<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 September 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 Identification No.)
incorporation or organization)
975 Hooper Avenue, Toms River, NJ 08753
- ---------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 240-4500
-----------------------
- --------------------------------------------------------------------------------
(Former name, former address and formal fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO .
----- -----
As of November 13, 1997, there were 8,014,860 shares of the Registrant's
Common Stock, par value $.01 per share, outstanding.
<PAGE>
OCEAN FINANCIAL CORP.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
- ------- ---------------------
PAGE
----
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
as of September 30, 1997 (unaudited) and December 31, 1996..... 1
Consolidated Statements of Operations for the three and
nine months ended September 30, 1997 and 1996 (unaudited)...... 2
Consolidated Statements of Cash Flows for the three and
nine months ended September 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
<PAGE>
OCEAN FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
ASSETS
- ------
<S> <C> <C>
Cash and due from banks $ (1,875) $ 5,372
Investment securities available for sale 206,420 174,028
Federal Home Loan Bank of New York
stock, at cost 13,166 8,457
Mortgage-backed securities available for
sale 474,634 395,542
Loans receivable, net 754,734 678,728
Mortgage loans held for sale - 727
Interest and dividends receivable 12,213 9,757
Real estate owned, net 989 1,555
Premises and equipment, net 14,499 14,100
Servicing asset 1,609 1,743
Other assets 12,831 13,856
---------- ----------
Total assets $1,489,220 $1,303,865
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits $ 965,736 $ 934,730
Federal Home Loan Bank borrowings 18,400 8,800
Securities sold under agreements to
repurchase 269,115 99,322
Advances by borrowers for taxes
and insurance 4,686 3,832
Other liabilities 5,399 4,392
---------- ----------
Total liabilities 1,263,336 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 176,919 176,812
Retained earnings-substantially restricted 95,610 88,552
Net unrealized gain (loss) on securities
available for sale, net of tax 2,451 (335)
Less: Unallocated common stock held by
Employee Stock Ownership Plan (11,260) (12,331)
Unearned Incentive Awards (8,381) -
Treasury Stock, at cost, 883,264 shares
at September 30, 1997 (29,546) -
---------- ----------
Total stockholders' equity 225,884 252,789
---------- ----------
Total liabilities and stockholders'
equity $1,489,220 $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 nine months
ended September 30, ended September 30,
--------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans $14,637 $12,667 $42,328 $37,211
Mortgage-backed securities 7,192 4,896 19,602 14,448
Investment securities and other 3,739 2,779 10,493 7,441
------- ------- ------- -------
Total interest income 25,568 20,342 72,423 59,100
------- ------- ------- -------
Interest expense:
Deposits 11,001 10,148 31,901 30,680
Borrowed funds 3,651 26 8,282 2,124
Other 6 4 18 155
------- ------- ------- -------
Total interest expense 14,658 10,178 40,201 32,959
------- ------- ------- -------
Net interest income 10,910 10,164 32,222 26,141
Provision for loan losses 225 225 675 475
------- ------- ------- -------
Net interest income after
provision for loan losses 10,685 9,939 31,547 25,666
------- ------- ------- -------
Other income:
Fees and service charges 477 444 1,427 1,384
Net gain on sales of loans
available for sale 1 44 1 267
Net income (loss) from other real
estate operations 5 (23) 12 (12)
Other 89 87 294 355
------- ------- ------- -------
Total other income 572 552 1,734 1,994
------- ------- ------- -------
Operating expenses:
Compensation and employee benefits 3,492 2,537 10,290 7,521
Occupancy 480 424 1,445 1,325
Equipment 307 201 978 533
Marketing 138 187 541 514
Federal deposit insurance 210 6,310 506 7,459
Data processing 288 209 959 672
General and administrative 809 712 2,311 2,048
Charitable donation - 13,419 - 13,419
------- ------- ------- -------
Total operating expenses 5,724 23,999 17,030 33,491
------- ------- ------- -------
Income (loss) before income
taxes 5,533 (13,508) 16,251 (5,831)
Provision (benefit) for income taxes 1,993 (3,690) 5,906 (897)
------- ------- ------- -------
Net income (loss) $ 3,540 $(9,818) $10,345 $(4,934)
======= ======= ======= =======
Earnings (loss) per share $ .45 $ (1.16) $ 1.26 N/A
======= ======= ======= =======
Weighted average shares outstanding 7,846 8,423 8,199 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 nine months
ended September 30,
---------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 10,345 $ (4,934)
