UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 


 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended JuneSeptember 30, 2005

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period fromto            

 

Commission file number 0-27428

 


 

OceanFirst Financial Corp.

(Exact name of registrant as specified in its charter)

 


 

Delaware 22-3412577

(State or other jurisdiction of

(I.R.S. Employer Identification No.)
incorporation or organization)

 

(I.R.S. Employer

Identification No.)

975 Hooper Avenue, Toms River, NJ 08754-2009
(Address of principal executive offices) (Zip Code)

 

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

 

 

(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  ¨.

 

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

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

 

As of August 3,November 1, 2005, there were 12,755,01112,732,782 shares of the Registrant’s Common Stock, par value $.01 per share, outstanding.

 



OceanFirst Financial Corp.

 

INDEX TO FORM 10-Q

 

      

PAGE



PART I.  FINANCIAL INFORMATION   
Item 1.  Consolidated Financial Statements (Unaudited)   
   Consolidated Statements of Financial Condition as of JuneSeptember 30, 2005 and December 31, 2004  1
   Consolidated Statements of Income for the three and sixnine months ended JuneSeptember 30, 2005 and 2004  2
   Consolidated Statements of Changes in Stockholders’ Equity for the sixnine months ended JuneSeptember 30, 2005 and 2004  3
   Consolidated Statements of Cash Flows for the sixnine months ended JuneSeptember 30, 2005 and 2004  4
   Notes to Unaudited Consolidated Financial Statements  6
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations  8
Item 3.  Quantitative and Qualitative Disclosures About Market Risk  15
Item 4.  Disclosure Controls and Procedures  16
PART II.  OTHER INFORMATION   
Item 1.  Legal Proceedings  1617
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds  1617
Item 3.  Defaults Upon Senior Securities  1617
Item 4.  Submission of Matters to a Vote of Security Holders  1617
Item 5.  Other Information  17
Item 6.  Exhibits  1718
Signatures  1718


OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in thousands, except per share amounts)

 

  

June 30,

2005


 December 31,
2004


   

September 30, 

2005


 December 31,
2004


 
  (Unaudited)     (Unaudited)   
ASSETS      

Cash and due from banks

  $45,832  $74,021   $31,614  $74,021 

Investment securities available for sale

   85,412   83,960    84,507   83,960 

Federal Home Loan Bank of New York stock, at cost

   19,500   21,250    19,450   21,250 

Mortgage-backed securities available for sale

   105,687   124,478    92,571   124,478 

Loans receivable, net

   1,573,554   1,472,907    1,618,304   1,472,907 

Mortgage loans held for sale

   71,985   63,961    66,240   63,961 

Interest and dividends receivable

   6,860   6,033    7,360   6,033 

Real estate owned, net

   288   288    278   288 

Premises and equipment, net

   15,795   16,037    15,521   16,037 

Servicing asset

   9,356   8,790    9,671   8,790 

Bank Owned Life Insurance

   35,525   34,990    35,846   34,990 

Intangible Assets

   1,324   1,376 

Intangible assets

   1,298   1,376 

Other assets

   6,646   6,184    6,893   6,184 
  


 


  


 


Total assets

  $1,977,764  $1,914,275   $1,989,553  $1,914,275 
  


 


  


 


LIABILITIES AND STOCKHOLDERS’ EQUITY      

Deposits

  $1,357,161  $1,270,535   $1,369,414  $1,270,535 

Securities sold under agreements to repurchase with retail customers

   64,158   45,072    67,727   45,072 

Securities sold under agreements to repurchase with the Federal Home Loan Bank

   69,000   106,000    59,000   106,000 

Federal Home Loan Bank advances

   321,000   312,000    330,000   312,000 

Subordinated debenture

   5,000   —   

Advances by borrowers for taxes and insurance

   8,760   6,289    8,517   6,289 

Other liabilities

   22,399   36,423    13,359   36,423 
  


 


  


 


Total liabilities

   1,842,478   1,776,319    1,853,017   1,776,319 
  


 


  


 


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, 27,177,372 shares issued and 12,742,633 and 13,024,204 shares outstanding at June 30, 2005 and December 31, 2004, respectively

   272   272 

Common stock, $.01 par value, 55,000,000 shares authorized, 27,177,372 shares issued and 12,720,732 and 13,024,204 shares outstanding at September 30, 2005 and December 31, 2004, respectively

   272   272 

Additional paid-in capital

   195,915   193,723    196,924   193,723 

Retained earnings

   160,866   157,575    162,450   157,575 

Accumulated other comprehensive loss

   (1,011)  (667)   (1,256)  (667)

Less: Unallocated common stock held by Employee Stock Ownership Plan

   (8,061)  (8,652)

Treasury stock, 14,434,739 and 14,153,168 shares at June 30, 2005 and December 31, 2004, respectively

   (212,695)  (204,295)

Less: Unallocated common stock held by

   

Employee Stock Ownership Plan

   (7,766)  (8,652)

Treasury stock, 14,456,640 and 14,153,168 shares at September 30, 2005 and December 31, 2004, respectively

   (214,088)  (204,295)

Common stock acquired by Deferred Compensation Plan

   1,365   986 

Deferred Compensation Plan Liability

   (1,365)  (986)
  


 


  


 


Total stockholders’ equity

   135,286   137,956    136,536   137,956 
  


 


  


 


Total liabilities and stockholders’ equity

  $1,977,764  $1,914,275   $1,989,553  $1,914,275 
  


 


  


 


 

See accompanying Notes to Unaudited Consolidated Financial Statements.


OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

  For the three months
ended June 30,


 For the six months
ended June 30,


  

For the three months

ended September 30,


 For the nine months
ended September 30,


 
  2005

  2004

 2005

 2004

  2005

  2004

 2005

  2004

 
  (Unaudited) (Unaudited)  (Unaudited) (Unaudited) 

Interest income:

               

Loans

  $22,757  $20,405  $44,530  $40,593  $24,222  $21,355  $68,752  $61,949 

Mortgage-backed securities

   967   1,194   2,061   2,050   897   1,170   2,959   3,220 

Investment securities and other

   1,136   546   2,591   1,532   1,209   662   3,799   2,194 
  

  


 


 

  

  


 

  


Total interest income

   24,860   22,145   49,182   44,175   26,328   23,187   75,510   67,363 
  

  


 


 

  

  


 

  


Interest expense:

               

Deposits

   5,326   3,490   10,018   6,976   6,056   3,948   16,074   10,925 

Borrowed funds

   4,605   5,147   9,058   9,931   4,862   4,969   13,921   14,900 
  

  


 


 

  

  


 

  


Total interest expense

   9,931   8,637   19,076   16,907   10,918   8,917   29,995   25,825 
  

  


 


 

  

  


 

  


Net interest income

   14,929   13,508   30,106   27,268   15,410   14,270   45,515   41,538 

Provision for loan losses

   200   50   250   100   100   50   350   150 
  

  


 


 

  

  


 

  


Net interest income after provision for loan losses

   14,729   13,458   29,856   27,168   15,310   14,220   45,165   41,388 
  

  


 


 

  

  


 

  


Other income:

               

Loan servicing income

   60   83   101   145   47   125   148   271 

Fees and service charges

   2,388   2,084   4,570   4,020   2,406   2,150   6,976   6,171 

Net gain on sales of loans available for sale

   3,204   2,028   6,544   4,359

Net gain on sales of loans and securities available for sale

   3,535   2,414   10,079   6,772 

Net loss from other real estate operations

   —     (3)  (1)  —     —     (3)  —     (3)

Income from Bank Owned Life Insurance

   262   315   535   645   321   260   856   905 

Other

   4   6   42   13   5   5   47   17 
  

  


 


 

  

  


 

  


Total other income

   5,918   4,513   11,791   9,182   6,314   4,951   18,106   14,133 
  

  


 


 

  

  


 

  


Operating expenses:

               

Compensation and employee benefits

   7,484   6,494   15,013   13,183   8,206   6,614   23,219   19,797 

Occupancy

   1,106   919   2,175   1,793   1,109   963   3,284   2,756 

Equipment

   641   540   1,275   1,084   659   659   1,934   1,743 

Marketing

   764   442   1,463   645   750   603   2,213   1,248 

Federal deposit insurance

   128   120   253   240   126   118   379   358 

Data processing

   773   735   1,556   1,470   857   753   2,413   2,223 

General and administrative

   2,261   2,428   4,791   4,694   2,485   2,565   7,276   7,259 
  

  


