What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-03-01 · 459 added, 738 removed, 1317 unchanged (48% of the section changed)

8 unchanged sentences

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASC Topic 326, Financial Instruments – Credit Losses .

Basis for Opinion

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that is material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for credit losses for loans evaluated on a collective portfolio segment basis

As discussed in Note 1 in the consolidated financial statements, the Company adopted ASU No.

2016-13, Financial Instruments – Credit Losses (ASC Topic 326), as of January 1, 2020.

The total allowance for credit losses as of January 1, 2020 was $19.5 million, which included an allowance for credit losses on loans evaluated on a collective portfolio segment basis (January 1, 2020 collective ACL).

As discussed in Note 5 to the consolidated financial statements, the Company’s total allowance for credit losses as of December 31, 2020 was $60.7 million, which included an allowance for credit losses on loans evaluated on a collective portfolio segment basis (December 31, 2020 collective ACL).

As discussed in Notes 1 and 5 in the consolidated financial statements, the Company’s allowance for credit losses (collective ACL) for loans evaluated on a collective portfolio segment basis was $48.6 million as of December 31, 2021.

The Company’s methodology to measure the collective ACL incorporates both quantitative and qualitative information to assess lifetime expected credit losses at the portfolio segment level.

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The Company considers qualitative adjustments to expected credit loss estimates for information not already captured in the quantitative component of the loss estimation process.

Qualitative loss factor adjustments may increase or decrease the estimate of the expected credit losses.

Qualitative loss factors are based on judgments of Company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, performance trends, regulatory changes, uncertainty in economic forecasts and other asset specific risk characteristics.

We identified the assessment of the January 1, 2020 and the December 31, 2020 collective ACL as a critical audit matter.

A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the January 1, 2020 and December 31, 2020 collective ACL due to significant measurement uncertainty.

Specifically, the assessment encompassed the evaluation of the January 1, 2020 and December 31, 2020 collective ACL methodology, including the quantitative model used to estimate the (1) historical loss rates and the related significant assumptions, including portfolio segmentation, historical loan level loss experience, the reasonable and supportable forecast period, economic forecast of select macroeconomic variables, the reversion period and risk ratings for the commercial loan portfolios and (2) the qualitative loss factors, including the significant assumptions consisting of the adjustments made to account for the Company specific data, changes in underlying loan composition of specific portfolios, uncertainty of economic forecasts and other asset specific risk characteristics.

The assessment also included an evaluation of the conceptual soundness and performance of the quantitative model utilized to produce the expected credit loss estimate.

We identified the assessment of the collective ACL as a critical audit matter.

A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the collective ACL.

Specifically, the assessment encompassed the evaluation of the collective ACL methodology, including methods and models used to estimate the (1) quantitative loss rates and the related significant assumptions, including the period of historical loan level loss experience, the economic forecast of select macroeconomic variables, and credit risk ratings for commercial loans, and (2) the qualitative loss factors, including the significant assumptions consisting of the adjustments made to account for the Company specific data, changes in underlying loan composition of specific portfolios, uncertainty of economic forecasts and other asset specific risk characteristics.

The assessment also included an evaluation of the performance monitoring of the open pool loss-rate methodology utilized to develop a lifetime loss estimate.

In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL estimates, including controls over the:

• development of the collective ACL methodology, including the selection of the open pool loss-rate method

We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter.

This included controls related to the Company’s measurement of the collective ACL estimate, including controls over the:

• evaluation of the collective ACL methodology, including the appropriateness of the open pool loss-rate method

• identification and determination of the significant assumptions used in the quantitative model

• evaluation of risk ratings for commercial loans

• validation of the quantitative model to determine if it is fit for use and appropriate to estimate expected credit losses

• development of the qualitative loss factors, including the significant assumptions used in the measurement of the qualitative loss factors

• analysis of the allowance for credit losses results, trends and ratios.

We evaluated the Company’s process to develop the January 1, 2020 and the December 31, 2020 collective ACL estimates by testing certain sources of data, factors, and assumptions that Company used, and considered the relevance and reliability of such data, factors and assumptions.

• performance monitoring of the open pool loss-rate methodology

• evaluation of the qualitative factors, including the significant assumptions used in the measurement of those qualitative factors

• analysis of the collective ACL results, trends and ratios.

We evaluated the Company’s process to develop the collective ACL estimate by testing certain methods, assumptions and data that the Company used, and considered the relevance and reliability of such sources of data.

In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:

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generally accepted accounting principles

• evaluating the judgments made by the Company relative to the development of the quantitative model by comparing it to relevant Company-specific metrics and the applicable industry and regulatory practices

• assessing the conceptual soundness and design of the quantitative model by inspecting the Company’s model validation documentation to determine whether the model is suitable for its intended use

• assessing the selected economic forecast of macroeconomic variables through comparison to publicly available forecasts

• evaluating the historical loan level loss experience, and the lengths of the reasonable and supportable forecast period and reversion period by comparing them to specific portfolio risk characteristics and trends, the Company’s business environment, and relevant industry practices

• determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices

• evaluating the judgments made by the Company relative to the development and performance testing of the open pool loss rate methodology by comparing them to relevant metrics and trends and the applicable industry and regulatory practices

• evaluating the selection of the economic forecast scenario by comparing it to forecasts frequently used in the Company’s industry.

• testing the period of historical loan level loss experience to evaluate the length of each period by comparison to the Company’s available reliable data and applicable industry practices

• testing individual credit risk ratings for a selection of commercial loans by evaluating the financial performance of the borrower, sources of repayment and any relevant guarantees or underlying collateral

• evaluating the methodology used to develop the qualitative loss factors and the effect those factors and their significant assumptions have on the collective ACL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the quantitative model.

We also assessed the sufficiency of the audit evidence obtained related to the January 1, 2020 and the December 31, 2020 collective ACL estimates by evaluating the cumulative results of the audit procedures, qualitative aspects of the Company’s accounting practices and potential bias in developing the accounting estimates.

