OCEANFIRST FINANCIAL CORP - Quarter Report: 2015 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

For the quarterly period ended June 30, 2015

For the transition period from                      to                     

Commission file number 001-11713

OceanFirst Financial Corp.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

As of August 3, 2015 there were 17,382,730 shares of the Registrant’s Common Stock, par value $.01 per share, outstanding.

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OceanFirst Financial Corp.

INDEX TO FORM 10-Q

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Summary

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

Interest-earning assets, both loans and securities, are generally priced against longer-term indices, while interest-bearing liabilities, primarily deposits and borrowings, are generally priced against shorter-term indices. The Company’s net interest margin has contracted over recent periods primarily due to the low absolute levels of interest rates. Over the past 18 months, the Company has also extended its borrowed funds into higher-cost, longer-term maturities to better manage interest rate risk. The Company has partly mitigated the adverse impact of these items by growing commercial loans, resulting in a shift in asset mix from lower-yielding securities into higher-yielding loans. Based upon current economic conditions, characterized by moderate growth and low inflation, interest rates may remain at, or close to, historically low levels with increases in the Federal funds rate expected to be gradual. The continuation of the low interest rate environment may have an adverse impact on the Company’s net interest margin in future periods.

In addition to the interest rate environment, the Company’s results are affected by economic conditions. Recent economic indicators point to some improvement in the U.S. economy, which expanded moderately in 2014 and continues to show modest growth again in 2015. Labor market conditions improved as the national and local unemployment rates in the first half of 2015 both decreased compared to prior year levels, while measures of inflation remain subdued.

Highlights of the Company’s financial results and corporate activities for the three and six months ended June 30, 2015 were as follows:

The acquisition of Colonial American Bank (“Colonial”), as previously disclosed on February 25, 2015, closed on July 31, 2015 in an all stock transaction valued at $11.9 million. Colonial operates two full service banking centers in Middletown and Shrewsbury, New Jersey with total assets of $143.2 million as of June 30, 2015.

A commercial loan production office was opened in Mercer County in the first quarter of 2015 to better serve the broader central New Jersey market area. Additionally, at the end of the quarter the Bank opened a new branch in Long Branch, New Jersey at Pier Village. The Bank expects to open an additional branch in Jackson Township in the third quarter. Both branches will be operated by universal bankers and the Jackson branch will employ advanced technology in the form of interactive teller machines, resulting in a cost efficient staffing model. Finally, on July 31, 2015, the Bank executed an agreement to purchase an existing retail branch with core deposits (all deposits except time deposits) of $20.2 million located in the Toms River market.

Total assets increased to $2.395 billion at June 30, 2015, from $2.357 billion at December 31, 2014. Loans receivable, net increased $84.0 million at June 30, 2015, as compared to December 31, 2014 primarily due to growth in commercial loans of $75.6 million. Deposits increased by $41.5 million at June 30, 2015, as compared to December 31, 2014. The increase included $53.5 million of business deposits, demonstrating the value of relationship based lending.

Net income for the three months ended June 30, 2015, was $5.1 million, or $0.31 per diluted share, as compared to net income of $5.1 million, or $0.30 per diluted share, for the corresponding prior year period. Net income for the three months ended June 30, 2015 includes non-recurring merger related expenses, net of tax benefit, of $153,000. The increase in diluted earnings per share over the prior year period was primarily due to lower operating expenses, higher net interest income and a reduction in average shares outstanding, partly offset by a reduction in other income.

Net interest income for the three months ended June 30, 2015 increased to $18.4 million, as compared to $18.2 million for the corresponding prior year period reflecting an increase in interest-earning assets of $114.2 million, partly offset by a lower net interest margin. The net interest margin decreased to 3.23% for the three months ended June 30, 2015, as compared to 3.35% for the corresponding prior year period.

Other income decreased to $4.2 million for the three months ended June 30, 2015, as compared to $4.8 million in same prior year period. The decrease was primarily due to a recognized gain on sale of equity securities of $348,000 in the prior year period compared to no gain in the current period, lower fees and service charges and lower loan servicing income. The decrease in loan servicing income was due to the sale of servicing rights on a majority of residential mortgage loans serviced for the Federal agencies and was accompanied by a comparable decrease in operating expenses. Operating expenses decreased $438,000 for the three months ended June 30, 2015, as compared to the same prior year period despite the inclusion of $184,000 in non-recurring merger related expenses. The decrease in operating expense was due to lower compensation and marketing expenses.

