<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission file number 0-27428
OCEAN FINANCIAL CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3412577
------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
975 Hooper Avenue, Toms River, NJ 08753
---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 240-4500
--------------
-------------------------------------------------------
(Former name, former address and formal fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO .
--- ---
As of August 11, 1997, there were 8,175,860 shares of the Registrant's Common
Stock, par value $.01 per share, outstanding.
<PAGE>
OCEAN FINANCIAL CORP.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
PAGE
----
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
as of June 30, 1997 (unaudited) and December 31, 1996 1
Consolidated Statements of Operations for the three and six
months ended June 30, 1997 and 1996 (unaudited) 2
Consolidated Statements of Cash Flows for the three and six
months ended June 30, 1997 and 1996(unaudited) 3
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 7
Part II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Default Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
<PAGE>
OCEAN FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
ASSETS
- ------
<S> <C> <C>
Cash and due from banks $ 1,652 $ 5,372
Investment securities available for sale 208,360 174,028
Federal Home Loan Bank of New York
stock, at cost 11,511 8,457
Mortgage-backed securities available for
sale 456,890 395,542
Loans receivable, net 725,891 678,728
Mortgage loans held for sale - 727
Interest and dividends receivable 11,799 9,757
Real estate owned, net 1,268 1,555
Premises and equipment, net 14,735 14,100
Servicing asset 1,658 1,743
Other assets 14,358 13,856
---------- ----------
Total assets $1,448,122 $1,303,865
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits $ 960,804 $ 934,730
Federal Home Loan Bank borrowings 5,300 8,800
Securities sold under agreements to
repurchase 237,412 99,322
Advances by borrowers for taxes
and insurance 4,683 3,832
Other liabilities 4,529 4,392
---------- ----------
Total liabilities 1,212,728 1,051,076
---------- ----------
Stockholders' Equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized, no shares
issued - -
Common stock, $.01 par value, 55,000,000
shares authorized, 9,059,124 shares
issued and outstanding 91 91
Additional paid-in capital 176,661 176,812
Retained earnings-substantially restricted 93,668 88,552
Less: Net unrealized loss on securities
available for sale, net of tax (275) (335)
Unallocated common stock held by
Employee Stock Ownership Plan (11,617) (12,331)
Unearned Incentive Awards (8,864) -
Treasury Stock, at cost, 452,956 shares
at June 30, 1997 (14,270) -
---------- ----------
Total stockholders' equity 235,394 252,789
---------- ----------
Total liabilities and stockholders'
equity $1,448,122 $1,303,865
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
<PAGE>
OCEAN FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- -------------------
1997 1996 1997 1996
------- -------- -------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans $14,097 $12,403 $27,691 $24,545
Mortgage-backed securities 6,680 4,978 12,410 9,551
Investment securities and other 3,533 2,389 6,754 4,662
------- ------- ------- -------
Total interest income 24,310 19,770 46,855 38,758
------- ------- ------- -------
Interest expense:
Deposits 10,605 10,120 20,900 20,532
Borrowed funds 2,905 1,453 4,643 2,249
------- ------- ------- -------
Total interest expense 13,510 11,573 25,543 22,781
------- ------- ------- -------
Net interest income 10,800 8,197 21,312 15,977
Provision for loan losses 225 125 450 250
------- ------- ------- -------
Net interest income after
provision for loan losses 10,575 8,072 20,862 15,727
------- ------- ------- -------
Other income:
Fees and service charges 448 457 950 940
Net gain on sales of loans
available for sale - 48 (1) 223
Net income from other real estate
operations 2 47 6 11
Other 125 194 207 268
------- ------- ------- -------
Total other income 575 746 1,162 1,442
------- ------- ------- -------
Operating expenses:
Compensation and employee benefits 3,494 2,801 6,798 4,984
Occupancy 467 439 966 900
Equipment 358 188 670 332
Marketing 282 205 403 327
Federal deposit insurance 208 581 297 1,150
Data processing 292 209 670 430
General and administrative 744 609 1,502 1,369
------- ------- ------- -------
Total operating expenses 5,845 5,032 11,306 9,492
------- ------- ------- -------
Income before income taxes 5,305 3,786 10,718 7,677
Provision for income taxes 1,889 1,313 3,913 2,793
------- ------- ------- -------
Net income $ 3,416 $ 2,473 $ 6,805 $ 4,884
======= ======= ======= =======
