10-Q 1 d234461d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

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, 2011

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 001-11713

 

 

OceanFirst Financial Corp.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   22-3412577

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

975 Hooper Avenue, Toms River, NJ   08754-2009
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (732) 240-4500

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer   ¨    Accelerated Filer   x
Non-accelerated Filer   ¨    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x.

As of November 4, 2011, there were 18,846,722 shares of the Registrant’s Common Stock, par value $.01 per share, outstanding.

 

 

 


Table of Contents

OceanFirst Financial Corp.

INDEX TO FORM 10-Q

 

         PAGE  
PART I.  

FINANCIAL INFORMATION

  
Item 1.  

Consolidated Financial Statements (Unaudited)

  
 

Consolidated Statements of Financial Condition as of September 30, 2011 (unaudited) and December  31, 2010

     11   
 

Consolidated Statements of Income (unaudited) for the three and nine months ended September  30, 2011 and 2010

     12   
 

Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the nine months ended September 30, 2011 and 2010

     13   
 

Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2011 and 2010

     14   
 

Notes to Unaudited Consolidated Financial Statements

     16   
Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     1   
Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

     9   
Item 4.  

Controls and Procedures

     10   
PART II.  

OTHER INFORMATION

  
Item 1.  

Legal Proceedings

     30   
Item 1A.  

Risk Factors

     30   
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

     30   
Item 3.  

Defaults Upon Senior Securities

     30   
Item 4.  

Removed and Reserved

     30   
Item 5.  

Other Information

     30   
Item 6.  

Exhibits

     30   
Signatures      31   


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

FINANCIAL SUMMARY    At or for the Quarter Ended  
(dollars in thousands, except per share amounts)    September 30, 2011     December 31, 2010     September 30, 2010  

SELECTED FINANCIAL CONDITION DATA:

      

Total assets

   $ 2,281,792      $ 2,251,330      $ 2,225,378   

Loans receivable, net

     1,588,115        1,660,788        1,665,997   

Deposits

     1,687,906        1,663,968        1,623,516   

Stockholders’ equity

     215,897        201,251        199,429   

SELECTED OPERATING DATA:

      

Net interest income

     19,072        18,880        19,568   

Provision for loan losses

     1,850        2,000        1,600   

Other income

     3,731        4,527        4,219   

Operating expenses

     13,131        13,926        13,760   

Net income

     5,074        5,784        5,238   

Diluted earnings per share

     0.28        0.32        0.29   

SELECTED FINANCIAL RATIOS:

      

Stockholders’ equity per common share

     11.46        10.69        10.59   

Cash dividend per share

     0.12        0.12        0.12   

Stockholders’ equity to total assets

     9.46     8.94     8.96

Return on average assets (1)

     0.89        1.02        0.94   

Return on average stockholders’ equity (1)

     9.48        11.54        10.71   

Average interest rate spread

     3.45        3.39        3.58   

Net interest margin

     3.55        3.52        3.73   

Operating expenses to average assets (1)

     2.31        2.46        2.48   

Efficiency ratio

     57.58        59.50        57.85   

ASSET QUALITY:

      

Non-performing loans

   $ 48,398      $ 37,537      $ 33,772   

Non-performing assets

     49,591        39,832        36,014   

Non-performing loans as a percent of total loans receivable

     3.00     2.23     2.00

Non-performing assets as a percent of total assets

     2.17        1.77        1.62   

Allowance for loan losses as a percent of total loans receivable

     1.42        1.17        1.10   

Allowance for loan losses as a percent of total non-performing loans

     47.33        52.48        55.05   

 

(1) Ratios are annualized

 

1


Table of Contents

Summary

OceanFirst Financial Corp. is the holding company for OceanFirst Bank (the “Bank”), a community bank serving Ocean and Monmouth Counties in New Jersey. The term the “Company” refers to OceanFirst Financial Corp., OceanFirst Bank and all of the Bank’s subsidiaries on a consolidated basis. The Company’s results of operations are primarily dependent on net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and investments, and the interest expense on interest-bearing liabilities, such as deposits and borrowings. The Company also generates non-interest income such as income from loan sales, loan servicing, loan originations, merchant credit card services, deposit accounts, the sale of investment products, trust and asset management services and other fees. The Company’s operating expenses primarily consist of compensation and employee benefits, occupancy and equipment, marketing, data processing, and federal deposit insurance. The Company’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory agencies.

Interest-earning assets, both loans and securities, are generally priced against longer-term indices, while interest-bearing liabilities, primarily deposits and borrowings, are generally priced against shorter-term indices. In 2011, the Company’s net interest margin has contracted as compared to prior year periods. High loan refinance volume has caused yields on loans and mortgage-backed securities to trend downward. At the same time, the Company’s asset mix has shifted as higher-yielding loans have decreased due to weak demand, prepayments and loan sales while lower-yielding interest-earning deposits and securities have increased. In addition to the interest rate environment, the Company is dependent upon national and local economic conditions. The overall economy remains weak with continued high unemployment coupled with concern surrounding the housing market. These conditions have had an adverse impact on the Company’s results of operations.

Highlights of the Company’s financial results for the three and nine months ended September 30, 2011 were as follows:

Total assets increased to $2.282 billion at September 30, 2011, from $2.251 billion at December 31, 2010. Loans receivable, net decreased $72.7 million, or 4.4%, at September 30, 2011, as compared to December 31, 2010 primarily due to sales and prepayments of one-to-four family loans and weak loan demand. Investment securities available for sale increased by $65.1 million, or 70.8%, to $157.0 million at September 30, 2011, from $91.9 million at December 31, 2010.

Deposits increased by $23.9 million, or 1.4%, at September 30, 2011, as compared to December 31, 2010. An increase of $34.1 million in core deposits (i.e. all deposits excluding time deposits) was partly offset by a decline in time deposits, which decreased $10.2 million. At September 30, 2011, core deposits, a key focus for the Company, represented 83.7% of total deposits.

Diluted earnings per share decreased to $0.28 for the quarter ended September 30, 2011, from $0.29 for the corresponding prior year quarter. For the nine months ended September 30, 2011 diluted earnings per share increased 5.0%, to $0.84, as compared to $0.80 for the corresponding prior year period.

The provision for loan losses was $1.9 million and $5.8 million, respectively, for the three and nine months ended September 30, 2011, as compared to $1.6 million and $6.0 million, respectively, for the corresponding prior year periods. The provision for loan losses exceeded net loan charge-offs of $399,000 and $2.5 million, respectively, for the three and nine months ended September 30, 2011. The Company’s non-performing loans totaled $48.4 million at September 30, 2011, an increase from $37.5 million at December 31, 2010 primarily due to the second quarter addition of one large commercial real estate relationship and an increase in non-performing one-to-four family loans. For the quarter ended September 30, 2011, non-performing loans increased $1.7 million as compared to the prior linked quarter.

The Company remains well-capitalized with a tangible common equity ratio of 9.46%. Return on average stockholders’ equity was 9.48% and 9.81%, respectively, for the three and nine months ended September 30, 2011, as compared to 10.71% and 10.30%, respectively, for the corresponding prior year periods as the Company continued to build equity.

 

2


Table of Contents

Analysis of Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them.

The following table sets forth certain information relating to the Company for the three and nine months ended September 30, 2011 and 2010. The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown except where noted otherwise. Average balances are derived from average daily balances. The yields and costs include certain fees which are considered adjustments to yields.

