-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UujiRsnlQCgmJKgByNS9JeJn73nJiniDZeBqVZw7eNaWM72X8I+igHxtdLggDpWk zJyhKzJmJSpAykQp4KIldw== 0000928385-02-002788.txt : 20020814 0000928385-02-002788.hdr.sgml : 20020814 20020814102815 ACCESSION NUMBER: 0000928385-02-002788 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OCEANFIRST FINANCIAL CORP CENTRAL INDEX KEY: 0001004702 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 223412577 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11713 FILM NUMBER: 02732140 BUSINESS ADDRESS: STREET 1: 975 HOOPER AVE CITY: TOMS RIVER STATE: NJ ZIP: 08753-8396 BUSINESS PHONE: 7322404500 MAIL ADDRESS: STREET 1: 975 HOOPER AVENUE CITY: TOMS RIVER STATE: NJ ZIP: 08723 FORMER COMPANY: FORMER CONFORMED NAME: OCEAN FINANCIAL CORP DATE OF NAME CHANGE: 19951208 10-Q 1 d10q.txt FORM 10-Q 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 June 30, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ------------- Commission file number 0-27428 OceanFirst Financial Corp. ---------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 22-3412577 --------------------------------- ----------------------------------- (State of other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 975 Hooper Avenue, Toms River, NJ 08753 ---------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (732)240-4500 ---------------- ------------------------------------------------------------------ (Former name, former address and formal fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- As of August 9, 2002, there were 14,212,080 shares of the Registrant's Common Stock, par value $.01 per share, outstanding. OceanFirst Financial Corp. INDEX TO FORM 10-Q PART I. FINANCIAL INFORMATION
PAGE ---- Item 1. Consolidated Financial Statements (Unaudited) Consolidated Statements of Financial Condition as of June 30, 2002 and December 31, 2001 1 Consolidated Statements of Income for the three and six months ended June 30, 2002 and 2001 2 Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001 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 11 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)
June 30, December 31, 2002 2001 --------------- ------------- (Unaudited) ASSETS Cash and due from banks $ 32,306 $ 16,876 Investment securities available for sale 79,423 80,017 Federal Home Loan Bank of New York stock, at cost 20,115 23,560 Mortgage-backed securities available for sale 177,905 233,302 Loans receivable, net 1,314,316 1,300,889 Mortgage loans held for sale 17,871 37,828 Interest and dividends receivable 8,303 7,632 Real estate owned, net 477 133 Premises and equipment, net 17,998 16,730 Servicing asset 8,983 7,628 Other assets 39,564 39,071 ----------- ---------- Total assets $1,717,261 $1,763,666 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $1,162,055 $1,109,043 Federal Home Loan Bank advances 199,000 272,000 Securities sold under agreements to repurchase 191,717 212,332 Advances by borrowers for taxes and insurance 6,644 6,371 Other liabilities 13,533 17,191 ----------- ---------- Total liabilities 1,572,949 1,616,937 ----------- ---------- Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares issued - - Common stock, $.01 par value, 55,000,000 shares authorized, 27,177,372 shares issued and 14,306,021 and 14,791,334 shares outstanding at June 30, 2002 and December 31, 2001, respectively 181 181 Additional paid-in capital 183,288 181,780 Retained earnings 137,412 131,746 Accumulated other comprehensive loss (1,016) (824) Less: Unallocated common stock held by Employee Stock Ownership Plan (11,955) (12,663) Unearned Incentive Awards - (161) Treasury stock, 12,871,351 and 12,386,038 shares at June 30, 2002 and December 31, 2001, respectively (163,598) (153,330) ----------- ---------- Total stockholders' equity 144,312 146,729 ----------- ---------- Total liabilities and stockholders' equity $1,717,261 $1,763,666 =========== ==========
See accompanying notes to unaudited consolidated financial statements. OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts)