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The Company remains well-capitalized with a tangible common equity ratio of 9.25% at June 30, 2015. On July 24, 2014, the Company announced the authorization of the Board of Directors to repurchase up to 5% of the Company’s outstanding common stock, or 867,923 shares. At June 30, 2015, there were 358,458 shares available for repurchase.

Return on average stockholders’ equity was 9.29% for the quarter ended June 30, 2015, as compared to 9.45% for the corresponding prior year period.

Analysis of Net Interest Income

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

The following tables sets forth certain information relating to the Company for the three and six months ended June 30, 2015 and 2014. The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown except where noted otherwise. Average balances are derived from average daily balances. The yields and costs include certain fees which are considered adjustments to yields.

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Comparison of Financial Condition at June 30, 2015 and December 31, 2014

Total assets increased by $38.4 million to $2.395 billion at June 30, 2015, from $2.357 billion at December 31, 2014. Securities, in the aggregate, decreased by $44.6 million, to $444.7 million at June 30, 2015, as compared to $489.2 million at December 31, 2014. Loans receivable, net, increased by $84.0 million, an annualized growth rate of 10.0%, to $1.773 billion at June 30, 2015 from $1.689 billion at December 31, 2014, primarily due to growth in commercial loans of $75.6 million and the purchase of a pool of performing, locally-originated, one-to-four family, non-conforming mortgage loans for $7.2 million.

Deposits increased by $41.5 million, to $1.762 billion at June 30, 2015, from $1.720 billion at December 31, 2014, which included growth of $48.2 million in non interest-bearing deposits. As part of the deposit growth, business deposits increased $53.5 million, demonstrating the value of relationship based lending. The deposit growth funded a decrease in FHLB advances of $9.6 million, to $295.6 million at June 30, 2015, from $305.2 million at December 31, 2014.

Stockholders’ equity increased to $221.5 million at June 30, 2015, as compared to $218.3 million at December 31, 2014. Net income for the period was partly offset by the repurchase of 259,940 shares of common stock for $4.5 million (average cost per share of $17.13) and the cash dividend on common stock of $4.3 million. At June 30, 2015, there were 358,458 shares available for repurchase under the stock repurchase program adopted in July of 2014.

Comparison of Operating Results for the Three and Six Months Ended June 30, 2015 and June 30, 2014

General

Net income for the three months ended June 30, 2015 was $5.1 million, or $0.31 per diluted share, as compared to net income of $5.1 million, or $0.30 per diluted share for the corresponding prior year period. Net income for the six months ended June 30, 2015 increased to $10.4 million, or $0.63 per diluted share, as compared to net income of $9.8 million, or $0.58 per diluted share, for the corresponding prior year period. Net income for the three and six months ended June 30, 2015 includes non-recurring merger related expenses, net of tax benefit, of $153,000 and $190,000, respectively. The increases in diluted earnings per share over the previous year periods were primarily due to lower operating expenses, higher net interest income, and a reduction in average shares outstanding, partly offset by a reduction in other income.

Interest Income

Interest income for the three and six months ended June 30, 2015 increased to $20.6 million and $40.7 million, respectively, as compared to $19.9 million and $39.6 million, respectively, for the corresponding prior year periods. The yield on interest-earning assets declined to 3.61% and 3.60%, respectively, for the three and six months ended June 30, 2015, from 3.67% for

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both the same prior year periods. The asset yield benefited from a shift in the mix of interest-earning assets as average loans receivable, net, increased $174.2 million and $159.9 million, respectively, for the three and six months ended June 30, 2015, while average interest-earning securities decreased $62.1 million and $57.2 million, respectively, as compared to the same prior year periods.

