<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 March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 0-27428
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 May 7, 1999, there were 14,021,905 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 March 31, 1999 (unaudited) and December 31, 1998... 1
Consolidated Statements of Income for the three
months ended March 31, 1999 and 1998 (unaudited)......... 2
Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 1998 (unaudited)......... 3
Notes to Unaudited Consolidated Financial Statements..... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 7
Item 3. Quantitative and Qualitative Disclosure about Market Risk 10
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
</TABLE>
Signatures ......................................................... 12
<PAGE>
OCEAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 4,546 $ 10,295
Investment securities available for sale 132,404 137,405
Federal Home Loan Bank of New York stock, at cost 16,800 16,800
Mortgage-backed securities available for sale 388,621 381,840
Loans receivable, net 969,335 941,011
Mortgage loans held for sale - 25,140
Interest and dividends receivable 9,401 9,820
Real estate owned, net 300 43
Premises and equipment, net 13,702 13,947
Other assets 26,474 25,443
---------- ----------
Total assets $1,561,583 $1,561,744
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits $1,034,034 $1,035,251
Federal Home Loan Bank borrowings 44,000 30,000
Securities sold under agreements to repurchase 279,408 282,108
Advances by borrowers for taxes and insurance 5,390 5,096
Other liabilities 6,735 11,549
---------- ----------
Total liabilities 1,369,567 1,364,004
---------- ----------
Stockholders' Equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized, no shares issued - -
Common stock, $.01 par value, 55,000,000 shares authorized,
18,118,248 shares issued and 14,021,905 and 14,629,776 shares
outstanding at March 31, 1999 and December 31, 1998, respectively 181 181
Additional paid-in capital 178,484 178,309
Retained earnings-substantially restricted 106,529 103,982
Accumulated other comprehensive loss (1,248) (1,226)
Less: Unallocated common stock held by
Employee Stock Ownership Plan (17,050) (17,376)
Unearned Incentive Awards (5,478) (5,963)
Treasury stock , (4,096,343 and 3,488,472 shares
at March 31, 1999 and December 31, 1998, respectively) (69,402) (60,167)
---------- ----------
Total stockholders' equity 192,016 197,740
---------- ----------
Total liabilities and stockholders' equity $1,561,583 $1,561,744
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
<PAGE>
OCEAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the three months
ended March 31,
---------------------
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
Interest income:
Loans $17,907 $15,773
Mortgage-backed securities 5,787 7,040
Investment securities and other 2,326 3,413
------- -------
Total interest income 26,020 26,226
------- -------
Interest expense:
Deposits 10,203 10,745
Borrowed funds 4,101 4,401
------- -------
Total interest expense 14,304 15,146
------- -------
Net interest income 11,716 11,080
Provision for loan losses 225 225
------- -------
Net interest income after provision for loan losses 11,491 10,855
------- -------
Other income:
Fees and service charges 780 533
Net gain on sales of loans and securities available for sale 524 3
Net income from (cost of) other real estate operations 46 (49)
Other 195 134
------- -------
Total other income 1,545 621
------- -------
Operating expenses:
Compensation and employee benefits 3,655 3,504
Occupancy 511 446
Equipment 304 313
Marketing 407 323
Federal deposit insurance 220 217
Data processing 331 313
General and administrative 1,164 865
------- -------
Total operating expenses 6,592 5,981
------- -------
Income before provision for income taxes 6,444 5,495
Provision for income taxes 2,306 1,986
------- -------
Net income $ 4,138 $ 3,509
======= =======
Basic earnings per share $ .33 $ .25
======= =======
Diluted earnings per share $ .33 $ .24
======= =======
Average basic shares outstanding 12,556 13,972
======= =======
Average diluted shares outstanding 12,698 14,326
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
OCEAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
For the three months
ended March 31,
----------------------
1999 1998
----------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,138 $ 3,509
-------- --------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization of premises
