OCFC 10-Q Quarter ended June 30, 2014

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

For the quarterly period ended June 30, 2014

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 1, 2014 there were 17,143,993 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 serving Ocean and Monmouth Counties in New Jersey. The term the “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 services, deposit accounts, the sale of investment products, loan originations, loan servicing, 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 expanded over the past year as the Company has succeeded in growing commercial loans resulting in a shift in asset mix from lower-yielding short-term investments and securities into higher-yielding loans. The net interest margin also benefited from the prepayment of $159.0 million of Federal Home Loan Bank (“FHLB”) advances in the fourth quarter of 2013 and from the rising interest rate environment in 2013 which steepened the yield curve, slowed loan refinance activity and improved yields on newly originated loans and investments. Based upon current economic conditions, the Federal Reserve has indicated that it anticipates that short-term interest rates will remain at current levels for a considerable time, especially if projected inflation continues to run below the 2% longer-run goal, and provided that longer-term inflation expectations remain well-anchored. Additionally, the Federal Reserve has decided to taper its monthly bond buying program, with further reductions expected throughout 2014. The increase in longer-term rates and related reduction in loan refinance activity has caused a decrease in the Company’s loan sale volume and therefore lower income from the net gain on the sale of loans.

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 economy, which expanded modestly in 2013 and is expected to show growth for the remainder of 2014. Labor market conditions improved as the national and local unemployment rates in the first half of 2014 both decreased over prior year levels. Despite these signs, the economic recovery remains weak.

Highlights of the Company’s financial results for the three and six months ended June 30, 2014 were as follows:

Total assets increased to $2.329 billion at June 30, 2014, from $2.250 billion at December 31, 2013. Loans receivable, net increased $90.4 million at June 30, 2014, as compared to December 31, 2013 primarily due to growth in commercial loans of $62.8 million and in residential construction loans, net of loans in process, which increased $11.6 million.

Net income for the three months ended June 30, 2014 was $5.1 million, or $0.30 per diluted share, as compared to net income of $5.0 million, or $0.29 per diluted share for the corresponding prior year period. Net income benefited from higher net interest income, lower provision for loan losses and higher other income, partly offset by higher operating expenses. Additionally earnings per share benefited from a reduction in average shares outstanding.

Net interest income for the three months ended June 30, 2014 increased to $18.2 million, as compared to $17.5 million in the same prior year period, reflecting a higher net interest margin partly offset by lower interest-earning assets. The net interest margin increased to 3.35% for the three months ended June 30, 2014, as compared to 3.21% for the corresponding prior year period.

The provision for loan losses was $275,000 for the three months ended June 30, 2014, as compared to $800,000 in the same prior year period primarily due to a reduction in net charge-offs and lower non-performing loans.

Other income increased to $4.8 million for the three months ended June 30, 2014 as compared to $4.6 million in the same prior year period. The increase was due to higher fees and service charges, gain on sale of investment securities and wealth management revenue partially offset by lower gain on sales of loans. Operating expenses increased $1.2 million primarily due to personnel additions in revenue producing areas and higher marketing costs related to promotional campaigns to attract retail checking accounts and incent bankcard usage. Additionally, operating expenses for the three months ended June 30, 2014 includes $196,000 in non-recurring severance related expenses due to the Company’s strategic decision to improve efficiency in the residential mortgage loan area. The related personnel reduction is expected to lower compensation and benefits expense by $650,000 annually.

The Company remains well-capitalized with a tangible common equity ratio of 9.27%. On July 24, 2014, the Company announced the completion of its 2012 common stock repurchase program and the subsequent authorization of the Board of Directors to repurchase up to 5% of the Company’s outstanding common stock, or 867,923 shares.

Return on average stockholders’ equity was 9.45% for the three months ended June 30, 2014, as compared to 9.06% for the corresponding prior year period.

