-----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, IRvN5ELp0CQgaY2XVePdafiVW93jiUkiKCipKwbixHmvflaz92GvbKsHWgOaVqN5 l7iWFv7Vpcsuf+uPLxyK0g== 0000950109-99-003892.txt : 19991110 0000950109-99-003892.hdr.sgml : 19991110 ACCESSION NUMBER: 0000950109-99-003892 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991109 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: SEC FILE NUMBER: 001-11713 FILM NUMBER: 99743789 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 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 September 30, 1999 [ ] 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 (Zip Code) offices) Registrant's telephone number, (732) 240-4500 including area code: ------------------------------------- Ocean Financial Corp. ------------------------------------------------------------------------------ (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 November 5, 1999, there were 13,157,013 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 September 30, 1999 and December 31, 1998........... 1 Consolidated Statements of Income for the three and nine months ended September 30, 1999 and 1998................. 2 Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998................. 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 ........... 11 Market Risk 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, 1999 1998 ------------- ------------ (Unaudited) ASSETS - ------ Cash and due from banks $ 6,614 $ 10,295 Investment securities available for sale 118,322 137,405 Federal Home Loan Bank of New York stock, at cost 16,800 16,800 Mortgage-backed securities available for sale 364,941 381,840 Loans receivable, net 1,013,357 941,011 Mortgage loans held for sale 5,157 25,140 Interest and dividends receivable 9,363 9,820 Real estate owned, net 402 43 Premises and equipment, net 13,517 13,947 Other assets 31,481 25,443 ---------- ---------- Total assets $1,579,954 $1,561,744 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Deposits $1,044,877 $1,035,251 Federal Home Loan Bank borrowings 30,000 30,000 Securities sold under agreements to repurchase 312,537 282,108 Advances by borrowers for taxes and insurance 6,111 5,096 Other liabilities 11,714 11,549 ---------- ---------- Total liabilities 1,405,239 1,364,004 ---------- ---------- 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 13,167,013 and 14,629,776 shares outstanding at September 30, 1999 and December 31, 1998, respectively 181 181 Additional paid-in capital 178,953 178,309 Retained earnings-substantially restricted 110,900 103,982 Accumulated other comprehensive loss (9,203) (1,226) Less: Unallocated common stock held by Employee Stock Ownership Plan (16,398) (17,376) Unearned Incentive Awards (4,513) (5,963) Treasury stock, (4,951,235 and 3,488,472 shares at September 30, 1999 and December 31, 1998, respectively) (85,205) (60,167) ---------- ---------- Total stockholders' equity 174,715 197,740 ---------- ---------- Total liabilities and stockholders' equity $1,579,954 $1,561,744 ========== ==========
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, -------------------- ------------------- 1999 1998 1999 1998 --------- --------- --------- -------- (Unaudited) (Unaudited) Interest income: Loans $18,913 $17,048 $55,258 $49,465 Mortgage-backed securities 5,974 5,853 17,728 19,185 Investment securities and other 2,224 3,593 6,718 10,290 ------- ------- ------- ------- Total interest income 27,111 26,494 79,704 78,940 ------- ------- ------- ------- Interest expense: Deposits 10,240 11,248 30,646 32,923 Borrowed funds 4,534 4,412 12,970 13,194 ------- ------- ------- ------- Total interest expense 14,774 15,660 43,616 46,117 ------- ------- ------- ------- Net interest income 12,337 10,834 36,088 32,823 Provision for loan losses 225 225 675 675 ------- ------- ------- ------- Net interest income after provision for loan losses 12,112 10,609 35,413 32,148 ------- ------- ------- ------- Other income: Fees and service charges 919 622 2,586 1,663 Net gain on sales of loans and securities available for sale 35 53 502 221 Net income from other real estate operations 69 20 145 160 Other 241 181 629 506 ------- ------- ------- ------- Total other income 1,264 876 3,862 2,550 ------- ------- ------- ------- Operating expenses: Compensation and employee benefits 3,869 3,710 11,247 10,994 Occupancy 564 490 1,557 1,408 Equipment 326 343 991 1,011 Marketing 431 301 1,254 1,053 Federal deposit insurance 208 217 642 651 Data processing 336 319 989 945 General and administrative 1,101 924 3,397 2,897 ------- ------- ------- ------- Total operating expenses 6,835 6,304 20,077 18,959 ------- ------- ------- ------- Income before provision for income taxes 6,541 5,181 19,198 15,739 Provision for income taxes 2,364 1,845 6,895 5,692 ------- ------- ------- ------- Net income $ 4,177 $ 3,336 $12,303 $10,047 ======= ======= ======= ======= Basic earnings per share $ .35 $ .25 $ 1.01 $ .74 ======= ======= ======= ======= Diluted earnings per share $ .34 $ .25 $ .98 $ .72 ======= ======= ======= ======= Average basic shares outstanding 11,884 13,202 12,238 13,517 ======= ======= ======= ======= Average diluted shares outstanding 12,250 13,505 12,501 13,893 ======= ======= ======= =======