and equipment 366 344
Amortization of Incentive Awards 485 484
Amortization of ESOP 326 341
ESOP adjustment 175 270
Amortization of servicing asset 101 74
Amortization of deposit premium 26 --
Net premium amortization in excess of discount
accretion on securities 419 837
Net accretion of deferred fees and discounts
in excess of premium amortization on loans (162) (143)
Provision for loan losses 225 225
Net gain on sales of real estate owned (57) (3)
Net gain on sales of loans and securities available for sale (524) (3)
Proceeds from sales of mortgage loans held for sale 26,991 999
Mortgage loans originated for sale (2,054) (5,292)
Decrease in interest and dividends receivable 419 199
Increase in other assets (419) (5,392)
(Decrease) increase in other liabilities (4,814) 2,643
-------- --------
Total adjustments 21,503 (4,417)
-------- --------
Net cash provided by (used in) operating activities 25,641 (908)
-------- --------
Cash flows from investing activities:
Net increase in loans receivable (28,835) (40,216)
Purchase of investment securities available for sale (13,815) (16,000)
Purchase of mortgage-backed securities available for sale (55,000) (40,567)
Proceeds from maturities of investment securities
available for sale 20,043 50,000
Principal payments on mortgage-backed securities
available for sale 46,539 48,447
Purchases of Federal Home Loan Bank of New York stock - (63)
Proceeds from sales of real estate owned 248 316
Purchases of premises and equipment (121) (577)
-------- --------
Net cash (used in) provided by investing activities (30,941) 1,340
-------- --------
</TABLE>
Continued
3
<PAGE>
OCEAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(dollars in thousands)
<TABLE>
<CAPTION>
For the three months
ended March 31,
----------------------
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
(Decrease) increase in deposits $(1,217) $10,416
Increase (decrease)in Federal Home Loan Bank borrowings 14,000 (6,800)
(Decrease) increase in securities sold under agreements
to repurchase (2,700) 686
Increase in advances by borrowers for taxes and
insurance 294 189
Dividends paid (1,591) (1,463)
Purchase of treasury stock (9,235) (3,142)
------- -------
Net cash used in financing activities (449) (114)
------- -------
Net (decrease) increase in cash and due from banks (5,749) 318
Cash and due from banks at beginning of period 10,295 2,225
------- -------
Cash and due from banks at end of period $ 4,546 $ 2,543
======= =======
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for:
Interest $14,466 $14,999
Income taxes 5,119 -
Noncash investing activities:
Transfer of loans receivable to real estate owned 448 226
Mortgage loans securitized into mortgage-backed
securities 27,145 1,005
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
OCEAN FINANCIAL CORP.
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 wholly-owned
subsidiaries, Ocean Federal Realty Inc. and Ocean Investment 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 months ended March
31, 1999 are not necessarily indicative of the results of operations that may be
expected for all of 1999.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's Annual Report to Stockholders on Form 10-K for the year ended
December 31, 1998.
NOTE 2. EARNINGS PER SHARE
- ---------------------------
Amounts per common share for prior periods have been adjusted for the two-for-
one stock split effected in the form of a 100% stock dividend declared by the
Company's Board of Directors on April 22, 1998 and paid on May 15, 1998.
The following reconciles shares outstanding for basic and diluted earnings per
share for the three months ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1999 1998
--------- -------
<S> <C> <C>
Weighted average shares issued net of Treasury shares 14,371 15,636
Less: Unallocated ESOP shares (1,357) (1,070)
Unallocated incentive award shares (458) (594)
------ ------
Average basic shares outstanding 12,556 13,972
Add: Effect of dilutive securities:
Stock options 51 216
Incentive awards 91 138
------ ------
Average diluted shares outstanding 12,698 14,326
====== ======
</TABLE>
NOTE 3. COMPREHENSIVE INCOME
- -----------------------------
For the three month periods ended March 31, 1999 and 1998 total comprehensive
income, representing net income plus or minus items previously recorded directly
in equity, such as unrealized gains or losses on securities available for sale,
amounted to $4,116,000 and $3,785,000, respectively.
