UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010March 31, 2011
¨ | 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 001-11713
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) | ||
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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES ¨ 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 | ¨ | Smaller Reporting Company | ¨ |
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 November 3, 2010,May 5, 2011, there were 18,822,55618,846,122 shares of the Registrant’s Common Stock, par value $.01 per share, outstanding.
INDEX TO FORM 10-Q
FINANCIAL SUMMARY (dollars in thousands, except per share amounts) ASSETS Cash and due from banks Investment securities available for sale Federal Home Loan Bank of New York stock, at cost Mortgage-backed securities available for sale Loans receivable, net Mortgage loans held for sale Interest and dividends receivable Real estate owned, net Premises and equipment, net Servicing asset Bank Owned Life Insurance Other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Deposits Securities sold under agreements to repurchase with retail customers Federal Home Loan Bank advances Other borrowings Due to brokers Advances by borrowers for taxes and insurance Other liabilities Total liabilities Stockholders’ equity: Preferred stock, $.01 par value, $1,000 liquidation preference, 5,000,000 shares authorized, no shares issued at September 30, 2010 and December 31, 2009 Common stock, $.01 par value, 55,000,000 shares authorized, 33,566,772 shares issued and 18,822,556 and 18,821,956 shares outstanding at September 30, 2010 and December 31, 2009, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss Less: Unallocated common stock held by Employee Stock Ownership Plan Treasury stock, 14,744,216 and 14,744,816 shares at September 30, 2010 and December 31, 2009, respectively Common stock acquired by Deferred Compensation Plan Deferred Compensation Plan Liability Total stockholders’ equity Total liabilities and stockholders’ equityConsolidated StatementsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations September 30,
2010 December 31,
2009 (Unaudited) $ 29,632 $ 23,016 68,919 37,267 17,425 19,434 343,410 213,622 1,665,997 1,629,284 4,086 5,658 7,085 6,059 2,242 2,613 21,843 22,088 5,661 6,515 40,594 39,970 18,484 24,502 $ 2,225,378 $ 2,030,028 $ 1,623,516 $ 1,364,199 70,874 64,573 280,000 333,000 27,500 27,500 3,456 40,684 7,782 7,453 12,821 9,083 2,025,949 1,846,492 — — 336 336 260,435 260,130 171,085 163,063 (3,413 ) (10,753 ) (4,557 ) (4,776 ) (224,457 ) (224,464 ) 951 986 (951 ) (986 ) 199,429 183,536 $ 2,225,378 $ 2,030,028 See accompanying Notes to Unaudited Consolidated Financial Statements.
SELECTED FINANCIAL CONDITION DATA: Total assets Loans receivable, net Deposits Stockholders’ equity SELECTED OPERATING DATA: Net interest income Provision for loan losses Other income Operating expenses Net income Diluted earnings per share SELECTED FINANCIAL RATIOS: Stockholders’ equity per common share Cash dividend per share Stockholders’ equity to total assets Return on average assets (1) Return on average stockholders’ equity (1) Average interest rate spread Net interest margin Operating expenses to average assets (1) Efficiency ratio ASSET QUALITY: Non-performing loans Non-performing assets Non-performing loans as a percent of total loans receivable Non-performing assets as a percent of total assets Allowance for loan losses as a percent of total loans receivable Allowance for loan losses as a percent of total non-performing loans At or for the Quarter Ended March 31, 2011 December 31, 2010 March 31, 2010 $ 2,263,283 $ 2,251,330 $ 2,199,233 1,636,251 1,660,788 1,640,149 1,645,788 1,663,968 1,381,108 205,986 201,251 187,181 19,337 18,880 18,970 1,700 2,000 2,200 3,459 4,527 2,968 13,128 13,926 12,702 5,106 5,784 4,404 0.28 0.32 0.24 10.93 10.69 9.94 0.12 0.12 0.12 9.10 % 8.94 % 8.51 % 0.90 1.02 0.83 10.12 11.54 9.61 3.48 3.39 3.61 3.60 3.52 3.76 2.32 2.46 2.39 57.59 59.50 57.90 $ 35,686 $ 37,537 $ 32,303 37,600 39,832 35,167 2.15 % 2.23 % 1.95 % 1.66 1.77 1.60 1.23 1.17 0.94 57.25 52.48 48.39
Consolidated Statements of Income
(dollars in thousands, except per share amounts)
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Interest income: | ||||||||||||||||
Loans | $ | 22,314 | $ | 22,618 | $ | 66,524 | $ | 68,581 | ||||||||
Mortgage-backed securities | 2,976 | 817 | 8,923 | 2,458 | ||||||||||||
Investment securities and other | 438 | 406 | 1,164 | 1,408 | ||||||||||||
Total interest income | 25,728 | 23,841 | 76,611 | 72,447 | ||||||||||||
Interest expense: | ||||||||||||||||
Deposits | 3,781 | 4,263 | 10,693 | 14,136 | ||||||||||||
Borrowed funds | 2,379 | 2,876 | 7,683 | 9,794 | ||||||||||||
Total interest expense | 6,160 | 7,139 | 18,376 | 23,930 | ||||||||||||
Net interest income | 19,568 | 16,702 | 58,235 | 48,517 | ||||||||||||
Provision for loan losses | 1,600 | 1,500 | 6,000 | 3,500 | ||||||||||||
Net interest income after provision for loan losses | 17,968 | 15,202 | 52,235 | 45,017 | ||||||||||||
Other income: | ||||||||||||||||
Loan servicing income (loss) | 72 | 119 | 231 | (102 | ) | |||||||||||
Fees and service charges | 2,760 | 2,700 | 8,117 | 7,804 | ||||||||||||
Net gain on sales of loans and securities available for sale | 1,210 | 1,094 | 2,215 | 3,119 | ||||||||||||
Net (loss) gain from other real estate operations | (45 | ) | 67 | (408 | ) | 71 | ||||||||||
Income from Bank Owned Life Insurance | 220 | 202 | 624 | 634 | ||||||||||||
Other | 2 | 363 | 6 | 368 | ||||||||||||
Total other income | 4,219 | 4,545 | 10,785 | 11,894 | ||||||||||||
Operating expenses: | ||||||||||||||||
Compensation | 7,326 | 6,216 | 20,907 | 17,781 | ||||||||||||
Occupancy | 1,325 | 1,398 | 4,117 | 4,687 | ||||||||||||
Equipment | 568 | 478 | 1,581 | 1,428 | ||||||||||||
Marketing | 514 | 467 | 1,341 | 1,171 | ||||||||||||
Federal deposit insurance | 663 | 605 | 1,983 | 2,512 | ||||||||||||
Data processing | 858 | 812 | 2,521 | 2,506 | ||||||||||||
Legal | 279 | 236 | 843 | 1,086 | ||||||||||||
Check card processing | 311 | 287 | 937 | 792 | ||||||||||||
Accounting and audit | 143 | 135 | 465 | 466 | ||||||||||||
General and administrative | 1,773 | 1,719 | 5,027 | 4,948 | ||||||||||||
Total operating expenses | 13,760 | 12,353 | 39,722 | 37,377 | ||||||||||||
Income before provision for income taxes | 8,427 | 7,394 | 23,298 | 19,534 | ||||||||||||
Provision for income taxes | 3,189 | 2,860 | 8,704 | 7,448 | ||||||||||||
Net income | 5,238 | 4,534 | 14,594 | 12,086 | ||||||||||||
Dividends on preferred stock and warrant accretion | — | 537 | — | 1,539 | ||||||||||||
Net income available to common stockholders | $ | 5,238 | $ | 3,997 | $ | 14,594 | $ | 10,547 | ||||||||
Basic earnings per share | $ | 0.29 | $ | 0.34 | $ | 0.80 | $ | 0.90 | ||||||||
Diluted earnings per share | $ | 0.29 | $ | 0.34 | $ | 0.80 | $ | 0.90 | ||||||||
Average basic shares outstanding | 18,146 | 11,724 | 18,137 | 11,710 | ||||||||||||
Average diluted shares outstanding | 18,194 | 11,772 | 18,186 | 11,758 | ||||||||||||
See accompanying Notes to Unaudited Consolidated Financial Statements.
Consolidated Statements of
Changes in Stockholders’ Equity(Unaudited)
(in thousands, except per share amounts)
Preferred Stock | 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, 2008 | $ | — | $ | 272 | $ | 204,298 | $ | 160,267 | $ | (14,462 | ) | $ | (5,069 | ) | $ | (225,523 | ) | $ | 981 | $ | (981 | ) | $ | 119,783 | ||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 12,086 | — | — | — | — | — | 12,086 | ||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Unrealized gain on securities (net of tax expense $2,264) | — | — | — | — | 3,278 | — | — | — | — | 3,278 | ||||||||||||||||||||||||||||||
Total comprehensive income | 15,364 | |||||||||||||||||||||||||||||||||||||||
Proceeds from issuance of preferred stock and warrants | 36,921 | — | 1,342 | — | — | — | — | — | — | 38,263 | ||||||||||||||||||||||||||||||
Accretion of discount on preferred stock | 179 | — | — | (179 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Treasury stock allocated to restricted stock plan | — | — | (695 | ) | (221 | ) | — | — | 916 | — | — | — | ||||||||||||||||||||||||||||
Stock awards | — | — | 524 | — | — | — | — | — | — | 524 | ||||||||||||||||||||||||||||||
Allocation of ESOP stock | — | — | — | — | — | 220 | — | — | — | 220 | ||||||||||||||||||||||||||||||
ESOP adjustment | — | — | 96 | — | — | — | — | — | — | 96 | ||||||||||||||||||||||||||||||
Cash dividend - $0.60 per share | — | — | — | (7,061 | ) | — | — | — | — | — | (7,061 | ) | ||||||||||||||||||||||||||||
Cash dividend on preferred stock | 245 | — | — | (1,355 | ) | — | — | — | — | — | (1,110 | ) | ||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | (50 | ) | — | — | 143 | — | — | 93 | |||||||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2009 | $ | 37,345 | $ | 272 | $ | 205,565 | $ | 163,487 | $ | (11,184 | ) | $ | (4,849 | ) | $ | (224,464 | ) | $ | 981 | $ | (981 | ) | $ | 166,172 | ||||||||||||||||
Balance at December 31, 2009 | $ | — | $ | 336 | $ | 260,130 | $ | 163,063 | $ | (10,753 | ) | $ | (4,776 | ) | $ | (224,464 | ) | $ | 986 | $ | (986 | ) | $ | 183,536 | ||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 14,594 | — | — | — | — | — | 14,594 | ||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Unrealized gain on securities (net of tax expense $4,961) | — | — | — | — | 7,340 | — | — | — | — | 7,340 | ||||||||||||||||||||||||||||||
Total comprehensive income | 21,934 | |||||||||||||||||||||||||||||||||||||||
Expenses of common stock offering | — | — | (109 | ) | — | — | — | — | — | — | (109 | ) | ||||||||||||||||||||||||||||
Tax expense of stock plans | — | — | (23 | ) | — | — | — | — | — | — | (23 | ) | ||||||||||||||||||||||||||||
Stock awards | — | — | 781 | — | — | — | — | — | — | 781 | ||||||||||||||||||||||||||||||
Redemption of warrants | — | — | (431 | ) | — | — | — | — | — | — | (431 | ) | ||||||||||||||||||||||||||||
Allocation of ESOP stock | — | — | — | — | — | 219 | — | — | — | 219 | ||||||||||||||||||||||||||||||
ESOP adjustment | — | — | 87 | — | — | — | — | — | — | 87 | ||||||||||||||||||||||||||||||
Cash dividend $0.36 per share | — | — | — | (6,572 | ) | — | — | — | — | — | (6,572 | ) | ||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | — | — | 7 | — | — | 7 | ||||||||||||||||||||||||||||||
Sale of stock for the deferred compensation plan | — | — | — | — | — | — | — | (35 | ) | 35 | — | |||||||||||||||||||||||||||||
Balance at September 30, 2010 | $ | — | $ | 336 | $ | 260,435 | $ | 171,085 | $ | (3,413 | ) | $ | (4,557 | ) | $ | (224,457 | ) | $ | 951 | $ | (951 | ) | $ | 199,429 | ||||||||||||||||
See accompanying Notes to Unaudited Consolidated Financial Statements.
Consolidated Statements of Cash Flows
(dollars in thousands)
For the nine months ended September 30, | ||||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 14,594 | $ | 12,086 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization of premises and equipment | 1,604 | 1,469 | ||||||
Allocation of ESOP stock | 219 | 220 | ||||||
ESOP adjustment | 87 | 96 | ||||||
Stock awards | 781 | 524 | ||||||
Amortization and impairment of servicing asset | 1,500 | 1,856 | ||||||
Net premium amortization in excess of discount accretion on securities | 1,101 | 429 | ||||||
Net amortization of deferred costs and discounts on loans | 690 | 705 | ||||||
Provision for loan losses | 6,000 | 3,500 | ||||||
Net gain on sale of real estate owned | (77 | ) | (166 | ) | ||||
Recovery from reserve for repurchased loans | — | (245 | ) | |||||
Net gain on sales of loans and securities | (2,215 | ) | (2,874 | ) | ||||
Net loss on sale of fixed assets | — | 6 | ||||||
Proceeds from sales of mortgage loans held for sale | 101,911 | 194,302 | ||||||
Mortgage loans originated for sale | (98,770 | ) | (193,858 | ) | ||||
Increase in value of Bank Owned Life Insurance | (624 | ) | (633 | ) | ||||
Increase in interest and dividends receivable | (1,026 | ) | (114 | ) | ||||
Decrease (increase) in other assets | 1,057 | (878 | ) | |||||
Increase in other liabilities | 3,738 | 3,720 | ||||||
Total adjustments | 15,976 | 8,059 | ||||||
Net cash provided by operating activities | 30,570 | 20,145 | ||||||
Cash flows from investing activities: | ||||||||
Net (increase) decrease in loans receivable | (44,048 | ) | 20,675 | |||||
Purchase of investment securities available for sale | (26,663 | ) | — | |||||
Proceeds from sale of investment securities available for sale | 1,300 | 1,973 | ||||||
Purchase of mortgage-backed securities available for sale | (203,481 | ) | (59,468 | ) | ||||
Principal repayments on mortgage-backed securities available for sale | 41,376 | 18,852 | ||||||
Decrease in Federal Home Loan Bank of New York stock | 2,009 | 6,032 | ||||||
Proceeds from sales of real estate owned | 1,093 | 1,402 | ||||||
Real estate owned acquired | — | (332 | ) | |||||
Purchases of premises and equipment | (1,359 | ) | (1,365 | ) | ||||
Net cash used in investing activities | (229,773 | ) | (12,231 | ) | ||||
Continued
(1) | Ratios are annualized |
OceanFirst Financial Corp.Summary
Consolidated Statements of Cash Flows (Continued)
(dollars in thousands)
For the nine months ended September 30, | ||||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
Cash flows from financing activities: | ||||||||
Increase in deposits | $ | 259,317 | $ | 83,777 | ||||
Decrease in short-term borrowings | (100,699 | ) | (48,826 | ) | ||||
Proceeds from Federal Home Loan Bank advances | 139,000 | 28,000 | ||||||
Repayments of Federal Home Loan Bank advances | (85,000 | ) | (98,000 | ) | ||||
Increase in advances by borrowers for taxes and insurance | 329 | 242 | ||||||
Exercise of stock options | 7 | 93 | ||||||
Dividends paid – common stock | (6,572 | ) | (7,061 | ) | ||||
Dividends paid – preferred stock | — | (1,110 | ) | |||||
Redemption of warrants | (431 | ) | — | |||||
Tax expense of stock plans | (23 | ) | — | |||||
Proceeds from issuance of preferred stock and warrants | — | 38,263 | ||||||
Expenses of common stock offering | (109 | ) | — | |||||
Net cash provided by (used in) financing activities | 205,819 | (4,622 | ) | |||||
Net increase in cash and due from banks | 6,616 | 3,292 | ||||||
Cash and due from banks at beginning of period | 23,016 | 18,475 | ||||||
Cash and due from banks at end of period | $ | 29,632 | $ | 21,767 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 18,458 | $ | 24,449 | ||||
Income taxes | 7,753 | 6,868 | ||||||
Non-cash activities: | ||||||||
Transfer of loans receivable to real estate owned | 645 | 967 | ||||||
See accompanying Notes to Unaudited Consolidated Financial Statements.
Notes To Unaudited Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of OceanFirst Financial Corp. (the “Company”) and its wholly-owned subsidiary,is the holding company for OceanFirst Bank (the “Bank”), a community bank serving Ocean and Monmouth Counties in New Jersey. The term the “Company” refers to OceanFirst Financial Corp., OceanFirst Bank and all of the Bank’s subsidiaries on a consolidated basis. The Company’s results of operations are primarily dependent on net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and investments, and the interest expense on 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 investment products, 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, federal deposit insurance and 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.
Throughout 2010, and continuing into 2011, short-term interest rates remained low and the interest rate yield curve was unusually steep. The interest rate environment has generally had a positive impact on the Company’s results of operations and net interest margin. Interest-earning assets, both loans and securities, are generally priced against longer-term indices, while interest-bearing liabilities, primarily deposits and borrowings, are generally priced against shorter-term indices. In late 2010, the Company’s net interest margin contracted due to the investment of strong deposit flows into interest-earning deposits and investment securities at modest net interest spread. Additionally, high loan refinance volume caused yields on loans and mortgage-backed securities to reset downward. The net interest margin expanded in the first quarter of 2011, as compared to the fourth quarter of 2010, primarily due to a decrease in the cost of transaction deposits, however, the net interest margin remains below the levels of the corresponding prior year quarter. The overall economy remains weak with continued high unemployment coupled with concern surrounding the housing market. These economic conditions have had an adverse impact on the Company’s results of operations as the provision for loan losses remains at elevated levels, although lower than prior year amounts.
