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, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission file number 0-27428
OceanFirst Financial Corp.
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(Exact name of registrant as specified in its charter)
Delaware 22-3412577
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(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
975 Hooper Avenue, Toms River, NJ 08753
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732)240-4500
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(Former name, former address and formal fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X
YES _____ NO _____.
As of November 9, 2000, there were 11,327,111 shares of the Registrant's Common
Stock, par value $.01 per share, outstanding.
OceanFirst Financial Corp.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
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PAGE
----
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
as of September 30, 2000 and December 31, 1999............... 1
Consolidated Statements of Income for the three and nine
months ended September 30, 2000 and 1999..................... 2
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999..................... 3
Notes to Consolidated Financial Statements................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 7
Item 3. Quantitative and Qualitative Disclosure about Market Risk.... 10
Part II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings............................................ 12
Item 2. Changes in Securities........................................ 12
Item 3. Default Upon Senior Securities............................... 12
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
Item 5. Other Information............................................ 12
Item 6. Exhibits and Reports on Form 8-K............................. 12
Signatures ............................................................. 13
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
ASSETS
- ------
Cash and due from banks $ 15,047 $ 10,007
Investment securities available for sale 132,622 120,780
Federal Home Loan Bank of New York stock, at cost 20,000 16,800
Mortgage-backed securities available for sale 272,993 346,182
Loans receivable, net 1,126,950 1,042,975
Mortgage loans held for sale 33,387 -
Interest and dividends receivable 10,152 8,468
Real estate owned, net 223 292
Premises and equipment, net 14,344 13,889
Servicing asset 13,902 2,244
Other assets 29,897 29,270
---------- ------------
Total assets $1,669,517 $1,590,907
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits $1,098,007 $1,056,950
Federal Home Loan Bank advances 127,300 115,000
Securities sold under agreements to repurchase 273,985 239,867
Advances by borrowers for taxes and insurance 7,057 5,990
Other liabilities 5,129 5,570
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Total liabilities 1,511,478 1,423,377
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Stockholders' Equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized, no shares issued - -
Common stock, $.01 par value, 55,000,000 shares authorized,
18,118,248 shares issued and 11,380,111 and 12,620,923
shares outstanding at September 30, 2000 and December 31,
1999, respectively 181 181
Additional paid-in capital 179,331 178,850
Retained earnings-substantially restricted 119,824 113,169
Accumulated other comprehensive loss (7,641) (9,568)
Less: Unallocated common stock held by
Employee Stock Ownership Plan (14,548) (15,727)
Unearned Incentive Awards (2,579) (4,030)
Treasury stock, (6,738,137 and 5,497,325 shares
at September 30, 2000 and December 31, 1999,
respectively) (116,529) (95,345)
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Total stockholders' equity 158,039 167,530
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Total liabilities and stockholders' equity $1,669,517 $1,590,907
========== ============
See accompanying notes to unaudited consolidated financial statements.
1
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
For the three months For the nine months,
ended September 30 ended September 30,
---------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
(Unaudited) (Unaudited)
Interest income:
Loans $21,753 $18,913 $62,395 $55,258
Mortgage-backed securities 5,216 5,974 16,442 17,728
Investment securities and other 2,578 2,224 7,404 6,718
------- ------- ------- -------
Total interest income 29,547 27,111 86,241 79,704
------- ------- ------- -------
Interest expense:
Deposits 11,361 10,240 32,682 30,646
Borrowed funds 6,025 4,534 16,219 12,970
------- ------- ------- -------
Total interest expense 17,386 14,774 48,901 43,616
------- ------- ------- -------
Net interest income 12,161 12,337 37,340 36,088
Provision for loan losses 255 225 745 675
------- ------- ------- -------
Net interest income after provision
for loan losses 11,906 12,112 36,595 35,413
------- ------- ------- -------
Other income:
Fees and service charges 1,227 919 3,340 2,586
Net (loss) gain on sales of loans and securities
available for sale (1,261) 35 (1,189) 502
Income from other real estate operations, net 56 69 127 145
Other 400 241 997 629
------- ------- ------- -------
Total other income 422 1,264 3,275 3,862
------- ------- ------- -------
Operating expenses:
Compensation and employee benefits 4,397 3,869 12,956 11,247
Occupancy 646 564 1,785 1,557
Equipment 418 326 1,145 991
Marketing 320 431 1,011 1,254
Federal deposit insurance 120 208 360 642
Data processing 425 336 1,190 989
General and administrative 1,934 1,101 4,219 3,397
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Total operating expenses 8,260 6,835 22,666 20,077
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Income before provision for income taxes 4,068 6,541 17,204 19,198
Provision for income taxes 248 2,364 4,733 6,895
------- ------- ------- -------
Net income $ 3,820 $ 4,177 $12,471 $12,303
======= ======= ======= =======
Basic earnings per share $.38 $.35 $1.19 $1.01
======= ======= ======= =======
Diluted earnings per share $.36 $.34 $1.16 $.98
======= ======= ======= =======
Average basic shares outstanding 10,091 11,884 10,437 12,238
======= ======= ======= =======
Average diluted shares outstanding 10,501 12,250 10,739 12,501
======= ======= ======= =======
See accompanying notes to unaudited consolidated financial statements.