 


 

  

  


 

  


Total operating expenses

   13,157   11,678   26,526   23,109   14,192   12,275   40,718   35,384 
  

  


 


 

  

  


 

  


Income before provision for income taxes

   7,490   6,293   15,121   13,241   7,432   6,896   22,553   20,137 

Provision for income taxes

   2,615   2,272   5,300   4,741   2,602   2,444   7,902   7,185 
  

  


 


 

  

  


 

  


Net income

  $4,875  $4,021  $9,821  $8,500  $4,830  $4,452  $14,651  $12,952 
  

  


 


 

  

  


 

  


Basic earnings per share

  $0.41  $0.33  $0.83  $0.70  $0.41  $0.37  $1.24  $1.07 
  

  


 


 

  

  


 

  


Diluted earnings per share

  $0.40  $0.32  $0.80  $0.67  $0.40  $0.35  $1.20  $1.02 
  

  


 


 

  

  


 

  


Average basic shares outstanding

   11,818   12,158   11,892   12,161   11,793   12,096   11,859   12,139 
  

  


 


 

  

  


 

  


Average diluted shares outstanding

   12,194   12,656   12,315   12,716   12,184   12,634   12,251   12,686 
  

  


 


 

  

  


 

  


 

Seeaccompanying Notes to Unaudited Consolidated Financial Statements.

See accompanying Notes to Unaudited Consolidated Financial Statements.

OceanFirst Financial Corp.

Consolidated Statements of

Changes in Stockholders’ Equity(Unaudited)

(in thousands, except per share amounts)

 

  Common
Stock


  

Additional

Paid-In

Capital


  Retained
Earnings


 

Accumulated

Other
Comprehensive
Loss


 

Employee

Stock

Ownership

Plan


 

Treasury

Stock


 Total

   Common
Stock


  

Additional

Paid-In

Capital


  Retained
Earnings


 

Accumulated

Other
Comprehensive
Loss


 

Employee

Stock

Ownership

Plan


 

Treasury

Stock


 Common Stock
Acquired by
Deferred
Compensation
Plan


  Deferred
Compensation
Plan Liability


 Total

 

Balance at December 31, 2003

  $272  $189,615  $150,804  $(3,400) $(9,911) $(192,718) $134,662   $272  $189,615  $150,804  $(3,400) $(9,911) $(192,718) $563  $(563) $134,662 
         


            


Comprehensive income:

                     

Net income

   —     —     8,500   —     —     —     8,500    —     —     12,952   —     —     —     —     —     12,952 

Other comprehensive income:

                     

Unrealized gain on securities (net of tax expense $645)

   —     —     —     936   —     —     936 

Unrealized gain on securities (net of tax expense $1,767)

   —     —     —     2,558   —     —     —     —     2,558 

Reclassification adjustment for gains included in net income (net of tax expense of $65)

   —     —     —     121   —     —     —     —     121 
         


            


Total comprehensive income

          9,436              15,631 
         


            


Tax benefit of stock plans

   —     1,373   —     —     —     —     1,373    —     1,494   —     —     —     —     —     —     1,494 

Purchase 392,254 shares of common stock

   —     —     —     —     —     (9,485)  (9,485)

Purchase 558,423 shares of common stock

   —     —     —     —     —     (13,374)  —     —     (13,374)

Allocation of ESOP stock

   —     —     —     —     630   —     630    —     —     —     —     944   —     —     —     944 

ESOP adjustment

   —     1,173   —     —     —     —     1,173    —     1,721   —     —     —     —     —     —     1,721 

Cash dividend - $.40 per share

   —     —     (4,879)  —     —     —     (4,879)

Cash dividend - $.60 per share

   —     —     (7,294)  —     —     —     —     —     (7,294)

Exercise of stock options

   —     —     (1,175)  —     —     3,753   2,578    —     —     (1,439)  —     —     4,534   —     —     3,095 

Purchase of stock for the deferred compensation plan

   —     —     —     —     —     —     414   (414)  —   
  

  

  


 


 


 


 


  

  

  


 


 


 


 

  


 


Balance at June 30, 2004

  $272  $192,161  $153,250  $(2,464) $(9,281) $(198,450) $135,488 

Balance at September 30, 2004

  $272  $192,830  $155,023  $(721) $(8,967) $(201,558) $977  $(977) $136,879 
  

  

  


 


 


 


 


  

  

  


 


 


 


 

  


 


Balance at December 31, 2004

  $272  $193,723  $157,575  $(667) $(8,652) $(204,295) $137,956   $272  $193,723  $157,575  $(667) $(8,652) $(204,295) $986  $(986) $137,956 
         


            


Comprehensive income:

                     

Net income

   —     —     9,821   —     —     —     9,821    —     —     14,651   —     —     —     —     —     14,651 

Other comprehensive income:

                     

Unrealized loss on securities (net of tax benefit $237)

   —     —     —     (344)  —     —     (344)

Unrealized loss on securities (net of tax benefit $405)

   —     —     —     (589)  —     —     —     —     (589)
         


            


Total comprehensive income

          9,477              14,062 
         


            


Stock award

   —     103   —     —     —     103    —     103   —     —     —     —     —     103 

Tax benefit of stock plans

   —     1,089   —     —     —     —     1,089    —     1,561   —     —     —     —        1,561 

Purchase 504,013 shares of common stock

   —     —     —     —     —     (11,586)  (11,586)

Purchase 611,566 shares of common stock

   —     —     —     —     —     (14,096)  —     —     (14,096)

Allocation of ESOP stock

   —     —     —     —     591   —     591    —     —     —     —     886   —     —     —     886 

ESOP adjustment

   —     1,000   —     —     —     —     1,000    —     1,537   —     —     —     —     —     —     1,537 

Cash dividend - $.40 per share

   —     —     (4,775)  —     —     —     (4,775)

Cash dividend - $.60 per share

   —     —     (7,120)  —     —     —        (7,120)

Exercise of stock options

   —     —     (1,755)  —     —     3,186   1,431    —     —     (2,656)  —     —     4,303   —     —     1,647 
  

  

  


 


 


 


 


  

         

Balance at June 30, 2005

  $272  $195,915  $160,866  $(1,011) $(8,061) $(212,695) $135,286 

Purchase of stock for the deferred compensation plan

   —     —     —     —     —     —     379   (379)  —   
  

  

  


 


 


 


 


  

  

  


 


 


 


 

  


 


Balance at September 30, 2005

  $272  $196,924  $162,450  $(1,256) $(7,766) $(214,088) $1,365  $(1,365) $136,536 
  

  

  


 


 


 


 

  


 


 

See accompanying Notes to Unaudited Consolidated Financial Statements.

OceanFirst Financial Corp.

Consolidated Statements of Cash Flows

(dollars in thousands)

 

  

For the six months

ended June 30,


   

For the nine months

ended September 30,


 
  2005

 2004

   2005

 2004

 
  (Unaudited)   (Unaudited) 

Cash flows from operating activities:

      

Net income

  $9,821  $8,500   $14,651  $12,952 
  


 


  


 


Adjustments to reconcile net income to net cash used in operating activities:

      

Depreciation and amortization of premises and equipment

   1,027   1,012    1,534   1,534 

Amortization of ESOP

   591   630    886   944 

ESOP adjustment

   1,000   1,173    1,537   1,721 

Tax benefit of stock plans

   1,089   1,373    1,561   1,494 

Stock award

   103   —      103   —   

Amortization of servicing asset

   1,123   947    1,719   1,377 

Amortization of intangible assets

   52   53    78   79 

Net premium amortization in excess of discount accretion on securities

   471   625    655   983 

Net amortization of deferred fees and discounts on loans

   317   128    312   70 

Provision for loan losses

   250   100    350   150 

Net gain on sales of real estate owned

   —     (5)   —     (5)

Net gain on sale of fixed assets

   (28)  —      (28)  —   

Net gain on sales of loans

   (6,544)  (4,359)

Net gain on sales of loans and securities

   (10,079)  (6,772)

Proceeds from sales of mortgage loans held for sale

   333,185   172,933    549,413   322,888 

Mortgage loans originated for sale

   (336,354)  (195,581)   (544,213)  (360,251)

