UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x][X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ]March 31, 2001
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to __________
Commission file number 0-27428
OceanFirst Financial Corp.
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(Exact name of registrant as specified in its charter)
Delaware 22-3412577
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Delaware 22-3412577
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(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
975 Hooper Avenue, Toms River, NJ 08753
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( Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732)240-4500
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(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
975 Hooper Avenue, Toms River, NJ 08753
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732)240-4500
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__________________________________________________________________________
(Former name, former address and formal fiscal year, if changed since last
report)
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.
X
YES _____X NO _____.
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As of November 9, 2000,May 8, 2001, there were 11,327,11110,719,595 shares of the Registrant's Common
Stock, par value $.01 per share, outstanding.
OceanFirst Financial Corp.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
- ------- ---------------------
PAGE
----
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
as of September 30, 2000 and December 31, 1999............... 1
Consolidated Statements of Income for the three and nine
months ended September 30, 2000 and 1999..................... 2
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999..................... 3
Notes to Consolidated Financial Statements................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 7
Item 3. Quantitative and Qualitative Disclosure about Market Risk.... 10
Part II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings............................................
PART I. FINANCIAL INFORMATION
- ------- ---------------------
PAGE
----
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
as of March 31, 2001 and December 31, 2000............................ 1
Consolidated Statements of Income for the three
months ended March 31, 2001 and 2000.................................. 2
Consolidated Statements of Cash Flows for the three
months ended March 31, 2001 and 2000.................................. 3
Notes to Consolidated Financial Statements............................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 6
Item 3. Quantitative and Qualitative Disclosure about Market Risk............. 9
Part II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings..................................................... 11
Item 2. Changes in Securities................................................. 11
Item 3. Default Upon Senior Securities........................................ 11
Item 4. Submission of Matters to a Vote of Security Holders................... 11
Item 5. Other Information..................................................... 11
Item 6. Exhibits and Reports on Form 8-K...................................... 11
Signatures ...................................................................... 12
Item 2. Changes in Securities........................................ 12
Item 3. Default Upon Senior Securities............................... 12
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
Item 5. Other Information............................................ 12
Item 6. Exhibits and Reports on Form 8-K............................. 12
Signatures ............................................................. 13
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
September 30,March 31, December 31,
2001 2000
1999
------------- ---------------------- ----------
(Unaudited)
ASSETS
- ------
Cash and due from banks $ 15,04714,127 $ 10,0077,235
Investment securities available for sale 132,622 120,78098,850 103,536
Federal Home Loan Bank of New York stock, at cost 20,000 16,80020,000
Mortgage-backed securities available for sale 272,993 346,182281,613 268,042
Loans receivable, net 1,126,950 1,042,9751,159,769 1,136,879
Mortgage loans held for sale 33,387 -27,808 35,588
Interest and dividends receivable 10,152 8,4688,795 9,318
Real estate owned, net 223 292284 157
Premises and equipment, net 14,344 13,88915,468 14,676
Servicing asset 13,902 2,2446,598 6,363
Other assets 29,897 29,27037,784 38,423
---------- ----------------------
Total assets $1,669,517 $1,590,907$1,671,096 $1,640,217
========== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits $1,098,007 $1,056,950$1,119,973 $1,104,188
Federal Home Loan Bank advances 127,300 115,000125,000 127,500
Securities sold under agreements to repurchase 273,985 239,867254,996 236,494
Advances by borrowers for taxes and insurance 7,057 5,9906,678 6,388
Other liabilities 5,129 5,5709,133 7,911
---------- ----------------------
Total liabilities 1,511,478 1,423,3771,515,780 1,482,481
---------- ----------------------
Stockholders' Equity:equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized, no shares issued - -
Common stock, $.01 par value, 55,000,000 shares authorized,
18,118,248 shares issued and 11,380,11110,719,595 and 12,620,92311,084,123
shares outstanding at September 30, 2000March 31, 2001 and December 31,
1999,2000, respectively 181 181
Additional paid-in capital 179,331 178,850180,598 179,805
Retained earnings-substantially restricted 119,824 113,169earnings 123,763 121,737
Accumulated other comprehensive loss (7,641) (9,568)(2,822) (4,927)
Less: Unallocated common stock held by
Employee Stock Ownership Plan (14,548) (15,727)(13,782) (14,156)
Unearned Incentive Awards (2,579) (4,030)(1,612) (2,096)
Treasury stock, (6,738,1377,398,653 and 5,497,3257,034,125 shares
at September 30, 2000March 31, 2001 and December 31, 1999,
respectively) (116,529) (95,345)2000,
respectively (131,010) (122,808)
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Total stockholders' equity 158,039 167,530155,316 157,736
---------- ----------------------
Total liabilities and stockholders' equity $1,669,517 $1,590,907$1,671,096 $1,640,217
========== ======================
See accompanying notes to unaudited consolidated financial statements.