2
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
For the nine months
ended September 30,
---------------------
2000 1999
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(Unaudited)
Cash flows from operating activities:
Net income $ 12,471 $ 12,303
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises
and equipment 1,185 1,122
Amortization of Incentive Awards 1,451 1,450
Amortization of ESOP 1,179 978
ESOP adjustment 442 644
Amortization of servicing asset 361 289
Amortization of deposit premium 78 78
Net premium amortization in excess of discount
accretion on securities 293 926
Net accretion of deferred fees and discounts
in excess of premium amortization on loans (202) (259)
Provision for loan losses 745 675
Net gain on sales of real estate owned (161) (220)
Net loss (gain) on sales of loans and securities available for sale 1,189 (502)
Proceeds from sales of mortgage loans held for sale 51,297 43,619
Mortgage loans originated for sale (61,866) (24,228)
(Increase) decrease in interest and dividends receivable (1,586) 457
Decrease (increase) in servicing asset and other assets 192 (577)
Decrease in other liabilities (1,217) 165
-------- --------
Total adjustments (6,620) 24,617
-------- --------
Net cash provided by operating activities 5,851 36,920
-------- --------
Cash flows from investing activities:
Net increase in loans receivable (85,162) (73,803)
Purchase of investment securities available for sale (12,500) (14,426)
Proceeds from sale of investment securities 30,279 121
Purchase of mortgage-backed securities available for sale - (97,251)
Proceeds from maturities of investment securities
available for sale 200 30,042
Principal payments on mortgage-backed securities
available for sale 44,498 103,859
Purchases of Federal Home Loan Bank of New York Stock (3,200) -
Proceeds from sales of real estate owned 974 902
Purchases of premises and equipment (1,321) (692)
Acquisition of Columbia Equities, Ltd. net of cash and cash equivalents (2,954) -
-------- --------
Net cash used in investing activities (29,186) (51,248)
-------- --------
Continued
3
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(dollars in thousands)
For the nine months
ended September 30,
---------------------
2000 1999
-------- --------
(Unaudited)
Cash flows from financing activities:
Increase in deposits $ 41,057 $ 9,626
Increase in Federal Home Loan Bank advances (20,396) -
Increase in securities sold under agreements
to repurchase 34,118 30,429
Increase in advances by borrowers for taxes and
insurance 596 1,015
Exercise of Stock Options 908 17
Dividends paid (5,632) (5,382)
Purchase of treasury stock (22,276) (25,058)
-------- --------
Net cash provided by financing activities 28,375 10,647
-------- --------
Net increase (decrease) in cash and due from banks 5,040 (3,681)
Cash and due from banks at beginning of period 10,007 10,295
-------- --------
Cash and due from banks at end of period $ 15,047 $ 6,614
======== ========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for:
Interest $ 48,971 $ 43,376
Income taxes 4,295 5,374
Noncash investing activities:
Transfer of loans receivable to real estate owned 644 1,041
Mortgage loans securitized into mortgage-backed
Securities 14,035 37,200
======== ========
Supplemental Information to the Consolidated Statements of Cash
Flows Relating to the Acquisition of Columbia Equities, Ltd:
Non cash investing and financing transactions relating to
the acquisition of Columbia Equities, Ltd. that are not
reflected in the Consolidated Statements of Cash Flows for
the nine months ended September 30, 2000 are listed below:
Fair value of assets acquired, excluding cash and cash $ 36,045
equivalents (33,982)
Liabilities assumed ========
See accompanying notes to unaudited consolidated financial statements.
