 |
| | 4,072 |
|
Total adjustments | 30,182 |
| | 28,928 |
|
Net cash provided by operating activities | 62,696 |
| | 45,922 |
|
Cash flows from investing activities: | | | |
Net (increase) decrease in loans receivable | (57,646 | ) | | 68,358 |
|
Proceeds from sale of under performing loans | 6,022 |
| | 12,797 |
|
Purchase of loans receivable | (16,627 | ) | | (12,942 | ) |
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 |
|
Proceeds from Bank Owned Life Insurance | 310 |
| | 310 |
|
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 sales of other real estate owned | 2,777 |
| | 3,193 |
|
Purchases of premises and equipment | (9,031 | ) | | (4,580 | ) |
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 |
|
Continued
OceanFirst Financial Corp.
Consolidated Statements of Cash Flows (Continued)
(dollars in thousands)
| | | | | | | | | | | |
| For the Six Months Ended June 30, |
| 2023 | | 2022 |
| (Unaudited) |
Cash flows from financing activities: | | | |
Increase in deposits | $ | 483,289 | | | $ | 99,068 | |
Increase (decrease) in short-term borrowings | 5,303 | | | (13,274) | |
Net proceeds from FHLB advances | (119,500) | | | 488,750 | |
| | | |
| | | |
| | | |
Repayments of other borrowings | — | | | (35,052) | |
Increase in advances by borrowers for taxes and insurance | 6,434 | | | 3,335 | |
Exercise of stock options | 593 | | | 251 | |
Payment of employee taxes withheld from stock awards and phantom stock units | (2,346) | | | (1,472) | |
Purchase of treasury stock | — | | | (7,396) | |
| | | |
| | | |
Dividends paid | (25,600) | | | (22,023) | |
Distributions to non-controlling interest | (55) | | | (406) | |
Net cash provided by financing activities | 348,118 | | | 511,781 | |
Net increase (decrease) in cash and due from banks and restricted cash | 289,761 | | | (35,725) | |
Cash and due from banks and restricted cash at beginning of period | 167,986 | | | 224,784 | |
Cash and due from banks and restricted cash at end of period | $ | 457,747 | | | $ | 189,059 | |
Supplemental Disclosure of Cash Flow Information: | | | |
Cash and due from banks at beginning of period | $ | 167,946 | | | $ | 204,949 | |
Restricted cash at beginning of period | 40 | | | 19,835 | |
| | | |
Cash and due from banks and restricted cash at beginning of period | $ | 167,986 | | | $ | 224,784 | |
Cash and due from banks at end of period | $ | 457,747 | | | $ | 189,019 | |
Restricted cash at end of period | — | | | 40 | |
| | | |
Cash and due from banks and restricted cash at end of period | $ | 457,747 | | | $ | 189,059 | |
Cash paid during the period for: | | | |
Interest | $ | 86,290 | | | $ | 15,059 | |
Income taxes | 20,076 | | | 3,633 | |
Non-cash activities: | | | |
Accretion of unrealized loss on securities reclassified to held-to-maturity | 272 | | | 304 | |
Net loan charge-offs (recoveries) | 123 | | | (83) | |
Transfer of loans receivable to loans held-for-sale | — | | | 12,011 | |
Transfer of premises and equipment to assets held-for-sale | 1,302 | | | 2,776 | |
| | | |
Acquisition: | | | |
Non-cash assets acquired: | | | |
| | | |
| | | |
| | | |
Other current assets | $ | — | | | $ | 238 | |
Premises and equipment | — | | | 18 | |
| | | |
| | | |
| | | |
Right of use (“ROU”) asset | — | | | 779 | |
Other assets | — | | | 81 | |
| | | |
Total non-cash assets acquired | $ | — | | | $ | 1,116 | |
Liabilities assumed: | | | |
| | | |
| | | |
Lease liability | $ | — | | | $ | 779 | |
Other liabilities | — | | | 43,937 | |
Total liabilities assumed | $ | — | | | $ | 44,716 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| (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 |
|
Repayments of Federal Home Loan Bank advances | (1,438 | ) | | (73,678 | ) |
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 |
|
Exercise of stock options | 3,192 |
| | 2,648 |
|
Payment of employee taxes withheld from stock awards | (1,406 | ) | | (244 | ) |
Dividends paid | (14,439 | ) | | (8,789 | ) |
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 |
|
Cash and due from banks at beginning of period | 301,373 |
| | 43,946 |
|
Cash and due from banks at end of period | $ | 255,258 |
| | $ | 311,583 |
|
Supplemental Disclosure of Cash Flow Information: | | | |
Cash paid during the period for: | | | |
Interest | $ | 14,333 |
| | $ | 8,932 |
|
Income taxes | 8 |
| | 7,064 |
|
Non-cash activities: | | | |
Accretion of unrealized loss on securities reclassified to held-to-maturity | 865 |
| | 1,054 |
|
Net loan charge-offs | 1,629 |
| | 1,949 |
|
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 |
|
Acquisition: | | | |
Non-cash assets acquired: | | | |
Securities | $ | — |
| | $ | 212,156 |
|
Federal Home Loan Bank of New York stock | — |
| | 6,782 |
|
Loans | — |
| | 1,157,753 |
|
Premises & equipment | — |
| | 21,723 |
|
Other real estate owned | — |
| | 1,996 |
|
Deferred tax asset | — |
| | 21,664 |
|
Other assets | — |
| | 61,793 |
|
Goodwill and other intangible assets, net | — |
| | 68,179 |
|
Total non-cash assets acquired | $ | — |
| | $ | 1,552,046 |
|
Liabilities assumed: | | | |
Deposits | $ | — |
| | $ | 1,248,367 |
|
Federal Home Loan Bank advances | — |
| | 124,466 |
|
Other liabilities | — |
| | 12,835 |
|
Total liabilities assumed | $ | — |
| | $ | 1,385,668 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements includeinclude: the accounts of OceanFirst Financial Corp. (the “Company”) and; its wholly-owned subsidiaries, OceanFirst Risk Management, Inc. and OceanFirst Bank N.A. (the “Bank”), and the Bank’s subsidiaries.
On May 18, 2017,a new subsidiary of the Company was incorporated under the name OceanFirst Risk Management, Inc.; the Bank’s direct and indirect wholly-owned subsidiaries, OceanFirst RiskREIT Holdings, Inc., OceanFirst Management Inc. isCorp., OceanFirst Realty Corp., Casaba Real Estate Holdings Corporation, and Country Property Holdings, Inc; and a captive insurance subsidiary which insures various liabilitymajority controlling interest in Trident. Certain other subsidiaries were dissolved in 2022 and property damage policiesare included in the consolidated financial statements for the Companyprevious periods. All significant intercompany accounts and its related subsidiaries.transactions have been eliminated in consolidation.
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 ninesix months ended SeptemberJune 30, 20172023 are not necessarily indicative of the results of operations that may be expected for all of 2017.the full year 2023 or any other period. 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.periods presented. 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, 2016.2022.
Note 2. Business Combinations
Branch Acquisition
On March 11, 2016, 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 |
|
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Cape Bancorp Acquisition
On May 2, 2016, the Company completed its acquisition of Cape Bancorp, Inc. (“Cape”), which after purchase accounting adjustments added $1.5 billion to assets, $1.2 billion to loans, and $1.2 billion to deposits. Total consideration paid for Cape was $196.4 million, including cash consideration of $30.5 million. Cape was merged with and into the Company as of the date of acquisition.
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 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.
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 Shore was merged with and into the Company on the date of acquisition.
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 summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the acquisition for Ocean Shore, net of total consideration paid (in thousands):
|
| | | |
| At November 30, 2016 |
| Estimated Fair Value |
Total Purchase Price: | $ | 180,732 |
|
Assets acquired: | |
Cash and cash equivalents | $ | 60,871 |
|
Securities and Federal Home Loan Bank Stock | 94,133 |
|
Loans | 773,641 |
|
Premises and equipment | 15,068 |
|
Other real estate owned | 1,044 |
|
Deferred tax asset | 6,563 |
|
Other assets | 35,364 |
|
Core deposit intangible | 7,506 |
|
Total assets acquired | $ | 994,190 |
|
Liabilities assumed: | |
Deposits | $ | (875,073 | ) |
Borrowings | (3,694 | ) |
Other liabilities | (15,447 | ) |
Total liabilities assumed | $ | (894,214 | ) |
Net assets acquired | $ | 99,976 |
|
Goodwill recorded in the merger | $ | 80,756 |
|
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.
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 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
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 operated eight properties subject to lease agreements, and Ocean Shore operated two 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 million, for the branch, Cape, and Ocean Shore acquisitions, respectively, 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.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements
Note 3.2. Earnings per Share
The following reconciles shares outstanding for basic and diluted earnings per share for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 (in thousands):
| | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | 2023 | | 2022 | | 2023 | | 2022 |
| 2017 | | 2016 | | 2017 | | 2016 | |
Weighted average shares issued net of Treasury shares | 32,545 |
| | 25,823 |
| | 32,456 |
| | 22,010 |
| |
Weighted average shares outstanding | | Weighted average shares outstanding | 59,451 | | | 59,300 | | | 59,371 | | | 59,302 | |
Less: Unallocated ESOP shares | (306 | ) | | (340 | ) | | (315 | ) | | (348 | ) | Less: Unallocated ESOP shares | (273) | | | (393) | | | (287) | | | (408) | |
Unallocated incentive award shares and shares held by deferred compensation plan | (55 | ) | | (48 | ) | | (68 | ) | | (38 | ) | |
Unallocated incentive award shares | | Unallocated incentive award shares | (31) | | | (13) | | | (96) | | | (71) | |
Average basic shares outstanding | 32,184 |
| | 25,435 |
| | 32,073 |
| | 21,624 |
| Average basic shares outstanding | 59,147 | | | 58,894 | | | 58,988 | | | 58,823 | |
Add: Effect of dilutive securities: | | | | | | | | Add: Effect of dilutive securities: | |
Stock options | 912 |
| | 434 |
| | 1,023 |
| | 347 |
| |
Shares held by deferred compensation plan | 10 |
| | 20 |
| | 14 |
| | 19 |
| |
Incentive awards | | Incentive awards | 6 | | | 101 | | | 50 | | | 152 | |
| Average diluted shares outstanding | 33,106 |
| | 25,889 |
| | 33,110 |
| | 21,990 |
| Average diluted shares outstanding | 59,153 | | | 58,995 | | | 59,038 | | | 58,975 | |
For the three and six months ended SeptemberJune 30, 2017 and 2016,2023, antidilutive stock options of 476,0001,986,000 and 914,000,1,540,000, respectively, were excluded from the earnings per share calculations.calculation. For the ninethree and six months ended SeptemberJune 30, 2017 and 2016,2022, antidilutive stock options of 244,0001,577,000 and 1,132,000,1,573,000, respectively, were excluded from the earnings per share calculations.