• evaluating the methodology used to develop the qualitative factors and the effect of those factors on the collective ACL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying quantitative models.

We also evaluated the cumulative results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the collective ACL estimate by evaluating the:

• cumulative results of the audit procedures

• qualitative aspects of the Company’s accounting practices

• potential bias in the accounting estimate.

We have served as the Company’s auditor since 1989.

Short Hills, New Jersey

March 1, 2021

February 25, 2022

Report of Independent Registered Public Accounting Firm

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, 2021 expressed an unqualified opinion on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, statements of changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 25, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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Short Hills, New Jersey

March 1, 2021

February 25, 2022

OceanFirst Financial Corp.

5 unchanged sentences

568,255 183,302

Debt securities held-to-maturity, net of allowance for credit losses of $ 1,715 at December 31, 2020 (estimated fair value of $ 968,466 at December 31, 2020 and $ 777,290 at December 31, 2019) (encumbered $ 418,719 at December 31, 2020 and $ 452,212 at December 31, 2019)

Debt securities held-to-maturity, net of allowance for securities credit losses of $ 1,467 at December 31, 2021 and $ 1,715 at December 31, 2020 (estimated fair value of $ 1,152,744 at December 31, 2021 and $ 968,466 at December 31, 2020) (encumbered $ 756,706 at December 31, 2021 and $ 418,719 at December 31, 2020)

1,139,193 937,253

Equity investments, at estimated fair value 107,079 10,136

Equity investments (encumbered $ 40,122 at December 31, 2021)

101,155 107,079

Restricted equity investments, at cost 53,195 51,705

Loans receivable, net of allowance for credit losses of $ 60,735 at December 31, 2020 and $ 16,852 at December 31, 2019

Loans receivable, net of allowance for loan credit losses of $ 48,850 at December 31, 2021 and $ 60,735 at December 31, 2020

8,583,352 7,704,857

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Deposits $ 9,732,816 $ 9,427,616

Federal Home Loan Bank ("FHLB") advances — 519,260

Securities sold under agreements to repurchase with retail customers 118,769 128,454

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Preferred stock, $ 0.01 par value, $ 1,000 liquidation preference, 5,000,000

shares authorized, 57,370 shares issued at December 31, 2020 and no shares issued at December 31, 2019

Common stock, $ 0.01 par value, 150,000,000 shares authorized, 61,040,894 shares issued and 60,392,043 and 50,405,048 shares outstanding at December 31, 2020 and December 31, 2019, respectively

shares authorized, 57,370 shares issued at both December 31, 2021 and December 31, 2020

Common stock, $ 0.01 par value, 150,000,000 shares authorized, 61,535,381 and 61,040,894 shares issued at December 31, 2021 and December 31, 2020, respectively;

and 59,175,046 and 60,392,043 shares outstanding at December 31, 2021 and December 31, 2020, respectively

Additional paid-in capital 1,146,781 1,137,715

Retained earnings 442,306 378,268

Accumulated other comprehensive income (loss) 621 ( 1,208 )

Accumulated other comprehensive (loss) income ( 2,821 ) 621

Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") ( 8,615 ) ( 7,433 )

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Loans $ 315,237 $ 349,221 $ 279,931

Mortgage-backed securities 14,037 15,300 16,034

Debt securities, equity investments and other 16,350 13,563 11,071

Debt securities 22,033 24,116 23,811

Equity investments and other 4,822 6,271 5,052

Total interest income 342,092 379,608 308,794

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Net interest income 305,338 312,951 255,971

Credit loss expense 59,404 1,636 3,490

Net interest income after credit loss expense 253,547 254,335 237,012

Credit loss (benefit) expense ( 11,832 ) 59,404 1,636

Net interest income after credit loss (benefit) expense 317,170 253,547 254,335

Other income:

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Net gain on sales of loans 3,186 8,278 16

Net gain (loss) on equity investments 21,214 267 ( 199 )

Net gain (loss) from other real estate operations 35 ( 330 ) ( 3,812 )

Net gain on equity investments 7,145 21,214 267

Net (loss) gain from other real estate operations ( 15 ) 35 ( 330 )

Income from bank owned life insurance 6,832 6,424 5,420

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Professional fees 11,043 12,247 9,338

Other operating expense 16,552 14,968 13,509

Federal Home Loan Bank (“FHLB”) advance prepayment fees — 14,257 —

Amortization of core deposit intangible 5,453 6,186 4,027

FHLB advance prepayment fees 14,257 — —

Branch consolidation expenses 7,623 9,050 3,151

Branch consolidation expense 12,337 7,623 9,050

Merger related expenses 1,503 15,947 10,503

Other operating expense 15,510 16,552 14,968

Total operating expenses 226,860 246,431 189,142

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2021 2020 2019

$ 63,309 $ 88,574 $ 71,932

Net income $ 110,076 $ 63,309 $ 88,574

Other comprehensive income:

Unrealized gain (loss) on debt securities (net of tax expense of $ 411 and $ 470 in 2020 and 2019, respectively, and net of tax benefit of $ 33 in 2018)

Unrealized (loss) gain on debt securities (net of tax benefit of $ 1,142 in 2021, and tax expense of $ 411 and $ 470 in 2020 and 2019, respectively)

( 3,837 ) 1,039 1,655

Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $ 272 , $ 310 and $ 404 in 2021, 2020, and 2019, respectively)

446 587 1,719

Reclassification adjustment for gains included in net income (net of tax expense of $ 101 and $ 53 in 2020 and 2018, respectively)

Total other comprehensive income

1,829 2,242 1,752

Reclassification adjustment for gains included in net income (net of tax expense of $ 101 in 2020)

Total other comprehensive (loss) income ( 3,442 ) 1,829 2,242

Total comprehensive income 106,634 65,138 90,816

65,138 90,816 73,684

Dividends on preferred shares 4,016 2,097 —

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(dollars in thousands, except per share amounts)

For the Year Ended December 31, 2020, 2019 and 2018

For the Years Ended December 31, 2021, 2020 and 2019

Stock Additional

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Stock awards — 2 3,859 — — — — 3,861

Effect of adopting Accounting

Standards Update (“ASU”)

2016-01 — — — ( 147 ) 147 — — —

Acquisition of common

stock by ESOP — — — — — ( 8,400 ) ( 8,400 )

Allocation of ESOP stock — — 366 — — 1,209 — 1,575

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Exercise of stock options — 2 2,054 ( 721 ) — — — 1,335

Acquisition of Sun Bancorp Inc.