Highlights of the Company’s financial results for the three months ended March 31, 2011 were as follows:
Total assets increased to $2.263 billion at March 31, 2011, from $2.251 billion at December 31, 2010. Investment and mortgage-backed securities increased by $40.1 million, to $473.2 million at March 31, 2011, from $433.1 million at December 31, 2010. Loans receivable, net decreased $24.5 million, or 1.5%, at March 31, 2011, as compared to December 31, 2010 primarily due to sales and prepayments of one-to-four family loans. The increase in total assets resulted in a 3.9% increase in total revenue for the three months ended March 31, 2011, as compared to the prior year period.
Deposits decreased by $18.2 million, or 1.1%, at March 31, 2011, as compared to December 31, 2010. The decline was concentrated in time deposits, which decreased $12.0 million, as the Bank continued to moderate its wholly-owned subsidiaries,pricing for this product.
Diluted earnings per share increased 16.7%, to $0.28 for the quarter ended March 31, 2011, from $0.24 for the corresponding prior year quarter.
Net interest income for the three months ended March 31, 2011 increased to $19.3 million, as compared to $19.0 million in the same prior year period, reflecting greater interest-earning assets partly offset by a lower net interest margin. The net interest margin expanded on a linked quarter basis to 3.60% for the three months ended March 31, 2011, as compared to 3.52% for the three months ended December 31, 2010.
The provision for loan losses decreased to $1.7 million for the three months ended March 31, 2011, as compared to $2.2 million for the corresponding prior year period. The provision for loan losses exceeded net loan charge-offs of $970,000 for the three months ended March 31, 2011. The Company’s non-performing loans totaled $35.7 million at March 31, 2011, a $1.8 million decrease from $37.5 million at December 31, 2010.
The Company remains well-capitalized with a tangible common equity ratio of 9.10%.
Return on average stockholders’ equity was 10.12% for the three months ended March 31, 2011, as compared to 9.61% for the corresponding prior year period.
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 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 months ended March 31, 2011 and 2010. 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, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
AVERAGE BALANCE | INTEREST | AVERAGE YIELD/ COST | AVERAGE BALANCE | INTEREST | AVERAGE YIELD/ COST | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Interest-earning deposits and short-term investments | $ | 21,996 | $ | 15 | .27 | % | $ | — | $ | — | — | % | ||||||||||||
Investment securities (1) | 126,090 | 299 | .95 | 55,971 | 126 | .90 | ||||||||||||||||||
FHLB stock | 17,534 | 250 | 5.70 | 24,284 | 204 | 3.36 | ||||||||||||||||||
Mortgage-backed securities (1) | 335,602 | 2,563 | 3.05 | 307,528 | 2,762 | 3.59 | ||||||||||||||||||
Loans receivable, net (2) | 1,647,750 | 21,164 | 5.14 | 1,632,904 | 21,984 | 5.39 | ||||||||||||||||||
Total interest-earning assets | 2,148,972 | 24,291 | 4.52 | 2,020,687 | 25,076 | 4.96 | ||||||||||||||||||
Non-interest-earning assets | 112,969 | 107,697 | ||||||||||||||||||||||
Total assets | $ | 2,261,941 | $ | 2,128,384 | ||||||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Transaction deposits | $ | 1,255,244 | 1,665 | .53 | $ | 965,181 | 1,984 | .82 | ||||||||||||||||
Time deposits | 279,566 | 1,244 | 1.78 | 306,230 | 1,448 | 1.89 | ||||||||||||||||||
Total | 1,534,810 | 2,909 | .76 | 1,271,411 | 3,432 | 1.08 | ||||||||||||||||||
Borrowed funds | 373,792 | 2,045 | 2.19 | 537,561 | 2,674 | 1.99 | ||||||||||||||||||
Total interest-bearing liabilities | 1,908,602 | 4,954 | 1.04 | 1,808,972 | 6,106 | 1.35 | ||||||||||||||||||
Non-interest-bearing deposits | 130,227 | 113,518 | ||||||||||||||||||||||
Non-interest-bearing liabilities | 21,358 | 22,540 | ||||||||||||||||||||||
Total liabilities | 2,060,187 | 1,945,030 | ||||||||||||||||||||||
Stockholders’ equity | 201,754 | 183,354 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 2,261,941 | $ | 2,128,384 | ||||||||||||||||||||
Net interest income | $ | 19,337 | $ | 18,970 | ||||||||||||||||||||
Net interest rate spread (3) | 3.48 | % | 3.61 | % | ||||||||||||||||||||
Net interest margin (4) | 3.60 | % | 3.76 | % | ||||||||||||||||||||
(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 March 31, 2011 and December 31, 2010
Total assets at March 31, 2011 were $2.263 billion, an increase of $12.0 million, or 0.5%, compared to $2.251 billion at December 31, 2010.
Investment securities available for sale increased to $125.2 million at March 31, 2011, as compared to $91.9 million at December 31, 2010, due to purchases of government agency securities. Mortgage-backed securities available for sale increased to $348.0 million at March 31, 2011, as compared to $341.2 million at December 31, 2010, primarily due to purchases of mortgage-backed securities and collateralized mortgage obligations issued by U. S. government sponsored entities.
Loans receivable, net decreased by $24.5 million, or 1.5%, to a balance of $1.636 billion at March 31, 2011, as compared to a balance of $1.661 billion at December 31, 2010, primarily due to sales and prepayments of one-to-four family loans.
Total deposits decreased $18.2 million, or 1.1%, to $1.646 billion at March 31, 2011, from $1.664 billion at December 31, 2010. The decline was concentrated in time deposits which decreased $12.0 million as the Bank continued to moderate its pricing for this product. Partly, as a result of the decline in deposits, Federal Home Loan Bank (“FHLB”) advances increased by $25.7 million to $290.7 million at March 31, 2011, as compared to $265.0 million at December 31, 2010.
Stockholders’ equity at March 31, 2011 increased by 2.4%, to $206.0 million, as compared to $201.3 million at December 31, 2010, primarily due to net income and a reduction in accumulated other comprehensive loss partly offset by the cash dividend on common stock.
Comparison of Operating Results for the Three Months Ended March 31, 2011 and March 31, 2010
General
Net income for the three months ended March 31, 2011 was $5.1 million, as compared to net income of $4.4 million for the corresponding prior year period, an increase of $702,000, or 15.9%. On a per share basis net income per diluted share was $0.28 for the three months ended March 31, 2011, as compared to $0.24 for the corresponding prior year period.
Interest Income
Interest income for the three months ended March 31, 2011 was $24.3 million, as compared to $25.1 million for the three months ended March 31, 2010. The yield on interest-earning assets declined to 4.52% for the three months ended March 31, 2011, as compared to 4.96% for the same prior year period. Average interest-earning assets increased by $128.3 million, or 6.3%, for the three months ended March 31, 2011, as compared to the same prior year period. The increase in average interest-earning assets was primarily due to the increase in average investment securities and average mortgage-backed securities, which together increased $98.2 million, or 27.0%, for the three months ended March 31, 2011 as compared to the same prior year period. The increase in average interest-earning assets was funded by the increase in average deposits as compared to the prior year period.
Interest Expense
Interest expense for the three months ended March 31, 2011 was $5.0 million, compared to $6.1 million for the three months ended March 31, 2010. The cost of interest-bearing liabilities decreased to 1.04% for the three months ended March 31, 2011 as compared to 1.35% in the same prior year period. Average interest-bearing liabilities increased by $99.6 million, or 5.5%, for the three months ended March 31, 2011, as compared to the same prior year period. The increase was primarily in average transaction deposits which increased $290.1 million partly offset by a decrease in average borrowed funds of $163.8 million and average time deposits of $26.7 million.
Net Interest Income
Net interest income for the three months ended March 31, 2011 increased 1.9% to $19.3 million, as compared to $19.0 million in the same prior year period, reflecting greater interest-earning assets partly offset by a lower net interest margin. The net interest margin decreased to 3.60% for the three months ended March 31, 2011 from 3.76% in the same prior year period due to the investment of strong deposit flows into interest-earning deposits and investment securities at a modest net interest spread. Additionally, high loan refinance volume caused yields on loans and mortgage-backed securities to reset downward.
Provision for Loan Losses
For the three months ended March 31, 2011, the provision for loan losses was $1.7 million as compared to $2.2 million in the same prior year period. The decrease is primarily due to lower levels of non-performing loans and partially due to lower loan balances at March 31, 2011, as compared to December 31, 2010 and also lower net charge-offs for the three months ended March 31, 2011 as compared to the corresponding prior year period. Non-performing loans decreased $1.8 million, or 4.9%, at March 31, 2011 to $35.7 million from $37.5 million at December 31, 2010. Net charge-offs for the three months ended March 31, 2011 were $970,000, as compared to $1.3 million in the same prior year period. Net charge-offs for the three months ended March 31, 2011 included $121,000 relating to loans originated by Columbia Home Loans, LLC (“Columbia”), the Company’s mortgage banking subsidiary which was shuttered in 2007.
Other Income
Other income increased to $3.5 million for the three months ended March 31, 2011, as compared to $3.0 million in the same prior year period. Fees and service charges increased to $2.7 million for the three months ended March 31, 2011, as compared to $2.6 million for the corresponding prior year period. The increase was due to higher fees from merchant services and investment services. The net gain on sales of loans increased to $759,000 for the three months ended March 31, 2011, as compared to $503,000 for the corresponding prior year period due to an increase in the volume of loans sold. The net loss from other real estate operations was $366,000 for the three months ended March 31, 2011, as compared to a loss of $335,000 in the same prior year period due to write-downs in the value of properties previously acquired.
Operating Expenses
Operating expenses increased by 3.4%, to $13.1 million for the three months ended March 31, 2011, as compared to $12.7 million for the corresponding prior year period. The increase was primarily due to compensation and employee benefits
costs, which increased by $512,000, or 7.8%, to $7.0 million for the three months ended March 31, 2011, as compared to the corresponding prior year period. Occupancy expense decreased by $269,000 for the three months ended March 31, 2011, as compared to the corresponding prior year period due to a $184,000 benefit from the negotiated settlement of the remaining office lease obligation at Columbia. Federal deposit insurance expense for the three months ended March 31, 2011 increased by $107,000 from the corresponding prior year period primarily due to higher deposit balances.
Provision for Income Taxes
Income tax expense was $2.9 million for the three months ended March 31, 2011, as compared to $2.6 million for the same prior year period. The effective tax rate decreased to 35.9% for the three months ended March 31, 2011, as compared to 37.4% in the same prior period primarily due to a lower effective state tax rate.
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, 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 interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including various lines of credit.
At March 31, 2011, the Company had outstanding overnight borrowings from the FHLB of $31.7 million, as compared to no overnight borrowings at December 31, 2010. The Company utilizes the overnight borrowings to fund short-term liquidity needs. The Company had total FHLB borrowings, including overnight borrowings, of $290.7 million at March 31, 2011, an increase from $265.0 million at December 31, 2010.
The Company’s cash needs for the three months ended March 31, 2011 were primarily satisfied by principal payments on loans and mortgage-backed securities, proceeds from the sale of mortgage loans held for sale and increased FHLB borrowings. The cash was principally utilized for loan originations, the purchase of investment and mortgage-backed securities and deposit outflow. The Company’s cash needs for the three months ended March 31, 2010 were primarily satisfied by principal payments on loans and mortgage-backed securities, proceeds from the sale of mortgage loans held for sale, increased deposits and increased short-term borrowings. The cash was principally utilized for loan originations and the purchase of mortgage-backed securities.
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, 2011, outstanding commitments to originate loans totaled $64.6 million; outstanding unused lines of credit totaled $204.5 million; and outstanding commitments to sell loans totaled $18.2 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 $161.5 million at March 31, 2011. Based upon historical experience management estimates that a significant portion of such deposits will remain with the Company.
Cash dividends on common stock declared and paid by OceanFirst REIT Holdings, Inc.Financial Corp. during the first three months of 2011 were $2.2 million, unchanged as compared to the same prior year period. On April 20, 2011, the Board of Directors declared a quarterly cash dividend of twelve cents ($0.12) per common share. The dividend is payable on May 13, 2011 to stockholders of record at the close of business on May 2, 2011.
The primary sources of liquidity specifically available to OceanFirst Financial Corp., the holding company of OceanFirst Services, LLCBank, are capital distributions from the banking subsidiary and 975 Holdings, LLC. 975 Holdings, LLC was established inthe issuance of preferred and common stock and long-term debt. For the first three months of 2011, OceanFirst Financial Corp. received a dividend payment of $2.8 million from OceanFirst Bank. The Bank has received approval from the Office of Thrift Supervision (“OTS”) to make a second, $2.8 million dividend payment to OceanFirst Financial Corp. during the second quarter of 2010 as a wholly-owned service corporation of2011. OceanFirst Financial Corp.’s ability to continue to pay dividends will be partly dependent upon capital distributions from OceanFirst Bank which may be adversely affected by capital constraints imposed by the applicable regulations. The Company cannot predict whether the Bank will be permitted under applicable regulations to pay a dividend to OceanFirst Financial Corp. At March 31, 2011, OceanFirst Financial Corp. held $21.0 million in cash and $315,000 in investment securities available for sale.
At March 31, 2011, the purposeBank exceeded all of taking legal possessionits regulatory capital requirements with tangible capital of collateral repossessed as$209.1 million, or 9.21% of total adjusted assets, which is above the required level of $34.1 million or 1.5%; core capital of $209.1 million or 9.21% of total adjusted assets, which is above the required level of $90.8 million, or 4.0% and risk-based capital of $223.2 million, or 15.49% of risk-weighted assets, which is above the required level of $115.3 million or 8.0%. The Bank is considered a result“well-capitalized” institution under the OTS’s Prompt Corrective Action Regulations.
At March 31, 2011, the Company maintained tangible common equity of commercial loan workout, foreclosure, judicial decree or court order for resale to third parties. The operations of Columbia were shuttered in late 2007.
The interim consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of management, considered necessary$206.0 million, for a fair presentationtangible common equity to assets ratio of 9.10%.
Off-Balance-Sheet Arrangements and Contractual Obligations
In the financial condition and resultsnormal course of operations, for the periods presented. The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the results of operations that may be expected for all of 2010. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statementsCompany engages in a variety of financial condition and the results of operations for the period. Actual results could differ from these estimates.
Certain information and note disclosures normally included in financial statements preparedtransactions 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 lines of credit and commitments to extend credit. The Company also has outstanding commitments to sell loans amounting to $18.2 million.
The following table shows the contractual obligations of the Company by expected payment period as of March 31, 2011 (in thousands):
Contractual Obligation | Total | Less than One year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
Debt Obligations | $ | 393,714 | $ | 151,214 | $ | 91,000 | $ | 129,000 | $ | 22,500 | ||||||||||
Commitments to Originate Loans | 64,624 | 64,624 | — | — | — | |||||||||||||||
Commitments to Fund Unused Lines of Credit | 204,479 | 204,479 | — | — | — |
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 been condensedfixed expiration dates or omitted, pursuantother 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-performing 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, 2011 | December 31, 2010 | |||||||
(dollars in thousands) | ||||||||
Non-performing loans: | ||||||||
Real estate – one-to-four family | $ | 26,278 | $ | 26,577 | ||||
Commercial real estate | 4,651 | 5,849 | ||||||
Construction | 368 | 368 | ||||||
Consumer | 4,272 | 4,626 | ||||||
Commercial | 117 | 117 | ||||||
Total non-performing loans | 35,686 | 37,537 | ||||||
REO, net | 1,914 | 2,295 | ||||||
Total non-performing assets | $ | 37,600 | $ | 39,832 | ||||
Delinquent loans 30-89 days | $ | 18,191 | $ | 14,421 | ||||
Allowance for loan losses as a percent of total loans receivable | 1.23 | % | 1.17 | % | ||||
Allowance for loan losses as percent of total non-performing loans | 57.25 | 52.48 | ||||||
Non-performing loans as a percent of total loans receivable | 2.15 | 2.23 | ||||||
Non-performing assets as a percent of total assets | 1.66 | 1.77 |
Included in the non-performing loan total at March 31, 2011 was $6.5 million of troubled debt restructured loans, as compared to $3.3 million of troubled debt restructured loans at December 31, 2010. The non-performing loan total includes $661,000 of repurchased one-to-four family and consumer loans and $1.3 million of one-to-four family and consumer loans previously held for sale, which were written down to their fair market value in a prior period. Non-performing loans are concentrated in one-to-four family loans which comprise 73.6% of the total. At March 31, 2011, the average weighted loan-
to-value ratio of non-performing one-to-four family loans was 69.5% using appraisal values at time of origination and 95.4% using updated appraisal values. Appraisals are updated for all non-performing loans secured by real estate and subsequently updated annually if the loan remains delinquent for an extended period. Included in the allowance for loan losses is a specific allowance for the difference between the Company’s recorded investment in the loan and the fair value of the collateral, less estimated disposal costs. At March 31, 2011, the average weighted loan-to-value ratio of the total one-to-four family loan portfolio was 58.5% using appraisal values at time of origination. Based upon sales data for the first quarter of 2011 from the Ocean and Monmouth Counties Multiple Listing Service, home values in the Company’s primary market area have declined by approximately 22% from the peak of the market. Individual home values may move more or less than the average based upon the specific characteristics of the property. There can be no assurance that home values will not decline further, possibly resulting in losses to the rulesCompany. The largest non-performing loan is a one-to-four family loan for $3.5 million which is secured by a first mortgage on a property with a recent appraised value of $3.8 million.