For the three months For the six months ended June 30 ended June 30 ------------------------- --------------------- 2002 2001 2002 2001 ---- ---- ---- ---- (Unaudited) (Unaudited) Interest income: Loans $ 23,374 $23,099 $47,230 $45,830 Mortgage-backed securities 2,607 4,520 5,705 8,894 Investment securities and other 888 1,801 2,348 4,004 -------- ------- ------- ------- Total interest income 26,869 29,420 55,283 58,728 -------- ------- ------- ------- Interest expense: Deposits 7,258 11,065 14,642 22,782 Borrowed funds 4,948 5,414 10,310 10,275 -------- ------- ------- ------- Total interest expense 12,206 16,479 24,952 33,057 -------- ------- ------- ------- Net interest income 14,663 12,941 30,331 25,671 Provision for loan losses 375 260 875 515 -------- ------- ------- ------- Net interest income after provision for loan losses 14,288 12,681 29,456 25,156 -------- ------- ------- ------- Other income: Fees and service charges 1,471 1,270 2,949 2,625 Net gain on sales of loans and securities available for sale 1,114 1,426 1,508 2,504 Net income from other real estate operations 55 40 74 55 Other 466 556 1,000 907 -------- ------- ------- ------- Total other income 3,106 3,292 5,531 6,091 -------- ------- ------- ------- Operating expenses: Compensation and employee benefits 4,997 4,737 10,259 10,105 Occupancy 798 742 1,590 1,436 Equipment 575 562 1,118 1,057 Marketing 433 457 857 794 Federal deposit insurance 124 123 250 246 Data processing 726 568 1,313 1,059 General and administrative 2,157 1,874 4,301 3,476 -------- ------- ------- ------- Total operating expense 9,810 9,063 19,688 18,173 -------- ------- ------ ------- Income before provision for income taxes 7,584 6,910 15,299 13,074 Provision for income taxes 2,448 2,417 5,114 4,561 -------- ------- ------- ------- Net income $ 5,136 $ 4,493 $10,185 $ 8,513 ======== ======= ======= ======= Basic earnings per share $ .40 $ .32 $ .78 $ .59 ======== ======= ======= ======= Diluted earnings per share $ .37 $ .30 $ .73 $ .56 ======== ======= ======= ======= Average basic shares outstanding 12,960 14,255 13,049 14,393 ======== ======= ======= ======= Average diluted shares outstanding 13,904 14,970 13,900 15,089 ======== ======= ======= =======
See accompanying notes to unaudited consolidated financial statements. 2 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
For the six months ended June 30, ------------------------ 2002 2001 -------- ------- (Unaudited) Cash flows from operating activities: Net income $ 10,185 $ 8,513 --------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment 972 951 Amortization of Incentive Awards 161 968 Amortization of ESOP 708 742 ESOP adjustment 950 619 Amortization of servicing asset 1,105 759 Amortization of intangible assets 53 179 Net premium amortization in excess of discount accretion on securities 699 308 Net accretion of deferred fees and discounts in excess of premium amortization on loans (46) (83) Provision for loan losses 875 515 Net gain on sales of real estate owned (80) (86) Net gain on sales of loans and securities available for sale (1,508) (2,504) Proceeds from sales of mortgage loans held for sale 250,147 165,375 Mortgage loans originated for sale (228,682) (152,435) Increase in value of Bank Owned Life Insurance (974) (796) (Increase) decrease in interest and dividends receivable (671) 372 Increase in other assets (1,920) (1,805) (Decrease) increase in other liabilities (3,100) 2,740 --------- -------- Total adjustments 18,689 15,819 --------- -------- Net cash provided by operating activities 28,874 24,332 --------- -------- Cash flows from investing activities: Net increase in loans receivable (14,821) (81,411) Purchase of mortgage-backed securities available for sale - (49,006) Purchase of investment securities available for sale (600) (92) Proceeds from maturities of investment securities available for sale - 13,500 Principal payments on mortgage-backed securities available for sale 55,588 37,369 Decrease (increase) in Federal Home Loan Bank of New York stock 3,445 (850) Proceeds from sales of real estate owned 301 434 Purchases of premises and equipment (2,240) (2,324) --------- -------- Net cash provided by (used in) investing activities 41,673 (82,380) --------- --------
Continued 3 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (dollars in thousands)