Interest Expense

Interest expense for the three and six months ended June 30, 2015 was $2.1 million and $4.2 million, respectively, as compared to $1.7 million and $3.4 million, respectively, in the corresponding prior year periods. The cost of average interest-bearing liabilities increased to 0.46% for both the three and six months ended June 30, 2015, as compared to 0.39% and 0.38% in the same prior year periods as the Company extended its borrowed funds into higher-cost, longer-term maturities to better manage the Company’s interest rate risk. Since December 31, 2013, the Bank extended $178.3 million of short-term funding into 3-5 year maturities, extending the weighted average maturity of term borrowings from 1.3 years to 3.3 years at June 30, 2015. Partially offsetting the increase in the cost of borrowed funds, the total cost of deposits (including non-interest bearing deposits) decreased to 0.22% for the six months ended June 30, 2015, as compared to 0.24% for the corresponding prior year period.

Net Interest Income

Net interest income for the three and six months ended June 30, 2015 increased to $18.4 million and $36.6 million, respectively, as compared to $18.2 million and $36.2 million, respectively, in the same prior year periods, reflecting an increase in interest-earning assets, partly offset by a lower net interest margin. Average interest-earning assets increased $114.2 million and $103.1 million, respectively, for the three and six months ended June 30, 2015, as compared to the same prior year periods. The net interest margin decreased to 3.23% for both the three and six months ended June 30, 2015, from 3.35% and 3.36%, respectively, for the same prior year periods.

Provision for Loan Losses

For the three and six months ended June 30, 2015, the provision for loan losses was $300,000 and $675,000, respectively, as compared to $275,000 and $805,000, respectively, for the corresponding prior year periods. Net charge-offs decreased to $185,000 and $458,000, respectively, for the three and six months ended June 30, 2015, as compared to net charge-offs of $273,000 and $799,000 in the corresponding prior year periods. The provisions exceeded net charge-offs for both the three and six months ended June 30, 2015 to account for loan growth.

Other Income

For the three and six months ended June 30, 2015, other income decreased to $4.2 million, and $8.2 million, respectively, as compared to $4.8 million and $8.7 million, respectively, in the same prior year periods. In the fourth quarter of 2014, the Company sold the servicing rights on a majority of the residential mortgage loans serviced by the Company for the Federal agencies, recognizing a gain of $408,000. Smaller, supplemental sales occurred in 2015 resulting in gains of $30,000 in the second quarter and $111,000 for the six months ended June 30, 2015. The sale of loan servicing caused a decrease of $167,000 and $343,000 in loan servicing income for the three and six months ended June 30, 2015, respectively, as compared to the same prior year periods but also reduced operating expenses by a similar amount. For both the three and six months ended June 30, 2014 the Company recognized a gain of $348,000 on the sale of equity securities, as compared to no gains in the current year periods.

Operating Expenses

Operating expenses decreased to $14.4 million and $28.1 million, respectively, for the three and six months ended June 30, 2015, as compared to $14.8 million and $28.9 million, respectively, in the same prior year periods. Operating expenses for the three and six months ended June 30, 2015 include $184,000 and $234,000, respectively, in non-recurring merger related expenses. Compensation and employee benefits expense decreased $431,000 and $577,000, respectively, as compared to the same prior year periods. The prior year periods included $196,000 in severance related expenses due to the Company’s strategic decision to improve efficiency in the residential mortgage loan area. Marketing expense decreased $195,000 and $453,000, respectively, for the three and six months ended June 30, 2015, as compared to the same prior year periods, due to the timing of promotions and a significant campaign in the prior year period.

Provision for Income Taxes

The provision for income taxes was $2.8 million and $5.5 million, respectively, for the three and six months ended June 30, 2015, as compared to $2.8 million and $5.3 million, respectively, for the corresponding prior year periods. The effective tax rate was 35.1% and 34.7%, respectively, for the three and six months ended June 30, 2015, as compared to 35.1% and 35.2%, respectively, in the same prior year periods.

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Liquidity and Capital Resources

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

At June 30, 2015, the Company had $67.3 million in outstanding overnight borrowings from the FHLB compared to $111.0 million outstanding at December 31, 2014. The Company utilizes overnight borrowings to fund short-term liquidity needs. The Company had total FHLB borrowings, including the overnight borrowings, of $295.6 million and $305.2 million, respectively, at June 30, 2015 and December 31, 2014.

