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 March 31,June 30, 2006

 

¨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.

(Exact name of registrant as specified in its charter)

 

Delaware 22-3412577

(State or other jurisdiction of

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

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  ¨                    Accelerated Filer  x                    Non-accelerated Filer  ¨

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 May 2,August 1, 2006, there were 12,515,87812,317,912 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 March 31,June 30, 2006 and December 31, 2005

  1
  

Consolidated Statements of Income for the three and six months ended March 31,June 30, 2006 and 2005

  2
  

Consolidated Statements of Changes in Stockholders’ Equity for the threesix months ended March 31,June 30, 2006 and 2005

  3
  

Consolidated Statements of Cash Flows for the threesix months ended March 31,June 30, 2006 and 2005

  4
  

Notes to Unaudited Consolidated Financial Statements

  6

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  910

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  1517

Item 4.

  

Controls and Procedures

  1718

PART II.

  

OTHER INFORMATION

  

Item 1.

  

Legal Proceedings

  1719

Item 1A.

  

Risk Factors

  1719

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  1819

Item 3.

  

Defaults Upon Senior Securities

  1819

Item 4.

  

Submission of Matters to a Vote of Security Holders

  1819

Item 5.

  

Other Information

  19

Item 6.

  

Exhibits

  1920

Signatures

    1920


OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in thousands, except per share amounts)

 

  March 31,
2006
 December 31,
2005
   

June 30,

2006

 December 31,
2005
 
  (Unaudited)     (Unaudited)   

ASSETS

      

Cash and due from banks

  $24,010  $31,108   $33,211  $31,108 

Investment securities available for sale

   83,978   83,861    84,265   83,861 

Federal Home Loan Bank of New York stock, at cost

   22,279   21,792    25,694   21,792 

Mortgage-backed securities available for sale

   80,333   85,025    74,374   85,025 

Loans receivable, net

   1,688,525   1,654,544    1,741,230   1,654,544 

Mortgage loans held for sale

   31,031   32,044    62,282   32,044 

Interest and dividends receivable

   7,374   7,089    7,559   7,089 

Real estate owned, net

   245   278    225   278 

Premises and equipment, net

   16,345   16,118    17,072   16,118 

Servicing asset

   9,578   9,730    9,537   9,730 

Bank Owned Life Insurance

   36,271   36,002    36,551   36,002 

Intangible Assets

   1,246   1,272    1,221   1,272 

Other assets

   7,282   6,494    7,524   6,494 
              

Total assets

  $2,008,497  $1,985,357   $2,100,745  $1,985,357 
              

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

Deposits

  $1,372,928  $1,356,568   $1,377,935  $1,356,568 

Securities sold under agreements to repurchase with retail customers

   50,972   54,289    59,529   54,289 

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

   44,000   59,000    44,000   59,000 

Federal Home Loan Bank advances

   380,000   354,900    450,000   354,900 

Subordinated debenture and other borrowings

   5,800   5,000 

Other borrowings

   11,100   5,000 

Advances by borrowers for taxes and insurance

   8,868   7,699    9,608   7,699 

Other liabilities

   10,093   9,117    14,539   9,117 
              

Total liabilities

   1,872,661   1,846,573    1,966,711   1,846,573 
              

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 12,494,153 and 12,698,505 shares outstanding at March 31, 2006 and December 31, 2005, respectively

   272   272 

Common stock, $.01 par value, 55,000,000 shares authorized, 27,177,372 shares issued and 12,317,657 and 12,698,505, shares outstanding at June 30, 2006 and December 31, 2005, respectively

   272   272 

Additional paid-in capital

   198,439   197,621    199,680   197,621 

Retained earnings

   166,139   164,613    167,535   164,613 

Accumulated other comprehensive loss

   (1,476)  (1,223)   (1,560)  (1,223)

Less: Unallocated common stock held by Employee Stock Ownership Plan

   (7,196)  (7,472)   (6,920)  (7,472)

Treasury stock, 14,683,219 and 14,478,867 shares at March 31, 2006 and December 31, 2005, respectively

   (220,342)  (215,027)

Treasury stock, 14,859,715 and 14,478,867 shares at June 30, 2006 and December 31, 2005, respectively

   (224,973)  (215,027)

Common stock acquired by Deferred Compensation Plan

   1,495   1,383    1,504   1,383 

Deferred Compensation Plan Liability

   (1,495)  (1,383)   (1,504)  (1,383)
              

Total stockholders’ equity

   135,836   138,784    134,034   138,784 
              

Total liabilities and stockholders’ equity

  $2,008,497  $1,985,357   $2,100,745  $1,985,357 
              

See accompanying Notes to Unaudited Consolidated Financial Statements.


OceanFirst Financial Corp.

OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

  For the three months
ended March 31,
  For the three months
ended June 30,
  For the six months
ended June 30,
  2006  2005  2006  2005  2006  2005
  (Unaudited)  (Unaudited)  (Unaudited)

Interest income:

            

Loans

  $25,019  $21,773  $26,207  $22,757  $51,227  $44,530

Mortgage-backed securities

   874   1,094   831   967   1,705   2,061

Investment securities and other

   1,893   1,454   1,530   1,136   3,422   2,591
                  

Total interest income

   27,786   24,321   28,568   24,860   56,354   49,182
                  

Interest expense:

            

Deposits

   7,080   4,692   8,021   5,326   15,101   10,018

Borrowed funds

   5,289   4,452   6,136   4,605   11,425   9,058
                  

Total interest expense

   12,369   9,144   14,157   9,931   26,526   19,076
                  

Net interest income

   15,417   15,177   14,411   14,929   29,828   30,106

Provision for loan losses

��  50   50   —     200   50   250
                  

Net interest income after provision for loan losses

   15,367   15,127   14,411   14,729   29,778   29,856
                  

Other income:

            

Loan servicing income

   126   41   147   60   273   101

Fees and service charges

   2,347   2,182   2,830   2,388   5,178   4,570

Net gain on sales of loans and securities available for sale

   1,680   3,340   3,280   3,204   4,959   6,544

Income from Bank Owned Life Insurance

   268   273   280   262   548   535

Other

   6   37   4   4   10   41
                  

Total other income

   4,427   5,873   6,541   5,918   10,968   11,791
                  

Operating expenses:

            

Compensation and employee benefits

   7,378   7,529   7,877   7,484   15,255   15,013

Occupancy

   1,184   1,069   1,136   1,106   2,320   2,175

Equipment

   626   634   582   641   1,208   1,275

Marketing

   307   698   391   764   699   1,463

Federal deposit insurance

   134   125   134   128   267   253

Data processing

   906   783   805   773   1,710   1,556

General and administrative

   2,641   2,531   2,610   2,261   5,252   4,791
                  

Total operating expenses

   13,176   13,369   13,535   13,157   26,711   26,526
                  

Income before provision for income taxes

   6,618   7,631   7,417   7,490   14,035   15,121

Provision for income taxes

   2,304   2,685   2,565   2,615   4,869   5,300
                  

Net income

  $4,314  $4,946  $4,852  $4,875  $9,166  $9,821
                  

Basic earnings per share

  $0.37  $0.41  $0.42  $0.41  $0.79  $0.83
                  

Diluted earnings per share

  $0.36  $0.40  $0.41  $0.40  $0.77  $0.80
                  

Average basic shares outstanding

   11,721   11,971   11,518   11,818   11,619   11,892
                  

Average diluted shares outstanding

   12,107   12,468   11,831   12,194   11,956   12,315
                  

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

 Common Stock
Acquired by
Deferred
Compensation
Plan
  Deferred
Compensation
Plan Liability
 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, 2004

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

Comprehensive income:

                      

Net income

   —     —     4,946   —     —     —     —     —     4,946   —    —    9,821   —     —     —     —    —     9,821 

Other comprehensive income:

                      

Unrealized loss on securities (net of tax benefit $607)

   —     —     —     (880)  —     —     —     —     (880)