For the six months ended June 30, ----------------------- 2002 2001 ------- ------ (Unaudited) Cash flows from financing activities: Increase in deposits $ 53,012 $ 2,132 (Decrease) increase in short-term borrowings (75,615) 46,471 Proceeds from Federal Home Loan Bank advances 25,000 80,000 Repayments of Federal Home Loan Bank advances (43,000) (20,000) Proceeds from securities sold under agreements to repurchase - 33,000 Repayments of securities sold under agreements to repurchase - (56,000) Increase in advances by borrowers for taxes and insurance 273 760 Exercise of stock options 601 863 Dividends paid (4,383) (3,912) Purchase of treasury stock (11,005) (15,326) ---------- --------- Net cash (used in) provided by financing activities (55,117) 67,988 ---------- --------- Net increase in cash and due from banks 15,430 9,940 Cash and due from banks at beginning of period 16,876 7,235 ---------- --------- Cash and due from banks at end of period $ 32,306 $ 17,175 ========== ========= Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 24,942 $ 33,389 Income taxes 2,803 1,747 Noncash investing activities: Transfer of loans receivable to real estate owned 565 340 Mortgage loans securitized into mortgage-backed securities 90,028 11,698 ========== =========
See accompanying notes to unaudited consolidated financial statements. 4 OceanFirst Financial Corp. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements include the accounts of OceanFirst Financial Corp. (the "Company") and its wholly-owned subsidiary, OceanFirst Bank (the "Bank") and its wholly-owned subsidiaries, Columbia Equities, Ltd., OceanFirst REIT Holdings, Inc., OceanFirst Realty Corp. and OceanFirst Services, LLC. The interim consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three months ended June 30, 2002 are not necessarily indicative of the results of operations that may be expected for all of 2002. 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, 2001. Note 2. Earnings per Share The following reconciles shares outstanding for basic and diluted earnings per share for the three months ended June 30, 2002 and 2001 (in thousands):
Three months ended Six months ended June 30, June 30, -------------------- ----------------- 2002 2001 2002 2001 ---- ---- ---- ---- Weighted average shares issued net of Treasury shares 14,452 16,056 14,595 16,250 Less: Unallocated ESOP shares (1,439) (1,611) (1,460) (1,632) Unallocated incentive award shares (53) (190) (86) (225) ------- ------ ------ ------ Average basic shares outstanding 12,960 14,255 13,049 14,393 Add: Effect of dilutive securities: Stock options 902 622 781 588 Incentive awards 42 93 70 108 ------- ------- ------ ------ Average diluted shares outstanding 13,904 14,970 13,900 15,089 ======= ======= ====== ======
Note 3. Comprehensive Income For the three month periods ended June 30, 2002 and 2001 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 $7,131,000 and $5,410,000, respectively. For the six months ended June 30, 2002 and 2001, total comprehensive income amounted to $9,993,000 and $11,535,000. Note 4. Impact of Recent Accounting Pronouncements In July, 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The Statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. 5 In April, 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The Statement, among other things, rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishments of Debt, as amended. Under SFAS No. 4, as amended, gains and losses from the extinguishment of debt were required to be classified as an extraordinary item, if material. Under SFAS No. 145, gains or losses from the extinguishment of debt are to be classified as a component of operating income, rather than an extraordinary item. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, with early adoption of the provisions related to the rescission of SFAS No. 4 encouraged. Upon adoption, companies must reclassify prior period amounts previously classified as an extraordinary item. The Company elected to adopt the provisions related to the rescission of SFAS No. 4 effective April 1, 2002. The adoption resulted in a second quarter 2002 debt prepayment penalty of $72,000 being classified in general and administrative expenses. The Company recognized an extraordinary loss, net of tax of $1,085,000 in the fourth quarter of 2001 pertaining to debt prepayment penalties. The gross prepayment penalty of $1,669,000 will be reclassified as a component of general and administrative expenses in 2001, with the related tax benefit of $584,000 reported as a component of income tax expense in the consolidated financial statements for the year ending December 