Increase in value of Bank Owned Life Insurance

   (535)  (645)   (856)  (905)

Death benefit on Bank Owned Life Insurance

   —     213 

Increase in interest and dividends receivable

   (827)  (757)   (1,327)  (1,213)

Increase in other assets

   (224)  (770)   (304)  (393)

Decrease in other liabilities

   (14,026)  (385)

(Decrease) increase in other liabilities

   (23,064)  6,324 
  


 


  


 


Total adjustments

   (19,330)  (23,528)   (21,723)  (31,762)
  


 


  


 


Net cash used in operating activities

   (9,509)  (15,028)   (7,072)  (18,810)
  


 


  


 


Cash flows from investing activities:

      

Net increase in loans receivable

   (101,214)  (34,258)   (146,059)  (73,972)

Proceeds from sale of investment securities available for sale

   —     546 

Purchase of investment securities available for sale

   (2,043)  (802)   (4,427)  (802)

Purchase of mortgage-backed securities available for sale

   —     (82,844)   —     (82,844)

Proceeds from maturities of investment securities available for sale

   —     1,755    3,670   2,116 

Principal payments on mortgage-backed securities available for sale

   18,331   21,112    30,468   33,540 

Decrease (increase) in Federal Home Loan Bank of New York stock

   1,750   (4,540)   1,800   (4,065)

Proceeds from sales of real estate owned

   —     257    10   257 

Proceeds from sale of fixed assets

   49   —      49   —   

Purchases of premises and equipment

   (806)  (725)   (1,039)  (1,201)
  


 


  


 


Net cash used in investing activities

   (83,933)  (100,045)   (115,528)  (126,425)
  


 


  


 


 

Continued

OceanFirst Financial Corp.

Consolidated Statements of Cash Flows (Continued)

(dollars in thousands)

 

  For the six months
ended June 30,


   

For the nine months

ended September 30,


 
  2005

 2004

   2005

 2004

 
  (Unaudited)   (Unaudited) 

Cash flows from financing activities:

      

Increase in deposits

  $86,626  $43,458   $98,879  $89,072 

Increase in short-term borrowings

   38,086   13,246    47,655   14,183 

Proceeds from securities sold under agreements to repurchase with the Federal Home Loan Bank

   —     40,000    —     44,000 

Repayments from securities sold under agreements to repurchase with the Federal Home Loan Bank

   (11,000)  (6,000)   (11,000)  (12,000)

Proceeds from Federal Home Loan Bank advances

   24,000   74,000    34,000   110,000 

Repayments of Federal Home Loan Bank advances

   (60,000)  (26,000)   (77,000)  (80,000)

Proceeds from subordinated debenture

   5,000   —   

Increase in advances by borrowers for taxes and insurance

   2,471   792    2,228   224 

Exercise of stock options

   1,431   2,578    1,647   3,095 

Dividends paid

   (4,775)  (4,879)   (7,120)  (7,294)

Purchase of treasury stock

   (11,586)  (9,485)   (14,096)  (13,374)
  


 


  


 


Net cash provided by financing activities

   65,253   127,710    80,193   147,906 
  


 


  


 


Net (decrease) increase in cash and due from banks

   (28,189)  12,637    (42,407)  2,671 

Cash and due from banks at beginning of period

   74,021   36,172    74,021   36,172 
  


 


  


 


Cash and due from banks at end of period

  $45,832  $48,809   $31,614  $38,843 
  


 


  


 


Supplemental Disclosure of Cash Flow Information:

   

Supplemental Disclosure of Cash Flow

   

Information:

   

Cash paid during the period for:

      

Interest

  $19,421  $16,615   $30,524  $25,743 

Income taxes

   9,033   7,163    17,019   7,274 

Non cash activities:

      

Transfer of loans receivable to real estate owned

   —     320 

Transfer of securities sold under agreements to repurchase to advances

   26,000   10,000    36,000   10,000 

Mortgage loans securitized into mortgage-backed securities

  $—    $15,807 
  


 


  


 


 

See accompanying Notes to Unaudited Consolidated Financial Statements.

OceanFirst Financial Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Summary of Significant Accounting Policies

 

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 Home Loans, LLC, OceanFirst REIT Holdings, Inc. and OceanFirst Services, LLC.

 

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 sixnine months ended JuneSeptember 30, 2005 are not necessarily indicative of the results of operations that may be expected for all of 2005.

 

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 (the “SEC”).

 

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, 2004.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation using the intrinsic value method under Accounting Principles Board Opinion No. 25 and accordingly has recognized no compensation expense under this method. Statement of Financial Accounting Standard No. 123, “Accounting for Stock-based Compensation” as amended by Statement of Financial Accounting Standard No. 148, “Accounting for Stock-based Compensation-Transition and Disclosure”, permits the use of the intrinsic value method; however, the amended statement requires the Company to disclose the pro forma net income and earnings per share as if the stock-based compensation had been accounted for using the fair value method. Had the compensation costs for the Company’s stock option plan been determined based on the fair value method, the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):

 

  Three months ended
June 30,


 Six months ended
June 30,


   Three months ended
September 30,


 

Nine months ended

September 30,


 
  2005

 2004

 2005

 2004

   2005

 2004

 2005

 2004

 

Net income – as reported

  $4,875  $4,021  $9,821  $8,500   $4,830  $4,452  $14,651  $12,952 
  


 


 


 


  


 


 


 


Stock-based compensation expense included in reported net income, net of related tax effects

   15   —     67   —      —     —     67   —   

Total stock-based compensation expense determined under the fair value based method, net of related tax effects

   (186)  (135)  (407)  (255)   (171)  (166)  (578)  (413)
  


 


 


 


  


 


 


 


Net stock-based compensation expense not included in reported net income, all relating to stock option grants, net of related tax effects.

   (171)  (135)  (340)  (255)   (171)  (166)  (511)  (413)
  


 


 


 


  


 


 


 


Net income – pro forma

  $4,704  $3,886  $9,481  $8,245   $4,659  $4,286  $14,140  $12,539 
  


 


 


 


  


 


 


 


Basic earnings per share:

      

As reported

  $.41  $.33  $.83  $.70   $.41  $.37  $1.24  $1.07 
  


 


 


 


  


 


 


 


Pro forma

  $.40  $.32  $.80  $.68   $.40  $.35  $1.19  $1.03 
  


 


 


 


  


 


 


 


Diluted earnings per share:

      

As reported

  $.40  $.32  $.80  $.67   $.40  $.35  $1.20  $1.02 
  


 


 


 


  


 


 


 


Pro forma

  $.39  $.31  $.77  $.65   $.38  $.34  $1.15  $.99 
  


 


 


 


  


 


 


 


Earnings per Share

 

The following reconciles shares outstanding for basic and diluted earnings per share for the three and sixnine months ended JuneSeptember 30, 2005 and 2004 (in thousands):

 

  Three months ended
June 30,


 Six months ended
June 30,


   

Three months ended

September 30,


 

Nine months ended

September 30,


 
  2005

 2004

 2005

 2004

   2005

 2004

 2005

 2004

 

Weighted average shares issued net of Treasury shares

  12,810  13,309  12,905  13,333   12,748  13,208  12,852  13,291 

Less: Unallocated ESOP shares

  (974) (1,119) (991) (1,138)  (939) (1,082) (974) (1,119)

Unallocated incentive award shares

  (18) (32) (22) (34)  (16) (30) (19) (33)
  

 

 

 

  

 

 

 

Average basic shares outstanding

  11,818  12,158  11,892  12,161   11,793  12,096  11,859  12,139 

Add: Effect of dilutive securities:

      

Stock options

  361  473  406  528   378  514  377  521 

Incentive awards

  15  25  17  27   13  24  15  26 
  

 

 

 

  

 

 

 

Average diluted shares outstanding

  12,194  12,656  12,315  12,716   12,184  12,634  12,251  12,686 
  

 

 

 

  

 

 

 

 

Comprehensive Income

 

For the three month periods ended JuneSeptember 30, 2005 and 2004, total comprehensive income, representing net income plus or minus the change in unrealized gains or losses on securities available for sale amounted to $5,411,000$4,585,000 and $2,291,000,$6,195,000, respectively. For the sixnine months ended JuneSeptember 30, 2005 and 2004, total comprehensive income amounted to $9,477,000$14,062,000 and $9,436,000,$15,631,000, respectively.