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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 table sets forth certain information relating to the Company for the three and six months ended June 30, 2014 and 2013. 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, 2014 and December 31, 2013

Total assets increased by $79.4 million to $2.329 billion at June 30, 2014, from $2.250 billion at December 31, 2013. Securities, in the aggregate, decreased by $28.7 million, to $510.7 million at June 30, 2014, as compared to $539.4 million at December 31, 2013. Loans receivable, net, increased by $90.4 million, an annualized growth rate of 11.7%, to $1.632 billion at June 30, 2014 from $1.541 billion at December 31, 2013, primarily due to growth in commercial loans of $62.8 million and in residential construction loans, net of loans in process, which increased $11.6 million. Additionally, on June 30, 2014, the Company purchased a pool of performing, locally originated, one-to-four family, non-conforming mortgage loans for $20.6 million. The growth in commercial loans was primarily due to the strategic expansion of the commercial lending group and the successful recruitment of several experienced commercial lenders.

Deposits decreased by $41.3 million, to $1.706 billion at June 30, 2014, from $1.747 billion at December 31, 2013, despite strong growth in retail and business checking accounts. All of the decrease was related to a reduction in government deposits. Non-interest bearing deposit accounts increased $63.6 million during the first half of 2014 due to a revised fee and product structure. To fund loan growth and deposit outflows, FHLB advances increased $130.0 million, to $305.0 million at June 30, 2014, from $175.0 million at December 31, 2013.

Stockholders’ equity increased to $215.8 million at June 30, 2014, as compared to $214.4 million at December 31, 2013. Net income for the period was offset by the repurchase of 301,766 shares of common stock for $5.0 million (average cost per share of $16.64) and the cash dividends on common stock of $4.1 million. At June 30, 2014, there were no shares available for repurchase under the stock repurchase program adopted in the fourth quarter of 2012, although 867,923 shares are available for repurchase under the new repurchase program announced on July 24, 2014.

Comparison of Operating Results for the Three and Six months Ended June 30, 2014 and June 30, 2013

General

Net income for the three months ended June 30, 2014 increased to $5.1 million, or $0.30 per diluted share, as compared to net income of $5.0 million, or $0.29 per diluted share for the corresponding prior year period. Net income for the six months ended June 30, 2014 increased to $9.8 million, or $0.58 per diluted share, as compared to net income of $9.4 million, or $0.55 per diluted share for the corresponding prior year period. The increases were primarily due to higher net interest income, a reduction in the provision for loan losses and higher other income, partly offset by higher operating expenses. Additionally, earnings per share benefited from a reduction in average shares outstanding.

Interest Income

Interest income for the three and six months ended June 30, 2014 was $19.9 million and $39.6 million, respectively, as compared to $20.2 million and $40.2 million for the corresponding prior year periods. The yield on interest-earning assets declined to 3.67% for both the three and six months ended June 30, 2014, as compared to 3.69% for both the three and six months ended June 30, 2013. Average interest-earning assets decreased by $18.0 million and $22.2 million, respectively, for the three and six months ended June 30, 2014, as compared to the same prior year periods as excess liquidity was allowed to run-off. Despite the two basis point decline, the asset yield benefited from a shift in the mix of interest-earning assets as average loans receivable, net increased $87.8 million and $60.6 million, respectively, for the three and six months ended June 30, 2014, while average interest-earning securities decreased $95.8 million and $49.6 million, respectively, as compared to the same prior year periods.

Interest Expense

Interest expense for the three and six months ended June 30, 2014 was $1.7 million and $3.4 million, respectively, as compared to $2.6 million and $5.5 million, respectively, in the corresponding prior year periods. The cost of interest-bearing liabilities decreased to 0.39% and 0.38%, respectively, for the three and six months ended June 30, 2014, as compared to 0.56% and 0.59%, respectively, in the same prior year periods. The decrease was partly due to the prepayment of $159.0 million of FHLB advances with a weighted average cost of 2.31% in the fourth quarter of 2013. Average interest-bearing liabilities decreased by $57.5 million and $53.8 million, respectively, for the three and six months ended June 30, 2014 primarily due to a decline in average interest-bearing deposits of $61.7 million and $37.8 million, respectively. This interest-bearing funding was partly replaced by an increase of $43.5 million and $34.6 million, respectively, in average non-interest-bearing deposits for the three and six months ended June 30, 2014, as compared to the same prior year periods.

Net Interest Income

Net interest income for the three and six months ended June 30, 2014 increased to $18.2 million and $36.2 million, respectively, as compared to $17.5 million and $34.7 million, respectively, in the same prior year periods, reflecting a higher net interest margin partly offset by lower interest-earning assets. The net interest margin increased to 3.35% and 3.36%, respectively, for the three and six months ended June 30, 2014, from 3.21% and 3.19%, respectively, in the same prior year periods primarily due to a reduction in the cost of average interest-bearing liabilities.