--------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Donation of 671,046 shares of common stock to
the Ocean Federal Foundation - 13,419
Amortization of ESOP 1,071 820
ESOP adjustment 613 65
Amortization of Incentive Awards 1,289 -
Depreciation and amortization of premises
and equipment 1,008 541
Amortization of servicing asset 138 148
Net premium amortization in excess of discount
accretion on securities 2,719 1,125
Net accretion of deferred fees and discounts
in excess of premium amortization on loans (272) (381)
Provision for loan losses 675 475
Provision for deferred taxes - (3,700)
Net gain on sales of real estate owned (184) (136)
Net loss (gain) on sales of loans available for sale 1 (267)
Proceeds from sales of mortgage loans held for sale 703 24,015
Mortgage loans originated for sale - (22,579)
Increase in interest and dividends receivable (2,456) (1,488)
(Increase) decrease in other assets (612) 695
Increase in other liabilities 1,007 4,158
-------- --------
Total adjustments 5,700 16,910
-------- --------
Net cash provided by operating activities 16,045 11,976
-------- --------
Cash flows from investing activities:
Net increase in loans receivable (77,845) (39,265)
Purchase of investment securities available for sale (50,984) (75,006)
Purchase of mortgage-backed securities available for sale (202,319) (163,128)
Proceeds from maturities of investment securities
available for sale 20,270 34,125
Principal payments on mortgage-backed securities
available for sale 123,253 85,784
Purchases of Federal Home Loan Bank of New York stock (4,709) (734)
Proceeds from sales of real estate owned 2,205 1,479
Purchases of premises and equipment (1,407) (5,204)
-------- --------
Net cash used in investing activities (191,536) (161,949)
-------- --------
</TABLE>
Continued
3
<PAGE>
<TABLE>
<CAPTION>
For the nine months
ended September 30,
----------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Increase (decrease) in deposits $ 31,006 (287)
Increase (decrease) in Federal Home Loan
Bank borrowings 9,600 (5,000)
Increase in securities sold under agreements
to repurchase 169,793 -
Net proceeds from common stock issuance - 149,881
Increase in advances by borrowers for taxes and
insurance 854 396
Dividends paid (3,287) -
Purchase of Incentive Award stock (10,176) -
Purchases of Treasury stock (29,546) -
-------- --------
Net cash provided by financing activities 168,244 144,990
-------- --------
Net decrease in cash and due from banks (7,247) (4,983)
Cash and due from banks at beginning of period 5,372 8,022
-------- --------
Cash and due from banks at end of period $ (1,875) $ 3,039
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 39,656 $ 33,090
Income taxes 5,346 4,206
Noncash investing activities:
Transfer of loans receivable to real estate owned 1,455 1,517
Mortgage loans securitized into mortgage-backed
securities - 23,392
======== ========
</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 nine months
ended September 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 share
holders. 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 charitable donation made in connection with
the Conversion on July 2, 1996, subject to limitations based on 10% of the
Company's annual taxable income. The Company, however, is able to carry forward
any unused portion of the deduction for five years following the year in which
the contribution is made.
NOTE 4. LOANS RECEIVABLE, NET
- -----------------------------
Loans receivable at September 30, 1997 and December 31, 1996 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------- -----------------
(Unaudited)
<S> <C> <C>
Real estate:
One- to four-family $689,710 $628,525
Commercial real estate, multi-
family and land 13,817 15,634
Construction 10,721 9,287
Consumer 41,908 36,860
Commercial 10,235 -
-------- --------
Total loans 766,391 690,306
Less:
Undisbursed loan funds 3,885 3,517
Unamortized discounts, net 10 11
Deferred loan fees 1,249 1,302
Allowance for loan losses 6,513 6,021
-------- --------
Total loans, net 754,734 679,455
Less: mortgage loans held for sale - 727
-------- --------
Loans receivable, net $754,734 $678,728
======== ========
</TABLE>
6
<PAGE>
NOTE 5. DEPOSITS
- ----------------
The major types of deposits at September 30, 1997 and December 31, 1996 were as
follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
Type of Account (Unaudited)
- ---------------
<S> <C> <C>
NOW $ 84,476 $ 77,522
Money Market deposit 68,088 70,021
Savings 167,914 169,527
Time deposits 645,258 617,660
-------- --------
$965,736 $934,730
======== ========
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
Total assets at September 30, 1997 were $1.489 billion, an increase of $185.4
million, or 14.2%, compared to $1.304 billion at December 31, 1996.