31, 2001. On July 20, 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed periodically for impairment. SFAS 142 requires that goodwill and any intangible asset determined to have an indefinite useful life acquired after June 30, 2001 not be amortized, but continue to be evaluated for impairment in accordance with the appropriate pre-SFAS 142 accounting literature. The Company adopted SFAS 142 effective January 1, 2002. As of December 31, 2001, the Company had $1.0 million in unamortized goodwill with annual amortization of $253,000 which ceased upon the adoption of SFAS 142. The cessation of goodwill amortization for the three and six months ended June 30, 2002 did not have a significant impact on the Company's consolidated financial statements as compared to the same prior year period. The Company has determined that there is no impairment to goodwill based on the criteria of SFAS 142. The adoption of SFAS 142 did not significantly impact the Company's accounting for currently recorded intangible assets, primarily core deposit intangibles. On October 3, 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal or Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," it retains many of the fundamental provisions of that Statement. The Statement is effective for fiscal years beginning after December 15, 2001. The initial adoption of SFAS No. 144 did not have a significant impact on the Company's financial statements. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets. The Company is required to adopt the provisions of SFAS No. 143 for fiscal years beginning after June 15, 2002. The Company does not anticipate that SFAS No. 143 will significantly impact the Company's consolidated financial statements. 6 Note 5. Loans Receivable, Net Loans receivable, net at June 30, 2002 and December 31, 2001 consisted of the following (in thousands):
June 30, 2002 December 31, 2001 ------------- ----------------- Real estate: One- to four-family $1,070,352 $1,110,282 Commercial real estate, multi- family and land 125,498 112,318 Construction 9,948 9,082 Consumer 75,152 67,039 Commercial 61,314 51,756 ----------- ---------- Total loans 1,342,264 1,350,477 Loans in process (3,120) (2,458) Deferred origination costs, net 1,882 1,048 Unearned (discount) premium (7) 1 Allowance for loan losses (8,832) (10,351) ---------- ---------- Total loans, net 1,332,187 1,338,717 Less: mortgage loans held for sale 17,871 37,828 ---------- ---------- Loans receivable, net $1,314,316 $1,300,889 ========== ==========
Note 6. Deposits The major types of deposits at June 30, 2002 and December 31, 2001 were as follows (in thousands):
June 30, 2002 December 31, 2001 ------------- ----------------- Type of Account Non-interest bearing $ 83,693 $ 73,799 NOW 248,289 212,328 Money market deposit 102,398 78,903 Savings 217,368 196,879 Time deposits 510,307 547,134 ---------- ---------- $1,162,055 $1,109,043 ========== ==========
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition Total assets at June 30, 2002 were $1.717 billion, a decrease of $46.4 million, compared to $1.764 billion at December 31, 2001. Loans receivable, net and mortgage loans held for sale together decreased by $6.5 million to a balance of $1.332 billion at June 30, 2002, compared to a balance of $1.339 billion at December 31, 2001. Commercial and commercial real estate loans outstanding increased $22.7 million while one- to four-family mortgage loans declined, as the Bank actively sold 30-year fixed-rate mortgage loans during the period. Proceeds from the loan sales and the cash flow from mortgage-backed securities were used to reduce total borrowings (Federal Home Loan Bank advances and securities sold under agreements to repurchase) which declined by $93.6 million, to $390.7 million at June 30, 2002 from $484.3 million at December 31, 2001. The sale of 30-year fixed-rate mortgage loans and the reduction in the total borrowings reduces the Company's interest rate risk exposure and better positions the Bank for the higher rate environment expected later in 2002. Deposit balances increased $53.0 million to $1.162 billion at June 30, 2002 from $1.109 billion at December 31, 2001. Core deposit categories, a key emphasis for the Company, increased by $89.8 million as time deposits declined. 