 

$2,262,350 $2,262,350 $2,262,350 $2,262,350 $2,262,350 $2,262,350
     FOR THE THREE MONTHS ENDED SEPTEMBER 30,  
     2011     2010  
     AVERAGE
BALANCE
     INTEREST      AVERAGE
YIELD/

COST
    AVERAGE
BALANCE
     INTEREST      AVERAGE
YIELD/

COST
 
     (dollars in thousands)  

Assets

                

Interest-earning assets:

                

Interest-earning deposits and short-term investments

   $ 43,922       $ 21         0.19   $ 6,300       $ 4         0.25

Investment securities (1)

     151,642         363         0.96        59,692         156         1.05   

FHLB stock

     18,233         202         4.43        17,869         278         6.22   

Mortgage-backed securities (1)

     328,830         2,500         3.04        344,579         2,976         3.45   

Loans receivable, net (2)

     1,603,735         20,357         5.08        1,670,590         22,314         5.34   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total interest-earning assets

     2,146,362         23,443         4.37        2,099,030         25,728         4.90   
     

 

 

    

 

 

      

 

 

    

 

 

 

Non-interest-earning assets

     122,660              118,312         
  

 

 

         

 

 

       

Total assets

   $ 2,269,022            $ 2,217,342         
  

 

 

         

 

 

       

Liabilities and Stockholders’ Equity

                

Interest-bearing liabilities:

                

Transaction deposits

   $ 1,253,509         1,289         0.41      $ 1,180,155         2,365         0.80   

Time deposits

     270,261         1,213         1.80        296,579         1,416         1.91   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

     1,523,770         2,502         0.66        1,476,734         3,781         1.02   

Borrowed funds

     366,813         1,869         2.04        391,169         2,379         2.43   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total interest-bearing liabilities

     1,890,583         4,371         0.92        1,867,903         6,160         1.32   
     

 

 

    

 

 

      

 

 

    

 

 

 

Non-interest-bearing deposits

     152,030              137,595         

Non-interest-bearing liabilities

     12,224              16,253         
  

 

 

         

 

 

       

Total liabilities

     2,054,837              2,021,751         

Stockholders’ equity

     214,185              195,591         
  

 

 

         

 

 

       

Total liabilities and stockholders’ equity

   $ 2,269,022            $ 2,217,342         
  

 

 

         

 

 

       

Net interest income

      $ 19,072            $ 19,568      
     

 

 

         

 

 

    

Net interest rate spread (3)

           3.45           3.58
        

 

 

         

 

 

 

Net interest margin (4)

           3.55           3.73
        

 

 

         

 

 

 

 

$2,262,350 $2,262,350 $2,262,350 $2,262,350 $2,262,350 $2,262,350
     FOR THE NINE MONTHS ENDED SEPTEMBER 30,  
     2011     2010  
     AVERAGE
BALANCE
     INTEREST      AVERAGE
YIELD/

COST
    AVERAGE
BALANCE
     INTEREST      AVERAGE
YIELD/

COST
 
     (dollars in thousands)  

Assets

                

Interest-earning assets:

                

Interest-earning deposits and short-term Investments

   $ 27,027       $ 45         0.22   $ 2,685       $ 5         0.25

Investment securities (1)

     139,734         1,004         0.96        57,226         423         0.99   

FHLB stock

     17,930         647         4.81        22,091         736         4.44   

Mortgage-backed securities (1)

     333,607         7,730         3.09        337,515         8,923         3.52   

Loans receivable, net (2)

     1,626,568         62,546         5.13        1,648,991         66,524         5.38   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total interest-earning assets

     2,144,866         71,972         4.47        2,068,508         76,611         4.94   
     

 

 

    

 

 

      

 

 

    

 

 

 

Non-interest-earning assets

     117,484              111,795         
  

 

 

         

 

 

       

Total assets

   $ 2,262,350            $ 2,180,303         
  

 

 

         

 

 

       

Liabilities and Stockholders’ Equity

                

Interest-bearing liabilities:

                

Transaction deposits

   $ 1,255,228         4,457         0.47      $ 1,059,780         6,412         0.81   

Time deposits

     272,197         3,647         1.79        302,627         4,281         1.89   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

     1,527,425         8,104         0.71        1,362,407         10,693         1.05   

Borrowed funds

     371,631         5,813         2.09        485,731         7,683         2.11   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total interest-bearing liabilities

     1,899,056         13,917         0.98        1,848,138         18,376         1.33   
     

 

 

    

 

 

      

 

 

    

 

 

 

Non-interest-bearing deposits

     140,655              125,953         

Non-interest-bearing liabilities

     15,015              17,208         
  

 

 

         

 

 

       

Total liabilities

     2,054,726              1,991,299         

Stockholders’ equity

     207,624              189,004         
  

 

 

         

 

 

       

Total liabilities and stockholders’ equity

   $ 2,262,350            $ 2,180,303         
  

 

 

         

 

 

       

Net interest income

      $ 58,055            $ 58,235      
     

 

 

         

 

 

    

Net interest rate spread (3)

           3.49           3.61
        

 

 

         

 

 

 

Net interest margin (4)

           3.61           3.75
        

 

 

         

 

 

 

 

(1) Amounts are recorded at average amortized cost.
(2) Amount is net of deferred loan fees, undisbursed loan funds, discounts and premiums and estimated loss allowances and includes loans held for sale and non-performing loans.
(3) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average interest-earning assets.

 

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Table of Contents

Comparison of Financial Condition at September 30, 2011 and December 31, 2010

Total assets at September 30, 2011 were $2.282 billion, an increase of $30.5 million, or 1.4%, compared to $2.251 billion at December 31, 2010.

Cash and due from banks increased by $39.0 million, to $70.5 million at September 30, 2011, as compared to $31.5 million at December 31, 2010. Investment securities available for sale increased $65.1 million, or 70.8%, to $157.0 million at September 30, 2011, as compared to $91.9 million at December 31, 2010, due to purchases of government agency securities. The increases in cash and due from banks and investment securities available for sale was attributable to the reduction in loans and the increase in deposits as described below.

Loans receivable, net decreased by $72.7 million, or 4.4%, to a balance of $1.588 billion at September 30, 2011, as compared to a balance of $1.661 billion at December 31, 2010, primarily due to sales and prepayments of one-to-four family loans and limited loan origination volume.

Total deposits increased $23.9 million, or 1.4%, to $1.688 billion at September 30, 2011, from $1.664 billion at December 31, 2010. An increase of $34.1 million in core deposits (i.e. all deposits excluding time deposits) was partly offset by a decline in time deposits.

Stockholders’ equity at September 30, 2011 increased by 7.3%, to $215.9 million, as compared to $201.3 million at December 31, 2010, primarily due to net income and a reduction in accumulated other comprehensive loss partly offset by the cash dividend on common stock.

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2011 and September 30, 2010

General

Net income for the three months ended September 30, 2011 decreased to $5.1 million, as compared to net income of $5.2 million for the corresponding prior year period. On a per share basis, diluted earnings per share decreased to $0.28 for the three months ended September 30, 2011, as compared to $0.29 for the corresponding prior year period. Net income for the nine months ended September 30, 2011 increased to $15.3 million, as compared to net income of $14.6 million for the corresponding prior year period. Diluted earnings per share increased 5.0%, to $0.84 for the nine months ended September 30, 2011, as compared to $0.80 for the corresponding prior year period.

Interest Income

Interest income for the three and nine months ended September 30, 2011 was $23.4 million and $72.0 million, respectively, as compared to $25.7 million and $76.6 million, respectively, for the three and nine months ended September 30, 2010. The yield on interest-earning assets declined to 4.37% and 4.47%, respectively, for the three and nine months ended September 30, 2011, as compared to 4.90% and 4.94%, respectively, for the same prior year periods. This decline was due to high loan refinance volume, which caused yields on loans and mortgage-backed securities to trend downward. Average interest-earning assets increased by $47.3 million, or 2.3%, and $76.4 million, or 3.7%, respectively, for the three and nine months ended September 30, 2011, as compared to the same prior year periods. The increase in average interest-earning assets was centered in an increase in average investment securities of $92.0 million and $82.5 million, respectively, for the three and nine months ended September 30, 2011 as compared to the same prior year periods and an increase in average interest-earning deposits and short-term investments of $37.6 million and $24.3 million, respectively.

Interest Expense

Interest expense for the three and nine months ended September 30, 2011 was $4.4 million and $13.9 million, respectively, compared to $6.2 million and $18.4 million, respectively, for the three and nine months ended September 30, 2010. The cost of interest-bearing liabilities decreased to 0.92% and 0.98%, respectively, for the three and nine months ended September 30, 2011 as compared to 1.32% and 1.33%, respectively, in the same prior year periods. Average interest-bearing liabilities increased by $22.7 million and $50.9 million, respectively, for the three and nine months ended September 30, 2011, as compared to the same prior year periods. The increase in average interest-bearing liabilities was primarily due to an increase in average interest-bearing deposits of $47.0 million and $165.0 million, respectively, for the three and nine months ended September 30, 2011, partly offset by a decrease in average borrowed funds of $24.4 million and $114.1 million, respectively.

 

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Table of Contents

Net Interest Income

Net interest income for the three and nine months ended September 30, 2011 was $19.1 million and $58.1 million, respectively, as compared to $19.6 million and $58.2 million, respectively, in the same prior year periods, reflecting a lower net interest margin partly offset by greater interest-earning assets. The net interest margin decreased to 3.55% and 3.61%, respectively, for the three and nine months ended September 30, 2011 from 3.73% and 3.75%, respectively, in the same prior year periods due to increased average deposits which were invested into interest-earning deposits and investment securities.

