OceanFirst takes aggressive stance by selling problematic loans

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OceanFirst Financial in Toms River, N.J., swung to a third-quarter loss after taking a more aggressive stance towards credit issues.

The $11.7 billion-asset company lost $6 million, or 10 cents a share, after moving nearly $68 million of loans, including $45.4 million in forbearance, to held-for-sale status and recording a $35.7 million loan-loss provision.

OceanFirst characterized the moves as a strategic decision to accelerate the resolution of credit losses tied to the coronavirus pandemic.

OceanFirst, earlier this year, joined a majority of banks in deferring loan payments for customers impacted by the pandemic’s aftermath. It is among the first, however, to lay the groundwork for unloading stressed assets.

"Our disciplined actions and continued sound risk management have set the stage for improved results," says OceanFirst CEO Christopher Maher.
"Our disciplined actions and continued sound risk management have set the stage for improved results," says OceanFirst CEO Christopher Maher.

“The ongoing global pandemic has created significant challenges for individuals and businesses. In an effort to maintain a sharp focus on helping our borrowers rebuild the economy, we chose to accelerate efforts to address our highest risk loans,” Chairman and CEO Christopher Maher said in the company’s Thursday earnings release.

“While our quarterly results were disappointing, our disciplined actions and continued sound risk management have set the stage for improved results in future quarters,” he added.

Loans in forbearance, excluding those moved to held for sale, totaled $209.6 million, or 2.6% of the overall portfolio, on Oct. 23. Forbearance loans peaked at nearly a fifth of all loans during the second quarter.

The company said it expects its forbearance portfolios “to be negligible” on Dec. 31.

About $30 million in loans in New York were liquidated in mid-October, with an 85% recovery. The company plans to liquidate $51 million in loans in New Jersey and Pennsylvania by late November, with an expected 82% recovery.

OceanFirst had $15 million in net charge-offs in the third quarter, representing a reversal from $232,000 in net recoveries a quarter earlier.

The company also said it plans to sell nearly $300 million of Paycheck Protection Program loans by the end of this year.

OceanFirst’s decision to unload problematic assets is “certainly more aggressive” than what other banks are doing, Frank Schiraldi, an analyst at Piper Sandler, wrote in a client note.

“Despite this quarter’s loss … we suspect management’s actions should be well-received as it provides a clearer near-term outlook for the stock,” Will Curtiss, an analyst at Hovde Group, wrote in a note to clients.

Paul Davis contributed to this report.

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