5
<PAGE>
NOTE 4. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------------------------
In October 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 134 "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise." This Statement amends FASB Statement 65
"Accounting for Certain Mortgage Banking Activities" to require that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold those
investments. This Statement is effective for the first fiscal quarter beginning
after December 15, 1998. The adoption of this Statement did not have a material
impact on the financial position or results of operations of the Company.
NOTE 5. LOANS RECEIVABLE, NET
- -----------------------------
Loans receivable, net at March 31, 1999 and December 31, 1998 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------- ------------------
(Unaudited)
<S> <C> <C>
Real estate:
One- to four-family $866,082 $869,769
Commercial real estate, multi-
family and land 46,364 42,008
Construction 6,645 6,108
Consumer 52,663 51,785
Commercial 7,944 6,483
-------- --------
Total loans 979,698 976,153
Loans in process (2,306) (1,996)
Deferred fees (454) (608)
Unearned premium 57 62
Allowance for loan losses (7,660) (7,460)
-------- --------
Total loans, net 969,335 966,151
Less: mortgage loans held for sale - 25,140
-------- --------
Loans receivable, net $969,335 $941,011
======== ========
</TABLE>
NOTE 6. DEPOSITS
- ----------------
The major types of deposits at March 31, 1999 and December 31, 1998 were as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------- -----------------
Type of Account (Unaudited)
- ---------------
<S> <C> <C>
Non-interest bearing $ 25,072 $ 22,154
NOW 100,696 106,363
Money market deposit 75,600 77,690
Savings 172,558 172,036
Time deposits 660,108 657,008
---------- ----------
$1,034,034 $1,035,251
========== ==========
</TABLE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
Total assets at March 31, 1999 were $1.562 billion, unchanged from December 31,
1998.
Loans receivable, net, increased by $28.3 million, or 3.0%, to a balance of
$969.3 million at March 31, 1999, compared to a balance of $941.0 million at
December 31, 1998. The increase was largely attributable to strong residential
loan growth (including mortgage refinance activity) in the Bank's market area,
as well as commercial lending (including commercial real estate) initiatives
which accounted for $5.8 million of this growth. During the quarter the Bank
sold $27.1 million of 30 year fixed rate mortgage loans, $25.1 million of which
was held for sale at December 31, 1998. The Bank periodically sells these loans
as part of the management of interest rate risk.
Stockholder's equity at March 31, 1999 was $192.0 million, compared to $197.7
million at December 31, 1998. The Company repurchased 607,871 shares of common
stock during the quarter for $9.2 million, completing the 5% repurchase program
announced in November 1998.
RESULTS OF OPERATIONS
GENERAL
Net income increased to $4.1 million for the three months ended March 31, 1999
as compared to net income of $3.5 million for the three months ended March 31,
1998.
INTEREST INCOME
Interest income for the three months ended March 31, 1999 was $26.0 million,
compared to $26.2 million for the three months ended March 31, 1998, a decrease
of $206,000. The decrease in interest income was due to a decrease in the yield
on average interest-earning assets, which declined to 7.01% on average in the
first quarter of 1999, from 7.20% on average in the first quarter of 1998. The
decrease in the yield on average interest-earning assets was largely offset by a
$ 27.7 million increase in average interest-earning assets and a change in the
mix of average-earning assets towards a higher concentration of loans receivable
at the expense of lower yielding investment and mortgage-backed securities.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 1999 was $14.3 million,
compared to $15.1 million for the three months ended March 31, 1998, a decrease
of $842,000, or 5.6%. The decrease in interest expense was primarily the result
of a decrease in the average cost of interest- bearing liabilities which
declined to 4.38% for the three months ended March 31, 1999, as compared to
4.79% for the same prior year period. The significant decline in funding cost
more than offset an increase in average interest-bearing deposits which rose to
$1.007 billion for the quarter ending March 31, 1999 as compared to $962.1
million for the same prior year quarter.
PROVISION FOR LOAN LOSSES
For the three months ended March 31, 1999, the Company's provision for loan
losses was $225,000, unchanged from the same prior year period. The Company's
non-performing assets declined by $1.8 million at March 31, 1999 as compared to
March 31, 1998 allowing for stable provisions despite loan growth.