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

  —    —    —     (344)  —     —     —    —     (344)
                          

Total comprehensive income

              4,066           9,477 
                          

Stock award

   —     23   —     —     —     —     —     —     23   —    103  —     —     —     —     —    —     103 

Tax benefit of stock plans

   —     387   —     —     —     —     —     —     387   —    1,089  —     —     —     —     —    —     1,089 

Purchase 302,113 shares of common stock

   —     —     —     —     —     (7,148)  —     —     (7,148)

Purchase 504,013 shares of common stock

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

Allocation of ESOP stock

   —     —     —     —     295   —     —     —     295   —    —    —     —     591   —     —    —     591 

ESOP adjustment

   —     527   —     —     —     —     —     —     527   —    1,000  —     —     —     —     —    —     1,000 

Cash dividend - $.20 per share

   —     —     (2,414)  —     —     —     —     —     (2,414)

Cash dividend - $.40 per share

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

Exercise of stock options

   —     —     (653)  —     —     1,605   —     —     952   —    —    (1,755)  —     —     3,186   —    —     1,431 

Purchase of stock for the deferred compensation plan

   —     —     —     —     —     —     355   (355)  —     —    —    —     —     —     —     368  (368)  —   
                                                    

Balance at March 31, 2005

  $272  $194,660  $159,454  $(1,547) $(8,357) $(209,838) $1,341  $(1,341) $134,644 

Balance at June 30, 2005

 $272 $195,915 $160,866  $(1,011) $(8,061) $(212,695) $1,354 $(1,354) $135,286 
                                                    

Balance at December 31, 2005

  $272  $197,621  $164,613  $(1,223) $(7,472) $(215,027) $1,383  $(1,383) $138,784  $272 $197,621 $164,613  $(1,223) $(7,472) $(215,027) $1,383 $(1,383) $138,784 
                          

Comprehensive income:

                      

Net income

   —     —     4,314   —     —     —     —     —     4,314   —    —    9,166   —     —     —     —    —     9,166 

Other comprehensive income:

                      

Unrealized loss on securities (net of tax benefit $174)

   —     —     —     (253)  —     —     —     —     (253)

Unrealized loss on securities (net of tax benefit $232)

  —    —    —     (337)  —     —     —    —     (337)
                          

Total comprehensive income

              4,061           8,829 
                          

Stock award

   —     29   —     —     —     —     —     —     29   —    217  —     —     —     —     —    —     217 

Tax benefit of stock plans

   —     293   —     —     —     —     —     —     293   —    892  —     —     —     —     —    —     892 

Purchase 276,298 shares of common stock

   —     —     —     —     —     (6,515)  —     —     (6,515)

Purchase 555,248 shares of common stock

  —    —    —     —     —     (12,782)  —    —     (12,782)

Allocation of ESOP stock

   —     —     —     —     276   —     —     —     276   —    —    —     —     552   —     —    —     552 

ESOP adjustment

   —     496   —     —     —     —     —     —     496   —    950  —     —     —     —     —    —     950 

Cash dividend - $.20 per share

   —     —     (2,338)  —     —     —     —     —     (2,338)

Cash dividend - $.40 per share

  —    —    (4,635)  —     —     —     —    —     (4,635)

Exercise of stock options

   —     —     (450)  —     —     1,200   —     —     750   —    —    (1,609)  —     —     2,836   —    —     1,227 

Purchase of stock for the deferred compensation plan

   —     —     —     —     —     —     112   (112)  —     —    —    —     —     —     —     121  (121)  —   
                                                    

Balance at March 31, 2006

  $272  $198,439  $166,139  $(1,476) $(7,196) $(220,342) $1,495  $(1,495) $135,836 

Balance at June 30, 2006

 $272 $199,680 $167,535  $(1,560) $(6,920) $(224,973) $1,504 $(1,504) $134,034 
                                                    

See accompanying Notes to Unaudited Consolidated Financial Statements.

OceanFirst Financial Corp.

Consolidated Statements of Cash Flows

(dollars in thousands)

 

  For the three months
ended March 31,
   

For the six months

ended June 30,

 
  2006 2005   2006 2005 
  (Unaudited)   (Unaudited) 

Cash flows from operating activities:

      

Net income

  $4,314  $4,946   $9,166  $9,821 
              

Adjustments to reconcile net income to net cash provided by operating activities:

   

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

   

Depreciation and amortization of premises and equipment

   510   514    1,016   1,027 

Amortization of ESOP

   276   295    552   591 

ESOP adjustment

   496   527    950   1,000 

Tax benefit of stock plans

   293   387    —     1,089 

Stock award

   29   23    217   103 

Amortization of servicing asset

   516   556    1,013   1,123 

Amortization of intangible assets

   26   26    51   52 

Net premium amortization in excess of discount accretion on securities

   78   237    133   471 

Net amortization of deferred costs and discounts on loans

   98   128    292   317 

Provision for loan losses

   50   50    50   250 

Net gain on sale of fixed assets

   —     (28)   —     (28)

Net gain on sales of loans and securities

   (1,680)  (3,340)   (4,959)  (6,544)

Proceeds from sales of mortgage loans held for sale

   97,710   163,899    265,276   333,185 

Mortgage loans originated for sale

   (95,388)  (138,205)   (291,382)  (336,354)

Increase in value of Bank Owned Life Insurance

   (268)  (273)   (548)  (535)

Increase in interest and dividends receivable

   (285)  (228)   (470)  (827)

Increase in other assets

   (614)  (434)   (798)  (224)

Increase (decrease) in other liabilities

   1,008   (21,577)   5,475   (14,026)
              

Total adjustments

   2,855   2,557    (23,132)  (19,330)
              

Net cash provided by operating activities

   7,169   7,503 

Net cash used in operating activities

   (13,966)  (9,509)
              

Cash flows from investing activities:

      

Net increase in loans receivable

   (34,129)  (34,464)   (87,028)  (101,214)

Proceeds from sale of investment securities available for sale

   437   —      437   —   

Proceeds from sale of mortgage-backed securities available for sale

   6,242   —      6,242   —   

Purchase of investment securities available for sale

   (748)  (2,043)   (748)  (2,043)

Purchase of mortgage-backed securities available for sale

   (6,439)  —      (6,439)  —   

Proceeds from maturities of investment securities available for sale

   200   —      200   —   

Principal payments on mortgage-backed securities available for sale

   4,385   7,542    9,859   18,331 

(Increase) decrease in Federal Home Loan Bank of New York stock

   (487)  600    (3,902)  1,750 

Proceeds from sale of fixed assets

   —     49    —     49 

Purchases of premises and equipment

   (737)  (556)   (1,970)  (806)
              

Net cash used in investing activities

   (31,276)  (28,872)   (83,349)  (83,933)
              

Continued

OceanFirst Financial Corp.

Consolidated Statements of Cash Flows (Continued)

(dollars in thousands)

 

  For the three months
ended March 31,
   For the six months
ended June 30,
 
  2006 2005   2006 2005 
  (Unaudited)   (Unaudited) 

Cash flows from financing activities:

      

Increase in deposits

  $16,360  $27,674   $21,367  $86,626 

Increase in short-term borrowings

   10,783   4,122    53,340   38,086 

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

   —     (5,000)   —     (11,000)

Proceeds from Federal Home Loan Bank advances

   25,000   19,000    110,000   24,000 

Repayments of Federal Home Loan Bank advances

   (29,000)  (47,000)   (78,000)  (60,000)

Proceeds from subordinated debenture and other borrowings

   800   —   

Proceeds from other borrowings

   6,100   —   

Increase in advances by borrowers for taxes and insurance

   1,169   1,737    1,909   2,471 

Exercise of stock options

   750   952    1,227   1,431 

Dividends paid

   (2,338)  (2,414)   (4,635)  (4,775)

Purchase of treasury stock

   (6,515)  (7,148)   (12,782)  (11,586)

Tax benefit of stock plans

   892   —   
              

Net cash provided by (used in) financing activities

   17,009   (8,077)

Net cash provided by financing activities

   99,418   65,253 
              

Net decrease in cash and due from banks

   (7,098)  (29,446)

Net increase (decrease) in cash and due from banks

   2,103   (28,189)

Cash and due from banks at beginning of period

   31,108   74,021    31,108   74,021 
              

Cash and due from banks at end of period

  $24,010  $44,575   $33,211  $45,832 
              

Supplemental Disclosure of Cash Flow Information:

      

Cash paid during the period for:

      

Interest

  $12,606  $9,510   $25,913  $19,421 

Income taxes

   62   8,710    1,900   9,033 

Non cash activities:

   

Transfer of securities sold under agreements to repurchase to advances

   15,000   26,000 
              

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 six months ended March 31,June 30, 2006 are not necessarily indicative of the results of operations that may be expected for all of 2006.