Investment securities available for sale increased by $32.4 million, to a
balance of $206.4 million at September 30, 1997, compared to a balance of $174.0
million at December 31, 1996, and mortgage-backed securities available for sale
increased by $79.1 million, to $474.6 million at September 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 $269.1 million at September 30,
1997 from $99.3 at December 31, 1996. The strategy primarily involves the
purchase of adjustable and fixed-rate mortgage-backed securities funded by short
and medium-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 $76.0 million, or 11.2%, to a
balance of $754.7 million at September 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, as well as commercial lending
initiatives which accounted for $10.2 million of this growth.
Total deposits at September 30, 1997 were $965.7 million, an increase of $31.0
million, compared to $934.7 million at December 31, 1996. Stockholders' equity
at September 30, 1997 was $225.9 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 Company and the Bank under the Company'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 is being amortized to expense. Additionally, through
September 30, 1997, the Company has completed the repurchase of 883,264
shares, or 9.7%, of outstanding common stock. These shares were held as
treasury stock at September 30, 1997.
RESULTS OF OPERATIONS
GENERAL
Net income increased to $3.5 million for the three months ended September 30,
1997, as compared to a net loss of $9.8 million for the three months ended
September 30, 1996. For the nine months ended September 30, 1997, net income
increased to $10.3 million from a net loss of $4.9 million for the nine months
ended September 30, 1996. Prior year amounts for the quarter and year-to-date
were adversely affected by a charge of $5.7 million ($3.7 million after tax)
representing the Bank's share of a special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") of the FDIC. Additionally,
concurrent with the close of the Company's stock offering on July 2, 1996, the
Company funded the Ocean Federal Foundation with a one-time donation of 671,046
shares of common stock, resulting in a charge of $13.4 million ($9.7 million
after tax).
INTEREST INCOME
Interest income for the three months ended September 30, 1997 was $25.6 million,
compared to $20.3 million for the three months ended September 30, 1996, an
increase of $5.2 million, or 25.7%. For the nine months ended September 30,
1997, interest income was $72.4 million compared to $59.1 million for the same
period in 1996, an increase of $13.3 million, or
7
<PAGE>
22.5%. 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 relating to 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 $96.9
million and $84.0 million for the three and nine months ended September 30,
1997, respectively, as compared to the same prior year periods.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 1997 was $14.7
million, compared to $10.2 million for the three months ended September 30,
1996, an increase of $4.5 million or 44.0%. For the nine months ended September
30, 1997 interest expense was $40.2 million, compared to $33.0 million for the
same period in 1996, an increase of $7.2 million or 22.0%. 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 4.84% and 4.70% for the three and nine months ended September
30, 1997, respectively, as compared to 4.37% and 4.46% for the same prior year
periods due to a greater percentage increase in higher cost wholesale funding
over retail deposit funding.
PROVISION FOR LOAN LOSSES
For the three and nine months ended September 30, 1997, the Company's provision
for loan losses was $225,000 and $675,000, respectively, compared to $225,000
and $475,000 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 $572,000 and $1.7 million for the three and nine months ended
September 30, 1997, respectively, compared to the $552,000 and $2.0 million for
the same prior year periods. Income from the net gain on sales of loans
available for sale decreased $266,000, for the nine months ended September 30,
1997, compared to the same prior year period. The decrease was primarily due to
a reduction in the sale of 30-year fixed rate mortgage loans, which totalled
$704,000 in 1997, as compared to $23.7 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 nine
months ended September 30, 1997, the Company retained $32.1 million in
conforming 30-year fixed rate loans which previously may have been sold.
OPERATING EXPENSES
Operating expenses were $5.7 million and $24.0 million for the three and nine
months ended September 30, 1997, respectively, representing decreases of $18.3
million and $16.5 million, compared to the same prior year periods. The
charitable donation to the Ocean Federal Foundation in the third quarter of 1996
accounted for $13.4 million of the decrease. Additionally, federal deposit
insurance expense declined by $6.1 million and $7.0 million for the three and
nine months ended September 30, 1997, respectively, compared to the same prior
year periods due to the special SAIF assessment of $5.7 million recorded in the
third quarter of 1996.
The increase in compensation and employee benefits expense of $955,000 and $2.8
million for the three and nine months ended September 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 $106,000 and $445,000 for the three and nine
months ended September 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.
