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, 1999
[ ]March 31, 2000
[_] 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
----------------------------- --------------------------------------------------------------------- ---------------------
(State of other jurisdiction of (I.R.S. Employer
Identification No.)
incorporation or organization) Identification No.)
975 Hooper Avenue, Toms River, NJ 08753
---------------------------------- ---------------------------------------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
offices)
Registrant's telephone number, (732) 240-4500
including area code: -------------------------------------
Ocean Financial Corp.
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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.
YES X NO _____.
-----NO___.
---
As of November 5, 1999,May 4, 2000, there were 13,157,01311,968,657 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, 1999 and December 31, 1998........... 1
Consolidated Statements of Income for the three and nine
months ended September 30, 1999 and 1998................. 2
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998................. 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 ........... 11
Market Risk
Part II. OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings........................................
PAGE
----
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
as of March 31, 2000 and December 31, 1999...................... 1
Consolidated Statements of Income for the three
months ended March 31, 2000 and 1999 ........................... 2
Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999............................ 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....... 10
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,
2000 1999
1998
---------------------- ------------
(Unaudited)
ASSETS
- ------
Cash and due from banks $ 6,6143,743 $ 10,29510,007
Investment securities available for sale 118,322 137,405118,264 120,780
Federal Home Loan Bank of New York
stock, at cost 16,800 16,800
Mortgage-backed securities available for sale 364,941 381,840331,160 346,182
Loans receivable, net 1,013,357 941,011
Mortgage loans held for sale 5,157 25,1401,062,866 1,042,975
Interest and dividends receivable 9,363 9,8209,141 8,468
Real estate owned, net 402 43527 292
Premises and equipment, net 13,517 13,94713,800 13,889
Other assets 31,481 25,44333,050 31,514
---------- ----------
Total assets $1,579,954 $1,561,744$1,589,351 $1,590,907
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits $1,044,877 $1,035,251$1,077,945 $1,056,950
Federal Home Loan Bank borrowings 30,000 30,000advances 73,000 115,000
Securities sold under agreements to repurchase 312,537 282,108266,445 239,867
Advances by borrowers for taxes and insurance 6,111 5,0966,352 5,990
Other liabilities 11,714 11,5496,326 5,570
---------- ----------
Total liabilities 1,405,239 1,364,0041,430,068 1,423,377
---------- ----------
Stockholders' 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 13,167,01312,003,657 and 14,629,77612,620,923 shares
outstanding at September 30, 1999March 31, 2000 and December 31, 1998,1999,
respectively 181 181
Additional paid-in capital 178,953 178,309178,988 178,850
Retained earnings-substantially restricted 110,900 103,982115,747 113,169
Accumulated other comprehensive loss (9,203) (1,226)(11,645) (9,568)
Less: Unallocated common stock held by
Employee Stock Ownership Plan (16,398) (17,376)(15,334) (15,727)
Unearned Incentive Awards (4,513) (5,963)(3,547) (4,030)
Treasury stock, (4,951,235(6,114,591 and 3,488,4725,497,325 shares
at September 30, 1999March 31, 2000 and December 31, 1998,1999, respectively) (85,205) (60,167)(105,107) (95,345)
---------- ----------
Total stockholders' equity 174,715 197,740159,283 167,530
---------- ----------
Total liabilities and stockholders' equity $1,579,954 $1,561,744$1,589,351 $1,590,907
========== ==========
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,
-----------------------------------
2000 1999
1998 1999 1998
--------- --------- --------- --------
(Unaudited)------------- -----------
(Unaudited)
Interest income:
Loans $18,913 $17,048 $55,258 $49,465$19,930 $17,907
Mortgage-backed securities 5,974 5,853 17,728 19,1855,724 5,787
Investment securities and other 2,224 3,593 6,718 10,290
------- -------2,428 2,326
------- -------
Total interest income 27,111 26,494 79,704 78,940
------- -------28,082 26,020
------- -------
Interest expense:
Deposits 10,240 11,248 30,646 32,92310,452 10,203
Borrowed funds 4,534 4,412 12,970 13,194
------- -------4,994 4,101
------- -------
Total interest expense 14,774 15,660 43,616 46,117
------- -------15,446 14,304
------- -------
Net interest income 12,337 10,834 36,088 32,82312,636 11,716
Provision for loan losses 240 225 225 675 675
------- -------
------- -------
Net interest income after provision for loan losses 12,112 10,609 35,413 32,148
------- -------12,396 11,491
------- -------
Other income:
Fees and service charges 919 622 2,586 1,663987 780
Net gain on sales of loans and securities available for sale 35 53 502 221
Net60 524
(Loss) income from other real estate operations, 69 20 145 160net (11) 46
Other 241 181 629 506
------- -------294 195
------- -------