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, 2005.

Stock-Based Compensation

Prior to January 1, 2006, the Company accounted for stock-based compensation using the intrinsic value method under Accounting Principles Board Opinion No. 25 and accordingly recognized no compensation expense under this method. Effective January 1, 2006, the Company adopted Financial Accounting Standards Board Statement No. 123 (revised 2004) which requires an entity to recognize the grant-date fair-valuefair value of stock options and other equity-basedstock-based compensation issued to employees in the income statement. The modified prospective transition method was adopted so thatand, as a result, the current period income statement includes $29,000$188,000 and $217,000 of expense for equity-basedstock-based compensation but priorfor the three and six months ended June 30, 2006, respectively. Prior periods have not been restated. At March 31,June 30, 2006 the Company had $1.1 million in compensation cost related to non-vested awards not yet recognized. This cost will be recognized over the remaining vesting period of 4.94.6 years.

As a result of adopting Statement 123(R) on January 1, 2006, the Company’s income before income taxes and net income for the three months ended March 31,June 30, 2006 are $29,000$188,000 and $19,000$122,000 lower, respectively, and the Company’s income before taxes and net income for the six months ended June 30, 2006 are $217,000 and $141,000 lower, respectively, than if it had continued to account for share-basedstock-based compensation under Opinion No. 25. Basic and diluted earnings per share for the three months ended March 31,June 30, 2006 would have been unchanged at $.37increased to $.43 and $.36,$.42, respectively, if the Company had not adopted Statement 123(R). Basic and diluted earnings per share for the six months ended June 30, 2006 would have increased to $.80 and $.78, respectively, if the Company had not adopted Statement 123(R).

The fair value of stock options granted by the Company was estimated through the use of the Black-Scholes option pricing model applying the following assumptions:

 

   Three months ended
March 31,
 
   2006  2005 

Risk-free interest rate

   4.68%  3.94%

Expected option life

   7 years   6 years 

Expected volatility

   22%  22%

Expected dividend yield

   3.41%  3.39%

Weighted average fair value of an option share granted during the period

  $4.87  $4.25 
         

Intrinsic value of options exercised during the period

  $922,000  $1,585,000 
         

   Three months ended
June 30,
  Six months ended
June 30,
 
   2006  2005  2006  2005 

Risk-free interest rate

   5.07%  3.95%  4.71%  3.94%

Expected option life

   7 years   6 years   7 years   6 years 

Expected volatility

   22%  22%  22%  22%

Expected dividend yield

   3.57%  3.42%  3.49%  3.40%

Weighted average fair value of an option share granted during the period

  $4.75  $3.81  $4.81  $4.05 
                 

Intrinsic value of options exercised during the period (in thousands)

  $1,831  $2,014  $2,753  $3,599 
                 

Had the compensation costs for the Company’s stock option plan for the three and six months ended March 31,June 30, 2005 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
March 31, 2005
   

Three months ended

June 30, 2005

 

Six months ended

June 30, 2005

 

Net income – as reported

  $4,946   $4,875  $9,821 
           

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

   15    15   67 

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

   (184)   (186)  (407)
           

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

   (169)   (171)  (340)
           

Net income – pro forma

  $4,777   $4,704  $9,481 
           

Basic earnings per share:

     

As reported

  $.41   $.41  $.83 
           

Pro forma

  $.40   $.40  $.80 
           

Diluted earnings per share:

     

As reported

  $.40   $.40  $.80 
           

Pro forma

  $.38   $.39  $.77 
           

The Company has established the Amended and Restated OceanFirst Financial Corp. 1997 Incentive Plan (the “Incentive Plan”) which authorizes the granting of stock options and awards of Common Stockcommon stock and the OceanFirst Financial Corp. 2000 Stock Option Plan which authorizes the granting of stock options. On April 24, 2003 the Company’s shareholders ratified an amendment of the OceanFirst Financial Corp. 2000 Stock Option Plan which increased the number of shares available under option. On April 20, 2006, the OceanFirst Financial Corp. 2006 Stock Incentive Plan was approved which authorizes the granting of stock options or awards of common stock. All officers, other employees and Outside Directors of the Company and its affiliates are eligible to receive awards under the plans.

Under the Incentive Plan and the Amended 2000 Stock Option Plan the Company is authorized to issue up to 4,153,564 shares subject to option.option of which 252,915 shares remain to be issued at June 30, 2006. Under the 2006 Stock Incentive Plan, the Company is authorized to issue up to an additional 1,000,000 shares subject to option or, in lieu of options, up to 333,333 shares in the form of stock awards. All options expire 10 years from the date of grant and generally vest at the rate of 20% per year. The exercise price of each option equals the market price of the Company’s stock on the date of grant. The Company typically issues Treasury shares to satisfy stock option exercises.exercises or grants of stock awards.

A summary of stock option activity for the threesix months ended March 31,June 30, 2006 follows:

 

  Number of Shares 

Weighted Average

Exercise Price

  Number of Shares 

Weighted Average

Exercise Price

Outstanding at beginning of period

  1,732,410  $16.90  1,732,410  $16.90

Granted

  244,800   23.48  258,800   23.43

Exercised

  (74,986)  10.96  (218,416)  10.22

Forfeited

  (7,000)  22.92  (7,000)  22.92
          

Outstanding at the end of the period

  1,895,224   17.99  1,765,794   18.69
            

Options exercisable

  1,648,445   17.17  1,505,015  $17.87
            

The following table summarizes information about stock options outstanding at March 31,June 30, 2006:

 

Options Outstanding  Options Exercisable
Number of
Options
  Weighted
Average
Remaining
Contractual
Life
  Weighted
Average
Exercise
Price
  Aggregate
Intrinsic
Value
  Number of
Options
  Weighted
Average
Remaining
Contractual
Life
  Weighted
Average
Exercise
Price
  Aggregate
Intrinsic
Value
1,895,224  5.66 years  $17.99  $12,338,000  1,648,445  5.04 years  $17.17  $12,083,000
                          

Options Outstanding

 

Options Exercisable

Number of

Options

 

Weighted
Average
Remaining
Contractual Life

 

Weighted
Average Exercise
Price

 

Aggregate
Intrinsic Value

 

Number of
Options

 

Weighted
Average
Remaining
Contractual Life

 

Weighted
Average Exercise
Price

 

Aggregate
Intrinsic Value

1,765,794

 5.83 years $18.69 $7,048,000 1,505,015 5.18 years $17.87 $7,048,000
                

Earnings per Share

The following reconciles shares outstanding for basic and diluted earnings per share for the three and six months ended March 31,June 30, 2006 and 2005 (in thousands):

 

     Three months ended
March 31,
   Three months ended
June 30,
 Six months ended
June 30,
 
     2006 2005   2006 2005 2006 2005 

Weighted average shares issued net of Treasury shares

Weighted average shares issued net of Treasury shares

  12,669  13,000   12,431  12,810  12,550  12,905 

Less:

  

Unallocated ESOP shares

  (870) (1,008)
  