calculation.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 4.3. Securities
The amortized cost, and estimated fair value, and allowance for securities credit losses of debt securities available-for-sale and held-to-maturity at SeptemberJune 30, 2017,2023 and December 31, 2016,2022 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Allowance for Credit Losses |
At June 30, 2023 | | | | | | | | | |
Debt securities available-for-sale: | | | | | | | | | |
U.S. government and agency obligations | $ | 73,026 | | | $ | — | | | $ | (7,228) | | | $ | 65,798 | | | $ | — | |
Corporate debt securities | 10,077 | | | — | | | (1,141) | | | 8,936 | | | — | |
Asset-backed securities | 296,212 | | | — | | | (11,375) | | | 284,837 | | | — | |
| | | | | | | | | |
Agency commercial mortgage-backed securities (“MBS”) | 110,073 | | | — | | | (17,628) | | | 92,445 | | | — | |
Total debt securities available-for-sale | $ | 489,388 | | | $ | — | | | $ | (37,372) | | | $ | 452,016 | | | $ | — | |
Debt securities held-to-maturity: | | | | | | | | | |
State and municipal debt obligations | $ | 249,515 | | | $ | 90 | | | $ | (22,371) | | | $ | 227,234 | | | $ | (52) | |
Corporate debt securities | 54,948 | | | 51 | | | (5,349) | | | 49,650 | | | (907) | |
Mortgage-backed securities: | | | | | | | | | |
Agency residential | 863,179 | | | 400 | | | (84,246) | | | 779,333 | | | — | |
Agency commercial | 32,569 | | | — | | | (1,794) | | | 30,775 | | | — | |
Non-agency commercial | 25,286 | | | — | | | (2,522) | | | 22,764 | | | (5) | |
Total mortgage-backed securities | 921,034 | | | 400 | | | (88,562) | | | 832,872 | | | (5) | |
Total debt securities held-to-maturity | $ | 1,225,497 | | | $ | 541 | | | $ | (116,282) | | | $ | 1,109,756 | | | $ | (964) | |
Total debt securities | $ | 1,714,885 | | | $ | 541 | | | $ | (153,654) | | | $ | 1,561,772 | | | $ | (964) | |
At December 31, 2022 | | | | | | | | | |
Debt securities available-for-sale: | | | | | | | | | |
U.S. government and agency obligations | $ | 87,648 | | | $ | 1 | | | $ | (7,635) | | | $ | 80,014 | | | $ | — | |
Corporate debt securities | 8,928 | | | — | | | (756) | | | 8,172 | | | — | |
Asset-backed securities | 296,222 | | | — | | | (19,349) | | | 276,873 | | | — | |
Agency commercial MBS | 110,606 | | | — | | | (18,017) | | | 92,589 | | | — | |
Total debt securities available-for-sale | $ | 503,404 | | | $ | 1 | | | $ | (45,757) | | | $ | 457,648 | | | $ | — | |
Debt securities held-to-maturity: | | | | | | | | | |
State, municipal, and sovereign debt obligations | $ | 260,249 | | | $ | 46 | | | $ | (24,940) | | | $ | 235,355 | | | $ | (60) | |
Corporate debt securities | 56,893 | | | 380 | | | (3,778) | | | 53,495 | | | (1,059) | |
Mortgage-backed securities: | | | | | | | | | |
Agency residential | 849,985 | | | 795 | | | (83,586) | | | 767,194 | | | — | |
Agency commercial | 32,127 | | | 23 | | | (1,189) | | | 30,961 | | | — | |
Non-agency commercial | 25,310 | | | — | | | (2,274) | | | 23,036 | | | (9) | |
Total mortgage-backed securities | 907,422 | | | 818 | | | (87,049) | | | 821,191 | | | (9) | |
Total debt securities held-to-maturity | $ | 1,224,564 | | | $ | 1,244 | | | $ | (115,767) | | | $ | 1,110,041 | | | $ | (1,128) | |
Total debt securities | $ | 1,727,968 | | | $ | 1,245 | | | $ | (161,524) | | | $ | 1,567,689 | | | $ | (1,128) | |
|
| | | | | | | | | | | | | | | |
| 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 |
|
There was no allowance for securities credit losses on debt securities available-for-sale at June 30, 2023 or December 31, 2022.
The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the three and six months ended June 30, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Allowance for securities credit losses | | | | | | | |
Beginning balance | $ | (1,043) | | | $ | (1,380) | | | $ | (1,128) | | | $ | (1,467) | |
| | | | | | | |
Provision for credit loss benefit | 79 | | | 87 | | | 164 | | | 174 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total ending allowance balance | $ | (964) | | | $ | (1,293) | | | $ | (964) | | | $ | (1,293) | |
|
| | | | | | | | | | | | | | | |
| At December 31, 2016 |
| 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: | | | | | | | |
Investment securities: | | | | | | | |
U.S. agency obligations | $ | 19,960 |
| | $ | 69 |
| | $ | — |
| | $ | 20,029 |
|
State and municipal obligations | 39,155 |
| | 10 |
| | (856 | ) | | 38,309 |
|
Corporate debt securities | 77,057 |
| | 85 |
| | (6,001 | ) | | 71,141 |
|
Other investments | 8,778 |
| | — |
| | (228 | ) | | 8,550 |
|
Total investment securities | 144,950 |
| | 164 |
| | (7,085 | ) | | 138,029 |
|
Mortgage-backed securities: | | | | | | | |
FHLMC | 144,016 |
| | 195 |
| | (2,457 | ) | | 141,754 |
|
FNMA | 217,445 |
| | 2,175 |
| | (2,524 | ) | | 217,096 |
|
GNMA | 92,475 |
| | 119 |
| | (364 | ) | | 92,230 |
|
SBA | 8,947 |
| | 28 |
| | — |
| | 8,975 |
|
Total mortgage-backed securities | 462,883 |
| | 2,517 |
| | (5,345 | ) | | 460,055 |
|
Total held-to-maturity | $ | 607,833 |
| | $ | 2,681 |
| | $ | (12,430 | ) | | $ | 598,084 |
|
Total securities | $ | 620,375 |
| | $ | 2,681 |
| | $ | (12,748 | ) | | $ | 610,308 |
|
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
The Company monitors the credit quality of debt securities held-to-maturity on a quarterly basis through the use of internal credit analysis supplemented by external credit ratings. Credit ratings of BBB- or Baa3 or higher are considered investment grade. Where multiple ratings are available, the Company considers the lowest rating when determining the allowance for securities credit losses. Under this approach, the amortized cost of debt securities held-to-maturity at June 30, 2023, aggregated by credit quality indicator, are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
|
| Investment Grade | | Non-Investment Grade/Non-rated | | Total |
As of June 30, 2023 | | | | | |
| | | | | |
| | | | | |
State and municipal debt obligations | $ | 249,515 | | | $ | — | | | $ | 249,515 | |
Corporate debt securities | 40,408 | | | 14,540 | | | 54,948 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Non-agency commercial MBS | 25,286 | | | — | | | 25,286 | |
| | | | | |
Total debt securities held-to-maturity | $ | 315,209 | | | $ | 14,540 | | | $ | 329,749 | |
During the third quarter2021 and 2013, the Bank transferred $12.7 million and $536.0 million, respectively, 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 $209,000 and $13.3 million at the time of transfer in 2021 and 2013, respectively, which continues to be reflected in accumulated other comprehensive loss on the consolidated balance sheet,Consolidated Statement of Financial Condition, net of subsequent amortization, which is being recognized over the life of the securities. The carrying value of thedebt securities held-to-maturity investment securities at SeptemberJune 30, 2017,2023 and December 31, 2016, are2022 is as follows (in thousands):
| | | | | | | | June 30, | | December 31, |
| September 30, 2017 | | December 31, 2016 | | 2023 | | 2022 |
Amortized cost | $ | 751,163 |
| | $ | 607,833 |
| Amortized cost | $ | 1,225,497 | | | $ | 1,224,564 | |
Allowance for securities credit losses | | Allowance for securities credit losses | (964) | | | (1,128) | |
Net loss on date of transfer from available-for-sale | (13,347 | ) | | (13,347 | ) | Net loss on date of transfer from available-for-sale | (13,556) | | | (13,556) | |
Accretion of net unrealized loss on securities reclassified as held-to-maturity | 5,070 |
| | 4,205 |
| Accretion of net unrealized loss on securities reclassified as held-to-maturity | 11,530 | | | 11,258 | |
Carrying value | $ | 742,886 |
| | $ | 598,691 |
| Carrying value | $ | 1,222,507 | | | $ | 1,221,138 | |
There were no realized gains orlosses and $697,000 of realized losses on the sale of debt securities available-for-sale for the three and ninesix months ended SeptemberJune 30, 2017. There were no realized gains or losses on the sale of securities2023, respectively, as compared to $21,000 and $108,000 for the three months ended September 30, 2016 and there were $75,000 in realized gains and $87,000 incorresponding prior year periods. These realized losses on debt securities are presented within Other under Total other income of the saleConsolidated Statements of available-for-sale securities for the nine months ended September 30, 2016.Income.
The amortized cost and estimated fair value of investmentdebt securities at SeptemberJune 30, 20172023 by contractual maturity are shown below (in thousands). :
| | | | | | | | | | | |
June 30, 2023 | Amortized Cost | | Estimated Fair Value |
Less than one year | $ | 36,231 | | | $ | 35,786 | |
Due after one year through five years | 176,032 | | | 160,455 | |
Due after five years through ten years | 207,267 | | | 193,962 | |
Due after ten years | 264,248 | | | 246,252 | |
| $ | 683,778 | | | $ | 636,455 | |
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 SeptemberJune 30, 2017, investment2023, corporate debt securities, state and municipal obligations, and asset-backed securities with an amortized cost of $60.9$64.0 million, $82.3 million, and $296.2 million, respectively, and an estimated fair value of $57.5$57.6 million, $78.0 million, and $284.8 million, respectively, were callable prior to the maturity date.