Provision for Loan Losses

For the three and nine months ended September 30, 2011, the provision for loan losses was $1.9 million and $5.8 million, respectively, as compared to $1.6 million and $6.0 million, respectively, for the corresponding prior year periods. Non-performing loans increased $10.9 million, to $48.4 million at September 30, 2011 from $37.5 million at December 31, 2010. The increase is primarily due to the second quarter addition of a $5.7 million loan relationship secured by commercial real estate. An appraisal performed in May 2011 values the real estate collateral at $7.9 million, net of delinquent real estate taxes. Most of the remaining increase in non-performing loans is related to an increase in non-performing one-to-four family loans of $6.1 million. Net charge-offs for the three and nine months ended September 30, 2011 increased to $399,000 and $2.5 million, respectively, as compared to $153,000 and $2.1 million, respectively, for the same prior year periods. Loans receivable, net decreased by $72.7 million at September 30, 2011 as compared to December 31, 2010.

Other Income

Other income decreased to $3.7 million for the three months ended September 30, 2011, as compared to $4.2 million in the same prior year period. For the nine months ended September 30, 2011, other income increased to $11.1 million as compared to $10.8 million in the same prior year period. The decrease for the three months ended September 30, 2011 as compared to the same prior year period is primarily due to a decrease in the net gain on the sale of loans of $513,000 due to a decrease in the volume of loans sold. Additionally during the three months ended September 30, 2011, the Company recognized an other-than-temporary impairment loss on equity securities of $148,000. For the nine months ended September 30, 2011, the impairment loss of $148,000 was offset by a net increase in fees and service charges of $390,000.

Operating Expenses

Operating expenses decreased by 4.6%, to $13.1 million, and 0.2%, to $39.6 million, respectively, for the three and nine months ended September 30, 2011, as compared to $13.8 million and $39.7 million, respectively, for the corresponding prior year periods. The decrease for the three months ended September 30, 2011 as compared to the corresponding prior year period was primarily due to lower compensation and employee benefit costs, which decreased by $189,000, or 2.6%, to $7.1 million mainly due to lower incentive plan expense and lower Federal deposit insurance which decreased by $100,000 due to a lower assessment rate and a change in the assessment methodology from deposit-based to a total liability-based assessment. For the nine months ended September 30, 2011, occupancy expense benefited from the negotiated settlement of the remaining office lease obligation at Columbia Home Loans, LLC (“Columbia”), the Company’s mortgage banking subsidiary, which was shuttered in the fourth quarter of 2007.

Provision for Income Taxes

The provision for income taxes was $2.7 million and $8.5 million, respectively, for the three and nine months ended September 30, 2011, as compared to $3.2 million and $8.7 million, respectively, for the same prior year periods. The effective tax rate decreased to 35.1% and 35.6% for the three and nine months ended September 30, 2011, as compared to 37.8% and 37.4%, respectively, in the same prior year periods due to a lower effective state tax rate.

Liquidity and Capital Resources

The Company’s primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, proceeds from the sale of loans, FHLB and other borrowings and, to a lesser extent, investment maturities. While scheduled amortization of loans is a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including various lines of credit.

At September 30, 2011 and December 31, 2010, the Company had no outstanding overnight borrowings from the FHLB. Periodically, the Company utilizes overnight borrowings to fund short-term liquidity needs. The Company had total FHLB borrowings of $266.0 million at September 30, 2011, an increase from $265.0 million at December 31, 2010.

 

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Table of Contents

The Company’s cash needs for the nine months ended September 30, 2011 were primarily satisfied by principal payments on loans and mortgage-backed securities, proceeds from the sale of mortgage loans held for sale and deposit growth. The cash was principally utilized for loan originations and the purchase of investment and mortgage-backed securities. The Company’s cash needs for the nine months ended September 30, 2010 were primarily satisfied by principal payments on loans and mortgage-backed securities, proceeds from the sale of mortgage loans held for sale and increased deposits. The cash was principally utilized for loan originations, the purchase of investment and mortgage-backed securities and the repayment of FHLB borrowings.

In the normal course of business, the Company routinely enters into various off-balance-sheet commitments, primarily relating to the origination and sale of loans. At September 30, 2011, outstanding commitments to originate loans totaled $61.3 million; outstanding unused lines of credit totaled $217.1 million; and outstanding commitments to sell loans totaled $29.5 million. The Company expects to have sufficient funds available to meet current commitments arising in the normal course of business.

Time deposits scheduled to mature in one year or less totaled $175.1 million at September 30, 2011. Based upon historical experience, management estimates that a significant portion of such deposits will remain with the Company.

Cash dividends on common stock declared and paid by OceanFirst Financial Corp. during the first nine months of 2011 were $6.6 million, unchanged as compared to the same prior year period. On October 19, 2011, the Board of Directors declared a quarterly cash dividend of twelve cents ($0.12) per common share. The dividend is payable on November 10, 2011 to stockholders of record at the close of business on October 31, 2011.

The primary sources of liquidity specifically available to OceanFirst Financial Corp., the holding company of OceanFirst Bank, are capital distributions from the banking subsidiary and the issuance of preferred and common stock and long-term debt. For the first nine months of 2011, OceanFirst Financial Corp. received dividend payments of $8.4 million from OceanFirst Bank. OceanFirst Financial Corp.’s ability to continue to pay dividends will be partly dependent upon capital distributions from OceanFirst Bank, which may be adversely affected by capital constraints imposed by the applicable regulations. The Company cannot predict whether the Bank will be permitted under applicable regulations to pay a dividend to OceanFirst Financial Corp. At September 30, 2011, OceanFirst Financial Corp. held $20.9 million in cash and $222,000 in investment securities available for sale.

As of September 30, 2011, the Bank exceeded all regulatory capital requirements as follows (in thousands):

 

     Actual     Required  
     Amount      Ratio     Amount      Ratio  

Tangible capital

   $ 215,253         9.40   $ 34,364         1.50

Core capital

     215,253         9.40        91,638         4.00   

Tier 1 risk-based capital

     215,253         15.06        57,162         4.00   

Total risk-based capital

     230,486         16.13        114,324         8.00   

The Bank is considered a “well-capitalized” institution under the Prompt Corrective Action Regulations.

At September 30, 2011, the Company maintained tangible common equity of $215.9 million, for a tangible common equity to assets ratio of 9.46%.

Off-Balance-Sheet Arrangements and Contractual Obligations

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in the financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used for general corporate purposes or for customer needs. Corporate purpose transactions are used to help manage credit, interest rate, and liquidity risk or to optimize capital. Customer transactions are used to manage customers’ requests for funding. These financial instruments and commitments include unused lines of credit and commitments to extend credit. The Company also has outstanding commitments to sell loans amounting to $29.5 million.

 

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The following table shows the contractual obligations of the Company by expected payment period as of September 30, 2011 (in thousands):

 

Contractual Obligations

   Total      Less than
One year
     1-3 years      3-5 years      More than
5 years
 

Debt Obligations

   $ 365,245       $ 112,745       $ 116,000       $ 114,000       $ 22,500   

Commitments to Originate Loans

     61,254         61,254         —           —           —     

Commitments to Fund Unused Lines of Credit

     217,105         217,105         —           —           —     

Commitments to originate loans and commitments to fund unused lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company’s exposure to credit risk is represented by the contractual amount of the instruments.

Non-Performing Assets

The following table sets forth information regarding the Company’s non-performing assets consisting of non-performing loans and Real Estate Owned (“REO”). It is the policy of the Company to cease accruing interest on loans 90 days or more past due or in the process of foreclosure.

