OceanFirst Financial Corp.
February 18, 2003
Jonathan G. Katz, Secretary
Re: Proposed Amendments to Rule 10b-18
Dear Mr. Katz:
I am the Chairman, President and Chief Executive Officer of OceanFirst Financial Corp. (NASDAQ: OCFC) (the "Company"), the holding company for OceanFirst Bank, a federally chartered stock savings bank with $1.7 billion in assets, doing business principally in Ocean County, New Jersey. I am writing to comment on the proposed amendments to Rule 10b-18 published by the Commission. Specifically, I am writing to express my concern about the negative impact the Commission's proposal to eliminate the "block purchase" exception to the volume limitations under Rule 10b-18 could have on mid-sized and smaller companies whose average trading volumes are in the low to moderate range. For the reasons set forth below, I respectfully suggest the Commission reconsider the proposal and retain that exception.
On August 17, 1995, the Board of Directors of the Bank adopted a Plan of Conversion pursuant to which the Bank would convert from mutual to stock form with the concurrent formation of the Company. The Bank's conversion was completed on July 2, 1996 with the issuance by the Company of 27,177,372 shares of its common stock in a public offering. Following the Company's initial offering, the Company's capital levels exceeded 20%. Management recognized the need to address the Company's overcapitalized position in order to improve return on equity. Management adopted a capital management plan which has emphasized share repurchases, as well as cash dividends and wholesale leverage. Since conversion to public ownership, the Company has announced ten repurchase plans and has repurchased 14.0 million shares, reducing capital levels to 7.8% at December 31, 2002. The Company's capital management plan has also enabled the Company to increase the Company's return on equity from 6.0% for the year ended December 31, 1997 to 14.3% for the year ended December 31, 2002.
During 2002, the Company repurchased 1,240,750 shares almost exclusively through block purchases. In August 2002, our Board of Directors authorized a new 10% repurchase program for 1,406,421 shares. In the event the block purchase exception were removed from Rule 10b-18, it will be extremely difficult for the Company to maintain its capital management plan by completing its most recently authorized repurchase plan. For example, based upon the average daily trading volume in the
Company's stock for the last 60 days of 32,000 shares, including block purchases, the Company would be limited to daily purchases of 8,000 shares. Typically, the Company has successfully purchased shares in blocks ranging in size from 10,000 shares to 50,000 shares or more. In fact, of the 1,240,750 shares repurchased in 2002, fully 70% were repurchased in blocks of 10,000 or more.
Not only do I believe retention of the block purchase exception to the Rule 10b-18 volume limitation is important for the Company to be able to continue to execute its capital management plan, I believe there are other important reasons for retention of the exception. Specifically, by relying on the block purchase exception, companies can purchase shares more quickly and at less cost. Buying larger blocks of shares enables companies to receive preferable pricing and lowers overall transaction costs. Furthermore, the inability of companies with trading volumes in the low to moderate range to purchase large blocks of stock will further dampen the liquidity in the stock of those companies and would likely have the effect of deterring large and institutional shareholders from investing in those companies' shares. As long as issuers can repurchase shares with the block exception, large holders can have confidence they could dispose of their shares in a reasonable time frame. However, if such companies are limited to trades of much less shares than currently permitted, I question whether large holders would continue to have the confidence they could liquidate their shares in such companies.
Finally, I disagree with the Commission's view that retention of the block exception may allow issuers "to dominate the market for their securities..." and that block purchases may enable issuers to raise their share price. To the contrary, we believe large purchases enable us to purchase shares without substantial impact on the price of the Company's stock. Such purchases can frequently be recognized as Company purchases pursuant to our publicly announced repurchase plan. If the Company is forced to be in the market more frequently purchasing smaller amounts of shares, I fear that more pressure, not less, will be placed on the Company's share price. Furthermore, an OCFC shareholder wishing to liquidate a sizable position of stock could have an inordinate effect on the marketplace. Placing greater restrictions on issuer repurchase activity will likely increase market volatility. Existing Rule 10b-18 regulations already place adequate restrictions on the Company's repurchase activities.
Thank you for the opportunity to comment on the Commission's proposed amendments to Rule 10b-18. If you have any questions or need additional information, please do not hesitate to telephone me at (732) 240 - 4500, ext. 7500.