The Company also classifies loans in accordance with regulatory guidelines. At March 31, 2011, the Company had $16.4 million designated as Special Mention, $62.4 million classified as Substandard and regulations$1.5 million classified as Doubtful, as compared to $15.5 million, $60.0 million and $1.5 million, respectively, at December 31, 2010. The largest Special Mention loan relationship at March 31, 2011 is comprised of a commercial mortgage and a commercial loan totaling $5.6 million to a real estate management and commercial construction company which is current as to payments, but was criticized due to increased vacancies. The loans are collateralized by commercial real estate and other business assets. The largest Substandard loan relationship is comprised of several credit facilities to a building supply company with an aggregate balance of $9.4 million, which was current as to payments, but criticized due to declining revenue and poor operating results. The loans are collateralized by commercial real estate and other business assets. The largest Doubtful loan is a loan for $2.6 million of which $1.5 million is classified as Doubtful and $1.1 million is classified as Substandard. The loan is delinquent and the borrower has filed for bankruptcy protection. The loan is collateralized by commercial real estate and also carries a personal guarantee. The Company has established a $1.2 million specific reserve for this loan. In addition to loan classifications, the Company classified investment securities with an amortized cost of $30.0 million and a carrying value of $22.7 million as Substandard, which represents the amount of investment securities with a credit rating below investment grade from one of the Securitiesinternationally recognized credit rating services. These securities are all current as to principal and Exchange Commission (the “SEC”).interest payments.
At March 31, 2011, the Bank was holding subprime loans with a gross principal balance of $1.6 million and a carrying value, net of write-downs and lower of cost or market adjustment, of $1.2 million, and ALT-A loans with a gross principal balance of $3.4 million and a carrying value, net of write-downs and lower of cost or market adjustment, of $3.3 million. These unaudited consolidated financial statements should be readloans were all originated by Columbia prior to its shuttering in conjunction with2007.
Critical Accounting Policies
Note 1 to the audited consolidated financial statements and notes theretoCompany’s Audited Consolidated Financial Statements for the year ended December 31, 2010 included in the Company’s Annual Report to Stockholders on Form 10-K for the year ended December 31, 2009.2010 (the “2010 Form 10-K”), 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 reserve for repurchased loans and 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. These judgments and policies 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.
Private Securities Litigation Reform Act Safe Harbor Statement
In addition to historical information, this quarterly report contains certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995 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,” “will,” “should,” “may,” “view,” “opportunity,” “potential,” or similar expressions or expression of confidence. 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, levels of unemployment in the Bank’s lending area, 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 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 are further discussed in the 2010 Form 10-K and its subsequent securities filings and 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 and Item 1A, Risk Factors of the Company’s 2010 Form 10-K and Item 1A of this Form 10-Q.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Note 2. Earnings per Share
The Company’s interest rate sensitivity is monitored through the use of an interest rate risk (“IRR”) model. The following reconciles sharestable sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding for basic and diluted earnings per share forat March 31, 2011, which were anticipated by the three and nine months ended September 30, 2010 and 2009 (in thousands):Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown. At March 31, 2011, the Company’s one-year gap was positive 0.80% as compared to positive 0.25% at December 31, 2010.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Weighted average shares issued net of Treasury shares | 18,823 | 12,387 | 18,822 | 12,374 | ||||||||||||
Less: Unallocated ESOP shares | (545 | ) | (579 | ) | (553 | ) | (588 | ) | ||||||||
Unallocated incentive award shares and shares held by deferred compensation plan | (132 | ) | (84 | ) | (132 | ) | (76 | ) | ||||||||
Average basic shares outstanding | 18,146 | 11,724 | 18,137 | 11,710 | ||||||||||||
Add: Effect of dilutive securities: | ||||||||||||||||
Stock options | — | 1 | — | 1 | ||||||||||||
Incentive awards and shares held by deferred compensation plan | 48 | 47 | 49 | 47 | ||||||||||||
Average diluted shares outstanding | 18,194 | 11,772 | 18,186 | 11,758 | ||||||||||||
At March 31, 2011 | 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 | $ | 4,057 | $ | — | $ | — | $ | — | $ | — | $ | 4,057 | ||||||||||||
Investment securities | 55,000 | 876 | 70,078 | 11,053 | 370 | 137,377 | ||||||||||||||||||
FHLB stock | 0 | — | — | — | 18,370 | 18,370 | ||||||||||||||||||
Mortgage-backed securities | 62,873 | 68,979 | 128,063 | 73,592 | 9,293 | 342,800 | ||||||||||||||||||
Loans receivable (2) | 297,575 | 425,735 | 516,774 | 203,958 | 210,797 | 1,654,839 | ||||||||||||||||||
Total interest-earning assets | 419,505 | 495,590 | 714,915 | 288,603 | 238,830 | 2,157,443 | ||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Money market deposit accounts | 5,055 | 15,164 | 40,438 | 50,546 | — | 111,203 | ||||||||||||||||||
Savings accounts | 9,922 | 30,759 | 79,375 | 99,218 | — | 219,274 | ||||||||||||||||||
Interest-bearing checking accounts | 434,675 | 67,119 | 178,983 | 223,881 | — | 904,658 | ||||||||||||||||||
Time deposits | 90,313 | 71,171 | 57,428 | 26,159 | 28,037 | 273,108 | ||||||||||||||||||
FHLB advances | 46,700 | 29,000 | 91,000 | 124,000 | — | 290,700 | ||||||||||||||||||
Securities sold under agreements to repurchase | 75,514 | — | — | — | — | 75,514 | ||||||||||||||||||
Other borrowings | 22,500 | — | — | 5,000 | — | 27,500 | ||||||||||||||||||
Total interest-bearing liabilities | 684,679 | 213,213 | 447,224 | 528,804 | 28,037 | 1,901,957 | ||||||||||||||||||
Interest sensitivity gap (3) | $ | (265,174 | ) | $ | 282,377 | $ | 267,691 | $ | (240,201 | ) | $ | 210,793 | $ | 255,486 | ||||||||||
Cumulative interest sensitivity gap | $ | (265,174 | ) | $ | 17,203 | $ | 284,894 | $ | 44,693 | $ | 255,486 | $ | 255,486 | |||||||||||
Cumulative interest sensitivity gap as a percent of total interest- earning assets | (12.29 | )% | 0.80 | % | 13.21 | % | 2.07 | % | 11.84 | % | 11.84 | % | ||||||||||||
(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 three months ended September 30, 2010table below sets forth the Company’s exposure to interest rate risk as measured by the change in net portfolio value (“NPV”) and 2009, antidilutive stock optionsnet interest income under varying rate shocks as of 1,876,000 and 1,639,000, respectively, were excluded from earnings per share calculations. For the nine months ended September 30, 2010 and 2009, antidilutive stock options of 1,852,000 and 1,623,000, respectively, were excluded from earnings per share calculations.
Note 3. Investment Securities Available for Sale
The amortized cost and estimated market value of investment securities available for sale at September 30, 2010March 31, 2011 and December 31, 2009 are as follows (in thousands):2010. 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 2010 Form 10-K.
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Market Value | |||||||||||||
September 30, 2010 | ||||||||||||||||
U.S. agency obligations | $ | 21,193 | $ | 24 | $ | (2 | ) | $ | 21,215 | |||||||
State and municipal obligations | 8,216 | 7 | (26 | ) | 8,197 | |||||||||||
Corporate debt securities | 55,000 | — | (15,786 | ) | 39,214 | |||||||||||
Equity investments | 370 | — | (77 | ) | 293 | |||||||||||
$ | 84,779 | $ | 31 | $ | (15,891 | ) | $ | 68,919 | ||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Market Value | |||||||||||||
December 31, 2009 | ||||||||||||||||
U.S. agency obligations | $ | 301 | $ | 5 | $ | — | $ | 306 | ||||||||
State and municipal obligations | 300 | — | — | 300 | ||||||||||||
Corporate debt securities | 55,000 | — | (18,631 | ) | 36,369 | |||||||||||
Equity investments | 370 | — | (78 | ) | 292 | |||||||||||
$ | 55,971 | $ | 5 | $ | (18,709 | ) | $ | 37,267 | ||||||||
March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||||||||||
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 | $ | 194,431 | (17.3 | )% | 9.0 | % | $ | 76,272 | (4.4 | )% | $ | 181,252 | (17.4 | )% | 8.4 | % | $ | 74,887 | (5.8 | )% | ||||||||||||||||||||
100 | 218,696 | (7.0 | ) | 9.9 | 78,323 | (1.9 | ) | 204,940 | (6.6 | ) | 9.3 | 77,519 | (2.5 | ) | ||||||||||||||||||||||||||
Static | 235,083 | — | 10.4 | 79,814 | — | 219,409 | — | 9.7 | 79,495 | — | ||||||||||||||||||||||||||||||
(100) | 241,298 | 2.6 | 10.4 | 76,286 | (4.4 | ) | 226,798 | 3.4 | 9.9 | 76,397 | (3.9 | ) | ||||||||||||||||||||||||||||
(200) | 251,098 | 6.8 | 10.9 | 72,101 | (9.7 | ) | 244,147 | 11.3 | 10.6 | 72,483 | (8.8 | ) |
There were no realized gains or losses on
Item 4. | Controls and Procedures |
The Company’s management, including the sale of investment securities available for sale forCompany’s principal executive officer and principal financial officer, have evaluated the three and nine months ended September 30, 2010. For the nine months ended September 30, 2009, the Company realized a loss on investment securities available for sale of $4,000. There were no realized gains or losses on the sale of investment securities available for sale for the three months ended September 30, 2009.
The amortized cost and estimated market value of investment securities available for sale, excluding equity investments, at September 30, 2010 by contractual maturity, are shown below (in thousands). Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. At September 30, 2010, investment securities available for sale with an amortized cost and estimated market value of $55.0 million and $39.2 million, respectively, were callable prior to the maturity date.
Amortized Cost | Estimated Market Value | |||||||
September 30, 2010 | ||||||||
Less than one year | $ | 300 | $ | 300 | ||||
Due after one year through five years | 29,109 | 29,112 | ||||||
Due after five years through ten years | — | — | ||||||
Due after ten years | 55,000 | 39,214 | ||||||
$ | 84,409 | $ | 68,626 | |||||
The estimated market value and unrealized loss for investment securities available for sale at September 30, 2010 and December 31, 2009 segregated by the durationeffectiveness of the unrealized loss areCompany’s “disclosure controls and procedures,” as follows (in thousands):
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | |||||||||||||||||||
September 30, 2010 | ||||||||||||||||||||||||
U.S. Agency obligations | $ | 5,118 | $ | (2 | ) | $ | — | $ | — | $ | 5,118 | $ | (2 | ) | ||||||||||
State and Municipal obligations | 3,876 | (26 | ) | — | — | 3,876 | (26 | ) | ||||||||||||||||
Corporate debt securities | — | — | 39,214 | (15,786 | ) | 39,214 | (15,786 | ) | ||||||||||||||||
Equity investments | — | — | 293 | (77 | ) | 293 | (77 | ) | ||||||||||||||||
$ | 8,994 | $ | (28 | ) | $ | 39,507 | $ | (15,863 | ) | $ | 48,501 | $ | (15,891 | ) | ||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | |||||||||||||||||||
December 31, 2009 | ||||||||||||||||||||||||
Corporate debt securities | $ | — | $ | — | $ | 36,369 | $ | (18,631 | ) | $ | 36,369 | $ | (18,631 | ) | ||||||||||
Equity investments | 292 | (78 | ) | — | — | 292 | (78 | ) | ||||||||||||||||
$ | 292 | $ | (78 | ) | $ | 36,369 | $ | (18,631 | ) | $ | 36,661 | $ | (18,709 | ) | ||||||||||
At September 30, 2010,such term is defined in Rule 13a-15(e) promulgated under the amortized cost, estimated market valueSecurities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and credit ratingprincipal financial officer concluded that, as of the individual corporate debt securities in an unrealized loss position for greater than one year are as follows (in thousands):
Security Description | Amortized Cost | Estimated Market Value | Credit Rating Moody’s/S&P | |||||||||
BankAmerica Capital | $ | 15,000 | $ | 10,545 | Baa3/BB | |||||||
Chase Capital | 10,000 | 7,600 | A2/BBB+ | |||||||||
Wells Fargo Capital | 5,000 | 3,743 | Baa1/A- | |||||||||
Huntington Capital | 5,000 | 2,825 | Ba1/B | |||||||||
Keycorp Capital | 5,000 | 3,199 | Baa3/BB | |||||||||
PNC Capital | 5,000 | 3,827 | Baa2/BBB | |||||||||
State Street Capital | 5,000 | 3,847 | A3/BBB+ | |||||||||
SunTrust Capital | 5,000 | 3,628 | Baa3/BB | |||||||||
$ | 55,000 | $ | 39,214 | |||||||||
At September 30, 2010, the market valueend of each corporate debt security was below cost. The portfolio consisted of eleven $5.0 million issues spread between eight issuers due to consolidation. The corporate debt securities are issued by financial institutions with credit ratings ranging from a high of A2 to a low of B as rated by either Moody’s or Standard & Poor’s. These floating-rate corporate debt securities were purchased during the period May 1998covered by this report, the Company’s disclosure controls and procedures were effective. Disclosure controls and procedures are the controls and other procedures that are designed to September 1998 and have paid coupon interest continuously since issuance. Floating-rate corporate debt securities such as these pay a fixed interest rate spread over LIBOR. Followingensure that the purchase of these securities, theinformation required spread increased for these types of securities causing a declineto be disclosed in the market price. The Company concluded that these available for sale securities were only temporarily impaired at September 30, 2010. In concluding that the impairments were only temporary, the Company considered several factors in its analysis. Although some credit ratings declined since December 31, 2009, the estimated market value for most securities improved over the prior year end. Additionally, the Company noted that each issuer made all the contractually due payments when required. There were no defaults on principal or interest payments and no interest payments were deferred. All of the financial institutions were also considered well-capitalized under regulatory guidelines and each issuer was able to raise capital during 2009. Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements for the foreseeable future. Furthermore, although these investment securities are available for sale, the Company does not have the intent to sell these securities and it is more likely than notreports that the Company will not be required to sellfiles or submits under the securities. The Company has heldExchange Act with the securities continuously since 1998Securities and expects to receive its full principal at maturityExchange Commission (“SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in 2028. The Company has historically not actively sold investment securities.
Duethe SEC’s rules and forms, and (2) is accumulated and communicated to the reasons noted above, specificallyCompany’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, there were no changes in the improved valuationCompany’s internal control over financial reporting during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Consolidated Statements of the corporate securities, the capital positionFinancial Condition
(dollars in thousands, except per share amounts)
March 31, 2011 | December 31, 2010 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Cash and due from banks | $ | 31,362 | $ | 31,455 | ||||
Investment securities available for sale | 125,240 | 91,918 | ||||||
Federal Home Loan Bank of New York stock, at cost | 18,370 | 16,928 | ||||||
Mortgage-backed securities available for sale | 347,966 | 341,175 | ||||||
Loans receivable, net | 1,636,251 | 1,660,788 | ||||||
Mortgage loans held for sale | 2,926 | 6,674 | ||||||
Interest and dividends receivable | 6,760 | 6,446 | ||||||
Real estate owned, net | 1,914 | 2,295 | ||||||
Premises and equipment, net | 22,449 | 22,488 | ||||||
Servicing asset | 5,466 | 5,653 | ||||||
Bank Owned Life Insurance | 41,062 | 40,815 | ||||||
Other assets | 23,517 | 24,695 | ||||||
Total assets | $ | 2,263,283 | $ | 2,251,330 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Deposits | $ | 1,645,788 | $ | 1,663,968 | ||||
Securities sold under agreements to repurchase with retail customers | 75,514 | 67,864 | ||||||
Federal Home Loan Bank advances | 290,700 | 265,000 | ||||||
Other borrowings | 27,500 | 27,500 | ||||||
Advances by borrowers for taxes and insurance | 7,855 | 6,947 | ||||||
Other liabilities | 9,940 | 18,800 | ||||||
Total liabilities | 2,057,297 | 2,050,079 | ||||||
Stockholders’ equity: | ||||||||
Common stock, $.01 par value, 55,000,000 shares authorized, 33,566,772 shares issued and 18,844,232 and 18,822,556 shares outstanding at March 31, 2011 and December 31, 2010, respectively | 336 | 336 | ||||||
Additional paid-in capital | 260,760 | 260,739 | ||||||
Retained earnings | 177,624 | 174,677 | ||||||
Accumulated other comprehensive loss | (4,124 | ) | (5,560 | ) | ||||
Less: Unallocated common stock held by Employee Stock Ownership Plan | (4,411 | ) | (4,484 | ) | ||||
Treasury stock, 14,722,540 and 14,744,216 shares at March 31, 2011 and December 31, 2010, respectively | (224,199 | ) | (224,457 | ) | ||||
Common stock acquired by Deferred Compensation Plan | 950 | 946 | ||||||
Deferred Compensation Plan Liability | (950 | ) | (946 | ) | ||||
Total stockholders’ equity | 205,986 | 201,251 | ||||||
Total liabilities and stockholders’ equity | $ | 2,263,283 | $ | 2,251,330 | ||||
See accompanying Notes to Unaudited Consolidated Financial Statements.