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Provision for Loan Losses

For the three and six months ended June 30, 2014, the provision for loan losses was $275,000 and $805,000, respectively, as compared to $800,000 and $1.9 million, respectively, for the corresponding prior year periods. The decreases for the three and six months ended June 30, 2014 were primarily due to reductions in net charge-offs of $201,000 and $791,000, respectively, as compared to the same prior year periods. Non-performing loans decreased $4.7 million at June 30, 2014, as compared to December 31, 2013, and by $5.2 million, as compared to June 30, 2013.

Other Income

For the three and six months ended June 30, 2014, other income increased to $4.8 million and $8.7 million, respectively, as compared to $4.6 million and $7.9 million, respectively, in the same prior year periods. For the three and six months ended June 30, 2014, wealth management revenue increased $80,000 and $193,000, respectively, as compared to the same prior year periods, partly due to an increase in assets under administration to $229.3 million at June 30, 2014 from $175.8 million at June 30, 2013. For the three and six months ended June 30, 2014, fees and service charges increased $467,000 and $578,000, respectively, as compared to the same prior year periods primarily due to higher deposit fees from a revised fee and product structure. For the three and six months ended June 30, 2014, the net gain on the sale of loans amounted to $219,000 and $351,000, respectively, as compared to $735,000 and $561,000, respectively, in the same prior year periods. The gain on the sale of loans for the six months ended June 30, 2013 was adversely impacted by a provision of $975,000 added to the reserve for repurchased loans and loss sharing obligations, as compared to no provision in the current period. The prior year provision was related to loans sold to the FHLB as part of its Mortgage Partnership Finance program. Compared to prior periods, the gain on sale of loans was adversely impacted by decreases in the gain-on-sale margin and reductions in loans sold to $10.9 million and $21.2 million, respectively, for the three and six months ended June 30, 2014, as compared to $32.3 million and $69.1 million, respectively, for the corresponding prior year periods, as increasing longer-term interest rates reduced one-to-four family loan refinance activity. 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 a gain of $42,000 in the corresponding prior year periods.

Operating Expenses

Operating expenses amounted to $14.8 million and $29.0 million, respectively, for the three and six months ended June 30, 2014, as compared to $13.6 million and $26.2 million, respectively, in the same prior year periods. Compensation and employee benefits expense increased $1.1 million and $2.2 million, respectively, for the three and six months ended June 30, 2014, as compared to the same prior year periods, primarily due to personnel additions in revenue producing areas. Additionally, compensation and employee benefits expense for the three and six months ended June 30, 2014 includes $196,000 in non-recurring severance related expenses due to the Company’s strategic decision to improve efficiency in the residential mortgage loan area. The related personnel reduction is expected to lower compensation and benefits expense by $650,000 annually. Marketing expenses increased $163,000 and $445,000, respectively, as compared to the same prior year periods, primarily due to promotional campaigns to attract retail checking accounts and incent bankcard usage. These increases were partly offset by reductions in professional fees of $180,000 and $416,000, respectively, for the three and six months ended June 30, 2014, as compared to the corresponding prior year periods.

Provision for Income Taxes

The provision for income taxes was $2.8 million and $5.3 million, respectively, for the three and six months ended June 30, 2014, as compared to $2.8 million and $5.2 million, respectively, for the same prior year periods. The effective tax rate was 35.1% and 35.2%, respectively, for the three and six months ended June 30, 2014, as compared to 35.7% and 35.4% in the same prior year periods.

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, 2014 the Company had $85.0 million in outstanding overnight borrowings from the FHLB compared to $35.0 million outstanding at December 31, 2013. The Company periodically utilizes overnight borrowings to fund short-term liquidity needs. The Company had total FHLB borrowings, including the overnight borrowings, of $305.0 million and $175.0 million, respectively, at June 30, 2014 and December 31, 2013.

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 sale 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. The Company’s cash needs for the six months ended June 30, 2013 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 short-term borrowings. The cash was principally utilized for loan originations, the purchase of investment and mortgage-backed securities and to fund deposit outflows.