— 141 386,648 — — — 15,765 402,554

Acquisition of Capital Bank of New Jersey — 32 76,449 — — — — 76,481

Purchase 1,127,557 shares of

5 unchanged sentences

Stock awards — 2 4,256 — — — — 4,258

Effect of adopting ASU

2016-13 — — — ( 4 ) — — — ( 4 )

Allocation of ESOP stock — — ( 80 ) — — 1,215 — 1,135

2 unchanged sentences

Exercise of stock options — 2 2,027 ( 788 ) — — — 1,241

Acquisition of Capital Bank of New Jersey — 32 76,449 — — — — 76,481

Purchase 648,851 shares of

— — — — — — ( 14,814 ) ( 14,814 )

Proceeds from preferred stock issuance, net of costs 1 — 55,528 — — — 55,529

Preferred stock dividend — — — ( 2,097 ) — — — ( 2,097 )

Acquisition of Two River Bancorp — 42 122,501 — — — 26,066 148,609

Acquisition of Country Bank Holding Company — 44 112,792 — — — 112,836

Balance at December 31, 2020 1 609 1,137,715 378,268 621 ( 7,433 ) ( 25,651 ) 1,484,130

Net income — — — 110,076 — — — 110,076

Other comprehensive income, net

of tax — — — — 1,829 — — 1,829

Other comprehensive loss, net of tax

— — — — ( 3,442 ) — — ( 3,442 )

Stock awards — — 5,415 — — — — 5,415

Effect of adopting ASU

Acquisition of common stock by ESOP

— — — — — ( 3,200 ) ( 3,200 )

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— — — — — — ( 36,059 ) ( 36,059 )

Proceeds from preferred stock issuance, net of costs 1 — 55,528 — — — 55,529

Preferred stock dividend — — — ( 4,016 ) — — — ( 4,016 )

Acquisition of Two River Bancorp — 42 122,501 — — — 26,066 148,609

Acquisition of Country Bank Holding Company — 44 112,792 — — — 112,836

Balance at December 31, 2021 $ 1 $ 611 $ 1,146,781 $ 442,306 $ ( 2,821 ) $ ( 8,615 ) $ ( 61,710 ) $ 1,516,553

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(dollars in thousands)

For the Year Ended December 31,

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Allocation of ESOP stock 2,197 1,135 1,575

Stock awards 4,258 3,861 3,038

Stock compensation 5,415 4,258 3,861

Net excess tax expense (benefit) on stock compensation 93 123 ( 357 )

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Net amortization of deferred costs and discounts on loans 1,242 4,872 1,584

Credit loss expense 59,404 1,636 3,490

Deferred tax (benefit) provision ( 4,615 ) 16,053 ( 4,568 )

Net loss on sale and write-down of other real estate owned ( 390 ) 20 2,359

Credit loss (benefit) expense ( 11,832 ) 59,404 1,636

Deferred tax provision (benefit) 3,608 ( 4,615 ) 16,053

Net (gain) loss on sale and write-down of other real estate owned — ( 390 ) 20

Net write-down of fixed assets held-for-sale to net realizable value 7,787 3,853 7,532

Net gain on sale of fixed assets — ( 6 ) ( 27 )

Net (gain) loss on equity securities ( 21,214 ) ( 267 ) 199

Net gain on equity investments ( 7,145 ) ( 21,214 ) ( 267 )

Net gain on sales of loans ( 3,186 ) ( 8,278 ) ( 16 )

Proceeds from sales of mortgage loans held for sale 171,263 1,023 2,794

Mortgage loans originated for sale ( 213,428 ) ( 1,007 ) ( 2,498 )

Proceeds from sales of residential loans held for sale 102,648 171,263 1,023

Residential loans originated for sale ( 53,938 ) ( 213,428 ) ( 1,007 )

Increase in value of bank owned life insurance ( 6,832 ) ( 6,424 ) ( 5,420 )

Net (gain) loss on sale of assets held for sale ( 318 ) ( 21 ) 17

(Increase) decrease in interest and dividends receivable ( 9,434 ) ( 397 ) 186

Decrease (increase) in interest and dividends receivable 2,663 ( 9,434 ) ( 397 )

Decrease (increase) in other assets 33,093 17,030 ( 32,871 )

Increase (decrease) in other liabilities 74,494 16,948 ( 10,264 )

(Decrease) increase in other liabilities ( 35,287 ) 74,494 16,948

Total adjustments 49,896 69,347 11,673

1 unchanged sentence

Cash flows from investing activities:

Net (increase) decrease in loans receivable

( 428,444 ) ( 215,881 ) 103,889

Net increase in loans receivable ( 556,449 ) ( 428,444 ) ( 215,881 )

Purchases of loans receivable ( 301,954 ) — ( 101,674 )

— ( 101,674 ) ( 199,580 )

Premiums paid on purchased loan pools ( 8,874 ) — —

Proceeds from sale of loans 825 449,462 5,901

Purchase of debt investment securities available-for-sale

( 77,519 ) ( 60,158 ) ( 33,040 )

Purchase of debt investment securities held-to-maturity

( 28,796 ) ( 4,381 ) ( 6,486 )

Purchase of debt mortgage-backed securities held-to-maturity

( 195,277 ) — —

Purchase of debt securities available-for-sale ( 510,070 ) ( 77,519 ) ( 60,158 )

Purchase of debt securities held-to-maturity ( 447,447 ) ( 224,073 ) ( 4,381 )

Purchase of equity investments ( 86,462 ) ( 96,519 ) ( 214 )

