About OceanFirst Financial
OceanFirst Financial Corp. operates as the bank holding company for OceanFirst Bank N.A. that provides various financial services to meet the needs of the communities it serves. The company is subject to regulation by the Board of Governors of the Federal Reserve System (the FRB) and the Securities and Exchange Commission (the SEC). The bank is primarily subject to regulation and supervision by the Office of the Comptroller of the Currency (the OCC) and the Consumer Financial Protection Bureau (the CFPB). The company transacts the vast majority of its business through the bank, its subsidiary. The company's principal business is originating loans, consisting of commercial real estate and other commercial loans, which have become a key focus of it, and single-family, owner-occupied residential mortgage loans. The company also invests in other types of loans, including residential construction and consumer loans. The company primarily funds these loans by attracting retail and commercial deposits. In addition, the company invests in mortgage-backed securities (MBS), securities issued by the U.S. Government and agencies thereof, corporate securities and other investments permitted by applicable law and regulations. The company's revenues are derived principally from interest on its loans, and to a lesser extent, interest on its debt and equity securities. The company also receives income from other products and services it offers including bankcard services, trust and asset management products and services, deposit account services, and commercial loan swap income. The company primary sources of funds are deposits, principal and interest payments on loans and investments, Federal Home Loan Bank (FHLB) advances, and other borrowings. Market Area The company is a regional community bank offering a wide variety of financial accounts and services to meet the needs of customers in the communities it serves. The company also conducts its business at branch offices and various deposit production facilities located throughout central and southern New Jersey and the greater metropolitan areas of New York City and Philadelphia. The company also operates commercial loan production offices in New Jersey, New York City, the greater Philadelphia area, Baltimore, and Boston. The economy in the company's primary market area, which represents central and southern New Jersey, is based on a mixture of service and retail trade, with other employment provided by a variety of wholesale trade, manufacturing, federal, state and local government, hospitals and utilities. The area is home to commuters working in and around New York City and Philadelphia and also includes a significant number of vacation and second homes in the communities along the New Jersey shore. In addition, the company provides banking services through teams located in the major metropolitan markets of Philadelphia, New York, Baltimore, and Boston. Lending Activities Commercial Real Estate: The company originates commercial real estate loans that are secured by properties, or properties under construction, that are generally used for business purposes such as office, industrial, multi-family or retail facilities. Commercial real estate loans are provided on owner-occupied properties and on investor-owned properties. The company originates commercial real estate loans with adjustable rates and with fixed interest rates for a period that generally does not exceed ten years, and generally have an amortization schedule up to 25 years and up to 30 years for multi-family properties. As a result, the typical amortization schedule will result in a substantial principal payment upon maturity. The company generally underwrites investor commercial real estate loans to a maximum of 65% to 80% advance, and owner occupied real estate loans to a maximum of 70% to 80% advance, depending on the asset class, against either the appraised value of the property or its purchase price (for loans to fund the acquisition of real estate), whichever is less. The company generally requires minimum debt service coverage of 1.20x to 1.50x for investor real estate and 1.25x to 1.40x for owner occupied real estate, depending on the asset class. There is a potential risk that the borrower may be unable to pay off or refinance the outstanding balance at the loan maturity date. The company typically lends in its primary markets to experienced owners or developers who have knowledge and expertise in the commercial real estate market. The company performs extensive due diligence in underwriting commercial real estate loans due to the larger loan amounts and the riskier nature of such loans. The company assesses and mitigates the risk in several ways, including inspection of all such properties and the review of the overall financial condition of the borrower and guarantors, which include, for example, the review of the rent rolls and applicable leases/lease terms and conditions and the verification of income. A tenant analysis and market analysis are part of the underwriting. Generally, for commercial real estate loans secured in excess of $750,000 and for all other commercial real estate loans where it is deemed appropriate, the company requires environmental professionals to inspect the property and ascertain any potential environmental risks. In accordance with regulatory guidelines, the company requires a full independent appraisal for commercial real estate properties for loans in excess of $500,000. The appraiser must be selected from the company's approved appraiser list. The company uses an independent third party to review all applicable property appraisals to ensure compliance with regulations. The company also originates