Good morning and welcome to the OceanFirst Financial Corp. Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Jill Hewitt. Please go ahead.

Thank you, Gary. Good morning and thank you all for joining us. I am Jill Hewitt, Senior Vice President and Investor Relations Officer at OceanFirst Financial Corp. We will begin this morning’s call with our forward-looking statements disclosure. Please remember that many of our remarks today contain forward-looking statements based on current expectations. Refer to our press release and other public filings, including the Risk Factors in our 10-K, where you will find factors that could cause actual results to differ materially from these forward-looking statements. Thank you. And now, I will turn the call over to our host this morning, Chief Executive Officer, Christopher Maher.

Thank you, Jill and good morning to all who have been able to join our fourth quarter 2016 earnings conference call today. This morning, I am joined by our Chief Financial Officer, Mike Fitzpatrick; Chief Administrative Officer, Joe Iantosca; and Chief Banking Officer, Joe Lebel. As always, we appreciate your interest in our performance and are pleased to be able to discuss our operating results with you. As has been our practice, we will highlight a few key items and add some color to the results posted for the quarter and then we look forward to taking your questions. As part of our discussion this morning, I will ask Joe Iantosca to comment regarding the systems integration and branch consolidations we are executing in relation to our recent acquisitions. Joe Lebel will be available to discuss any questions regarding our organic growth activities during the Q&A portion of the call. In terms of financial results for the third quarter, diluted earnings per share were $0.22. Quarterly reported earnings were impacted by merger-related expenses of $0.16 or $4.5 million after-tax, resulting in core earnings per share of $0.38. Core earnings per share increased 15% versus the prior year largely driven by the Cape and Ocean Shore acquisitions. During the quarter, the final systems integration and re-branding were completed for the Cape acquisition, putting the bank in a position to fully realize the efficiencies of the Cape acquisition in the first quarter of 2017. In addition, the Ocean Shore acquisition was completed on November 30 and is tracking towards the May 2017 systems integration and branch consolidation putting the bank in a position to fully realize the efficiencies of the Ocean Shore acquisition in the third quarter of 2017. Regarding capital management for the quarter, the Board declared a cash dividend of…

Thanks Chris. The systems conversion and branch re-branding of Cape occurred as planned on October 17, 2016. As expected, the successful completion of this project resulted in our ability to recognize the next phase of expense reductions from Cape as of the end of the fourth quarter and with minimal disruption to our customers. Along with us introducing the OceanFirst brand throughout Southern New Jersey, we invested in the rolling out of the refreshed brand image throughout the entire bank. Looking at the Ocean Shore transaction, the initial round of cost savings was realized in the fourth quarter with the closing of the transaction. Additional cost savings will be realized when the systems and branch integrations are completed. In this case, that’s planned to the weekend of May 20. As you likely recall, there are several branches of Ocean City Home Bank that are very close to legacy Cape branches of the bank. The merger model for the transaction assumed that some of these branches would be consolidated. The team of senior officers from the bank, including legacy Cape and Ocean City Home officers have extensively analyzed the branches in the Southern region. This resulted in the Board approving the elimination up 10 branches in the Southern region, effective with the systems integration in May. Of these 10 branches, four are less than one mile apart, eight are less than three miles apart and the furthest distance between consolidated branches is in one case approximately five miles. The decision to implement these consolidations considered many factors in addition to simple brand proximity, including the bank’s ability to continue to serve our customers in the effective markets and the industry wide as well as our own observation of the significant reduction in branch teller transactions in favor of self service options.…

Thanks Joe. At this point, Joe, Mike, Joe and I would be pleased to take questions this morning.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from David Bishop with FIG Partners. Please go ahead.

Hey, good morning gentlemen.

Good morning Dave.

Chris, excess liquidity, as you all defined it, where would you take that now versus maybe the end of last quarter and just curious, as you measure that how you view it though, the relative change quarter-to-quarter?

It was relatively consistent quarter-to-quarter, because while the loan originations were fine, we were completing the end of the re-risk rating and the last portfolio sale out of the Cape portfolio. So those activities have now been completed and we think there is not going to be a drag going forward. But the net of that was very little loan growth. Once you kind of shook everything out, excluding, of course Ocean Shore. So end of the period, we have about $300 million in cash. We will cash and short-term investments. And I would think a significant portion of that certainty, north of $200 million would be available to be moved into the loan portfolio. And then the other thing I would point to is that absent that we are still growing core deposits. So depending on the core deposit growth rate, you are going to want to deploy all the new core deposits you can generate plus shook up the extra, call it $200 million or a little more in excess liquidity.