Total other income 1,264 876 3,862 2,550
------- -------1,330 1,545
------- -------
Operating expenses:
Compensation and employee benefits 3,869 3,710 11,247 10,9944,330 3,655
Occupancy 564 490 1,557 1,408582 511
Equipment 326 343 991 1,011359 304
Marketing 431 301 1,254 1,053316 407
Federal deposit insurance 208 217 642 651120 220
Data processing 336 319 989 945392 331
General and administrative 1,101 924 3,397 2,897
------- -------1,095 1,164
------- -------
Total operating expenses 6,835 6,304 20,077 18,959
------- -------7,194 6,592
------- -------
Income before provision for income taxes 6,541 5,181 19,198 15,7396,532 6,444
Provision for income taxes 2,364 1,845 6,895 5,692
------- -------2,218 2,306
------- -------
Net income $ 4,1774,314 $ 3,336 $12,303 $10,047
======= =======4,138
======= =======
Basic earnings per share $ .35.40 $ .25 $ 1.01 $ .74
======= =======.33
======= =======
Diluted earnings per share $ .34.39 $ .25 $ .98 $ .72
======= =======.33
======= =======
Average basic shares outstanding 11,884 13,202 12,238 13,517
======= =======10,865 12,556
======= =======
Average diluted shares outstanding 12,250 13,505 12,501 13,893
======= =======11,044 12,698
======= =======
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,
----------------------------
2000 1999 1998
---------- ----------
(Unaudited)
Cash flows from operating activities:
Net income $ 12,3034,314 $ 10,047
-------- ---------4,138
----------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of premises
and equipment 1,122 1,093379 366
Amortization of Incentive Awards 1,450 1,450483 485
Amortization of ESOP 978 1,024393 326
ESOP adjustment 644 826
Tax Benefit of Stock Plans - 25799 175
Amortization of servicing asset 289 23870 101
Amortization of deposit premium 78 -26 26
Net premium amortization in excess of discount
accretion on securities 926 2,524107 419
Net accretion of deferred fees and discounts
in excess of premium amortization on loans (259) (380)(149) (162)
Provision for loan losses 675 675240 225
Net gain on sales of real estate owned (220) (107)(2) (57)
Net gain on sales of loans and securities available for sale (502) (221)(60) (524)
Proceeds from sales of mortgage loans held for sale 43,619 15,9624,289 26,991
Mortgage loans originated for sale (24,228) (16,132)
Decrease(4,229) (2,054)
(Increase) decrease in interest and dividends receivable 457 822(673) 419
Increase in other assets (577) (5,866)(412) (419)
Increase (decrease) in other liabilities 165 6,102
-------- ---------795 (4,814)
----------- ----------
Total adjustments 24,617 8,267
-------- ---------1,356 21,503
----------- ----------
Net cash provided by operating activities 36,920 18,314
-------- ---------5,670 25,641
----------- ----------
Cash flows from investing activities:
Net increase in loans receivable (73,803) (110,864)(20,285) (28,835)
Purchase of investment securities available for sale (14,426) (126,986)- (13,815)
Purchase of mortgage-backed securities available for sale (97,251) (131,172)- (55,000)
Proceeds from maturities of investment securities
available for sale 30,042 185,160- 20,043
Principal payments on mortgage-backed securities
available for sale 103,859 156,243
Proceeds from sale of investment securities 121 -
Purchases of Federal Home Loan Bank of New York stock - (62)14,134 46,539
Proceeds from sales of real estate owned 902 1,57670 248
Purchases of premises and equipment (692) (1,065)
-------- ---------(290) (121)
----------- ----------
Net cash used in investing activities (51,248) (27,170)
-------- ---------(6,371) (30,941)
----------- ----------
Continued
3
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(dollars in thousands)
For the ninethree months
ended September 30,
---------------------March 31,
------------------------
2000 1999
1998
---------- ---------------- -------
(Unaudited)
Cash flows from financing activities:
Acquisition ofIncrease (decrease) in deposits $ -20,995 $ 10,732
Deposit premium - (1,030)
Increase in deposits 9,626 41,026
Increase(1,217)
(Decrease) increase in Federal Home Loan Bank borrowings - 6,600advances (42,000) 14,000
Increase (decrease) in securities sold under agreements
to repurchase 30,429 (12,795)
Exercise of stock options 17 -26,578 (2,700)
Increase in advances by borrowers for taxes and
insurance 1,015 680362 294
Dividends paid (5,382) (4,927)
Purchase of ESOP shares - (8,200)(1,678) (1,591)
Purchase of treasury stock (25,058) (16,717)
--------(9,820) (9,235)
--------- --------
Net cash provided byused in financing activities 10,647 15,369
--------(5,563) (449)
--------- --------
Net (decrease) increasedecrease in cash and due from banks (3,681) 6,513(6,264) (5,749)
Cash and due from banks at beginning of period 10,007 10,295
2,225
----------------- --------
Cash and due from banks at end of period $ 6,6143,743 $ 8,738
========4,546
========= ========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for:
Interest $ 43,37615,671 $ 45,69114,466
Income taxes 5,374 20- 5,119
Noncash investing activities:
Transfer of loans receivable to real estate owned 1,041 847303 448
Mortgage loans securitized into mortgage-backed
securities 37,200 16,082- 27,145
======== ========
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,
OceanFirst Realty Inc. and Ocean Investment Services, Inc.