4
OceanFirst Financial Corp.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Note 1. Basis of Presentation
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The accompanying unaudited consolidated financial statements include the
accounts of OceanFirst Financial Corp. (the "Company") and its wholly-owned
subsidiary, OceanFirst Bank (the "Bank") and its wholly-owned subsidiaries,
Columbia Equities, Ltd., OceanFirst Realty Inc. and Ocean Investment Services,
Inc.
The Bank completed the acquisition of Columbia Equities, Ltd. ("Columbia"), a
mortgage brokerage company based in Tarrytown, New York on August 18, 2000 in a
transaction accounted for as a purchase. Accordingly, the assets and
liabilities of Columbia were recorded on the books of the Bank at their fair
market values of $37.1 million and $34.0 million, respectively. In October
2000, the Company sold servicing rights with a book value and market value of
$7.1 million. The cost of the acquisition was $4 million. The Company's
consolidated results of operations include Columbia's results commencing on
August 18, 2000.
The interim consolidated financial statements reflect all normal and recurring
adjustments which are, in the opinion of management, considered necessary for a
fair presentation of the financial condition and results of operations for the
periods presented. The results of operations for the three and nine months
ended September 30, 2000 are not necessarily indicative of the results of
operations that may be expected for all of 2000.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's Annual Report to Stockholders on Form 10-K for the year ended
December 31, 1999.
Note 2. Earnings per Share
- ---------------------------
The following reconciles shares outstanding for basic and diluted earnings per
share for the three and nine months ended September 30, 2000 and 1999:
Three months ended Nine months ended
September 30, September 30,
-------------------- -------------------
2000 1999 2000 1999
------ ------ ------ -------
Weighted average shares issued net of Treasury shares 11,534 13,594 11,932 13,994
Less: Unallocated ESOP shares (1,164) (1,292) (1,195) (1,325)
Unallocated incentive award shares (279) (418) (300) (431)
------ ------ ------ -------
Average basic shares outstanding 10,091 11,884 10,437 12,238
Add: Effect of dilutive securities:
Stock options 288 228 180 132
Incentive awards 122 138 122 131
------ ------ ------ -------
Average diluted shares outstanding 10,501 12,250 10,739 12,501
====== ====== ====== =======
Note 3. Comprehensive Income
- -----------------------------
For the three month periods ended September 30, 2000 and 1999 total
comprehensive income, representing net income plus or minus items recorded
directly in equity, such as the change in unrealized gains or losses on
securities available for sale amounted to $8,807,000 and $64,000, respectively.
For the nine months ended September 30, 2000 and 1999, total comprehensive
income amounted to $14,398,000 and $4,326,000, respectively.
5
Note 4. Impact of Recent Accounting Pronouncements
- --------------------------------------------------
In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25". The interpretation
clarifies certain issues with respect to the application of Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB
Opinion No. 25). The interpretation results in a number of changes in the
application of APB Opinion No. 25 including, the accounting for modifications to
equity awards as well as extending APB Opinion No. 25 accounting treatment to
options granted to outside directors for their services as directors. The
provisions of the interpretation were effective July 1, 2000 and apply
prospectively, except for certain modifications to equity awards made after
December 15, 1998. The initial adoption of the interpretation did not have a
significant impact on the company's financial statements.
In June 2000, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment to FASB Statement No. 133". SFAS No. 138 amends
certain aspects of SFAS No. 133 to simplify the accounting for derivatives and
hedges under SFAS No. 133. SFAS No. 138 is effective upon the company's
adoption of SFAS No. 133 (January 1, 2001). The initial adoption of SFAS No.
133 and SFAS No. 138 are not expected to have a material impact on the Company's
financial statements.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (A Replacement
of FASB Statement 125)." SFAS No. 140 supersedes and replaces the guidance in
SFAS No. 125 and, accordingly, provides guidance on the following topics:
securitization transactions involving financial assets, sales of financial
assets such as receivables, loans, and securities; factoring transactions; wash
sales; servicing assets and liabilities, collateralized borrowing arrangements;
securities lending transactions; repurchase agreements; loan collateralized
borrowing arrangements; securities lending transactions; repurchase agreements;
loan participations; and extinguishment of liabilities. While most of the
provision of SFAS No. 140 are effective for transactions entered into after
March 31, 2001, companies with fiscal year ends that hold beneficial interests
from previous securitizations will be required to make additional disclosures in
their December 31, 2000 financial statements. The initial adoption of SFAS No.