1
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
For the three months
For the nine months,
ended September 30 ended September 30,
---------------------- ---------------------March 31
---------------
2001 2000
1999 2000 1999
------- ------- ------- ----------- ----
(Unaudited) (Unaudited)
Interest income:
Interest income:
Loans $21,753 $18,913 $62,395 $55,258$22,732 $19,930
Mortgage-backed securities 5,216 5,974 16,442 17,7284,374 5,724
Investment securities and other 2,578 2,224 7,404 6,718
------- -------2,203 2,428
------- -------
Total interest income 29,547 27,111 86,241 79,704
------- -------29,309 28,082
------- -------
Interest expense:
Deposits 11,361 10,240 32,682 30,64611,717 10,452
Borrowed funds 6,025 4,534 16,219 12,970
------- -------4,861 4,994
------- -------
Total interest expense 17,386 14,774 48,901 43,616
------- -------16,578 15,446
------- -------
Net interest income 12,161 12,337 37,340 36,08812,731 12,636
Provision for loan losses 255 225 745 675
------- -------240
------- -------
Net interest income after provision
for loan losses 11,906 12,112 36,595 35,413
------- -------12,476 12,396
------- -------
Other income:
Fees and service charges 1,227 919 3,340 2,5861,356 987
Net (loss) gain on sales of loans and securities
available for sale (1,261) 35 (1,189) 502
Income1,079 60
Net income (loss) from other real estate operations net 56 69 127 14514 (11)
Other 400 241 997 629
------- -------351 294
------- -------
Total other income 422 1,264 3,275 3,862
------- -------2,800 1,330
------- -------
Operating expenses:
Compensation and employee benefits 4,397 3,869 12,956 11,2475,368 4,330
Occupancy 646 564 1,785 1,557694 582
Equipment 418 326 1,145 991495 359
Marketing 320 431 1,011 1,254337 316
Federal deposit insurance 123 120 208 360 642
Data processing 425 336 1,190 989491 392
General and administrative 1,934 1,101 4,219 3,397
------- -------1,602 1,095
------- -------
Total operating expenses 8,260 6,835 22,666 20,077
------- -------9,110 7,194
------- -------
Income before provision for income taxes 4,068 6,541 17,204 19,1986,166 6,532
Provision for income taxes 248 2,364 4,733 6,895
------- -------2,145 2,218
------- -------
Net income $ 3,8204,021 $ 4,177 $12,471 $12,303
======= =======4,314
======= =======
Basic earnings per share $.38 $.35 $1.19 $1.01
======= =======$ .42 $ .40
======= =======
Diluted earnings per share $.36 $.34 $1.16 $.98
======= =======$ .40 $ .39
======= =======
Average basic shares outstanding 10,091 11,884 10,437 12,238
======= =======9,688 10,865
======= =======
Average diluted shares outstanding 10,501 12,250 10,739 12,501
======= =======10,137 11,044
======= =======
See accompanying notes to unaudited consolidated financial statements.
2
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
For the ninethree months
ended September 30,
---------------------March 31,
--------------------
2001 2000
1999
-------- ------------ ----
(Unaudited)
Cash flows from operating activities:
Net income $ 12,4714,021 $ 12,3034,314
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 1,185 1,122464 379
Amortization of Incentive Awards 1,451 1,450484 483
Amortization of ESOP 1,179 978374 393
ESOP adjustment 442 644283 99
Tax benefit of stock plans 510 39
Amortization of servicing asset 361 289254 70
Amortization of deposit premium 78 78intangible assets 89 26
Net premium amortization in excess of discount
accretion on securities 293 926113 107
Net accretion of deferred fees and discounts
in excess of premium amortization on loans (202) (259)(17) (149)
Provision for loan losses 745 675255 240
Net gain on sales of real estate owned (161) (220)(21) (2)
Net loss (gain)gain on sales of loans and securities available for sale 1,189 (502)(1,079) (60)
Proceeds from sales of mortgage loans held for sale 51,297 43,61968,474 4,289
Mortgage loans originated for sale (61,866) (24,228)
(Increase) decrease(59,615) (4,229)
Decrease (increase) in interest and dividends receivable (1,586) 457
Decrease (increase)523 (673)
Increase in servicing asset and other assets 192 (577)
Decrease(1,283) (412)
Increase in other liabilities (1,217) 1651,222 756
-------- ------------------
Total adjustments (6,620) 24,61711,030 1,356
-------- ------------------
Net cash provided by operating activities 5,851 36,92015,051 5,670
-------- ------------------
Cash flows from investing activities:
Net increase in loans receivable (85,162) (73,803)
Purchase of investment securities available for sale (12,500) (14,426)
Proceeds from sale of investment securities 30,279 121(23,468) (20,285)
Purchase of mortgage-backed securities available for sale (24,649) - (97,251)
Proceeds from maturities of investment securities
available for sale 200 30,0425,000 -
Principal payments on mortgage-backed securities
available for sale 44,498 103,859
Purchases of Federal Home Loan Bank of New York Stock (3,200) -14,100 14,134
Proceeds from sales of real estate owned 974 902234 70
Purchases of premises and equipment (1,321) (692)
Acquisition of Columbia Equities, Ltd. net of cash and cash equivalents (2,954) -(1,256) (290)
-------- ------------------
Net cash used in investing activities (29,186) (51,248)(30,039) (6,371)