Unallocated incentive award shares and shares held by deferred compensation plan

  (78) (21)

Less: Unallocated ESOP shares

  (837) (974) (853) (991)

Unallocated incentive award shares and shares held by deferred compensation plan

  (76) (18) (78) (22)
                      

Average basic shares outstanding

Average basic shares outstanding

  11,721  11,971   11,518  11,818  11,619  11,892 

Add:

  

Effect of dilutive securities:

   
  

Stock options

  311  481 
  

Incentive awards and shares held by deferred compensation plan

  75  16 

Add: Effect of dilutive securities:

     

Stock options

  239  361  264  406 

Incentive awards and shares held by deferred compensation plan

  74  15  73  17 
                      

Average diluted shares outstanding

Average diluted shares outstanding

  12,107  12,468   11,831  12,194  11,956  12,315 
                      

Comprehensive Income

For the three month periods ended March 31,June 30, 2006 and 2005, total comprehensive income, representing net income plus or minus the change in unrealized gains or losses on securities available for sale amounted to $4,061,000$4,768,000 and $4,066,000,$5,411,000, respectively. For the six months ended June 30, 2006 and 2005 total comprehensive income amounted to $8,829,000 and $9,477,000, respectively.

Note 2. Loans Receivable, Net

Loans receivable, net at March 31,June 30, 2006 and December 31, 2005 consisted of the following (in thousands):

 

   March 31, 2006  December 31, 2005 

Real estate:

   

One- to four-family

  $1,215,885  $1,187,226 

Commercial real estate, multi- family and land

   275,293   281,585 

Construction

   21,194   22,739 

Consumer

   156,861   146,911 

Commercial

   62,763   61,637 
         

Total loans

   1,731,996   1,700,098 

Loans in process

   (6,706)  (7,646)

Deferred origination costs, net

   4,781   4,596 

Allowance for loan losses

   (10,515)  (10,460)
         

Total loans, net

   1,719,556   1,686,588 

Less: Mortgage loans held for sale

   31,031   32,044 
         

Loans receivable, net

  $1,688,525  $1,654,544 
         

   June 30, 2006  December 31, 2005 

Real estate:

   

One- to four-family

  $1,265,444  $1,187,226 

Commercial real estate, multi-family and land

   291,503   281,585 

Construction

   21,843   22,739 

Consumer

   167,851   146,911 

Commercial

   67,747   61,637 
         

Total loans

   1,814,388   1,700,098 

Loans in process

   (5,785)  (7,646)

Deferred origination costs, net

   5,595   4,596 

Allowance for loan losses

   (10,686)  (10,460)
         

Total loans, net

   1,803,512   1,686,588 

Less: Mortgage loans held for sale

   62,282   32,044 
         

Loans receivable, net

  $1,741,230  $1,654,544 
         

Note 3. Deposits

The major types of deposits at March 31,June 30, 2006 and December 31, 2005 were as follows (in thousands):

 

  March 31, 2006  December 31, 2005  June 30, 2006  December 31, 2005

Type of Account

        

Non-interest-bearing

  $119,653  $120,188  $128,484  $120,188

Interest-bearing checking

   382,610   381,787   352,452   381,787

Money market deposit

   127,596   125,169   119,903   125,169

Savings

   233,599   242,689   219,675   242,689

Time deposits

   509,470   486,735   557,421   486,735
            
  $1,372,928  $1,356,568   $1,377,935  $1,356,568
            

Note 4. Recent Accounting Pronouncements

In March 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 156, “Accounting for Servicing of Financial Assets.” SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” establishes, among other things, the accounting for all separately recognized servicing assets and servicing liabilities. SFAS No. 156 amends Statement 140 to require that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. This Statement permits, but does not require, the subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value. An entity that uses derivative instruments to mitigate the risks inherent in servicing assets and servicing liabilities is required to account for those derivative instruments at fair value. Under this Statement, an entity can elect subsequent fair value measurement to account for its separately recognized servicing assets and servicing liabilities. By electing that option, an entity may simplify its accounting because this Statement permits income statement recognition of the potential offsetting changes in fair value of those servicing assets and servicing liabilities and derivative instruments in the same accounting period. The Statement is effective in the first fiscal year beginning after September 15, 2006 with earlier adoption permitted. The Company does not expect the adoption of Statement No. 156 to have a material impact on its financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. The Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement 109 “Accounting for Income Taxes”. This Interpretation presents a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation is effective for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of Interpretation No. 48 to have a material impact on its financial statements.

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

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, 2005 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, 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 primarily 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.

Recent increases in short-term interest rates have outpaced increases in longer-term rates resulting in a flattening of the interest rate yield curve. The continuation of a flat yield curve through the remainder of 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 withat the same pace as market increases in short-term interest rates. The likelyAny upward repricing of core deposits is alsocan be expected to have a negative impact on the Company’s results of operations and net interest margin.

While the Company continues to focus on growing core deposits, the rise in interest rates has made certificates of deposit relatively more attractive as an investment option.option to the Bank’s depositors. The Company has generally repriced certificates of deposit upwards in line with market rates while core deposit repricing has lagged the rise in short-term rates. As competition for core deposits has intensified, some of the Bank’s competitors have aggressively raised their core deposit pricing. In light of these trends, the Bank recorded growth in certificates of deposit during the first quartersix months of 2006 while core deposit balances declined. The Company has executed leases foropened its new branch offices in Barnegat and Little Egg Harbor which are projected to openbranch in May 2006 and late 2006, respectively.expects to open a new branch in Little Egg Harbor in the fourth quarter of 2006. Additionally, the Company plans to open at least two new branches in 2007. Finally, the Company plans to relocate theCompany’s Whiting branch was relocated to a more convenient and prominent location in July 2006. While the original branch remains open, the Company anticipates that this location will eventually close.

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 setstables set forth certain information relating to the Company for the three and six months ended March 31,June 30, 2006 and 2005. 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 MARCH 31,   FOR THE QUARTERS ENDED JUNE 30, 
  2006 2005   2006 2005 
  

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

  $8,174  $90  4.40% $15,811  $96  2.43%  $8,898  $109  4.90% $13,234  $98  2.96%

Investment securities (1)

   84,637   1,537  7.26   85,942   1,191  5.54    84,894   1,130  5.32   86,883   803  3.70 

FHLB stock

   22,478   266  4.73   20,377   167  3.28    24,411   291  4.77   19,802   235  4.75 

Mortgage-backed securities (1)

   84,234   874  4.15   121,217   1,094  3.61    79,710   831  4.17   112,397   967  3.44 

Loans receivable, net (2)

   1,695,108   25,019  5.90   1,546,749   21,773  5.63    1,752,543   26,207  5.98   1,590,601   22,757  5.72 
                                      

Total interest-earning assets

   1,894,631   27,786  5.87   1,790,096   24,321  5.43    1,950,456   28,568  5.86   1,822,917   24,860  5.45 
                                  

Non-interest-earning assets

   94,326      101,503       96,101      100,779    
                          

Total assets

  $1,988,957     $1,891,599      $2,046,557     $1,923,696    
                          

Liabilities and Stockholders’ Equity

                      

Interest-bearing liabilities:

                      

Transaction deposits

  $740,520   2,712  1.46  $723,493   1,576  0.87   $707,409   2,793  1.58  $726,798   1,757  0.97 

Time deposits

   498,543   4,368  3.50   462,209   3,116  2.70    538,382   5,228  3.88   487,151   3,569  2.93 
                                      

Total

   1,239,063   7,080  2.29   1,185,702   4,692  1.58    1,245,791   8,021  2.58   1,213,949   5,326  1.75 

Borrowed funds

   483,994   5,289  4.37   442,815   4,452  4.02    526,889   6,136  4.66   443,728   4,605  4.15 
                                      

Total interest-bearing liabilities

   1,723,057   12,369  2.87   1,628,517   9,144  2.25    1,772,680   14,157  3.19   1,657,677   9,931  2.40 
                                  