140 is not expected to have a material impact on the Company's financial
statements.
Note 5. Loans Receivable, Net
- -----------------------------
Loans receivable, net at September 30, 2000 and December 31, 1999 consisted of
the following (in thousands):
September 30, 2000 December 31, 1999
------------------ -----------------
Real estate:
One- to four-family $ 988,410 $ 917,481
Commercial real estate, multi-
family and land 87,635 57,142
Construction 6,698 7,791
Consumer 60,866 56,040
Commercial 27,673 15,569
---------- ----------
Total loans 1,171,282 1,054,023
Loans in process (2,450) (2,790)
Deferred fees 398 (78)
Unearned premium 28 43
Allowance for loan losses (8,921) (8,223)
---------- ----------
Total loans, net 1,160,337 1,042,975
Less: mortgage loans held for sale 33,387 -
---------- ----------
Loans receivable, net $1,126,950 $1,042,975
========== ==========
6
Note 6. Deposits
- ----------------
The major types of deposits at September 30, 2000 and December 31, 1999 were as
follows (in thousands):
September 30, 2000 December 31, 1999
------------------ -----------------
Type of Account
- ---------------
Non-interest bearing $ 49,832 $ 31,328
NOW 136,637 113,426
Money market deposit 73,413 80,597
Savings 170,221 171,064
Time deposits 667,904 660,535
---------- ----------
$1,098,007 $1,056,950
========== ==========
Note 7. Income Taxes
- --------------------
The Company recognized an income tax benefit of $1.1 million in the third
quarter of 2000 relating to the additional charitable donation expense
associated with the 1996 formation of the OceanFirst Foundation (the
"Foundation"). The Company established the Foundation as part of the conversion
to public ownership and recorded a charitable donation expense of $13.4 million
in 1996. Charitable donations are tax deductible subject to a limitation of 10%
of annual taxable income. The Company is able to carry forward any unused
portion of the deduction for five years following the year in which the
contribution is made. Based on the Company's original estimate of taxable
income for 1996 and the carry forward period, $4.3 million of charitable
donation expense was considered not tax deductible because the Company believed
it was unlikely to realize sufficient earnings over the six year period to take
the full deduction. After considering the Company's recent strong earnings
performance and expectations for taxable income through December 31, 2001, the
Company now estimates that an additional $3.0 million of charitable donation
expense will be recognized for tax purposes, providing for a tax benefit of $1.1
million. The Company has a remaining charitable expense carry forward of
$1,256,000 ($440,000 on an after-tax basis) which expires at December 31, 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Total assets at September 30, 2000 were $1.670 billion, an increase of $78.6
million, compared to $1.591 billion at December 31, 1999.
Loans receivable, net, increased by $84.0 million, or 8.1%, to a balance of
$1.127 billion at September 30, 2000, compared to a balance of $1.043 billion at
December 31, 1999. The increase was largely attributable to commercial lending
(including commercial real estate) initiatives which accounted for $42.6 million
of this growth. Mortgage loans held for sale increased to $33.4 million at
September 30, 2000 as compared to no mortgage loans held for sale at December
31, 1999 with most of this increase representing loans held by Columbia
Equities, Ltd. Deposit balances increased $41.1 million to $1.098 billion at
September 30, 2000 from $1.057 billion at December 31, 1999, partly due to the
results of new branches opened in late 1999 and early 2000.
Stockholder's equity at September 30, 2000 decreased to $158.0 million, compared
to $167.5 million at December 31, 1999 due to the execution of the Company's
seventh and eighth stock repurchase programs. The Company repurchased 1,304,592
shares of common stock during the first nine months of 2000 at a total cost of
$22.3 million. Under the 10% repurchase program authorized by the Board of
Directors in August 2000, 1,095,743 shares remain to be purchased as of
September 30, 2000.
Results of Operations
General
Net income decreased to $3.8 million for the three months ended September 30,
2000, as compared to net income of $4.2 million for the three months ended
September 30, 1999 while diluted earnings per share increased to $.36 for the
three months ended September 30, 2000, as compared to $.34 for the same prior
year period. Net income and diluted earnings per share for the nine months
ended September 30, 2000 increased to $12.5 million and $1.16, respectively, as
compared to $12.3 million and $.98, respectively, for the same prior year
periods. The higher percentage increase in earnings per share is the result of
the Company's repurchase program which reduced the number of shares outstanding.