 

     September 30,
2011
    December 31,
2010
 
     (dollars in thousands)  

Non-performing loans:

  

Real estate – one-to-four family

   $ 32,649      $ 26,577   

Commercial real estate

     9,660        5,849   

Construction

     71        368   

Consumer

     5,245        4,626   

Commercial

     773        117   
  

 

 

   

 

 

 

Total non-performing loans

     48,398        37,537   

REO, net

     1,193        2,295   
  

 

 

   

 

 

 

Total non-performing assets

   $ 49,591      $ 39,832   
  

 

 

   

 

 

 

Delinquent loans 30-89 days

   $ 11,374      $ 14,421   
  

 

 

   

 

 

 

Allowance for loan losses as a percent of total loans receivable

     1.42     1.17

Allowance for loan losses as percent of total non-performing loans

     47.33        52.48   

Non-performing loans as a percent of total loans receivable

     3.00        2.23   

Non-performing assets as a percent of total assets

     2.17        1.77   

Included in the non-performing loan total at September 30, 2011 was $9.5 million of troubled debt restructured loans, as compared to $3.3 million of troubled debt restructured loans at December 31, 2010. The increase in non-performing loans is primarily due to the second quarter addition of one large loan relationship secured by commercial real estate with an outstanding balance of $5.7 million. The loans are collateralized by commercial and residential real estate, all business assets and also carry a personal guarantee. An appraisal performed in May 2011 values the real estate collateral at $7.9 million net of delinquent real estate taxes. Non-performing loans are concentrated in one-to-four family loans which comprise 67.5% of the total. At September 30, 2011, the average weighted loan-to-value ratio of non-performing one-to-four family loans was 68.1% using appraisal values at time of origination and 95.0% using updated appraisal values. Appraisals are obtained for all non-performing loans secured by real estate and subsequently updated annually if the loan remains delinquent for an extended period. Included in the allowance for loan losses is a specific allowance for the difference between the Company’s recorded investment in the loan and the fair value of the collateral, less estimated disposal costs. At September 30, 2011, the average weighted loan-to-value ratio of the total one-to-four family loan portfolio was 57.6% using appraisal values at time of origination. Based upon sales data for the first nine months of 2011 from the Ocean and Monmouth Counties Multiple Listing Service, home values in the Company’s primary market area have declined by approximately 18% from the peak of the market in 2006. Individual home values may move more or less than the average based upon the specific characteristics of the property. There can be no assurance that home values will not decline further, possibly resulting in losses to the Company. The largest non-performing one-to-four family loan is a loan for $3.5 million which is secured by a first mortgage on a property with an August 2011 appraised value of $3.4 million. After considering costs of disposal and negative escrow, the Company has established a specific allowance for this loan of $652,000. The Company’s non-performing loans remain at

 

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elevated levels partly due to the extended foreclosure process in the State of New Jersey. This protracted foreclosure process delays the Company’s ability to resolve non-performing loans through sale of the underlying collateral. A significant portion of non-performing one-to-four family loans were originated by alternative Bank delivery channels which have since been shuttered. Of the non-performing one-to-four family loans at September 30, 2011, 71% were originated by either Columbia, which was shuttered in 2007, or the Kenilworth loan production office which was shuttered in mid-2011.

The Company also classifies loans in accordance with regulatory guidelines. At September 30, 2011, the Company had $12.8 million designated as Special Mention, $62.9 million classified as Substandard and $102,100 classified as Doubtful, as compared to $15.5 million, $60.0 million and $1.5 million, respectively, at December 31, 2010. The largest Special Mention loan relationship at September 30, 2011 is comprised of a commercial mortgage totaling $5.0 million to a real estate management and commercial construction company which is current as to payments, but was criticized due to increased vacancies. The loan is collateralized by commercial real estate. The largest Substandard loan relationship is comprised of several credit facilities to a building supply company with an aggregate balance of $8.9 million, which was current as to payments, but criticized due to poor operating results. The loans are collateralized by commercial real estate and other business assets. In addition to loan classifications, the Company classified investment securities with an amortized cost of $30.0 million and a carrying value of $21.3 million as Substandard, which represents the amount of investment securities with a credit rating below investment grade from one of the internationally-recognized credit rating services. These securities are all current as to principal and interest payments.

At September 30, 2011, the Bank was holding subprime loans with a gross principal balance of $1.6 million and a carrying value, net of write-downs and lower of cost or market adjustment, of $1.2 million, and ALT-A loans with a gross principal balance of $3.4 million and a carrying value, net of write-downs and lower of cost or market adjustment, of $3.3 million. These loans were all originated by Columbia prior to its shuttering in 2007.

Critical Accounting Policies

Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Form 10-K”), as supplemented by this report, contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried in the consolidated statements of financial condition at fair value or the lower of cost or fair value. Policies with respect to the methodologies used to determine the allowance for loan losses, the reserve for repurchased loans and the valuation of Mortgage Servicing Rights and judgments regarding securities impairment are the most critical accounting policies because they are important to the presentation of the Company’s financial condition and results of operations. These judgments and policies involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions and estimates could result in material differences in the results of operations or financial condition. These critical accounting policies and their application are reviewed periodically and, at least annually, with the Audit Committee of the Board of Directors.

Private Securities Litigation Reform Act Safe Harbor Statement

In addition to historical information, this quarterly report contains certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995 which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “will,” “should,” “may,” “view,” “opportunity,” “potential,” or similar expressions or expressions of confidence. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and the subsidiaries include, but are not limited to, changes in interest rates, general economic conditions, levels of unemployment in the Bank’s lending area, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area and accounting principles and guidelines. These risks and uncertainties are further discussed in the 2010 Form 10-K and its subsequent securities filings and should be considered in evaluating forward-looking statements and undue reliance should not be placed on statements. The Company does not undertake - and specifically disclaims any obligation - to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Further description of the risks and uncertainties to the business are included in Item 1, Business and Item 1A, Risk Factors of the Company’s 2010 Form 10-K and Item 1A of this Form 10-Q.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s interest rate sensitivity is monitored through the use of an interest rate risk (“IRR”) model. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at September 30, 2011, which were anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown. At September 30, 2011, the Company’s one-year gap was positive 4.13% as compared to positive 0.25% at December 31, 2010.

 

At September 30, 2011

   3 Months
Or Less
    More than
3 Months to
1 Year
    More than
1 Year to
3 Years
    More than
3 Years to
5 Years
    More than
5 Years
    Total  
(dollars in thousands)                                     

Interest-earning assets: (1)

            

Interest-earning deposits and short-term investments

   $ 53,399      $ —        $ —        $ —        $ —        $ 53,399   

Investment securities

     55,514        21,065        76,320        16,738        222        169,859   

FHLB stock

     —          —          —          —          18,161        18,161   

Mortgage-backed securities

     60,804        65,974        108,525        51,819        47,687        334,809   

Loans receivable (2)

     314,442        415,603        464,357        192,879        222,609        1,609,890   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-earning assets

     484,159        502,642        649,202        261,436        288,679        2,186,118   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest-bearing liabilities:

            

Money market deposit accounts

     5,383        16,149        43,064        53,831        —          118,427   

Savings accounts

     12,001        30,533        81,423        101,802        —          225,759   

Interest-bearing checking accounts

     455,273        66,901        178,403        223,150        —          923,727   

Time deposits

     54,645        120,470        44,185        33,938        21,697        274,935   

FHLB advances

     —          41,000        116,000        109,000        —          266,000   

Securities sold under agreements to repurchase

     71,745        —          —          —          —          71,745   

Other borrowings

     22,500        —          —          5,000        —          27,500   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

     621,547        275,053        463,075        526,721        21,697        1,908,093   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest sensitivity gap (3)

   $ (137,388   $ 227,589      $ 186,127      $ (265,285   $ 266,982      $ 278,025   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cumulative interest sensitivity gap

   $ (137,388   $ 90,201      $ 276,328      $ 11,043      $ 278,025      $ 278,025   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cumulative interest sensitivity gap as a percent of total interest-earning assets

     (6.28 )%      4.13     12.64     0.51     12.72     12.72
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Interest-earning assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments, and contractual maturities.
(2) For purposes of the gap analysis, loans receivable includes loans held for sale and non-performing loans gross of the allowance for loan losses, unamortized discounts and deferred loan fees.
(3) Interest sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities.

Additionally, the 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, 2011 and December 31, 2010. All methods used to measure interest rate sensitivity involve the use of assumptions, which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. The Company’s interest rate sensitivity should be reviewed in conjunction with the financial statements and notes thereto contained in the 2010 Form 10-K.

 

    September 30, 2011     December 31, 2010  
    Net Portfolio
Value
          Net Interest
Income
    Net Portfolio
Value
          Net Interest
Income
 

Change in Interest Rates in Basis Points

(Rate Shock)

  Amount     % Change     NPV
Ratio
    Amount     % Change     Amount     % Change     NPV
Ratio
    Amount     % Change  
(dollars in thousands)                                                            

200

  $ 230,463        (8.4 )%      10.4   $ 69,817        (3.3 )%    $ 181,252        (17.4 )%      8.4   $ 74,887        (5.8 )% 

100

    247,052        (1.8     10.9        71,530        (0.9     204,940        (6.6     9.3        77,519        (2.5

Static

    251,605        —          10.9        72,168        —          219,409        —          9.7        79,495        —     

(100)

    244,987        (2.6     10.5        66,380        (8.0     226,798        3.4        9.9        76,397        (3.9

(200)

    260,769        3.6        11.1        62,372        (13.6     244,147        11.3        10.6        72,483        (8.8

 

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Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective. Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (“SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, there were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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OceanFirst Financial Corp.