-------- ------------------
Continued
3
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(dollars in thousands)
For the ninethree months
ended September 30,
---------------------March 31,
--------------------
2001 2000
1999
-------- ------------ ----
(Unaudited)
Cash flows from financing activities:
Increase in deposits $15,785 $ 41,057 $ 9,626
Increase20,995
Decrease in Federal Home Loan Bank advances (20,396) -(2,500) (42,000)
Increase in securities sold under agreements
to repurchase 34,118 30,42918,502 26,578
Increase in advances by borrowers for taxes and
insurance 596 1,015290 362
Exercise of Stock Options 908 17stock options 548 -
Dividends paid (5,632) (5,382)(1,895) (1,678)
Purchase of treasury stock (22,276) (25,058)
--------(8,850) (9,820)
------- --------
Net cash provided by (used in) financing activities 28,375 10,647
--------21,880 (5,563)
------- --------
Net increase (decrease) in cash and due from banks 5,040 (3,681)6,892 (6,264)
Cash and due from banks at beginning of period 7,235 10,007
10,295
--------------- --------
Cash and due from banks at end of period $14,127 $ 15,047 $ 6,614
========3,743
======= ========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for:
Interest $16,483 $ 48,971 $ 43,37615,671
Income taxes 4,295 5,37412 -
Noncash investing activities:
Transfer of loans receivable to real estate owned 644 1,041340 303
Mortgage loans securitized into mortgage-backed
Securities 14,035 37,200
======== ========
Supplemental Information to the Consolidated Statements of Cash
Flows Relating to the Acquisition of Columbia Equities, Ltd:
Non cash investing and financing transactions relating to
the acquisition of Columbia Equities, Ltd. that are not
reflected in the Consolidated Statements of Cash Flows for
the nine months ended September 30, 2000 are listed below:
Fair value of assets acquired, excluding cash and cash $ 36,045
equivalents (33,982)
Liabilities assumedsecurities 4,167 -
========= ========
See accompanying notes to unaudited consolidated financial statements.
4
OceanFirst Financial Corp.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Note 1. Basis of Presentation
- -----------------------------
The accompanying unaudited consolidated financial statements include the
accounts of OceanFirst Financial Corp. (the "Company") and its wholly-owned
subsidiary, OceanFirst Bank (the "Bank") and its wholly-owned subsidiaries,
Columbia Equities, Ltd., OceanFirst Realty Inc. and Ocean Investment Services,
Inc.
The Bank completed the acquisition of Columbia Equities, Ltd. ("Columbia"), a
mortgage brokerage company based in Tarrytown, New York on August 18, 2000 in a
transaction accounted for as a purchase. Accordingly, the assets and
liabilities of Columbia were recorded on the books of the Bank at their fair
market values of $37.1 million and $34.0 million, respectively. In October
2000, the Company sold servicing rights with a book value and market value of
$7.1 million. The cost of the acquisition was $4 million. The Company's
consolidated results of operations include Columbia's results commencing on
August 18, 2000.
The interim consolidated financial statements reflect all normal and recurring
adjustments which are, in the opinion of management, considered necessary for a
fair presentation of the financial condition and results of operations for the
periods presented. The results of operations for the three and nine months ended September 30, 2000March
31, 2001 are not necessarily indicative of the results of operations that may be
expected for all of 2000.2001.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's Annual Report to Stockholders on Form 10-K for the year ended
December 31, 1999.2000.
Note 2. Earnings per Share
- ---------------------------
The following reconciles shares outstanding for basic and diluted earnings per
share for the three and nine months ended September 30,March 31, 2001 and 2000 and 1999:(in thousands):
Three months ended
Nine months ended
September 30, September 30,
-------------------- -------------------March 31,
------------------------
2001 2000
1999 2000 1999
------ ------ ------ ----------- ----
Weighted average shares issued net of Treasury shares 11,534 13,594 11,932 13,99410,964 12,427
Less: Unallocated ESOP shares (1,164) (1,292) (1,195) (1,325)(1,103) (1,227)
Unallocated incentive award shares (279) (418) (300) (431)(173) (335)
------ ------ ------ -------
Average basic shares outstanding 10,091 11,884 10,437 12,2389,688 10,865
Add: Effect of dilutive securities:
Stock options 288 228 180 132Unallocated ESOP shares
Unallocated incentive award shares 370 79
Incentive awards 122 138 122 13179 100
------ ------ ------ -------
Average diluted shares outstanding 10,501 12,250 10,739 12,50110,137 11,044
====== ====== ====== =======
Note 3. Comprehensive Income
- -----------------------------
For the three month periods ended September 30,March 31, 2001 and 2000 and 1999 total comprehensive
income, representing net income plus or minus items recorded directly in equity,
such as the change in unrealized gains or losses on securities available for
sale amounted to $8,807,000$6,126,000 and $64,000,$2,237,000, respectively.