OTHER INCOME
Other income was $1.5 million for the three months ended March 31, 1999,
compared to $621,000 for the same prior year period. The net gain on the sale
of loans amounted to $524,000 on $27.1 million in loan sales for the three
months ended March 31, 1999 as compared to a gain of $3,000 on $1.0 million in
loan sales for the three months ended March 31, 1998. Fees and service charges
increased by $247,000, or 46.3%, for the three months ended March 31, 1999 as
compared to the same prior year period due to fees associated with the growth in
commercial account services and retail core account balances as well as the
addition of fee income from the sale of alternative investment products, namely
mutual funds and annuities, introduced late in the second quarter of 1998. This
product category was further expanded in the first quarter of 1999 to include
life and long-term care insurance.
7
<PAGE>
OPERATING EXPENSES
Operating expenses were $6.6 million for the three months ended March 31, 1999,
an increase of $611,000 compared to the same prior year period. The increase
was primarily due to higher marketing expenses as well as the operating costs
associated with the eleventh branch office opened in April 1998 and expenses
associated with readying the Bank's data processing systems for the Year 2000.
PROVISION FOR INCOME TAXES
Income tax expense was $2.3 million for the three months ended March 31, 1999,
compared to $2.0 million for the same prior year period. The effective tax rate
was relatively stable amounting to 35.8% for the three months ended March 31,
1999 as compared to 36.1% for the same prior year period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, principal and interest
payments on loans, Federal Home Loan Bank ("FHLB") and other borrowings and, to
a lesser extent, investment maturities and proceeds from the sale of loans.
While scheduled amortization of loans is a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition. The Company has other sources of liquidity
if a need for additional funds arises, including an overnight line of credit and
advances from the FHLB.
At March 31, 1999, the Company had $44.0 million of outstanding overnight
borrowings from the FHLB, representing an increase from $30.0 million at
December 31, 1998. The Company utilizes the overnight line from time to time to
fund short-term liquidity needs. The Company also borrowed $279.4 million at
March 31, 1999 through securities sold under agreements to repurchase, a slight
decrease from $282.1 million at December 31, 1998. These borrowings were used
to fund a wholesale leverage strategy designed to improve returns on invested
capital.
The Company's cash needs for the three months ended March 31, 1999, were
primarily provided by maturities of investment securities available for sale,
principal payments on loans and mortgage-backed securities, FHLB borrowings and
proceeds from the sale of mortgage loans held for sale. The cash was
principally utilized for loan originations, purchases of investment and
mortgage-backed securities and the purchase of treasury stock. For the three
months ended March 31, 1998, the cash needs of the Company were primarily
satisfied by maturities of investment securities available for sale, principal
payments on loans and mortgage-backed securities and increased deposits. The
cash provided was principally used for investing activities, which included the
purchase of investment and mortgage-backed securities and the origination of
loans.
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon
economic conditions and savings flows and is currently 4% of net withdrawable
savings deposits and borrowings payable on demand or in one year or less during
the preceding calendar month. Liquid assets for purposes of this ratio include
cash, accrued interest receivable, certain time deposits, U.S. Treasury and
Government agencies and other securities and obligations generally having
remaining maturities of less than five years. The levels of these assets are
dependent on the Bank's operating, financing, lending and investing activities
during any given period. As of March 31, 1999 and December 31, 1998, the Bank's
liquidity ratios were 12.2% and 12.5%, respectively, both in excess of the
minimum regulatory requirement.
At March 31, 1999, the Bank exceeded all of its regulatory capital requirements
with tangible capital of $165.0 million, or 10.59%, of total adjusted assets,
which is above the required level of $23.3 million or 1.5%; core capital of
$165.0 million or 10.59% of total adjusted assets, which is above the required
level of $46.7 million, or 3.0%; and risk-based capital of $172.4 million, or
22.3% of risk-weighted assets, which is above the required level of $61.8
million or 8.0%. The Bank is considered a "well capitalized" institution under
the Office of Thrift Supervision's prompt corrective action regulations.