 

Note 2. Loans Receivable, Net

 

Loans receivable, net at JuneSeptember 30, 2005 and December 31, 2004 consisted of the following (in thousands):

 

  June 30, 2005

 December 31, 2004

   September 30,
2005


 December 31,
2004


 

Real estate:

      

One- to four-family

  $1,183,007  $1,126,585   $1,190,041  $1,126,585 

Commercial real estate, multi- family and land

   270,643   243,299 

Commercial real estate, multi-family and land

   279,719   243,299 

Construction

   15,554   19,189    19,142   19,189 

Consumer

   124,536   99,279    139,889   99,279 

Commercial

   64,207   61,290    68,888   61,290 
  


 


  


 


Total loans

   1,657,947   1,549,642    1,697,679   1,549,642 

Loans in process

   (5,882)  (5,970)   (7,112)  (5,970)

Deferred origination costs, net

   3,991   3,888    4,390   3,888 

Unearned discount

   (3)  (4)   (3)  (4)

Allowance for loan losses

   (10,514)  (10,688)   (10,410)  (10,688)
  


 


  


 


Total loans, net

   1,645,539   1,536,868    1,684,544   1,536,868 

Less: Mortgage loans held for sale

   71,985   63,961    66,240   63,961 
  


 


  


 


Loans receivable, net

  $1,573,554  $1,472,907   $1,618,304  $1,472,907 
  


 


  


 


Note 3. Deposits

 

The major types of deposits at JuneSeptember 30, 2005 and December 31, 2004 were as follows (in thousands):

 

  June 30, 2005

  December 31, 2004

  September 30,
2005


  December 31,
2004


Type of Account

            

Non-interest-bearing

  $125,928  $106,492  $122,326  $106,492

Interest-bearing checking accounts

   332,233   297,919   374,026   297,919

Money market deposit

   138,503   142,893   131,133   142,893

Savings

   262,306   250,032   256,362   250,032

Time deposits

   498,191   473,199   485,567   473,199
  

  

  

  

  $1,357,161  $1,270,535  $1,369,414  $1,270,535
  

  

  

  

 

Note 4. Recent Accounting Pronouncements

 

On April 14, 2005 the Securities and Exchange Commission amended the compliance dates for the Financial Accounting Standard Board’s Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (Statement No. 123R). The Commission’s new rule allows companies to implement Statement No. 123R at the beginning of the next fiscal year, instead of the next reporting period that begins after June 15, 2005, or December 15, 2005 for small business issuers. The Commission’s new rule does not change the accounting required by Statement No. 123R; it changes only the dates for compliance with the standard. The Company is currently evaluating the transition provisions of Statement 123R and does not know the impact on the consolidated financial statements at this time.

 

In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 requires retroactive application to prior periods’ financial statementstatements of a voluntary change in accounting principle unless it is impracticable. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, with earlier application permitted for accounting changes and corrections of errors made occurring in fiscal years beginning after June 1,May 31, 2005.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Critical Accounting Policies

 

Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2004 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, as supplemented by this report, contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried in the consolidated statements of financial condition at fair value or the lower of cost or fair value. Policies with respect to the methodologies used to determine the allowance for loan losses, the valuation of Mortgage Servicing Rights and judgments regarding securities impairment are the most critical accounting policies because they are important to the presentation of the Company’s financial condition and results of operations, involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions and estimates could result in material differences in the results of operations or financial condition. These critical accounting policies and their application are reviewed periodically and, at least annually, with the Audit Committee of the Board of Directors.

 

Summary

 

The Company’s results of operations are dependent primarily on net interest income, which is the difference between the interest income earned on the Company’s interest-earning assets, such as loans and investments, and the interest expense on its interest-bearing liabilities, such as deposits and borrowings. The Company also generates non-interest income such as income from loan sales, loan

servicing, loan originations, merchant credit card services, deposit accounts, the sale of alternative investments, trust and asset management services and other fees. The Company’s operating expenses primarily consist of compensation and employee benefits, occupancy and equipment, marketing, data

processing and other general and administrative expenses. The Company’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory agencies.

 

After declining to relatively low levels in early 2004, interest rates have steadily risen over the past year, especially at the shorter end of the yield curve. The previously low interest rate environment generally had an adverse effect on the Company’s operating results. Prepayments on loans and mortgage-backed securities caused asset yields to decline at a faster rate than the cost of liabilities, causing the Company’s net interest margin to contract. The more recent rising rate environment reduced prepayment activity and caused the Company’s net interest margin to expand. However, recent increases in short-term interest rates have outpaced increases in longer-term rates resulting in a continued flattening of the interest rate yield curve. The continuation of a flat yield curve through the remainder of 2005 and into 2006 is expected to have a negative impact on the Company’s results of operations and net interest margin as interest-earning assets, both loans and securities, are priced against longer-term indices, while interest-bearing liabilities, primarily deposits and borrowings, are priced against shorter-term indices. The Company has generally not repriced all core deposits (defined as all deposits other than time deposits) in line with the market increases in short-term interest rates. The likely upward repricing of core deposits is also expected to have a negative impact on the Company’s results of operations and net interest margin.

 

The Company continues to focus on growing loans receivable, while limiting credit and interest rate risk exposure. The Company opened a joint residential/commercial loan production office in Monmouth County in late 2004. In the third quarter of 2004, the Company expanded its loan production platform through the acquisition of a consumer direct lending operation by Columbia Home Loans, LLC, the Company’s mortgage banking subsidiary. The acquisition increased the volume of loans sold by the Company and the related gain on sale and was also partially responsible for the increase in operating expenses.

 

While the Company continues to focus on growing core deposits (defined as all deposits other than time deposits) the rise in interest rates and the muted reaction of competitors to those interest rate changes provided the Company with an opportunity to be more competitive in the market for time deposits within established pricing guidelines. Both core and time deposit balances increased over the past year.during 2005. Deposit growth also benefited from the opening of the Company’s eighteenth branch office in Freehold late in the first quarter of 2005. The Company has committed to the opening of new branch offices in Little Egg Harbor, expected to open in mid 2006, and Wall, expected to open in mid 2007. Additionally, in early 2006 the Whiting branch is expected to be relocated to a more convenient and prominent location.

 

Analysis of Net Interest Income

 

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

 

The following table sets forth certain information relating to the Company for the three and sixnine months ended JuneSeptember 30, 2005 and 2004. The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown except where noted otherwise. Average balances are derived from average daily balances. The yields and costs include certain fees which are considered adjustments to yields.

   FOR THE THREE MONTHS ENDED SEPTEMBER 30,

 
   2005

  2004

 
   

AVERAGE

BALANCE


  INTEREST

  

AVERAGE
YIELD/

COST


  

AVERAGE

BALANCE


  INTEREST

  

AVERAGE
YIELD/

COST


 
   (Dollars in thousands) 
Assets                       

Interest-earnings assets:

                       

Interest-earning deposits and short-term investments

  $8,846  $76  3.44% $11,990  $38  1.27%

Investment securities (1)

   85,978   887  4.13   85,236   502  2.36 

FHLB stock

   19,596   246  5.02   23,199   122  2.10 

Mortgage-backed securities (1)

   100,549   897  3.57   142,405   1,170  3.29 

Loans receivable, net (2)

   1,663,158   24,222  5.83   1,500,727   21,355  5.69 
   

  

  

 

  

  

Total interest-earning assets

   1,878,127   26,328  5.61   1,763,557   23,187  5.26 
       

  

     

  

Non-interest-earning assets

   99,493          100,517        
   

         

        

Total assets

  $1,977,620         $1,864,074        
   

         

        
Liabilities and Stockholders’ Equity                       

Interest-bearing liabilities:

                       

Transaction deposits

  $749,488   2,193  1.17  $681,079   1,074  0.63 

Time deposits

   489,411   3,863  3.16   427,289   2,874  2.69 
   

  

  

 

  

  

Total

   1,238,899   6,056  1.96   1,108,368   3,948  1.42 

Borrowed funds

   459,736   4,862  4.23   492,253   4,969  4.04 
   

  

  

 

  

  