Effective September
13, 1999 OceanFirst Financial Corp. and OceanFirst Bank became the new name for
Ocean Financial Corp. and Ocean Federal Savings Bank.
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, 1999March
31, 2000 are not necessarily indicative of the results of operations that may be
expected for all of 1999.2000.
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, 1998.1999.
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, 1999March 31, 2000 and 1998:1999:
Three months ended
Nine months ended
September 30, September 30,
-------------------- -------------------March 31,
-----------------------
2000 1999
1998 1999 1998
--------- --------- --------- -------- -------
Weighted average shares issued net of Treasury shares 13,594 15,172 13,994 15,32212,427 14,371
Less: Unallocated ESOP shares (1,292) (1,424) (1,325) (1,243)(1,227) (1,357)
Unallocated incentive award shares (418) (546) (431) (562)
------ ------ ------(335) (458)
------- -------
Average basic shares outstanding 11,884 13,202 12,238 13,51710,865 12,556
Add: Effect of dilutive securities:
Stock options 228 166 132 22279 51
Incentive awards 138 137 131 154
------ ------ ------100 91
------- -------
Average diluted shares outstanding 12,250 13,505 12,501 13,893
====== ====== ======11,044 12,698
======= =======
Note 3. Comprehensive Income
- -----------------------------
For the three month periods ended September 30,March 31, 2000 and 1999 and 1998 total comprehensive
income, (loss), representing net income plus or minus items previously recorded directly
in equity, such as the change in unrealized gains or losses on securities
available for sale amounted to $64,000$2,237,000 and $(161,000), respectively.
For the nine months ended September 30, 1999 and 1998, total comprehensive
income amounted to $4,326,000 and $7,330,000,$4,116,000, respectively.
5
Note 4. Impact of Recent Accounting Pronouncements
- --------------------------------------------------
In October 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 134 "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise." This Statement amends FASB Statement 65
"Accounting for Certain Mortgage Banking Activities" to require that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold those
investments. This Statement is effective for the first fiscal quarter beginning
after December 15, 1998. The adoption of this Statement did not have a material
impact on the financial position or results of operations of the Company.