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, ---------------------- 1999 1998 ---------- ---------- (Unaudited) Cash flows from operating activities: Net income $ 12,303 $ 10,047 -------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment 1,122 1,093 Amortization of Incentive Awards 1,450 1,450 Amortization of ESOP 978 1,024 ESOP adjustment 644 826 Tax Benefit of Stock Plans - 257 Amortization of servicing asset 289 238 Amortization of deposit premium 78 - Net premium amortization in excess of discount accretion on securities 926 2,524 Net accretion of deferred fees and discounts in excess of premium amortization on loans (259) (380) Provision for loan losses 675 675 Net gain on sales of real estate owned (220) (107) Net gain on sales of loans and securities available for sale (502) (221) Proceeds from sales of mortgage loans held for sale 43,619 15,962 Mortgage loans originated for sale (24,228) (16,132) Decrease in interest and dividends receivable 457 822 Increase in other assets (577) (5,866) Increase in other liabilities 165 6,102 -------- --------- Total adjustments 24,617 8,267 -------- --------- Net cash provided by operating activities 36,920 18,314 -------- --------- Cash flows from investing activities: Net increase in loans receivable (73,803) (110,864) Purchase of investment securities available for sale (14,426) (126,986) Purchase of mortgage-backed securities available for sale (97,251) (131,172) Proceeds from maturities of investment securities available for sale 30,042 185,160 Principal payments on mortgage-backed securities available for sale 103,859 156,243 Proceeds from sale of investment securities 121 - Purchases of Federal Home Loan Bank of New York stock - (62) Proceeds from sales of real estate owned 902 1,576 Purchases of premises and equipment (692) (1,065) -------- --------- Net cash used in investing activities (51,248) (27,170) -------- ---------
Continued 3 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (dollars in thousands)
For the nine months ended September 30, --------------------- 1999 1998 ---------- --------- (Unaudited) Cash flows from financing activities: Acquisition of deposits $ - $ 10,732 Deposit premium - (1,030) Increase in deposits 9,626 41,026 Increase in Federal Home Loan Bank borrowings - 6,600 Increase (decrease) in securities sold under agreements to repurchase 30,429 (12,795) Exercise of stock options 17 - Increase in advances by borrowers for taxes and insurance 1,015 680 Dividends paid (5,382) (4,927) Purchase of ESOP shares - (8,200) Purchase of treasury stock (25,058) (16,717) -------- -------- Net cash provided by financing activities 10,647 15,369 -------- -------- Net (decrease) increase in cash and due from banks (3,681) 6,513 Cash and due from banks at beginning of period 10,295 2,225 -------- -------- Cash and due from banks at end of period $ 6,614 $ 8,738 ======== ======== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 43,376 $ 45,691 Income taxes 5,374 20 Noncash investing activities: Transfer of loans receivable to real estate owned 1,041 847 Mortgage loans securitized into mortgage-backed securities 37,200 16,082 ======== ========
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, OceanFirst Realty Inc. and Ocean Investment Services, Inc. Effective September 13, 1999 OceanFirst Financial Corp. and OceanFirst Bank became the new name for Ocean Financial Corp. and Ocean Federal Savings Bank. 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, 1999 are not necessarily indicative of the results of operations that may be expected for all of 1999. 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, 1998. 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, 1999 and 1998:
Three months ended Nine months ended September 30, September 30, -------------------- ------------------- 1999 1998 1999 1998 --------- --------- --------- -------- Weighted average shares issued net of Treasury shares 13,594 15,172 13,994 15,322 Less: Unallocated ESOP shares (1,292) (1,424) (1,325) (1,243) Unallocated incentive award shares (418) (546) (431) (562) ------ ------ ------ ------- Average basic shares outstanding 11,884 13,202 12,238 13,517 Add: Effect of dilutive securities: Stock options 228 166 132 222 Incentive awards 138 137 131 154 ------ ------ ------ ------- Average diluted shares outstanding 12,250 13,505 12,501 13,893 ====== ====== ====== =======