Total interest-bearing liabilities

   1,698,635   10,918  2.57   1,600,621   8,917  2.23 
       

  

     

  

Non-interest-bearing deposits

   127,718          116,721        

Non-interest-bearing liabilities

   16,468          11,821        
   

         

        

Total liabilities

   1,842,821          1,729,163        

Stockholders’ equity

   134,799          134,911        
   

         

        

Total liabilities and stockholders’ equity

  $1,977,620         $1,864,074        
   

         

        

Net interest income

      $15,410         $14,270    
       

         

    

Net interest rate spread (3)

          3.04%         3.03%
           

         

Net interest margin (4)

          3.28%         3.24%
           

         

 

   For the Three Months Ended June 30,

 
   2005

  2004

 
   

AVERAGE

BALANCE


  INTEREST

  

AVERAGE
YIELD/

COST


  AVERAGE
BALANCE


  INTEREST

  

AVERAGE
YIELD/

COST


 
   (Dollars in thousands) 
Assets                       

Interest-earnings assets:

                       

Interest-earning deposits and short term investments

  $13,234  $98  2.96% $10,781  $28  1.04%

Investment securities (1)

   86,883   803  3.70   85,477   437  2.04 

FHLB stock

   19,802   235  4.75   23,659   81  1.37 

Mortgage-backed securities (1)

   112,397   967  3.44   147,860   1,194  3.23 

Loans receivable, net (2)

   1,590,601   22,757  5.72   1,450,303   20,405  5.63 
   

  

  

 

  

  

Total interest-earning assets

   1,822,917   24,860  5.45   1,718,080   22,145  5.16 
       

  

     

  

Non-interest-earning assets

   100,779          96,984        
   

         

        

Total assets

  $1,923,696         $1,815,064        
   

         

        
Liabilities and Stockholders’ Equity                       

Interest-bearing liabilities:

                       

Transaction deposits

  $726,798   1,757  0.97  $668,862   959  0.57 

Time deposits

   487,151   3,569  2.93   388,212   2,531  2.61 
   

  

  

 

  

  

Total

   1,213,949   5,326  1.75   1,057,074   3,490  1.32 

Borrowed funds

   443,728   4,605  4.15   500,461   5,147  4.11 
   

  

  

 

  

  

Total interest-bearing liabilities

   1,657,677   9,931  2.40   1,557,535   8,637  2.22 
       

  

     

  

Non-interest-bearing deposits

   120,869          111,841        

Non-interest-bearing liabilities

   10,585          9,940        
   

         

        

Total liabilities

   1,789,131          1,679,316        

Stockholders’ equity

   134,565          135,748        
   

         

        

Total liabilities and stockholders’ equity

  $1,923,696         $1,815,064        
   

         

        

Net interest income

      $14,929         $13,508    
       

         

    

Net interest rate spread (3)

          3.05%         2.94%
           

         

Net interest margin (4)

          3.28%         3.14%
           

         

  FOR THE SIX MONTHS ENDED JUNE 30,

   FOR THE NINE MONTHS ENDED SEPTEMBER 30,

 
  2005

 2004

   2005

 2004

 
  

AVERAGE

BALANCE


  INTEREST

  

AVERAGE
YIELD/

COST


 AVERAGE
BALANCE


  INTEREST

  

AVERAGE
YIELD/

COST


   

AVERAGE

BALANCE


  INTEREST

  

AVERAGE
YIELD/

COST


 

AVERAGE

BALANCE


  INTEREST

  

AVERAGE
YIELD/

COST


 
  (Dollars in thousands)   (Dollars in thousands) 
Assets                              

Interest-earnings assets:

                              

Interest-earning deposits and short term investments

  $14,358  $194  2.70% $9,957  $50  1.00%

Interest-earning deposits

and short-term investments

  $12,231  $269  2.93% $10,736  $88  1.09%

Investment securities (1)

   86,422   1,995  4.62   85,519   1,327  3.10    86,272   2,882  4.45   85,417   1,829  2.86 

FHLB stock

   20,086   402  4.00   22,186   155  1.40    19,921   648  4.34   22,532   277  1.64 

Mortgage-backed securities (1)

   116,747   2,061  3.53   123,739   2,050  3.31    111,288   2,959  3.55   130,392   3,220  3.29 

Loans receivable, net (2)

   1,568,749   44,530  5.68   1,437,748   40,593  5.65    1,600,564   68,752  5.73   1,460,249   61,949  5.66 
  

  

  

 

  

  

  

  

  

 

  

  

Total interest-earning assets

   1,806,362   49,182  5.45   1,679,149   44,175  5.26    1,830,276   75,510  5.50   1,709,326   67,363  5.25 
  

  

  

   

  

     

  

   

  

Non-interest earning assets

   101,430       95,499      

Non-interest-earning assets

   101,048       97,374      
  

      

        

      

      

Total assets

  $1,907,792      $1,774,648        $1,931,324      $1,806,700      
  

      

        

      

      
Liabilities and Stockholders’ Equity                              

Interest-bearing liabilities:

                              

Transaction deposits

  $725,381   3,334  0.92  $667,169   1,892  0.57   $733,548   5,526  1.00  $672,740   2,967  0.59 

Time deposits

   474,649   6,684  2.82   385,066   5,084  2.64    479,624   10,548  2.93   400,208   7,958  2.65 
  

  

  

 

  

  

  

  

  

 

  

  

Total

   1,200,030   10,018  1.67   1,052,235   6,976  1.33    1,213,172   16,074  1.77   1,072,948   10,925  1.36 

Borrowed funds

   443,222   9,058  4.09   472,969   9,931  4.20    448,787   13,921  4.14   480,011   14,900  4.14 
  

  

  

 

  

  

  

  

  

 

  

  

Total interest-bearing liabilities

   1,643,252   19,076  2.32   1,525,204   16,907  2.22    1,661,959   29,995  2.41   1,552,959   25,825  2.22 
     

  

   

  

     

  

   

  

Non-interest-bearing deposits

   114,995       102,659         119,236       107,347      

Non-interest bearing liabilities

   14,052       12,211      

Non-interest-bearing liabilities

   15,117       12,069      
  

      

        

      

      

Total liabilities

   1,772,299       1,640,074         1,796,312       1,672,375      

Stockholders’ equity

   135,493       134,574         135,012       134,325      
  

      

        

      

      

Total liabilities and stockholders’ equity

  $1,907,792      $1,774,648        $1,931,324      $1,806,700      
  

      

        

      

      

Net interest income

     $30,106     $27,268        $45,515     $41,538   
     

     

        

     

   

Net interest rate spread (3)

        3.13%      3.04%        3.09%      3.03%
        

      

        

      

Net interest margin (4)

        3.33%      3.25%        3.32%      3.24%
        

      

        

      


(1)Amounts are recorded at average amortized cost.
(2)Amount is net of deferred loan fees, undisbursed loan funds, discounts and premiums and estimated loss allowances and includes loans held for sale and non-performing loans.
(3)Net interest rate spread represents the difference between the yield on interest -earning assets and the cost of interest-bearing liabilities.
(4)Net interest margin represents net interest income divided by average interest -earning assets.

Comparison of Financial Condition at JuneSeptember 30, 2005 and December 31, 2004

 

Total assets at JuneSeptember 30, 2005 were $1.978$1.990 billion, an increase of $63.5$75.3 million, compared to $1.914 billion at December 31, 2004.

 

Mortgage-backed securities decreased $31.9 million as cash flow from these securities was used to fund loan growth. Loans receivable, net increased by $100.6$145.4 million to a balance of $1.574$1.618 billion at JuneSeptember 30, 2005, compared to a balance of $1.473 billion at December 31, 2004. Commercial and commercial real estate loans outstanding increased $30.3$44.0 million.

 

Deposit balances increased $86.6$98.9 million to $1.357$1.369 billion at JuneSeptember 30, 2005 from $1.271 billion at December 31, 2004. Core deposits (all deposits except time deposits), a key emphasis for the Company, increased by $61.6$86.5 million, while time deposits also increased by $25.0$12.4 million.

 

Total Federal Home Loan Bank borrowings, consisting of securities sold under agreements to repurchase and advances, decreased $28.0$29.0 million to $390.0$389.0 million at JuneSeptember 30, 2005, compared to a balance of $418.0 million at December 31, 2004. The Company utilized excess cash and due from bank balances and deposit flows to retire thereduce Federal Home Loan Bank borrowings. During the quarter the Company issued subordinated debt for $5.0 million, the proceeds of which were partly used to fund the Company’s common stock repurchase program.