Note 5. Loans Receivable, Net
- -----------------------------
Loans receivable, net at September 30, 1999March 31, 2000 and December 31, 19981999 consisted of the
following (in thousands):
September 30, 1999March 31, 2000 December 31, 1998
------------------- ------------------1999
-------------- -----------------
Real estate:
One- to four-family $ 898,952928,944 $ 869,769917,481
Commercial real estate, multi-
family and land 55,666 42,00862,393 57,142
Construction 7,929 6,1086,616 7,791
Consumer 54,212 51,78557,231 56,040
Commercial 13,065 6,483
---------- ----------19,169 15,569
----------- -----------
Total loans 1,029,824 976,1531,074,353 1,054,023
Loans in process (3,046) (1,996)(2,987) (2,790)
Deferred fees (220) (608)(89) (78)
Unearned premium 47 6238 43
Allowance for loan losses (8,091) (7,460)
---------- ----------
Total loans, net 1,018,514 966,151
Less: mortgage loans held for sale 5,157 25,140(8,449) (8,223)
---------- ----------
Loans receivable, net $1,013,357 $ 941,011$1,062,866 $1,042,975
========== ==========
Note 6.5. Deposits
- ----------------
The major types of deposits at September 30, 1999March 31, 2000 and December 31, 19981999 were as
follows (in thousands):
September 30, 1999March 31, 2000 December 31, 1998
------------------1999
-------------- -----------------
Type of Account
- ---------------
Non-interest bearing $ 29,14338,594 $ 22,15431,328
NOW 108,627 106,363117,682 113,426
Money market deposit 78,026 77,69080,267 80,597
Savings 176,047 172,036172,111 171,064
Time deposits 653,034 657,008669,291 660,535
---------- ----------
$1,044,877 $1,035,251$1,077,945 $1,056,950
========== ==========
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Total assets at September 30, 1999March 31, 2000 were $1.580$1.589 billion, an increasea decrease of $18.2$1.6 million,
from $1.562compared to $1.591 billion at December 31, 1998.1999.
Loans receivable, net, increased by $72.3$19.9 million, or 7.7%1.9%, to a balance of
$1.013$1.063 billion at September 30, 1999,March 31, 2000, compared to a balance of $941.0 million$1.043 billion at
December 31, 1998.1999. The increase was largely attributable to strong residential
loan growth (including mortgage refinance activity) in the Bank's market area,
as well as commercial lending
(including commercial real estate) initiatives which accounted for $20.2$8.9 million
of this growth. During the first nine months
of 1999 the Bank sold $44.1Deposit balances increased $21.0 million of 30-year fixed-rate mortgage loans, $25.1
million of which were held for saleto $1.078 billion at
March 31, 2000 from $1.057 billion at December 31, 1998. At September 30,
1999, partly due to the
Bank has designated $5.2results of new branches opened in late 1999.
Stockholder's equity at March 31, 2000 was $159.3 million, of 30-year fixed-rate mortgage loans
as held for sale. The Bank periodically sells these loans as part of the
management of interest rate risk.
Securities sold under agreements to repurchase increased by $30.4 million to a
balance of $312.5 million at September 30, 1999, compared to a balance of $282.1$167.5
million at December 31, 1998. The borrowings were used to fund loan growth and
the Company's common stock repurchase programs.
Stockholder's equity at September 30, 1999 was $174.7 million, compared to
$197.7 million at December 31, 1998.1999. The Company repurchased 1,463,971620,600 shares of common
stock during the first nine months of 1999quarter for $25.0 million,
completing the 5% repurchase program announced in November 1998 and part of$9.8 million. Under the 10% repurchase program
announcedauthorized by the Board of Directors in July 1999. At September 30, 1999, 546,090January 2000, 641,492 shares remainedremain to
be purchased under the July 1999 repurchase program.as of March 31, 2000.
6
Results of Operations
General
Net income increased 4.3%, to $4.2$4.3 million for the three months ended September 30,
1999March 31,
2000 as compared to net income of $3.3$4.1 million for the three months ended September 30, 1998. ForMarch
31, 1999. Diluted earnings per share increased 18.2% to $.39 for the ninethree
months ended September 30, 1999 net income
increasedMarch 31, 2000, as compared to $12.3 million from $10.0 million$.33 for the nine months ended
September 30, 1998.same prior year period.
The higher percentage increase in earnings per share is the result of the
Company's repurchase program which reduced the number of shares outstanding.
Interest Income
Interest income for the three months ended September 30, 1999March 31, 2000 was $27.1$28.1 million,
compared to $26.5$26.0 million for the three months ended September 30, 1998,March 31, 1999, an increase
of $617,000. For the nine months ended September 30, 1999 interest
income was $79.7$2.1 million compared to $78.9reflecting a $45.0 million for the same prior year
period. The increases in interest income were due to increasesincrease in average interest-earning
assets and a higher average yield on those assets. The yield on average
interest-earning assets increased to 7.34% on average in the first quarter of
2000, from 7.01% on average in the first quarter of 1999. The asset yield
benefited from a change in the mix of average-earningaverage interest-earning assets towards a
higher concentration of loans receivable at the expensewith a corresponding reduction of
lower
yieldinglower-yielding investment and mortgage-backed securities. For the three and nine
months
ended September 30, 1999March 31, 2000 loans receivable represented 66.5% and 65.4%,
respectively,68.7% of average
interest-earning assets as compared to 59.2% and 57.4%,
respectively,64.6% for the same prior year periods. The increase in average interest-
earning assets for the nine months ended September 30, 1999 was partly offset by
a decline in the yield on average interest-earning assets, which declined to
7.04% on average from 7.14% on average in the same prior year period.