Note 3. Comprehensive Income - ----------------------------- For the three month periods ended September 30, 1999 and 1998 total comprehensive income (loss), representing net income plus or minus items previously recorded directly in equity, such as unrealized gains or losses on securities available for sale amounted to $64,000 and $(161,000), respectively. For the nine months ended September 30, 1999 and 1998, total comprehensive income amounted to $4,326,000 and $7,330,000, respectively. 5 Note 4. Impact of Recent Accounting Pronouncements - -------------------------------------------------- In October 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 134 "Accounting for Mortgage- Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." This Statement amends FASB Statement 65 "Accounting for Certain Mortgage Banking Activities" to require that after the securitization of mortgage loans held for sale, an entity engaged in mortgage banking activities classify the resulting mortgage-backed securities or other retained interests based on its ability and intent to sell or hold those investments. This Statement is effective for the first fiscal quarter beginning after December 15, 1998. The adoption of this Statement did not have a material impact on the financial position or results of operations of the Company. Note 5. Loans Receivable, Net - ----------------------------- Loans receivable, net at September 30, 1999 and December 31, 1998 consisted of the following (in thousands):
September 30, 1999 December 31, 1998 ------------------- ------------------ Real estate: One- to four-family $ 898,952 $ 869,769 Commercial real estate, multi- family and land 55,666 42,008 Construction 7,929 6,108 Consumer 54,212 51,785 Commercial 13,065 6,483 ---------- ---------- Total loans 1,029,824 976,153 Loans in process (3,046) (1,996) Deferred fees (220) (608) Unearned premium 47 62 Allowance for loan losses (8,091) (7,460) ---------- ---------- Total loans, net 1,018,514 966,151 Less: mortgage loans held for sale 5,157 25,140 ---------- ---------- Loans receivable, net $1,013,357 $ 941,011 ========== ==========
Note 6. Deposits - ---------------- The major types of deposits at September 30, 1999 and December 31, 1998 were as follows (in thousands):
September 30, 1999 December 31, 1998 ------------------ ----------------- Type of Account - --------------- Non-interest bearing $ 29,143 $ 22,154 NOW 108,627 106,363 Money market deposit 78,026 77,690 Savings 176,047 172,036 Time deposits 653,034 657,008 ---------- ---------- $1,044,877 $1,035,251 ========== ==========
6 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition Total assets at September 30, 1999 were $1.580 billion, an increase of $18.2 million from $1.562 billion at December 31, 1998. Loans receivable, net, increased by $72.3 million, or 7.7%, to a balance of $1.013 billion at September 30, 1999, compared to a balance of $941.0 million at December 31, 1998. The increase was largely attributable to strong residential loan growth (including mortgage refinance activity) in the Bank's market area, as well as commercial lending (including commercial real estate) initiatives which accounted for $20.2 million of this growth. During the first nine months of 1999 the Bank sold $44.1 million of 30-year fixed-rate mortgage loans, $25.1 million of which were held for sale at December 31, 1998. At September 30, 1999, the Bank has designated $5.2 million of 30-year fixed-rate mortgage loans as held for sale. The Bank periodically sells these loans as part of the management of interest rate risk. Securities sold under agreements to repurchase increased by $30.4 million to a balance of $312.5 million at September 30, 1999, compared to a balance of $282.1 million at December 31, 1998. The borrowings were used to fund loan growth and the Company's common stock repurchase programs. Stockholder's equity at September 30, 1999 was $174.7 million, compared to $197.7 million at December 31, 1998. The Company repurchased 1,463,971 shares of common stock during the first nine months of 1999 for $25.0 million, completing the 5% repurchase program announced in November 1998 and part of the 10% repurchase program announced in July 1999. At September 30, 1999, 546,090 shares remained to be purchased under the July 1999 repurchase program. Results of Operations General Net income increased to $4.2 million for the three months ended September 30, 1999 as compared to net income of $3.3 million for the three months ended September 30, 1998. For the nine months ended September 30, 1999 net income increased to $12.3 million from $10.0 million for the nine months ended September 30, 1998. Interest Income Interest income for the three months ended September 30, 1999 was $27.1 million, compared to $26.5 million for the three months ended September 30, 1998, an increase of $617,000. For the nine months ended September 30, 1999 interest income was $79.7 million, compared to $78.9 million for the same prior year period. The increases in interest income were due to increases in average interest-earning assets and a change in the mix of average-earning assets towards a higher concentration of loans receivable at the expense of lower yielding investment and mortgage-backed