7
Interest Income
Interest income for the three and nine months ended September 30, 2000 was $29.5
million and $86.2 million, respectively, compared to $27.1 million and $79.7
million for the three and nine months ended September 30, 1999, respectively.
The increases in interest income were due to increases in average interest-
earning assets of $51.0 million and $40.1 for the three and nine months ended
September 30, 2000, respectively, as compared to the same prior year periods.
Additionally, the yield on average interest-earning assets increased to 7.50%
and 7.42% on average for the three and nine months ended September 30, 2000,
respectively, compared to 7.11% and 7.04% on average in the same prior year
periods. The asset yield benefited from a change in the mix of average-earning
assets towards a higher concentration of loans receivable partly funded by
reductions in lower yielding investment and mortgage-backed securities. For the
three and nine months ended September 30, 2000 loans receivable represented
71.5% and 70.1%, respectively, of average interest-earning assets as compared to
66.5% and 65.4%, respectively, for the same prior year periods.
Interest Expense
Interest expense for the three and nine months ended September 30, 2000 was
$17.4 million and $48.9 million respectively, compared to $14.8 million and
$43.6 million for the three and nine months ended September 30, 1999,
respectively. The increases in interest expense were primarily the result of
increases in the average cost of interest-bearing liabilities which rose to
4.85% and 4.65%, respectively, for the three and nine months ended September 30,
2000, as compared to 4.37% and 4.36%, respectively, for the same prior year
periods, as well as increases in average interest-bearing liabilities which rose
by $81.0 million and $68.0 million for the three and nine months ended September
30, 2000, respectively, as compared to the same prior year periods. The
Company's stock repurchase programs will generally cause interest-bearing
liabilities to rise at a greater rate than interest-earning assets due to the
reduction in stockholders' equity as a funding source.
Provision for Loan Losses
For the three and nine months ended September 30, 2000, the Company's provision
for loan losses was $255,000 and $745,000, respectively, as compared to $225,000
and $675,000, respectively, for the same prior year periods. While the Company
realized substantial loan growth over the past year, especially in the area of
higher risk commercial loans, the provision for loan losses rose only modestly
due to a decline in non-performing assets which decreased to $3.4 million at
September 30, 2000 as compared to $4.5 million at September 30, 1999.
Other Income
Other income was $422,000 and $3.3 million for the three and nine months ended
September 30, 2000, respectively, compared to $1.3 million and $3.9 million,
respectively, for the same prior year periods. For the three and nine months
ended September 30, 2000 the Company recognized a loss of $1.6 million on the
restructuring sale of $32.1 million of securities available for sale. For the
nine months ended September 30, 1999 the Company recorded a loss of $49,000 on
the sale of an investment security. For the three and nine months ended
September 30, 2000 the Company also sold 30-year fixed-rate loans for a gain of
$375,000 and $447,000, respectively, as compared to a gain of $35,000 and
$551,000, respectively, in the same prior year periods. The Bank periodically
sells these loans to assist in the management of interest rate risk, while
Columbia Equities, Ltd., as a mortgage banker, sells all of its mortgage loan
production.
Excluding the respective net gains or losses on the sale of loans and
securities, other income increased by $454,000, or 36.9%, and $1.1 million, or
32.9%, for the three and nine months ended September 30, 2000, respectively, as
compared to the same prior year periods. Fees and service charges increased due
to the growth in commercial account services and retail core account balances.
The Company continues to focus on growing non-interest revenue with the March
2000 introduction of Trust and Asset Management services. For the three months
ended September 30, 2000 trust service fees amounted to $27,000 and at September
30, 2000 trust assets under management totaled $30.2 million.
Operating Expenses
Operating expenses were $8.3 million and $22.7 million, respectively, for the
three and nine months ended September 30, 2000, as compared to $6.8 million and
$20.1 million, respectively, in the same prior year periods. Included in
general and administrative expense for the three and nine months ended September
30, 2000, are certain costs associated with the acquisition and ongoing
operations of Columbia Equities, Ltd., and costs associated with the opening of
the Bank's twelfth and thirteenth branch offices in September and October 1999,
the Bank's fourteenth branch office in May 2000, and the introduction of the
Company's Trust and Asset Management business line. These increases were partly
offset by decreases
8
of $88,000 and $282,000 for the three and nine months ended September 30, 2000,
respectively, as compared to the same prior year periods in federal deposit
insurance due to a decline in the assessment rate.