Non-interest-bearing deposits

   117,958      109,120       130,568      120,869    

Non-interest-bearing liabilities

   11,332      17,541       10,445      10,585    
                          

Total liabilities

   1,852,347      1,755,178       1,913,693      1,789,131    

Stockholders’ equity

   136,610      136,421       132,864      134,565    
                          

Total liabilities and stockholders’ equity

  $1,988,957     $1,891,599      $2,046,557     $1,923,696    
                          

Net interest income

    $15,417     $15,177      $14,411     $14,929  
                          

Net interest rate spread (3)

      3.00%     3.18%      2.67%     3.05%
                              

Net interest margin (4)

      3.25%     3.39%      2.96%     3.28%
                              

   FOR THE SIX MONTHS ENDED JUNE 30, 
   2006  2005 
   

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

  $8,555  $198  4.63% $14,358  $194  2.70%

Investment securities (1)

   84,766   2,667  6.29   86,422   1,995  4.62 

FHLB stock

   23,450   557  4.75   20,086   402  4.00 

Mortgage-backed securities (1)

   81,960   1,705  4.16   116,747   2,061  3.53 

Loans receivable, net (2)

   1,723,984   51,227  5.94   1,568,749   44,530  5.68 
                       

Total interest-earning assets

   1,922,715   56,354  5.86   1,806,362   49,182  5.45 
                   

Non-interest-earning assets

   95,201      101,430    
               

Total assets

  $2,017,916     $1,907,792    
               

Liabilities and Stockholders’ Equity

           

Interest-bearing liabilities:

           

Transaction deposits

  $723,908   5,505  1.52  $725,381   3,334  0.92 

Time deposits

   518,573   9,596  3.70   474,649   6,684  2.82 
                       

Total

   1,242,481   15,101  2.43   1,200,030   10,018  1.67 

Borrowed funds

   505,560   11,425  4.52   443,222   9,058  4.09 
                       

Total interest-bearing liabilities

   1,748,041   26,526  3.03   1,643,252   19,076  2.32 
                   

Non-interest-bearing deposits

   124,263      114,995    

Non-interest-bearing liabilities

   10,885      14,052    
               

Total liabilities

   1,883,189      1,772,299    

Stockholders’ equity

   134,727      135,493    
               

Total liabilities and stockholders’ equity

  $2,017,916     $1,907,792    
               

Net interest income

    $29,828     $30,106  
               

Net interest rate spread (3)

      2.83%     3.13%
               

Net interest margin (4)

      3.10%     3.33%
               

 

(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-earninginterest -earning assets and the cost of interest-bearing liabilities.

 

(4)Net interest margin represents net interest income divided by average interest-earninginterest -earning assets.

Comparison of Financial Condition at March 31,June 30, 2006 and December 31, 2005

Total assets at March 31,June 30, 2006 were $2.008$2.101 billion, an increase of $23.1$115.4 million, compared to $1.985 billion at December 31, 2005.

Loans receivable, net increased by $34.0$86.7 million to a balance of $1.689$1.741 billion at March 31,June 30, 2006, compared to a balance of $1.655 billion at December 31, 2005. One-toMost of the increase was in one- to four-family real estate loans. Mortgage loans and consumer loansheld for sale increased while commercial real estate loans decreased due$30.2 million to pay-offs and seasonal paydowns on several largea balance of $62.3 million at June 30, 2006 compared to a balance of $32.0 million at December 31, 2005. The increase occurred at the Company’s mortgage banking subsidiary, Columbia Home Loans, LLC, which re-established its wholesale alternative delivery credit facilities.channel during 2006. This delivery channel was adversely impacted in mid 2005 by staff turnover.

Deposit balances increased $16.4$21.4 million to $1.373$1.378 billion at March 31,June 30, 2006 from $1.357 billion at December 31, 2005. Core deposits decreased by $6.4$49.3 million, while time deposits increased by $22.7$70.7 million.

Total Federal Home Loan Bank (“FHLB”) borrowings, consisting of securities sold under agreements to repurchase and advances, increased $10.1$80.1 million to $424.0$494.0 million at March 31,June 30, 2006, compared to a balance of $413.9 million at December 31, 2005. The increase was used to fund loan growth.

Stockholders’ equity at March 31,June 30, 2006 decreased to $135.8$134.0 million, compared to $138.8 million at December 31, 2005. The Company repurchased 276,298555,248 shares of common stock during the threesix months ended March 31,June 30, 2006 at a total cost of $6.5$12.8 million. Under the 5% repurchase program authorized by the Board of Directors in October 2005, 419,386 shares remain to be purchased as of March 31, 2006. 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 Six Months Ended March 31,June 30, 2006 and March 31,June 30, 2005

General

Net income amounted to $4.9 million for both the three months ended June 30, 2006 and 2005. Net income for the six months ended June 30, 2006 decreased to $4.3$9.2 million, as compared to $9.8 million for the same prior year period. Diluted earnings per share increased to $.41 for the three months ended March 31, 2006, as compared to net income of $4.9 million for the three months ended March 31, 2005. Diluted earnings per share decreased to $.36 for the three months ended March 31,June 30, 2006, as compared to $.40 for the same prior year period. Diluted earnings per share for the six months ended June 30, 2006 decreased to $.77, as compared to $.80 for the same prior year period. Earnings per share wasis favorably affected by the Company’s repurchase program, which reducedreduces the average diluted shares outstanding.

Interest Income

Interest income for the three and six months ended March 31,June 30, 2006 was $27.8$28.6 million and $56.4 million, respectively, compared to $24.3$24.9 million and $49.2 million, respectively, for the three and six months ended March 31,June 30, 2005. The yield on interest-earning assets increased to 5.87%5.86% for both the three and six months ended March 31,June 30, 2006 as compared to 5.43%5.45% for the same prior year period. The asset yield for the current quarter benefited from $463,000 of income relating to an equity investment. The comparable benefit for the prior year period was $443,000.periods. Average interest-earning assets increased by $104.5$127.5 million and $116.4 million, respectively, for the three and six months March 31,June 30, 2006 as compared to the same prior year period.periods. The growth was concentrated in average loans receivable which grew $148.4$161.9 million, or 9.6%.

Interest Expense

Interest expense10.2%, for the three months ended March 31, 2006 was $12.4 million compared to $9.1 million for the three months ended March 31, 2005. The cost of interest-bearing liabilities increased to 2.87% for the three months ended March 31, 2006, as compared to 2.25% in the same prior year period. Average interest-bearing liabilities increased by $94.5 million for the three months ended March 31,June 30, 2006, as compared to the same prior year period. For the six months ended June 30, 2006 average loans receivable increased $155.2, or 9.9%, as compared to the same prior year period.

Interest Expense

Interest expense for the three and six months ended June 30, 2006 was $14.2 million and $26.5 million, respectively, compared to $9.9 million and $19.1, respectively, for the three and six months ended June 30, 2005. The cost of interest-bearing liabilities increased to 3.19% and 3.03% for the three and six months ended June 30, 2006, as compared to 2.40% and 2.32%, respectively, in the same prior year periods. Average interest-bearing liabilities increased by $115.0 million and $104.8 million, respectively, for the three and six months ended June 30, 2006 as compared to the same prior year periods. The growth was split betweenoccurred in average borrowed funds which grew $83.2 million and average interest-bearing deposits which grew $53.4

$31.8 million or 4.5%, and byfor the three months ended June 30, 2006 as compared to the same prior year period. For the six months ended June 30, 2006 average borrowed funds which grew $41.2 million.increased $62.3 million and average interest-bearing deposits increased $42.5 million as compared to the same prior year period.