For the nine months ended September 30, 2000 and 1999, total comprehensive
income amounted to $14,398,000 and $4,326,000, respectively.
5
Note 4. Impact of Recent Accounting Pronouncements
- --------------------------------------------------
In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25". The interpretation
clarifies certain issues with respect to the application of Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB
Opinion No. 25). The interpretation results in a number of changes in the
application of APB Opinion No. 25 including, the accounting for modifications to
equity awards as well as extending APB Opinion No. 25 accounting treatment to
options granted to outside directors for their services as directors. The
provisions of the interpretation were effective July 1, 2000 and apply
prospectively, except for certain modifications to equity awards made after
December 15, 1998. The initial adoption of the interpretation did not have a
significant impact on the company's financial statements.
In June 2000, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment to FASB Statement No. 133". SFAS No. 138 amends
certain aspects of SFAS No. 133 to simplify the accounting for derivatives and
hedges under SFAS No. 133. SFAS No. 138 is effective upon the company's
adoption of SFAS No. 133 (January 1, 2001). The initial adoption of SFAS No.
133 and SFAS No. 138 aredid not expected to have a material impact on the Company's financial
statements.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (A Replacement
of FASB Statement 125)." SFAS No. 140 supersedes and replaces the
5
guidance in SFAS No. 125 and, accordingly, provides guidance on the following
topics: securitization transactions involving financial assets, sales of
financial assets such as receivables, loans, and securities; factoring
transactions; wash sales; servicing assets and liabilities, collateralized
borrowing arrangements; securities lending transactions; repurchase agreements;
loan collateralized borrowing arrangements; securities lending transactions;
repurchase agreements; loan participations; and extinguishment of liabilities.
While most of the
provisionThe provisions of SFAS No. 140 are effective for transactions entered into after
March 31, 2001, companies with fiscal year ends that hold beneficial interests
from previous securitizations will be required to make additional disclosures in
their December 31, 2000 financial statements.2001. The initial adoption of SFAS No. 140 isdid not expected to have a material
impact on the Company's financial statements.
Note 5. Loans Receivable, Net
- -----------------------------
Loans receivable, net at September 30, 2000March 31, 2001 and December 31, 19992000 consisted of the
following (in thousands):
September 30, 2000March 31, 2001 December 31, 19992000
--------------- ------------------ -----------------
Real estate:
One- to four-family $1,001,567 $ 988,410 $ 917,481993,706
Commercial real estate, multi-
family and land 87,635 57,14289,706 89,663
Construction 6,698 7,7919,779 7,973
Consumer 60,866 56,04062,707 62,923
Commercial 27,673 15,56935,925 29,687
---------- ----------
Total loans 1,171,282 1,054,0231,199,684 1,183,952
Loans in process (2,450) (2,790)(3,037) (2,927)
Deferred fees 398 (78)origination costs (fees), net 273 561
Unearned premium 28 4315 19
Allowance for loan losses (8,921) (8,223)(9,358) (9,138)
---------- ----------
Total loans, net 1,160,337 1,042,9751,187,577 1,172,467
Less: mortgage loans held for sale 33,387 -27,808 35,588
---------- ----------
Loans receivable, net $1,126,950 $1,042,975$1,159,769 $1,136,879
========== ==========
6
Note 6. Deposits
- ----------------
The major types of deposits at September 30, 2000March 31, 2001 and December 31, 19992000 were as
follows (in thousands):
September 30, 2000March 31, 2001 December 31, 1999
------------------2000
-------------- -----------------
Type of Account
- ---------------
Non-interest bearing $ 49,83257,029 $ 31,32849,910
NOW 136,637 113,426187,225 170,976
Money market deposit 73,413 80,59769,006 71,010
Savings 170,221 171,064169,675 165,866
Time deposits 667,904 660,535637,038 646,426
---------- ----------
$1,098,007 $1,056,950$1,119,973 $1,104,188
========== ==========
Note 7. Income Taxes
- --------------------
The Company recognized an income tax benefit of $1.1 million in the third
quarter of 2000 relating to the additional charitable donation expense
associated with the 1996 formation of the OceanFirst Foundation (the
"Foundation"). The Company established the Foundation as part of the conversion
to public ownership and recorded a charitable donation expense of $13.4 million
in 1996. Charitable donations are tax deductible subject to a limitation of 10%
of annual taxable income. The Company is able to carry forward any unused
portion of the deduction for five years following the year in which the
contribution is made. Based on the Company's original estimate of taxable
income for 1996 and the carry forward period, $4.3 million of charitable
donation expense was considered not tax deductible because the Company believed
it was unlikely to realize sufficient earnings over the six year period to take
the full deduction. After considering the Company's recent strong earnings
performance and expectations for taxable income through December 31, 2001, the
Company now estimates that an additional $3.0 million of charitable donation
expense will be recognized for tax purposes, providing for a tax benefit of $1.1
million. The Company has a remaining charitable expense carry forward of
$1,256,000 ($440,000 on an after-tax basis) which expires at December 31, 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Total assets at September 30, 2000March 31, 2001 were $1.670$1.671 billion, an increase of $78.6$30.9
million, compared to $1.591$1.640 billion at December 31, 1999.2000.