|
| | | | | | | |
September 30, 2017 | Amortized Cost | | Estimated Fair Value |
Less than one year | $ | 35,395 |
| | $ | 35,384 |
|
Due after one year through five years | 145,590 |
| | 145,528 |
|
Due after five years through ten years | 89,509 |
| | 88,277 |
|
Due after ten years | 30,000 |
| | 27,751 |
|
| $ | 300,494 |
| | $ | 296,940 |
|
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.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
The estimated fair value and unrealized losses offor debt securities available-for-sale and held-to-maturity at SeptemberJune 30, 20172023 and December 31, 2016,2022, segregated by the duration of the unrealized losses, are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 months | | 12 months or longer | | Total |
| Estimated Fair Value | | Unrealized Losses | | Estimated Fair Value | | Unrealized Losses | | Estimated Fair Value | | Unrealized Losses |
At June 30, 2023 | | | | | | | | | | | |
Debt securities available-for-sale: | | | | | | | | | | | |
U.S. government and agency obligations | $ | 2,334 | | | $ | (25) | | | $ | 63,464 | | | $ | (7,203) | | | $ | 65,798 | | | $ | (7,228) | |
Corporate debt securities | 6,557 | | | (520) | | | 2,379 | | | (621) | | | 8,936 | | | (1,141) | |
Asset-backed securities | — | | | — | | | 284,837 | | | (11,375) | | | 284,837 | | | (11,375) | |
Agency commercial MBS | — | | | — | | | 92,445 | | | (17,628) | | | 92,445 | | | (17,628) | |
Total debt securities available-for-sale | 8,891 | | | (545) | | | 443,125 | | | (36,827) | | | 452,016 | | | (37,372) | |
Debt securities held-to-maturity: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
State and municipal debt obligations | 29,552 | | | (368) | | | 191,803 | | | (22,003) | | | 221,355 | | | (22,371) | |
Corporate debt securities | 5,532 | | | (576) | | | 39,686 | | | (4,773) | | | 45,218 | | | (5,349) | |
| | | | | | | | | | | |
MBS: | | | | | | | | | | | |
Agency residential | 227,401 | | | (5,715) | | | 498,132 | | | (78,531) | | | 725,533 | | | (84,246) | |
Agency commercial | 28,478 | | | (1,751) | | | 1,899 | | | (43) | | | 30,377 | | | (1,794) | |
Non-agency commercial | — | | | — | | | 22,764 | | | (2,522) | | | 22,764 | | | (2,522) | |
Total MBS | 255,879 | | | (7,466) | | | 522,795 | | | (81,096) | | | 778,674 | | | (88,562) | |
Total debt securities held-to-maturity | 290,963 | | | (8,410) | | | 754,284 | | | (107,872) | | | 1,045,247 | | | (116,282) | |
Total debt securities | $ | 299,854 | | | $ | (8,955) | | | $ | 1,197,409 | | | $ | (144,699) | | | $ | 1,497,263 | | | $ | (153,654) | |
At December 31, 2022 | | | | | | | | | | | |
Debt securities available-for-sale: | | | | | | | | | | | |
U.S. government and agency obligations | $ | 27,232 | | | $ | (450) | | | $ | 52,782 | | | $ | (7,185) | | | $ | 80,014 | | | $ | (7,635) | |
Corporate debt securities | 4,735 | | | (193) | | | 3,437 | | | (563) | | | 8,172 | | | (756) | |
Asset-backed securities | 143,392 | | | (9,179) | | | 133,481 | | | (10,170) | | | 276,873 | | | (19,349) | |
Agency commercial MBS | 8,782 | | | (1,675) | | | 83,807 | | | (16,342) | | | 92,589 | | | (18,017) | |
Total debt securities available-for-sale | 184,141 | | | (11,497) | | | 273,507 | | | (34,260) | | | 457,648 | | | (45,757) | |
Debt securities held-to-maturity: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
State, municipal, and sovereign debt obligations | 133,492 | | | (11,952) | | | 97,135 | | | (12,988) | | | 230,627 | | | (24,940) | |
Corporate debt securities | 11,783 | | | (598) | | | 36,152 | | | (3,180) | | | 47,935 | | | (3,778) | |
| | | | | | | | | | | |
MBS: | | | | | | | | | | | |
Agency residential | 297,296 | | | (12,404) | | | 397,036 | | | (71,182) | | | 694,332 | | | (83,586) | |
Agency commercial | 25,936 | | | (1,150) | | | 2,062 | | | (39) | | | 27,998 | | | (1,189) | |
Non-agency commercial | 16,839 | | | (1,621) | | | 6,198 | | | (653) | | | 23,037 | | | (2,274) | |
Total MBS | 340,071 | | | (15,175) | | | 405,296 | | | (71,874) | | | 745,367 | | | (87,049) | |
Total debt securities held-to-maturity | 485,346 | | | (27,725) | | | 538,583 | | | (88,042) | | | 1,023,929 | | | (115,767) | |
Total debt securities | $ | 669,487 | | | $ | (39,222) | | | $ | 812,090 | | | $ | (122,302) | | | $ | 1,481,577 | | | $ | (161,524) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| At September 30, 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 |
Available-for-sale: | | | | | | | | | | | |
Investment securities: | | | | | | | | | | | |
U.S. agency obligations | $ | 52,276 |
| | $ | (322 | ) | | $ | — |
| | $ | — |
| | $ | 52,276 |
| | $ | (322 | ) |
Held-to-maturity: | | | | | | | | | | | |
Investment securities: | | | | | | | | | | | |
State and municipal obligations | 77,979 |
| | (531 | ) | | 9,908 |
| | (48 | ) | | 87,887 |
| | (579 | ) |
Corporate debt securities | 5,028 |
| | (11 | ) | | 53,260 |
| | (3,742 | ) | | 58,288 |
| | (3,753 | ) |
Other investments | — |
| | — |
| | 8,714 |
| | (189 | ) | | 8,714 |
| | (189 | ) |
Total investment securities | 83,007 |
| | (542 | ) | | 71,882 |
| | (3,979 | ) | | 154,889 |
| | (4,521 | ) |
Mortgage-backed securities: | | | | | | | | | | | |
FHLMC | 67,059 |
| | (892 | ) | | 30,684 |
| | (782 | ) | | 97,743 |
| | (1,674 | ) |
FNMA | 96,886 |
| | (954 | ) | | 19,878 |
| | (520 | ) | | 116,764 |
| | (1,474 | ) |
GNMA | 65,565 |
| | (477 | ) | | 741 |
| | (28 | ) | | 66,306 |
| | (505 | ) |
Total mortgage-backed securities | 229,510 |
| | (2,323 | ) | | 51,303 |
| | (1,330 | ) | | 280,813 |
| | (3,653 | ) |
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 | ) |
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements
At September 30, 2017, 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 |
BankAmerica Capital | $ | 15,000 |
| | $ | 14,155 |
| | Ba1/BB+ |
Chase Capital | 10,000 |
| | 9,355 |
| | Baa2/BBB- |
Wells Fargo Capital | 5,000 |
| | 4,706 |
| | A1/BBB+ |
Huntington Capital | 5,000 |
| | 4,463 |
| | Baa2/BB |
Keycorp Capital | 5,000 |
| | 4,715 |
| | Baa2/BB+ |
PNC Capital | 5,000 |
| | 4,663 |
| | Baa1/BBB- |
State Street Capital | 5,000 |
| | 4,613 |
| | A3/BBB |
SunTrust Capital | 5,000 |
| | 4,592 |
| | Not Rated/BB+ |
MetLife Global Funding | 1,000 |
| | 999 |
| | Aa3/AA- |
State Street Corporation | 1,000 |
| | 999 |
| | A1/A |
| $ | 57,000 |
| | $ | 53,260 |
| | |
At September 30, 2017, 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 temporarilynot impaired at SeptemberJune 30, 2017. In concluding that the impairments were only temporary, the Company considered2023 based on consideration of several factors in its analysis.factors. 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 doeschange in net unrealized losses were primarily due to changes in the general credit and interest rate environment and 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.credit quality. Historically, the Company has not utilized securities sales as a source of liquidity. Theliquidity and the Company’s long range liquidity plans indicateinclude 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.
sales.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Equity Investments
At June 30, 2023 and December 31, 2022, the Company held equity investments of $96.5 million and $102.0 million, respectively. The equity investments are primarily comprised of select financial services institutions’ preferred stocks, investments in funds and other financial institutions.
The realized and unrealized gains or losses on equity securities for the three and six months ended June 30, 2023 and 2022 are shown in the table below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net loss on equity investments | $ | (559) | | | $ | (8,078) | | | $ | (7,360) | | | $ | (10,864) | |
Less: Net (losses) gains recognized on equity investments sold | (854) | | | (231) | | | (5,462) | | | 1,351 | |
Unrealized gains (losses) recognized on equity investments still held | $ | 295 | | | $ | (7,847) | | | $ | (1,898) | | | $ | (12,215) | |
| | | | | | | |
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 5.4. Loans Receivable, Net
Loans receivable, net at SeptemberJune 30, 20172023 and December 31, 20162022 consisted of the following (in thousands):
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Commercial: | | | |
Commercial and industrial | $ | 183,420 |
| | $ | 152,569 |
|
Commercial real estate – owner occupied | 553,971 |
| | 534,214 |
|
Commercial real estate – investor | 1,133,118 |
| | 1,132,075 |
|
Total commercial | 1,870,509 |
| | 1,818,858 |
|
Consumer: | | | |
Residential mortgage | 1,676,143 |
| | 1,647,154 |
|
Residential construction | 73,812 |
| | 65,319 |
|
Home equity loans and lines | 277,909 |
| | 288,991 |
|
Other consumer | 1,354 |
| | 1,564 |
|
Total consumer | 2,029,218 |
| | 2,003,028 |
|
| 3,899,727 |
| | 3,821,886 |
|
Purchased credit impaired (“PCI”) loans | 4,867 |
| | 7,575 |
|
Total Loans | 3,904,594 |
| | 3,829,461 |
|
Loans in process | (22,546 | ) | | (14,249 | ) |
Deferred origination costs, net | 4,645 |
| | 3,414 |
|
Allowance for loan losses | (16,584 | ) | | (15,183 | ) |
Total loans, net | $ | 3,870,109 |
| | $ | 3,803,443 |
|
At September 30, 2017 and December 31, 2016, loans in the amount of $15.1 million and $13.6 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, 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 million at September 30, 2017. The amount of foreclosed residential real estate property held by the Company was $1.2 million at September 30, 2017.
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, the impaired loan portfolio totaled $44.9 million for which there was a specific allocation in the allowance for loan losses of $616,000. At December 31, 2016, the impaired loan portfolio totaled $31.0 million for which there was a specific allocation in the allowance for loan losses of $510,000. The average balance of impaired loans for the three months ended September 30, 2017 and 2016 was $43.1 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 million, respectively.