7 Stockholders' equity at June 30, 2002 decreased to $144.3 million, compared to $146.7 million at December 31, 2001 due to the execution of the Company's ninth stock repurchase program. The Company repurchased 542,350 shares of common stock during the six months ended June 30, 2002 at a total cost of $11.0 million. Under the 10% repurchase program authorized by the Board of Directors, July 19, 2001, 241,814 shares remain to be purchased as of June 30, 2002. Results of Operations General Net income increased to $5.1 million and $10.2 million for the three and six months ended June 30, 2002, respectively, as compared to net income of $4.5 million and $8.5 million for the three and six months ended June 30, 2001, respectively. Diluted earnings per share increased to $.37 and $.73, respectively, for the three and six months ended June 30, 2002, as compared to $.30 and $.56, respectively, for the same prior year periods. Earnings per share is favorably affected by the Company's repurchase program, which reduced the number of shares outstanding. Interest Income Interest income for the three and six months ended June 30, 2002 was $26.9 million and $55.3 million, respectively, compared to $29.4 million and $58.7 million, respectively, for the three and six months ended June 30, 2001. The decrease in interest income was due to a decline in the yield on interest-earning assets to 6.67% and 6.75%, respectively, for the three and six months ended June 30, 2002, as compared to 7.28% and 7.41%, respectively, for the same prior year periods. Despite the decline, which was reflective of the general interest rate environment, the asset yield still benefited from the Bank's strong loan growth, which was partly funded by reductions in the lower-yielding investment and mortgage-backed securities available for sale portfolios. For the three and six months ended June 30, 2002 loans receivable represented 82.1% and 81.4%, respectively, of average interest-earning assets as compared to 75.1% and 75.2%, respectively, for the same prior year periods. Interest Expense Interest expense for the three and six months ended June 30, 2002 was $12.2 million and $25.0 million, respectively, compared to $16.5 million and $33.1 million, respectively, for the three and six months ended June 30, 2001. The decrease in interest expense was primarily the result of a decrease in the cost of interest-bearing liabilities to 3.32% and 3.34%, respectively, for the three and six months ended June 30, 2002, as compared to 4.50% and 4.60%, respectively, in the same prior year periods. Funding costs were partly restrained due to the Company's focus on lower-costing core deposit growth. Core deposits (including non-interest-bearing deposits) represented 55.1% and 53.9%, respectively, of average deposits for the three and six months ended June 30, 2002, as compared to 44.6% and 43.2%, respectively, for the same prior year periods. Provision for Loan Losses For the three and six months ended June 30, 2002, the Company's provision for loan losses was $375,000 and $875,000, respectively, as compared to $260,000 and $515,000, respectively, for the same prior year periods. The increase was due to the deterioration and charge-off during the first quarter of a non-performing commercial loan. Other Income Other income was $3.1 million and $5.5 million, respectively, for the three and six months ended June 30, 2002, compared to $3.3 million and $6.1 million, respectively, for the same prior year periods. For the three and six months ended June 30, 2002 the Company recorded a gain of $1.1 million and $1.5 million, respectively, on the sale of loans, as compared to a gain of $1.4 million and $2.5 million, respectively, in the same prior year periods. Servicing fee income for the three and six months ended June 30, 2002 was adversely effected by the recognition of a $144,000 impairment reserve on the Company's loan servicing asset. Excluding the respective net gains on the sale of loans and the impairment to the loan servicing asset, other income increased by $270,000, or 14.5%, and $580,000, or 16.2%, for the three and six months ended June 30, 2002, as compared to the same prior year periods. Fees and service charges increased due to the growth in commercial account services, retail core account balances and trust fees. 8 Operating Expenses Operating expenses were $9.8 million and $19.7 million, respectively, for