Loans receivable, net, increased by $84.0$22.9 million or 8.1%, to a balance of $1.127$1.160 billion
at September 30, 2000,March 31, 2001, compared to a balance of $1.043$1.137 billion at December 31, 1999.2000.
The increase was largelypartly attributable to commercial lending (including commercial
real estate) initiatives which accounted for $42.6$6.3 million of this growth.
Mortgage loans held for sale increased to $33.4 million at
September 30, 2000 as compared to no mortgage loans held for sale at December
31, 1999 with most of this increase representing loans held by Columbia
Equities, Ltd. Deposit balances increased $41.1$15.8 million to $1.098$1.120
6
billion at September 30, 2000March 31, 2001 from $1.057$1.104 billion at December 31, 1999, partly due to2000, as core
deposit categories, a key emphasis for the results of new branches opened in late 1999 and early 2000.Company, increased by $25.2 million
as time deposits declined.
Stockholder's equity at September 30, 2000March 31, 2001 decreased to $158.0$155.3 million, compared to
$167.5$157.7 million at December 31, 19992000 due to the execution of the Company's seventh and eighth
stock repurchase programs.program. The Company repurchased, 1,304,592402,100 shares of common
stock during the first ninethree months of 20002001 at a total cost of $22.3$8.8 million.
Under the 10% repurchase program authorized by the Board of Directors in August
2000, 1,095,743383,343 shares remain to be purchased as of September 30, 2000.March 31, 2001.
Results of Operations
General
Net income decreased to $3.8$4.0 million for the three months ended September 30,
2000,March 31, 2001,
as compared to net income of $4.2$4.3 million for the three months ended September 30, 1999March 31,
2000, while diluted earnings per share increased to $.36$.40 for the three months
ended September 30, 2000,March 31, 2001, as compared to $.34$.39 for the same prior year period. Net income and diluted earnings per share for the nine months
ended September 30, 2000 increased to $12.5 million and $1.16, respectively, as
compared to $12.3 million and $.98, respectively, for the same prior year
periods. The higher percentage
increase in earnings per share is primarily the result of the Company's
repurchase program, which reduced the number of shares outstanding.
7
Interest Income
Interest income for the three and nine months ended September 30, 2000March 31, 2001 was $29.5$29.3 million, and $86.2 million, respectively,
compared to $27.1 million and $79.7$28.1 million for the three and nine months ended September 30, 1999, respectively.March 31, 2000. The
increasesincrease in interest income werewas due to increasesan increase in average interest-
earninginterest-earning
assets of $51.0$25.2 million and $40.1 for the three and nine months ended September 30, 2000, respectively,March 31, 2001, as compared
to the same prior year periods.period. Additionally, the yield on average interest-earninginterest-
earning assets increased to 7.50%
and 7.42%7.54% on average for the three and nine months ended September 30, 2000,
respectively,March
31, 2001, compared to 7.11% and 7.04%7.34% on average in the same prior year periods.period. The asset
yield benefited from a change in the mix of average-earning assets towards a
higher concentration of loans receivable partly funded by reductions in lower
yielding investment and mortgage-backed securities. For the three and nine months ended
September 30, 2000March 31, 2001 loans receivable represented 71.5% and 70.1%, respectively,75.4% of average interest-earning
assets as compared to 66.5% and 65.4%, respectively,68.7% for the same prior year periods.period.
Interest Expense
Interest expense for the three and nine months ended September 30, 2000March 31, 2001 was $17.4$16.6 million, and $48.9 million respectively,
compared to $14.8 million and
$43.6$15.4 million for the three and nine months ended September 30, 1999,
respectively.March 31, 2000. The
increasesincrease in interest expense werewas primarily the result of increasesan increase in the
average cost of interest-bearing liabilities, which rose to 4.85% and 4.65%4.70%, respectively, for the three
and nine months ended September 30,
2000,March 31, 2001, as compared to 4.37% and 4.36%, respectively,4.49% for the same prior year
periods,period, as well as increasesan increase in average interest-bearing liabilities which
rose by $81.0 million and $68.0$34.4 million for the three and nine months ended September
30, 2000, respectively,March 31, 2001, as compared to
the same prior year periods.period. The Company's stock repurchase programs will
generally cause interest-bearing liabilities to rise at a greater rate than
interest-earning assets due to the reduction in stockholders' equity as a
funding source.
Provision for Loan Losses
For the three and nine months ended September 30, 2000,March 31, 2001, the Company's provision for loan
losses was $255,000, and $745,000, respectively, as compared to $225,000
and $675,000, respectively,$240,000 for the same prior year periods. While the Company
realized substantial loan growth over the past year, especially in the area of
higher risk commercial loans, the provision for loan losses rose only modestly
due to a decline inperiod.