Interest Expense
Interest expense for the three months ended September 30, 1999March 31, 2000 was $14.8$15.4 million,
compared to $15.7$14.3 million for the three months ended September 30,
1998, a decreaseMarch 31, 1999, an increase
of $886,000,$1.1 million, or 5.7%8.0%. For the nine months ended September 30,
1999The increase in interest expense was $43.6 million compared to $46.1 million for the same
prior year period, a decrease of $2.5 million or 5.4%. The decreases in
interest expense were primarily the
result of decreasesan increase in the average cost of interest-bearing liabilities which
declinedrose to 4.37% and 4.36%, respectively,4.49% for the three and nine months ended September 30, 1999,March 31, 2000, as
7
compared to 4.79%4.38%
for both of the same prior year periods.period and an increase in average interest-bearing
liabilities which rose to $1.375 billion for the quarter ending March 31, 2000
as compared to $1.306 billion for the same prior year period. The significant
declineincrease in
funding costs more than offset increaseswas partly restrained, as compared to the larger increase in asset
yield, due to the Company's focus on lower costing core deposit growth. Core
deposits (including noninterest-bearing deposits) represented 37.7% of average
interest-bearing
deposits which rose by $45.0for the three months ended March 31, 2000, as compared to 36.4% for the
same prior year period.
Provision for Loan Losses
For the three months ended March 31, 2000, the Company's provision for loan
losses was $240,000, as compared to $225,000 for the same prior year period. The
Company's non-performing assets increased slightly to $3.4 million and $48.6at March 31,
2000 as compared to $3.3 million at March 31, 1999.
Other Income
Other income was $1.3 million for the three and nine
months ended September 30,March 31, 2000,
compared to $1.5 million for the same prior year period. The Company sold $27.1
million of 30-year fixed-rate loans for the three months ended March 31, 1999 respectively,at
a gain of $524,000, which completed a balance sheet restructuring begun in the
fourth quarter of 1998. For the three months ended March 31, 2000 the Company
sold $4.2 million of 30-year fixed-rate loans at a gain of $60,000. The Company
periodically sells these loans to assist in the management of interest rate
risk. Excluding the respective gains on the sale of loans, other income
increased by $249,000, or 24.4%, for the three months ended March 31, 2000 as
compared to the same prior year periods. The Company's focus on lower cost core deposit growth has
contributed to the decline in the cost of interest-bearing liabilities, as core
deposits represented 37.7% and 37.0%, respectively, of average interest-bearing
deposits for the three and nine months ended September 30, 1999, as compared to
34.5% and 34.1%, respectively, for the same prior year periods.
Provision for Loan Losses
For the three and nine months ended September 30, 1999, the Company's provision
for loan losses was $225,000 and $675,000, respectively, unchanged from the same
prior year periods. The Company's non-performing assets declined by $1.9
million at September 30, 1999 as compared to September 30, 1998 allowing for
stable provisions despite loan growth.
Other Income
Other income was $1.3 million and $3.9 million for the three and nine months
ended September 30, 1999, respectively, compared to $876,000 and $2.6 million,
respectively, for the same prior year periods.period. Fees and service charges increased by $297,000, or 47.8% and $923,000, or 55.5% for the three and nine
months ended September 30, 1999, respectively, as compared to the same prior
year periods due
to fees associated with the growth in commercial account services and retail core account balances as well asbalances.
The Company continues to focus on growing non-interest revenue with the additionrecent
introduction of fee income
from the sale of alternative investment products, namely mutual fundsTrust and annuities, introduced late in the second quarter of 1998. This product category
was further expanded in the first quarter of 1999 to include life and long-term
care insurance. The total fees relating to the sale of alternative investment
products amounted to $166,000 and $455,000 for the three and nine months ended
September 30, 1999, respectively, as compared to $40,000 and $42,000,
respectively, for the corresponding prior year periods.
For the nine months ended September 30, 1999, the Company sold $44.1 million in
30-year fixed-rate mortgage loans at a gain of $551,000 as compared to the sale
of $16.1 million at a gain of $221,000 in the same prior year period.Asset Management services.