The Company’s cash needs for the six months ended June 30, 2015 were primarily satisfied by principal payments on loans and mortgage-backed securities, proceeds from the sale of mortgage loans held for sale, proceeds from maturities of investment securities and deposit growth. The cash was principally utilized for loan originations, the purchase of loans receivable, the purchase of investment securities and to reduce borrowings. The Company’s cash needs for the six months ended June 30, 2014 were primarily satisfied by principal payments on loans and mortgage-backed securities, proceeds from the sales of mortgage loans held for sale, proceeds from maturities of investment securities and increased total borrowings. The cash was principally utilized for loan originations, the purchase of investment and mortgage-backed securities and to fund deposit outflows.

In the normal course of business, the Company routinely enters into various off-balance-sheet commitments. At June 30, 2015, outstanding undrawn lines of credit totaled $297.0 million; outstanding commitments to originate loans totaled $93.5 million; and outstanding commitments to sell loans totaled $6.1 million. The Company expects to have sufficient funds available to meet current commitments arising in the normal course of business.

Time deposits scheduled to mature in one year or less totaled $114.5 million at June 30, 2015. Based upon historical experience management estimates that a significant portion of such deposits will remain with the Company.

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

Under the Company’s common stock repurchase program, shares of OceanFirst Financial Corp. common stock may be purchased in the open market and through privately negotiated transactions, from time-to-time, depending on market conditions. The repurchased shares are held as treasury stock for general corporate purposes. For the six months ended June 30, 2015, the Company repurchased 259,940 shares of common stock at a total cost of $4.5 million, compared with repurchases of 301,766 shares at a cost of $5.0 million for the six months ended June 30, 2014. At June 30, 2015, there were 358,458 shares available to be repurchased under the stock repurchase program adopted in July of 2014.

Cash dividends on common stock declared and paid during the first six months of 2015 were $4.3 million, as compared to $4.1 million in the same prior year period. On July 23, 2015, the Board of Directors declared a quarterly cash dividend of thirteen cents ($0.13) per common share. The dividend is payable on August 14, 2015 to stockholders of record at the close of business on August 3, 2015.

The primary sources of liquidity specifically available to OceanFirst Financial Corp., the holding company of OceanFirst Bank, are capital distributions from the bank subsidiary and the issuance of preferred and common stock and long-term debt. At December 31, 2014 the Company had received notice from the Federal Reserve Bank of Philadelphia that it does not object to the payments of $12.0 million in dividends from the Bank to the Company over the first three quarters of 2015, although the Federal Reserve Bank reserved the right to revoke the approval at any time if a safety and soundness concern arises. For the six months ended June 30, 2015, the Company received a dividend payment of $8.0 million from the Bank and $4.0 million remained to be paid over the next quarter. The Company’s ability to continue to pay dividends will be largely dependent upon capital distributions from the Bank, which may be adversely affected by capital constraints imposed by the applicable regulations. The Company cannot predict whether the Bank will be permitted under applicable regulations to pay a dividend to the Company. If the Bank is unable to pay dividends to the Company, the Company may not have the liquidity necessary to pay a dividend in the future or pay a dividend at the same rate as historically paid, or be able to meet current debt obligations. At June 30, 2015, OceanFirst Financial Corp. held $20.9 million in cash.

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As of June 30, 2015, the Bank exceeded all regulatory capital requirements as follows (in thousands):

The Bank is considered a “well-capitalized” institution under the Prompt Corrective Action Regulations.

In July 2013, the Federal Deposit Insurance Corporation and the other Federal bank regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The rule and regulatory capital requirements only pertain to the Bank and not the Holding Company. Among other things, the rule established a new Common Equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increased the minimum Tier 1 Capital to risk-weighted assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on non-accrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The new Common Equity Tier 1 capital requirement is intended to measure the financial strength of the Bank by comparing its core equity (equity capital plus disclosed reserves) to its risk-weighted assets. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out is exercised. The Bank has exercised its opt-out. Additional constraints were also imposed on the inclusion in regulatory capital of mortgage-servicing assets, deferred tax assets and minority interests, including investments in the capital of unconsolidated financial institutions. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of Common Equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule became effective for the Bank on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.