Consolidated Statements of Financial Condition

(dollars in thousands, except per share amounts)

 

     September 30,
2011
    December 31,
2010
 
     (Unaudited)        

ASSETS

    

Cash and due from banks

   $ 70,457      $ 31,455   

Investment securities available for sale

     157,035        91,918   

Federal Home Loan Bank of New York stock, at cost

     18,161        16,928   

Mortgage-backed securities available for sale

     346,292        341,175   

Loans receivable, net

     1,588,115        1,660,788   

Mortgage loans held for sale

     3,083        6,674   

Interest and dividends receivable

     6,404        6,446   

Real estate owned, net

     1,193        2,295   

Premises and equipment, net

     22,464        22,488   

Servicing asset

     4,933        5,653   

Bank Owned Life Insurance

     41,663        40,815   

Other assets

     21,992        24,695   
  

 

 

   

 

 

 

Total assets

   $ 2,281,792      $ 2,251,330   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Deposits

   $ 1,687,906      $ 1,663,968   

Securities sold under agreements to repurchase with retail customers

     71,745        67,864   

Federal Home Loan Bank advances

     266,000        265,000   

Other borrowings

     27,500        27,500   

Advances by borrowers for taxes and insurance

     6,706        6,947   

Other liabilities

     6,038        18,800   
  

 

 

   

 

 

 

Total liabilities

     2,065,895        2,050,079   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Preferred stock, $.01 par value, $1,000 liquidation preference, 5,000,000 shares authorized, no shares issued at September 30, 2011, and December 31, 2010

     —          —     

Common stock, $.01 par value, 55,000,000 shares authorized, 33,566,772 shares issued and 18,846,122 and 18,822,556 shares outstanding at September 30, 2011 and December 31, 2010, respectively

     336        336   

Additional paid-in capital

     261,392        260,739   

Retained earnings

     183,405        174,677   

Accumulated other comprehensive loss

     (794     (5,560

Less: Unallocated common stock held by Employee Stock Ownership Plan

     (4,266     (4,484

Treasury stock 14,720,650 and 14,744,216 shares at September 30, 2011 and December 31, 2010, respectively

     (224,176     (224,457

Common stock acquired by Deferred Compensation Plan

     (904     (946

Deferred Compensation Plan Liability

     904        946   
  

 

 

   

 

 

 

Total stockholders’ equity

     215,897        201,251   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,281,792      $ 2,251,330   
  

 

 

   

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements.

 

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OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

     For the three months
ended September 30,
    For the nine months
ended September 30,
 
     2011     2010     2011     2010  
     (Unaudited)     (Unaudited)  

Interest income:

        

Loans

   $ 20,357      $ 22,314      $ 62,546      $ 66,524   

Mortgage-backed securities

     2,500        2,976        7,730        8,923   

Investment securities and other

     586        438        1,696        1,164   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     23,443        25,728        71,972        76,611   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

        

Deposits

     2,502        3,781        8,104        10,693   

Borrowed funds

     1,869        2,379        5,813        7,683   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     4,371        6,160        13,917        18,376   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     19,072        19,568        58,055        58,235   

Provision for loan losses

     1,850        1,600        5,750        6,000   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     17,222        17,968        52,305        52,235   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income:

        

Loan servicing income

     96        72        292        231   

Fees and service charges

     2,847        2,760        8,507        8,117   

Other-than-temporary impairment losses on investment securities

     (148     —          (148     —     

Net gain on sales of loans available for sale

     697        1,210        2,066        2,215   

Net loss from other real estate operations

     (80     (45     (482     (408

Income from Bank Owned Life Insurance

     317        220        848        624   

Other

     2        2        4        6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     3,731        4,219        11,087        10,785   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Compensation and employee benefits

     7,137        7,326        21,293        20,907   

Occupancy

     1,279        1,325        3,778        4,117   

Equipment

     511        568        1,803        1,581   

Marketing

     456        514        1,212        1,341   

Federal deposit insurance

     563        663        2,027        1,983   

Data processing

     886        858        2,672        2,521   

Legal

     207        279        634        843   

Check card processing

     320        311        924        937   

Accounting and audit

     129        143        442        465   

Other operating expense

     1,643        1,773        4,859        5,027   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,131        13,760        39,644        39,722   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     7,822        8,427        23,748        23,298   

Provision for income taxes

     2,748        3,189        8,466        8,704   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 5,074      $ 5,238      $ 15,282      $ 14,594   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

   $ 0.28      $ 0.29      $ 0.84      $ 0.80   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

   $ 0.28      $ 0.29      $ 0.84      $ 0.80   
  

 

 

   

 

 

   

 

 

   

 

 

 

Average basic shares outstanding

     18,227        18,146        18,190        18,137   
  

 

 

   

 

 

   

 

 

   

 

 

 

Average diluted shares outstanding

     18,276        18,194        18,239        18,186   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements.

 

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Table of Contents

OceanFirst Financial Corp.

Consolidated Statements of

Changes in Stockholders’ Equity (Unaudited)

(in thousands, except per share amounts)

 

    Preferred
Stock
    Common
Stock
    Additional
Paid-In
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive  Loss
    Employee
Stock
Ownership
Plan
    Treasury
Stock
    Common
Stock
Acquired by
Deferred
Compensation
Plan
    Deferred
Compensation
Plan Liability
    Total  

Balance at December 31, 2009

  $ —        $ 336      $ 260,130      $ 163,063      $ (10,753   $ (4,776   $ (224,464   $ (986   $ 986      $ 183,536   
                   

 

 

 

Comprehensive income:

                   

Net income

    —          —          —          14,594        —          —          —          —          —          14,594   

Other comprehensive income:

                   

Unrealized gain on securities (net of tax expense $2,264)

    —          —          —          —          7,340        —          —          —          —          7,340   
                   

 

 

 

Total comprehensive income

                      21,934   

Expenses of common stock offering

    —            (109     —          —          —          —          —          —          (109

Tax expense of stock plans

    —          —          (23     —          —          —          —          —          —          (23

Stock awards

    —          —          781        —          —          —          —          —          —          781   

Redemption of warrants

    —          —          (431     —          —          —          —          —          —          (431

Allocation of ESOP stock

    —          —          87        —          —          219        —          —          —          306   

Cash dividend - $0.36 per share

    —          —          —          (6,572     —          —          —          —          —          (6,572

Exercise of stock options

    —          —          —          —          —          —          7        —          —          7   

Sale of stock for the deferred compensation plan

    —          —          —          —          —          —          —          35        (35     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2010

  $ —        $ 336      $ 260,435      $ 171,085      $ (3,413   $ (4,557   $ (224,457   $ (951   $ 951      $ 199,429   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2010

  $ —        $ 336      $ 260,739      $ 174,677      $ (5,560   $ (4,484   $ (224,457   $ (946   $ 946      $ 201,251   
                   

 

 

 

Comprehensive income:

                   

Net income

    —          —          —          15,282        —          —          —          —          —          15,282   

Other comprehensive income:

                   

Unrealized gain on securities (net of tax expense $3,231)

    —          —          —          —          4,678        —          —          —          —          4,678   

Reclassification adjustment for losses included in net income (net of tax benefit $60)

    —          —          —          —          88        —          —          —          —          88   
                   

 

 

 

Total comprehensive income

                      20,048   

Tax benefit of stock plans

    —          —          32        —          —          —          —          —          —          32   

Stock awards

    —          —          779        —          —          —          —          —          —          779   

Treasury stock allocated to restricted stock plan

    —          —          (280     37        —          —          243        —          —          —     

Allocation of ESOP stock

    —          —          122        —          —          218        —          —          —          340   

Cash dividend $0.36 per share

    —          —          —          (6,590     —          —          —          —          —          (6,590

Exercise of stock options

    —          —          —          (1     —          —          38        —          —          37   

Sale of stock for the deferred compensation plan

    —          —          —          —          —          —          —          42        (42     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

  $ —        $ 336      $ 261,392      $ 183,405      $ (794   $ (4,266   $ (224,176   $ (904   $ 904      $ 215,897   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements.

 

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Table of Contents

OceanFirst Financial Corp.