Operating Expenses
Operating expenses were $6.8$7.2 million and $20.1 million for the three and nine
months ended September 30, 1999, respectively, compared to $6.3 million and
$19.0 million, respectively, for the same prior year periods. The increase for the three months ended September 30, 1999March 31, 2000,
an increase of $602,000 as compared to the same prior year periodperiod. The increase
was primarilyprincipally due to marketing and other expenses related to the Bank's
branding initiative as well as the operating costs associated with the opening of the Bank's
twelfth and thirteenth branch office openedoffices in September and October 1999 and expenses associated with readying the
Bank's data processing systems for the Year 2000. The increase for the nine
months ended September 30, 1999, as compared to the same prior year period was
attributable to the above items as well as expenses relating to the
introduction of the Company's Trust and Asset Management business line. These
increases were partly offset by a $100,000 decrease in Federal Deposit insurance
due to a decline in the assessment rate for members, such as the Bank, of the
Savings Association Insurance Fund.
7
Provision for Income Taxes
Income tax expense was $2.4$2.2 million and $6.9 million for the three and nine
months ended September 30, 1999, respectively, compared to $1.8 million and $5.7
million, respectively, for the three and nine months ended September 30, 1998.
The effective tax rate increased slightly to 36.1% for the three months ended September 30, 1999,March 31, 2000,
compared to $2.3 million for the same prior year period. The effective tax rate
declined to 34.0% for the three months ended March 31, 2000, as compared to
35.6%35.8% for the same prior year period while
declining slightlypartly due to 35.9% foran increase in the nine months ended September 30, 1999, as
compared to 36.2% for the same prior year period.nontaxable
income from Bank Owned Life Insurance.
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.
8
At September 30, 1999,March 31, 2000, the Company had $30.0$23.0 million of outstanding overnight
borrowings from the FHLB, an increase from no change from the balanceovernight borrowings at December
31, 1998.1999. The Company utilizes the overnight line from time to time to fund
short-term liquidity needs. The Company also borrowed $312.5had other borrowings of $316.4
million at September 30, 1999
through securities sold under agreements to repurchase, an increaseMarch 31, 2000, a decrease from $282.1$354.9 million at December 31, 1998.1999.
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, 1999,March 31, 2000, were
primarily provided by maturities of investment securities available for sale, principal payments on loans and mortgage-backed securities
borrowings through
securities sold under agreements to repurchase and proceeds from the sale of
mortgage loans held for sale.increased deposits. The cash was principally utilized for loan originations,
purchases of investment and mortgage-backed securitiesa reduction in total borrowings and the purchase of treasury stock. For the
ninethree months ended September 30, 1998,March 31, 1999, 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 deposits including a deposit acquisition.borrowings. The cash provided was
principally used for the purchase of investment and mortgage-backed securities,
the origination of loans 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, 1999March 31, 2000 and December 31, 1998,1999, the Bank's liquidity
ratios were 9.8%7.5% and 12.5%8.9%, respectively, both in excess of the minimum
regulatory requirement.
At September 30, 1999,March 31, 2000, the Bank exceeded all of its regulatory capital requirements
with tangible capital of $157.0$125.3 million, or 9.92%7.8%, of total adjusted assets,
which is above the required level of $23.7$24.0 million or 1.5%; core capital of
$157.0$125.3 million or 9.92%7.8% of total adjusted assets, which is above the required
level of $47.4$48.0 million, or 3.0%; and risk-based capital of $164.9$133.7 million, or
20.4%15.7% of risk-weighted assets, which is above the required level of $64.5$68.0
million or 8.0%. The Bank is considered a "well capitalized" institution under
the Office of Thrift Supervision's prompt corrective action regulations.
8
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, 1999March
31, 2000 or December 31, 1998.1999. 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,March 31, December 31,
2000 1999
1998
-------------- ---------------------- ------------
(dollars in thousands)
Non-accrual loans:
Real estate:
One-to four-family $ 3,456 $ 4,605$2,710 $2,401
Commercial real estate,
multi-family and land - 362
574
Consumer 212 245
Commercial loans 37 -
------- -------150 222
------ ------
Total 4,067 5,4242,860 2,985
REO, net 402 43
------- -------527 292
------ ------
Total non-performing assets $ 4,469 $ 5,467
======= =======$3,387 $3,277
====== ======
Non-performing loans as a percent of total
loans receivable .27% .28%
Non-performing assets as a percent of total
assets .21 .21
Allowance for loan losses as a percent of
total loans receivable .79 .78
Allowance for loan losses as percent of
total non-performing loans 295.42 275.48
9
Non-performing loans as a percent of total
loans receivable .39% .56%
Non-performing assets as a percent of total
assets .28% .35%
Allowance for loan losses as a percent of
total loans receivable .79% .76%
Allowance for loan losses as percent of
total non-performing loans 198.94% 137.54%
Impact of Year 2000
Beginning in April 1997 the Company formally began to address the Year 2000
issue. A project plan was constructed to follow the guidelines set forth by the
Federal Financial Institutions Examination Council (FFIEC). The guidelines
mandate that the Year 2000 project address five specific phases: awareness,
assessment, renovation, validation(testing), and implementation. The Company has
completed all five phases of the project thereby meeting all regulatory
guidelines.