The Company's non-performing assets which decreasedincreased to $3.4 million at September 30, 2000March 31, 2001,
as compared to $4.5$3.1 million at September 30, 1999.March 31, 2000.
Other Income
Other income was $422,000 and $3.3$2.8 million for the three and nine months ended September 30, 2000, respectively,March 31, 2001,
compared to $1.3 million and $3.9 million,
respectively, for the same prior year periods.period. For the three and nine months
ended September 30, 2000 the Company recognized a loss of $1.6 million on the
restructuring sale of $32.1 million of securities available for sale. For the
nine months ended September 30, 1999March 31, 2001 the Company recorded a lossgain of $49,000$1.1 million on the sale of
an investment security. For the three and nine months ended
September 30, 2000 the Company also sold 30-year fixed-rate loans, for a gain of
$375,000 and $447,000, respectively, as compared to a gain of $35,000 and
$551,000, respectively,$60,000 in the same prior year periods.period. The
increased gain from loan sales is primarily due to the mortgage banking
activities of Columbia Equities, Ltd. ("Columbia"), a mortgage banking company
acquired by the Company on August 18, 2000. The Bank also periodically sells these30
year fixed-rate mortgage loans to assist in the management of interest rate
risk, while
Columbia Equities, Ltd., as a mortgage banker, sells all of its mortgage loan
production.risk.
Excluding the respective net gains or losses on the sale of loans, and
securities, other income increased
by $454,000,$451,000, or 36.9%, and $1.1 million, or
32.9%35.5%, for the three and nine months ended September 30, 2000, respectively,March 31, 2001, as compared to
the same prior year periods.period. Fees and service charges increased due to the growth
in commercial account services, and retail core account balances.
The Company continues to focus on growing non-interest revenue with the March
2000 introduction of Trustbalances and Asset Management services. For the three months
ended September 30, 2000 trust service fees amounted to $27,000 and at September
30, 2000 trust assets under management totaled $30.2 million.fees.
7
Operating Expenses
Operating expenses were $8.3$9.1 million and $22.7 million, respectively, for the three and nine months ended September 30, 2000,March 31, 2001,
as compared to $6.8$7.2 million and
$20.1 million, respectively, in the same prior year periods. Included in
general and administrative expense for the three and nine months ended September
30, 2000, are certain costsperiod. The increase was
principally due to operating expenses associated with the acquisitionColumbia, and ongoing
operations of Columbia Equities, Ltd., andthe costs
associated with the opening of the Bank's twelfthfourteenth and thirteenthfifteenth branch
offices in September and October 1999,
the Bank's fourteenth branch office in May 2000 and the introduction of the
Company's Trust and Asset Management business line. These increases were partly
offset by decreases
8
of $88,000 and $282,000 for the three and nine months ended September 30, 2000,
respectively, as compared to the same prior year periods in federal deposit
insurance due to a decline in the assessment rate.February 2001, respectfully.
Provision for Income Taxes
Income tax expense was $248,000 and $4.7$2.1 million for the three and nine months ended September 30, 2000, respectively,March 31, 2001
compared to $2.4 million and $6.9$2.2 million for the same prior year periods due to the recognition of an income tax
benefit of $1.1 million in the third quarter of 2000 relating to the additional
charitable donation expense associated with the 1996 formation of the OceanFirst
Foundation (see Note 7 to the unaudited consolidated financial statements).period.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-backed securities, Federal Home Loan Bank
("FHLB") and other borrowings and, to a lesser extent, investment maturities and
proceeds from the sale of loans. While scheduled amortization of loans is a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition. The
Company has other sources of liquidity if a need for additional funds arises,
including an overnight line of credit and advances from the FHLB.
At September 30, 2000,March 31, 2001, the Company had $77.3$50.0 million of outstanding overnight
borrowings from the FHLB, an increasea decrease from no overnight borrowings$52.5 million at December 31, 1999.2000.
The Company utilizes the overnight line from time to time to fund short-term
liquidity needs. The Company also had other borrowings of $358.3$330.0 million at
September 30, 2000,March 31, 2001, an increase from $354.9$311.5 million at December 31, 1999.2000. These
borrowings were used to fund a wholesale leverage strategy designed to improve
returns on invested capital.
The Company's cash needs for the ninethree months ended September 30, 2000,March 31, 2001, were
primarily provided by principal payments on loans and mortgage-backed
securities, increased deposits and increased total borrowings. The cash was
principally utilized for loan originations, the purchase of mortgage-backed
securities and the purchase of treasury stock. For the ninethree months ended September 30, 1999,March
31, 2000, the cash needs of the Company were primarily satisfied by maturities of investment securities available for sale, principal
payments on loans and mortgage-backed securities, proceeds from the sale of
mortgage loans held for sale and increased total borrowings.deposits. The cash provided was
principally used for the purchase of investment and mortgage-backed
securities, the origination of loans, a reduction in total borrowings
and the purchase of treasury stock.