Consolidated Statements of Cash Flows

(dollars in thousands)

 

     For the nine months
ended  September 30,
 
     2011     2010  
     (Unaudited)  

Cash flows from operating activities:

    

Net income

   $ 15,282      $ 14,594   
  

 

 

   

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization of premises and equipment

     1,838        1,604   

Allocation of ESOP stock

     340        306   

Stock awards

     779        781   

Amortization of servicing asset

     1,417        1,500   

Net premium amortization in excess of discount accretion on securities

     1,584        1,101   

Net amortization of deferred costs and discounts on loans

     651        690   

Provision for loan losses

     5,750        6,000   

Net loss (gain) on sale of real estate owned

     189        (77

Net gain on sales of loans

     (2,066     (2,215

Other-than-temporary impairment losses on investment securities

     148        —     

Proceeds from sales of mortgage loans held for sale

     96,500        101,911   

Mortgage loans originated for sale

     (91,539     (98,770

Increase in value of Bank Owned Life Insurance

     (848     (624

Decrease (increase) in interest and dividends receivable

     42        (1,026

(Increase) decrease in other assets

     (589     1,057   

(Decrease) increase in other liabilities

     (12,762     3,738   
  

 

 

   

 

 

 

Total adjustments

     1,434        15,976   
  

 

 

   

 

 

 

Net cash provided by operating activities

     16,716        30,570   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Net decrease (increase) in loans receivable

     64,256        (44,048

Proceeds from sale of investment securities available for sale

     —          1,300   

Purchase of investment securities available for sale

     (63,260     (26,663

Purchase of mortgage-backed securities available for sale

     (55,624     (203,481

Principal repayments on mortgage-backed securities available for sale

     54,975        41,376   

(Increase) decrease in Federal Home Loan Bank of New York stock

     (1,233     2,009   

Proceeds from sales of real estate owned

     2,929        1,093   

Purchases of premises and equipment

     (1,814     (1,359
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     229        (229,773
  

 

 

   

 

 

 

 

Continued

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Table of Contents

OceanFirst Financial Corp.

Consolidated Statements of Cash Flows (Continued)

(dollars in thousands)

 

     For the nine months
ended  September 30,
 
     2011     2010  
     (Unaudited)  

Cash flows from financing activities:

    

Increase in deposits

   $ 23,938      $ 259,317   

Increase (decrease) in short-term borrowings

     3,881        (100,699

Proceeds from Federal Home Loan Bank advances

     55,000        139,000   

Repayments of Federal Home Loan Bank advances

     (54,000     (85,000

(Decrease) increase in advances by borrowers for taxes and insurance

     (241     329   

Exercise of stock options

     37        7   

Dividends paid – common stock

     (6,590     (6,572

Redemption of warrants

     —          (431

Tax benefit (expense) of stock plans

     32        (23

Expenses of common stock offering

     —          (109
  

 

 

   

 

 

 

Net cash provided by financing activities

     22,057        205,819   
  

 

 

   

 

 

 

Net increase in cash and due from banks

     39,002        6,616   

Cash and due from banks at beginning of period

     31,455        23,016   
  

 

 

   

 

 

 

Cash and due from banks at end of period

   $ 70,457      $ 29,632   
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information:

    

Cash paid during the period for:

    

Interest

   $ 14,171      $ 18,458   

Income taxes

     16,381        7,753   

Non-cash activities:

    

Transfer of loans receivable to real estate owned

     2,016        645   
  

 

 

   

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements.

 

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Table of Contents

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 Home Loans, LLC (“Columbia”), OceanFirst REIT Holdings, Inc., OceanFirst Services, LLC and 975 Holdings, LLC. The operations of Columbia were shuttered in late 2007.

The interim consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results of operations that may be expected for all of 2011. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and the results of operations for the period. Actual results could differ from these estimates.

Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report to Stockholders on Form 10-K for the year ended December 31, 2010.

Note 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, 2011 and 2010 (in thousands):

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2011     2010     2011     2010  

Weighted average shares issued net of Treasury shares

     18,846        18,823        18,840        18,822   

Less: Unallocated ESOP shares

     (510     (545     (519     (553

Unallocated incentive award shares and shares held by deferred compensation plan

     (109     (132     (131     (132
  

 

 

   

 

 

   

 

 

   

 

 

 

Average basic shares outstanding

     18,227        18,146        18,190        18,137   

Add: Effect of dilutive securities:

        

Stock options

     —          —          —          —     

Incentive awards and shares held by deferred compensation plan

     49        48        49        49   
  

 

 

   

 

 

   

 

 

   

 

 

 

Average diluted shares outstanding

     18,276        18,194        18,239        18,186   
  

 

 

   

 

 

   

 

 

   

 

 

 

For the three months ended September 30, 2011 and 2010, antidilutive stock options of 2,064,000 and 1,876,000, respectively, were excluded from earnings per share calculations. For the nine months ended September 30, 2011 and 2010 antidilutive stock options of 2,042,000 and 1,852,000, respectively, were excluded from earnings per share calculations.

 

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Table of Contents

Note 3. Investment Securities Available for Sale

The amortized cost and estimated market value of investment securities available for sale at September 30, 2011 and December 31, 2010 are as follows (in thousands):

 

$(13,706) $(13,706) $(13,706) $(13,706)

September 30, 2011

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Market
Value
 

U.S. agency obligations

   $ 96,899       $ 851       $ (77   $ 97,673   

State and municipal obligations

     17,738         31         (8     17,761   

Corporate debt securities

     55,000         —           (13,621     41,379   

Equity investments

     222         —           —          222   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 169,859       $ 882       $ (13,706   $ 157,035   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

$(13,706) $(13,706) $(13,706) $(13,706)

December 31, 2010

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Market
Value
 

U.S. agency obligations

   $ 41,146       $ 41       $ (55   $ 41,132   

State and municipal obligations

     10,690         —           (75     10,615   

Corporate debt securities

     55,000         —           (15,144     39,856   

Equity investments

     370         —           (55     315   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 107,206       $ 41       $ (15,329   $ 91,918   
  

 

 

    

 

 

    

 

 

   

 

 

 

There were no realized gains or losses on the sale of investment securities available for sale for the three and nine months ended September 30, 2011 and 2010. The Company recognized an other-than-temporary impairment loss on equity investments of $148,000 for the three and nine months ended September 30, 2011.

The amortized cost and estimated market value of investment securities available for sale, excluding equity investments, at September 30, 2011 by contractual maturity, are shown below (in thousands). Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. At September 30, 2011, investment securities available for sale with an amortized cost and estimated market value of $55.0 million and $41.4 million, respectively, were callable prior to the maturity date.

 

September 30, 2011

   Amortized
Cost
     Estimated
Market
Value
 

Less than one year

   $ 21,579       $ 21,596   

Due after one year through five years

     93,058         93,838   

Due after five years through ten years

     —           —     

Due after ten years

     55,000         41,379   
  

 

 

    

 

 

 
   $ 169,637       $ 156,813   
  

 

 

    

 

 

 

The estimated market value and unrealized loss for investment securities available for sale at September 30, 2011 and December 31, 2010 segregated by the duration of the unrealized loss are as follows (in thousands):

 

$(13,627) $(13,627) $(13,627) $(13,627) $(13,627) $(13,627)
     Less than 12 months     12 months or longer     Total  

September 30, 2011

   Estimated
Market
Value
     Unrealized
Losses
    Estimated
Market
Value
     Unrealized
Losses
    Estimated
Market
Value
     Unrealized
Losses
 

U.S. agency obligations

   $ 15,461       $ (77   $ —         $ —        $ 15,461       $ (77

State and municipal obligations

     409         (2     1,845         (6     2,254         (8

Corporate debt securities

     —           —          41,379         (13,621     41,379         (13,621

Equity investments

     —           —          —           —          —           —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
   $ 15,870       $ (79   $ 43,224       $ (13,627   $ 59,094       $ (13,706
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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Table of Contents
$(13,627) $(13,627) $(13,627) $(13,627) $(13,627) $(13,627)
     Less than 12 months     12 months or longer     Total  

December 31, 2010

   Estimated
Market
Value
     Unrealized
Losses
    Estimated
Market
Value
     Unrealized
Losses
    Estimated
Market
Value
     Unrealized
Losses
 

U.S. agency obligations

   $ 20,742       $ (55   $ —         $ —        $ 20,742       $ (55

State and municipal obligations

     9,738         (75     —           —          9,738         (75

Corporate debt securities

     —           —          39,856         (15,144     39,856         (15,144

Equity investments

     104         (16     211         (39     315         (55
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
   $ 30,584       $ (146   $ 40,067       $ (15,183   $ 70,651       $ (15,329
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