multi-family family mortgage loans and, to a lesser extent, land loans The underwriting standards and procedures that are used to underwrite commercial real estate loans are used to underwrite multi-family loans, except the loan-to-value ratio generally do not exceed 75% of the appraised value of the property, the debt-service coverage is generally a minimum of 1.20x and has an amortization period of up to 30 years may be used. Additionally, the company offers an interest rate swap program that allows commercial loan customers to effectively convert an adjustable-rate commercial loan agreement to a fixed-rate commercial loan agreement. The company simultaneously sells an offsetting back-to-back swap to an investment grade national bank so that it does not retain this fixed-rate risk. The commercial real estate portfolio also includes loans for the construction of commercial properties. The company generally underwrites construction loans for a term of three years or less. The majority of the company's construction loans are floating-rate loans with a maximum 75% loan-to-value ratio for the completed project and a minimum debt-service coverage of 1.0x during the construction period to ensure there is sufficient interest reserve to cover interest payments. The company requires a higher projected debt-service coverage on construction loans (for projects that end up being income producing) and underwrites accordingly. Commercial real estate loans are among the largest of the company's loans, and may have higher credit risk and lending spreads. For investor-owned properties, because repayment is often dependent on the successful management of the properties, repayment of commercial real estate loans may be affected by adverse conditions in the real estate market or the economy, the company is particularly vigilant of this portfolio. Commercial and Industrial: The company originates C&I loans and lines of credit (including for working capital, fixed asset purchases, and acquisition, receivable, and inventory financing) primarily in its market area. In underwriting C&I loans and credit lines, the company reviews and analyzes the financial history and capacity of the borrower, collateral value, financial strength and character of the principal borrowers, and general payment history of the principal borrowers in coming to a credit decision. The company generally originates C&I loans secured by the assets of the business, including accounts receivable, inventory, and fixtures. The company generally requires the personal guarantee of the principal borrowers for all C&I loans. Risk of loss on a C&I business loan is dependent largely on the borrower's ability to remain financially able to repay the loan from the ongoing operations of the business. In addition, any collateral securing such loans may depreciate over time, may be difficult to appraise, and may fluctuate in value. Consumer: Residential Real Estate: The company offers both fixed-rate and adjustable-rate mortgage (ARM) loans secured by one-to-four family residences with maturities up to 30 years. The majority of such loans are secured by property located in the company's primary market area. Loan originations are typically generated by its commissioned loan representatives and are largely derived from contacts within the local real estate industry, members of the local communities, and its existing or past customers. To a lesser extent, and included in this activity, are residential mortgage loans secured by seasonal second homes, non-owner occupied investment properties and construction loans. The average size of the company's residential real estate loans, excluding purchased loan pools, was approximately $324,000 at December 31, 2023. The company offers several ARM loan programs with interest rates that adjust between annually to ten years, as well as loans that operate as fixed-rate loans at their onset and later convert to an ARM for the remainder of the term. These loans have periodic and overall caps on the increase or decrease at any adjustment date and over the life of the loan. These loans are indexed to an applicable Secured Overnight Financing Rate (SOFR) rate or U.S Treasury plus a margin. The company's fixed-rate mortgage loans are currently made for terms from ten to 30 years. The company either holds its residential loans for its portfolio or sells a portion of its fixed-rate and SOFR ARM loans to either government sponsored enterprises, FHLB, Freddie Mac or Fannie Mae, or to a third party aggregator. The company originates residential construction loans primarily on a construction to permanent basis with such loans converting to an amortizing loan following the completion of the construction phase. All of the company's residential construction loans are made to individuals building a residence. Other Consumer: Home Equity Lines and Loans, Student Loans and Other Consumer: The company originates home equity loans typically as fixed-rate loans with terms ranging from five to 20 years. The company also offers variable-rate home equity lines of credit. Home equity loans and lines of credit are originated based on the applicant's income and their ability to repay and are secured by a mortgage on the underlying real estate, typically owner-occupied, one-to-four family residences. Generally, the loan when combined with the balance of any applicable first mortgage lien, may not exceed 80% of the appraised value of the property at the time of the loan commitment. The company charges an early termination fee should a home equity loan or line of credit be closed within two or three years of origination. Investments Securities As of December 31, 2023, the company's investment portfolio included U.S. government