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon
economic conditions and savings flows and is currently 4% of net withdrawable
savings deposits and borrowings payable on demand or in one year or less during
the preceding calendar month. Liquid assets for purposes of this ratio include
cash, accrued interest receivable, certain time deposits, U.S. Treasury and
Government agencies and other securities and obligations generally having
remaining maturities of less than five years. The levels of these assets are
dependent on the Bank's operating, financing, lending and investing activities
during any given period. As of September 30, 2000 and DecemberAt March 31, 1999, the
Bank's liquidity ratios were 6.1% and 8.9%, respectively, both in excess of the
minimum regulatory requirement.
At September 30, 2000,2001, the Bank exceeded all of its regulatory capital requirements
with tangible capital of $115.0$124.3 million, or 6.9%7.4%, of total adjusted assets,
which is above the required level of $25.0$25.1 million or 1.5%; core capital of $115.0$
124.3 million or 6.9%7.4% of total adjusted assets, which is above the required
level of $50.0$50.2 million, or 3.0%; and risk-based capital of $123.8$133.5 million,
or 13.2%14.1% of risk-weighted assets, which is above the required level of $75.1$75.6
million or 8.0%. The Bank is considered a "well capitalized" institution under
the Office of Thrift Supervision's prompt corrective action regulations.
98
Non-Performing Assets
The following table sets forth information regarding the Company's nonperforming
assets consisting of non-accrual loans and Real Estate Owned (REO). The Company
had no troubled-debt restructured loans within the meaning of SFAS 15 at
September 30, 2000 or December 31, 1999. It is the
policy of the Company to cease accruing interest on loans 90 days or more past
due or in the process of foreclosure.
September 30, December 31,
2000 1999
------- -------
(dollars in thousands)
Non-accrual loans:
Real estate:
One-to four-family $ 2,846 $ 2,401
Commercial real estate,
multi-family and land 184 362
Consumer 141 222
------- -------
Total 3,171 2,985
REO, net 223 292
------- -------
Total non-performing assets $ 3,394 $ 3,277
======= =======
Non-performing loans as a percent of total
loans receivable .27% .28%
Non-performing assets as a percent of total
assets .20 .21
Allowance for loan losses as a percent of
total loans receivable .76 .78
Allowance for loan losses as percent of
total non-performing loans 281.33 275.48
March 31, December 31,
2001 2000
-------- -----------
(dollars in thousands)
Non-accrual loans:
Real estate:
One-to four-family $ 2,961 $ 2,594
Commercial real estate,
multi-family and land - -
Consumer 175 147
Commercial - 182
------- -------
Total 3,136 2,923
REO, net 284 157
------- -------
Total non-performing assets $ 3,420 $ 3,080
======= =======
Non-performing loans as a percent of total
loans receivable .26% .25%
Non-performing assets as a percent of total
assets .20 .19
Allowance for loan losses as a percent of
total loans receivable .78 .77
Allowance for loan losses as percent of
total non-performing loans 298.41 312.62
In January 2001 the Bank downgraded a performing commercial loan with an
outstanding balance of $2.4 million to the substandard classification as a
result of weakened financial results. The borrower subsequently failed to make
a quarterly principal and interest payment on March 30, 2001 and in April 2001
the Bank consequently downgraded 50% of the loan to the doubtful classification.
The Bank holds a participation interest in a $125 million shared national credit
which is secured by corporate assets and various commercial real estate
properties. The Bank does not participate in any other shared national credits.
Private Securities Litigation Reform Act Safe Harbor Statement
In addition to historical information, this quarterly report may include certain
forward looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal and state tax authorities, changes in interest rates, deposit flows, the
cost of funds, demand for loan products, demand for financial services,
competition, changes in the quality or composition of the Bank's loan and
investment portfolios, changes in accounting principles, policies or guidelines,
and other economic, competitive, governmental and technological factors
affecting the Company's operations, markets, products, services and prices.
Further description of the risks and uncertainties to the business are included
in Item 1, Business, of the Company's 19992000 Form 10-K.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company's interest rate sensitivity is monitored by management through the
use of an interest rate risk (IRR) model. Based on internal IRR modeling the
Company's one year gap at September 30, 2000March 31, 2001 was negative 16.3%13.4% as compared to
negative 11.8%10.8% at December 31, 1999.2000. Additionally, the table below sets forth
the Company's exposure to interest rate risk as measured by the change in net
portfolio value ("NPV") and net interest income under varying rate shocks as of
September 30, 2000March 31, 2001 and December 31, 1999.2000. 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
9
Company's interest rate sensitivity should be reviewed in conjunction with the
financial statements and notes thereto contained in the Company's Annual Report
for the year ended December 31, 1999.2000.