the three and six months ended June 30, 2002, as compared to $9.1 million and $18.2 million, respectively, in the same prior year periods. The increases were principally due to the costs associated with the opening and operation of the Bank's sixteenth and seventeenth branch offices in September 2001 and May 2002, as well as higher loan related expenses. Additionally, general and administrative expenses for the three and six months ended June 30, 2002 include a $72,000 prepayment penalty on the early termination of an $8.0 million borrowing. Compensation expense benefited from the elimination, in February 2002, of the amortization expense relating to the stock awards granted under the 1997 Incentive Plan, a cost savings of $484,000 and $806,000, respectively, for the three and six months ended June 30, 2002 as compared to the same prior year periods. This savings was partly offset by an increase in ESOP expense of $205,000 and $296,000 for the three and six months ended June 30, 2002, respectively, due to the higher average market price for OCFC shares during 2002. Provision for Income Taxes Income tax expense was $2.4 million and $5.1 million, respectively, for the three and six months ended June 30, 2002, compared to $2.4 and $4.6 million, respectively, for the same prior year periods. The effective tax rate decreased to 32.3% and 33.4%, respectively, for the three and six months ended June 30, 2002 as compared to 35.0% and 34.9%, respectively, for the same prior year periods. The decrease was due to a change in Federal tax regulations allowing for the deductibility of ESOP dividends beginning in 2002. On July 2, 2002, the New Jersey legislature passed the New Jersey Business Tax Reform Act. The effect of this legislation on the Company is approximately $400,000 to $600,000 (before federal tax benefit) in additional state taxes per year, or approximately $.02 to $.03 per diluted share after the federal tax benefit. The tax is retroactive to January 1, 2002 and will be reflected in the Company's third quarter operating results. Liquidity and Capital Resources The Company's primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, proceeds from the sale of loans, Federal Home Loan Bank ("FHLB") and other borrowings and, to a lesser extent, investment maturities. While scheduled amortization of loans is a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including an overnight line of credit and advances from the FHLB. At June 30, 2002, the Company had no outstanding overnight borrowings from the FHLB, a decrease from $80.0 million at December 31, 2001. The Company utilizes the overnight line from time to time to fund short-term liquidity needs. The Company also had other borrowings of $390.7 million at June 30, 2002, a decrease from $484.3 million at December 31, 2001. These borrowings were used to fund a wholesale leverage strategy designed to improve returns on invested capital. The Company's cash needs for the six months ended June 30, 2002, were primarily provided by principal payments on loans and mortgage-backed securities, increased deposits and proceeds from the sale of mortgage loans held for sale. The cash was principally utilized for loan originations, a reduction in total borrowings and the purchase of treasury stock. For the six months ended June 30, 2001, the cash needs of the Company were primarily satisfied by principal payments on loans and mortgage-backed securities, maturities of investment securities, proceeds from the sale of mortgage loans held for sale and increased total borrowings. The cash provided was principally used for the origination of loans, the purchase of mortgage-backed securities and the purchase of treasury stock. At June 30, 2002, the Bank exceeded all of its regulatory capital requirements with tangible capital of $122.8 million, or 7.2%, of total adjusted assets, which is above the required level of $25.7 million or 1.5%; core capital of $122.8 million or 7.2% of total adjusted assets, which is above the required level of $51.4 million, or 3.0%; and risk-based capital of $131.5 million, or 12.4% of risk-weighted assets, which is above the required level of $84.8 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). It is the policy of the Company to cease accruing interest on loans 90 days or more past due or in the process of foreclosure.