 

Stockholders’ equity at JuneSeptember 30, 2005 decreased to $135.3$136.5 million, compared to $138.0 million at December 31, 2004. The Company repurchased 504,013611,566 shares of common stock during the sixnine months ended JuneSeptember 30, 2005 at a total cost of $11.6$14.1 million. Under the 10% repurchase program authorized by the Board of Directors in October 2003, 246,042138,489 shares remain to be purchased as of JuneSeptember 30, 2005. A new repurchase program, the Company’s twelfth, was announced on October 19, 2005. Under this 5% repurchase program, an additional 636,036 shares are available for repurchase. The cost of the share repurchases was partly offset by net income, proceeds from stock option exercises and the related tax benefit, and Employee Stock Ownership Plan amortization.

Comparison of Operating Results for the Three and SixNine Months Ended JuneSeptember 30, 2005 and JuneSeptember 30, 2004

 

General

 

Net income increased to $4.9$4.8 million and $9.8$14.7 million, respectively, for the three and sixnine months ended JuneSeptember 30, 2005, as compared to net income of $4.0$4.5 million and $8.5$13.0 million, respectively, for the three and sixnine months ended JuneSeptember 30, 2004. Diluted earnings per share increased to $.40 and $.80,$1.20, respectively, for the three and sixnine months ended JuneSeptember 30, 2005, as compared to $.32$.35 and $.67,$1.02, respectively, for the same prior year periods. Earnings per share was favorably affected by the Company’s repurchase program, which reduced the average diluted shares outstanding.

 

Interest Income

 

Interest income for the three and sixnine months ended JuneSeptember 30, 2005 was $24.9$26.3 million and $49.2$75.5 million, respectively, compared to $22.1$23.2 million and $44.2$67.4 million, respectively, for the three and sixnine months ended JuneSeptember 30, 2004. The yield on interest-earning assets increased to 5.45%5.61% and 5.50%, respectively, for both the three and sixnine months ended JuneSeptember 30, 2005, as compared to 5.16%5.26% and 5.26%5.25%, respectively, for the same prior year periods. Average interest-earning assets increased by $104.8$114.6 million and $127.2$121.0 million, respectively, for the three and sixnine months ended JuneSeptember 30, 2005 as compared to the same prior year periods. The growth was concentrated in average loans receivable which grew $140.3$162.4 million, or 9.7%10.8%, for the three months ended JuneSeptember 30, 2005 as compared to the same prior year period. For the sixnine months ended JuneSeptember 30, 2005 average loans receivable increased $131.0$140.3 million, or 9.1%9.6%, as compared to the same prior year period.

Interest Expense

 

Interest expense for the three and sixnine months ended JuneSeptember 30, 2005 was $9.9$10.9 million and $19.1$30.0 million, respectively, compared to $8.6$8.9 million and $16.9$25.8 million, respectively, for the three and sixnine months ended JuneSeptember 30, 2004. The cost of interest-bearing liabilities increased to 2.40%2.57% and 2.32%2.41%, respectively, for the three and sixnine months ended JuneSeptember 30, 2005, as compared to 2.23% and 2.22%, respectively, in the same prior year periods. Average interest-bearing liabilities increased by $100.1$98.0 million and $118.0$109.0 million, respectively, for the three and sixnine months ended JuneSeptember 30, 2005 as compared to the same prior year periods. The growth was concentrated in interest-bearing deposits which grew $156.9$130.5 million, or 14.8%11.8% for the three months ended JuneSeptember 30, 2005 as compared to the same prior year period. For the sixnine months ended June 20,September 30, 2005 average interest-bearing deposits increased $147.8$140.2 million, or 14.0%13.1%, as compared to the same prior year period.

 

Net Interest Income

 

Net interest income for the three and sixnine months ended JuneSeptember 30, 2005 increased to $14.9$15.4 million and $30.1$45.5 million, respectively, as compared to $13.5$14.3 million and $27.3$41.5 million, respectively, in the same prior year periods. The net interest margin increased to 3.28% and 3.33%3.32%, respectively, for the three and sixnine months ended JuneSeptember 30, 2005 from 3.14% and 3.25%, respectively,3.24% in each of the same prior year periods. Net interest income benefited from the wider net interest margin and the increase in average interest-earning assets as noted above.

 

Provision for Loan Losses

 

For the three and sixnine months ended JuneSeptember 30, 2005, the Company’s provision for loan losses was $200,000$100,000 and $250,000,$350,000, respectively, as compared to $50,000 and $100,000$150,000 for the same prior year periods. Total loans receivable increased and net charge-offs for the three and sixnine months ended JuneSeptember 30, 2005 increased to $422,000$204,000 and $425,000,$628,000, respectively, from no net charge-offs$126,000 and a $49,000 net recovery,$77,000, respectively, for the same prior year periods. Non-performing loans, however, decreased to $2.1$1.4 million at JuneSeptember 30, 2005 from $3.5 million at December 31, 2004 and $3.6$4.0 million at JuneSeptember 30, 2004.

Other Income

 

Other income was $5.9$6.3 million and $11.8$18.1 million, respectively, for the three and sixnine months ended JuneSeptember 30, 2005, compared to $4.5$5.0 million and $9.2$14.1 million, respectively, for the same prior year periods. For the three and sixnine months ended JuneSeptember 30, 2005, the Company recorded gains of $3.2$3.5 million and $6.5$10.1 million, respectively, on the sale of loans and securities available for sale, as compared to gains of $2.0$2.4 million and $4.4$6.8 million, respectively, in the same prior year periods. For the three and nine months ended September 30, 2004, the gain on sale of loans and securities includes a gain of $186,000 on the sale of equity securities. Loans sold for the three and sixnine month period ended JuneSeptember 30, 2005 increased to $166.1$212.4 million and $326.6$539.3 million, respectively, from $100.1$162.2 million and $168.6$316.1 million, respectively, in the same prior year periods. In the third quarter of 2004, the Company expanded its loan production platform through the acquisition of a consumer direct lending operation by Columbia Home Loans, LLC. Fees and service charges increased $304,000$256,000 and $550,000,$805,000, respectively, for the three and sixnine months ended JuneSeptember 30, 2005, as compared to the same prior year periods primarily related to increases in investment services and trust fees.

 

Operating Expenses

 

Operating expenses were $13.2$14.2 million and $26.5$40.7 million, respectively, for the three and sixnine months ended JuneSeptember 30, 2005, as compared to $11.7$12.3 million and $23.1$35.4 million, respectively, in the same prior year periods. The increase was primarily due to the costs related to the third quarter 2004 acquisition of a consumer direct lending operation.operation, as well as increased incentive plan costs.

 

Provision for Income Taxes

 

Income tax expense was $2.6 million and $5.3$7.9 million, respectively, for the three and sixnine months ended JuneSeptember 30, 2005, as compared to $2.3$2.4 million and $4.7$7.2 million, respectively, for the same prior year periods. The effective tax rates decreased slightly to 34.9% and 35.1%, respectively,35.0% for the three and sixnine months ended JuneSeptember 30, 2005 as compared to 36.1%35.4% and 35.8%35.7%, respectively, for the same prior year periods.

Liquidity and Capital Resources

 

The Company’s primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, proceeds from the sale of loans, Federal Home Loan Bank (“FHLB”) and other borrowings and, to a lesser extent, investment maturities. While scheduled amortization of loans is a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by 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 JuneSeptember 30, 2005 the Company had outstanding overnight borrowings from the FHLB of $19.0$25.0 million as compared to no outstanding overnight borrowings at December 31, 2004. The Company utilizes the overnight line from time to time to fund short-term liquidity needs. The Company had total FHLB borrowings, including overnight borrowings, of $390.0$389.0 million at JuneSeptember 30, 2005, a decrease from $418.0 million at December 31, 2004. The decrease in borrowings was funded by a reduction in cash and due from banks and increased deposits.