Earnings per share $ .41 N/A $ .81 N/A
======= ======= ======= =======
Weighted average shares outstanding 8,269 N/A 8,374 N/A
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
OCEAN FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
For the six months
ended June 30,
----------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,805 $ 4,884
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of ESOP 714 -
ESOP adjustment 355 -
Amortization of Incentive Awards 807 -
Depreciation and amortization of premises
and equipment 661 354
Amortization of servicing asset 89 102
Net premium amortization in excess of discount
accretion on securities 1,931 651
Net accretion of deferred fees and discounts
in excess of premium amortization on loans (183) (266)
Provision for loan losses 450 250
Net gain on sales of real estate owned (129) (99)
Net loss (gain) on sales of loans available for sale 1 (223)
Proceeds from sales of mortgage loans held for sale 703 19,898
Mortgage loans originated for sale - (21,198)
Increase in interest and dividends receivable (2, 042) (1,762)
Increase in other assets (537) (571)
Increase (decrease) in other liabilities 137 (328)
--------- ---------
Total adjustments 2,957 (3,192)
--------- ---------
Net cash provided by operating activities 9,762 1,692
--------- ---------
Cash flows from investing activities:
Net increase in loans receivable (48,250) (19,427)
Purchase of investment securities available for sale (49,984) (55,000)
Purchase of mortgage-backed securities available for
sale (151,199) (136,456)
Proceeds from maturities of investment securities
available for sale 15,270 34,125
Principal payments on mortgage-backed securities
available for sale 88,396 56,633
Purchases of Federal Home Loan Bank of New York stock (3,054) (734)
Proceeds from sales of real estate owned 1,255 814
Purchases of premises and equipment (1,296) (2,210)
--------- ---------
Net cash used in investing activities (148,862) (122,255)
--------- ---------
</TABLE>
Continued
3
<PAGE>
<TABLE>
<CAPTION>
For the six months
ended June 30,
--------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Increase in deposits $ 26,074 $ 12,589
Decrease in Federal Home Loan
Bank borrowings ( 3,500) (10,400)
Increase in securities sold under agreements
to repurchase 138,090 -
Proceeds from common stock subscription - 153,509
Increase in advances by borrowers for taxes and
insurance 851 260
Dividends paid (1,689) -
Purchase of Incentive Award stock (10,176) -
Purchases of Treasury stock (14,270) -
-------- --------
Net cash provided by financing activities 135,380 155,958
-------- --------
Net (decrease) increase in cash and cash equivalents (3,720) 35,395
Cash and cash equivalents at beginning of period 5,372 8,022
-------- --------
Cash and cash equivalents at end of period $ 1,652 $ 43,417
======== ========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for:
Interest $ 25,136 $ 20,448
Income taxes 3,711 2,906
Noncash investing activities:
Transfer of loans receivable to real estate owned 839 629
Mortgage loans securitized into mortgage-backed
securities - 20,213
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
OCEAN FINANCIAL CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
- -----------------------------
The accompanying unaudited consolidated financial statements include the
accounts of Ocean Financial Corp. (the "Company") and its wholly-owned
subsidiary, Ocean Federal Savings Bank (the "Bank") and its inactive wholly-
owned subsidiary, Dome Financial Services, Inc.
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 six months ended
June 30, 1997 are not necessarily indicative of the results of operations that
may be expected for all of 1997.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's Annual Report to Stockholders on Form 10-K for the year ended
December 31, 1996.
NOTE 2. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
128). SFAS 128 supersedes APB Opinion No. 15, "Earnings Per Share," and
specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock. SFAS 128
replaces Primary EPS and Fully Diluted EPS with Basic EPS and Diluted EPS,
respectively. SFAS 128 also requires dual presentation of Basic and Diluted EPS
on the face of the income statement for entities with complex capital structures
and a reconciliation of the information utilized to calculate Basic EPS to that
used to calculate Diluted EPS.
SFAS 128 is effective for financial statement periods ending after December 15,
1997. Earlier application is not permitted. After adoption, all prior period
EPS is required to be restated to conform with SFAS 128. The Company expects
that the adoption of SFAS 128 will result in Basic EPS being higher than
Primary EPS and Diluted EPS will be approximately the same as Fully Diluted EPS.