Provision for Income Taxes
Income tax expense was $248,000 and $4.7 million for the three and nine months
ended September 30, 2000, respectively, compared to $2.4 million and $6.9
million for the same prior year periods due to the recognition of an income tax
benefit of $1.1 million in the third quarter of 2000 relating to the additional
charitable donation expense associated with the 1996 formation of the OceanFirst
Foundation (see Note 7 to the unaudited consolidated financial statements).
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-backed securities, Federal Home Loan Bank
("FHLB") and other borrowings and, to a lesser extent, investment maturities and
proceeds from the sale of loans. While scheduled amortization of loans is a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition. The
Company has other sources of liquidity if a need for additional funds arises,
including an overnight line of credit and advances from the FHLB.
At September 30, 2000, the Company had $77.3 million of outstanding overnight
borrowings from the FHLB, an increase from no overnight borrowings at December
31, 1999. The Company utilizes the overnight line from time to time to fund
short-term liquidity needs. The Company also had other borrowings of $358.3
million at September 30, 2000, an increase from $354.9 million at December 31,
1999. These borrowings were used to fund a wholesale leverage strategy designed
to improve returns on invested capital.
The Company's cash needs for the nine months ended September 30, 2000, were
primarily provided by principal payments on loans and mortgage-backed
securities, increased deposits and increased total borrowings. The cash was
principally utilized for loan originations and the purchase of treasury stock.
For the nine months ended September 30, 1999, the cash needs of the Company were
primarily satisfied by maturities of investment securities available for sale,
principal payments on loans and mortgage-backed securities, proceeds from the
sale of mortgage loans held for sale and increased total borrowings. The cash
provided was principally used for the purchase of investment and mortgage-backed
securities, the origination of loans and the purchase of treasury stock.
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon
economic conditions and savings flows and is currently 4% of net withdrawable
savings deposits and borrowings payable on demand or in one year or less during
the preceding calendar month. Liquid assets for purposes of this ratio include
cash, accrued interest receivable, certain time deposits, U.S. Treasury and
Government agencies and other securities and obligations generally having
remaining maturities of less than five years. The levels of these assets are
dependent on the Bank's operating, financing, lending and investing activities
during any given period. As of September 30, 2000 and December 31, 1999, the
Bank's liquidity ratios were 6.1% and 8.9%, respectively, both in excess of the
minimum regulatory requirement.
At September 30, 2000, the Bank exceeded all of its regulatory capital
requirements with tangible capital of $115.0 million, or 6.9%, of total
adjusted assets, which is above the required level of $25.0 million or 1.5%;
core capital of $115.0 million or 6.9% of total adjusted assets, which is above
the required level of $50.0 million, or 3.0%; and risk-based capital of $123.8
million, or 13.2% of risk-weighted assets, which is above the required level of
$75.1 million or 8.0%. The Bank is considered a "well capitalized" institution
under the Office of Thrift Supervision's prompt corrective action regulations.
9
Non-Performing Assets
The following table sets forth information regarding the Company's nonperforming
assets consisting of non-accrual loans and Real Estate Owned (REO). The Company
had no troubled-debt restructured loans within the meaning of SFAS 15 at
September 30, 2000 or December 31, 1999. It is the policy of the Company to
cease accruing interest on loans 90 days or more past due or in the process of
foreclosure.
September 30, December 31,
2000 1999
------- -------
(dollars in thousands)
Non-accrual loans:
Real estate:
One-to four-family $ 2,846 $ 2,401
Commercial real estate,
multi-family and land 184 362
Consumer 141 222
------- -------
Total 3,171 2,985
REO, net 223 292
------- -------
Total non-performing assets $ 3,394 $ 3,277
======= =======
Non-performing loans as a percent of total
loans receivable .27% .28%
Non-performing assets as a percent of total
assets .20 .21
Allowance for loan losses as a percent of
total loans receivable .76 .78
Allowance for loan losses as percent of
total non-performing loans 281.33 275.48
Private Securities Litigation Reform Act Safe Harbor Statement
In addition to historical information, this quarterly report may include certain
forward looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal and state tax authorities, changes in interest rates, deposit flows, the
cost of funds, demand for loan products, demand for financial services,
competition, changes in the quality or composition of the Bank's loan and
investment portfolios, changes in accounting principles, policies or guidelines,
and other economic, competitive, governmental and technological factors
affecting the Company's operations, markets, products, services and prices.