Net Interest Income

Net interest income for the three and six months ended March 31,June 30, 2006 increaseddecreased to $15.4$14.4 million and $29.8 million, respectively, as compared to $15.2$14.9 million and $30.1 million, respectively, in the same prior year period benefiting from the increase in average interest-earning assets as noted above.periods. The net interest margin decreased to 3.25%2.96% and 3.10%, respectively, for the three and six months ended March 31,June 30, 2006 from 3.39%3.28% and 3.33%, respectively, in the same prior year period.periods. The rise in short-term interest rates and the flattening of the interest rate yield curve caused the increase in interest-bearing liabilities to outpace the increase in interest-earning assets.

Provision for Loan Losses

For the three and six months ended March 31,June 30, 2006, the Company’s provision for loan losses was zero and $50,000, unchanged fromrespectively, compared to $200,000 and $250,000, respectively, in the same prior year period.periods. Total loans receivable increased, but net charge-offs for the three and six months ended March 31,June 30, 2006 improved to a $4,000net recovery of $172,000 and $176,000, respectively, as compared to a $3,000 charge-offnet charge-offs of $422,000 and $425,000, respectively, for the same prior year period.periods. Additionally, non-performing loans decreased to $1.6$1.8 million at March 31,June 30, 2006 from $2.7$2.1 million at March 31,June 30, 2005.

Other Income

Other income was $4.4$6.5 million and $11.0 million, respectively, for the three and six months ended March 31,June 30, 2006, compared to $5.9 million and $11.8 million for the same prior year period.periods. For the three and six months ended March 31,June 30, 2006, the Company recorded gains of $1.7$3.3 million and $5.0 million, respectively, on the sale of loans and securities available for sale, as compared to gains of $3.3$3.2 million and $6.5 million, respectively, in the same prior year period.periods. Loans sold for the three and six month period ended March 31,June 30, 2006 decreased to $95.7$164.1 million and $259.8 million, respectively, from $160.8$165.5 million and $326.3 million, respectively, in the same prior year period.periods. Most of the decline in sales volume for the six month period ended June 30, 2006 occurred at the Company’s mortgage banking subsidiary, Columbia Home Loans LLC.during the first quarter of 2006. The decline experienced at Columbia iswas partly reflective of declines experienced industry-wide. Additionally, staff turnover in the

wholesale alternative credit channel adversely affected sales volume. In light of continuing pressure on volume and margins, Columbia implemented plans to consolidate lending channels to a more centralized platform designed to improve efficiency and reduce operating costs. TheAs expected, the consolidation temporarily reduced lending capacity and adversely impacted the volume of loan sales. Additionally, staff turnover in the wholesale alternative credit channel adversely affected sales volume. During the second quarter of 2006 Columbia re-established the wholesale alternative credit channel and sales volume was restored to prior year levels.

Fees and service charges increased $165,000$442,000 and $608,000, respectively, for the three and six months ended March 31,June 30, 2006, as compared to the same prior year periodperiods primarily related to increases in fees generated from reverse mortgage loans, a new emphasis for the Company, as well as fees from private mortgagetitle insurance.

Operating Expenses

Operating expenses were $13.2$13.5 million and $26.7 million, respectively, for the three and six months ended March 31,June 30, 2006, as compared to $13.4$13.2 million and $26.5 million, respectively, in the same prior year period. Theperiods. Increased compensation and general and administrative expense was partly offset by a decrease was in loan related costs for compensation and marketing.marketing expense.

Provision for Income Taxes

Income tax expense was $2.3$2.6 million and $4.9 million, respectively, for the three and six months ended March 31,June 30, 2006, as compared to $2.7$2.6 million and $5.3 million, respectively, for the same prior year period.periods. The effective tax rate decreased slightly to 34.8%34.6% and 34.7%, respectively, for the three and six months ended March 31,June 30, 2006 as compared to 35.2%34.9% and 35.1%, respectively, for the same prior year period.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”)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 linelines of credit and advances from the FHLB.FHLB advances.

At March 31,June 30, 2006 the Company had outstanding overnight borrowings from the FHLB of $66.0$100.0 million as compared to $51.9 million in overnight borrowings at December 31, 2005. 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 $424.0$494.0 million at March 31,June 30, 2006, an increase from $413.9 million at December 31, 2005. The increase in borrowings was used to fund loan growth.

The Company’s cash needs for the threesix months ended March 31,June 30, 2006, were primarily satisfied by principal payments on loans and mortgage-backed securities, increased deposits and borrowings and proceeds from the sale of mortgage loans held for sale. The cash was principally utilized for loan originations and the repurchase of common stock. For the threesix months ended March 31,June 30, 2005, the cash needs of the Company 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 provided was principally used for the origination of loans, a reduction in total borrowings and the repurchase of common stock.

In the normal course of business, the Company routinely enters into various off-balance sheet commitments, primarily relating to the origination and sale of loans. At March 31,June 30, 2006, outstanding commitments to originate loans totaled $184.1$225.1 million; outstanding unused lines of credit totaled $182.8$171.7 million; and outstanding commitments to sell loans totaled $56.1$84.5 million. The Company expects to have sufficient funds available to meet current commitments arising in the normal course of business.

Time deposits scheduled to mature in one year or less totaled $365.8$437.0 million at March 31,June 30, 2006. 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 threesix months ended March 31,June 30, 2006, the Company purchased 276,298555,248 shares of common stock at a total cost of $6.5$12.8 million compared with purchases of 302,113504,013 shares for the threesix months ended March 31,June 30, 2005 at an aggregatea total cost of $7.1$11.6 million. At March 31,June 30, 2006, there were 419,386140,436 shares remaining to be repurchased under the existing stock repurchase program. A new repurchase program, the Company’s thirteenth, was announced on July 20, 2006. Under this 5% repurchase program, an additional 615,883 shares are available for repurchase. Cash dividends declared and paid during the first threesix months of 2006 were $2.3$4.6 million, a decrease from $2.4$4.8 million from the same prior year period due to the reduction in common shares outstanding. On AprilJuly 19, 2006, the Board of Directors declared a quarterly cash dividend of twenty cents ($.20) per common share. The dividend is payable on May 12,August 11, 2006 to stockholders of record at the close of business on AprilJuly 28, 2006.

The primary source of liquidity for OceanFirst Financial Corp., the holding company of OceanFirst Bank, is capital distributions from the banking subsidiary and, to a lesser extent, the issuance of debt instruments. For the first threesix months of 2006, OceanFirst Financial Corp. received $5.0$8.0 million in dividend payments from OceanFirst Bank. The Company also received $5.0 million from the issuance of trust preferred securities. The trust preferred securities carry a floating rate of 165 basis points over 3 month LIBOR and adjust quarterly. Accrued interest is due quarterly with principal due at the maturity date of August 1, 2036. 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. On August 4, 2006 the Company issued an additional $7.5 million of trust preferred securities to be used for the repurchase of common stock, the payment of dividends to shareholders and other corporate purposes. These trust preferred securities carry a floating rate of 166 basis points over 3 month LIBOR and adjust quarterly. Accrued interest is due quarterly with principal due at the maturity date of November 1, 2036. The Company’s Board of Directors has approved the issuance of up to an additional $12.5 million of Tier II capital in the form of trust preferred securities or subordinated debt.

At March 31,June 30, 2006, the Bank exceeded all of its regulatory capital requirements with tangible capital of $127.8$131.5 million, or 6.4%6.3% of total adjusted assets, which is above the required level of $30.1$31.5 million or 1.5%; core capital of $127.8$131.5 million or 6.4%6.3% of total adjusted assets, which is above the required level of $60.2$63.0 million, or 3.0%; and risk-based capital of $138.3$141.7 million, or 10.8%10.5% of risk-weighted assets, which is above the required level of $102.7$107.6 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 $56.1$84.5 million.

The following table shows the contractual obligations of the Company by expected payment period as of March 31,June 30, 2006 (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

  $480,772  $213,772  $174,000  $73,000  $20,000  $564,629  $250,629  $209,000  $80,000  $25,000

Commitments to Originate Loans

   184,055   184,055   —     —     —    $225,106  $225,106   —     —     —  

Commitments to Fund Unused Lines of Credit

   182,809   182,809   —     —     —    $171,658  $171,658   —     —     —  

Debt obligations include borrowings from the FHLB, and Securities Sold under Agreements to Repurchase.Repurchase and other borrowings. The borrowings have defined terms and, under certain circumstances, $62.0$72.0 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.