 

The Company’s cash needs for the sixnine months ended JuneSeptember 30, 2005, were primarily satisfied by principal payments on loans and mortgage-backed securities, increased deposits and proceeds from the sale of mortgage loans held for sale. The cash was principally utilized for loan originations a reduction in total borrowings and the repurchase of common stock. For the sixnine months ended JuneSeptember 30, 2004, the cash needs of the Company were primarily satisfied by principal payments on loans and mortgage-backed securities, increased deposits, increased total borrowings and proceeds from the sale of mortgage loans held for sale. The cash provided was principally used for the origination of loans, the purchase of mortgage-backed securities and the repurchase of common stock.

 

In the normal course of business, the Company routinely enters into various commitments, primarily relating to the origination and sale of loans. At JuneSeptember 30, 2005, outstanding commitments to originate loans totaled $261.8$214.9 million; outstanding unused lines of credit totaled $160.1$167.6 million; and outstanding commitments to sell loans totaled $97.3$96.8 million. The Company expects to have sufficient funds available to meet current commitments in the normal course of business.

Time deposits scheduled to mature in one year or less totaled $303.0$306.5 million at JuneSeptember 30, 2005. Based upon historical experience management estimates that a significant portion of such deposits will remain with the Company.

 

Under the Company’s stock repurchase programs, shares of OceanFirst Financial Corp. common stock may be purchased in the open market and through other privately negotiated transactions, from time-to-time, depending on market conditions. The repurchased shares are held as treasury stock for general corporate use. For the sixnine months ended JuneSeptember 30, 2005, the Company purchased 504,013611,566 shares of common stock at a total cost of $11.6$14.1 million compared with purchases of 392,254558,423 shares for the sixnine months ended JuneSeptember 30, 2004 at an aggregate cost of $9.5$13.4 million. At JuneSeptember 30, 2005, there were 246,042138,489 shares remaining to be repurchased under the existing stock repurchase program. A new repurchase program was announced on October 19, 2005. Under this 5% repurchase program, an additional 636,036 shares are available for repurchase. Cash dividends declared and paid during the first sixnine months of 2005 were $4.8$7.1 million, a decrease from $4.9$7.3 million from the same prior year period due to the reduction in common shares outstanding. On July 20,October 19, 2005, the Board of Directors declared a quarterly cash dividend of twenty cents ($.20) per common share. The dividend is payable on August 12,November 11, 2005 to stockholders of record at the close of business on July 29,October 28, 2005.

 

The primary source of liquidity for OceanFirst Financial Corp., the holding company of OceanFirst Bank, is capital distributions from the banking subsidiary. For the first sixnine months of 2005, OceanFirst Financial Corp. received $11.1 million in dividend payments from OceanFirst Bank. The Company also received $5.0 million from the issuance of subordinated debt. The primary use of these funds is the payment of dividends to shareholders and the repurchase of common stock. OceanFirst Financial Corp.’s ability to continue these activities is partly dependent upon capital distributions from OceanFirst Bank. Applicable Federal law or the Bank’s regulator, may limit the amount of capital distributions OceanFirst Bank may make.

At JuneSeptember 30, 2005, the Bank exceeded all of its regulatory capital requirements with tangible capital of $119.4$125.8 million, or 6.1%6.3% of total adjusted assets, which is above the required level of $29.6$29.8 million or 1.5%; core capital of $119.4$125.8 million or 6.1%6.3% of total adjusted assets, which is above the required level of $59.2$59.6 million, or 3.0%; and risk-based capital of $129.7$136.2 million, or 10.0%10.2% of risk-weighted assets, which is above the required level of $103.8$106.4 million or 8.0%. The Bank is considered a “well-capitalized” institution under the Office of Thrift Supervision’s Prompt Corrective Action Regulations.

 

Off-Balance-Sheet Arrangements and Contractual Obligations

 

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in the financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used for general corporate purposes or for customer needs. Corporate purpose transactions are used to help manage credit, interest rate, and liquidity risk or to optimize capital. Customer transactions are used to manage customers’ requests for funding. These financial instruments and commitments include unused consumer lines of credit and commitments to extend credit. The Company also has outstanding commitments to sell loans amounting to $97.3$96.8 million.

 

The following table shows the contractual obligations of the Company by expected payment period as of JuneSeptember 30, 2005 (in thousands):

 

Contractual Obligation


  Total

  

Less than

one year


  1-3 years

  3-5 years

  

More than

5 years


  Total

  

Less than

one year


  1-3 years

  3-5 years

  

More than

5 years


Debt Obligations

  $454,158  $175,158  $161,000  $103,000  $15,000  $461,727  $209,727  $139,000  $93,000  $20,000

Commitments to Originate Loans

   261,835   261,835   —     —     —     214,873   214,873   —     —     —  

Commitments to Fund Unused Lines of Credit

   160,092   160,092   —     —     —     167,621   167,621   —     —     —  

 

Debt obligations include borrowings from the FHLB and Securities Sold under Agreements to Repurchase. The borrowings have defined terms and, under certain circumstances, $102.0$82.0 million of the borrowings are callable at the option of the lender.

 

Commitments to originate loans and commitments to fund unused lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments

generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company’s exposure to credit risk is represented by the contractual amount of the instruments.

Non-Performing Assets

 

The following table sets forth information regarding the Company’s non-performing assets consisting of non-accrual loans and Real Estate Owned (“REO”). 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.

 

  June 30,
2005


 December 31,
2004


   September 30,
2005


 December 31,
2004


 
  (dollars in thousands)   (dollars in thousands) 

Non-accrual loans:

      

Real estate:

      

One- to four-family

  $893  $1,337   $916  $1,337 

Commercial real estate, multi-family and land

   —     744    —     744 

Consumer

   324   784    271   784 

Commercial

   835   623    237   623 
  


 


  


 


Total non-performing loans

   2,052   3,488    1,424   3,488 

REO, net

   288   288    278   288 
  


 


  


 


Total non-performing assets

  $2,340  $3,776   $1,702  $3,776 
  


 


  


 


Allowance for loan losses as a percent of total loans receivable

   .63%  .69%   .61%  .69%

Allowance for loan losses as percent of total non-performing loans

   512.38   306.42    731.04   306.42 

Non-performing loans as a percent of total loans receivable

   .12   .23    .08   .23 

Non-performing assets as a percent of total assets

   .12   .20    .09   .20 

 

The Company also classifies assets in accordance with certain regulatory guidelines. At JuneSeptember 30, 2005 the Bank had $5.8$7.1 million classified as Special Mention, $2.1$1.5 million classified as Substandard and $405,000$134,000 classified as Doubtful as compared to $12.3 million, $5.1 million and $226,000, respectively, classified as Special Mention, Substandard and Doubtful at December 31, 2004.

 

Private Securities Litigation Reform Act Safe Harbor Statement

 

In addition to historical information, this quarterly report contains certain forward-looking statements which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and the subsidiaries include, but are not limited to, changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on statements. The Company does not undertake - and specifically disclaims any obligation - to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Further description of the risks and uncertainties to the business are included in Item 1, BUSINESS of the Company’s 2004 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

The Company’s interest rate sensitivity is monitored through the use of an interest rate risk (IRR) model. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities

outstanding at JuneSeptember 30, 2005, which were anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown. At JuneSeptember 30, 2005 the Company’s one-year gap was positive 4.93%1.85% as compared to positive 5.14% at December 31, 2004.