( 96,519 ) ( 214 ) ( 191 )

Proceeds from sale of equity investments 16,978 — —

Proceeds from maturities and calls of debt investment securities available-for-sale

43,503 29,299 18,501

Proceeds from maturities and calls of debt investment securities held-to-maturity

53,959 43,256 52,543

Proceeds from sales of debt mortgage backed securities held-to-maturity

Proceeds from sales of debt investment securities available-for-sale

Principal repayments on debt mortgage-backed securities available-for-sale

Principal repayments on debt investment securities held-to-maturity 857 — —

Principal repayments on debt mortgage-backed securities held-to-maturity

185,830 123,833 119,125

Proceeds from maturities and calls of debt securities available-for-sale 103,720 43,503 29,299

Proceeds from maturities and calls of debt securities held-to-maturity 38,042 53,959 43,256

Proceeds from sales of debt securities available-for-sale 3,000 10,598 —

Proceeds from sales of debt securities held-to-maturity — 12,450 —

Proceeds from sales of equity investments 98,777 16,978 —

Principal repayments on debt securities available-for-sale — 306 503

Principal repayments on debt securities held-to-maturity 215,734 186,687 123,833

Proceeds from bank owned life insurance 12,878 1,022 870

OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)

(dollars in thousands)

For the Year Ended December 31,

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Cash flows from investing activities (continued):

Proceeds from bank owned life insurance 1,022 870 2,708

Proceeds from the redemption of restricted equity investments 2,200 78,190 122,535

78,190 122,535 106,807

Purchases of restricted equity investments ( 3,267 ) ( 59,525 ) ( 127,794 )

( 59,525 ) ( 127,794 ) ( 127,048 )

Proceeds from sales of other real estate owned — 855 2,060

855 2,060 5,438

Proceeds from sales of assets held-for-sale 3,544 1,169 2,353

1,169 2,353 10,050

Purchases of premises and equipment ( 42,039 ) ( 14,728 ) ( 5,075 )

Cash held in escrow for acquisitions — — ( 46,950 )

Cash consideration received (paid) for acquisition, net of cash received 23,460 59,395 ( 3,743 )

Net cash (used in) provided by investing activities

( 22,169 ) ( 172,122 ) 48,553

Cash consideration received for acquisition — 23,460 59,395

Net cash used in investing activities ( 1,477,842 ) ( 22,169 ) ( 172,122 )

Cash flows from financing activities:

Increase (decrease) in deposits 1,507,943 65,687 ( 143,025 )

Net increase in deposits 407,569 1,507,943 65,687

Net payment for sale of branches ( 86,282 ) — —

(Decrease) increase in short-term borrowings ( 9,685 ) ( 226,018 ) 105,979

Proceeds from Federal Home Loan Bank advances 525,000 80,000 —

Repayments of Federal Home Loan Bank advances ( 840,200 ) ( 106,618 ) ( 67,155 )

Proceeds from FHLB advances — 525,000 80,000

Repayments of FHLB advances — ( 840,200 ) ( 106,618 )

Net proceeds from issuance of subordinated notes — 122,180 —

Proceeds from Federal Reserve Bank Term advances 53,778 — —

Repayments from Federal Reserve Bank Term advances ( 53,778 ) — —

Proceeds from Federal Reserve Bank advances — 53,778 —

Repayments from Federal Reserve Bank advances — ( 53,778 ) —

Repayments of other borrowings ( 7,612 ) ( 8,109 ) ( 263 )

(Decrease) increase in advances by borrowers for taxes and insurance ( 2,803 ) ( 182 ) 2,910

Increase (decrease) in advances by borrowers for taxes and insurance 3,009 ( 2,803 ) ( 182 )

Exercise of stock options 1,946 1,241 1,335

4 unchanged sentences

Dividends paid ( 44,510 ) ( 42,917 ) ( 34,241 )

Net cash provided by (used in) financing activities

1,074,948 82,773 ( 128,389 )

Net increase in cash and due from banks and restricted cash 1,185,435 10,898 12,715

Net cash provided by financing activities 223,993 1,074,948 82,773

Net (decrease) increase in cash and due from banks and restricted cash ( 1,093,877 ) 1,185,435 10,898

Cash and due from banks and restricted cash at beginning of year 1,318,661 133,226 122,328

133,226 122,328 109,613

Cash and due from banks and restricted cash at end of year $ 224,784 $ 1,318,661 $ 133,226

$ 1,318,661 $ 133,226 $ 122,328

Supplemental disclosure of cash flow information:

Cash and due from banks at beginning of year $ 1,272,134 $ 120,544 $ 120,792

$ 120,544 $ 120,792 $ 109,613

Restricted cash at beginning of year 46,527 12,682 1,536

12,682 1,536 —

Cash and due from banks and restricted cash at beginning of year $ 1,318,661 $ 133,226 $ 122,328

$ 133,226 $ 122,328 $ 109,613

Cash and due from banks at end of year $ 204,949 $ 1,272,134 $ 120,544

$ 1,272,134 $ 120,544 $ 120,792

Restricted cash at end of year 19,835 46,527 12,682

46,527 12,682 1,536

Cash and due from banks and restricted cash at end of year $ 224,784 $ 1,318,661 $ 133,226

$ 1,318,661 $ 133,226 $ 122,328

Cash paid during the year for:

3 unchanged sentences

Accretion of unrealized loss on securities reclassified to held-to-maturity 667 756 991

Net loan charge-offs 18,859 1,361 2,634

Net loan (recoveries) charge-offs ( 442 ) 18,859 1,361

Transfer of premises and equipment to assets held-for-sale 4,035 3,953 2,189

Transfer of debt securities from available-for-sale to held-to-maturity 12,721 — —

Transfer of loans receivable to other real estate owned — 106 963

Transfer of loans receivable to loans held-for-sale — 444,543 —

Unsettled trades of debt investment securities available-for-sale ( 1,404 ) — —

Unsettled trades of debt investment securities held-to-maturity ( 3,000 ) — —

Unsettled trades of equity securities 8,142 — —

OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)

(dollars in thousands)

For the Year Ended December 31,

23 unchanged sentences

(the “Company”) and its wholly-owned subsidiaries, OceanFirst Bank N.A.