An analysis of the allowance for loan losses for the three and nine months ended September 30, 2017 and 2016 is as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Balance at beginning of period | $ | 16,557 |
| | $ | 16,678 |
| | $ | 15,183 |
| | $ | 16,722 |
|
Provision charged to operations | 1,165 |
| | 888 |
| | 3,030 |
| | 2,113 |
|
Charge-offs | (1,357 | ) | | (2,116 | ) | | (2,861 | ) | | (3,511 | ) |
Recoveries | 219 |
| | 167 |
| | 1,232 |
| | 293 |
|
Balance at end of period | $ | 16,584 |
| | $ | 15,617 |
| | $ | 16,584 |
| | $ | 15,617 |
|
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, 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 and December 31, 2016, excluding PCI loans (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | |
Balance at beginning of period | $ | 1,492 |
| | $ | 3,097 |
| | $ | 8,367 |
| | $ | 930 |
| | $ | 2,253 |
| | $ | 418 |
| | $ | 16,557 |
|
Provision (benefit) charged to operations | 1,465 |
| | 119 |
| | 81 |
| | (122 | ) | | (180 | ) | | (198 | ) | | 1,165 |
|
Charge-offs | (1,284 | ) | | — |
| | — |
| | (67 | ) | | (6 | ) | | — |
| | (1,357 | ) |
Recoveries | 128 |
| | — |
| | 24 |
| | 17 |
| | 50 |
| | — |
| | 219 |
|
Balance at end of period | $ | 1,801 |
| | $ | 3,216 |
| | $ | 8,472 |
| | $ | 758 |
| | $ | 2,117 |
| | $ | 220 |
| | $ | 16,584 |
|
For the three months ended September 30, 2016 | | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | |
Balance at beginning of period | $ | 6,006 |
| | $ | 2,711 |
| | $ | 4,713 |
| | $ | 1,107 |
| | $ | 1,209 |
| | $ | 932 |
| | $ | 16,678 |
|
Provision (benefit) charged to operations | (376 | ) | | (168 | ) | | 104 |
| | (130 | ) | | 1,949 |
| | (491 | ) | | 888 |
|
Charge-offs | (167 | ) | | — |
| | — |
| | (80 | ) | | (1,869 | ) | | — |
| | (2,116 | ) |
Recoveries | 6 |
| | — |
| | — |
| | — |
| | 161 |
| | — |
| | 167 |
|
Balance at end of period | $ | 5,469 |
| | $ | 2,543 |
| | $ | 4,817 |
| | $ | 897 |
| | $ | 1,450 |
| | $ | 441 |
| | $ | 15,617 |
|
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 | | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | |
Ending allowance balance attributed to loans: | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | — |
| | $ | — |
| | $ | 616 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 616 |
|
Collectively evaluated for impairment | 1,801 |
| | 3,216 |
| | 7,856 |
| | 758 |
| | 2,117 |
| | 220 |
| | 15,968 |
|
Total ending allowance balance | $ | 1,801 |
| | $ | 3,216 |
| | $ | 8,472 |
| | $ | 758 |
| | $ | 2,117 |
| | $ | 220 |
| | $ | 16,584 |
|
Loans: | | | | | | | | | | | | | |
Loans individually evaluated for impairment | $ | 12,484 |
| | $ | 11,537 |
| | $ | 17,535 |
| | $ | 2,478 |
| | $ | 893 |
| | $ | — |
| | $ | 44,927 |
|
Loans collectively evaluated for impairment | 1,737,471 |
| | 542,434 |
| | 1,115,583 |
| | 276,785 |
| | 182,527 |
| | — |
| | 3,854,800 |
|
Total ending loan balance | $ | 1,749,955 |
| | $ | 553,971 |
| | $ | 1,133,118 |
| | $ | 279,263 |
| | $ | 183,420 |
| | $ | — |
| | $ | 3,899,727 |
|
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 |
|
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
A summary of impaired loans at September 30, 2017, and December 31, 2016, is as follows, excluding PCI loans (in thousands):
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Impaired loans with no allocated allowance for loan losses | $ | 40,386 |
| | $ | 25,228 |
|
Impaired loans with allocated allowance for loan losses | 4,541 |
| | 5,814 |
|
| $ | 44,927 |
| | $ | 31,042 |
|
Amount of the allowance for loan losses allocated | $ | 616 |
| | $ | 510 |
|
At September 30, 2017, impaired loans included troubled debt restructured (“TDR”) loans of $36.1 million, of which $35.8 million were performing in accordance with their restructured terms for a minimum of six months and were accruing interest. At December 31, 2016, impaired loans included TDR loans of $30.5 million, of which $27.0 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, and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016, is as follows, excluding PCI loans (in thousands):
|
| | | | | | | | | | | |
| Unpaid Principal Balance | | Recorded Investment | | Allowance for Loan Losses Allocated |
As of September 30, 2017 | | | | | |
With no related allowance recorded: | | | | | |
Residential real estate | $ | 12,896 |
| | $ | 12,484 |
| | $ | — |
|
Commercial real estate – owner occupied | 12,233 |
| | 11,537 |
| | — |
|
Commercial real estate – investor | 13,938 |
| | 12,994 |
| | — |
|
Consumer | 2,939 |
| | 2,478 |
| | — |
|
Commercial and industrial | 925 |
| | 893 |
| | — |
|
| $ | 42,931 |
| | $ | 40,386 |
| | $ | — |
|
With an allowance recorded: | | | | | |
Residential real estate | $ | — |
| | $ | — |
| | $ | — |
|
Commercial real estate – owner occupied | — |
| | — |
| | — |
|
Commercial real estate – investor | 4,556 |
| | 4,541 |
| | 616 |
|
Consumer | — |
| | — |
| | — |
|
Commercial and industrial | — |
| | — |
| | — |
|
| $ | 4,556 |
| | $ | 4,541 |
| | $ | 616 |
|
As of December 31, 2016 | | | | | |
With no related allowance recorded: | | | | | |
Residential real estate | $ | 9,848 |
| | $ | 9,694 |
| | $ | — |
|
Commercial real estate – owner occupied | 11,886 |
| | 11,123 |
| | — |
|
Commercial real estate – investor | 2,239 |
| | 1,897 |
| | — |
|
Consumer | 2,559 |
| | 2,246 |
| | — |
|
Commercial and industrial | 300 |
| | 268 |
| | — |
|
| $ | 26,832 |
| | $ | 25,228 |
| | $ | — |
|
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 |
|
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
|
| | | | | | | | | | | | | | | |
| Three 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 | $ | 12,791 |
| | $ | 128 |
| | $ | 13,451 |
| | $ | 171 |
|
Commercial real estate – owner occupied | 11,217 |
| | 335 |
| | 17,198 |
| | 119 |
|
Commercial real estate – investor | 11,147 |
| | 240 |
| | 281 |
| | 3 |
|
Consumer | 2,495 |
| | 36 |
| | 2,340 |
| | 44 |
|
Commercial and industrial | 908 |
| | 26 |
| | 269 |
| | — |
|
| $ | 38,558 |
| | $ | 765 |
| | $ | 33,539 |
| | $ | 337 |
|
With an allowance recorded: | | | | | | | |
Residential real estate | $ | — |
| | $ | — |
| | $ | 107 |
| | $ | 1 |
|
Commercial real estate – owner occupied | — |
| | — |
| | — |
| | — |
|
Commercial real estate – investor | 4,551 |
| | 13 |
| | 896 |
| | — |
|
Consumer | — |
| | — |
| | — |
| | — |
|
Commercial and industrial | — |
| | — |
| | — |
| | — |
|
| $ | 4,551 |
| | $ | 13 |
| | $ | 1,003 |
| | $ | 1 |
|
|
| | | | | | | | | | | | | | | |
| 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 and December 31, 2016, excluding PCI loans (in thousands):
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Residential real estate | $ | 3,551 |
| | $ | 8,126 |
|
Commercial real estate – owner occupied | 923 |
| | 2,414 |
|
Commercial real estate – investor | 8,720 |
| | 521 |
|
Consumer | 1,864 |
| | 2,064 |
|
Commercial and industrial | 63 |
| | 441 |
|
| $ | 15,121 |
| | $ | 13,566 |
|
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):
| | | | | | | | | | | | | | | | June 30, | | December 31, |
| 30-59 Days Past Due | | 60-89 Days Past Due | | Greater than 90 Days Past Due | | Total Past Due | | Loans Not Past Due | | Total | | 2023 | | 2022 |
September 30, 2017 | | | | | | | | | | | | |
Commercial: | | Commercial: | | | |
Commercial real estate – investor | | Commercial real estate – investor | $ | 5,319,686 | | | $ | 5,171,952 | |
Commercial real estate – owner occupied | | Commercial real estate – owner occupied | 981,618 | | | 997,367 | |
Commercial and industrial | | Commercial and industrial | 620,284 | | | 622,372 | |
Total commercial | | Total commercial | 6,921,588 | | | 6,791,691 | |
Consumer: | | Consumer: | | | |
Residential real estate | $ | 12,736 |
| | $ | 6,872 |
| | $ | 2,277 |
| | $ | 21,885 |
| | $ | 1,728,070 |
| | $ | 1,749,955 |
| Residential real estate | 2,906,556 | | | 2,861,991 | |
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 |
| |
Home equity loans and lines and other consumer (“other consumer”) | | Home equity loans and lines and other consumer (“other consumer”) | 255,486 | | | 264,372 | |
| $ | 20,561 |
| | $ | 4,687 |
| | $ | 10,917 |
| | $ | 36,165 |
| | $ | 3,785,721 |
| | $ | 3,821,886 |
| |
Total consumer | | Total consumer | 3,162,042 | | | 3,126,363 | |
Total loans receivable | | Total loans receivable | 10,083,630 | | | 9,918,054 | |
Deferred origination costs, net of fees | | Deferred origination costs, net of fees | 8,267 | | | 7,488 | |
Allowance for loan credit losses | | Allowance for loan credit losses | (61,791) | | | (56,824) | |
Total loans receivable, net | | Total loans receivable, net | $ | 10,030,106 | | | $ | 9,868,718 | |
|
| | | | | | | | | | | | | | | | | | | |
| 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 |
|
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
The following tables summarize total loans by year of origination, internally assigned credit grades and risk characteristics (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 and prior | | Revolving lines of credit | | | | Total |
June 30, 2023 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Commercial real estate - investor | | | | | | | | | | | | | | | | | | |
Pass | | $ | 116,385 | | | $ | 1,169,785 | | | $ | 1,304,903 | | | $ | 535,020 | | | $ | 502,580 | | | $ | 994,662 | | | $ | 616,235 | | | | | $ | 5,239,570 | |
Special Mention | | — | | | — | | | 2,460 | | | 188 | | | 63 | | | 17,502 | | | 1,388 | | | | | 21,601 | |