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure" (SFAS 129) was issued in February 1997. SFAS 129 is
effective for periods ending after December 15, 1997. SFAS 129 lists required
disclosures about capital structure that had been included in a number of
separate statements and opinions of authoritative accounting literature. As
such, the adoption of SFAS 129 is not expected to have a significant impact on
the disclosures in financial statements of the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. Under SFAS 130,
comprehensive income is divided into net income and other comprehensive income.
Other comprehensive income includes items previously recorded directly in
equity, such as unrealized gains or losses on securities available for sale.
SFAS 130 is effective for interim and annual periods beginning after December
15, 1997. Comparative financial statements provided for earlier periods are
required to be reclassified to reflect application of the provisions of the
Statement.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). SFAS 131 establishes standards for the way public business enterprises
are to report information about operating segments in annual financial
statements and requires those enterprises to report selected financial
information about operating segments in interim financial reports to
shareholders. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997.
5
<PAGE>
NOTE 3. CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP
- -----------------------------------------------------
On August 17, 1995, the Board of Directors of the Bank adopted a Plan of
Conversion, as amended, to convert from a federally chartered mutual savings
bank to a federally chartered capital stock savings bank with the concurrent
formation of a holding company ("the Conversion").
The Conversion was completed on July 2, 1996 with the issuance by the Company of
8,388,078 shares of its common stock in a public offering to the Bank's eligible
depositors and the Bank's employee stock ownership plan (the "ESOP"). The
purchase of 671,046 shares of common stock (8% of the total shares offered) by
the ESOP was funded by a loan of $13.4 million from the Company.
In exchange for 50% of the net conversion proceeds ($81.6 million), the Company
acquired 100% of the stock of the Bank and retained the remaining net conversion
proceeds at the holding company level.
Concurrent with the close of the Conversion, an additional 671,046 shares of
common stock (8% of the offering) were issued and donated by the Company to the
Ocean Federal Foundation (the "Foundation"), a private foundation dedicated to
charitable purposes within Ocean County, New Jersey and its neighboring
communities. The fair market value of the contribution of $13.4 million was
reflected as an expense in the Company's 1996 third quarter operating results
and as an increase to capital stock and paid in capital for the same amount.
The Company also recorded a related tax benefit of $3.7 million with a
corresponding increase to the Company's deferred tax assets. During the first
quarter of 1997 the Company received notification from the Internal Revenue
Service that it will recognize the Ocean Federal Foundation as a Section
501(c)(3) exempt organization. The notification confirms the Company's ability
to recognize a tax benefit on the $13.4 million charitable donation made in
connection with the Conversion on July 2, 1996.
NOTE 4. LOANS RECEIVABLE, NET
- -----------------------------
Loans receivable at June 30, 1997 and December 31, 1996 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
(Unaudited)
Real estate:
One- to four-family $667,297 $628,525
Commercial real estate, multi-
family and land 14,239 15,634
Construction 11,679 9,287
Consumer 40,070 36,860
Commercial 4,631 -
-------- --------
Total loans 737,916 690,306
Less:
Undisbursed loan funds 4,397 3,517
Unamortized discounts, net 10 11
Deferred loan fees 1,278 1,302
Allowance for loan losses 6,340 6,021
-------- --------
Total loans, net 725,891 679,455
Less: mortgage loans held for sale - 727
-------- --------
Loans receivable, net $725,891 $678,728
======== ========
</TABLE>
6
<PAGE>
NOTE 5. DEPOSITS
- ----------------
The major types of deposits at June 30, 1997 and December 31, 1996 were as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
-------------- -----------------
Type of Account (Unaudited)
- --------------- -----------
<S> <C> <C>
NOW $ 81,297 $ 77,522
Money Market deposit 68,786 70,021
Savings 169,950 169,527
Time deposits 640,771 617,660
-------- --------
$960,804 $934,730
======== ========
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
Total assets at June 30, 1997 were $1.448 billion, an increase of $144.3
million, or 11.1%, compared to $1.304 billion at December 31, 1996.
Investment securities available for sale increased by $34.3 million, to a
balance of $208.4 million at June 30, 1997, compared to a balance of $174.0
million at December 31, 1996, and mortgage-backed securities available for sale
increased by $61.3 million, to $456.9 million at June 30, 1997, from $395.5
million at December 31, 1996. The increase in investment and mortgage-backed
securities available for sale was due to the continued deployment of a wholesale
leverage strategy, adopted in late 1996, designed to improve returns on invested
capital. Wholesale leverage growth was funded through securities sold under
agreements to repurchase, which increased to $237.4 million at June 30, 1997
from $99.3 at December 31, 1996. The strategy primarily involves the purchase
of adjustable-rate mortgage-backed securities funded by short-term repurchase
agreements and the purchase of medium-term callable agency securities funded by
repurchase agreements with maturities through the call date. Loans receivable,
net, increased by $47.2 million, or 7.0%, to a balance of $725.9 million at June
30, 1997, compared to a balance of $678.7 million at December 31, 1996. The
increase was largely attributable to robust residential loan growth in the
Bank's market area.