At September 30, 2011, the amortized cost, estimated market value and credit rating of the individual corporate debt securities in an unrealized loss position for greater than one year are as follows (in thousands):

 

Security Description

   Amortized Cost      Estimated
Market
Value
     Credit  Rating
Moody’s/S&P

BankAmerica Capital

   $ 15,000       $ 9,188       Ba1/BB+

Chase Capital

     10,000         7,361       A2/BBB+

Wells Fargo Capital

     5,000         4,166       A3/A-

Huntington Capital

     5,000         4,054       Ba1/BB-

Keycorp Capital

     5,000         4,163       Baa3/BB

PNC Capital

     5,000         4,329       Baa2/BBB

State Street Capital

     5,000         4,214       A3/BBB+

SunTrust Capital

     5,000         3,904       Baa3/BB
  

 

 

    

 

 

    
   $ 55,000       $ 41,379      
  

 

 

    

 

 

    

At September 30, 2011, the market value of each corporate debt security was below cost. The corporate debt securities are issued by other financial institutions with credit ratings ranging from a high of A2 to a low of BB- as rated by one of the internationally-recognized credit rating services. These floating-rate securities were purchased in 1998 and have paid coupon interest continuously since issuance. Floating-rate debt securities such as these pay a fixed interest rate spread over the London Interbank Offered Rate (“LIBOR”). Following the purchase of these securities, the required spread increased for these types of securities causing a decline in the market price. The Company concluded that unrealized losses on available for sale securities were only temporarily impaired at September 30, 2011. In concluding that the impairments were only temporary, the Company considered several factors in its analysis. The Company noted that each issuer made all the contractually due payments when required. There were no defaults on principal or interest payments and no interest payments were deferred. All of the financial institutions were also considered well-capitalized. Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements for the foreseeable future. Furthermore, although these investment securities are available for sale, the Company does not have the intent to sell these securities and it is more likely than not that the Company will not be required to sell the securities. The Company has held the securities continuously since 1998 and expects to receive its full principal at maturity in 2028 or prior if called by the issuer. The Company has historically not actively sold investment securities and does not utilize the securities portfolio as a source of liquidity. The Company’s long range liquidity plans indicate adequate sources of liquidity outside the securities portfolio.

Capital markets in general and the market for these corporate securities in particular have been disrupted since the second half of 2007. In its analysis, the Company considered that the severity and duration of unrecognized losses was at least partly due to the illiquidity caused by market disruptions. Since that time, markets have stabilized partly due to steps taken by the U.S. Treasury, the Federal Reserve Board, the Federal Deposit Insurance Corporation and foreign central banks to restore liquidity and confidence in the capital markets. Each of these issuers has been able to raise capital in recent years and the fair values of these securities have increased since the lows reached in the second half of 2007.

Due to the reasons noted above, especially the continuing restoration of the capital markets, the improved valuation of the corporate securities portfolio since December 31, 2010, the capital position of the issuers, the uninterrupted payment of all contractually due interest, management has determined that only a temporary impairment existed at September 30, 2011.

 

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Table of Contents

Note 4. Mortgage-Backed Securities Available for Sale

The amortized cost and estimated market value of mortgage-backed securities available for sale at September 30, 2011 and December 31, 2010 are as follows (in thousands):

 

September 30, 2011

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Market
Value
 

FHLMC

   $ 35,130       $ 807       $ (48   $ 35,889   

FNMA

     298,704         10,561         (2     309,263   

GNMA

     975         165         —          1,140   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 334,809       $ 11,533       $ (50   $ 346,292   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

December 31, 2010

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Market
Value
 

FHLMC

   $ 19,225       $ 386       $ (13   $ 19,598   

FNMA

     315,024         5,344         —          320,368   

GNMA

     1,037         172         —          1,209   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 335,286       $   5,902       $ (13   $ 341,175   
  

 

 

    

 

 

    

 

 

   

 

 

 

There were no gains or losses realized on the sale of mortgage-backed securities available for sale for the three and nine months ended September 30, 2011 and 2010.

The contractual maturities of mortgage-backed securities available for sale vary; however, the effective lives are expected to be shorter than the contractual maturity date due to principal prepayments.

The estimated market value and unrealized loss for mortgage-backed securities available for sale at September 30, 2011 and December 31, 2010, segregated by the duration of the unrealized loss are as follows (in thousands):

 

$10,557 $10,557 $10,557 $10,557 $10,557 $10,557
     Less than 12 months     12 months or longer      Total  

September 30, 2011

   Estimated
Market
Value
     Unrealized
Losses
    Estimated
Market
Value
     Unrealized
Losses
     Estimated
Market
Value
     Unrealized
Losses
 

FHLMC

   $ 10,381       $ (48   $ —         $ —         $ 10,381       $ (48

FNMA

     176         (2     —           —           176         (2
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
   $ 10,557       $ (50   $ —         $ —         $ 10,557       $ (50
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

$10,557 $10,557 $10,557 $10,557 $10,557 $10,557
     Less than 12 months     12 months or longer      Total  

December 31, 2010

   Estimated
Market
Value
     Unrealized
Losses
    Estimated
Market
Value
     Unrealized
Losses
     Estimated
Market
Value
     Unrealized
Losses
 

FHLMC

   $ 4,982       $ (13   $ —         $ —         $ 4,982       $ (13
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

The mortgage-backed securities are issued and guaranteed by either FHLMC or FNMA, corporations which are chartered by the United States Government and whose debt obligations are typically rated AAA by one of the internationally-recognized credit rating services. On July 13, 2011, Moody’s Investors Service (“Moody’s”) placed the Aaa ratings of FHLMC and FNMA on review for possible downgrade in conjunction with its ratings review of the government of the United States. Standard & Poor’s (“S&P’s”) took similar action on July 14, 2011. On August 2, 2011, Moody’s confirmed the Aaa rating of the United States with a negative outlook. Moody’s also confirmed the Aaa ratings of FHLMC and FNMA. S&P’s lowered the credit rating of the United States to AA+ on August 5, 2011 and lowered the ratings of FHLMC and FNMA to AA+ on August 8, 2011. FHLMC and FNMA have been under the conservatorship of the Federal Housing Finance Agency since September 8, 2008. The conservatorships have no specified termination date. Also, FHLMC and FNMA have entered into Stock Purchase Agreements, which following the issuance of Senior Preferred Stock and Warrants to the United States Treasury, provide FHLMC and FNMA funding commitments from the United States Treasury. The Company considers the unrealized losses to be the result of changes in interest rates which over time can have both a positive and negative impact on the estimated market value of the mortgage-backed securities. Although these mortgage-backed securities are available for sale, the Company does not intend to sell these securities and it is more likely than not that the Bank will not be required to sell the securities before recovery of their amortized cost. As a result, the Company concluded that unrealized losses on these available for sale securities were only temporarily impaired at September 30, 2011.

 

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Table of Contents

Note 5. Loans Receivable, Net

Loans receivable, net at September 30, 2011 and December 31, 2010 consisted of the following (in thousands):

 

     September 30, 2011     December 31, 2010  

Real estate:

    

One-to-four family

   $ 891,440      $ 955,063   

Commercial real estate, multi family and land

     467,564        435,127   

Construction

     6,740        13,748   

Consumer

     198,237        205,725   

Commercial

     47,680        76,692   
  

 

 

   

 

 

 

Total loans

     1,611,661        1,686,355   

Loans in process

     (1,771     (4,055

Deferred origination costs, net

     4,213        4,862   

Allowance for loan losses

     (22,905     (19,700
  

 

 

   

 

 

 

Total loans, net

     1,591,198        1,667,462   

Less: Mortgage loans held for sale

     3,083        6,674   
  

 

 

   

 

 

 

Loans receivable, net

   $ 1,588,115      $ 1,660,788   
  

 

 

   

 

 

 

An analysis of the allowance for loan losses for the three and nine months ended September 30, 2011 and 2010 is as follows (in thousands):

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2011     2010     2011     2010  

Balance at beginning of period

   $ 21,454      $ 17,146      $ 19,700      $ 14,723   

Provision charged to operations

     1,850        1,600        5,750        6,000   

Charge-offs

     (403     (183     (2,565     (2,272

Recoveries

     4        30        20        142   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 22,905      $ 18,593      $ 22,905      $ 18,593   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