Substandard | | — | | | — | | | — | | | 3,750 | | | 20,109 | | | 33,398 | | | 1,258 | | | | | 58,515 | |
Total commercial real estate - investor | | 116,385 | | | 1,169,785 | | | 1,307,363 | | | 538,958 | | | 522,752 | | | 1,045,562 | | | 618,881 | | | | | 5,319,686 | |
Commercial real estate - owner occupied | | | | | | | | | | | | | | | | | | |
Pass | | 51,839 | | | 117,775 | | | 110,128 | | | 66,894 | | | 108,189 | | | 488,320 | | | 12,127 | | | | | 955,272 | |
Special Mention | | — | | | — | | | — | | | — | | | — | | | 4,895 | | | — | | | | | 4,895 | |
Substandard | | — | | | — | | | — | | | — | | | 2,003 | | | 19,358 | | | 90 | | | | | 21,451 | |
Total commercial real estate - owner occupied | | 51,839 | | | 117,775 | | | 110,128 | | | 66,894 | | | 110,192 | | | 512,573 | | | 12,217 | | | | | 981,618 | |
Commercial and industrial | | | | | | | | | | | | | | | | | | |
Pass | | 65,775 | | | 57,240 | | | 21,505 | | | 11,258 | | | 9,781 | | | 57,200 | | | 390,624 | | | | | 613,383 | |
Special Mention | | — | | | — | | | 10 | | | — | | | — | | | 210 | | | 2,037 | | | | | 2,257 | |
Substandard | | — | | | — | | | 21 | | | 18 | | | 960 | | | 2,006 | | | 1,639 | | | | | 4,644 | |
Total commercial and industrial | | 65,775 | | | 57,240 | | | 21,536 | | | 11,276 | | | 10,741 | | | 59,416 | | | 394,300 | | | | | 620,284 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Residential real estate (1) | | | | | | | | | | | | | | | | | | |
Pass | | 111,815 | | | 931,294 | | | 582,192 | | | 405,474 | | | 234,279 | | | 637,803 | | | — | | | | | 2,902,857 | |
Special Mention | | — | | | 308 | | | — | | | 206 | | | 147 | | | 1,336 | | | — | | | | | 1,997 | |
Substandard | | 62 | | | 56 | | | — | | | 258 | | | 487 | | | 839 | | | — | | | | | 1,702 | |
Total residential real estate | | 111,877 | | | 931,658 | | | 582,192 | | | 405,938 | | | 234,913 | | | 639,978 | | | — | | | | | 2,906,556 | |
Other consumer (1) | | | | | | | | | | | | | | | | | | |
Pass | | 15,400 | | | 22,078 | | | 22,150 | | | 13,850 | | | 14,128 | | | 131,342 | | | 34,589 | | | | | 253,537 | |
Special Mention | | — | | | — | | | — | | | — | | | — | | | 109 | | | — | | | | | 109 | |
Substandard | | — | | | — | | | — | | | — | | | 49 | | | 1,791 | | | — | | | | | 1,840 | |
Total other consumer | | 15,400 | | | 22,078 | | | 22,150 | | | 13,850 | | | 14,177 | | | 133,242 | | | 34,589 | | | | | 255,486 | |
| | | | | | | | | | | | | | | | | | |
Total loans | | $ | 361,276 | | | $ | 2,298,536 | | | $ | 2,043,369 | | | $ | 1,036,916 | | | $ | 892,775 | | | $ | 2,390,771 | | | $ | 1,059,987 | | | | | $ | 10,083,630 | |
(1)For residential real estate and other consumer loan classes,loans, the Company evaluates credit quality based on the aging status of the loan which was previously presented, and by payment activity.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 and prior | | Revolving lines of credit | | Total |
December 31, 2022 | | | | | | | | | | | | | | | | |
Commercial real estate - investor | | | | | | | | | | | | | | | | |
Pass | | $ | 1,144,763 | | | $ | 1,339,289 | | | $ | 555,937 | | | $ | 524,428 | | | $ | 220,999 | | | $ | 881,344 | | | $ | 450,787 | | | $ | 5,117,547 | |
Special Mention | | — | | | 2,508 | | | 192 | | | 17,094 | | | — | | | 12,818 | | | 2,188 | | | 34,800 | |
Substandard | | — | | | — | | | — | | | 893 | | | — | | | 18,180 | | | 532 | | | 19,605 | |
Total commercial real estate - investor | | 1,144,763 | | | 1,341,797 | | | 556,129 | | | 542,415 | | | 220,999 | | | 912,342 | | | 453,507 | | | 5,171,952 | |
Commercial real estate - owner occupied | | | | | | | | | | | | | | | | |
Pass | | 119,912 | | | 110,440 | | | 59,952 | | | 115,385 | | | 88,204 | | | 458,708 | | | 14,932 | | | 967,533 | |
Special Mention | | — | | | — | | | — | | | — | | | 748 | | | 5,679 | | | — | | | 6,427 | |
Substandard | | — | | | — | | | 3,750 | | | 2,037 | | | 4,817 | | | 12,803 | | | — | | | 23,407 | |
Total commercial real estate - owner occupied | | 119,912 | | | 110,440 | | | 63,702 | | | 117,422 | | | 93,769 | | | 477,190 | | | 14,932 | | | 997,367 | |
Commercial and industrial | | | | | | | | | | | | | | | | |
Pass | | 60,078 | | | 23,724 | | | 14,072 | | | 17,175 | | | 10,992 | | | 47,370 | | | 443,211 | | | 616,622 | |
Special Mention | | — | | | 7 | | | — | | | — | | | — | | | 250 | | | 1,680 | | | 1,937 | |
Substandard | | — | | | 21 | | | 76 | | | 1,083 | | | 301 | | | 2,212 | | | 120 | | | 3,813 | |
Total commercial and industrial | | 60,078 | | | 23,752 | | | 14,148 | | | 18,258 | | | 11,293 | | | 49,832 | | | 445,011 | | | 622,372 | |
Residential real estate (1) | | | | | | | | | | | | | | | | |
Pass | | 919,364 | | | 591,745 | | | 419,712 | | | 247,387 | | | 99,945 | | | 577,392 | | | — | | | 2,855,545 | |
Special Mention | | — | | | 193 | | | 1,514 | | | 204 | | | 59 | | | 2,407 | | | — | | | 4,377 | |
Substandard | | — | | | — | | | — | | | 656 | | | 286 | | | 1,127 | | | — | | | 2,069 | |
Total residential real estate | | 919,364 | | | 591,938 | | | 421,226 | | | 248,247 | | | 100,290 | | | 580,926 | | | — | | | 2,861,991 | |
Other consumer (1) | | | | | | | | | | | | | | | | |
Pass | | 24,069 | | | 24,111 | | | 15,440 | | | 15,471 | | | 39,057 | | | 108,818 | | | 34,851 | | | 261,817 | |
Special Mention | | — | | | — | | | — | | | 75 | | | — | | | 598 | | | — | | | 673 | |
Substandard | | — | | | — | | | — | | | 157 | | | 18 | | | 1,707 | | | — | | | 1,882 | |
Total other consumer | | 24,069 | | | 24,111 | | | 15,440 | | | 15,703 | | | 39,075 | | | 111,123 | | | 34,851 | | | 264,372 | |
Total loans | | $ | 2,268,186 | | | $ | 2,092,038 | | | $ | 1,070,645 | | | $ | 942,045 | | | $ | 465,426 | | | $ | 2,131,413 | | | $ | 948,301 | | | $ | 9,918,054 | |
(1) For residential real estate and other consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
An analysis of the allowance for credit losses on loans for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial Real Estate – Investor | | Commercial Real Estate – Owner Occupied | | Commercial and Industrial | | Residential Real Estate | | Other Consumer | | | | Total |
For the three months ended June 30, 2023 | | | | | | | | | | | | | | |
Allowance for credit losses on loans | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 22,451 | | | $ | 4,116 | | | $ | 5,827 | | | $ | 26,928 | | | $ | 873 | | | | | $ | 60,195 | |
Provision (benefit) for credit losses | | 2,029 | | | 223 | | | 239 | | | (785) | | | 13 | | | | | 1,719 | |
Charge-offs (1) | | — | | | — | | | (125) | | | — | | | (81) | | | | | (206) | |
Recoveries | | 1 | | | 3 | | | 4 | | | 9 | | | 66 | | | | | 83 | |
Balance at end of period | | $ | 24,481 | | | $ | 4,342 | | | $ | 5,945 | | | $ | 26,152 | | | $ | 871 | | | | | $ | 61,791 | |
For the three months ended June 30, 2022 | | | | | | | | | | | | | | |
Allowance for credit losses on loans | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 23,637 | | | $ | 5,053 | | | $ | 4,649 | | | $ | 16,277 | | | $ | 982 | | | | | $ | 50,598 | |
(Benefit) provision for credit losses | | (1,080) | | | (116) | | | 572 | | | 1,966 | | | 130 | | | | | 1,472 | |
Charge-offs | | — | | | (14) | | | — | | | (56) | | | (217) | | | | | (287) | |
Recoveries | | 51 | | | 98 | | | 19 | | | 9 | | | 101 | | | | | 278 | |
Balance at end of period | | $ | 22,608 | | | $ | 5,021 | | | $ | 5,240 | | | $ | 18,196 | | | $ | 996 | | | | | $ | 52,061 | |
For the six months ended June 30, 2023 | | | | | | | | | | | | | | |
Allowance for credit losses on loans | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 21,070 | | | $ | 4,423 | | | $ | 5,695 | | | $ | 24,530 | | | $ | 1,106 | | | | | $ | 56,824 | |
Provision (benefit) for credit losses | | 3,408 | | | (81) | | | 370 | | | 1,605 | | | (259) | | | | | 5,043 | |
Charge-offs (1) | | — | | | (6) | | | (128) | | | — | | | (82) | | | | | (216) | |
Recoveries | | 3 | | | 6 | | | 8 | | | 17 | | | 106 | | | | | 140 | |
Balance at end of period | | $ | 24,481 | | | $ | 4,342 | | | $ | 5,945 | | | $ | 26,152 | | | $ | 871 | | | | | $ | 61,791 | |
For the six months ended June 30, 2022 | | | | | | | | | | | | | | |
Allowance for credit losses on loans | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 25,504 | | | $ | 5,884 | | | $ | 5,039 | | | $ | 11,155 | | | $ | 1,268 | | | | | $ | 48,850 | |
(Benefit) provision for credit losses | | (2,947) | | | (956) | | | 166 | | | 6,994 | | | (129) | | | | | 3,128 | |
Charge-offs | | — | | | (18) | | | — | | | (56) | | | (356) | | | | | (430) | |
Recoveries | | 51 | | | 111 | | | 35 | | | 103 | | | 213 | | | | | 513 | |
Balance at end of period | | $ | 22,608 | | | $ | 5,021 | | | $ | 5,240 | | | $ | 18,196 | | | $ | 996 | | | | | $ | 52,061 | |
(1) Gross charge-offs for the three and six months ended June 30, 2023 of $206,000 and $216,000, respectively, related to loans that were originated in and prior to 2018.
A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral and, therefore, is classified as non-accruing. At June 30, 2023 and December 31, 2022, the Company had collateral dependent loans with an amortized cost balance as follows: commercial real estate - investor of $7.3 million and $4.6 million, respectively, commercial real estate - owner occupied of $565,000 and $4.0 million, respectively, and commercial and industrial of $199,000 and $160,000, respectively. In addition, the Company had residential and consumer loans collateralized by residential real estate, which are in the process of foreclosure, with an amortized cost balance of $1.6 million and $858,000 at June 30, 2023 and December 31, 2022, respectively.