securities. For the three and nine months ended September 30, 1999 loans receivable represented 66.5% and 65.4%, respectively, of average interest-earning assets as compared to 59.2% and 57.4%, respectively, for the same prior year periods. The increase in average interest- earning assets for the nine months ended September 30, 1999 was partly offset by a decline in the yield on average interest-earning assets, which declined to 7.04% on average from 7.14% on average in the same prior year period. Interest Expense Interest expense for the three months ended September 30, 1999 was $14.8 million, compared to $15.7 million for the three months ended September 30, 1998, a decrease of $886,000, or 5.7%. For the nine months ended September 30, 1999 interest expense was $43.6 million compared to $46.1 million for the same prior year period, a decrease of $2.5 million or 5.4%. The decreases in interest expense were primarily the result of decreases in the average cost of interest-bearing liabilities which declined to 4.37% and 4.36%, respectively, for the three and nine months ended September 30, 1999, as 7 compared to 4.79% for both of the same prior year periods. The significant decline in funding costs more than offset increases in average interest-bearing deposits which rose by $45.0 million and $48.6 million for the three and nine months ended September 30, 1999, respectively, as compared to the same prior year periods. The Company's focus on lower cost core deposit growth has contributed to the decline in the cost of interest-bearing liabilities, as core deposits represented 37.7% and 37.0%, respectively, of average interest-bearing deposits for the three and nine months ended September 30, 1999, as compared to 34.5% and 34.1%, respectively, for the same prior year periods. Provision for Loan Losses For the three and nine months ended September 30, 1999, the Company's provision for loan losses was $225,000 and $675,000, respectively, unchanged from the same prior year periods. The Company's non-performing assets declined by $1.9 million at September 30, 1999 as compared to September 30, 1998 allowing for stable provisions despite loan growth. Other Income Other income was $1.3 million and $3.9 million for the three and nine months ended September 30, 1999, respectively, compared to $876,000 and $2.6 million, respectively, for the same prior year periods. Fees and service charges increased by $297,000, or 47.8% and $923,000, or 55.5% for the three and nine months ended September 30, 1999, respectively, as compared to the same prior year periods due to fees associated with the growth in commercial account services and retail core account balances as well as the addition of fee income from the sale of alternative investment products, namely mutual funds and annuities, introduced late in the second quarter of 1998. This product category was further expanded in the first quarter of 1999 to include life and long-term care insurance. The total fees relating to the sale of alternative investment products amounted to $166,000 and $455,000 for the three and nine months ended September 30, 1999, respectively, as compared to $40,000 and $42,000, respectively, for the corresponding prior year periods. For the nine months ended September 30, 1999, the Company sold $44.1 million in 30-year fixed-rate mortgage loans at a gain of $551,000 as compared to the sale of $16.1 million at a gain of $221,000 in the same prior year period. Operating Expenses Operating expenses were $6.8 million and $20.1 million for the three and nine months ended September 30, 1999, respectively, compared to $6.3 million and $19.0 million, respectively, for the same prior year periods. The increase for the three months ended September 30, 1999 as compared to the same prior year period was primarily due to marketing and other expenses related to the Bank's branding initiative as well as the operating costs associated with the twelfth branch office opened in September 1999 and expenses associated with readying the Bank's data processing systems for the Year 2000. The increase for the nine months ended September 30, 1999, as compared to the same prior year period was attributable to the above items as well as expenses relating to the introduction of the Company's Trust and Asset Management business line. Provision for Income Taxes Income tax expense was $2.4 million and $6.9 million for the three and nine months ended September 30, 1999, respectively, compared to $1.8 million and $5.7 million, respectively, for the three and nine months ended September 30, 1998. The effective tax rate increased slightly to 36.1% for the three months ended September 30, 1999, as compared to 35.6% for the same prior year period while declining slightly to 35.9% for the nine months ended September 30, 1999, as compared to 36.2% for the same prior year period. 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. 