Okay, got it. And then you mentioned you are through the re – re-risk rating process, how should we think about the provisioning from here, came down a little bit here, you noted NPLs are a 10-year low here, things are looking very good from a credit quality, growth is going to resume here, as we move forward, any sort of guidance you can give there in terms of just how should we think about the loan loss division?

Sure. I would categorize, I mean provisioning was appropriate for the quarter, because we really didn’t have net loan growth and the credit metrics gotten a lot better. So we really just provided for our net – ordinary course net charge-offs, so accepting the charge-offs relating to the loan sale. As we go forward, obviously we are looking towards more loan growth. So two things are going to happen; we will have the loan growth we have to cover and in terms of allowance. And then we have got a large acquired loan portfolio. So we have credit marks that will burn off from that, but as that happens, those loans would tend to get renewed and re-papered under OceanFirst paper. And they will be subject to a provision at that time. So a combination of those two factors means provisioning is certainly going to be a little more of a headwind going into 2017. And we would like it, because it’s a headwind that means we are growing the loan portfolio.

That makes sense. And then one more for me and I will jump out. Any inter-quarter change in terms of the commercial real estate market, risk appetite, pricing, just maybe give an update in terms of what you are seeing within the marketplace there?

Hey, Dave. Joe Lebel here. I think we continue to see what we start to see late in the fourth quarter, which is improved pricing and improved credit structure, especially, the credit structure piece. I think a lot of that’s driven by the regulatory environment and the focus on CRE and for folks like us, that have some room. We have had the opportunity to pick and choose what’s amenable to us.

Got it. Thank you.

The next question comes from Brody Preston with Piper Jaffray. Please go ahead.

Good morning, guys.

Good morning, Brody.

So, there is a few moving parts here with regards to the margin trajectory, you have the $200 million of excess cash and then you mentioned the market baking in three Fed rate hikes. So I guess, given the excess liquidity and the Fed rate hike trajectory, what do you think is an appropriate margin trajectory from here?

It’s a really hard question more because of the environment than because of the – the external environment than the internal environment. All else equal, the things are predictable and there is no reason to believe there will be. But in today’s case, I would say you should expect our margins to strengthen slowly over time, meaning improve, so they move in a positive direction. But I will be very hesitant to say what degree until we see the shape of the yield curve and we see what happens with – what deposit pricing appears to be benign right now. That may not stay the case. So, there is a lot of factors going on and we are very early into this – if it is turning the rate cycle. So I would say modestly positive, but I would hesitate to give any more guidance on that. So I hope that’s helpful.

Yes, that is. I guess with the excess liquidity, you mentioned that you are not deployed over time. Would it be fair to say that by the end of 2017, you think that that would be fully deployed?

That’s certainly possible. So I think if we have a nice smooth year, with 25 bps going up 3x during the year, we would evenly space the growth out and wanting to have a little bit over the course of all the full four quarters. But I would leave the caveat if the market gets better, we might choose to move faster. And if the market is not quite as favorable and might slowdown a little bit, but I think that’s a fair middle of the road estimate.

Okay, great. And then…

Brody, just on – Brody, just on that, it’s Mike Fitzpatrick. It looks like we ended – during the quarter, we went from $300 million to $300 million. It looks like there was no change in that. There wasn’t, but behind that number, during the quarter, we purchased $73 million as investments. In the third quarter, we bought zero. We also bought $24 million in loans. So we had $100 million go out in loan and securities purchases. We also paid off Cape. Our Ocean City had $150 million in excess liquidity as of November 30. We used $105 million of that to pay off some high-cost home loan bank borrowings on netbooks, which was about 3% cost. So, we had some favorable trend there with respect to their excess liquidity by paying off the borrowings. So, $60 million came over to our books. So even though it looks like we are standing in place, there was a lot going on in between the quarter, so our expectation in the first quarter that we will continue to invest in the securities book. We will build the loan book and that excess liquidity that’s now earning about 75 basis points will rotate into securities and loans over the next couple of quarters.

Okay, great. That’s – I appreciate the color there. Alright. So, moving on from that, I guess with the branch consolidation, I was hoping you might be able to update us in terms of your broader goals. Are you like – are you targeting a specific average deposits per branch or specific branch count?