The following table presents the recorded investment in residential and consumernon-accrual loans, based on payment activityby loan portfolio segment as of SeptemberJune 30, 20172023 and December 31, 2016, excluding PCI loans2022 (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2023 | | 2022 |
Commercial real estate – investor | $ | 13,000 | | | $ | 10,483 | |
Commercial real estate – owner occupied | 565 | | | 4,025 | |
Commercial and industrial | 199 | | | 331 | |
Residential real estate | 6,174 | | | 5,969 | |
Other consumer | 2,820 | | | 2,457 | |
| $ | 22,758 | | | $ | 23,265 | |
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
|
| | | | | | | |
| Residential Real Estate |
| Residential | | Consumer |
September 30, 2017 | | | |
Performing | $ | 1,746,404 |
| | $ | 277,399 |
|
Non-performing | 3,551 |
| | 1,864 |
|
| $ | 1,749,955 |
| | $ | 279,263 |
|
December 31, 2016 | | | |
Performing | $ | 1,704,347 |
| | $ | 288,491 |
|
Non-performing | 8,126 |
| | 2,064 |
|
| $ | 1,712,473 |
| | $ | 290,555 |
|
At June 30, 2023 and December 31, 2022, the non-accrual loans were included in the allowance for credit loss calculation and the Company did not recognize or accrue interest income on these loans. At June 30, 2023, there were no loans that were past due 90 days or greater and still accruing interest. At December 31, 2022, there was one Paycheck Protection Program (“PPP”) loan for $14,000 that was past due 90 days or greater and still accrued interest, which subsequently became current. Per Small Business Administration (“SBA”) guidelines, the SBA will pay accrued interest through the deferral period up to a maximum of 120 days past due. Given these servicing guidelines, PPP loans that are 90 to 120 days past due will be reported as accruing loans.The following table presents the aging of the recorded investment in past due loans as of June 30, 2023 and December 31, 2022 by loan portfolio segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Loans Not Past Due | | Total |
June 30, 2023 | | | | | | | | | | | |
Commercial real estate – investor | $ | — | | | $ | — | | | $ | 3,958 | | | $ | 3,958 | | | $ | 5,315,728 | | | $ | 5,319,686 | |
Commercial real estate – owner occupied | 95 | | | 41 | | | — | | | 136 | | | 981,482 | | | 981,618 | |
Commercial and industrial | 7 | | | 149 | | | 39 | | | 195 | | | 620,089 | | | 620,284 | |
Residential real estate | — | | | 1,997 | | | 1,702 | | | 3,699 | | | 2,902,857 | | | 2,906,556 | |
Other consumer | 738 | | | 109 | | | 1,840 | | | 2,687 | | | 252,799 | | | 255,486 | |
| $ | 840 | | | $ | 2,296 | | | $ | 7,539 | | | $ | 10,675 | | | $ | 10,072,955 | | | $ | 10,083,630 | |
December 31, 2022 | | | | | | | | | | | |
Commercial real estate – investor | $ | 217 | | | $ | 875 | | | $ | 3,700 | | | $ | 4,792 | | | $ | 5,167,160 | | | $ | 5,171,952 | |
Commercial real estate – owner occupied | 143 | | | 80 | | | 3,750 | | | 3,973 | | | 993,394 | | | 997,367 | |
Commercial and industrial | 159 | | | 47 | | | 180 | | | 386 | | | 621,986 | | | 622,372 | |
Residential real estate | 7,003 | | | 4,377 | | | 2,069 | | | 13,449 | | | 2,848,542 | | | 2,861,991 | |
Other consumer | 573 | | | 673 | | | 1,882 | | | 3,128 | | | 261,244 | | | 264,372 | |
| $ | 8,095 | | | $ | 6,052 | | | $ | 11,581 | | | $ | 25,728 | | | $ | 9,892,326 | | | $ | 9,918,054 | |
The Company classifiesadopted Accounting Standards Update (“ASU”) 2022-02 on January 1, 2023. Since adoption, the Company has modified certain loans to borrowers experiencing financial difficulty. These modifications may include a reduction in interest rate, an extension in term, principal forgiveness and/or other than insignificant payment delay. At June 30, 2023, loans with modifications to borrowers experiencing financial difficulty totaled $898,000 related to term extensions, which included residential real estate of $658,000 and other consumer of $240,000.
The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. Of the $898,000 loans with modifications to borrowers experiencing financial difficulty, $755,000 were current and one residential loan of $143,000 had a payment default during the three and six months ended June 30, 2023.
Prior to the adoption of ASU 2022-02, the Company classified certain loans as troubled debt restructuringsrestructuring (“TDR”) loans when credit terms to a borrower in financial difficulty are modified. The modifications may include a reductionwere modified in rate, an extension in term,accordance with ASC 310-40. Since adoption of this ASU, the capitalizationCompany has ceased to recognize or measure for new TDRs but those existing at December 31, 2022 remain until settled.
At June 30, 2023 and December 31, 2022, TDR loans totaled $13.5 million and $13.9 million, respectively. At June 30, 2023 and December 31, 2022, there were $6.2 million and $6.4 million, respectively, of past due amounts and/or the restructuring of scheduled principal payments. IncludedTDR loans included in the non-accrual loan total at Septembertotals. At June 30, 2017,2023 and December 31, 2016, were $270,000 and $3.5 million, respectively, of troubled debt restructurings. At September 30, 2017,2022, the Company had no$436,000 and $590,000, respectively, of specific reservesreserve allocated to loansone loan that arewas 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.a TDR loan. Non-accrual loans which become troubled debt restructuringsTDR loans are generally returned to accrual status after six months of performance. In addition to the troubled debt restructuringsTDR loans included in non-accrual loans, the Company also has TDR loans classified as accruing troubled debt restructuringsloans, which totaled $7.3 million and $7.5 million at SeptemberJune 30, 2017,2023 and December 31, 2016, which totaled $35.8 million and $27.0 million,2022, 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, 2017 and 2016, and troubled debt restructurings modified within the previous year and which defaulted during the three and nine months ended September 30, 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 | | 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 |
|
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
|
| | | | | | | | | | |
| Number of Loans | | Pre-modification Recorded Investment | | Post-modification Recorded Investment |
Three months ended September 30, 2016 | | | | | |
Troubled Debt Restructurings: | | | | | |
Residential real estate | 1 |
| | $ | 455 |
| | $ | 455 |
|
Consumer | 1 |
| | 602 |
| | 602 |
|
|
| | | | | |
| 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, 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 PCIabout TDR loans acquired from Ocean Shore at December 1, 2016, Cape at May 2, 2016, and Colonial American Bank at July 31, 2015 (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 |
|
Contractual cash flows not expected to be collected (non-accretable discount) | (4,666 | ) | | (12,387 | ) | | (1,854 | ) |
Expected cash flows to be collected at acquisition | 2,719 |
| | 8,958 |
| | 1,409 |
|
Interest component of expected cash flows (accretable yield) | (401 | ) | | (576 | ) | | (109 | ) |
Fair value of acquired loans | $ | 2,318 |
| | $ | 8,382 |
| | $ | 1,300 |
|
The following table summarizes the changes in accretable yield for PCI loanswhich occurred during the three and ninesix months ended SeptemberJune 30, 2017 and 2016 (in2022 (dollars in thousands):
| | | | | | | | | | | | | | | | | |
| Number of Loans | | Pre-modification Recorded Investment | | Post-modification Recorded Investment |
Three months ended June 30, 2022 | | | | | |
Troubled debt restructurings: | None | | None | | None |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Six months ended June 30, 2022 | | | | | |
Troubled debt restructurings: | | | | | |
| | | | | |
| | | | | |
Commercial and industrial | 1 | | $ | 65 | | | $ | 65 | |
| | | | | |
Consumer | 3 | | 991 | | | 1,109 | |
There were no TDR loans that defaulted during the three and six months ended June 30, 2023 and 2022, which were modified within the preceding year.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2016 |
Beginning balance | $ | 1,465 |
| | $ | 749 |
| | $ | 503 |
| | $ | 75 |
|
Acquisition | — |
| | — |
| | — |
| | 576 |
|
Accretion | (328 | ) | | (642 | ) | | (196 | ) | | (344 | ) |
Reclassification from non-accretable difference | 13 |
| | 1,043 |
| | — |
| | — |
|
Ending balance | $ | 1,150 |
| | $ | 1,150 |
| | $ | 307 |
| | $ | 307 |
|
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 6.5. Deposits
The major types of deposits at SeptemberJune 30, 20172023 and December 31, 20162022 were as follows (in thousands):
| | Type of Account | | Type of Account | June 30, | | December 31, |
September 30, 2017 | | December 31, 2016 | 2023 | | 2022 |
Non-interest-bearing | $ | 781,043 |
| | $ | 782,504 |
| Non-interest-bearing | $ | 1,854,136 | | | $ | 2,101,308 | |
Interest-bearing checking | 1,892,832 |
| | 1,626,713 |
| Interest-bearing checking | 3,537,834 | | | 3,829,683 | |
Money market deposit | 384,106 |
| | 458,911 |
| Money market deposit | 770,440 | | | 714,386 | |
Savings | 668,370 |
| | 672,519 |
| Savings | 1,229,897 | | | 1,487,809 | |
Time deposits | 623,908 |
| | 647,103 |
| Time deposits | 2,766,030 | | | 1,542,020 | |
Total deposits | $ | 4,350,259 |
| | $ | 4,187,750 |
| Total deposits | $ | 10,158,337 | | | $ | 9,675,206 | |
Included in time deposits at SeptemberJune 30, 20172023 and December 31, 2016, is $273.62022 was $310.6 million and $269.0$117.7 million, respectively, in deposits of $100,000$250,000 or more. Time deposits also include brokered deposits of $1.42 billion and over.$873.4 million at June 30, 2023 and December 31, 2022, respectively.
Note 6. Borrowed Funds
Borrowed funds at June 30, 2023 and December 31, 2022 were as follows (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
2023 | | 2022 |
FHLB advances | $ | 1,091,666 | | | $ | 1,211,166 | |
Securities sold under agreements to repurchase with customers | 74,452 | | | 69,097 | |
Other borrowings | 195,925 | | | 195,403 | |
Total borrowed funds | $ | 1,362,043 | | | $ | 1,475,666 | |
The Company had no FHLB overnight advances or borrowings from the Federal Reserve Bank (“FRB”) Discount Window or Bank Term Funding Program at June 30, 2023 and December 31, 2022.
Pledged assets
The following table presents the assets pledged to secure borrowings, borrowing capacity, repurchase agreements, letters of credit, and for other purposes required by law at carrying value (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Loans | | Debt securities | | Total |
June 30, 2023 | | | | | | |
FHLB and FRB | | $ | 7,147,408 | | | $ | 15,037 | | | $ | 7,162,445 | |
Repurchase agreements | | — | | | 81,919 | | | 81,919 | |
| | | | | | |
Total pledged assets | | $ | 7,147,408 | | | $ | 96,956 | | | $ | 7,244,364 | |
December 31, 2022 | | | | | | |
FHLB and FRB | | $ | 6,487,980 | | | $ | 830,057 | | | $ | 7,318,037 | |
Repurchase agreements | | — | | | 105,294 | | | 105,294 | |
| | | | | | |
Total pledged assets | | $ | 6,487,980 | | | $ | 935,351 | | | $ | 7,423,331 | |
The securities pledged, which collateralize the repurchase agreements are delivered to the lender, with whom each transaction is executed, or to a third-party custodian. The lender, who may sell, loan or otherwise dispose of such securities to other parties in the normal course of their operations, agrees to resell to the Company substantially the same securities at the maturity of the repurchase agreements.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 7. Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 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 also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. The Company will adopt the guidance in first quarter of 2018 using the modified retrospective method with a 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 impact 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 effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.
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 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. 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
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 is effective for fiscal years beginning after December 15, 2017; early adoption is permitted on a limited basis. 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 2017-04, “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 is 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 effective for fiscal years beginning 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.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 8.7. 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 unadjusted 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. 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-SaleAvailable-for-Sale
SecuritiesDebt 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.
Other Real Estate OwnedEquity Investments
Equity investments with readily determinable fair value are reported at fair value. Fair value for these investments is primarily determined using a quoted price in an active market or exchange (Level 1) or using inputs other than quoted prices that are based on market observable information (Level 2). Equity investments without readily determinable fair values are carried at cost less impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer (measurement alternative). Certain equity investments without readily
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
determinable fair values are measured at net asset value (“NAV”) per share as a practical expedient, which are excluded from the fair value hierarchy levels in the table below.
Interest Rate Derivatives
The Company’s interest rate swaps and Impaired Loanscap contracts are reported at fair value utilizing discounted cash flow models provided by an independent, third-party and observable market data (Level 2). When entering into an interest rate swap or cap contract, the Company is exposed to fair value changes due to interest rate movements, and also the potential nonperformance of the contract counterparty.
Other real estate owned and loansLoans Individually Measured for Impairment
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.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
appraisals (Level 3).