and agency obligations; corporate debt securities; asset-backed securities; and mortgage-backed securities, such as agency residential and agency commercial. Deposits The company offers a variety of deposit accounts with a range of interest rates and terms to retail, government, and business customers. The Bank's deposits consist of money market accounts, savings accounts, interest-bearing checking accounts, non-interest-bearing accounts, and time deposits, including brokered deposits. The flow of deposits is influenced significantly by general economic conditions, prevailing interest rates, and competition. The company's deposits are obtained predominantly from the areas in which its branch offices are located, and to a lesser extent, through digital service channels. The company relies on its community-banking focus, stressing customer service and long-standing relationships with its customers to attract and retain these deposits; however, market interest rates and rates offered by competing financial institutions could significantly affect its s ability to attract and retain deposits. Despite the result of several bank failures in early 2023 and the related industry-wide concerns including liquidity, and funding, the Company's deposits increased $759.7 million to $10.43 billion at December 31, 2023 from $9.68 billion in the prior year. Subsidiary Activities As of December 31, 2023, the Bank owned all or a majority interest in three direct subsidiaries: OceanFirst REIT Holdings, Inc., a Delaware corporation, was established in 2007 as a wholly-owned subsidiary of the bank and now acts as the holding company for OceanFirst Management Corp, a New York corporation, which was organized in 2016 to hold and manage investment securities, including the stock of OceanFirst Realty Corp. OceanFirst Realty Corp., a Delaware corporation, was established in 1997 and invests in qualifying mortgage loans and is intended to qualify as a real estate investment trust, which may, among other things, be utilized by the company to raise capital in the future. Casaba Real Estate Holding Corporation, a New Jersey corporation, was acquired by the bank as a wholly-owned subsidiary as part of its acquisition of Cape Bancorp, Inc. in 2016. This subsidiary is maintained to take legal possession of certain repossessed collateral for resale to third parties. Country Property Holdings Inc., a New York corporation, was acquired by the bank as a wholly-owned subsidiary as part of its acquisition of Country Bank in 2020. This subsidiary is maintained to take legal possession of certain repossessed collateral for resale to third parties. In addition to the bank, the company holds OceanFirst Risk Management, Inc. as a direct subsidiary. OceanFirst Risk Management Inc. is a Nevada captive insurance company that insures certain risks relating to the business of the bank and the company. The company also holds a 60% interest in Trident Abstract Title Agency, LLC, a New Jersey corporation, which was acquired in 2022. This subsidiary provides commercial and residential title services throughout New Jersey, and through strategic alliances can also service clients' title insurance needs outside of New Jersey. Furthermore, the company holds the following statutory business trusts: OceanFirst Capital Trust I, OceanFirst Capital Trust II, OceanFirst Capital Trust III, Sun Statutory Trust VII, Sun Capital Trust VII, Sun Capital Trust VIII, and Country Bank Statutory Trust I, collectively known as the "Trusts". All of the Trusts are incorporated in Delaware and were formed to issue trust preferred securities. Regulation The company is a bank holding company (BHC) under Section 3 of the Bank Holding Company Act of 1956, as amended (the BHC Act). As a bank holding company, the company is subject to the requirements of the BHC Act, including required approvals for investments in or acquisitions of banking organizations, or entities involved in activities that are deemed closely related to banking, capital adequacy standards, and limitations on nonbanking activities. The company is registered with the FRB and is required by Federal law to file reports with, and comply with the rules and regulations of the FRB. The bank is a member of the FHLB System and, with respect to deposit insurance, of the Deposit Insurance Fund (DIF) managed by the Federal Deposit Insurance Corporation (FDIC). The bank is subject to extensive regulation, examination, and supervision by the OCC, as its primary federal regulator, and the FDIC, as the deposit insurer. The bank must file reports with the OCC and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to consummating certain transactions, such as mergers with, or acquisitions of, other insured depository institutions. The OCC conducts periodic examinations to test the bank's safety and soundness and compliance with various regulatory requirements. In addition, the company elected to become a financial holding company under the Gramm-Leach Bliley Act (the GLBA) amendments to the BHC Act. The company is a bank holding company (BHC) and is supervised by the FRB and is required to file reports with the FRB and provide such additional information as the FRB may require. The company and its subsidiaries are subject to examination by the FRB. The bank is a member of the Federal Home Loan Bank System, which consists of 11 regional FHLBs. The bank, as a member of the FHLB New York is required to acquire and hold shares of capital stock in that FHLB in a specified amount. In addition, as a national bank, the bank is required to hold capital stock of the Federal Reserve Bank of Philadelphia History OceanFirst Financial Corp. was founded in 1902. The company was incorporated in 1995.