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In the normal course of business, the Company routinely enters into various off-balance-sheet commitments. At June 30, 2014, outstanding undrawn lines of credit totaled $282.9 million; outstanding commitments to originate loans totaled $100.7 million; and outstanding commitments to sell loans totaled $15.3 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 $122.2 million at June 30, 2014. 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 other 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, 2014, the Company repurchased 301,766 shares of common stock at a total cost of $5.0 million, compared with repurchases of 314,961 shares at a cost of $4.5 million for the six months ended June 30, 2013. At June 30, 2014, there were no shares remaining to be repurchased under the repurchase program adopted in the fourth quarter of 2012. On July 24, 2014, the Company announced the completion of its 2012 common stock repurchase program and the subsequent authorization of the Board of Directors to repurchase up to 5% of the Company’s outstanding common stock, or 867,923 shares.

Cash dividends on common stock declared and paid during the first six months of 2014 were $4.1 million, as compared to $4.2 million in the same prior year period. On July 24, 2014, the Board of Directors declared a quarterly cash dividend of twelve cents ($0.12) per common share. The dividend is payable on August 15, 2014 to stockholders of record at the close of business on August 4, 2014.

The primary sources of liquidity specifically available to OceanFirst Financial Corp., the holding company of OceanFirst Bank, are capital distributions from the banking subsidiary and the issuance of preferred and common stock and long-term debt. In December 2013, as part of its capital plan, the Company submitted notice to the Federal Reserve Bank of Philadelphia requesting a total payment of $16.0 million in dividends from the Bank to the Holding Company over the next four quarters (including the fourth quarter of 2013). The Federal Reserve did not object to the payments, although it reserved the right to revoke the approval at any time if a safety and soundness concern arises throughout the period. For the six months ended June 30, 2014, 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, 2014, OceanFirst Financial Corp. held $16.3 million in cash and $7.2 million in investment securities available-for-sale.

As of June 30, 2014, 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 will revise 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. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns 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

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property. 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. Additional constraints will also be imposed on the inclusion in regulatory capital of mortgage-servicing assets, deferred tax assets and minority interests. 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 becomes 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, 2014, the Company maintained tangible common equity of $215.8 million, for a tangible common equity to assets ratio of 9.27%.

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 $15.3 million.

The following table shows the contractual obligations of the Company by expected payment period as of June 30, 2014 (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.

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, 2014 was $7.0 million of troubled debt restructured loans, as compared to $9.7 million of troubled debt restructured loans at December 31, 2013. Non-performing loans are concentrated in one-to-four family loans, which comprise 62.2% of the total at June 30, 2014. At June 30, 2014, the

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average weighted loan-to-value ratio of non-performing one-to-four family loans, after any related charge-offs, was 73% using recently updated appraisal values. Appraisals are updated for all non-performing residential loans secured by real estate and subsequently updated annually if the loan remains delinquent. The Company’s non-performing loans remain at elevated levels partly due to the protracted foreclosure process in the State of New Jersey. This process delays the Company’s ability to resolve non-performing loans through the sale of the underlying collateral.

The largest non-performing loan relationship consists of two commercial real estate loans to a hotel, golf and banquet facility for $6.5 million, criticized due to delinquent payments, continual losses and covenant violations. The most recent appraisal values the real estate collateral, which is currently marketed for sale, at $7.4 million, net of past due real estate taxes.

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

The largest Special Mention loan at June 30, 2014 is a $4.6 million commercial real estate loan to a single borrower operating several fitness/health club facilities. The borrower has filed Chapter XI bankruptcy relating to another bank’s legal proceedings on an unrelated property. The borrower is current as to payments and the loan is well collateralized. The largest Substandard loan relationship consists of the two non-performing commercial real estate loans mentioned above.

Critical Accounting Policies

Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 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 the valuation of Mortgage Servicing Rights 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 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, 2013 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 2013 Form 10-K and Item 1A, Risk Factors, of this 10-Q.

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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, 2014, 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, 2014, the Company’s one-year gap was negative 5.0% as compared to negative 10.8% at December 31, 2013. The change from December 31, 2013 was primarily due to the term extension of new and existing FHLB Advances.

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, 2014 and December 31, 2013. 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 2013 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, 2014 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.

(dollars in thousands, except per share amounts)

See accompanying Notes to Unaudited Consolidated Financial Statements.

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OceanFirst Financial Corp.

(in thousands, except per share amounts)