Consolidated Statements of the issuers, and the uninterrupted paymentIncome
(in thousands, except per share amounts)
For the three months ended March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Interest income: | ||||||||
Loans | $ | 21,164 | $ | 21,984 | ||||
Mortgage-backed securities | 2,563 | 2,762 | ||||||
Investment securities and other | 564 | 330 | ||||||
Total interest income | 24,291 | 25,076 | ||||||
Interest expense: | ||||||||
Deposits | 2,909 | 3,432 | ||||||
Borrowed funds | 2,045 | 2,674 | ||||||
Total interest expense | 4,954 | 6,106 | ||||||
Net interest income | 19,337 | 18,970 | ||||||
Provision for loan losses | 1,700 | 2,200 | ||||||
Net interest income after provision for loan losses | 17,637 | 16,770 | ||||||
Other income: | ||||||||
Loan servicing income | 96 | 46 | ||||||
Fees and service charges | 2,722 | 2,557 | ||||||
Net gain on sales of loans available for sale | 759 | 503 | ||||||
Net loss from other real estate operations | (366 | ) | (335 | ) | ||||
Income from Bank Owned Life Insurance | 248 | 196 | ||||||
Other | — | 1 | ||||||
Total other income | 3,459 | 2,968 | ||||||
Operating expenses: | ||||||||
Compensation and employee benefits | 7,042 | 6,530 | ||||||
Occupancy | 1,195 | 1,464 | ||||||
Equipment | 647 | 476 | ||||||
Marketing | 336 | 304 | ||||||
Federal deposit insurance | 741 | 634 | ||||||
Data processing | 883 | 830 | ||||||
Legal | 256 | 296 | ||||||
Check card processing | 320 | 317 | ||||||
Accounting and audit | 140 | 143 | ||||||
General and administrative | 1,568 | 1,708 | ||||||
Total operating expenses | 13,128 | 12,702 | ||||||
Income before provision for income taxes | 7,968 | 7,036 | ||||||
Provision for income taxes | 2,862 | 2,632 | ||||||
Net income | $ | 5,106 | $ | 4,404 | ||||
Basic earnings per share | $ | 0.28 | $ | 0.24 | ||||
Diluted earnings per share | $ | 0.28 | $ | 0.24 | ||||
Average basic shares outstanding | 18,162 | 18,132 | ||||||
Average diluted shares outstanding | 18,211 | 18,180 | ||||||
See accompanying Notes to Unaudited Consolidated Financial Statements.
Consolidated Statements of all contractually due interest, management has determined that only a temporary impairment existed at September 30, 2010.
Changes in Stockholders’ Equity(Unaudited)
(in thousands, except per share amounts)
Preferred Stock | 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, 2009 | $ | — | $ | 336 | $ | 260,130 | $ | 163,063 | $ | (10,753 | ) | $ | (4,776 | ) | $ | (224,464 | ) | $ | 986 | $ | (986 | ) | $ | 183,536 | ||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 4,404 | — | — | — | — | — | 4,404 | ||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Unrealized gain on securities (net of tax expense $1,031) | — | — | — | — | 1,651 | — | — | — | — | 1,651 | ||||||||||||||||||||||||||||||
Total comprehensive income | 6,055 | |||||||||||||||||||||||||||||||||||||||
Expenses of common stock offering | — | — | (109 | ) | — | — | — | — | — | — | (109 | ) | ||||||||||||||||||||||||||||
Tax expense of stock plans | — | — | (23 | ) | — | — | — | — | — | — | (23 | ) | ||||||||||||||||||||||||||||
Stock awards | — | — | 249 | — | — | — | — | — | — | 249 | ||||||||||||||||||||||||||||||
Redemption of warrants | — | — | (431 | ) | — | — | — | — | — | — | (431 | ) | ||||||||||||||||||||||||||||
Allocation of ESOP stock | — | — | — | — | — | 73 | — | — | — | 73 | ||||||||||||||||||||||||||||||
ESOP adjustment | — | — | 21 | — | — | — | — | — | — | 21 | ||||||||||||||||||||||||||||||
Cash dividend - $0.12 per share | — | — | (2,190 | ) | — | — | — | — | — | (2,190 | ) | |||||||||||||||||||||||||||||
Sale of stock for the deferred compensation plan | — | — | — | — | — | — | — | (43 | ) | 43 | — | |||||||||||||||||||||||||||||
Balance at March 31, 2010 | $ | — | $ | 336 | $ | 259,837 | $ | 165,277 | $ | (9,102 | ) | $ | (4,703 | ) | $ | (224,464 | ) | $ | 943 | $ | (943 | ) | $ | 187,181 | ||||||||||||||||
Balance at December 31, 2010 | $ | — | $ | 336 | $ | 260,739 | $ | 174,677 | $ | (5,560 | ) | $ | (4,484 | ) | $ | (224,457 | ) | $ | 946 | $ | (946 | ) | 201,251 | |||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 5,106 | — | — | — | — | — | 5,106 | ||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Unrealized gain on securities (net of tax expense $993) | — | — | — | — | 1,436 | — | — | — | — | 1,436 | ||||||||||||||||||||||||||||||
Total comprehensive income | 6,542 | |||||||||||||||||||||||||||||||||||||||
Tax expense of stock plans | — | — | (8 | ) | — | — | — | — | — | — | (8 | ) | ||||||||||||||||||||||||||||
Stock awards | — | — | 265 | — | — | — | — | — | — | 265 | ||||||||||||||||||||||||||||||
Treasury stock allocated to restricted stock plan | — | — | (280 | ) | 37 | — | — | 243 | — | — | — | |||||||||||||||||||||||||||||
Tax benefit of stock plans | ||||||||||||||||||||||||||||||||||||||||
Allocation of ESOP stock | — | — | — | — | — | 73 | — | — | — | 73 | ||||||||||||||||||||||||||||||
ESOP adjustment | — | — | 44 | — | — | — | — | — | — | 44 | ||||||||||||||||||||||||||||||
Cash dividend $0.12 per share | — | — | — | (2,194 | ) | — | — | — | — | — | (2,194 | ) | ||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | (2 | ) | — | — | 15 | — | — | 13 | |||||||||||||||||||||||||||||
Purchase of stock for the deferred compensation plan | — | — | — | — | — | — | — | 4 | (4 | ) | — | |||||||||||||||||||||||||||||
Balance at March 31, 2011 | $ | — | $ | 336 | $ | 260,760 | $ | 177,624 | $ | (4,124 | ) | $ | (4.411 | ) | $ | (224,199 | ) | $ | 950 | $ | (950 | ) | $ | 205,986 | ||||||||||||||||
See accompanying Notes to Unaudited Consolidated Financial Statements.
Consolidated Statements of Cash Flows
(dollars in thousands)
For the three months ended March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 5,106 | $ | 4,404 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization of premises and equipment | 598 | 532 | ||||||
Allocation of ESOP stock | 73 | 73 | ||||||
ESOP adjustment | 44 | 21 | ||||||
Stock awards | 265 | 249 | ||||||
Amortization of servicing asset | 484 | 537 | ||||||
Net premium amortization in excess of discount accretion on securities | 590 | 291 | ||||||
Net amortization of deferred costs and discounts on loans | 259 | 172 | ||||||
Provision for loan losses | 1,700 | 2,200 | ||||||
Net loss (gain) on sale of real estate owned | 269 | (6 | ) | |||||
Net gain on sales of loans | (759 | ) | (503 | ) | ||||
Proceeds from sales of mortgage loans held for sale | 40,680 | 29,617 | ||||||
Mortgage loans originated for sale | (36,470 | ) | (25,293 | ) | ||||
Increase in value of Bank Owned Life Insurance | (247 | ) | (196 | ) | ||||
Increase in interest and dividends receivable | (314 | ) | (759 | ) | ||||
Decrease (increase) in other assets | 185 | (933 | ) | |||||
Decrease in other liabilities | (8,860 | ) | (2,755 | ) | ||||
Total adjustments | (1,503 | ) | 3,247 | |||||
Net cash provided by operating activities | 3,603 | 7,651 | ||||||
Cash flows from investing activities: | ||||||||
Net decrease (increase) in loans receivable | 22,356 | (13,780 | ) | |||||
Purchase of investment securities available for sale | (30,311 | ) | — | |||||
Purchase of mortgage-backed securities available for sale | (29,808 | ) | (203,481 | ) | ||||
Principal repayments on mortgage-backed securities available for sale | 21,845 | 9,712 | ||||||
Decrease in Federal Home Loan Bank of New York stock | (1,442 | ) | (8,472 | ) | ||||
Proceeds from sales of real estate owned | 334 | 298 | ||||||
Purchases of premises and equipment | (559 | ) | (306 | ) | ||||
Net cash used in investing activities | (17,585 | ) | (216,029 | ) | ||||
Continued
OceanFirst Financial Corp.
Consolidated Statements of Cash Flows (Continued)
(dollars in thousands)
For the three months ended March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Cash flows from financing activities: | ||||||||
(Decrease) increase in deposits | $ | (18,180 | ) | $ | 16,909 | |||
Increase in short-term borrowings | 39,350 | 201,496 | ||||||
Proceeds from Federal Home Loan Bank advances | 25,000 | 15,000 | ||||||
Repayments of Federal Home Loan Bank advances | (31,000 | ) | (25,000 | ) | ||||
Increase in advances by borrowers for taxes and insurance | 908 | 594 | ||||||
Exercise of stock options | 13 | — | ||||||
Dividends paid – common stock | (2,194 | ) | (2,190 | ) | ||||
Redemption of warrants | — | (431 | ) | |||||
Tax expense of stock plans | (8 | ) | (23 | ) | ||||
Expenses of common stock offering | — | (109 | ) | |||||
Net cash provided by financing activities | 13,889 | 206,246 | ||||||
Net decrease in cash and due from banks | (93 | ) | (2,132 | ) | ||||
Cash and due from banks at beginning of period | 31,455 | 23,016 | ||||||
Cash and due from banks at end of period | $ | 31,362 | $ | 20,884 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 5,052 | $ | 6,150 | ||||
Income taxes | 4,900 | 2,805 | ||||||
Non-cash activities: | ||||||||
Transfer of loans receivable to real estate owned | 222 | 543 | ||||||
See accompanying Notes to Unaudited Consolidated Financial Statements.
Notes To Unaudited Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of OceanFirst Financial Corp. (the “Company”) and its wholly-owned subsidiary, OceanFirst Bank (the “Bank”), and its wholly-owned subsidiaries, Columbia Home Loans, LLC (“Columbia”), OceanFirst REIT Holdings, Inc., OceanFirst Services, LLC and 975 Holdings, LLC. The operations of Columbia were shuttered in late 2007.
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 months ended March 31, 2011 are not necessarily indicative of the results of operations that may be expected for all of 2011. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and the results of operations for the period. Actual results could differ from these estimates.
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, 2010.
Note 4. Mortgage-Backed Securities Available for Sale2. Earnings per Share
The amortized costfollowing reconciles shares outstanding for basic and estimated market value of mortgage-backed securities availablediluted earnings per share for sale at September 30,the three months ended March 31, 2011 and 2010 and December 31, 2009 are as follows (in thousands):
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Market Value | |||||||||||||
September 30, 2010 | ||||||||||||||||
FHLMC | $ | 8,303 | $ | 416 | $ | — | $ | 8,719 | ||||||||
FNMA | 323,942 | 9,500 | — | 333,442 | ||||||||||||
GNMA | 1,075 | 174 | — | 1,249 | ||||||||||||
$ | 333,320 | $ | 10,090 | $ | — | $ | 343,410 | |||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Market Value | |||||||||||||
December 31, 2009 | ||||||||||||||||
FHLMC | $ | 12,423 | $ | 442 | $ | — | $ | 12,865 | ||||||||
FNMA | 199,381 | 1,517 | (1,485 | ) | 199,413 | |||||||||||
GNMA | 1,185 | 159 | — | 1,344 | ||||||||||||
$ | 212,989 | $ | 2,118 | $ | (1,485 | ) | $ | 213,622 | ||||||||
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
Weighted average shares issued net of Treasury shares | 18,828 | 18,822 | ||||||
Less: Unallocated ESOP shares | (527 | ) | (562 | ) | ||||
Unallocated incentive award shares and shares held by deferred compensation plan | (139 | ) | (128 | ) | ||||
Average basic shares outstanding | 18,162 | 18,132 | ||||||
Add: Effect of dilutive securities: | ||||||||
Stock options | — | — | ||||||
Incentive awards and shares held by deferred compensation plan | 49 | 48 | ||||||
Average diluted shares outstanding | 18,211 | 18,180 | ||||||
There were no gains or losses realized on the sale of mortgage-backed securities available for sale forFor the three and nine months ended September 30,March 31, 2011 and 2010, antidilutive stock options of 1,972,000 and 2009.
The contractual maturities of mortgage-backed securities available for sale vary; however, the effective lives are expected to be shorter than the contractual maturity date due to principal prepayments.
The estimated market value and unrealized loss for mortgage-backed securities available for sale at December 31, 2009, segregated by the duration of the unrealized loss are as follows (in thousands). There1,776,000, respectively, were no unrealized losses at September 30, 2010.
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | |||||||||||||||||||
December 31, 2009 | ||||||||||||||||||||||||
FNMA | $ | 95,655 | $ | (1,485 | ) | $ | — | $ | — | $ | 95,655 | $ | (1,485 | ) | ||||||||||
The mortgage-backed securities are issued and guaranteed by FNMA, a corporation which is chartered by the United States Government and whose debt obligations are typically rated AAA by one of the internationally-recognized credit rating services. FNMA has been under the conservatorship of the Federal Housing Financial Agency since September 8, 2008. The conservatorship has no specified termination date. Also, FNMA has entered into a Stock Purchase Agreement, which following the issuance of Senior Preferred Stock and Warrants to the United States Treasury, provides FNMA funding commitmentsexcluded from the United States Treasury. The Company considers the unrealized losses to be the result of changes in interest rates which over time can have both a positive and negative impact on the estimated market value of the mortgage-backed securities. Although these mortgage-backed securities are available for sale, the Company does not intend to sell these securities before recovery of their amortized cost. As a result, the Company concluded that these available for sale securities were only temporarily impaired.earnings per share calculations.
Note 5. Loans Receivable, Net
Loans receivable, net at September 30, 2010 and December 31, 2009 consisted of the following (in thousands):
September 30, 2010 | December 31, 2009 | |||||||
Real estate: | ||||||||
One-to-four family | $ | 960,557 | $ | 954,736 | ||||
Commercial real estate, multi family and land | 426,390 | 396,883 | ||||||
Construction | 13,135 | 9,241 | ||||||
Consumer | 211,035 | 217,290 | ||||||
Commercial | 76,877 | 70,214 | ||||||
Total loans | 1,687,994 | 1,648,364 | ||||||
Loans in process | (4,220 | ) | (3,466 | ) | ||||
Deferred origination costs, net | 4,902 | 4,767 | ||||||
Allowance for loan losses | (18,593 | ) | (14,723 | ) | ||||
Total loans, net | 1,670,083 | 1,634,942 | ||||||
Less: Mortgage loans held for sale | 4,086 | 5,658 | ||||||
Loans receivable, net | $ | 1,665,997 | $ | 1,629,284 | ||||
An analysis of the allowance for loan losses for the three and nine months ended September 30, 2010 and 2009 is as follows (in thousands):
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Balance at beginning of period | $ | 17,146 | $ | 12,758 | $ | 14,723 | $ | 11,665 | ||||||||
Provision charged to operations | 1,600 | 1,500 | 6,000 | 3,500 | ||||||||||||
Charge-offs | (183 | ) | (578 | ) | (2,272 | ) | (1,492 | ) | ||||||||
Recoveries | 30 | — | 142 | 7 | ||||||||||||
Balance at end of period | $ | 18,593 | $ | 13,680 | $ | 18,593 | $ | 13,680 | ||||||||
Note 6. Reserve3. Investment Securities Available for Repurchased Loans
An analysis of the reserve for repurchased loans for the three and nine months ended September 30, 2010 and 2009 is as follows (in thousands). The reserve is included in other liabilities in the accompanying statements of financial condition.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Balance at beginning of period | $ | 809 | $ | 835 | $ | 819 | $ | 1,143 | ||||||||
Recoveries | — | — | — | (245 | ) | |||||||||||
Loss on loans repurchased | — | (16 | ) | (10 | ) | (79 | ) | |||||||||
Balance at end of period | $ | 809 | $ | 819 | $ | 809 | $ | 819 | ||||||||
The reserve for repurchased loans was established to provide for expected losses related to outstanding loan repurchase requests and additional repurchase requests which may be received on loans previously sold to investors. In establishing the reserve for repurchased loans, the Company considered all types of sold loans. At September 30, 2010, there were two outstanding loan repurchase requests on loans with a total principal balance of $325,000. One of these requests, with a principal balance of $203,000, was resolved subsequent to September 30, 2010 with no loss. There are also seven claims from one loan investor totaling $2.8 million that the Company believes are covered by a settlement agreement and release between Columbia and the loan investor executed in August 2007. The Company has vigorously contested these claims and believes there are valid defenses, including the settlement and release agreement.
Note 7. DepositsSale
The major typesamortized cost and estimated market value of depositsinvestment securities available for sale at September 30, 2010March 31, 2011 and December 31, 2009 were2010 are as follows (in thousands):
September 30, 2010 | December 31, 2009 | |||||||
Type of Account | ||||||||
Non-interest-bearing | $ | 138,563 | $ | 107,721 | ||||
Interest-bearing checking | 844,458 | 615,347 | ||||||
Money market deposit | 107,086 | 96,886 | ||||||
Savings | 246,214 | 232,081 | ||||||
Time deposits | 287,195 | 312,164 | ||||||
Total deposits | $ | 1,623,516 | $ | 1,364,199 | ||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Market Value | |||||||||||||
March 31, 2011 | ||||||||||||||||
U.S. agency obligations | $ | 71,355 | $ | 9 | $ | (194 | ) | $ | 71,170 | |||||||
State and municipal obligations | 10,652 | 11 | (28 | ) | 10,635 | |||||||||||
Corporate debt securities | 55,000 | — | (11,879 | ) | 43,121 | |||||||||||
Equity investments | 370 | — | (56 | ) | 314 | |||||||||||
$ | 137,377 | $ | 20 | $ | (12,157 | ) | $ | 125,240 | ||||||||
December 31, 2010 U.S. agency obligations State and municipal obligations Corporate debt securities Equity investments Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Market
Value $ 41,146 $ 41 $ (55 ) $ 41,132 10,690 — (75 ) 10,615 55,000 — (15,144 ) 39,856 370 — (55 ) 315 $ 107,206 $ 41 $ (15,329 ) $ 91,918
There were no realized gains or losses on the sale of investment securities available for sale for the three months ended March 31, 2011 or March 31, 2010.
The amortized cost and estimated market value of investment securities available for sale, excluding equity investments, at March 31, 2011 by contractual maturity, are shown below (in thousands). Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. At March 31, 2011, investment securities available for sale with an amortized cost and estimated market value of $55.0 million and $43.1 million, respectively, were callable prior to the maturity date.