The Company continues to work closely with its data processing agent and the
primary provider of mission critical systems, BISYS Incorporated. Testing of all
BISYS functions has been successfully completed and reviewed by an independent
third-party. The Company continues to revalidate BISYS systems and hardware and
will closely monitor BISYS' progress in insuring their systems function
correctly into the Year 2000. All other primary service providers have completed
reprogramming and testing of their mission critical systems and the Company has
validated those test results. The Company will continue to solicit information
from all of its vendors to monitor possible changes in their Year 2000
preparations and readiness.
The focus of the Year 2000 project for the remainder of 1999 will be directed
towards customer awareness, contingency planning, and liquidity planning. The
extensive customer outreach program which the Company has initiated will
continue through the remainder of the year. The outreach program provides the
Company with the ability to disseminate pertinent Year 2000 information through
the use of awareness seminars, civic organization presentations, Y2K hotline
updates, Internet web site updates, newspaper advertising and direct mail
communications to Bank customers. The Company's contingency programs will
continue to be reviewed and tested during the remaining months of the year.
Liquidity plans have been completed to ensure that the Company will have access
to necessary funds to meet customer's needs. These plans will be implemented
during the months of October through December.
The Company continues to monitor potential credit risk associated with Year
2000. Significant borrowers in the Residential and Commercial Loan portfolios
have been assessed to determine an appropriate risk rating. On an ongoing basis,
the Company will monitor the progress of these borrowers towards Year 2000
compliance.
Expenses related to the Company's Year 2000 effort for the nine months ended
September 30, 1999 totaled $360,000. These expenses consist of $229,000 in costs
associated with the renovation of software, hardware and consulting charges and
$131,000 representing an estimate of the direct cost for compensation and fringe
benefits of internal employees working on the Year 2000 project. The Bank
expects to complete the Y2K program within the allocated 1999 budget of $400,000
to $600,000, including $175,000 to $225,000 for the direct cost of internal
employees. Estimated expenses and completion dates associated with this project
are based upon all known facts and available resources. The Company expects that
the represented estimates will not change materially, but there can be no
guarantee that the estimates will be achieved. Factors that may influence
changes in estimates include, but are not limited to, expenses associated with
obtaining qualified personnel, ability to correctly identify and renovate all
functions related to the Year 2000 and other similar items.
The Company believes that it is taking all reasonable steps to prepare for the
Year 2000, especially in the case of mission critical functions. However,
management cannot make representations that all systems and especially those of
significant third parties will be Year 2000 compliant or that they will not be
adversely affected by Year 2000 issues.
The above communication is a Year 2000 Readiness Disclosure as defined in the
Year 2000 Information and Readiness Act.
10
Impact of Pending Legislation
Pending legislation designed to modernize the regulation of the financial
services industry expands the ability of bank holding companies to affiliate
with other types of financial services companies such as insurance companies and
investment banking companies. However, the legislation provides that companies
that acquire control of a single savings association after May 4, 1999 (or that
filed an application for that purpose after that date) are not entitled to the
unrestricted activities formerly allowed for a unitary savings and loan holding
company. Rather, these companies will have the authority to engage in the
activities permitted "a financial holding company" under the new legislation,
including insurance and securities-related activities and the activities
currently permitted for multiple savings and loan holding companies, but
generally not in commercial activities. The authority for unrestricted
activities is grandfathered for unitary savings and loan holding companies, such
as the Company, that existed prior to May 4, 1999. However, the authority for
unrestricted activities would not apply to any company that acquired the
Company.
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 19981999 Form 10-K.