Total deposits at June 30, 1997 were $960.8 million, an increase of $26.1
million, compared to $934.7 million at December 31, 1996. Stockholders' equity
at June 30, 1997 was $235.4 million, compared to $252.8 million at December 31,
1996. The reduction was due to the award of 335,523 shares of common stock to
directors and officers of the Bank under the Bank's 1997 Incentive Plan. The
fair market value of the shares on February 4, 1997 (the date of shareholder
approval) was initially recorded as a reduction to stockholders' equity and
amortized to expense. Additionally, the Company completed the repurchase of
452,956 shares, or 5%, of outstanding common stock. These shares were held as
treasury stock at June 30, 1997.
RESULTS OF OPERATIONS
GENERAL
Net income increased to $3.4 million for the three months ended June 30, 1997,
as compared to net income of $2.5 million for the three months ended June 30,
1996. For the six months ended June 30, 1997, net income increased to $6.8
million from $4.9 million for the six months ended June 30, 1996. The increase
in net income is primarily due to investment earnings on the $163.3 million
raised from the conversion of Ocean Federal Savings Bank to the stock form of
ownership on July 2, 1996.
INTEREST INCOME
Interest income for the three months ended June 30, 1997 was $24.3 million,
compared to $19.8 million for the three months ended June 30, 1996, an increase
of $4.5 million, or 23.0%. For the six months ended June 30, 1997, interest
income was $46.9 million compared to $38.8 million for the same period in 1996,
an increase of $8.1 million, or 20.9%. The increases in interest income were
the result of increases in the average size of the investment and mortgage-
backed securities available for sale portfolios, due to 1996 purchases resulting
from the investment of net Conversion proceeds and the investment, in 1997, of
funds received from wholesale borrowings. Also, the average balance of loans
receivable increased $83.1 million and $77.5 million for the three and six
months ended June 30, 1997, respectively, as compared to the same prior year
periods.
7
<PAGE>
INTEREST EXPENSE
Interest expense for the three months ended June 30, 1997 was $13.5 million,
compared to $11.6 million for the three months ended June 30, 1996, an increase
of $1.9 million or 16.7%. For the six months ended June 30, 1997 interest
expense was $25.5 million, compared to $22.8 million for the same period in
1996, an increase of $2.8 million or 12.1%. The increase in interest expense
was primarily the result of an increase in the average outstanding balance of
total borrowings, as previously discussed, and a smaller average increase in
deposits. The average cost of interest-bearing liabilities also increased to
4.71% and 4.64% for the three and six months ended June 30, 1997, respectively,
as compared to 4.42% and 4.49% for the same prior year periods due to a greater
percentage of higher cost wholesale funding over retail deposit funding.
PROVISION FOR LOAN LOSSES
For the three and six months ended June 30, 1997, the Company's provision for
loan losses was $225,000 and $450,000, respectively, compared to $125,000 and
$250,000 for the same prior year periods. The increase was due to overall loan
growth and the introduction of commercial business loans which generally carry
greater credit risk than the 1-4 family mortgage loans which have been the
Bank's historical focus.
OTHER INCOME
Other income was $575,000 and $1.2 million for the three and six months ended
June 30, 1997, respectively, a decrease of $171,000 and $280,000, compared to
the same prior year periods. Income from the net gain on sales of loans
available for sale decreased $48,000 and $224,000, for the three and six months
ended June 30, 1997, respectively, compared to the same prior year periods. The
decrease was primarily due to a reduction in the sale of 30-year fixed rate
mortgage loans, which totalled $703,000 in 1997, as compared to $19.9 million in
1996. Management determined that the significant capital position of the
Company mitigated the additional interest rate risk associated with retaining
these mortgages. For the six months ended June 30, 1997, the Company retained
$18.9 million in conforming 30-year fixed rate loans which previously may have
been sold. Other income decreased $69,000 and $61,000 for the three and six
months ended June 30, 1997, respectively, compared to the same prior year
periods due to the recovery, through June 30, 1996, of $101,000 from the
previous charge-off of a financial asset.