(the “Bank”) and OceanFirst Risk Management, Inc., and the Bank’s wholly-owned subsidiaries, OceanFirst REIT Holdings, Inc., and its wholly-owned subsidiary OceanFirst Management Corp., and its wholly-owned subsidiary OceanFirst Realty Corp., Casaba Real Estate Holdings Corporation, CBNJ Investments Corp., Country Property Holdings, Inc., and TRCB Investment Corp.

Certain other subsidiaries were dissolved in 2020 and are included in the consolidated financial statements for previous periods.

(the “Bank”) and OceanFirst Risk Management, Inc., and the Bank’s direct and indirect wholly-owned subsidiaries, OceanFirst REIT Holdings, Inc., OceanFirst Management Corp., OceanFirst Realty Corp., Casaba Real Estate Holdings Corporation, CBNJ Investments Corp., Country Property Holdings, Inc., and TRCB Investment Corp.

Certain other subsidiaries were dissolved in 2020 and are included in the consolidated financial statements for prior periods.

All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain amounts previously reported have been reclassified to conform to the current year’s presentation.

The Bank provides a range of community banking services to customers through a network of branches and offices throughout New Jersey and the metropolitan areas of Philadelphia and New York City.

The Bank provides a range of community banking services to retail and commercial customers through a network of branches and offices throughout New Jersey and the major metropolitan areas of Philadelphia, New York, Baltimore, Washington D.C., and Boston.

The Bank is subject to competition from other financial institutions and certain technology companies.

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These estimates and assumptions are based on management’s best estimates and judgment.

Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances.

Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current and forecasted economic environment, which management believes to be reasonable under the circumstances.

Such estimates and assumptions are adjusted when facts and circumstances dictate.

4 unchanged sentences

For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

Securities include debt securities held-to-maturity (“HTM”), and debt and equity securities available-for-sale (“AFS”).

Securities include debt securities held-to-maturity (“HTM”), and debt securities available-for-sale (“AFS”).

Debt securities include U.S.

government and agency obligations, state and municipal obligations, corporate debt securities, collateralized loan obligations, and mortgage-backed securities which are issued and guaranteed by either the Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), Government National Mortgage Association (“GNMA”), or Small Business Administration (“SBA”) and collateralized mortgage obligations (“CMOs”).

government and agency obligations, state and municipal obligations, corporate debt securities, asset-backed securities, and mortgage-backed securities (“MBS”).

Mortgage-backed securities include:

agency residential mortgage-backed securities which are issued and guaranteed by either the Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), and Government National Mortgage Association (“GNMA”);

agency commercial mortgage-backed securities which are issued and guaranteed by Small Business Administration (“SBA”), or agency commercial mortgage-backed securities (“ACMBS”);

and non-agency commercial mortgage-backed securities which are issued and guaranteed by commercial mortgage-backed securities (“CMBS”), and collateralized mortgage obligations (“CMOs”).

Management determines the appropriate classification at the time of purchase.

If management has the positive intent not to sell and the Company would not be required to sell prior to maturity, the securities are classified as HTM debt securities.

If management has the positive intent not to sell a security and the Company would not be required to sell such a security prior to maturity, the securities can be classified as HTM debt securities.

Such securities are stated at amortized cost.

Securities in the AFS category are securities which the Company may sell prior to maturity as part of its asset/liability management strategy.

Such securities are carried at estimated fair value and unrealized gains and losses, net of related tax effect, are excluded from earnings, but are included as a separate component of stockholders’ equity and as part of comprehensive income.

Discounts and premiums on securities are accreted or amortized using the level-yield method over the estimated lives of the securities, including the effect of prepayments.

Discounts and premiums on securities are accreted or amortized using the level-yield method over the estimated lives of the securities, including the effect of

Gains or losses on the sale of such securities are included in other income using the specific identification method.

During 2013, the Company transferred $ 536.0 million of previously designated AFS debt securities to HTM designation at estimated fair value.

The Company has the ability and intent to hold these securities as an investment until maturity or call.

The securities transferred had an unrealized loss of $ 13.3 million at the time of transfer which continues to be reflected in accumulated other comprehensive income, net of subsequent amortization, which is being recognized over the remaining life of the securities.

Equity securities are carried at fair value, with changes in fair value reported in net income.

Equity securities without readily determinable fair values are carried at cost less impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

During 2021 and 2013, the Company transferred securities from AFS to HTM.

Unrealized gains or losses at the time of transfer will continue to be reflected in accumulated other comprehensive income, net of subsequent amortization, which is being recognized over the remaining life of the securities.

Equity investments with readily determinable fair value are reported at fair value, with changes in fair value reported in net income.

Equity investments without readily determinable fair values are carried at cost less impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

Credit Losses for Available-for-Sale Debt Securities

As of January 1, 2020, the Company adopted ASC 326-30, Available-for-Sale Debt Securities.

The adoption retained the fundamental nature of other-than-temporary impairment (“OTTI”) – that entities recognize credit losses only once securities become impaired.

The adoption retained the fundamental nature of other-than-temporary impairment (“OTTI”) – that entities recognize securities credit losses only once securities become impaired.

An AFS debt security is considered impaired when amounts are deemed uncollectible or when the Company intends, or more likely than not will be required to sell, the AFS debt security before recovery of the amortized cost basis.

If a determination is made that an AFS debt security is impaired, the Company will estimate the amount of the unrealized loss that is attributable to credit and all other non-credit related factors.

The credit related component will be recognized as a credit loss expense through an allowance for credit losses.

The credit loss expense will be limited to the difference between the security’s amortized cost basis and fair value and any future changes may be reversed, limited to the amount previously expensed, in the period they occur.

The credit related component will be recognized as a securities credit loss expense through an allowance for securities credit losses.