8 At September 30, 1999, the Company had $30.0 million of outstanding overnight borrowings from the FHLB, no change from the balance at December 31, 1998. The Company utilizes the overnight line from time to time to fund short-term liquidity needs. The Company also borrowed $312.5 million at September 30, 1999 through securities sold under agreements to repurchase, an increase from $282.1 million at December 31, 1998. 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, 1999, were primarily provided by maturities of investment securities available for sale, principal payments on loans and mortgage-backed securities, borrowings through securities sold under agreements to repurchase and proceeds from the sale of mortgage loans held for sale. The cash was principally utilized for loan originations, purchases of investment and mortgage-backed securities and the purchase of treasury stock. For the nine months ended September 30, 1998, 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 deposits including a deposit acquisition. 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, 1999 and December 31, 1998, the Bank's liquidity ratios were 9.8% and 12.5%, respectively, both in excess of the minimum regulatory requirement. At September 30, 1999, the Bank exceeded all of its regulatory capital requirements with tangible capital of $157.0 million, or 9.92%, of total adjusted assets, which is above the required level of $23.7 million or 1.5%; core capital of $157.0 million or 9.92% of total adjusted assets, which is above the required level of $47.4 million, or 3.0%; and risk-based capital of $164.9 million, or 20.4% of risk-weighted assets, which is above the required level of $64.5 million or 8.0%. The Bank is considered a "well capitalized" institution under the Office of Thrift Supervision's prompt corrective action regulations. 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, 1999 or December 31, 1998. 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, 1999 1998 -------------- ------------- (dollars in thousands) Non-accrual loans: Real estate: One-to four-family $ 3,456 $ 4,605 Commercial real estate, multi-family and land 362 574 Consumer 212 245 Commercial loans 37 - ------- ------- Total 4,067 5,424 REO, net 402 43 ------- ------- Total non-performing assets $ 4,469 $ 5,467 ======= =======
9 Non-performing loans as a percent of total loans receivable .39% .56% Non-performing assets as a percent of total assets .28% .35% Allowance for loan losses as a percent of total loans receivable .79% .76% Allowance for loan losses as percent of total non-performing loans 198.94% 137.54% Impact of Year 2000 Beginning in April 1997 the Company formally began to address the Year 2000 issue. A project plan was constructed to follow the guidelines set forth by the Federal Financial Institutions Examination Council (FFIEC). The guidelines mandate that the Year 2000 project address five specific phases: awareness, assessment, renovation, validation(testing), and implementation. The Company has completed all five phases of the project thereby meeting all regulatory guidelines. The Company continues to work closely with its data processing agent and the primary provider of mission critical systems, BISYS Incorporated. Testing of all BISYS functions has been successfully completed and reviewed by an independent third-party. The Company continues to revalidate BISYS systems and hardware and will closely monitor BISYS' progress in insuring their systems function correctly into the Year 2000. All other primary service providers have completed reprogramming and testing of their mission critical systems and the Company has validated those test results. The Company will continue to solicit information from all of its vendors to monitor possible changes in their Year 2000 preparations and readiness. The focus of the Year 2000 project for the remainder of 1999 will be directed towards customer awareness, contingency planning, and liquidity planning. The extensive customer outreach program which the Company has initiated will continue through the remainder of the year. The outreach program provides the Company with the ability to disseminate pertinent Year 2000 information through the use of awareness seminars, civic organization presentations, Y2K hotline updates, Internet web site updates, newspaper advertising and direct mail communications to Bank customers. The Company's contingency programs will continue to be reviewed and tested during the remaining months of the year. Liquidity plans have been completed to ensure that the Company will have access to necessary funds to meet customer's needs. These plans will be implemented during the months of October through December. The Company continues to monitor potential credit risk associated with Year 2000. Significant borrowers in the Residential and Commercial Loan portfolios have been assessed to determine an appropriate risk rating. On an ongoing basis, the Company will monitor the progress of these borrowers