OPERATING EXPENSES
Operating expenses were $5.8 million and $11.3 million for the three and six
months ended June 30, 1997, respectively, representing increases of $813,000 and
$1.8 million, compared to the same prior year periods. The increase in
compensation and employee benefits expense of $693,000 and $1.8 million for the
three and six months ended June 30, 1997, respectively, as compared to the same
prior year periods, was due to the expense associated with the amortization,
beginning in February 1997, of incentive stock awards and the higher expense
associated with the Bank's Employee Stock Ownership Plan as a result of the
increase in the Company's stock price over its initial $20 per share cost. The
ESOP expense was partly offset by freezing the future accrual of benefits under
the Bank's defined benefit pension plan and by eliminating matching
contributions under the Bank's 401K Plan.
Equipment expense increased by $170,000 and $338,000 for the three and six
months ended June 30, 1997, respectively, compared to the same prior year
periods due to the establishment of two new branch offices and the upgrade of
computer equipment.
Federal deposit insurance expense declined by $373,000 and $853,000 for the
three and six months ended June 30, 1997, respectively, compared to the same
prior year periods due to the reduced premiums charged subsequent to the Savings
Association Insurance Fund recapitalization during the third quarter of 1996.
PROVISION FOR INCOME TAXES
Income tax expense was $1.9 million and $3.9 million for the three and six
months ended June 30, 1997, respectively, compared to $1.3 million and $2.8
million for the three and six months ended June 30, 1996, respectively. The
effective tax rate was relatively stable at 36.5% for the six months ended June
30, 1997, as compared to 36.4% for the same prior year period.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-backed securities, FHLB and other borrowings and,
to a lesser extent, investment maturities and proceeds from the sale of loans.
While scheduled amortization of loans are predictable sources of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition. The Company has other sources of liquidity
if a need for additional funds arises, including an overnight line of credit and
advances from the FHLB. At June 30 1997, the Company had $5.3 million of
outstanding overnight borrowings from the FHLB, representing a decrease from
$8.8 million at December 31, 1996. The Company utilizes the overnight line from
time to time to fund short-term liquidity needs. The Company also borrowed
$237.4 million at June 30, 1997 through securities sold under agreements to
repurchase, an increase from $99.3 million at December 31, 1996. These
borrowings were used to fund a wholesale leverage strategy designed to improve
returns on invested capital.
The Company's cash needs for the six months ended June 30, 1997, were
principally provided by principal payments on loans and mortgage-backed
securities, deposit flows, and borrowings through securities sold under
agreements to repurchase. The cash provided was principally used for investing
activities, which included the purchase of investment and mortgage-backed
securities and the origination of loans. The Company also used funds to
purchase outstanding common stock, either to fund incentive awards or to hold as
treasury stock. For the six months ended June 30, 1996, the cash needs of the
Company were primarily satisfied by investment maturities, principal payments on
loans and mortgage-backed securities and proceeds from common stock
subscriptions. The cash was principally utilized for loan originations and
purchases of investment and mortgage-backed securities.
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon
economic conditions and savings flows and is currently 5% of net withdrawable
savings deposits and borrowings payable on demand or in one year or less during
the preceding calendar month. Liquid assets for purposes of this ratio include
cash, accrued interest receivable, certain time deposits, U.S. Treasury and
Government agencies and other securities and obligations generally having
remaining maturities of less than five years. The levels of these assets are
dependent on the Bank's operating, financing, lending and investing activities
during any given period. As of June 30, 1997 and December 31, 1996, the Bank's
liquidity ratios were 11.25% and 17.5%, respectively, both in excess of the 5%
minimum regulatory requirement.
At June 30, 1997, the Bank exceeded all of its regulatory capital requirements
with tangible capital of $171.5 million, or 12.2%, of total adjusted assets,
which is above the required level of $21.0 million or 1.5%; core capital of
$171.5 million or 12.2% of total adjusted assets, which is above the required
level of $42.1 million, or 3.0%; and risk-based capital of $177.5 million, or
30.9% of risk-weighted assets, which is above the required level of $45.9
million or 8.0%. The Bank is considered a "well capitalized" institution under
the Office of Thrift Supervision's prompt corrective action regulations.