At June 30, 2015, the Company maintained tangible common equity of $221.5 million, for a tangible common equity to assets ratio of 9.25%.

Off-Balance-Sheet Arrangements and Contractual Obligations

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in the financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used for general corporate purposes or for customer needs. Corporate purpose transactions are used to help manage credit, interest rate and liquidity risk or to optimize capital. Customer transactions are used to manage customers’ requests for funding. These financial instruments and commitments include undrawn lines of credit and commitments to extend credit. The Company also has outstanding commitments to sell loans amounting to $6.1 million.

The following table shows the contractual obligations of the Company by expected payment period as of June 30, 2015 (in thousands):

Commitments to fund undrawn lines of credit and commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company’s exposure to credit risk is represented by the contractual amount of the instruments. The commitments to fund undrawn lines of credit primarily relate to commercial loans ($175.5 million), consumer loans ($105.4 million) and construction loans ($16.1 million) at June 30, 2015.

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Non-Performing Assets

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

Included in the non-performing loan total at June 30, 2015 was $3.8 million of troubled debt restructured loans, as compared to $2.0 million of troubled debt restructured loans at December 31, 2014. The increase was primarily due to one restructured commercial real estate loan which was previously performing. Non-performing loans are concentrated in commercial real estate, which comprise 69.8% of the total at June 30, 2015.

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

The largest non-performing and Substandard loan relationship consists of two commercial real estate loans to a hotel, golf and banquet facility located in New Jersey for $6.3 million, criticized due to delinquent payments, continual losses and covenant violations. The largest Special Mention loan relationship consists of a commercial real estate loan and several smaller lines of credit to a moving and storage company totaling $4.9 million and is classified due to recent operating losses. The loan was initially classified during the second quarter of 2015.

Critical Accounting Policies

Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”), as supplemented by this report, contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried in the consolidated statements of financial condition at fair value or the lower of cost or fair value. Policies with respect to the methodologies used to determine the allowance for loan losses, the reserve for repurchased loans and loss sharing obligations, and judgments regarding securities impairment are the most critical accounting policies because they are important to the presentation of the Company’s financial condition and results of operations. These judgments and policies involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions and estimates could result in material differences in the results of operations or financial condition. These critical accounting policies and their application are reviewed periodically and, at least annually, with the Audit Committee of the Board of Directors.

Private Securities Litigation Reform Act Safe Harbor Statement

In addition to historical information, this quarterly report contains certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995 which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “will,” “should,” “may,” “view,” “opportunity,” “potential,” or similar

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expressions or expressions of confidence. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in interest rates, general economic conditions, levels of unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, future natural disasters and increases to flood insurance premiums, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area and accounting principles and guidelines. These risks and uncertainties are further discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and subsequent securities filings and should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Further description of the risks and uncertainties to the business are included in Item 1, Business, and Item 1A, Risk Factors, of the Company’s 2014 Form 10-K and Item 1A, Risk Factors, of this 10-Q.

The Company’s interest rate sensitivity is monitored through the use of an interest rate risk (“IRR”) model. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at June 30, 2015, which were anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown.

At June 30, 2015, the Company’s one-year gap was negative 1.00% as compared to negative 2.73% at December 31, 2014.

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Additionally, the table below sets forth the Company’s exposure to interest rate risk as measured by the change in economic value of equity (“EVE”) and net interest income under varying rate shocks as of June 30, 2015 and December 31, 2014. All methods used to measure interest rate sensitivity involve the use of assumptions, which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. The Company’s interest rate sensitivity should be reviewed in conjunction with the financial statements and notes thereto contained in the 2014 Form 10-K.

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective. Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (“SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, there were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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OceanFirst Financial Corp.

Consolidated Statements of Financial Condition

(dollars in thousands, except per share amounts)

See accompanying Notes to Unaudited Consolidated Financial Statements.

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OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

See accompanying Notes to Unaudited Consolidated Financial Statements.

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OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

See accompanying Notes to Unaudited Consolidated Financial Statements.

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OceanFirst Financial Corp.

Consolidated Statements of

Changes in Stockholders’ Equity (Unaudited)

(in thousands, except per share amounts)

Six Months Ended June 30, 2015 and 2014