OceanFirst Financial Corp. (OCFC)

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OceanFirst Financial Corp. (OCFC)

Q4 2008 Earnings Call

January 23, 2009; 11:00 am ET


John Garbarino - President and Chief Executive Officer

Vito Nardelli - Chief Operating Officer

Michael Fitzpatrick - Chief Financial Officer

Jill Hewitt - Senior Vice President and Investor Relations Officer


Robert Currish - Private Investor

Frank Schiraldi - Sandler O’Neill

Ron Reba - Private Investor

Ross Haberman - Haberman Funds

John Shibles - Regal Securities



Hello and welcome to the OceanFirst Financial Corp earnings conference call. All participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. (Operator Instructions)

Now, I would like to turn the conference over to Ms. Jill Hewitt. Miss. Hewitt you may begin.

Jill Hewitt

Thank you, Camille. Good morning and thank you all for joining us. I’m Jill Hewitt, Senior Vice President and Investor Relations Officer and we’ll begin this morning’s call with our forward-looking statements disclosure.

This call, as well as our recent news release, may contain certain forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the company. These forward-looking statements are generally identified by use of the words believe, expect, intend, anticipate, estimate, project or similar expressions. The company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain.

Factors which could have a material adverse effect on the operations of the company and its subsidiaries include, but are not limited to, changes in interest rates, general economic conditions, legislative regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competitions, demand for financial services in the company’s market area and accounting principles and guidelines.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The company does not undertake and specifically disclaims any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Thank you.

Now I will turn the call over the our host this morning, President and Chief Executive Officer John Garbarino; Chief Financial Officer, Michael Fitzpatrick; and Chief Operating Officer, Vito Nardelli.

John Garbarino

Thank you, Jill and good morning to all who have been able to join in on our fourth quarter and year end 2008 earnings conference call today. OceanFirst has just concluded its 106th year of continuous operations and our 13th as a publicly traded company. This has been an extremely difficult year for the entire industry and OceanFirst has not been immune. Nevertheless, we have posted solid consistent earnings for the quarter and entire year.

We demonstrated the ability to face the challenges posed by the economic climate and generally succeeded in avoiding the credit issues and many of the investment security impairment charges incurred by others. We appreciate your interest in our performance and are pleased to be able to review our latest operating results with you this morning.

You’ve all had the opportunity to review our release from Thursday and following our usual practice, I will not be disrespectful of your time reciting a host of actual numbers from the release. My introductory comments will merely help frame our opportunity to add some color to the earnings posted for the quarter and year, as we continue to attempt to fortify our balance sheet, navigate the risks imposed by market value accounting and generate value for our shareholders.

Diluted earnings per share for the quarter were at $0.30, a 15.4% increase from the corresponding prior year period, yet off $0.02 from the linked quarter. Excluding extraordinary items, our core earnings remained $0.32 matching the prior quarter. The company’s 48th quarterly cash dividend declared was $0.20 per share unchanged with the 24th consecutive quarter.

There were two extraordinary items in the fourth quarter, which worked across purposes and net reduced earnings by $0.02. The quarter benefited from $524,000 in state tax refunds for the years 2002 through 2006 and was offset by an impairment mark of $568,000 on our BOLI portfolio. The company’s investment securities portfolio has managed to perform well and not suffer the severe impairment marks reported by many other financial institutions throughout the year.

This write down of our BOLI investment is the first such expense recorded by OceanFirst in what seems to be an increasingly irrational application of mark-to-market accounting to financial institutions. In our case, the primary manifestation of mark-to-market, especially evident in this quarter, is the mark taken against securities in the other comprehensive income calculation.

For the quarter, low evaluations of our securities resulted in a substantial hit to our book value. While I’ll leave it others to rail against the wisdom of mark-to-market accounting, we remain hopeful that some commonsense can still be brought to bear on the concept to avoid the disasters often unwarranted effects on the industry.

The quarter’s earnings have again benefited from an expanding net interest margin, which increased five basis points from the previous quarter, reflective primarily of liability cost decreases in the lower rate environment. Average interest earning assets increased only slightly for the quarter and deposits remained difficult to attract, given our disciplined pricing on certificates of deposit, in an over heated, highly competitive retail market.

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