That depends a little bit on the pace at which customers continue to change their transaction patterns, which appears to be pretty brisk. So, in very broad strokes, I would say, for a company our size, we should be able to cover our market over the longer term with maybe 40 branches, but it’s going to take a little while and a little tuning. First, we want to do this in phase to make sure we get it right. We have done branch consolidations in the past, but you want to be careful, you don’t want to do everything all at once. We have got a number of new market trends. We want to make sure that we continue to serve every market. We may serve it a little different way. In some cases, we are considering leaving some automated facilities back where we may leave a branch location. So we are feeling our way through this, but U.S., if there are any kind of benchmarks. On an interim basis, we are kind of trending towards like a $90 million average branch. And I think that’s a pretty healthy branch size in the industry. And I think on an industry basis, you are going to see people heading in that direction, I think the days of being able to support a full service branch that has $20 million or $30 million in the long run is probably not practical. You may have one or two in your portfolio that service in purpose and support another branch or a couple of key customers. But generally speaking, I think those are the guidelines I’d give you. And we see this as a process that happens over the course of a few years, not something that just happens in light switch. It’s complicated to pick the right facilities. It’s complicated to exit them. You’ve got to either – you got real estate to liquidate or leases to mitigate. So, we are working through it, but I think you are going to see the branch count continue to come down at least for the next 18 months.

Okay. And then with two deals – with the two deals closed now, I was hoping you could remind me of what your profitability targets are for 2017 and 2018?

Sure. So we have said that we thought that this company is structured to be able to achieve greater than 105 ROA. We have got no reason to be concerned about that. We think we are on track for that. And then on a return on tangible comment, we think between 12% and 13% is sustainable. To put it in perspective, our view on core performance ratios for the last quarter, if you take merger-related charges out, was the ROA came down a little bit to 92 basis points. It could have been about 100 basis points in the prior quarter. And the return on tangible common – the core return on tangible common, we calculate is 11.33 for the fourth quarter. But there are lot of moving pieces and parts. We did exclude merger-related charges when we talk about core, but there is other expenses that are not pure merger-related charges that happened as you put these banks together. A good example would be, we mentioned the re-branding effort, but as long as we were re-brand – as long as we needed to brand 22 sites with OceanFirst brands in October, it was a unique opportunity to re-brand the entire network. So we re-branded the entire bank, which has its own – there is a whole bunch of expense as you go through with that, but not merger-related and not in that number, but there are ordinary business expenses. So they are expensed in the fourth quarter. So I think as we go into the first quarter, we are confident that in 2017, our targets of 105 ROA and north of a 12% return on tangible common seem achievable for the year.

Alright. And then last one for me as you guys circle back to the deposit deployment and excess liquidity deployment. I think your securities and total assets right now are sitting around 12%. Is that going to holdback moving forward or would we see that going down?

Well, as we rotate from cash into securities and loans, so we will see the loan 12% is pretty modest actually, I think as compared to our peers. So there will probably be a little bit increase in securities, but that will come out of the excess cash. And then we will see the rest of that cash – excess cash being deployed into a loan growth.

Alright, great. Thank you very much, guys.

Thank you.

The next question comes from Collyn Gilbert with KBW. Please go ahead. Chris O’Connell: Hey, guys. This is Chris O’Connell filling in for Collyn.

Hey, Chris. Good morning. Chris O’Connell: Good morning. So, just given the re-branding effort and the branch consolidation and then the acquisition closings, if you guys could provide a little bit more detail on the trajectory of the all-in kind of core operating expenses through ‘17?

Sure. I think probably the most important thing is when the dust settles what’s the ongoing expense rate that we expect to see on a quarterly basis? And I am being a little conservative, because depending on what month things happened, you may see things moving one quarter versus the other, but we are pretty confident that by the fourth quarter, our operating expense run-rate would be under $27 million, so less than $27 million a quarter to be achieved by the fourth quarter. So there maybe a little – may get there little faster, little slower, but at that point, the branch consolidations should have been completed and there will be no more merger-related charges related to Ocean Shore or Cape and they will be pretty clean. So, under $27 million for the fourth quarter would be a good benchmark. Chris O’Connell: Great. Thank you. And then also just for – in terms of the organ organic loan growth outlook, you guys had pulled back a little bit from CRE earlier this year and now you are kind of seeing better pricing and better environment, nowadays, the pipeline sounds great, but what’s kind of the normalized organic loan growth rate going forward pending no change in the environment?

Chris, Joe Lebel. I would imagine, obviously we have grown the size of the company. So I would tell you that mid single-digit growth rates are the target for us, in line with peers. Chris O’Connell: Great. And then just finally, any change in the overall tax rate going forward, if not 34.5 level or so?

Yes. It’s going to be probably a little bit less than that, 33 may be. Chris O’Connell: Great, that’s it. Thanks guys.

The next question comes from Frank Schiraldi with Sandler O’Neill. Please go ahead.

Good morning.

Good morning Frank.

Just a couple of questions on expenses follow-up Joe, I thought you had, maybe I heard this wrong, but when do you guys expect to extract full cost saves by – for the Ocean Shore deal?