June 30, December 31, 2002 2001 ----------------- ----------------- (dollars in thousands) Non-accrual loans: Real estate: One-to four-family $ 3,130 $ 3,661 Commercial real estate, multi-family and land - - Consumer 114 151 Commercial 45 2,368 ------- ------- Total 3,289 6,180 REO, net 477 133 ------- ------- Total non-performing assets $ 3,766 $ 6,313 ======= ======= Non-performing loans as a percent of total loans receivable .25% .46% Non-performing assets as a percent of total assets .22 .36 Allowance for loan losses as a percent of total loans receivable .66 .77 Allowance for loan losses as percent of total non-performing loans 268.53 167.49
The decrease in non-performing loans is primarily due to the first quarter charge-off of a non-performing commercial loan with an outstanding balance of $2.4 million. The loan is a participation interest in a $125 million shared national credit on a company headquartered in New Jersey, and is secured by corporate assets and various commercial real estate properties. The Bank does not participate in any other shared national credits. The creditor filed for bankruptcy protection in March 2002 and an orderly asset liquidation appears less likely. Any future recovery of principal would increase the Bank's allowance for loan losses. Recent Developments On July 2, 2002, the New Jersey legislature passed the New Jersey Business Tax Reform Act. The effect of this legislation on the Company is approximately $400,000 to $600,000 in additional state taxes per year, or approximately $.02 to $.03 per diluted share after the Federal tax benefit. The tax is retroactive to January 1, 2002 and will be reflected in the Company's third quarter operating results. 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, and the effects of war or terrorism activities 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 2001 Form 10-K. 10 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 June 30, 2002 was positive 10.4% as compared to negative 6.7% at December 31, 2001. 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 June 30, 2002 and December 31, 2001. 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, 2001. At June 30, 2002 passbook, NOW and Money Market accounts ("core deposits") were assumed to decay, or runoff, at a slower rate than at December 31, 2001. The slower decay rate was partly responsible for reducing the Company's negative gap, increasing NPV in a static rate environment and reducing interest rate sensitivity in a shocked interest rate environment. The increase in core deposits and the decline in time deposits from December 31, 2001 to June 30, 2002 also contributed to this trend. Also, assumed prepayment speeds for mortgage loans and mortgage-backed securities were higher at June 30, 2002 as compared to December 31, 2001 due to the lower interest rate environment. Finally, interest rate volatility was favorably impacted by the Bank's sale of 30-year fixed-rate mortgage loans during the six months ended June 30, 2002. The proceeds from these sales were used to reduce overnight borrowings which declined by $80.0 million from December 31, 2001 to June 30, 2002.
June 30, 2002 December 31, 2001 ------------------------------------------------------- ----------------------------------------------------- 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) 200 $166,005 (9.6)% 10.0% $59,107 1.5% $118,006 (22.1)% 7.0% $58,369 (5.3)% 100 184,545 .5 10.8 59,218 1.7 141,155 (6.8) 8.2 60,366 (2.1) Static 183,702 - 10.6 58,231 - 151,507 - 8.6 61,649 - (100) 170,965 (6.9) 9.7 55,964 (3.9) 154,728 2.1 8.6 62,177 .9
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.* 99.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. b) The Company filed an 8-K on June 26, 2002 which included by Exhibit, the written presentation OceanFirst Financial Corp. provided to current and prospective investors on June 26, 2002 and June 27, 2002. * 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: August 14, 2002 /s/ John R. Garbarino ----------------------------------- John R. Garbarino Chairman of the Board, President and Chief Executive Officer DATE: August 14, 2002 /s/ Michael Fitzpatrick ----------------------------------- Michael Fitzpatrick Executive Vice President and Chief Financial Officer 13 EX-99.1 3 dex991.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of OceanFirst Financial Corp. (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John R. Garbarino, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. /s/ John R. Garbarino ------------------------------------- John R. Garbarino Chief Executive Officer August 14, 2002 EX-99.2 4 dex992.txt EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of OceanFirst Financial Corp. (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Fitzpatrick, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. /s/ Michael Fitzpatrick ------------------------------------ Michael Fitzpatrick Chief Financial Officer August 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----