 

  March 31,
2006
 December 31,
2005
   June 30,
2006
 December 31,
2005
 
  (dollars in thousands)   (dollars in thousands) 

Non-accrual loans:

      

Real estate - One- to four-family

  $1,295  $1,084   $1,370  $1,084 

Commercial Real Estate

   243   —   

Consumer

   108   299    101   299 

Commercial

   209   212    85   212 
              

Total non-performing loans

   1,612   1,595    1,799   1,595 

REO, net

   245   278    225   278 
              

Total non-performing assets

  $1,857  $1,873   $2,024  $1,873 
              

Allowance for loan losses as a percent of total loans receivable

   .61%  .62%   .59%  .62%

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

   652.30   655.80    594.00   655.80 

Non-performing loans as a percent of total loans receivable

   .09   .09    .10   .09 

Non-performing assets as a percent of total assets

   .09   .09    .10   .09 

The Company also classifies assets in accordance with certain regulatory guidelines. At March 31,June 30, 2006 the Bank had $14.0$18.8 million classifieddesignated as Special Mention, $3.5$6.0 million classified as Substandard and $65,000$73,000 classified as Doubtful as compared to $15.5 million, $2.2 million and $59,000, respectively, classifieddesignated as Special Mention and classified as Substandard and Doubtful at December 31, 2005. On June 30, 2006, the Company had two loans for a total of $3.3 million outstanding to Dwek Branches, LLC, an entity controlled by Solomon Dwek, a local real estate developer. On May 3, 2006, PNC Bank, National Association, commenced an action against Mr. Dwek and certain of his affiliates in the Superior Court of New Jersey, Chancery Division, Monmouth County (PNC Bank, National Assoc. v. Solomon Dwek et al., Docket No.: Mon-C-133-06), to recover funds allegedly improperly transferred by Mr. Dwek from PNC. The Court issued an Order to Show Cause restraining Mr. Dwek from transferring or in any way dissipating his various assets, and subsequently appointed a fiscal agent to, among other things, monitor and preserve the value of the assets of Mr. Dwek and his affiliates. This report is being included in this quarterly report due to the media attention surrounding Mr. Dwek and to clarify the Bank’s business relationship with Mr. Dwek. Both of the loans to Dwek Branches LLC are secured by commercial real estate. The first loan in the amount of $1.5 million has been designated as Special Mention. The second loan totaling $1.8 million has been classified as Substandard.

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 Board of Governors of the Federal Reserve Board,System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on statements. The Company does not undertake - undertake—and specifically disclaims any obligation - obligation—to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to

reflect the occurrence of anticipated or unanticipated events. Further description of the risks and uncertainties to the business are included in Item 1, Business and Item 1A, Risk Factors of the Company’s 2005 Form 10-K.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

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)(“IRR”) model. At March 31, 2006 the Company adopted a new interest rate risk model which is expected to provide improved modeling capabilities. The new model allows for greater disaggregation of data elements, enhanced loan prepayment modeling and greater flexibility. The following tables set forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at March 31,June 30, 2006 and December 31, 2005,

which were anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown. The Company’s results for December 31, 2005 have been restated for comparative purposes using the new IRR model. At March 31,June 30, 2006 the Company’s one-year gap was positive 0.86%negative 4.63% as compared to positive 4.19% at December 31, 2005.

 

At March 31, 2006

  

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 June 30, 2006

  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

  $3,530  $—    $—    $—    $—    $3,530   $7,018  $—    $—    $—    $—    $7,018 

Investment securities

   75,558   2,385   285   —     6,653   84,881    75,597   2,385   287   —     6,652   84,921 

FHLB stock

   —     —     —     —     22,279   22,279    —     —     —     —     25,694   25,694 

Mortgage-backed securities

   7,732   23,776   30,519   15,534   4,365   81,926    7,639   19,173   29,661   13,258   6,626   76,357 

Loans receivable (2)

   288,287   330,955   562,299   292,446   251,303   1,725,290    298,817   316,908   555,121   298,193   339,564   1,808,603 
                                      

Total interest-earning assets

   375,107   357,116   593,103   307,980   284,600   1,917,906    389,071   338,466   585,069   311,451   378,536   2,002,593 
                                      

Interest-bearing liabilities:

              

Money market deposit accounts

   5,800   17,400   46,398   57,998   —     127,596    5,457   16,371   43,655   54,420   —     119,903 

Savings accounts

   10,567   32,818   84,539   105,675   —     233,599    9,912   31,342   79,298   99,123   —     219,675 

Interest-bearing checking accounts

   17,391   52,173   139,129   173,917   —     382,610    16,020   48,061   128,163   160,208   —     352,452 

Time deposits

   127,461   238,379   119,170   19,681   4,779   509,470    184,798   252,759   95,481   20,810   3,573   557,421 

FHLB advances

   90,000   72,000   133,000   70,000   15,000   380,000    142,000   48,000   165,000   80,000   15,000   450,000 

Securities sold under agreements to repurchase

   50,972   —     44,000   —     —     94,972    59,529   —     44,000   —     —     103,529 

Other borrowings

   800   —     —     —     5,000   5,800    6,100   —     —     —     5,000   11,100 
                                      

Total interest-bearing liabilities

   302,991   412,770   566,236   427,271   24,779   1,734,047    423,816   396,533   555,597   414,561   23,573   1,814,080 
                                      

Interest sensitivity gap (3)

  $72,116  $(55,654) $26,867  $(119,291) $259,821  $183,859   $(34,745) $(58,067) $29,472  $(103,110) $354,963  $188,513 
                                      

Cumulative interest sensitivity gap

  $72,116  $16,462  $43,329  $(75,962) $183,859  $183,859   $(34,745) $(92,812) $(63,340) $(166,450) $188,513  $188,513 
                                      

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

   3.76%  0.86%  2.26%  (3.96%)  9.59%  9.59%

At December 31, 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

  $5,144  $—    $—    $—    $—    $5,144 

Investment securities

   75,729   2,384   —     —     6,471   84,584 

FHLB stock

   —     —     —     —     21,792   21,792 

Mortgage-backed securities

   18,289   16,314   24,841   22,435   4,491   86,370 

Loans receivable (2)

   274,230   357,158   559,501   275,400   226,163   1,692,452 
                   

Total interest-earning assets

   373,392   375,856   584,342   297,835   258,917   1,890,342 
                   

Interest-bearing liabilities:

       

Money market deposit accounts

   5,690   17,069   45,516   56,894   —     125,169 

Savings accounts

   11,005   33,592   88,041   110,051   —     242,689 

Interest-bearing checking accounts

   17,408   52,225   139,268   172,886   —     381,787 

Time deposits

   93,846   230,103   134,031   21,784   6,971   486,735 

FHLB advances

   80,900   74,000   115,000   70,000   15,000   354,900 

Securities sold under agreements to repurchase

   54,289   —     56,000   3,000   —     113,289 

Other borrowings

   —     —     —     —     5,000   5,000 
                   

Total interest-bearing liabilities

   263,138   406,989   577,856   434,615   26,971   1,709,569 
                   

Interest sensitivity gap (3)

  $110,254  $(31,133) $6,486  $(136,780) $231,946  $180,773 
                   

Cumulative interest sensitivity gap

  $110,254  $79,121  $85,607  $(51,173) $180,773  $180,773 
                   

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

   5.83%  4.19%  4.53%  (2.71%)  9.56%  9.56%

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

   (1.74%)  (4.63%)  (3.16%)  (8.31%)  9.41%  9.41%

At December 31, 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

  $5,144  $—    $—    $—    $—    $5,144 

Investment securities

   75,729   2,384   —     —     6,471   84,584 

FHLB stock

   —     —     —     —     21,792   21,792 

Mortgage-backed securities

   18,289   16,314   24,841   22,435   4,491   86,370 

Loans receivable (2)