8
<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 March
31, 1999 or December 31, 1998. It is the policy of the Company to cease
accruing interest on loans 90 days or more past due or in the process of
foreclosure.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -------------
(dollars in thousands)
(Unaudited)
<S> <C> <C>
Non-accrual loans:
Real estate:
One-to four-family $ 4,242 $ 4,605
Commercial real estate,
multi-family and land 573 574
Consumer 260 245
Commercial 118 -
------- -------
Total 5,193 5,424
REO, net 300 43
------- -------
Total non-performing assets $ 5,493 $ 5,467
======= =======
Non-performing loans as a percent of total
loans receivable .53% .56%
Non-performing assets as a percent of total
assets .35% .35%
Allowance for loan losses as a percent of
total loans receivable .78% .76%
Allowance for loan losses as percent of
total non-performing loans 147.51% 137.54%
</TABLE>
IMPACT OF YEAR 2000
Since April 1997 the Company has been executing a formal plan to address Year
2000 issues. The project plan was developed following guidelines set forth by
the Federal Financial Institutions Examination Council (FFIEC). The guidelines
mandate that the Year 2000 project address five specific phases: awareness,
assessment, renovation, validation (testing), and implementation. The Company
has substantially completed the first four phases of the project, easily meeting
all regulatory guidelines. The Company expects the implementation phase to be
substantially complete by June 30, 1999.
The Company has been working very closely with its data processing agent and the
primary provider of mission critical systems, Bisys Incorporated. Validation of
all mission critical systems began in November 1998 and was conducted in a stand
alone test environment. The Company utilized personnel from key areas throughout
the organization to perform this testing and used formal sign-off and auditing
procedures to validate the results. This testing was substantially complete at
March 31, 1999. Additionally, testing and reprogramming of all systems supported
by other service providers has been completed. In the case of failure caused by
a Year 2000 problem, the Bank has documented contingency plans that will be
initiated to resolve mission critical issues.
The focus of the Year 2000 project for the remainder of 1999 will be directed
towards customer awareness and contingency and liquidity planning. The Company
has developed a formal plan to address customer concerns. Education and regular
updates of the Company's Y2K progress and status are disseminated via a Y2K
telephone hot line, an Internet web site, correspondence (brochures and
newsletters), customer seminars, and newspaper advertising. Contingency planning
for mission critical functions has been completed and testing of the plans is
expected to be substantially complete by June 30, 1999. Liquidity plans have
been developed to ensure that the Company will have access to necessary funds to
meet customer's needs throughout the year.
The Company has established a formal process for measuring potential credit risk
associated with the Year 2000. Major customers in the Residential and
Commercial Loan portfolios have been assessed to determine an appropriate risk
rating and the Company is monitoring the progress of these borrowers towards
Year 2000 compliance on an ongoing basis.
For the year ended December 31, 1998, expenses related to the Company's Year
2000 effort totaled $327,000. This includes $102,000 in costs associated with
the renovation of software, hardware purchases and consulting charges and
$225,000 representing an estimate of the direct cost for compensation and fringe
benefits of internal employees working on the Year 2000 project. The Company
expects to spend an additional $400,000 to $600,000 on Y2K related expenses in
9
<PAGE>
1999. This figure represents costs associated with initiating customer awareness
programs, testing, implementation and consulting expenses, and includes $125,000
to $175,000 for the direct cost of internal employees. Estimated expenses and
completion dates associated with this project are based upon all known facts and
available resources. The Company expects that the represented estimates will not
change materially, but there can be no guarantee that the estimates will be
achieved. Factors that may influence changes in estimates include, but are not
limited to, expenses associated with obtaining qualified personnel, ability to
correctly identify and renovate all functions related to the Year 2000 and other
similar items.
The Company believes that it is taking all reasonable steps to prepare for the
Year 2000, especially in the case of mission critical functions. However,
management cannot make representations that all systems and especially those of
significant third parties will be Year 2000 compliant or that they will not be
adversely affected by Year 2000 issues.