9
<PAGE>
NON-PERFORMING ASSETS
The following table sets forth information regarding the Company's nonperforming
assets consisting of non-accrual loans and Real Estate Owned (REO). The Company
had no troubled-debt restructured loans within the meaning of SFAS 15 at June
30, 1997 or December 31, 1996. 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.
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual loans:
Real estate:
One-to four-family $6,243 $7,148
Commercial real estate,
multi-family and land 262 122
Construction - 314
Consumer 184 113
------ ------
Total 6,689 7,697
REO, net 1,268 1,555
------ ------
Total non-performing assets $7,957 $9,252
====== ======
Allowance for loan losses as a percent of
total loans receivable .86% .88%
Allowance for loan losses as percent of
total non-performing loans 94.78% 78.23%
Non-performing loans as a percent of total
loans receivable .91% 1.12%
Non-performing assets as a percent of total
assets .55% .71%
</TABLE>
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is not engaged in any l egal proc eedings of a
material nature at the present time. From t ime to ti me, the
Company is a party to routine legal proceedings within the norm
al course of business. Such routine legal proceedings in t he
aggreg ate are believed by management to be immaterial to the
Company's financial condition or results of operations.
Item 2. Changes in Securities
---------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
Item 4. Submission of Matters to Vote of Security Holders
-------------------------------------------------
Not applicable
Item 5. Other Information
-----------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
3.1 Certificate of Incorporation of Ocean Financial Corp.*
3.2 Bylaws of Ocean Financial Corp.*
4.0 Stock Certificate of Ocean Financial Corp.*
11 Computation of earnings per share
27 Financial Data Schedule (filed herewith)
b) There were no reports on Form 8-K filed during the three
months ended June 30, 1997.
* Incorporated herein by reference into this document from the Exhibits to Form
S-1, Registration Statement, filed on December 7, 1995, as amended,
Registration No. 33-80123.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Ocean Financial Corp.
---------------------------------
Registrant
DATE: August 11, 1997 /s/ John R. Garbarino
---------------------------------
John R. Garbarino
Chairman of the Board, President
and Chief Executive Officer
DATE: August 11, 1997 /s/ Michael Fitzpatrick
---------------------------------
Michael Fitzpatrick
Executive Vice president and
Chief Financial Officer
12
<PAGE>
Exhibit 11
----------
OCEAN FINANCIAL CORP.
---------------------
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
-----------------------------------------------------
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
-------------------------------------------------
(dollars in thousands, except per share amounts)
------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ------------------
June 30 June 30
------------------ ------------------
1997 1996 1997 1996
--------- ------ -------- ------
<S> <C> <C> <C> <C>
Net income $ 3,416 $2,473 $ 6,805 $4,884
========== ====== ========== ======
Weighted average shares outstanding:
Weighted average shares outstanding 8,822,273 - 8,940,044 -
Less: Unallocated shares held by the ESOP (615,314) - (615,314) -
Plus: ESOP shares released or committed
to be released during the fiscal year 26,765 - 17,843 -
-
Plus: Common stock equivalents - dilutive
options 35,255 - 31,743 -
---------- ------ ---------- ------
Weighted average shares
outstanding 8,268,979 N/A 8,374,316 N/A
========== ====== ========== ======
Earnings per share $ .41 N/A $ .81 N/A
========== ====== ========== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,652
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 665,250
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 725,891
<ALLOWANCE> 6,340
<TOTAL-ASSETS> 1,448,122
<DEPOSITS> 960,804
<SHORT-TERM> 242,712
<LIABILITIES-OTHER> 9,212
<LONG-TERM> 0
0
0
<COMMON> 91
<OTHER-SE> 235,303
<TOTAL-LIABILITIES-AND-EQUITY> 1,448,122
<INTEREST-LOAN> 27,691
<INTEREST-INVEST> 19,164
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 46,855
<INTEREST-DEPOSIT> 20,900
<INTEREST-EXPENSE> 25,543
<INTEREST-INCOME-NET> 21,312
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,306
<INCOME-PRETAX> 10,718
<INCOME-PRE-EXTRAORDINARY> 10,718
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,374
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 6,689
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,021
<CHARGE-OFFS> 0<F1>
<RECOVERIES> 0<F1>
<ALLOWANCE-CLOSE> 6,340
<ALLOWANCE-DOMESTIC> 0<F1>
<ALLOWANCE-FOREIGN> 0<F1>
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>Information not disclosed in 10-Q.
</FN>
</TABLE>