   274,230   357,158   559,501   275,400   226,163   1,692,452 
                         

Total interest-earning assets

   373,392   375,856   584,342   297,835   258,917   1,890,342 
                         

Interest-bearing liabilities:

       

Money market deposit accounts

   5,690   17,069   45,516   56,894   —     125,169 

Savings accounts

   11,005   33,592   88,041   110,051   —     242,689 

Interest-bearing checking accounts

   17,408   52,225   139,268   172,886   —     381,787 

Time deposits

   93,846   230,103   134,031   21,784   6,971   486,735 

FHLB advances

   80,900   74,000   115,000   70,000   15,000   354,900 

Securities sold under agreements to repurchase

   54,289   —     56,000   3,000   —     113,289 

Other borrowings

   —     —     —     —     5,000   5,000 
                         

Total interest-bearing liabilities

   263,138   406,989   577,856   434,615   26,971   1,709,569 
                         

Interest sensitivity gap (3)

  $110,254  $(31,133) $6,486  $(136,780) $231,946  $180,773 
                         

Cumulative interest sensitivity gap

  $110,254  $79,121  $85,607  $(51,173) $180,773  $180,773 
                         

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

   5.83%  4.19%  4.53%  (2.71%)  9.56%  9.56%

 

(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 March 31,June 30, 2006 and December 31, 2005. 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, 2005.

 

   March 31, 2006  December 31, 2005 
   Net Portfolio Value  

NPV

Ratio

  Net Interest Income  Net Portfolio Value  

NPV

Ratio

  Net Interest Income 

Change in Interest Rates in Basis
Points (Rate Shock)

  Amount  % Change   Amount  % Change  Amount  % Change   Amount  % Change 
(dollars in thousands)                               

200

  $177,446  (16.2)% 9.4% $57,770  (3.3)% $188,421  (12.6)% 10.0% $60,217  0.4%

100

   197,673  (6.7) 10.2   59,104  (1.1)  205,596  (4.6) 10.6   60,550  1.0 

Static

   211,800  —    10.7   59,767  —     215,479  —    10.9   59,953  —   

(100)

   213,384  0.7  10.6   58,932  (1.4)  212,431  (1.4) 10.6   58,002  (3.3)

(200)

   200,298  (5.4) 9.9   55,806  (6.6)  195,476  (9.3) 9.8   54,008  (9.9)

   June 30, 2006  December 31, 2005 
    Net Portfolio Value  

NPV
Ratio

  Net Interest Income  Net Portfolio Value  

NPV

Ratio

  Net Interest Income 

Change in Interest Rates in

Basis Points (Rate Shock)

  Amount  % Change   Amount  % Change  Amount  % Change   Amount  % Change 
(dollars in thousands)                               

200

  $162,551  (20.5)% 8.3% $60,297  (2.7)% $188,421  (12.6)% 10.0% $60,217  0.4%

100

   185,260  (9.3) 9.2   61,251  (1.1)  205,596  (4.6) 10.6   60,550  1.0 

Static

   204,342  —    9.9   61,943  —     215,479  —    10.9   59,953  —   

(100)

   213,720  4.6  10.1   62,161  0.4   212,431  (1.4) 10.6   58,002  (3.3)

(200)

   203,705  (0.3) 9.7   60,194  (2.8)  195,476  (9.3) 9.8   54,008  (9.9)
Item 4.Controls and Procedures

Item 4. 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 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 March 31,June 30, 2006 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

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 1A.Risk Factors

Item 1A. Risk Factors

No material change.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

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 March 31,June 30, 2006 is as follows:

 

Period

  Total Number of
Shares
Purchased (1)
  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

January 1, 2006 through January 31, 2006

  26,040  $23.76  23,000  672,684

February 1, 2006 through February 28, 2006

  47,818  $23.55  47,818  624,866

March 1, 2006 through March 31, 2006

  205,480  $23.56  205,480  419,386

Period

  Total Number of
Shares
Purchased (1)
  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, 2006 through April 30, 2006

  0  —    0  419,386

May 1, 2006 through May 31, 2006

  219,120  22.80  182,600  236,786

June 1, 2006 through June 30, 2006

  100,806  21.86  96,350  140,436

 

(1)Includes 3,04036,520 shares in JanuaryMay 2006 and 4,456 in June 2006 which represent shares tendered by employees to exercise stock options.

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. On July 20, 2006, the Company announced its intention to repurchase up to an additional 615,883 shares, or 5%, of its outstanding common stock upon completion of the existing program.

Item 3.Defaults Upon Senior Securities

Item 3. Defaults Upon Senior Securities

Not Applicable

Item 4.

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

The annual meeting of stockholders wasMatters to a Vote of Security Holders

See results of Annual Meeting held on April 20, 2006. The following directors were elected2006 as reported in the Quarterly Report on Form 10-Q for terms of three years: John W. Chadwick, Carl Feltz, Jr. and Diane F. Rhine. The following proposals were votedthe quarter ended March 31, 2006 filed on by the stockholders:May 10, 2006.

Proposal

  For  Against  Withheld/Abstain  Broker Non-Votes

1)      Election of Directors

        

John W. Chadwick

  10,138,056  —    1,705,442  —  

Carl Feltz, Jr.

  9,909,960  —    1,933,628  —  

Diane F. Rhine

  9,922,408  —    1,969,456  —  

2)      Approval of the OceanFirst Financial Corp. 2006 Stock Incentive Plan.

  7,224,790  2,705,060  48,091  1,865,557

3)      Ratification of the Appointment of KPMG LLP as independent registered public accounting firm of the Company for the fiscal year ending December 31, 2006.

  10,376,069  1,411,457  55,972  —  

Item 5. Other Information

Other Information

On February 15, 2006, the Board of Directors of OceanFirst Bank resolved to extend the Employment Agreements for Messrs. Garbarino, Fitzpatrick and Pardes to their original three year terms with an expiration date of December 31, 2008. The Employment Agreement between Columbia Home Loans, LLC and Robert M. Pardes was not renewed since his primary responsibilities now relate to his role as Chief Lending Officer of the Bank. The Board also resolved to extend the Change-In-Control Agreements for Messrs. Nardelli and Kelly to their original two year terms with an expiration date of December 31, 2007.

Not Applicable

Item 6.Exhibits

Item 6. 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.*
10.20Form of OceanFirst Financial Corp. 2006 Stock Incentive Plan Stock Option Award Agreement (filed herewith)
10.21Form of OceanFirst Financial Corp. 2006 Stock Incentive Plan Stock Award Agreement (filed herewith)
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

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: May 10,August 9, 2006

  

/s/ John R. Garbarino

  

John R. Garbarino

  

Chairman of the Board, President

and Chief Executive Officer

DATE: May 10,August 9, 2006

  

/s/ Michael J. Fitzpatrick

  

Michael J. Fitzpatrick

  

Executive Vice President and

Chief Financial Officer

Exhibit Index

 

Exhibit

Description

31.1Rule 13a-14(a)/15d-14(c) Certification of Chief Executive Officer
31.2Rule 13a-14(a)/15d-14(c) Certification of Chief Financial Officer
32.0Section 1350 Certifications
Exhibit  

Description

  Page
10.20  Form of OceanFirst Financial Corp. 2006 Stock Incentive Plan Stock Option Award Agreement  22
10.21  Form of OceanFirst Financial Corp. 2006 Stock Incentive Plan  27
  Stock Award Agreement ��
  31.1  Rule 13a-14(a)/15d-14(c) Certification of Chief Executive Officer  30
  31.2  Rule 13a-14(a)/15d-14(c) Certification of Chief Financial Officer  31
  32.0  Section 1350 Certifications  32

 

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