Amortized Cost | Estimated Market Value | |||||||
March 31, 2011 | ||||||||
Less than one year | $ | 876 | $ | 877 | ||||
Due after one year through five years | 81,131 | 80,928 | ||||||
Due after five years through ten years | — | — | ||||||
Due after ten years | 55,000 | 43,121 | ||||||
$ | 137,007 | $ | 124,926 | |||||
The estimated market value and unrealized loss for investment securities available for sale at March 31, 2011 and December 31, 2010 segregated by the duration of the unrealized loss are as follows (in thousands):
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | |||||||||||||||||||
March 31, 2011 | ||||||||||||||||||||||||
U.S. Agency obligations | $ | 60,782 | $ | (194 | ) | $ | — | $ | — | $ | 60,782 | $ | (194 | ) | ||||||||||
State and municipal obligations | 4,485 | (28 | ) | — | — | 4,485 | (28 | ) | ||||||||||||||||
Corporate debt securities | — | — | 43,121 | (11,879 | ) | 43,121 | (11,879 | ) | ||||||||||||||||
Equity investments | — | — | 314 | (56 | ) | 314 | (56 | ) | ||||||||||||||||
$ | 65,267 | $ | (222 | ) | $ | 43,435 | $ | (11,935 | ) | $ | 108,702 | $ | (12,157 | ) | ||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | |||||||||||||||||||
December 31, 2010 | ||||||||||||||||||||||||
U.S. Agency obligations | $ | 20,742 | $ | (55 | ) | $ | — | $ | — | $ | 20,742 | $ | (55 | ) | ||||||||||
State and municipal obligations | 9,738 | (75 | ) | — | — | 9,738 | (75 | ) | ||||||||||||||||
Corporate debt securities | — | — | 39,856 | (15,144 | ) | 39,856 | (15,144 | ) | ||||||||||||||||
Equity investments | 104 | (16 | ) | 211 | (39 | ) | 315 | (55 | ) | |||||||||||||||
$ | 30,584 | $ | (146 | ) | $ | 40,067 | $ | (15,183 | ) | $ | 70,651 | $ | (15,329 | ) | ||||||||||
At March 31, 2011, the amortized cost, estimated market value and credit rating of the individual corporate debt securities in an unrealized loss position for greater than one year are as follows (in thousands):
Security Description | Amortized Cost | Estimated Market Value | Credit Rating Moody’s/S&P | |||||||||
BankAmerica Capital | $ | 15,000 | $ | 11,554 | Baa3/BB+ | |||||||
Chase Capital | 10,000 | 8,452 | A2/BBB+ | |||||||||
Wells Fargo Capital | 5,000 | 3,792 | A3/A- | |||||||||
Huntington Capital | 5,000 | 3,550 | Ba1/BB- | |||||||||
Keycorp Capital | 5,000 | 3,754 | Baa3/BB | |||||||||
PNC Capital | 5,000 | 4,059 | Baa2/BBB | |||||||||
State Street Capital | 5,000 | 4,105 | A3/BBB+ | |||||||||
SunTrust Capital | 5,000 | 3,855 | Baa3/BB | |||||||||
$ | 55,000 | $ | 43,121 | |||||||||
At March 31, 2011, the market value of each corporate debt security was below cost. However, the estimated market value of the corporate debt securities portfolio increased over prior periods. The corporate debt securities are issued by other financial institutions with credit ratings ranging from a high of A2 to a low of BB- as rated by one of the internationally recognized credit rating services. These floating-rate securities were purchased during the period May 1998 to September 1998 and have paid coupon interest continuously since issuance. Floating-rate debt securities such as these pay a fixed interest rate spread over LIBOR. Following the purchase of these securities, the required spread increased for these types of securities causing a decline in the market price. The Company concluded that unrealized losses on available for sale securities were only temporarily impaired at March 31, 2011. In concluding that the impairments were only temporary, the Company considered several factors in its analysis. The Company noted that each issuer made all the contractually due payments when required. There were no defaults on principal or interest payments and no interest payments were deferred. All of the financial institutions were also considered well-capitalized. Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements for the foreseeable future. Furthermore, although these investment securities are available for sale, the Company does not have the intent to sell these securities and it is more likely than not that the Company will not be required to sell the securities. The Company has held the securities continuously since 1998 and expects to receive its full principal at maturity in 2028 or prior if called by the issuer. The Company has historically not actively sold investment securities and does not utilize the securities portfolio as a source of liquidity. The Company’s long range liquidity plans indicate adequate sources of liquidity outside the securities portfolio.
Capital markets in general and the market for these corporate securities in particular have been disrupted since the second half of 2007. In its analysis, the Company considered that the severity and duration of unrecognized losses was at least partly due to the illiquidity caused by market disruptions. Steps taken by the U.S. Treasury, the Federal Reserve Bank, the Federal Deposit Insurance Corporation and foreign central banks, among others, have been a positive force in restoring liquidity and confidence in the capital markets. The ability of each of these issuers to raise capital during 2009, 2010 and 2011 and the increased fair values of these securities is a testament to the effectiveness of these actions.
Due to the reasons noted above, especially the continuing restoration of the capital markets, the improved valuation of the corporate securities portfolio, the capital position of the issuers, the uninterrupted payment of all contractually due interest, management has determined that only a temporary impairment existed at March 31, 2011.
Note 8. Recent Accounting Pronouncements4. Mortgage-Backed Securities Available for Sale
Accounting Standards Certification (“ASC”) 810,Consolidation, replacesThe amortized cost and estimated market value of mortgage-backed securities available for sale at March 31, 2011 and December 31, 2010 are as follows (in thousands):
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Market Value | |||||||||||||
March 31, 2011 | ||||||||||||||||
FHLMC | $ | 27,345 | $ | 457 | $ | (6 | ) | $ | 27,796 | |||||||
FNMA | 314,436 | 4,569 | (19 | ) | 318,986 | |||||||||||
GNMA | 1,019 | 165 | — | 1,184 | ||||||||||||
$ | 342,800 | $ | 5,191 | $ | (25 | ) | $ | 347,966 | ||||||||
December 31, 2010 FHLMC FNMA GNMA Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Market
Value $ 19,225 $ 386 $ (13 ) $ 19,598 315,024 5,344 — 320,368 1,037 172 — 1,209 $ 335,286 $ 5,902 $ (13 ) $ 341,175
There were no gains or losses realized on the quantitative-based riskssale of mortgage-backed securities available for sale for the three months ended March 31, 2011 and rewards calculation2010.
The contractual maturities of mortgage-backed securities available for determining which enterprise, if any, has a controlling financial interest in a variable-interest entity with an approach focused on identifying which enterprise hassale vary; however, the powereffective lives are expected to directbe shorter than the activities of a variable-interest entity that most significantly effectcontractual maturity date due to principal prepayments.
The estimated market value and unrealized loss for mortgage-backed securities available for sale at March 31, 2011 and December 31, 2010, segregated by the entity’s economic performance and (i) the obligation to absorb lossesduration of the entityunrealized loss are as follows (in thousands).
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | |||||||||||||||||||
March 31, 2011 | ||||||||||||||||||||||||
FHLMC | $ | 6,032 | $ | (6 | ) | $ | — | $ | — | $ | 6,032 | $ | (6 | ) | ||||||||||
FNMA | 5,202 | (19 | ) | — | — | 5,202 | (19 | ) | ||||||||||||||||
$ | 11,234 | $ | (25 | ) | $ | — | $ | — | $ | 11,234 | $ | (25 | ) | |||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | Estimated Market Value | Unrealized Losses | |||||||||||||||||||
December 31, 2010 | ||||||||||||||||||||||||
FHLMC | $ | 4,982 | $ | (13 | ) | $ | — | $ | — | $ | 4,982 | $ | (13 | ) | ||||||||||
The mortgage-backed securities are issued and guaranteed by either FHLMC or (ii)FNMA, corporations which are chartered by the rightUnited States Government and whose debt obligations are typically rated AAA by one of the internationally-recognized credit rating services. FHLMC and FNMA have been under the conservatorship of the Federal Housing Financial Agency since September 8, 2008. The conservatorships have no specified termination date. Also, FHLMC and FNMA have entered into Stock Purchase Agreements, which following the issuance of Senior Preferred Stock and Warrants to receive benefitsthe United States Treasury, provide FHLMC and FNMA funding commitments from the entity.United States Treasury. The pronouncement was effective January 1, 2010Company considers the unrealized losses to be the result of changes in interest rates which over time can have both a positive and did not have a significant effect on the Company’s consolidated financial statements.
ASC 860,Transfers and Servicing, improves the information a reporting entity provides in its financial statements about a transfer of financial assets, including the effect of a transfer on an entity’s financial position, financial performance and cash flows and the transferor’s continuing involvement in the transferred assets. ASC 860 eliminates the concept of a qualifying, special-purpose entity and changes the guidance for evaluation for consolidation. This pronouncement was effective January 1, 2010 and did not have a significant effect on the Company’s consolidated financial statements.
Accounting Standards Update No. 2010-06 under ASC 820 requires new disclosures and clarifies certain existing disclosure requirements about fair value measurements. Specifically, the update requires an entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for such transfers. A reporting entity is required to present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using Level 3 inputs. In addition, the update clarifies the following requirements of the existing disclosure: (i) for the purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets; and (ii) a reporting entity is required to include disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements. The amendments are effective for interim and annual reporting periods beginning after December 15, 2009, except for the separate disclosures of purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The new guidance did not have a significantnegative impact on the Company’s consolidated financial statements other than additional disclosures.
Accounting Standards Update 2010-20, amends ASC 310 (Receivables) to require significant new disclosures about the credit quality of financial receivables/loans and the allowance for credit losses. The objectiveestimated market value of the new disclosuresmortgage-backed securities. Although these mortgage-backed securities are available for sale, the Company does not intend to sell these securities and it is to improve financial statement users’ understanding of (1)more likely than not that the nature of an entity’s credit risk associated with its financing receivables, and (2) the entity’s assessment of that risk in estimating its allowance for credit losses, as well as changes in the allowance and the reasons for those changes. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance (either by portfolio segment or by class of financing receivables). The required disclosures include, among other things, a rollforward of the allowance for credit losses by portfolio segment, as well as information about credit quality indicators and modified, impaired, non-accrual and past due loans. The disclosures related to period-end information (e.g., credit-quality information and the ending financing receivables balance segregated by impairment method)Bank will not be required in all interim and annual reporting periods endingto sell the securities before recovery of their amortized cost. As a result, the Company concluded that unrealized losses on or after December 15, 2010 (Decemberthese available for sale securities were only temporarily impaired at March 31, 2010 for the Company). Disclosures of activity that occurs during a reporting period (e.g., loan modifications and the rollforward of the allowance for credit losses by portfolio segment) will be required in interim or annual periods beginning on or after December 15, 2010 (January 1, 2011 for the Company).2011.
Note 9. Fair Value Measurements5. Loans Receivable, Net
The following table summarizes financial assets and financial liabilities measuredLoans receivable, net at fair value as of September 30, 2010March 31, 2011 and December 31, 2009, segregated by the level2010 consisted of the valuation inputs within the fair value hierarchy utilized to measure fair valuefollowing (in thousands):
Fair Value Measurements at Reporting Date Using: | ||||||||||||||||
Total Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
September 30, 2010 | ||||||||||||||||
Items measured on a recurring basis: | ||||||||||||||||
Investment securities available for sale: | ||||||||||||||||
U.S. Agency obligations | $ | 21,215 | $ | 21,215 | $ | — | $ | — | ||||||||
State and municipal obligations | 8,197 | — | 8,197 | — | ||||||||||||
Corporate debt securities | 39,214 | — | 39,214 | — | ||||||||||||
Equity investments | 293 | 293 | — | — | ||||||||||||
Mortgage-backed securities available for sale | 343,410 | — | 343,410 | — | ||||||||||||
Items measured on a non-recurring basis: | ||||||||||||||||
Real estate owned | 306 | — | — | 306 | ||||||||||||
Loans measured for impairment based on the fair value of the underlying collateral | 2,962 | — | — | 2,962 |
March 31, 2011 | December 31, 2010 | |||||||
Real estate: | ||||||||
One-to-four family | $ | 933,261 | $ | 955,063 | ||||
Commercial real estate, multi family and land | 434,888 | 435,127 | ||||||
Construction | 11,318 | 13,748 | ||||||
Consumer | 202,608 | 205,725 | ||||||
Commercial | 75,951 | 76,692 | ||||||
Total loans | 1,658,026 | 1,686,355 | ||||||
Loans in process | (3,187 | ) | (4,055 | ) | ||||
Deferred origination costs, net | 4,768 | 4,862 | ||||||
Allowance for loan losses | (20,430 | ) | (19,700 | ) | ||||
Total loans, net | 1,639,177 | 1,667,462 | ||||||
Less: Mortgage loans held for sale | 2,926 | 6,674 | ||||||
Loans receivable, net | $ | 1,636,251 | $ | 1,660,788 | ||||
An analysis of the allowance for loan losses for the three months ended March 31, 2011 and 2010 is as follows (in thousands):
Fair Value Measurements at Reporting Date Using: | ||||||||||||||||
Total Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
December 31, 2009 | ||||||||||||||||
Items measured on a recurring basis: | ||||||||||||||||
Investment securities available for sale: | ||||||||||||||||
Corporate debt securities | $ | 36,369 | $ | — | $ | 36,369 | $ | — | ||||||||
Other securities | 898 | 598 | 300 | — | ||||||||||||
Mortgage-backed securities available for sale | 213,622 | — | 213,622 | — | ||||||||||||
Items measured on a non-recurring basis: | ||||||||||||||||
Real estate owned | 2,613 | — | — | 2,613 | ||||||||||||
Loans measured for impairment based on the fair value of the underlying collateral | 499 | — | — | 499 |
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
Balance at beginning of period | $ | 19,700 | $ | 14,723 | ||||
Provision charged to operations | 1,700 | 2,200 | ||||||
Charge-offs | (976 | ) | (1,381 | ) | ||||
Recoveries | 6 | 90 | ||||||
Balance at end of period | $ | 20,430 | $ | 15,632 | ||||
Certain
The following table presents an analysis of the allowance for loan losses for the three months ended March 31, 2011 and the balance in the allowance for loan loses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2011 and December 31, 2010 (in thousands):
Residential Real Estate | Commercial Real Estate | Consumer | Commercial | Unallocated | Total | |||||||||||||||||||
March 31, 2011 | ||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Balance at beginning of period | $ | 5,977 | $ | 6,837 | $ | 3,264 | $ | 962 | $ | 2,660 | $ | 19,700 | ||||||||||||
Provision (benefit) charged to operations | 170 | 725 | 124 | 735 | (54 | ) | 1,700 | |||||||||||||||||
Charge-offs | (297 | ) | (80 | ) | — | (599 | ) | — | (976 | ) | ||||||||||||||
Recoveries | 4 | — | 1 | 1 | — | 6 | ||||||||||||||||||
Balance at end of period | $ | 5,854 | $ | 7,482 | $ | 3,389 | $ | 1,099 | $ | 2,606 | $ | 20,430 | ||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Ending allowance balance attributed to loans: | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | 1,228 | $ | — | $ | — | $ | — | $ | 1,228 | ||||||||||||
Collectively evaluated for impairment | 5,854 | 6,254 | 3,389 | 1,099 | 2,606 | 19,202 | ||||||||||||||||||
Total ending allowance balance | $ | 5,854 | $ | 7,482 | $ | 3,389 | $ | 1,099 | $ | 2,606 | $ | 20,430 | ||||||||||||
Loans: | ||||||||||||||||||||||||
Loans individually evaluated for impairment | $ | — | $ | 2,569 | $ | — | $ | — | $ | — | $ | 2,569 | ||||||||||||
Loans collectively evaluated for impairment | 941,653 | 432,319 | 202,608 | 75,951 | — | 1,652,531 | ||||||||||||||||||
Total ending loan balance | $ | 941,653 | $ | 434,888 | $ | 202,608 | $ | 75,951 | $ | — | $ | 1,655,100 | ||||||||||||
December 31, 2010 | ||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Ending allowance balance attributed to loans: | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | 1,988 | $ | — | $ | — | $ | — | $ | 1,988 | ||||||||||||
Collectively evaluated for impairment | 5,977 | 4,849 | 3,264 | 962 | 2,660 | 17,712 | ||||||||||||||||||
Total ending allowance balance | $ | 5,977 | $ | 6,837 | $ | 3,264 | $ | 962 | $ | 2,660 | $ | 19,700 | ||||||||||||
Loans: | ||||||||||||||||||||||||
Loans individually evaluated for impairment | $ | — | $ | 4,673 | $ | — | $ | — | $ | — | $ | 4,673 | ||||||||||||
Loans collectively evaluated for impairment | 962,137 | 430,454 | 205,725 | 76,692 | — | 1,675,008 | ||||||||||||||||||
Total ending loan balance | $ | 962,137 | $ | 435,127 | $ | 205,725 | $ | 76,692 | $ | — | $ | 1,679,681 | ||||||||||||
A summary of impaired loans at March 31, 2011 and December 31, 2010 is as follows (in thousands):
March 31, 2011 | December 31, 2010 | |||||||
Impaired loans with no allocated allowance for loan losses | $ | — | $ | — | ||||
Impaired loans with allocated allowance for loan losses | 2,569 | 4,673 | ||||||
$ | 2,569 | $ | 4,673 | |||||
Amount of the allowance for loan losses allocated | $ | 1,228 | $ | 1,988 | ||||
The summary of loans individually evaluated for impairment by class of loans for the three months ended March 31, 2011 and as of March 31, 2011 and December 31, 2010 follows (in thousands):
Unpaid Principal Balance | Recorded Investment | Allowance for Loan Losses Allocated | Average Recorded Investment | Interest Income Recognized | ||||||||||||||||
March 31, 2011 | ||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Commercial | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Construction and land | — | — | — | — | — | |||||||||||||||
Commercial | — | — | — | — | — | |||||||||||||||
$ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
With an allowance recorded: | ||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Commercial | $ | — | $ | — | $ | — | $ | 76 | $ | — | ||||||||||
Construction and land | 2,569 | 2,569 | 1,228 | 2,569 | — | |||||||||||||||
Commercial | — | — | — | — | — | |||||||||||||||
$ | 2,569 | $ | 2,569 | $ | 1,228 | $ | 2,645 | $ | — | |||||||||||
December 31, 2010 | ||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Commercial | $ | — | $ | — | $ | — | ||||||||||||||
Construction and land | — | — | — | |||||||||||||||||
Commercial | — | — | — | |||||||||||||||||
$ | — | $ | — | $ | — | |||||||||||||||
With an allowance recorded: | ||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Commercial | $ | 2,104 | $ | 2,104 | $ | 988 | ||||||||||||||
Construction and land | 2,569 | 2,569 | 1,000 | |||||||||||||||||
Commercial | — | — | — | |||||||||||||||||
$ | 4,673 | $ | 4,673 | $ | 1,988 | |||||||||||||||
The following table presents the recorded investment in non-accrual loans by class of loans as of March 31, 2011 and December 31, 2010 (in thousands):
Recorded Investment in Non-accrual Loans | ||||||||
March 31, 2011 | December 31, 2010 | |||||||
Residential real estate: | ||||||||
Originated by Bank | $ | 21,867 | $ | 22,707 | ||||
Originated by Columbia | 4,411 | 3,870 | ||||||
Residential construction | 368 | 368 | ||||||
Commercial real estate: | ||||||||
Commercial | 2,082 | 3,280 | ||||||
Construction and land | 2,569 | 2,569 | ||||||
Consumer | 4,272 | 4,626 | ||||||
Commercial | 117 | 117 | ||||||
$ | 35,686 | $ | 37,537 | |||||
As used in these footnotes, the residential real estate originated by the Bank includes purchased loans which were originated under the Bank’s underwriting guidelines.
