OceanFirst Financial Corp. in Red Bank, New Jersey, said it expects to report increased third-quarter charge-offs linked to its participation in a loan secured by a Manhattan office building.
The $13.6 billion-asset OceanFirst stated Thursday in a current events filing with the Securities and Exchange Commission that loan losses connected to the Manhattan office credit would total between 45% and 50% of its $17 million total exposure. For the second quarter, the company reported $123,000 of charge-offs.
OceantFirst's announcement came just a day after First Horizon Corp. in Memphis, Tennessee, and the Greenville, South Carolina-based United Community Banks revealed they would report substantial third-quarter charge-offs tied to their participation in a $218.5 million loan to an oil distribution company. The $26.1 billion-asset UCBI expects to write off about $19 million, while First Horizon's losses could total $70 million.
Office loans are emerging as a particular area of concern for banks, regulators and investors. The Federal Deposit Insurance Corp. underscored concerns about the office market in its most recent risk review, while several banks have moved to increase reserves or curtail lending to the sector.
In its 8-K filing, OceanFirst stated the Manhattan office loan amounts to about 17% of the company's $130 million portfolio of central business district office loans. OceanFirst added it is "continually evaluating" them and "currently is not aware of other material losses within this portfolio."
David Bishop, who covers OceanFirst for Hovde, characterized the charge-off as "more a specific borrower related issue rather than a systemic issue with the overall CRE portfolio." Janney Montgomery Scott Analyst Chris Marinac reached a similar conclusion noting Friday in a research note that OceanFirst's overall ratio of criticized loans to loans, at 1.18%, is lower than most peers.
Marinac reiterated his "buy" rating on OceanFirst. Bishop rated the company's shares at "outperform."
OceanFirst shares were trading at $16.09 Friday afternoon, down 1.44%.