The securities credit loss expense will be limited to the difference between the security’s amortized cost basis and fair value and any future changes may be reversed, limited to the amount previously expensed, in the period they occur.

The non-credit related component will be recorded as an adjustment to accumulated other comprehensive income, net of tax.

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On a quarterly basis the Company evaluates the AFS debt securities for impairment.

Securities that are in an unrealized loss position are reviewed to determine if a credit loss exists based on certain quantitative and qualitative factors.

Securities that are in an unrealized loss position are reviewed to determine if a securities credit loss exists based on certain quantitative and qualitative factors.

The primary factors considered in evaluating whether an impairment exists include:

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Loans Receivable

Loans receivable, other than loans held-for-sale, are stated at unpaid principal balance, plus unamortized premiums less unearned discounts, net of deferred loan origination and commitment fees and costs, and the associated allowance for credit losses.

Loan origination and commitment fees and certain direct loan origination costs are deferred and the net fee or cost is recognized in interest income using the level-yield method over the contractual life of the specifically identified loans, adjusted for actual prepayments.

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The Company will record a loan charge-off to reduce a loan to the estimated fair value of the underlying collateral, less cost to sell, if it is determined that it is probable that recovery will come primarily from the sale of the collateral.

Prior to the adoption of ASU 2016-13, the Company defined an impaired loan as non-accrual commercial real estate, multi-family, land, construction and commercial and industrial loans in excess of $ 250,000 .

Impaired loans also include all loans modified as troubled debt restructurings.

A loan is considered impaired when it is deemed probable that the Company will not collect all amounts due according to the contractual terms of the loan agreement.

Impaired loans are individually assessed to determine that the loan’s carrying value is not in excess of the estimated fair value of the collateral or the present value of the loan’s expected future cash flows.

Smaller balance homogeneous loans that are collectively evaluated for impairment, such as

residential mortgage loans and consumer loans, are specifically excluded from the impaired loan portfolio, except when they are modified in a troubled debt restructuring.

Loans Held for Sale

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For loans under forbearance as a result of Coronavirus Disease 2019 (“COVID-19”), the Company made a policy election to include the accrued interest receivable related to such loans in the amortized cost basis and therefore includes it in the measurement of the ACL.

Accrued interest receivable at December 31, 2020 was $ 35.3 million, of which $ 8.0 million related to forbearance loans.

Accrued interest receivable related to loans at December 31, 2021 was $ 26.2 million, of which $ 4.4 million related to forbearance loans.

Expected credit losses are reflected in the ACL through a charge to credit loss expense.

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The Company further segments the commercial loan portfolios by risk rating, and the residential and consumer loan portfolios by delinquency.

The total ACL on loans measured on a collective portfolio segment basis was $ 48.6 million as of December 31, 2021.

The HTM portfolio is segmented by rating category.

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Due to conditions caused by COVID-19, appraisals ordered in the current environment may not be indicative of the underlying loan collateral value.

As such, the Company may require multiple valuation approaches (sales comparison approach, income approach, cost approach), as applicable.

As such, the Company may require multiple valuation approaches (sales comparison approach, income approach, and/or cost

approach), as applicable.

The Company will assess the individual facts and circumstances of COVID-19-related loan downgrades and, if a new appraisal is not necessary, an additional discount may be applied to an existing appraisal.

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Loans modified in accordance with the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act are not considered TDRs.

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

Loan Commitments and Allowance for Loan Credit Losses on Off-Balance Sheet Credit Exposures

Financial assets include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments.

The Company’s exposure to loan credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments.

Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures through a charge to credit loss expense for off-balance sheet credit exposures.

The Company records an allowance for loan credit losses on off-balance sheet credit exposures through a charge to loan credit loss expense for off-balance sheet credit exposures.

The ACL on off-balance sheet credit exposures is estimated by portfolio segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration management’s assumption of the likelihood that funding will occur, and is included in other liabilities on the Company’s consolidated balance sheets.

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These cash flow evaluations are subjective as they require material estimates, all of which may be susceptible to significant change.

Prior to January 1, 2020, loans acquired in a business combination that had evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable were considered purchased credit impaired (“PCI”).

PCI loans were individually evaluated and recorded at fair value at the date of acquisition with no initial valuation allowance based on a discounted cash flow methodology that considered various factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting the Company’s assessment of risk inherent in the cash flow estimates.

Beginning on January 1, 2020, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased with credit deterioration (“PCD”) loans.

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Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium.

Discounts and premiums are recognized through

interest income on a level-yield method over the life of the loans.

All loans considered to be PCI prior to January 1, 2020 were converted to PCD on that date.

Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans.

For acquired loans not deemed PCD at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans.

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The allowance for loan losses was maintained at an amount management considered sufficient to provide for probable losses.

Acquired loans that have not been renewed since acquisition, or that had a PCI mark, were excluded from the allowance for loan loss calculation.

The Bank calculated a general valuation allowance for these excluded acquired loans without a PCI mark and compared that to the remaining general credit and interest rate marks.

To the extent the remaining general credit and interest rate marks exceeded the calculated general valuation allowance, no additional reserve was required.

If the calculated general valuation allowance exceeded the remaining general credit and interest rate marks, the Bank recorded an adjustment to the extent necessary.

The Bank’s allowance for loan losses included specific allowances and a general allowance, each updated on a quarterly basis.

A specific allowance was determined for all impaired loans (excluding PCI loans).

The Bank defined an impaired loan as all non-accrual commercial real estate, multi-family, land, construction and commercial loans (currently segmented as commercial real estate and commercial and industrial loans) in excess of $ 250,000 for which it was probable, based on current information, that the Company would not collect all amounts due under the contractual terms of the loan agreement.

Impaired loans also included all loans modified as TDRs.

For collateral dependent loans, the specific allowance represented the difference between the Bank’s recorded investment in the loan, net of any interim charge-offs, and the estimated fair value of the collateral, less estimated selling costs.

Impairment for all other impaired loans was calculated based on a combination of the estimated fair value of non-real estate collateral, personal guarantees, or the present value of the expected future cash flows.