The following table presents an analysis of the allowance for loan losses for the three and nine months ended September 30, 2011 and the balance in the allowance for loan loses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2011 and December 31, 2010 (in thousands):

 

     Residential
Real Estate
    Commercial
Real Estate
    Consumer     Commercial     Unallocated     Total  

For the three months ended September 30, 2011

                                    

Allowance for loan losses:

            

Balance at beginning of period

   $ 6,469      $ 7,229      $ 4,277      $ 945      $ 2,534      $ 21,454   

Provision (benefit) charged to operations

     1,280        1,220        118        12        (780     1,850   

Charge-offs

     (217     (180     (6     —          —          (403

Recoveries

     —          —          —          4        —          4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 7,532      $ 8,269      $ 4,389      $ 961      $ 1,754      $ 22,905   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For the nine months ended September 30, 2011

                                    

Allowance for loan losses:

            

Balance at beginning of period

   $ 5,977      $ 6,837      $ 3,264      $ 962      $ 2,660      $ 19,700   

Provision (benefit) charged to operations

     2,216        3,129        1,180        131        (906     5,750   

Charge-offs

     (672     (1,697     (56     (140     —          (2,565

Recoveries

     11        —          1        8        —          20   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 7,532      $ 8,269      $ 4,389      $ 961      $ 1,754      $ 22,905   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan losses:

            

Ending allowance balance attributed to loans:

            

Individually evaluated for impairment

   $ —        $ 1,574      $ —        $ —        $ —        $ 1,574   

Collectively evaluated for impairment

     7,532        6,695        4,389        961        1,754        21,331   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance balance

   $ 7,532      $ 8,269      $ 4,389      $ 961      $ 1,754      $ 22,905   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

            

Loans individually evaluated for impairment

   $ —        $ 9,374      $ —        $ 581      $ —        $ 9,955   

Loans collectively evaluated for impairment

     895,097        458,190        198,237        47,099        —          1,598,623   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending loan balance

   $ 895,097      $ 467,564      $ 198,237      $ 47,680      $ —        $ 1,608,578   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Residential
Real Estate
     Commercial
Real Estate
     Consumer      Commercial      Unallocated      Total  

December 31, 2010

                                         

Allowance for loan losses:

                 

Ending allowance balance attributed to loans:

                 

Individually evaluated for impairment

   $ —         $ 1,988       $ —         $ —         $ —         $ 1,988   

Collectively evaluated for impairment

     5,977         4,849         3,264         962         2,660         17,712   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

   $ 5,977       $ 6,837       $ 3,264       $ 962       $ 2,660       $ 19,700   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                 

Loans individually evaluated for impairment

   $ —         $ 4,673       $ —         $ —         $ —         $ 4,673   

Loans collectively evaluated for impairment

     962,137         430,454         205,725         76,692         —           1,675,008   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loan balance

   $ 962,137       $ 435,127       $ 205,725       $ 76,692       $ —         $ 1,679,681   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

21


Table of Contents

A summary of impaired loans at September 30, 2011 and December 31, 2010 is as follows (in thousands):

 

     September 30,      December 31,  
     2011      2010  

Impaired loans with no allocated allowance for loan losses

   $ 1,267       $ —     

Impaired loans with allocated allowance for loan losses

     8,688         4,673   
  

 

 

    

 

 

 
   $ 9,955       $ 4,673   
  

 

 

    

 

 

 

Amount of the allowance for loan losses allocated

   $ 1,574       $ 1,988   
  

 

 

    

 

 

 

The summary of loans individually evaluated for impairment by class of loans for the three and nine months ended September 30, 2011 and as of September 30, 2011 and December 31, 2010 follows (in thousands):

 

     Unpaid
Principal
Balance
     Recorded
Investment
     Allowance
for Loan
Losses
Allocated
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Three months ended September 30, 2011

                                  

With no related allowance recorded:

              

Commercial real estate:

              

Commercial

   $ 686       $ 686       $ —         $ 2,697       $ —     

Construction and land

     —           —           —           —           —     

Commercial

     581         581         —           395         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,267       $ 1,267       $ —         $ 3,092       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

              

Commercial real estate:

              

Commercial

   $ 8,688       $ 8,688       $ 1,574       $ 8,172       $ —     

Construction and land

     —           —           —           —           —     

Commercial

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 8,688       $ 8,688       $ 1,574       $ 8,172       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nine months ended September 30, 2011

                                  

With no related allowance recorded:

              

Commercial real estate:

              

Commercial

   $ 686       $ 686       $ —         $ 1,688       $ —     

Construction and land

     —           —           —           —           —     

Commercial

     581         581         —           199         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,267       $ 1,267       $ —         $ 1,887       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

              

Commercial real estate:

              

Commercial

   $ 8,688       $ 8,688       $ 1,574       $ 4,386       $ —     

Construction and land

     —           —           —           1,141         —     

Commercial

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 8,688       $ 8,688       $ 1,574       $ 5,527       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2010

                                  

With no related allowance recorded:

              

Commercial real estate:

              

Commercial

   $ —         $ —         $ —           

Construction and land

     —           —           —           

Commercial

     —           —           —           
  

 

 

    

 

 

    

 

 

       
   $ —         $ —         $ —           
  

 

 

    

 

 

    

 

 

       

With an allowance recorded:

              

Commercial real estate:

              

Commercial

   $ 2,104       $ 2,104       $ 988         

Construction and land

     2,569         2,569         1,000         

Commercial

     —           —           —           
  

 

 

    

 

 

    

 

 

       
   $ 4,673       $ 4,673       $ 1,988         
  

 

 

    

 

 

    

 

 

       

 

22


Table of Contents

The following table presents the recorded investment in non-accrual loans by class of loans as of September 30, 2011 and December 31, 2010 (in thousands):

 

     Recorded Investment in Non-accrual Loans  
     September 30, 2011      December 31, 2010  

Residential real estate:

     

Originated by Bank

   $ 18,066       $ 14,227   

Originated by Columbia

     10,474         8,480   

Originated by Columbia – non-prime

     4,109         3,870   

Residential construction

     71         368   

Commercial real estate:

     

Commercial

     9,660         3,280   

Construction and land

     —           2,569   

Consumer

     5,245         4,626   

Commercial

     773         117   
  

 

 

    

 

 

 
   $ 48,398       $ 37,537   
  

 

 

    

 

 

 

As used in these footnotes, loans “Originated by Columbia” are mortgage loans originated by Columbia under the Bank’s underwriting guidelines and retained as part of the Bank’s mortgage portfolio. These loans have significantly higher delinquency rates than similar loans originated by the Bank. Loans “Originated by Columbia – non-prime” are subprime or Alt-A loans which were originated for sale into the secondary market.

The following table presents the aging of the recorded investment in past due loans as of September 30, 2011 and December 31, 2010 by class of loans (in thousands):

 

     30-59
Days
Past Due
     60-89
Days
Past Due
     90 Days
and
Greater

Past Due
     Total
Past Due
     Loans Not
Past Due
     Total  

September 30, 2011

                                         

Residential real estate:

                 

Originated by Bank

   $ 6,288       $ 552       $ 17,566       $ 24,406       $ 713,462       $ 737,868   

Originated by Columbia

     2,393         1,446         9,162         13,001         131,462         144,463   

Originated by Columbia - non-prime

     18         —           4,109         4,127         1,899         6,026   

Residential construction

     —           —           71         71         6,669         6,740   

Commercial real estate:

                 

Commercial

     —           1,249         9,660         10,909         440,068         450,977   

Construction and land

     —           —           —           —           16,587         16,587   

Consumer

     911         91         4,973         5,975         192,262         198,237   

Commercial

     —           2         771         773         46,907         47,680   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 9,610       $ 3,340       $ 46,312       $ 59,262       $ 1,549,316       $ 1,608,578   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2010

                                         

Residential real estate:

                 

Originated by Bank

   $ 5,833       $ 875       $ 13,219       $ 19,927       $ 759,966       $ 779,893   

Originated by Columbia

     3,399         1,083         7,752         12,234         149,470         161,704   

Originated by Columbia -non-prime

     953         1,532         3,240         5,725         1,067         6,792   

Residential construction

     —           —           368         368         13,380         13,748   

Commercial real estate:

                 

Commercial

     870         —           2,611         3,481         406,549         410,030   

Construction and land

     —           —           2,569         2,569         22,528         25,097   

Consumer

     2,036         241         4,093         6,370         199,355         205,725   

Commercial

     —           —           117         117         76,575         76,692   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 13,091       $ 3,731       $ 33,969       $ 50,791       $ 1,628,890