8
<PAGE>
PROVISION (BENEFIT) FOR INCOME TAXES
Income tax expense was $2.0 million and $5.9 million for the three and nine
months ended September 30, 1997, respectively, compared to an income tax benefit
of $3.7 million and $900,000 for the three and nine months ended September 30,
1996, respectively. The tax benefit in 1996 was due to the pretax losses created
by the charitable donation and the SAIF special assessment.
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 September 30 1997, the Company had $18.4 million of
outstanding overnight borrowings from the FHLB, representing an increase 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
$269.1 million at September 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 nine months ended September 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 nine months ended September 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 September 30, 1997 and December 31, 1996, the
Bank's liquidity ratios were 10.3% and 17.5%, respectively, both in excess of
the 5% minimum regulatory requirement.
At September 30, 1997, the Bank exceeded all of its regulatory capital
requirements with tangible capital of $173.1 million, or 11.9%, of total
adjusted assets, which is above the required level of $21.8 million or 1.5%;
core capital of $173.1 million or 11.9% of total adjusted assets, which is above
the required level of $43.7 million, or 3.0%; and risk-based capital of $179.3
million, or 30.2% of risk-weighted assets, which is above the required level of
$47.5 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
September 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>
September 30, December 31,
1997 1996
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual loans:
Real estate:
One-to four-family $6,406 $7,148
Commercial real estate,
multi-family and land 261 122
Construction - 314
Consumer 111 113
------ ------
Total 6,778 7,697
REO, net 989 1,555
------ ------
Total non-performing assets $7,767 $9,252
====== ======
Allowance for loan losses as a percent of
total loans receivable .85% .88%
Allowance for loan losses as percent of
total non-performing loans 96.09% 78.23%
Non-performing loans as a percent of total
loans receivable .88% 1.12%
Non-performing assets as a percent of total
assets .52% .71%
</TABLE>
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is not engaged in any legal proceedings of a material
nature at the present time. From time to time, the Company is a party
to routine legal proceedings within the normal course of business.
Such routine legal proceedings in the aggregate are believed by
management to be immaterial to the Company's financial condition or
results of operations.
Item 2. Changes in Securities
---------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
Item 4. Submission of Matters to 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 September 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: November 13, 1997 /s/ John R. Garbarino
--------------------------------
John R. Garbarino
Chairman of the Board, President
and Chief Executive Officer
DATE: November 13, 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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
-------------------------------------------------------
(dollars in thousands, except per share amounts)
------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- -------------------
September 30 September 30
---------------------- -------------------
1997 1996 1997 1996
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ 3,540 $ (9,818) $ 10,345 $(4,669)
========== ========== ========== =======
Weighted average shares outstanding:
Weighted average shares outstanding 8,323,311 9,059,124 8,732,207 -
Less: Unallocated shares held by the ESOP (615,314) (671,046) (615,314) -
Plus: ESOP shares released or committed
to be released during the fiscal year 44,608 34,832 26,765 -
Plus: Common stock equivalents - dilutive
options 93,624 - 55,595 -
---------- ---------- ---------- -------
Weighted average shares outstanding 7,846,229 8,422,910 8,199,253 N/A
========== ========== ========== =======
Earnings per share $ .45 (1.16) $ 1.26 N/A
========== ========== ========== =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> (1,875)
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 681,054
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 754,734
<ALLOWANCE> 6,513
<TOTAL-ASSETS> 1,489,220
<DEPOSITS> 965,736
<SHORT-TERM> 287,515
<LIABILITIES-OTHER> 10,085
<LONG-TERM> 0
0
0
<COMMON> 91
<OTHER-SE> 225,793
<TOTAL-LIABILITIES-AND-EQUITY> 1,489,220
<INTEREST-LOAN> 42,328
<INTEREST-INVEST> 30,095
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 72,423
<INTEREST-DEPOSIT> 31,901
<INTEREST-EXPENSE> 40,201
<INTEREST-INCOME-NET> 32,222
<LOAN-LOSSES> 675
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 17,030
<INCOME-PRETAX> 16,251
<INCOME-PRE-EXTRAORDINARY> 16,251
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,345
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 6,778
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,021
<CHARGE-OFFS> 0<F1>
<RECOVERIES> 0<F1>
<ALLOWANCE-CLOSE> 6,513
<ALLOWANCE-DOMESTIC> 0<F1>
<ALLOWANCE-FOREIGN> 0<F1>
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>Information not disclosed in 10-Q.
</FN>
</TABLE>