Further description of the risks and uncertainties to the business are included
in Item 1, Business, of the Company's 1999 Form 10-K.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company's interest rate sensitivity is monitored by management through the
use of an interest rate risk (IRR) model. Based on internal IRR modeling the
Company's one year gap at September 30, 2000 was negative 16.3% as compared to
negative 11.8% at December 31, 1999. Additionally, the table below sets forth
the Company's exposure to interest rate risk as measured by the change in net
portfolio value ("NPV") and net interest income under varying rate shocks as of
September 30, 2000 and December 31, 1999. All methods used to measure interest
rate sensitivity involve the use of assumptions, which may tend to oversimplify
the manner in which actual yields and costs respond to changes in market
interest rates. The Company's interest rate sensitivity should be reviewed in
conjunction with the financial statements and notes thereto contained in the
Company's Annual Report for the year ended December 31, 1999.
At September 30, 2000, the Company's NPV in a static rate environment is less
than the NPV at December 31, 1999, reflecting the Company's declining capital
levels resulting from common stock repurchase programs. Also, in a shocked
interest rate environment, the Company projects a greater percent change in NPV
at September 30, 2000 than was the case at December 31, 1999. The heightened
interest rate sensitivity is primarily due to the declining capital base which
accentuates,
10
on a percentage basis, similar dollar changes in NPV. Additionally, the
generally higher interest rate environment reduces anticipated prepayment speeds
on mortgage loans and mortgage-backed securities and reduces the likelihood that
a callable security is called before its stated maturity date.
September 30, 2000 December 31, 1999
--------------------------------------------------- --------------------------------------------------
Net Portfolio Value Net Interest Income Net Portfolio Value Net Interest Income
- ----------------------------------------------------------------- --------------------------------------------------
Change in
Interest
Rates in
Basis Points NPV NPV
(Rate Shock) Amount % Change Ratio Amount % Change Amount % Change Ratio Amount % Change
- ----------------------------------------------------------------- -------------------------------------------------
(dollars in
thousands)
300 $114,789 (39.9)% 7.7% $37,131 (15.8)% $119,838 (40.0)% 8.4% $44,212 (9.3)%
200 143,295 (25.0) 9.4 39,645 (10.1) 151,710 (24.0) 10.3 46,123 (5.3)
100 170,328 (10.9) 10.8 42,151 (4.5) 179,446 (10.1) 11.8 47,765 (2.0)
Static 191,112 - 11.8 44,121 - 199,646 - 12.8 48,724 -
(100) 205,849 7.7 12.4 45,651 3.5 213,252 6.8 13.3 49,251 1.1
(200) 211,657 10.8 12.6 46,526 5.5 217,678 9.0 13.4 48,927 1.4
(300) 210,917 10.4 12.4 46,669 5.8 216,809 8.6 13.2 47,865 (1.8)
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is not engaged in any legal proceedings of a material
nature at the present time. From time to time, the Company is a party
to routine legal proceedings within the normal course of business.
Such routine legal proceedings in the aggregate are believed by
management to be immaterial to the Company's financial condition or
results of operations.
Item 2. Changes in Securities
---------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable
Item 5. Other Information
-----------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
3.1 Certificate of Incorporation of OceanFirst Financial Corp.*
3.2 Bylaws of OceanFirst Financial Corp.**
4.0 Stock Certificate of OceanFirst Financial Corp.*
27 Financial Data Schedule (filed herewith)
* Incorporated herein by reference into this document from the Exhibits to Form
S-1, Registration Statement, filed on December 7, 1995, as amended,
Registration No. 33-80123.
** Incorporated herein by reference into this document from the Exhibit to Form
10-Q, Quarterly Report, filed on August 11, 2000.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OceanFirst Financial Corp.
-----------------------------------
Registrant
DATE: November 10, 2000 /s/ John R. Garbarino
-----------------------------------
John R. Garbarino
Chairman of the Board, President
and Chief Executive Officer
DATE: November 10, 2000 /s/ Michael Fitzpatrick
-----------------------------------
Michael Fitzpatrick
Executive Vice President and
Chief Financial Officer
13