 

At June 30, 2005

(dollars in thousands)


  

3 Months

or Less


 More than
3 Months to
1 Year


 

More than

1 Year to

3 Years


 

More than
3 Years to

5 Years


 

More

than

5 Years


 Total

 

At September 30, 2005


  3 Months
or Less


 

More than

3 Months to
1 Year


 More than
1 Year to
3 Years


 

More than

3 Years to

5 Years


 More than
5 Years


 Total

 

(dollars in thousands)

   

Interest-earning assets: (1)

      

Interest-earning deposits and short-term investments

  $8,728  $—    $—    $—    $—    $8,728   $2,610  $—    $—    $—    $—    $2,610 

Investment securities

   77,562   2,803   —     —     6,529   86,894    76,513   2,586   —     —     6,534   85,633 

FHLB stock

   —     —     —     —     19,500   19,500    —     —     —     —     19,450   19,450 

Mortgage-backed securities

   8,492   23,443   33,048   40,361   568   105,912    7,422   23,404   27,303   34,930   508   93,567 

Loans receivable (2)

   281,135   289,925   550,011   330,597   200,397   1,652,065    290,013   284,274   542,478   334,619   239,183   1,690,567 
  


 


 


 


 


 


  


 


 


 


 


 


Total interest-earning assets

   375,917   316,171   583,059   370,958   226,994   1,873,099    376,558   310,264   569,781   369,549   265,675   1,891,827 
  


 


 


 


 


 


  


 


 


 


 


 


Interest-bearing liabilities:

      

Money market deposit accounts

   6,140   16,833   35,147   80,383   —     138,503    5,813   15,938   33,277   76,105   —     131,133 

Savings accounts

   11,628   31,880   66,564   152,234   —     262,306    11,364   31,158   65,055   148,785   —     256,362 

Interest-bearing checking accounts

   14,728   40,380   84,309   192,816   —     332,233    16,580   45,459   94,914   217,073   —     374,026 

Time deposits

   130,671   172,375   133,194   51,318   10,633   498,191    104,205   211,595   133,683   27,269   8,815   485,567 

FHLB advances

   36,000   71,000   119,000   80,000   15,000   321,000    47,000   95,000   103,000   70,000   15,000   330,000 

Securities sold under agreements to repurchase

   64,158   4,000   42,000   23,000   —     133,158    67,727   —     36,000   23,000   —     126,727 

Subordinated debentures

   —     —     —     —     5,000   5,000 
  


 


 


 


 


 


  


 


 


 


 


 


Total interest-bearing liabilities

   263,325   336,468   480,214   579,751   25,633   1,685,391    252,689   399,150   465,929   562,232   28,815   1,708,815 
  


 


 


 


 


 


  


 


 


 


 


 


Interest sensitivity gap (3)

  $112,592  $(20,297) $102,845  $(208,793) $201,361  $187,708    123,869   (88,886)  103,852   (192,683)  236,860   183,012 
  


 


 


 


 


 


Cumulative interest sensitivity gap

  $112,592  $92,295  $195,140  $(13,653) $187,708  $187,708    123,869   34,983   138,835   (53,848)  183,012   183,012 
  


 


 


 


 


 


  


 


 


 


 


 


Cumulative interest sensitivity gap as a percent of total interest-earning assets

   6.01%  4.93%  10.42%  (0.73)%  10.02%  10.02%   6.55%  1.85%  7.34%  (2.85)%  9.67%  9.67%

(1)Interest-earning assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments, and contractual maturities.
(2)For purposes of the gap analysis, loans receivable includes loans held for sale and non-performing loans gross of the allowance for loan losses, unamortized discounts and deferred loan fees.
(3)Interest sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities.

 

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 JuneSeptember 30, 2005 and December 31, 2004. 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, 2004.

 

   June 30, 2005

  December 31, 2004

 
   Net Portfolio Value

     Net Interest Income

  Net Portfolio Value

     Net Interest Income

 

Change in Interest Rates in Basis

Points (Rate Shock)

(dollars in thousands)


  Amount

  % Change

  

NPV

Ratio


  Amount

  % Change

  Amount

  % Change

  

NPV

Ratio


  Amount

  % Change

 

200

  $200,902  (8.1)% 10.6% $62,297  1.2  $185,995  (9.7)% 10.1% $59,967  1.9%

100

   214,880  (1.7) 11.0   62,219  1.1   200,162  (2.8) 10.6   59,661  1.4 

Static

   218,681  —    11.0   61,560  —     205,868  —    10.7   58,856  —   

(100)

   211,401  (3.3) 10.5   60,000  (2.5)  204,583  (0.6) 10.5   57,699  (2.7)

(200)

   195,860  (10.4) 9.7   57,064  (7.3)  N/A  N/A  N/A   N/A  N/A 

   September 30, 2005

  

December 31, 2004


 
   Net Portfolio Value

     Net Interest Income

  Net Portfolio Value

     Net Interest Income

 

Change in Interest Rates in

Basis Points

(Rate Shock)


  Amount

  % Change

  

NPV

Ratio


  Amount

  % Change

  Amount

  % Change

  

NPV

Ratio


  Amount

  % Change

 

(dollars in thousands)

                                   

200

  $198,834  (10.8)% 10.5% $61,392  0.8% $185,995  (9.7)% 10.1% $59,967  1.9%

100

   214,710  (3.6) 11.1   61,424  0.9   200,162  (2.8) 10.6   59,661  1.4 

Static

   222,798  —    11.2   60,886  —     205,868  —    10.7   58,856  —   

(100)

   219,168  (1.6) 10.9   59,687  (2.0)  204,583  (0.6) 10.5   57,699  (2.7)

(200)

   204,549  (8.2) 10.2   57,003  (6.4)  N/A  N/A  N/A   N/A  N/A 

Item 4. Disclosure Controls and Procedures

 

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange

“Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended JuneSeptember 30, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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. Unregistered Sales of Equity Securities and Use of Proceeds

 

Information regarding the Company’s common stock repurchases for the three month period ended JuneSeptember 30, 2005 is as follows:

 

Period


  Total Number of
Shares Purchased


  Average price
Paid per Share


  Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs


  Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs


April 1, 2005 through April 30, 2005

  6,000  $23.07  6,000  441,942

May 1, 2005 through May 31, 2005

  94,500  $21.96  94,500  347,442

June 1, 2005 through June 30, 2005

  101,400  $21.93  101,400  246,042

Period


  Total Number of
Shares
Purchased


  Average price
Paid per Share


  Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs


  Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs


July 1, 2005 through July 31, 2005

  0  $—    0  246,042

August 1, 2005 through August 31, 2005

  26,042  $23.41  26,042  220,000

September 1, 2005 through September 30, 2005

  81,511  $23.32  81,511  138,489

 

On October 22, 2003 the Company announced its intention to repurchase up to 1,341,818 shares, or 10%, of its outstanding common stock. On October 19, 2005, the Company announced its intention to repurchase up to an additional 636,036 shares, or 5%, of its outstanding common stock upon completion of the existing program.

 

Item 3. Defaults Upon Senior Securities

 

Not Applicable

 

Item 4. Submission of Matters to a Vote of Security Holders

 

Not Applicable

Item 5. Other Information

 

During the three months ended June 30, 2005, Messrs. Garbarino, Fitzpatrick, Pardes, Kelly and Iantosca, (“Named Executive Officers”) received stock option grants for 3,806, 1,464, 1,098, 751 and 615 shares, respectively and incentive bonuses of $39,572, $15,225, $11,419, $7,805 and $6,394, respectively. On April 21, 2005 each outside director received 473 common shares representing payment of the $10,000 annual retainer for service on the Company’s Board of Directors.Not Applicable

Item 6. Exhibits

Exhibits:

 

        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.*

        10.18

 Amendment and Form of OceanFirst Bank Employee Severance Compensation Plan.

31.1

Rule 13a-14(a)/15d-14(c) Certification of Chief Executive Officer

31.2

Rule 13a-14(a)/15d-14(c) Certification of Chief Financial Officer

32.0

Section 1350 Certifications

*Incorporated herein by reference into this document from the Exhibits to Form S-1, Registration Statement, effective May 13, 1996, as amended, Registration No. 33-80123.
**Incorporated herein by reference into this document from the Exhibit to Form 10-K, Annual Report, filed on March 25, 2003.

 

SIGNATURES

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: August 9,November 7, 2005

 

/s/ John R. Garbarino


  

John R. Garbarino

  

Chairman of the Board, President

  

and Chief Executive Officer

DATE: August 9,November 7, 2005

 

/s/ Michael Fitzpatrick


  

Michael Fitzpatrick

  

Executive Vice President and

  

Chief Financial Officer

Exhibit Index

 

Exhibit

  

Description


  

Page


 

Description


  Page

10.18  Amendment and Form of OceanFirst Bank Employee Severance Compensation Plan  19
31.1  Rule 13a-14(a)/15d-14(c) Certification of Chief Executive Officer  29 Rule 13a-14(a)/15d-14(c) Certification of Chief Executive Officer  20
31.2  Rule 13a-14(a)/15d-14(c) Certification of Chief Financial Officer  30 Rule 13a-14(a)/15d-14(c) Certification of Chief Financial Officer  21
32.0  Section 1350 Certifications  31 Section 1350 Certifications  22

 

1819