The above communication is a Year 2000 Readiness Disclosure as defined in the
Year 2000 Information and Readiness Act.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
In addition to historical information, this quarterly report may include certain
forward looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal and state tax authorities, changes in interest rates, deposit flows, the
cost of funds, demand for loan products, demand for financial services,
competition, changes in the quality or composition of the Bank's loan and
investment portfolios, changes in accounting principles, policies or guidelines,
and other economic, competitive, governmental and technological factors
affecting the Company's operations, markets, products, services and prices.
Further description of the risks and uncertainties to the business are included
in Item 1, Business, of the Company's 1998 Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's interest rate sensitivity is monitored by management through the
use of an interest rate risk (IRR) model. Based on internal IRR modeling,
management does not believe that there has been a material change in the
Company's interest rate sensitivity from December 31, 1998 to March 31, 1999.
All methods used to measure interest rate sensitivity involve the use of
assumptions, which may tend to oversimplify the manner in which actual yields
and costs respond to changes in market interest rates. The Company's interest
rate sensitivity should be reviewed in conjunction with the financial statements
and notes thereto contained in the Company's Annual Report for the fiscal year
ended December 31, 1998.
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 a Vote of Security Holders
---------------------------------------------------
The annual meeting of stockholders was held on April 22, 1999. The
following directors were elected for terms of three years: Thomas F.
Curtin, John R. Garbarino and Frederick E. Schlosser. The following
proposals were voted on by the stockholders:
<TABLE>
<CAPTION>
Withheld/ Broker
Proposal For Abstain Non-Votes
---------- ------- --------- ---------
<S> <C> <C> <C>
1) Election of Directors:
Thomas F. Curtin 10,469,106 92,438 0
John R. Garbarino 10,466,069 95,475 0
Frederick E. Schlosser 10,466,906 94,638 0
<CAPTION>
Withheld/ Broker
For Against Abstain Non-Votes
---------- ------- --------- ---------
<S> <C> <C> <C> <C>
2) Ratification of KPMG LLP
as independent auditors for the
Company for the year ending
December 31, 1999. 10,502,662 35,434, 23,448 0
</TABLE>
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.*
27 Financial Data Schedule (filed herewith)
b) There were no reports on Form 8-K filed during the three months
ended March 31, 1999
* Incorporated herein by reference into this document from the Exhibits to Form
S-1, Registration Statement, filed on December 7, 1995, as amended,
Registration No. 33-80123.
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: May 13, 1999 /s/ John R. Garbarino
------------------------------------------
John R. Garbarino
Chairman of the Board, President
and Chief Executive Officer
DATE: May 13, 1999 /s/ Michael Fitzpatrick
------------------------------------------
Michael Fitzpatrick
Executive Vice President and
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,546
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 521,025
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 969,335
<ALLOWANCE> 7,660
<TOTAL-ASSETS> 1,561,583
<DEPOSITS> 1,034,034
<SHORT-TERM> 323,408
<LIABILITIES-OTHER> 12,125
<LONG-TERM> 0
0
0
<COMMON> 181
<OTHER-SE> 191,835
<TOTAL-LIABILITIES-AND-EQUITY> 1,561,583
<INTEREST-LOAN> 17,907
<INTEREST-INVEST> 8,113
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 26,020
<INTEREST-DEPOSIT> 10,203
<INTEREST-EXPENSE> 14,304
<INTEREST-INCOME-NET> 11,716
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,592
<INCOME-PRETAX> 6,444
<INCOME-PRE-EXTRAORDINARY> 6,444
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,138
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<YIELD-ACTUAL> 7.01
<LOANS-NON> 5,193
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,460
<CHARGE-OFFS> 0<F1>
<RECOVERIES> 0<F1>
<ALLOWANCE-CLOSE> 7,660
<ALLOWANCE-DOMESTIC> 0<F1>
<ALLOWANCE-FOREIGN> 0<F1>
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>INFORMATION NOT DISCLOSED IN 10-Q.
</FN>
</TABLE>