towards Year 2000 compliance. Expenses related to the Company's Year 2000 effort for the nine months ended September 30, 1999 totaled $360,000. These expenses consist of $229,000 in costs associated with the renovation of software, hardware and consulting charges and $131,000 representing an estimate of the direct cost for compensation and fringe benefits of internal employees working on the Year 2000 project. The Bank expects to complete the Y2K program within the allocated 1999 budget of $400,000 to $600,000, including $175,000 to $225,000 for the direct cost of internal employees. Estimated expenses and completion dates associated with this project are based upon all known facts and available resources. The Company expects that the represented estimates will not change materially, but there can be no guarantee that the estimates will be achieved. Factors that may influence changes in estimates include, but are not limited to, expenses associated with obtaining qualified personnel, ability to correctly identify and renovate all functions related to the Year 2000 and other similar items. The Company believes that it is taking all reasonable steps to prepare for the Year 2000, especially in the case of mission critical functions. However, management cannot make representations that all systems and especially those of significant third parties will be Year 2000 compliant or that they will not be adversely affected by Year 2000 issues. The above communication is a Year 2000 Readiness Disclosure as defined in the Year 2000 Information and Readiness Act. 10 Impact of Pending Legislation Pending legislation designed to modernize the regulation of the financial services industry expands the ability of bank holding companies to affiliate with other types of financial services companies such as insurance companies and investment banking companies. However, the legislation provides that companies that acquire control of a single savings association after May 4, 1999 (or that filed an application for that purpose after that date) are not entitled to the unrestricted activities formerly allowed for a unitary savings and loan holding company. Rather, these companies will have the authority to engage in the activities permitted "a financial holding company" under the new legislation, including insurance and securities-related activities and the activities currently permitted for multiple savings and loan holding companies, but generally not in commercial activities. The authority for unrestricted activities is grandfathered for unitary savings and loan holding companies, such as the Company, that existed prior to May 4, 1999. However, the authority for unrestricted activities would not apply to any company that acquired the Company. 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 1998 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, 1999 was negative 13.5% as compared to negative 10.6% at December 31, 1998. 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, 1999 and December 31, 1998. 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, 1998. At September 30, 1999, the generally higher interest rates in effect for fixed rate mortgage loans reduced prepayment activity in the Company's loans receivable and mortgage-backed securities portfolios, effectively extending the average lives of the loans and securities.
September 30, 1999 December 31, 1998 ------------------------------------------------------ -------------------------------------------------------- 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 $119,862 (44.0)% 8.4% $44,750 (11.0)% $170,890 (30.1)% 11.8% $43,131 (10.6)% 200 158,932 (25.8) 10.8 47,160 (6.3) 202,431 (17.2) 13.5 45,347 (6.0) 100 189,779 (11.4) 12.4 49,081 (2.4) 225,510 (7.8) 14.7 46,979 (2.7) Static 214,129 - 13.6 50,304 - 244,538 - 15.5 48,260 - (100) 232,848 8.7 14.5 51,131 1.6 256,618 4.9 15.9 49,023 1.6 (200) 243,137 13.5 14.8 51,235 1.9 261,974 7.1 15.9 49,392 2.3 (300) 249,203 16.4 14.9 50,656 .7 264,595 8.2 15.9 49,336 2.2
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) b) There were no reports on Form 8-K filed during the three months ended September 30, 1999 * 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. 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 9, 1999 /s/ John R. Garbarino ------------------------------------------ John R. Garbarino Chairman of the Board, President and Chief Executive Officer DATE: November 9, 1999 /s/ Michael Fitzpatrick ------------------------------------------ Michael Fitzpatrick Executive Vice President and Chief Financial Officer 13 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 6,614 0 0 0 483,263 0 0 1,018,514 8,091 1,579,954 1,044,877 342,537 17,825 0 0 0 181 174,534 1,579,954 55,258 24,446 0 79,704 30,646 43,616 36,088 675 (49) 20,077 19,198 12,303 0 0 12,303 1.01 .98 7.04 4,067 0 0 0 7,460 0 0 8,091 0 0 0 INFORMATION NOT DISCLOSED IN 10-Q
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