The following table presents the aging of the recorded investment in past due loans as of March 31, 2011 and December 31, 2010 by class of loans (in thousands):
30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days Past Due | Total Past Due | Loans Not Past Due | Total | |||||||||||||||||||
March 31, 2011 | ||||||||||||||||||||||||
Residential real estate: | ||||||||||||||||||||||||
Originated by Bank | $ | 12,837 | $ | 1,968 | $ | 20,851 | $ | 35,656 | $ | 888,274 | $ | 923,930 | ||||||||||||
Originated by Columbia | 117 | 20 | 4,442 | 4,579 | 1,826 | 6,405 | ||||||||||||||||||
Residential construction | — | — | 368 | 368 | 10,950 | 11,318 | ||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Commercial | 3,402 | — | 2,200 | 5,602 | 412,690 | 418,292 | ||||||||||||||||||
Construction and land | — | — | 2,569 | 2,569 | 14,027 | 16,596 | ||||||||||||||||||
Consumer | 863 | 136 | 4,105 | 5,104 | 197,504 | 202,608 | ||||||||||||||||||
Commercial | — | — | — | — | 75,951 | 75,951 | ||||||||||||||||||
$ | 17,219 | $ | 2,124 | $ | 34,535 | $ | 53,878 | $ | 1,601,222 | $ | 1,655,100 | |||||||||||||
December 31, 2010 | ||||||||||||||||||||||||
Residential real estate: | ||||||||||||||||||||||||
Originated by Bank | $ | 9,232 | $ | 1,958 | $ | 20,971 | $ | 32,161 | $ | 909,436 | $ | 941,597 | ||||||||||||
Originated by Columbia | 953 | 1,532 | 3,240 | 5,725 | 1,067 | 6,792 | ||||||||||||||||||
Residential construction | — | — | 368 | 368 | 13,380 | 13,748 | ||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Commercial | 870 | — | 2,611 | 3,481 | 406,549 | 410,030 | ||||||||||||||||||
Construction and land | — | — | 2,569 | 2,569 | 22,528 | 25,097 | ||||||||||||||||||
Consumer | 2,036 | 241 | 4,093 | 6,370 | 199,355 | 205,725 | ||||||||||||||||||
Commercial | — | — | 117 | 117 | 76,575 | 76,692 | ||||||||||||||||||
$ | 13,091 | $ | 3,731 | $ | 33,969 | $ | 50,791 | $ | 1,628,890 | $ | 1,679,681 | |||||||||||||
The Company categorizes all commercial and commercial real estate loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial assetsinformation, historical payment experience, credit documentation and financial liabilities are measured at fair valuecurrent economic trends, among other factors. This analysis is performed on a non-recurring basis,quarterly basis. The Company uses the following definitions for risk ratings:
Special Mention. Loans classified as special mention have a potential weakness that is,deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the instrumentsrepayment prospects for the loan or of the Bank’s credit position at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not measured at fair valuecorrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on an ongoingthe basis butof currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
Transfers between levels are recognized at the endanalyzed individually as part of the reporting period. Securities classified as available for saleabove described process are reported at fair value utilizing Level 1considered to be pass related loans. Loans not rated are included in groups of homogeneous loans. As of March 31, 2011 and Level 2 inputs. Most of the Company’s investmentDecember 31, 2010, and mortgage-backed securities are fixed income instruments that are not quoted on an exchange, but are bought and sold in active markets. Prices for these instruments are obtained through third party pricing vendors or security industry sources that actively participate in the buying and selling of securities. Prices obtained from these sources include market quotation and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain securities without relying exclusively on quoted prices for the specific securities, but comparing the securities to benchmark or comparable securities.
The Company utilizes third party pricing services to obtain estimated market values for its corporate bonds. Management’s policy is to obtain and review all available documentation from the third party pricing service relating to their market and value determinations, including their methodology and summary of inputs. Management reviews this documentation, makes inquiries of the third party pricing service and makes a determination as to the level of valuation inputs. Based on the Company’s review of available documentation and discussions with the third party pricing service, management concluded that Level 2 inputs were utilized. The significant observable inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities and observations of equity and credit default swap curves related to the issuer.
Real estate owned and loans measured for impairment based on the fair valuemost recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):
Pass | Special Mention | Substandard | Doubtful | Total | ||||||||||||||||
March 31, 2011 | ||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Commercial | $ | 381,833 | $ | 10,756 | $ | 25,703 | $ | — | $ | 418,292 | ||||||||||
Construction and land | 14,027 | — | 1,100 | 1,469 | 16,596 | |||||||||||||||
Commercial | 72,739 | 1,898 | 1,314 | — | 75,951 | |||||||||||||||
$ | 468,599 | $ | 12,654 | $ | 28,117 | $ | 1,469 | $ | 510,839 | |||||||||||
December 31, 2010 | ||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Commercial | $ | 376,902 | $ | 10,856 | $ | 22,272 | $ | — | $ | 410,030 | ||||||||||
Construction and land | 22,528 | — | 1,100 | 1,469 | 25,097 | |||||||||||||||
Commercial | 71,797 | 1,974 | 2,921 | — | 76,692 | |||||||||||||||
$ | 471,227 | $ | 12,830 | $ | 26,293 | $ | 1,469 | $ | 511,819 | |||||||||||
For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the underlying collateral areloan, which was previously presented, and by payment activity. The following table presents the recorded at estimated fair value, less estimated selling costs. Fair value isinvestment in residential and consumer loans based on independent appraisals.payment activity as of March 31, 2011 and December 31, 2010 (in thousands):
Residential Real Estate | ||||||||||||||||
Originated by Bank | Originated by Columbia | Residential Construction | Consumer | |||||||||||||
March 31, 2011 | ||||||||||||||||
Performing | $ | 902,063 | $ | 1,994 | $ | 10,950 | $ | 198,336 | ||||||||
Non-performing | 21,867 | 4,411 | 368 | 4,272 | ||||||||||||
$ | 923,930 | $ | 6,405 | $ | 11,318 | $ | 202,608 | |||||||||
December 31, 2010 | ||||||||||||||||
Performing | $ | 918,890 | $ | 2,922 | $ | 13,380 | $ | 201,099 | ||||||||
Non-performing | 22,707 | 3,870 | 368 | 4,626 | ||||||||||||
$ | 941,597 | $ | 6,792 | $ | 13,748 | $ | 205,725 | |||||||||
Note 6. Reserve for Repurchased Loans
An analysis of the reserve for repurchased loans for the three months ended March 31, 2011 and 2010 is as follows (in thousands). The reserve is included in other liabilities in the accompanying statements of financial condition.
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
Balance at beginning of period | $ | 809 | $ | 819 | ||||
Recoveries | — | — | ||||||
Loss on loans repurchased | — | — | ||||||
Balance at end of period | $ | 809 | $ | 819 | ||||
The reserve for repurchased loans was established to provide for expected losses related to outstanding loan repurchase requests and additional repurchase requests which may be received on loans previously sold to investors. In establishing the reserve for repurchased loans, the Company considered all types of sold loans. At March 31, 2011, there were two outstanding loan repurchase requests on loans with a total principal balance of $302,000, which the Company is contesting. There are also seven claims from one loan investor totaling $2.8 million that the Company believes are covered by a settlement agreement and release between Columbia and the loan investor executed in August 2007. The Company has vigorously contested these claims and believes there are valid defenses, including the settlement and release agreement.
Note 10. Fair Value of Financial Instruments7. Deposits
Fair value estimates, methods and assumptions are set forth below for the Company’s financial instruments.
Cash and Due from Banks
For cash and due from banks, the carrying amount approximates fair value.
Investments and Mortgage-Backed Securities
Most of the Company’s investment and mortgage-backed securities are fixed income instruments that are not quoted on an exchange, but are bought and sold in active markets. Prices for these instruments are obtained through third party pricing vendors or security industry sources that actively participate in the buying and selling of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain securities without relying exclusively on quoted prices for the specific securities, but comparing the securities to benchmark or comparable securities.
Federal Home Loan Bank of New York Stock
The fair value for Federal Home Loan Bank of New York (“FHLB”) stock is its carrying value since this is the amount for which it could be redeemed. There is no active market for this stock and the Company is required to maintain a minimum investment based upon the outstanding balance of mortgage related assets and outstanding borrowings.
Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage, construction, consumer and commercial. Each loan category is further segmented into fixed and adjustable rate interest terms.
Fair value of performing and non-performing loans was estimated by discounting the future cash flows, net of estimated prepayments, at a rate for which similar loans would be originated to new borrowers with similar terms. Fair values estimated in this manner do not fully incorporate an exit price approach to fair value, but instead are based on a comparison to current market rates for comparable loans.
Deposits
The fair valuemajor types of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, and interest-bearing checking accounts and money market accounts are, by definition, equal to the amount payable on demand. The related insensitivity of the majority of these deposits to interest rate changes creates a significant inherent value which is not reflected in the fair value reported. The fair value of time deposits are based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.
Borrowed Funds
Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.
Commitments to Extend Credit and Sell Loans
The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.
The estimated fair values of the Bank’s significant financial instruments as of September 30, 2010at March 31, 2011 and December 31, 2009 are presented in the following tables2010 were as follows (in thousands).:
Book Value | Fair Value | |||||||
September 30, 2010 | ||||||||
Financial Assets: | ||||||||
Cash and due from banks | $ | 29,632 | $ | 29,632 | ||||
Investment securities available for sale | 68,919 | 68,919 | ||||||
Mortgage-backed securities available for sale | 343,410 | 343,410 | ||||||
Federal Home Loan Bank of New York stock | 17,425 | 17,425 | ||||||
Loans receivable and mortgage loans held for sale | 1,670,083 | 1,682,270 | ||||||
Financial Liabilities: | ||||||||
Deposits | 1,623,516 | 1,630,117 | ||||||
Borrowed funds | 378,374 | 385,191 | ||||||
March 31, 2011 | December 31, 2010 | |||||||
Type of Account | ||||||||
Non-interest-bearing | $ | 137,545 | $ | 126,429 | ||||
Interest-bearing checking | 904,658 | 920,324 | ||||||
Money market deposit | 111,203 | 108,421 | ||||||
Savings | 219,274 | 223,650 | ||||||
Time deposits | 273,108 | 285,144 | ||||||
Total deposits | $ | 1,645,788 | $ | 1,663,968 | ||||
Book Value | Fair Value | |||||||
December 31, 2009 | ||||||||
Financial Assets: | ||||||||
Cash and due from banks | $ | 23,016 | $ | 23,016 | ||||
Investment securities available for sale | 37,267 | 37,267 | ||||||
Mortgage-backed securities available for sale | 213,622 | 213,622 | ||||||
Federal Home Loan Bank of New York stock | 19,434 | 19,434 | ||||||
Loans receivable and mortgage loans held for sale | 1,634,942 | 1,628,898 | ||||||
Financial Liabilities: | ||||||||
Deposits | 1,364,199 | 1,366,206 | ||||||
Borrowed funds | 425,073 | 427,061 | ||||||
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because a limited market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other significant unobservable inputs. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include deferred tax assets, and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
CriticalNote 8. Recent Accounting PoliciesPronouncements
NoteAccounting Standards Update No. 2010-06 under ASC 820 requires new disclosures and clarifies certain existing disclosure requirements about fair value measurements. Specifically, the update requires an entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for such transfers. A reporting entity is required to present separately information about purchases, sales, issuances, and settlements in the Company’s Audited Consolidated Financial Statementsreconciliation for fair value measurements using Level 3 inputs. In addition, the update clarifies the following requirements of the existing disclosure: (i) for the year endedpurposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets; and (ii) a reporting entity is required to include disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements. The amendments are effective for interim and annual reporting periods beginning after December 31,15, 2009, includedexcept for the separate disclosures of purchases, sales, issuances, and settlements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as supplemented by this report, contains a summaryroll forward 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 carriedactivity in the consolidated statements of financial condition atLevel 3 fair value or the lower of cost or fair value. Policies with respect to the methodologies used to determine the allowancemeasurements. Those disclosures were effective for loan losses, the reservefiscal years beginning after December 15, 2010, and for repurchased loans and 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. These judgments and policies involveinterim periods within those fiscal years. The new guidance did not have 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 on net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and investments, and the interest expense on 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, federal deposit insurance and 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.
Throughout 2009, and continuing into 2010, short-term interest rates remained low and the interest rate yield curve was unusually steep. The interest rate environment has generally had a positivesignificant impact on the Company’s resultsconsolidated financial statements other than additional disclosures.
Accounting Standards Update 2010-20, amends ASC 310 (Receivables) to require significant new disclosures about the credit quality of operations and net interest margin. Interest-earning assets, both financial receivables/loans and securities, are generally priced against longer-term indices, while interest-bearing liabilities, primarily depositsthe allowance for credit losses. The objective of the new disclosures is to improve financial statement users’ understanding of (1) the nature of an entity’s credit risk associated with its financing receivables, and borrowings, are generally priced against shorter-term indices. More recently, however, longer-term interest rates have decreased(2) the entity’s assessment of that risk in estimating its allowance for credit losses, as well as changes in the allowance and the interest rate yield curve has flattened.reasons for those changes. The changedisclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance (either by portfolio segment or by class of financing receivables). The required disclosures include, among other things, a rollforward of the allowance for credit losses by portfolio segment, as well as information about credit quality indicators and modified, impaired, non-accrual and past due loans. The disclosures related to period-end information (e.g., credit-quality information and the ending financing receivables balance segregated by impairment method) will be required in all interim and annual reporting periods ending on or after December 15, 2010 (December 31, 2010 for the yield curve may adversely impactCompany). Disclosures of activity that occurs during a reporting period (e.g., loan modifications and the Company’s resultsrollforward of operationsthe allowance for credit losses by portfolio segment) will be required in interim or annual periods beginning on or after December 15, 2010 (January 1, 2011 for the Company).
Accounting Standards Update No. 2011-02 “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring” amends ASC 310 (Receivables) to provide clarifying guidance on when a restructuring constitutes a concession and net interest margin in future periods.when the debtor is experiencing financial difficulties. The overall economy remains weak with continued high unemployment coupled with concern surroundingamendments are effective for the housing market. These economic conditionsfirst interim period beginning on or after June 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. The new guidance is not expected to have had an adversea significant impact on the Company’s results of operations as non-performing loans and the provision for loan losses have increased.
Highlights of the Company’s operating results were as follows:
Total assets increased to $2,225.4 million at September 30, 2010, an increase from $2,030.0 million at December 31, 2009. Loans receivable, net increased by $36.7 million to $1,666.0 million at September 30, 2010, from $1,629.3 million at December 31, 2009, primarily due to increased commercial and commercial real estate lending. Investment and mortgage-backed securities increased by $161.4 million to $412.3 million at September 30, 2010, from $250.9 million at December 31, 2009.
The increase in assets was funded by increased deposits, which grew to $1,623.5 million at September 30, 2010, from $1,364.2 million at December 31, 2009. Core deposits, defined as all deposits excluding time deposits, grew $284.3 million, exceeding total deposit growth of $259.3 million. Growing core deposits remains one of the Company’s primary goals. Also, as a result of the increase in deposits, Federal Home Loan Bank advances were repaid and decreased to $280.0 million at September 30, 2010, from $333.0 million at December 31, 2009.
Net income available to common stockholders for the three months ended September 30, 2010 was $5.2 million or $0.29 per diluted share, as compared to net income available to common stockholders of $4.0 million, or $0.34 per diluted share, for the corresponding prior year period. For the nine months ended September 30, 2010, net income available to common stockholders was $14.6 million or $0.80 per diluted share, as compared to net income available to common stockholders of $10.5 million or $0.90 per diluted share for the corresponding prior year period. For both the three and nine months ended September 30, 2010 diluted earnings per share reflects the higher number of average diluted shares outstanding from the issuance ofconsolidated financial statements other than additional common shares in November 2009.