9
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, 1999March 31, 2000 was negative 13.5%14.2% as compared to
negative 10.6%11.8% at December 31, 1998.1999. 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, 1999March 31, 2000 and December 31, 1998.1999. 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 Company's
Annual Report for the year ended December 31, 1998.1999.
At September 30,March 31, 2000, the Company's NPV in a static rate environment is less than
the NPV at December 31, 1999, reflecting the Company's declining capital levels
resulting from common stock repurchase programs. Also, in a shocked interest
rate environment, the Company projects a greater percent change in NPV at March
31, 2000 than was the case at December 31, 1999. The heightened interest rate
sensitivity is primarily due to the declining capital base which accentuates, on
a percentage basis, similar dollar changes in NPV. Additionally, the generally
higher interest rates in effect for fixed
rate environment reduces anticipated prepayment speeds on
mortgage loans reduced prepayment activity in the Company's loans
receivable and mortgage-backed securities portfolios, effectively extendingand reduces the average lives of the loans and securities.likelihood that a
callable security is called before its stated maturity date.
September 30, 1999March 31, 2000 December 31, 1998
------------------------------------------------------ --------------------------------------------------------1999
------------------------------------------------------- -------------------------------------------------------
Net Portfolio Value Net Interest Income Net Portfolio Value Net Interest Income
- -------------------------------------------------------------------- -------------------------- ---------------------------------------------------------------------------------------------------- -------------------------------------------------------
Change in
Interest Rates
in Basis Points NPV NPV
(Rate Shock) Amount % Change Ratio Amount % Change Amount % Change Ratio Amount % Change
- -------------------------------------------- --------------------- ----------------------------- --------------------------------------------------------------------------------------------------- -------------------------------------------------------
(dollars in
thousands)
300 $119,862 (44.0)$ 92,935 (48.7)% 6.6% $40,713 (13.4)% $119,838 (40.0)% 8.4% $44,750 (11.0)% $170,890 (30.1)% 11.8% $43,131 (10.6)$44,212 (9.3)%
200 158,932 (25.8) 10.8 47,160 (6.3) 202,431 (17.2) 13.5 45,347 (6.0)127,895 (29.4) 8.8 43,175 (8.2) 151,710 (24.0) 10.3 46,123 (5.3)
100 189,779 (11.4) 12.4 49,081 (2.4) 225,510 (7.8) 14.7 46,979 (2.7)158,211 (12.6) 10.5 45,446 (3.4) 179,446 (10.1) 11.8 47,765 (2.0)
Static 214,129181,052 - 13.6 50,30411.7 47,030 - 244,538199,646 - 15.5 48,26012.8 48,724 -
(100) 232,848 8.7 14.5 51,131 1.6 256,618 4.9 15.9 49,023 1.6197,936 9.3 12.5 48,185 2.5 213,252 6.8 13.3 49,251 1.1
(200) 243,137 13.5 14.8 51,235 1.9 261,974 7.1 15.9 49,392 2.3205,586 13.6 12.7 48,646 3.4 217,678 9.0 13.4 48,927 1.4
(300) 249,203 16.4 14.9 50,656 .7 264,595 8.2 15.9 49,336 2.2207,059 14.4 12.6 48,339 2.8 216,809 8.6 13.2 47,865 (1.8)
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 on April 19, 2000.
The following directors were elected for terms of three years:
Carl Feltz, Jr., Robert E. Knemoller and Diane F. Rhine. The
following proposals were voted on by the stockholders:
Withheld/ Broker
Proposal For Abstain Non-Votes
-------- --- ------- ---------
1) Election of Directors:
Carl Feltz, Jr. 9,994,273 754,294 0
Robert E. Knemoller 9,994,823 753,744 0
Diane F. Rhine 9,994,823 753,744 0
Withheld/ Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
2) Approval of the OceanFirst
Financial Corp. 2000
Stock Option Plan 6,639,603 1,677,543 62,543 2,368,878
Withheld/ Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
3) Ratification of KPMG LLP
as independent auditors for the
Company for the year ending
December 31, 2000 10,700,510 17,788 30,269 0
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 September 30, 1999March 31, 2000
* 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.
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: NovemberMay 9, 19992000 /s/ John R. Garbarino
---------------------------------------------------------------------------
John R. Garbarino
Chairman of the Board, President
and Chief Executive Officer
DATE: NovemberMay 9, 19992000 /s/ Michael Fitzpatrick
---------------------------------------------------------------------------
Michael Fitzpatrick
Executive Vice President and
Chief Financial Officer
1312