A general allowance was determined for all loans that were not individually evaluated for impairment (excluding acquired loans that have not been renewed under the Bank’s underwriting criteria).

In determining the level of the general allowance, the Bank segmented the loan portfolio into portfolio segments.

The portfolio segments were further segmented by delinquency status or risk rating.

An estimated loss factor was then applied to the outstanding principal loan balance of the delinquency status or risk rating category for each portfolio segment.

To determine the loss factor, the Bank utilized historical loss experience adjusted for certain qualitative factors and the loss emergence period.

The Bank’s historical loss experience was based on a rolling 36-month look-back period for each portfolio segment.

The look-back period was selected based on (1) management’s judgment that this period captured sufficient loss events (in both dollar terms and number of individual events) to be relevant;

and (2) that the Bank’s underwriting criteria and risk characteristics have remained relatively stable throughout this period.

The historical loss experience was adjusted for certain qualitative factors including, but not limited to, (1) delinquency trends, (2) net charge-off trends, (3) nature and volume of the loan portfolio, (4) loan policies and underwriting standards, (5) experience and ability of lending personnel, (6) concentrations of credit, (7) loan review system, and external factors such as (8) changes in current economic conditions, (9) local competition and (10) regulation.

Economic factors that the Bank considered in its estimate of the allowance for loan losses included:

local and regional trends in economic growth, unemployment and real estate values.

The Bank considered the applicability of each of these qualitative factors in estimating the general allowance for each portfolio segment.

Each quarter, the Bank considered the current conditions for each of the qualitative factors, as well as a forward-looking view on trends and events, to support an assessment unique to each portfolio segment.

The Bank calculated and analyzed the loss emergence period on an annual basis or more frequently if conditions warranted.

The Bank’s methodology was to use loss events in the past 12 quarters to determine the loss emergence period for each loan segment.

The loss emergence period was specific to each portfolio segment and represented the amount of time that has elapsed between (1) the occurrence of a loss event, which resulted in a potential loss and (2) the confirmation of the potential loss, when the Bank recorded an initial charge-off or downgrades the risk-rating of the loan to substandard.

The Bank also maintained an unallocated portion of the allowance for loan losses.

The primary purpose of the unallocated component was to account for the inherent factors that could not be practically assigned to individual loss categories, including the periodic update of appraisals, subjectivity of the Bank’s credit review and risk rating process, and economic conditions that may not have been fully captured in the Bank’s loss history or qualitative factors.

Reserve for Repurchased Loans and Loss Sharing Obligations

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Generally, depreciable lives are as follows:

computer equipment:

computer software and equipment:

furniture, fixtures and other electronic equipment:

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and buildings:

Depreciable assets are placed in service when they are in a condition for use and available for their designated function.

The Company has not developed any internal use software.

Repair and maintenance items are expensed and improvements are capitalized.

Gains and losses on dispositions are reflected in current operations.

Gains and losses on dispositions are reflected in branch consolidation expenses and other income.

The Company recognizes operating lease agreements on the consolidated statements of financial condition as a right-of-use (“ROU”) asset and a corresponding lease liability.

The ROU asset and lease liability are calculated as the present value of the minimum lease payments over the lease term, discounted for the rate implicit in the lease, provided the rate is readily determinable.

Refer to Note 17 Leases for a further discussion on leases.

The Company utilizes the asset and liability method of accounting for income taxes.

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The Company prepares a qualitative assessment, and if necessary, a quantitative assessment, in determining whether goodwill may be impaired.

The factors considered in the qualitative assessment include macroeconomic conditions, industry and market conditions and overall financial performance of the Company, among others.

The factors considered in the qualitative assessment include macroeconomic conditions, industry and market conditions and overall financial performance of the Company, among other factors.

Under a quantitative assessment, the Company will estimate the fair value of the Company by utilizing a weighted discounted cash flow method, guideline public company method, and transaction method.

The Company completes its annual goodwill impairment test as of August 31 and evaluates triggering events during interim periods, as applicable.

The Company completed its annual goodwill impairment test as of August 31, 2021.

Based upon its qualitative assessment of goodwill, the Company concluded that goodwill was not impaired and no further quantitative analysis was warranted .

At December 31, 2021, management performed its qualitative assessment and concluded no events or circumstances occurred subsequent to August 31, 2021 that would trigger another impairment test.

Segment Reporting

The Company’s operations are solely in the financial services industry and include providing traditional banking and other financial services to its customers.

The Company operates throughout New Jersey and the metropolitan areas of Philadelphia and New York City .

The Company’s operations are solely in the financial services industry and includes providing traditional banking and other financial services to its customers.

The Company operates throughout New Jersey and the major metropolitan markets of Philadelphia, New York, Baltimore, Washington D.C., and Boston .

Management makes operating decisions and assesses performance based on an ongoing review of the Company’s consolidated financial results.

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Diluted earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding and potential common stock utilizing the treasury stock method.

All share amounts exclude unallocated shares of stock held by the ESOP and by the Incentive Plans.

Refer to Note 12 Incentive Plan, for a discussion of the incentive plans.

Impact of New Accounting Pronouncements

All share amounts exclude unallocated shares of stock held by the ESOP and by incentive plans.

Accounting Pronouncements Adopted in 2021

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments (Topic 326).” This ASU significantly changed how entities measure credit losses for financial assets and certain other instruments that are measured at amortized cost.

The standard replaced the “incurred loss” approach with an “expected loss” model, which necessitates a forecast of lifetime losses.

The new model, referred to as the CECL model, applies to:

(1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures.

This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees.

The CECL model does not apply to AFS debt securities.

The ASU simplifies the accounting model for purchased credit-impaired debt securities and loans.

The standard’s provisions are to be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach).

The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost.

Results for reporting periods beginning after January 1, 2020 are presented in accordance with ASU 2016-13, or Accounting Standards Codification (“ASC”) 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The Company recorded a net decrease to retained earnings of $ 4,000 , net of tax, as of January 1, 2020 for the cumulative effect of adopting ASC 326.