The following table summarizes financial assets and financial liabilities measured at fair value as of SeptemberJune 30, 20172023 and December 31, 2016,2022, 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: |
| Total Fair Value | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs |
June 30, 2023 | | | | | | | |
Items measured on a recurring basis: | | | | | | | |
Debt securities available-for-sale | $ | 452,016 | | | $ | — | | | $ | 452,016 | | | $ | — | |
Equity investments | 49,469 | | | — | | | 49,470 | | | — | |
Interest rate derivative asset | 109,651 | | | — | | | 109,651 | | | — | |
Interest rate derivative liability | (110,869) | | | — | | | (110,869) | | | — | |
| | | | | | | |
Items measured on a non-recurring basis: | | | | | | | |
Equity investments (1) (2) | 46,983 | | | — | | | — | | | 43,576 | |
| | | | | | | |
Loans measured for impairment based on the fair value of the underlying collateral (3) | 9,613 | | | — | | | — | | | 9,613 | |
December 31, 2022 | | | | | | | |
Items measured on a recurring basis: | | | | | | | |
Debt securities available-for-sale | $ | 457,648 | | | $ | — | | | $ | 457,648 | | | $ | — | |
Equity investments | 61,942 | | | 430 | | | 61,511 | | | — | |
Interest rate derivative asset | 113,420 | | | — | | | 113,420 | | | — | |
Interest rate derivative liability | (113,473) | | | — | | | (113,473) | | | — | |
Items measured on a non-recurring basis: | | | | | | | |
Equity investments (1) (2) | 40,095 | | | — | | | — | | | 37,076 | |
| | | | | | | |
Loans measured for impairment based on the fair value of the underlying collateral (3) | 9,635 | | | — | | | — | | | 9,635 | |
(1) As of June 30, 2023 and December 31, 2022, primarily consists of $43.6 million and $37.1 million, respectively, of equity investments measured under the measurement alternative. This included no unrealized gains or losses for the six months ended June 30, 2023 as a result of observable price changes in the investment and $20.0 million of unrealized gains for the year ended December 31, 2022.
(2) As of June 30, 2023 and December 31, 2022, equity investments of $47.0 million and $40.1 million, respectively, included $3.4 million and $3.0 million of certain equity investment funds measured at NAV per share (or its equivalent) as a practical expedient to fair value and these equity investments have not been classified in the fair value hierarchy levels.
(3) Primarily consists of commercial loans, which are collateral dependent. The amounts are based on independent appraisals, which may be adjusted by management for qualitative factors, such as economic factors and estimated liquidation expenses. The range may vary but is generally 0% to 8% on the discount for costs to sell and 0% to 10% on appraisal adjustments.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
|
| | | | | | | | | | | | | | | |
| | | 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 |
|
The following table reconciles the beginning and ending balances for equity investments that are recognized at fair value on a recurring basis, in the Consolidated Statements of Financial Condition, using significant unobservable inputs (in thousands): | | | | | | | | | | | | | | |
| | | | | For the Six Months Ended June 30, |
| | | | | | | | 2022 |
Beginning balance | | | | | | | | $ | 2,718 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Transfers out of Level 3 | | | | | | | | (2,718) | |
Ending balance | | | | | | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using: |
December 31, 2016 | 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 | $ | 12,224 |
| | $ | — |
| | $ | 12,224 |
| | $ | — |
|
Items measured on a non-recurring basis: | | | | | | | |
Other real estate owned | 9,803 |
| | — |
| | — |
| | 9,803 |
|
Loans measured for impairment based on the fair value of the underlying collateral | 2,419 |
| | — |
| | — |
| | 2,419 |
|
The Company recognizes transfers between levels of the valuation hierarchy at the end of the applicable reporting periods. There were no assets in Level 3 that were recognized at fair value on a recurring basis or transfers into or out of Level 3 for the three and six months ended June 30, 2023. During the six months ended June 30, 2022, the Company executed its right to convert $2.7 million of preferred stock into common stock, which resulted in a transfer from Level 3 into Level 1.
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
SecuritiesDebt 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-backeddebt 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 of the security.
The Company utilizes third-party pricing services to obtain fair values for most of its securities held-to-maturity. Management’s policy is to obtain and review all available documentation from the 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 determinationdecides 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
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”)debt securities where management utilized Level 3 inputs. In the case of the Level 2 securities, the significant observable inputs, include benchmark yields, reported trades, broker/such as broker or dealer quotes issuer spreads, two-sided markets, benchmark securities, bids, offers, other market informationwith limited levels of activity 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.price transparency.
Federal Home Loan Bank of New York StockRestricted Equity Investments
The fair value for Federal Home Loan Bank of New York, Federal Reserve Bank stock, and Atlantic Community Bankers Bank 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 uponas stipulated by the outstanding balance of mortgage related assetsrespective entities.
Loans Receivable and outstanding borrowings.
Loans Held-for-Sale
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage,real estate, consumer and commercial. Each loan category is further segmented into fixed and adjustable rate interest terms.
Fair value of performing and non-performing loans, which is based on an exit price notion, was estimated by discounting the future cash flows, net of estimated prepayments, at amarket discount rates that reflect the credit and interest rate for which similar loans would be originated to new borrowers with similar terms. Fair values estimatedrisk inherent 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.the loan.
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
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
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 FundsFHLB Advances and Other Borrowings
Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
The book value and estimated fair value of the Bank’sCompany’s significant financial instruments not recorded at fair value as of SeptemberJune 30, 20172023 and December 31, 20162022 are presented in the following tables (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using: |
| Book Value | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs |
June 30, 2023 | | | | | | | |
Financial Assets: | | | | | | | |
Cash and due from banks | $ | 457,747 | | | $ | 457,747 | | | $ | — | | | $ | — | |
Debt securities held-to-maturity | 1,222,507 | | | — | | | 1,100,929 | | | 8,827 | |
Restricted equity investments | 105,305 | | | — | | | — | | | 105,305 | |
Loans receivable, net and loans held-for-sale | 10,034,306 | | | — | | | — | | | 8,895,899 | |
Financial Liabilities: | | | | | | | |
Deposits other than time deposits (1) | 7,392,307 | | | — | | | 7,392,307 | | | — | |
Time deposits | 2,766,030 | | | — | | | 2,731,216 | | | — | |
FHLB advances and other borrowings | 1,287,591 | | | — | | | 1,277,187 | | | — | |
Securities sold under agreements to repurchase with customers | 74,452 | | | 74,452 | | | — | | | — | |
December 31, 2022 | | | | | | | |
Financial Assets: | | | | | | | |
Cash and due from banks | $ | 167,946 | | | $ | 167,946 | | | $ | — | | | $ | — | |
Debt securities held-to-maturity | 1,221,138 | | | — | | | 1,097,984 | | | 12,057 | |
Restricted equity investments | 109,278 | | | — | | | — | | | 109,278 | |
Loans receivable, net and loans held-for-sale | 9,869,408 | | | — | | | — | | | 9,103,137 | |
Financial Liabilities: | | | | | | | |
Deposits other than time deposits (1) | 8,133,186 | | | — | | | 8,133,186 | | | — | |
Time deposits | 1,542,020 | | | — | | | 1,504,601 | | | — | |
FHLB advances and other borrowings | 1,406,569 | | | — | | | 1,416,384 | | | — | |
Securities sold under agreements to repurchase with customers | 69,097 | | | 69,097 | | | — | | | — | |
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using: |
September 30, 2017 | Book Value | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs |
Financial Assets: | | | | | | | |
Cash and due from banks | $ | 255,258 |
| | $ | 255,258 |
| | $ | — |
| | $ | — |
|
Securities held-to-maturity | 742,886 |
| | 8,714 |
| | 734,990 |
| | 2,793 |
|
Federal Home Loan Bank of New York stock | 18,472 |
| | — |
| | — |
| | 18,472 |
|
Loans receivable, net and mortgage loans held for sale | 3,870,447 |
| | — |
| | — |
| | 3,935,093 |
|
Financial Liabilities: | | | | | | | |
Deposits other than time deposits | 3,726,351 |
| | — |
| | 3,726,351 |
| | — |
|
Time deposits | 623,908 |
| | — |
| | 619,619 |
| | — |
|
Securities sold under agreements to repurchase with retail customers | 75,326 |
| | 75,326 |
| | — |
| | — |
|
Federal Home Loan Bank advances and other borrowings | 315,652 |
| | — |
| | 314,021 |
| | — |
|
(1) The estimated fair value of non-maturity deposits does not consider any inherent value and represents amount payable on demand. However, non-maturity deposits do contain significant inherent value to the Company, particularly when overnight funding costs are greater than the deposit costs. |
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using: |
December 31, 2016 | Book Value | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs |
Financial Assets: | | | | | | | |
Cash and due from banks | $ | 301,373 |
| | $ | 301,373 |
| | $ | — |
| | $ | — |
|
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 |
|
Financial Liabilities: | | | | | | | |
Deposits other than time deposits | 3,540,647 |
| | — |
| | 3,540,647 |
| | — |
|
Time deposits | 647,103 |
| | — |
| | 644,354 |
| | — |
|
Securities sold under agreements to repurchase with retail customers | 69,935 |
| | 69,935 |
| | — |
| | — |
|
Federal Home Loan Bank advances and other borrowings | 307,057 |
| | — |
| | 304,901 |
| | — |
|
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.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
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,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.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 8. Derivatives and Hedging Activities
The Company enters into derivative financial instruments which involve, to varying degrees, interest rate 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 derivative financial instruments to accommodate the business needs of its customers as well as to economically hedge the exposure that this creates for the Company. Additionally, the Company enters into certain derivative financial instruments to enhance its ability to manage interest rate risk that exists as part of its ongoing business operations. The Company does not use derivative financial instruments for trading purposes.
Customer Derivatives – Interest Rate Swaps and Cap Contracts
Derivatives Not Designated as Hedging Instruments
The Company enters into interest rate swaps that allow commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the 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 Company also enters into interest rate cap contracts that enable commercial loan customers to lock in a cap on a variable-rate commercial loan agreement. This feature prevents the loan from repricing to a level that exceeds the cap contract’s specified interest rate, which serves to hedge the risk from rising interest rates. The Company then enters into an offsetting interest rate cap contract with a third party in order to economically hedge its exposure through the customer agreement.
These interest rate swaps and cap contracts with both the customers and third parties are not designated as hedges under ASC Topic 815, Derivatives and Hedging, therefore changes in fair value are reported in earnings. As the interest rate swaps and cap contracts are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by ASC Topic 820, Fair Value Measurements. The Company recognized gains of $22,000 and $0 in commercial loan swap income resulting from the fair value adjustment for the three and six months ended June 30, 2023, respectively, as compared to gains of $0 and $37,000 for the corresponding prior year periods.
Derivatives Designated as Hedging Instruments
During the fourth quarter of 2022, the Company entered into a three-year interest rate swap intended to add stability to its net interest income and to manage its exposure to future interest rate movements associated with a pool of floating rate commercial loans. The swap requires the Company to pay variable-rate amounts indexed to one-month term Secured Overnight Financing Rate (“SOFR”) to the counterparty in exchange for the receipt of fixed-rate amounts at 4.0% from the counterparty. The swap was designated and qualified as a cash flow hedge, under ASC Topic 815, Derivatives and Hedging. The changes in the fair value of cash flow hedges are initially reported in other comprehensive income. Amounts are subsequently reclassified from accumulated other comprehensive income to earnings when the hedged transactions occur, specifically within the same line item as the hedged item (interest income). Therefore, a portion of the balance reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income as interest payments are made or received on the Company’s interest rate swaps.