Net interest income for the three and nine months ended September 30, 2010 increased to $19.6 million and $58.2 million, respectively, as compared to $16.7 million and $48.5 million, respectively, in the same prior year periods, reflecting greater interest-earning assets and, for the nine months ended September 30, 2010, a higher net interest margin. The net interest margin increased to 3.75% for the nine months ended September 30, 2010 from 3.59% in the same prior year period partly due to the low interest rate environment.
The provision for loan losses increased to $1.6 million and $6.0 million, respectively, for the three and nine months ended September 30, 2010, as compared to $1.5 million and $3.5 million, respectively, for the corresponding prior year periods. The provision for loan losses compares favorably with net loan charge-offs of $153,000 and $2.1 million, respectively, for the three and nine months ended September 30, 2010. The Company’s non-performing loans totaled $33.8 million at September 30, 2010, an increase from $28.3 million at December 31, 2009, with the largest increase of $2.6 million attributable to one-to-four family mortgage loans. The overall increase is reflective of the weak economic environment in the Company’s lending area.
The Company remains well-capitalized with a tangible common equity ratio of 8.96%.
Return on average stockholder’s equity was 10.71% and 10.30%, respectively, for the three and nine months ended September 30, 2010, as compared to 11.22% and 10.28% for the corresponding prior year periods.disclosures.
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 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 nine months ended September 30, 2010 and 2009. 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, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
AVERAGE BALANCE | INTEREST | AVERAGE YIELD/ COST | AVERAGE BALANCE | INTEREST | AVERAGE YIELD/ COST | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Interest-earning deposits and short-term investments | $ | 6,300 | $ | 4 | .25 | % | $ | — | $ | — | — | % | ||||||||||||
Investment securities (1) | 59,692 | 156 | 1.05 | 55,763 | 167 | 1.20 | ||||||||||||||||||
FHLB stock | 17,869 | 278 | 6.22 | 15,168 | 239 | 6.30 | ||||||||||||||||||
Mortgage-backed securities (1) | 344,579 | 2,976 | 3.45 | 85,279 | 817 | 3.83 | ||||||||||||||||||
Loans receivable, net (2) | 1,670,590 | 22,314 | 5.34 | 1,636,541 | 22,618 | 5.53 | ||||||||||||||||||
Total interest-earning assets | 2,099,030 | 25,728 | 4.90 | 1,792,751 | 23,841 | 5.32 | ||||||||||||||||||
Non-interest-earning assets | 118,312 | 93,544 | ||||||||||||||||||||||
Total assets | $ | 2,217,342 | $ | 1,886,295 | ||||||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Transaction deposits | $ | 1,180,155 | 2,365 | .80 | $ | 924,360 | 2,356 | 1.02 | ||||||||||||||||
Time deposits | 296,579 | 1,416 | 1.91 | 335,073 | 1,907 | 2.28 | ||||||||||||||||||
Total | 1,476,734 | 3,781 | 1.02 | 1,259,433 | 4,263 | 1.35 | ||||||||||||||||||
Borrowed funds | 391,169 | 2,379 | 2.43 | 335,242 | 2,876 | 3.43 | ||||||||||||||||||
Total interest-bearing liabilities | 1,867,903 | 6,160 | 1.32 | 1,594,675 | 7,139 | 1.79 | ||||||||||||||||||
Non-interest-bearing deposits | 137,595 | 113,879 | ||||||||||||||||||||||
Non-interest-bearing liabilities | 16,253 | 16,150 | ||||||||||||||||||||||
Total liabilities | 2,021,751 | 1,724,704 | ||||||||||||||||||||||
Stockholders’ equity | 195,591 | 161,591 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 2,217,342 | $ | 1,886,295 | ||||||||||||||||||||
Net interest income | $ | 19,568 | $ | 16,702 | ||||||||||||||||||||
Net interest rate spread (3) | 3.58 | % | 3.53 | % | ||||||||||||||||||||
Net interest margin (4) | 3.73 | % | 3.73 | % | ||||||||||||||||||||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
AVERAGE BALANCE | INTEREST | AVERAGE YIELD/ COST | AVERAGE BALANCE | INTEREST | AVERAGE YIELD/ COST | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Interest-earning deposits and short-term investments | $ | 2,685 | $ | 5 | .25 | % | $ | — | $ | — | — | % | ||||||||||||
Investment securities (1) | 57,226 | 423 | .99 | 55,906 | 756 | 1.80 | ||||||||||||||||||
FHLB stock | 22,091 | 736 | 4.44 | 17,115 | 652 | 5.08 | ||||||||||||||||||
Mortgage-backed securities (1) | 337,515 | 8,923 | 3.52 | 85,027 | 2,458 | 3.85 | ||||||||||||||||||
Loans receivable, net (2) | 1,648,991 | 66,524 | 5.38 | 1,646,232 | 68,581 | 5.55 | ||||||||||||||||||
Total interest-earning assets | 2,068,508 | 76,611 | 4.94 | 1,804,280 | 72,447 | 5.35 | ||||||||||||||||||
Non-interest-earning assets | 111,795 | 88,477 | ||||||||||||||||||||||
Total assets | $ | 2,180,303 | $ | 1,892,757 | ||||||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Transaction deposits | $ | 1,059,780 | 6,412 | .81 | $ | 885,408 | 7,513 | 1.13 | ||||||||||||||||
Time deposits | 302,627 | 4,281 | 1.89 | 349,514 | 6,623 | 2.53 | ||||||||||||||||||
Total | 1,362,407 | 10,693 | 1.05 | 1,234,922 | 14,136 | 1.53 | ||||||||||||||||||
Borrowed funds | 485,731 | 7,683 | 2.11 | 373,833 | 9,794 | 3.49 | ||||||||||||||||||
Total interest-bearing liabilities | 1,848,138 | 18,376 | 1.33 | 1,608,755 | 23,930 | 1.98 | ||||||||||||||||||
Non-interest-bearing deposits | 125,953 | 110,379 | ||||||||||||||||||||||
Non-interest-bearing liabilities | 17,208 | 16,917 | ||||||||||||||||||||||
Total liabilities | 1,991,299 | 1,736,051 | ||||||||||||||||||||||
Stockholders’ equity | 189,004 | 156,706 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 2,180,303 | $ | 1,892,757 | ||||||||||||||||||||
Net interest income | $ | 58,235 | $ | 48,517 | ||||||||||||||||||||
Net interest rate spread (3) | 3.61 | % | 3.37 | % | ||||||||||||||||||||
Net interest margin (4) | 3.75 | % | 3.59 | % | ||||||||||||||||||||
Comparison of Financial Condition at September 30, 2010 and December 31, 2009
Total assets at September 30, 2010 were $2.225 billion, an increase of $195.4 million, or 9.6%, compared to $2.030 billion at December 31, 2009.
Investment securities available for sale increased to $68.9 million at September 30, 2010, as compared to $37.3 million at December 31, 2009, due to purchases of government agency and municipal securities, as the Company invested part of the funds received from strong deposit flows. Mortgage-backed securities available for sale increased to $343.4 million at September 30, 2010, as compared to $213.6 million at December 31, 2009, primarily due to purchases of $162.8 million, all of which were issued by U.S. government sponsored enterprises.
Loans receivable, net increased by $36.7 million, or 2.3%, to a balance of $1.666 billion at September 30, 2010, as compared to a balance of $1.629 billion at December 31, 2009. The growth was concentrated in commercial real estate and commercial loans, which together increased a total of $36.2 million or 7.7%.
The increase in assets was funded by increased deposits which grew $259.3 million, or 19.0%, to $1.624 billion at September 30, 2010, from $1.364 billion at December 31, 2009. Core deposits, defined as all deposits excluding time deposits, increased $284.3 million partly offset by a $25.0 million decrease in time deposits as the Bank continued to moderate its pricing for this product. Also, as a result of the increase in deposits, Federal Home Loan Bank advances decreased by $53.0 million to $280.0 million at September 30, 2010, as compared to $333.0 million at December 31, 2009.
Stockholders’ equity at September 30, 2010 increased by 8.7%, to $199.4 million, as compared to $183.5 million at December 31, 2009, primarily due to net income and a reduction in accumulated other comprehensive loss partly offset by the cash dividend on common stock.
Comparison of Operating Results for the Three and Nine Months Ended September 30, 2010 and September 30, 2009
General
Net income available to common stockholders for the three months ended September 30, 2010 was $5.2 million, as compared to net income available to common stockholders of $4.0 million for the corresponding prior year period, an increase of $1.2 million, or 31.0%. For the nine months ended September 30, 2010, net income available to common stockholders was $14.6 million, as compared to net income available to common stockholders of $10.5 million for the corresponding prior year period, an increase of $4.1 million, or 38.4%. On a per share basis net income per diluted share was $0.29 and $0.80 for the three and nine months ended September 30, 2010, respectively, as compared to $0.34 and $0.90 for the corresponding prior year periods. For both the three and nine months ended September 30, 2010, the decrease in diluted earnings per share reflects the higher number of average diluted shares outstanding from the issuance of additional common shares in November 2009.
Interest Income
Interest income for the three and nine months ended September 30, 2010 was $25.7 million and $76.6 million, respectively, as compared to $23.8 million and $72.4 million, respectively, for the three and nine months ended September 30, 2009. The yield on interest-earning assets declined to 4.90% and 4.94% for the three and nine months ended September 30, 2010, as compared to 5.32% and 5.35%, respectively, for the same prior year periods. Average interest-earning assets increased by $306.3 million and $264.2 million, respectively, for the three and nine months ended September 30, 2010, as compared to the same prior year periods. The increase was primarily in average mortgage-backed securities which increased $259.3 million and $252.5 million, respectively, for the three and nine months ended September 30, 2010.
Interest Expense
Interest expense for the three and nine months ended September 30, 2010 was $6.2 million and $18.4 million, respectively, compared to $7.1 million and $23.9 million, respectively, for the three and nine months ended September 30, 2009. The cost of interest-bearing liabilities decreased to 1.32% and 1.33%, respectively, for the three and nine months ended September 30, 2010, as compared to 1.79% and 1.98%, respectively, in the same prior year periods. Average interest-bearing liabilities increased by $273.2 million and $239.4 million, respectively, for the three and nine months ended September 30, 2010, as compared to the same prior year periods. The increase was primarily in average transaction deposits which increased $255.8 million and $174.4 million, respectively, and average borrowed funds which increased $55.9 million and $111.9 million, respectively, partly offset by a decrease in average time deposits of $38.5 million and $46.9 million, respectively. The increase in average borrowings and average transaction deposits were used to fund the increase in average investment and mortgage-backed securities.
Net Interest Income
Net interest income for the three and nine months ended September 30, 2010 increased 17.2% and 20.0% to $19.6 million and $58.2 million, respectively, as compared to $16.7 million and $48.5 million, respectively, in the same prior year periods reflecting higher levels of interest-earning assets. Additionally, the net interest margin increased to 3.75% for the nine months ended September 30, 2010, from 3.59% in the same prior year period partly due to the low interest rate environment.
Provision for Loan Losses
For the three and nine months ended September 30, 2010, the provision for loan losses was $1.6 million and $6.0 million, respectively, compared to $1.5 million and $3.5 million, respectively, in the same prior year periods primarily due to the increase in non-performing loans and partially due to higher loan balances and continued economic stress. Non-performing loans increased $5.5 million, or 19.3%, at September 30, 2010 to $33.8 million from $28.3 million at December 31, 2009 primarily due to delinquencies and sub-par financial performance under the continued high unemployment and difficult economic environment. Net charge-offs for the nine months ended September 30, 2010 were $2.1 million, as compared to $1.5 million in the same prior year period. Net charge-offs for the nine months ended September 30, 2010 included $1.2 million relating to loans originated by Columbia, the Company’s mortgage banking subsidiary which was shuttered in 2007.
Other Income
Other income decreased to $4.2 million and $10.8 million, respectively, for the three and nine months ended September 30, 2010, as compared to $4.5 million and $11.9 million, respectively, in the same prior year periods. Loan servicing income (loss) increased to income of $231,000 for the nine months ended September 30, 2010 from a loss of $102,000 in the same prior year period due to an impairment to the loan servicing asset of $263,000 recognized in the first quarter of 2009. Fees and service charges increased to $2.8 million and $8.1 million, respectively, for the three and nine months ended September 30, 2010, as compared to $2.7 million and $7.8 million for the corresponding prior year periods. The increase was due to higher fees from merchant services, commercial checking accounts and trust services partly offset by a reduction in private mortgage insurance (“PMI”) fee income. This reduction in PMI fee income resulted from a charge of $203,000 for the three and nine months ended September 30, 2010 related to several rescission claims. The net gain on sales of loans increased to $1.2 million for the three months ended September 30, 2010, as compared to $1.1 million for the corresponding prior year period. Although loan sales volume decreased from the prior year period, the gain on sale margin was very strong, resulting in the overall increase in gain on sale of loans for the three months ended September 30, 2010. The net gain on the sale of loans sold decreased to $2.2 million, as compared to $3.1 million for the corresponding prior year period due to a decline in the volume of loans sold. The net loss from other real estate operations was $408,000 for the nine months ended September 30, 2010, as compared to a gain of $71,000 in the same prior year period due to current period write-downs in the value of properties previously acquired. Other income decreased $361,000 and $362,000, respectively, for the three and nine months ended September 30, 2010, as compared to the same prior year periods due to the third quarter 2009 recovery of $367,000 in borrower escrow funds at Columbia.
Operating Expenses
Operating expenses were $13.8 million and $39.7 million, respectively, for the three and nine months ended September 30, 2010, an increase of 11.4% and 6.3% from $12.4 million and $37.4 million, respectively, for the corresponding prior year periods primarily a result of increased compensation expense, partially offset by decreases in occupancy and for the nine months ended September 30, 2010, a decrease in federal deposit insurance. Compensation and employee benefits costs increased due to higher incentive compensation, salary and stock plan expense. For the nine months ended September 30, 2010, the increase was also due to the reduction in the number of mortgage loan closings from prior year levels, resulting in decreased deferred loan origination expense in the current year which results in an increase to compensation expense. Occupancy expense decreased $570,000 for the nine months ended September 30, 2010, as compared to the corresponding prior year period due to a $556,000 charge in the second quarter of 2009 relating to the termination of all remaining lease obligations of Columbia. Federal deposit insurance expense decreased by $529,000 for the nine months ended September 30, 2010, as compared to the corresponding prior year period due to a special assessment of $869,000 in the second quarter of 2009. General and administrative expense for the three and nine months ended September 30, 2010 included $413,000 and $582,000, respectively, of costs related to the Company’s announced, but subsequently terminated, merger with Central Jersey Bancorp. For the three and nine months ended September 30, 2010, the reduction in merger related expenses was partly offset by higher loan related expenses. Although loan closings have decreased from prior year levels, the marginal cost to originate each loan in the current regulatory and economic environment has increased and the Company has also incurred increased costs relating to loan applications which may not result in a closed loan.
Provision for Income Taxes
Income tax expense was $3.2 million and $8.7 million, respectively, for the three and nine months ended September 30, 2010, as compared to an expense of $2.9 million and $7.4 million, respectively, for the same prior year periods. The effective tax rate decreased slightly to 37.8% and 37.4%, respectively, for the three and nine months ended September 30, 2010, as compared to 38.7% and 38.1%, respectively, in the same prior periods.
Dividends on Preferred Stock and Warrant Accretion
Dividends on preferred stock and warrant accretion totaled $537,000 and $1.5 million, respectively, for the three and nine months ended September 30, 2009, as compared to no amounts in the current year periods. The preferred stock was redeemed on December 30, 2009 and the related warrant was repurchased on February 3, 2010. The warrant repurchase had no effect on net income available to common stockholders for the nine months ended September 30, 2010.
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, 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 interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including various lines of credit.
At September 30, 2010, the Company had outstanding overnight borrowings from the FHLB of $30.0 million, as compared to $87.0 million in overnight borrowings at December 31, 2009. The Company utilizes the overnight borrowings to fund short-term liquidity needs. The Company had total FHLB borrowings, including overnight borrowings, of $280.0 million at September 30, 2010, a decrease from $333.0 million at December 31, 2009.
The Company’s cash needs for the nine months ended September 30, 2010 were primarily satisfied by principal payments on loans and mortgage-backed securities, proceeds from the sale of mortgage loans held for sale and increased deposits. The cash was principally utilized for loan originations, the purchase of investment and mortgage-backed securities and the repayment of FHLB borrowings. For the nine months ended September 30, 2009, the cash needs of the Company were primarily satisfied by principal payments on loans and mortgage-backed securities, proceeds from the sale of mortgage loans held for sale, increased deposits and the issuance of preferred stock. The cash provided was principally used for loan originations, the purchase of mortgage-backed securities and to reduce borrowings.
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 September 30, 2010, outstanding commitments to originate loans totaled $88.7 million; outstanding unused lines of credit totaled $212.2 million; and outstanding commitments to sell loans totaled $50.1 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 $171.5 million at September 30, 2010. Based upon historical experience management estimates that a significant portion of such deposits will remain with the Company.
Cash dividends on common stock declared and paid by OceanFirst Financial Corp. during the first nine months of 2010 were $6.6 million as compared to $7.1 million in the same prior year period. On October 21, 2010, the Board of Directors declared a quarterly cash dividend of twelve cents ($0.12) per common share. The dividend is payable on November 12, 2010 to stockholders of record at the close of business on November 1, 2010.
The primary sources of liquidity specifically available to OceanFirst Financial Corp., the holding company of OceanFirst Bank, are capital distributions from the banking subsidiary and the issuance of preferred and common stock, long-term debt and trust preferred securities. For the first nine months of 2010, OceanFirst Financial Corp. received no dividend payments from OceanFirst Bank. OceanFirst Financial Corp.’s ability to continue to pay dividends will be partly dependent upon capital distributions from OceanFirst Bank which may be adversely affected by capital constraints imposed by the Office of Thrift Supervision (“OTS”). Pursuant to OTS regulations, a notice is required to be filed with the OTS prior to the Bank paying a dividend to OceanFirst Financial Corp. The OTS could object to a proposed capital distribution by any institution, which would otherwise be permitted by regulation, if the OTS determines that such distribution would constitute an unsafe and unsound practice. The Company cannot predict whether the OTS may object to any future notices or fail to approve any future applications to pay a dividend to OceanFirst Financial Corp. At September 30, 2010, OceanFirst Financial Corp. held $22.8 million in cash and $293,000 in investment securities available for sale.