So Frank, this is Chris. I will – the consolidations happen in May. So what happens at that point is you go through systems conversion, the branch consolidations. And in the call it a 30 days afterwards, you make sure that you got all the right staff in all the right places. So for the second quarter, we will have expenses to consolidate the branches and we will have all the folks that are involved, operating all those branches and all the systems in place for that quarter, but that will be the resolved by the end of the quarter. So third quarter is a clean quarter, where all the Ocean Shore and all the Cape expenses have been extracted. Beyond the second quarter, there will be a little bit of extra opportunity as we look at branch consolidation in the Central region and as Joe mentioned, back office project, which is a little bit about real estate expenses, but it’s also more about the efficiency of an operation where we have a lot more people under a smaller number of roofs. Having people in 13 places is not efficient. So Joe, anything add to that or?

No, it’s perfect on timing.

Okay. I had thought initially that there was going to be certain percentage of cost saves in 2017 and then the remainder to be extracted in 2018, when you first announced, but I don’t know, are those branch closings being moved up or was that just never the case?

No, you recall correctly, Frank. If it’s case when we announced Ocean Shore, which was in July, you always have to be very careful about your approval process both with shareholders and in the regulatory process. Markets well aware of a couple of examples recently, where they just underscore, it is not so easy to get a transaction approved. So you are usually pretty conservative getting that transaction approved in November to be able to close in November was frankly earlier than we thought we could achieve. So we are happy that we work towards it, but it’s very possible we might not have gotten an approval until the first quarter, I mean even closing until later into 2017. That would have pushed our expense saves into 2018 in some cases. So we are being conservative.

Got it. And then the other question on Ocean Shore was, I thought Joe, you had noted that the $3.6 million in cost saves from – in annualized cost saves from the branch closings should already sort of be baked into those Ocean Shore cost save expectations, but I feel like this is a bigger – I thought 7 branches possibility, this is 10 branches, so just wondering if, when trying to reconcile that, is it just reinvesting some of that savings or if you could just help me with that?

Some of it is the mix of what the branches are and some of it is reinvesting, some of the savings back end. So by and large, it’s in line with the original assumptions in dollars.

And there are, when you modeled these things out, for example, I think, is it all 10 are owned?

9 are owned, 1 is leased.

9 of the 10 are owned facilities. So you are not – you will get some expense save in disposing of an extra facility, but you are not escaping the lease payment, so if we had chosen different branches, you might have a different outcome. So all-in-all, it’s in line although the number of branches certainly are. There other thing is we are being conservative on branch staffing levels. We want to make sure customers have the ability to see the folks they have seen for many years. So you are keeping – in every case, we are keeping employees from both branches in the newly consolidated branches, not all of them and not forever, but so that process we are being pretty conservative on. If it turns out that things continue to work well, we might be a little bit better than that.

Okay. And then just finally on expense, just I believe that in the past, you have talked about goals and the efficiency ratio sort of 50% to 55% and wondering with Ocean Shore cost saves extracted in 3Q, is that sort of a good timing to assume you can get into that range?

Yes. I think that’s good timing for that. Probably, you would certainly see in the fourth quarter. At this point, I don’t think they will be that much failing into the third quarter, but…

Okay, alright, great. Thank you.

Alright. Thanks Frank.

[Operator Instructions] The next question is a follow-up from David Bishop with FIG Partners. Please go ahead.

Yes. Chris, with the rebuild, the expected rebuild in capital following the acquisitions, I thought that you don’t have enough on the plate, but there has been some merger fallout in the market, maybe an opportunity in the Western, Central part of the state could become available, how you guys are thinking or how you are thinking these days in terms of addressing any potential additional acquisition opportunities or are you sort of on the sidelines, you think, for the next several quarters?

I think first of all, job one is to make sure that we do what we are doing well. So we have been pretty focused on making sure having taken the opportunity to do both Cape and Ocean Shore last year. So a lot of work, a lot of care, we want to make sure we get that right. We are coming through the – certainly the Cape integration complete and one of the major tasks in the Ocean Shore integration are certainly behind us, although obviously, convergence is the big one coming up. At this point I think we have – our options are wide open. There has been a interesting change in just kind of market dynamics and valuations, which has created new opportunities that might not have been around last fall. But we will be careful. I would classify this as trying to be thoughtful and careful. We don’t feel restrained from being able to do something if the right deal came up, but we are not going to deal just to do a deal. So it’s got to be right for our shareholders and it has to make sense. So we are going to be disciplined as we were last year to balance out book value dilution against earnings accretion and we are also going to be disciplined to make sure that we got the operation in a position where it can take those additional projects, if necessary. So I guess I would classify it as open, but it would have to be compelling.

Okay, great. Thank you.

[Operator Instructions] I am showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Chris Maher for any closing remarks.

Well, thanks very much. Thank you, everyone for the time you spend with us this morning. We look forward to updating you as the year progresses. Thanks.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.