The table below presents the effect on the Company’s accumulated other comprehensive income/loss (“AOCI” or “AOCL”) attributable to the cash flow hedge derivative, net of tax, and the related gains/(losses) reclassified from AOCI into income (in thousands):
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2023 |
AOCI (AOCL) balance at beginning of period, net of tax | | $ | 488 | | | $ | (25) | |
Unrealized losses recognized in OCI | | (1,588) | | | (1,176) | |
Losses reclassified from AOCI into interest income | | 191 | | | 292 | |
AOCL balance at end of period, net of tax | | $ | (909) | | | $ | (909) | |
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
During the next twelve months, the Company estimates that an additional $1.2 million will be reclassified as a reduction to interest income.
The table below presents the notional amount and fair value of derivatives designated and not designated as hedging instruments, as well as their location on the Consolidated Statements of Financial Condition (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional | | Fair Value | | | | |
| | | Other assets | | Other liabilities | | |
As of June 30, 2023 | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | | | | | | | | | | |
Interest rate swaps and cap contracts | | $ | 1,424,747 | | | $ | 109,651 | | | $ | 109,670 | | | | | |
Derivatives Designated as Cash Flow Hedge | | | | | | | | | | |
Interest rate swap contract | | 100,000 | | | — | | | 1,199 | | | | | |
Total Derivatives | | $ | 1,524,747 | | | $ | 109,651 | | | $ | 110,869 | | | | | |
December 31, 2022 | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | | | | | | | | | | |
Interest rate swaps and cap contracts | | $ | 1,368,245 | | | $ | 113,420 | | | $ | 113,440 | | | | | |
Derivatives Designated as Cash Flow Hedge | | | | | | | | | | |
Interest rate swap contract | | 100,000 | | | — | | | 33 | | | | | |
Total Derivatives | | $ | 1,468,245 | | | $ | 113,420 | | | $ | 113,473 | | | | | |
Credit Risk-Related Contingent Features
The Company is exposed to credit risk in the event of nonperformance by the interest rate derivative counterparty. The Company minimizes this risk by being a party to International Swaps and Derivatives Association agreements with third party broker-dealers that require a minimum dollar transfer amount upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted with third parties was $0 and $40,000 at June 30, 2023 and December 31, 2022, respectively. The amount of collateral received from third parties was $112.5 million and $104.5 million at June 30, 2023 and December 31, 2022, respectively. The amount of collateral posted with third parties and received from third parties 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 specified credit measures. The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with third parties was $110.9 million and $113.5 million at June 30, 2023 and December 31, 2022, respectively.
The interest rate derivatives which the Company executes with the commercial borrowers are collateralized by the borrowers’ commercial real estate financed by the Company.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 9. Subsequent EventLeases
On June 30, 2017,A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company’s leases are comprised of real estate property for branches, automated teller machine locations and office space with terms extending through 2038. The Company announced an agreement to acquire Sun Bancorp, Inc. (“Sun”), headquartered in Mount Laurel, New Jersey, inhas one existing finance lease, which has a transaction valued at approximately $487 million. Underlease term through 2029.
The following table represents the terms of the agreement, Sun stockholders will be entitled to receive $3.78 in cash and 0.7884 sharesclassification of the Company’s common stock,ROU assets and lease liabilities on the Consolidated Statements of Financial Condition (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | | June 30, | | December 31, |
| | | | 2023 | | 2022 |
Lease ROU Assets | | Classification | | | | |
Operating lease ROU assets | | Other assets | | $ | 20,044 | | | $ | 19,055 | |
Finance lease ROU asset | | Premises and equipment, net | | 1,420 | | | 1,532 | |
Total lease ROU assets | | | | $ | 21,464 | | | $ | 20,587 | |
| | | | | | |
Lease Liabilities | | | | | | |
Operating lease liabilities (1) | | Other liabilities | | $ | 21,080 | | | $ | 20,053 | |
Finance lease liability | | Other borrowings | | 1,811 | | | 1,934 | |
Total lease liabilities | | | | $ | 22,891 | | | $ | 21,987 | |
(1) Operating lease liabilities excludes liabilities for each sharefuture rent and estimated lease termination payments related to closed branches of Sun common stock. Sun$6.8 million and $7.7 million at June 30, 2023 and December 31, 2022, respectively.
The calculated amount of the ROU assets and lease liabilities are impacted by the lease term and the discount rate used to calculate the present value of the minimum lease payments. Lease agreements often include one or more options to renew the lease at the Company’s discretion. If the exercise of a renewal option is considered to be reasonably certain, the Company received their respective requisite stockholder approvalsincludes the extended term in the calculation of the ROU asset and lease liability. For the discount rate, ASC Topic 842, Leases requires the Company to use the rate implicit in the lease, provided the rate is readily determinable. As this rate is not readily determinable, the Company utilizes its incremental borrowing rate, at lease inception, over a similar term. For operating leases existing prior to January 1, 2019, the Company used the incremental borrowing rate for the merger. Regulatory approvalremaining lease term as of January 1, 2019. For the finance lease, the Company utilized its incremental borrowing rate at lease inception.
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2023 | | 2022 |
Weighted-Average Remaining Lease Term | | | | |
Operating leases | | 6.68 years | | 6.87 years |
Finance lease | | 6.10 years | | 6.60 years |
Weighted-Average Discount Rate | | | | |
Operating leases | | 2.86 | % | | 2.86 | % |
Finance lease | | 5.63 | | | 5.63 | |
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
The following table represents lease expenses and other lease information (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Lease Expense | | | | | | | | |
Operating lease expense | | $ | 1,174 | | | $ | 1,440 | | | $ | 2,319 | | | $ | 2,698 | |
Finance lease expense: | | | | | | | | |
Amortization of ROU assets | | 54 | | | 50 | | | 112 | | | 99 | |
Interest on lease liabilities (1) | | 26 | | | 26 | | | 52 | | | 52 | |
Total | | $ | 1,254 | | | $ | 1,516 | | | $ | 2,483 | | | $ | 2,849 | |
| | | | | | | | |
Other Information | | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | |
Operating cash flows from operating leases | | $ | 1,121 | | | $ | 1,249 | | | $ | 2,260 | | | $ | 2,411 | |
Operating cash flows from finance leases | | 26 | | | 26 | | | 52 | | | 52 | |
Financing cash flows from finance leases | | 62 | | | 51 | | | 123 | | | 102 | |
(1)Included in borrowed funds interest expense on the Consolidated Statements of Income. All other costs are included in occupancy expense on the Consolidated Statements of Income.
Future minimum payments for the finance lease and operating leases with initial or remaining terms were as follows (in thousands):
| | | | | | | | | | | | | | |
| | Finance Lease | | Operating Leases |
For the Year Ending December 31, | | | | |
2023 | | $ | 175 | | | $ | 2,311 | |
2024 | | 350 | | | 4,334 | |
2025 | | 350 | | | 4,274 | |
2026 | | 350 | | | 3,648 | |
2027 | | 350 | | | 2,489 | |
Thereafter | | 559 | | | 6,400 | |
Total | | 2,134 | | | 23,456 | |
Less: Imputed interest | | (323) | | | (2,376) | |
Total lease liabilities | | $ | 1,811 | | | $ | 21,080 | |
Note 10. Variable Interest Entity
The Company accounts for Trident as a variable interest entity (“VIE”) under ASC 810, Consolidation, for which the Company is considered the primary beneficiary (i.e. the party that has a controlling financial interest). In accordance with ASC 810, Consolidation, the Company has consolidated Trident’s assets and liabilities.
The summarized financial information for the Company’s consolidated VIE at June 30, 2023 and December 31, 2022 consisted of the merger was received from the Federal Reserve Bankfollowing (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
Cash and cash equivalents | | $ | 37,022 | | | $ | 30,062 | |
Other assets | | 805 | | | 941 | |
Total assets | | 37,827 | | | 31,003 | |
Other liabilities | | 35,706 | | | 28,998 | |
Net assets | | $ | 2,121 | | | $ | 2,005 | |
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company isand the Bank are not engagedinvolved in any pending legal proceedings of a material nature at the present time. From time to time, the Company is a party toother than routine legal proceedings withinoccurring in the normalordinary 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 theFor a summary of risk factors relevant to the Company, set forth insee Part I, Item 1A, “Risk Factors,” in the 20162022 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 includedPart II, Item 1A, “Risk Factors,” in the registration statement (File No. 333-220235) on Form S-4 that was filed with10-Q for the SEC on August 29, 2017,quarter ended March 31, 2023. Except 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. There werepreviously disclosed, there have been 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 by2022. Additional risks not presently known to 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 that 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 stockcurrently deems immaterial, 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 constituentsbusiness, financial condition or to achieve the anticipated benefits and cost savingsresults 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.operations.
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, and Purchases of Equity Securities
On July 24, 2014,June 25, 2021, 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 ofby the Board of Directors to repurchase up to an additional 5% of the Company’s outstanding common stock, or 1.63.0 million shares. The Company did not repurchase any shares of which all shares authorized for repurchase remain available at September 30, 2017. Information regarding the Company’sits common stock repurchases forunder its repurchase program during the three month period ended SeptemberJune 30, 2017 is as follows:2023. At June 30, 2023, there were 2,934,438 shares available for repurchase under the Company’s stock repurchase program.
For the month of May 31, 2023, there were 1,525 shares that were repurchased outside of the Company’s stock repurchase program at an average share price of $19.02. The Company repurchased these shares from employees that elected to sell to cover their withholding tax obligations on vested stock awards. |
| | | | | | | | | | | |
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 ApplicableApplicable.
Item 4. Mine Safety Disclosures
Not ApplicableApplicable.
Item 5. Other Information
On November 1, 2017During the three months ended June 30, 2023, no directors or executive officers of the Company closed on its previously announced acquisitionadopted or terminated any contract, instruction or written plan for the purchase or sale of an office building in Red Bank, New Jersey relatedthe Company securities that was intended to its back-office consolidation, at a purchase pricesatisfy the affirmative defense conditions 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 halfRule 10b5-1(c) and/or any “Rule 10b5-1 trading arrangement.”
Item 6. Exhibits
|
| | | | | | | | | | | | | |
Exhibits:Exhibit No: | | Exhibit Description | | Reference |
| 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)
|
| Amended Bylaws of OceanFirst (2)
|
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed here within this document |
| | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed here within this document |
| | 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 SeptemberJune 30, 2017,2023, 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 | | |
104.0 | | Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101) | | |
(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 | August 3, 2023 | /s/ Christopher D. Maher |
| | Christopher D. Maher |
| | Chairman President and Chief Executive Officer |
| | | | | | | | |
DATE: | August 3, 2023 | /s/ Patrick S. Barrett |
| |
DATE: November 8, 2017 | /s/ Michael J. FitzpatrickPatrick S. Barrett |
| 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, 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. |