At September 30, 2000,March 31, 2001, the Company's NPV in a static rate environment is less than
the NPV at December 31, 1999,2000, reflecting the Company's declining capital levels
resulting from common stock repurchase programs.programs and the lower interest rate
environment which reduces the value of the Company's core deposits. Also, in a
shocked interest rate environment, the Company projects a greater percent change
in NPV at September 30, 2000March 31, 2001 than was the case at December 31, 1999.2000. The heightened
interest rate sensitivity is primarily due to the declining capital base which
accentuates, 10
on a percentage basis, similar dollar changes in NPV.
Additionally, the
generally higher interest rate environment reduces anticipated prepayment speeds
on mortgage loans and mortgage-backed securities and reduces the likelihood that
a callable security is called before its stated maturity date.
September 30, 2000March 31, 2001 December 31, 1999
--------------------------------------------------- --------------------------------------------------2000
------------------------------------------------ -----------------------------------------------------------
Net Portfolio Value Net Interest Income Net Portfolio Value Net Interest Income
- ----------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------
Change in
Interest Rates
in Basis Points NPV NPV
(Rate Shock)Shock Amount % Change Ratio Amount % Change Amount % Change Ratio Amount % Change
- ----------------------------------------------------------------- -------------------------------------------------
(dollars in
thousands)------------------------------------------------------------------ ------------------------------------------------------------
(dollars in
thousands)
300 $114,789 (39.9)$ 95,745 (43.9)% 7.7% $37,131 (15.8)6.2% $45,790 (13.8)% $119,838 (40.0)$122,407 (37.9)% 8.4% $44,212 (9.3)8.2% $42,061 (13.9)%
200 143,295 (25.0) 9.4 39,645 (10.1) 151,710 (24.0) 10.3 46,123 (5.3)126,836 (25.7) 8.0 48,711 (8.3) 153,064 (22.3) 9.9 44,556 (8.8)
100 170,328 (10.9) 10.8 42,151 (4.5) 179,446 (10.1) 11.8 47,765 (2.0)155,698 (8.8) 9.5 51,459 (3.1) 179,453 (8.9) 11.3 46,728 (4.3)
Static 191,112 - 11.8 44,121 - 199,646 - 12.8 48,724 -170,726 --- 10.2 53,118 --- 197,049 --- 12.1 48,837 ---
(100) 205,849 7.7 12.4 45,651 3.5 213,252 6.8 13.3 49,251 1.1177,189 3.8 10.4 54,265 2.2 201,071 2.0 12.1 49,569 1.5
(200) 211,657 10.8 12.6 46,526 5.5 217,678 9.0 13.4 48,927 1.4175,000 2.5 10.1 54,172 2.0 196,426 (.3) 11.6 49,483 1.3
(300) 210,917 10.4 12.4 46,669 5.8 216,809 8.6 13.2 47,865 (1.8)166,806 (2.3) 9.5 53,316 .4 186,175 (5.5) 10.9 48,675 (.3)
1110
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is not engaged in any legal proceedings of a material
nature at the present time. From time to time, the Company is a party
to routine legal proceedings within the normal course of business.
Such routine legal proceedings in the aggregate are believed by
management to be immaterial to the Company's financial condition or
results of operations.
Item 2. Changes in Securities
---------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not ApplicableThe annual meeting of stockholders was held April 19, 2001. The
following directors were elected for terms of three years: Donald E.
McLaughlin, James T. Snyder and John E. Walsh. The following
proposals were voted on by the stockholders:
Withheld/ Broker
Proposal For Abstain Non-Votes
---------- --- ------- ---------
1) Election of Directors:
Donald E. McLaughlin,CPA 10,201,635 17,034 0
James T. Snyder 10,201,235 17,434 0
John E. Walsh 10,200,538 18,130 0
Withheld/ Broker
For Against Abstain Non-Votes
--- ------- --------- ---------
2) Ratification of KPMG LLP 10,185,002 4,753 28,914 6,617
as independent auditors for the
Company for the year ending
December 31, 2001.
Item 5. Other Information
-----------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
3.1 Certificate of Incorporation of OceanFirst Financial Corp.*
3.2 Bylaws of OceanFirst Financial Corp.**
4.0 Stock Certificate of OceanFirst Financial Corp.*
27 Financial Data Schedule (filed herewith)b) There were no reports on Form 8-K filed during the three months
ended March 31, 2001.
* Incorporated herein by reference into this document from the Exhibits to
Form S-1, Registration Statement, filed on December 7, 1995, as amended,
Registration No. 33-80123.
** Incorporated herein by reference into this document from the Exhibit
to Form 10-Q, Quarterly Report, filed on August 11, 2000.
1211
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OceanFirst Financial Corp.
-------------------------------------------------------------------------------
Registrant
DATE: November 10, 2000May 11, 2001 /s/ John R. Garbarino
-----------------------------------------------------------------------------
John R. Garbarino
Chairman of the Board, President
and Chief Executive Officer
DATE: November 10, 2000May 11, 2001 /s/ Michael Fitzpatrick
-----------------------------------------------------------------------------
Michael Fitzpatrick
Executive Vice President and
Chief Financial Officer
1312