At September 30, 2010, the Bank exceeded all of its regulatory capital requirements with tangible capital of $199.7 million, or 9.0% of total adjusted assets, which is above the required level of $33.4 million or 1.5%; core capital of $199.7 million or 9.0% of total adjusted assets, which is above the required level of $89.2 million, or 4.0% and risk-based capital of $212.3 million, or 14.9% of risk-weighted assets, which is above the required level of $113.8 million or 8.0%. The Bank is considered a “well-capitalized” institution under the OTS’ Prompt Corrective Action Regulations.
At September 30, 2010, the Company maintained tangible common equity of $199.4 million, for a tangible common equity to assets ratio of 8.96%.
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 lines of credit and commitments to extend credit. The Company also has outstanding commitments to sell loans amounting to $50.1 million.
The following table shows the contractual obligations of the Company by expected payment period as of September 30, 2010 (in thousands):
Contractual Obligation | Total | Less than One year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
Debt Obligations | $ | 378,374 | $ | 154,874 | $ | 102,000 | $ | 94,000 | $ | 27,500 | ||||||||||
Commitments to Originate Loans | 88,728 | 88,728 | — | — | — | |||||||||||||||
Commitments to Fund Unused Lines of Credit | 212,206 | 212,206 | — | — | — |
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 AssetsNote 9. Fair Value Measurements
The following table sets forth information regardingsummarizes financial assets and financial liabilities measured at fair value as of March 31, 2011 and December 31, 2010, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):
Fair Value Measurements at Reporting Date Using: | ||||||||||||||||
Total Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
March 31, 2011 | ||||||||||||||||
Items measured on a recurring basis: | ||||||||||||||||
Investment securities available for sale: | ||||||||||||||||
U.S. Agency obligations | $ | 71,170 | $ | 71,170 | $ | — | $ | — | ||||||||
State and municipal obligations | 10,635 | — | 10,635 | — | ||||||||||||
Corporate debt securities | 43,121 | — | 43,121 | — | ||||||||||||
Equity investments | 314 | 314 | — | — | ||||||||||||
Mortgage-backed securities available for sale | 347,966 | — | 347,966 | — | ||||||||||||
Items measured on a non-recurring basis: | ||||||||||||||||
Real estate owned | 302 | — | — | 302 | ||||||||||||
Loans measured for impairment based on the fair value of the underlying collateral | 2,569 | — | — | 2,569 |
December 31, 2010 Items measured on a recurring basis: Investment securities available for sale: U.S. Agency obligations State and municipal obligations Corporate debt securities Equity investments Mortgage-backed securities available for sale Items measured on a non-recurring basis: Real estate owned Loans measured for impairment based on the fair value of the underlying collateral Fair Value Measurements at Reporting Date Using: Total Fair
Value Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) $ 41,132 $ 41,132 $ — $ — 10,615 — 10,615 — 39,856 — 39,856 — 315 315 — — 341,175 — 341,175 — 2,295 — — 2,295 4,673 — — 4,673
Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
Transfers between levels are recognized at the end of the reporting period. Securities classified as available for sale are reported at fair value utilizing Level 1 and Level 2 inputs. Most of the Company’s non-performing assets consistinginvestment and mortgage-backed securities are fixed income instruments that are not quoted on an exchange, but are bought and sold in active markets. Prices for these instruments are obtained through third party pricing vendors or security industry sources that actively participate in the buying and selling of non-performing loanssecurities. Prices obtained from these sources include market quotation and Real Estate Owned (“REO”). Itmatrix pricing. Matrix pricing is a mathematical technique used principally to value certain securities without relying exclusively on quoted prices for the specific securities, but comparing the securities to benchmark or comparable securities.
The Company utilizes third party pricing services to obtain estimated market values for its corporate bonds. Management’s policy is to obtain and review all available documentation from the third party pricing service relating to their market and value determinations, including their methodology and summary of inputs. Management reviews this documentation, makes inquiries of the Companythird party pricing service and makes a determination as to cease accruing interestthe level of valuation inputs. Based on loans 90 days or more past due or in the process of foreclosure.
September 30, 2010 | December 31, 2009 | |||||||
(dollars in thousands) | ||||||||
Non-performing loans: | ||||||||
Real estate – one-to-four family | $ | 21,776 | $ | 19,142 | ||||
Commercial real estate | 6,822 | 5,152 | ||||||
Construction | 368 | 368 | ||||||
Consumer | 4,132 | 3,031 | ||||||
Commercial | 674 | 627 | ||||||
Total non-performing loans | 33,772 | 28,320 | ||||||
REO, net | 2,242 | 2,613 | ||||||
Total non-performing assets | $ | 36,014 | $ | 30,933 | ||||
Delinquent loans 30-89 days | $ | 18,376 | $ | 15,528 | ||||
Allowance for loan losses as a percent of total loans receivable | 1.10 | % | .89 | % | ||||
Allowance for loan losses as percent of total non-performing loans | 55.05 | 51.99 | ||||||
Non-performing loans as a percent of total loans receivable | 2.00 | 1.72 | ||||||
Non-performing assets as a percent of total assets | 1.62 | 1.52 |
Included in the non-performing loan total at September 30, 2010 was a single troubled debt restructured loan of $41,000, as compared to $1.6 million of troubled debt restructured loans at December 31, 2009. The non-performing loan total includes $653,000 of repurchased one-to-four family and consumer loans and $2.5 million of one-to-four family and consumer loans previously held for sale, which were written down to their fair market value in a prior period. Non-performing loans are concentrated in one-to-four family loans which comprise 64.5% of the total. At September 30, 2010, the average weighted loan-to-value ratio of non-performing one-to-four family loans was 75% using appraisal values at time of origination and 100% using updated appraisal values. Included in the allowance for loan losses is a specific allowance for the difference between the Company’s recorded investment inreview of available documentation and discussions with the loanthird party pricing service, management concluded that Level 2 inputs were utilized. The significant observable inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities and observations of equity and credit default swap curves related to the issuer.
Real estate owned and loans measured for impairment based on the fair value of the underlying collateral are recorded at estimated fair value, less estimated disposalselling costs. At September 30, 2010, the average weighted loan-to-value ratio of the total one-to-four family loan portfolio was 58% using appraisal values at time of origination. Based upon available market data, home values in the Company’s primary market area have declined by approximately 15% from the peak of the market, however, more recently home values appear to have stabilized. There can be no assurance that home values will not decline further, possibly resulting in losses to the Company. The largest non-performing loanFair value is a one-to-four family loan for $3.5 million which is secured by a first mortgage on a property with a recent appraised value of $3.8 million.
The Company also classifies loans in accordance with regulatory guidelines. At September 30, 2010, the Company had $14.1 million designated as Special Mention, $56.1 million classified as Substandard and $1.5 million classified as Doubtful, as compared to $12.0 million, $41.4 million and $33,000, respectively, at December 31, 2009. The largest Special Mention loan at September 30, 2010 is comprised of two credit facilities to a large real estate agency with an aggregate balance of $2.7 million which was current as to payments, but criticized due to poor operating results. The largest Substandard loan relationship is comprised of several credit facilities to a building supply company with an aggregate balance of $9.1 million, which was current as to payments, but criticized due to poor operating results. The loans are well-secured by commercial real estate and other business assets. The largest Doubtful loan is a loan for $2.6 million of which $1.5 million is classified as Doubtful and $1.1 million is classified as Substandard. The loan is delinquent and the borrower has filed for bankruptcy protection. The loan is secured by commercial real estate and also carries a personal guarantee. The Company has established an $800,000 specific reserve for this loan. In addition to loan classifications, the Company classified investment securities with an amortized cost of $30.0 million and a carrying value of $20.2 million as Substandard, which represents the amount of investment securities with a credit rating below investment grade from one of the internationally-recognized credit rating services.
At September 30, 2010, the Bank was holding subprime loans with a gross principal balance of $1.9 million and a carrying value, net of write-downs and lower of cost or market adjustment, of $1.5 million, and ALT-A loans with a gross principal balance of $3.5 million and a carrying value, net of write-downs and lower of cost or market adjustment, of $3.4 million. These loans were all originated by Columbia prior to its shuttering in 2007.
Private Securities Litigation Reform Act Safe Harbor Statement
In addition to historical information, this quarterly report contains certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995 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,” “will,” “should,” “may,” “view,” “opportunity,” “potential,” 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 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 are further discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (the “2009 Form 10-K”) and its subsequent securities filings and 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 and Item 1A, Risk Factors of the Company’s 2009 Form 10-K and Item 1A of this Form 10-Q.independent appraisals.
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 September 30, 2010, which were anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown. At September 30, 2010, the Company’s one-year gap was positive 0.34% as compared to negative 0.04% at December 31, 2009.
At September 30, 2010 | 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 | $ | 13,386 | $ | — | $ | — | $ | — | $ | — | $ | 13,386 | ||||||||||||
Investment securities | 55,300 | — | 22,420 | 6,689 | 370 | 84,779 | ||||||||||||||||||
FHLB stock | — | — | — | — | 17,425 | 17,425 | ||||||||||||||||||
Mortgage-backed securities | 16,513 | 47,017 | 106,402 | 83,989 | 79,399 | 333,320 | ||||||||||||||||||
Loans receivable (2) | 288,443 | 474,757 | 554,523 | 212,930 | 153,121 | 1,683,774 | ||||||||||||||||||
Total interest-earning assets | 373,642 | 521,774 | 683,345 | 303,608 | 250,315 | 2,132,684 | ||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Money market deposit accounts | 4,831 | 14,608 | 38,954 | 48,693 | — | 107,086 | ||||||||||||||||||
Savings accounts | 12,945 | 33,324 | 88,864 | 111,081 | — | 246,214 | ||||||||||||||||||
Interest-bearing checking accounts | 411,716 | 61,797 | 164,792 | 206,153 | — | 844,458 | ||||||||||||||||||
Time deposits | 50,711 | 120,825 | 63,776 | 22,444 | 29,439 | 287,195 | ||||||||||||||||||
FHLB advances | 30,000 | 54,000 | 102,000 | 94,000 | — | 280,000 | ||||||||||||||||||
Securities sold under agreements to repurchase | 70,874 | — | — | — | — | 70,874 | ||||||||||||||||||
Other borrowings | 22,500 | — | — | — | 5,000 | 27,500 | ||||||||||||||||||
Total interest-bearing liabilities | 603,577 | 284,554 | 458,386 | 482,371 | 34,439 | 1,863,327 | ||||||||||||||||||
Interest sensitivity gap (3) | $ | (229,935 | ) | $ | 237,220 | $ | 224,959 | $ | (178,763 | ) | $ | 215,876 | $ | 269,357 | ||||||||||
Cumulative interest sensitivity gap | $ | (229,935 | ) | $ | 7,285 | $ | 232,244 | $ | 53,481 | $ | 269,357 | $ | 269,357 | |||||||||||
Cumulative interest sensitivity gap as a percent of total interest-earning assets | (10.78 | )% | 0.34 | % | 10.89 | % | 2.51 | % | 12.63 | % | 12.63 | % |
Additionally, the table below sets forth the Company’s exposure to interest rate risk as measured by the change in net portfolio value (“NPV”) and net interest income under varying rate shocks as of September 30, 2010 and December 31, 2009. 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, 2009.
September 30, 2010 | December 31, 2009 | |||||||||||||||||||||||||||||||||||||||
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 | $ | 197,303 | (10.8 | )% | 9.2 | % | $ | 74,525 | (4.6 | )% | $ | 192,771 | (12.6 | )% | 9.9 | % | $ | 68,804 | (7.0 | )% | ||||||||||||||||||||
100 | 216,030 | (2.4 | ) | 9.8 | 76,688 | (1.8 | ) | 209,887 | (4.8 | ) | 10.6 | 71,779 | (3.0 | ) | ||||||||||||||||||||||||||
Static | 221,232 | — | 9.9 | 78,126 | — | 220,452 | — | 10.9 | 74,004 | — | ||||||||||||||||||||||||||||||
(100) | 211,353 | (4.5 | ) | 9.3 | 74,628 | (4.5 | ) | 216,497 | (1.8 | ) | 10.5 | 70,661 | (4.5 | ) | ||||||||||||||||||||||||||
(200) | 230,198 | 4.1 | 10.1 | 69,948 | (10.5 | ) | 206,585 | (6.3 | ) | 10.1 | 65,067 | (12.1 | ) |
The Company’s management, includingNote 10. Fair Value of Financial Instruments
Fair value estimates, methods and assumptions are set forth below for the Company’s principal executive officerfinancial instruments.
Cash and principal financial officer, have evaluatedDue from Banks
For cash and due from banks, the effectivenesscarrying amount approximates fair value.
Investments and Mortgage-Backed Securities
Most of the Company’s “disclosure controlsinvestment and procedures,”mortgage-backed securities are fixed income instruments that are not quoted on an exchange, but are bought and sold in active markets. Prices for these instruments are obtained through third party pricing vendors or security industry sources that actively participate in the buying and selling of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain securities without relying exclusively on quoted prices for the specific securities, but comparing the securities to benchmark or comparable securities.
Federal Home Loan Bank of New York Stock
The fair value for Federal Home Loan Bank of New York (“FHLB”) stock is its carrying value since this is the amount for which it could be redeemed. There is no active market for this stock and the Company is required to maintain a minimum investment based upon the outstanding balance of mortgage related assets and outstanding borrowings.
Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage, construction, consumer and commercial. Each loan category is further segmented into fixed and adjustable rate interest terms.
Fair value of performing and non-performing loans was estimated by discounting the future cash flows, net of estimated prepayments, at a rate for which similar loans would be originated to new borrowers with similar terms. Fair values estimated in this manner do not fully incorporate an exit price approach to fair value, but instead are based on a comparison to current market rates for comparable loans.
Deposits
The fair value of deposits with no stated maturity, such termas non-interest-bearing demand deposits, savings, and interest-bearing checking accounts and money market accounts are, by definition, equal to the amount payable on demand. The related insensitivity of the majority of these deposits to interest rate changes creates a significant inherent value which is definednot reflected in Rule 13a-15(e) promulgated under the Securities Exchange Actfair value reported. The fair value of 1934, as amended, (the “Exchange Act”). Based upon their evaluation,time deposits are based on the principal executive officerdiscounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.
Borrowed Funds
Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.
Commitments to Extend Credit and principalSell Loans
The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.
The estimated fair values of the Bank’s significant financial officer concluded that,instruments as of March 31, 2011 and December 31, 2010 are presented in the endfollowing tables (in thousands):
March 31, 2011 | ||||||||
Book Value | Fair Value | |||||||
Financial Assets: | ||||||||
Cash and due from banks | $ | 31,362 | $ | 31,362 | ||||
Investment securities available for sale | 125,240 | 125,240 | ||||||
Mortgage-backed securities available for sale | 347,966 | 347,966 | ||||||
Federal Home Loan Bank of New York stock | 18,370 | 18,370 | ||||||
Loans receivable and mortgage loans held for sale | 1,639,177 | 1,649,768 | ||||||
Financial Liabilities: | ||||||||
Deposits | 1,645,788 | 1,649,803 | ||||||
Borrowed funds | 393,714 | 396,734 | ||||||
December 31, 2010 | ||||||||
Book Value | Fair Value | |||||||
Financial Assets: | ||||||||
Cash and due from banks | $ | 31,455 | $ | 31,455 | ||||
Investment securities available for sale | 91,918 | 91,918 | ||||||
Mortgage-backed securities available for sale | 341,175 | 341,175 | ||||||
Federal Home Loan Bank of New York stock | 16,928 | 16,928 | ||||||
Loans receivable and mortgage loans held for sale | 1,667,462 | 1,675,805 | ||||||
Financial Liabilities: | ||||||||
Deposits | 1,663,968 | 1,668,007 | ||||||
Borrowed funds | 360,364 | 364,657 | ||||||
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because a limited market exists for a significant portion of the period covered by this report, the Company’s disclosure controls and procedures were effective. Disclosure controls and proceduresfinancial instruments, fair value estimates are the controlsbased on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other proceduressignificant unobservable inputs. These estimates are subjective in nature and involve uncertainties and matters of significant judgment
and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are designednot considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include deferred tax assets, and premises and equipment. In addition, the tax ramifications related to ensure that the information required to be disclosedrealization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered 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, there were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.estimates.
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 |
For a summary of risk factors relevant to the Company, see Part I, Item 1A, “Risk Factors,” in the 20092010 Form 10-K and Part II, Item 1A, “Risk Factors” in the Company’s June 30, 2010 Quarterly Report on Form 10-Q.10-K. There were no material changes to risk factors relevant to the Company’s operations since the June 30, 2010 Form 10-Q.December 31, 2010.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Not Applicable
Item 3. | Defaults Upon Senior Securities |
Not Applicable
Item 4. | Removed and Reserved |
Item 5. | Other Information |
Not Applicable
Item 6. | Exhibits |
Exhibits:
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.0 |
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: | /s/ John R. Garbarino | |||
John R. Garbarino | ||||
Chairman of the Board and Chief Executive Officer | ||||
DATE: | /s/ Michael J. Fitzpatrick | |||
Michael J. Fitzpatrick | ||||
Executive Vice President and Chief Financial Officer |
Exhibit Index
Exhibit | Description | Page | Description | Page | ||||||||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 26 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 30 | ||||||||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 27 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 31 | ||||||||
32.0 | Certification pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002 | 28 | Certification pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002 | 32 |
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