The transition adjustment included a decrease in the allowance for credit losses on loans of $ 475,000 , an increase in the allowance for credit losses on held to maturity debt securities of $ 1.3 million, and a decrease in the allowance for credit losses on off-balance sheet credit exposures of $ 788,000 .

As allowed by ASC 326, the Company elected not to maintain pools of loans accounted for under ASC 310-30.

At December 31, 2019, purchase credit impaired (“PCI”) loans totaled $ 13.3 million.

In accordance with the standard, management did not reassess whether modifications individually acquired financial assets accounted for in pools were troubled debt restructured loans as of the date of adoption.

Upon adoption, the Company’s PCI loans were converted to PCD loans as defined by ASC 326.

The transition adjustment for the PCI loans to PCD loans resulted in a reclassification of $ 3.2 million from the specific credit fair value adjustment to the allowance for credit losses on loans.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Historical credit loss experience provides the basis for the estimation of expected credit losses.

Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.

At December 31, 2020, the Company utilized the December 15, 2020 forecast, from Oxford Economics, the most recent forecast available as of quarter end, to provide the macroeconomic forecasts for select variables.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

The contractual term excludes expected extensions, renewals, and modifications.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” This ASU intends to simplify the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test.

Instead, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

An entity should recognize an impairment charge by which the carrying amount exceeds the reporting unit’s fair value;

however the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

The ASU also eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment.

2017-04 is effective for fiscal years beginning after December 15, 2019.

The adoption of this update did not have an impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU updates the disclosure requirements on Fair Value measurements by:

(1) removing:

the disclosures for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements;

(2) modifying:

disclosures for timing of liquidation of an investee’s assets and disclosures for uncertainty in measurement as of reporting date;

and (3) adding:

disclosures for changes in unrealized gains and losses included in other comprehensive income for recurring level 3 fair value measurements and disclosures for the range and weighted average of the significant unobservable inputs used to develop Level 3 fair value measurements.

ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted to any removed or modified disclosures and delay adoption of additional disclosures until the effective date.

With the exception of the following, which should be applied prospectively, disclosures relating to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the disclosures for uncertainty measurement, all other changes should be applied retrospectively to all periods presented upon the effective date.

The adoption of this update did not have an impact on the Company’s consolidated financial statements.

Refer to Note 15 Fair Value Measurements, for additional information.

In March 2020, FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and in January 2021, the FASB issued ASU 2021-01 “Reference Rate Reform (Topic 848)”.

These ASUs provides guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting.

The updates provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions, that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met.

In addition, the updates provide optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification for contracts that are modified because of reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate.

These ASUs are effective for all companies as of March 31, 2020 through December 31, 2022.

Once elected for a Topic or an Industry Subtopic, the amendments in these updates must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic.

The Company adopted the temporary relief and optional expedients provided under these ASUs as of December 31, 2021 and will be applied prospectively until December 31 2022, except where otherwise permitted by the standard.

In January 2020, FASB issued Update 2020-01, an update to Topic 321, Investments, Topic 323, Joint Ventures and Topic 815, Derivatives and Hedging.

The update clarifies the accounting for certain equity securities upon the application or discontinuation of the equity method of accounting in accordance with Topic 321.

In addition, the update clarifies scope considerations for forward contracts and purchased options on certain securities.

This update was effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2020.

The adoption of this standard did not have an impact on the Company’s financial statements.

Regulatory Matters

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Under the regulations in effect at December 31, 2021, the Bank was required to maintain a minimum ratio of Tier 1 capital to total average assets of 4.0 %;

a minimum ratio of common equity T ier 1 capital to risk-weighted assets of 7.0 %;

minimum ratio of common equity Tier 1 capital to risk-weighted assets of 7.0 %;

a minimum ratio of Tier 1 capital to risk-weighted assets of 8.5 %;

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well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

Generally, an institution is considered well-capitalized if it has a Tier 1 capital ratio of 5.0 % ;

Generally, an institution is considered well-capitalized if it has a Tier 1 capital rati o of 5.0 %;

a common equity Tier 1 risk-based ratio of at least 6.5 %;

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Applicable regulations also impose limitations upon capital distributions by the Company, such as dividends and payments to repurchase or otherwise acquire shares.

The Company may not declare or pay cash dividends on or repurchase any of its shares of common stock if the effect thereof would cause stockholders’ equity to be reduced below applicable regulatory capital minimum requirements or if such declaration and payment would otherwise violate regulatory requirements.

The Company may not declare or pay cash dividends on or repurchase any of its shares of common stock if the

effect thereof would cause stockholders’ equity to be reduced below applicable regulatory capital minimum requirements or if such declaration and payment would otherwise violate regulatory requirements.

Business Combinations

The Company incurred merger related expenses of $ 1.5 million, $ 15.9 million, and $ 10.5 million for the years ended December 31, 2021, 2020, and 2019, respectively.

The following table summarizes the merger related expenses for the years ended December 31, 2020, 2019 and 2018 was as follows:

The following table summarizes the merger related expenses for the years ended December 31, 2021, 2020 and 2019:

For the Year Ended December 31,

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Two River Bancorp Acquisition

On January 1, 2020, the Company completed its acquisition of Two River Bancorp (“Two River”), which after purchase accounting adjustments added $ 1.11 billion to assets, $ 940.1 million to loans, and $ 941.8 million to deposits.

On January 1, 2020, the Company completed its acquisition of Two River Bancorp (“Two River”), which after purchase accounting adjustments added $ 1.11 billion of assets, $ 940.1 million of loans, and $ 941.8 million of deposits.

Total consideration paid for Two River was $ 197.1 million, including cash consideration of $ 48.4 million.

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On January 1, 2020, the Company completed its acquisition of Country Bank Holding Company, Inc.

(“Country Bank”), which after purchase accounting adjustments added $ 793.7 million to assets, $ 618.4 million to loans, and $ 652.7 million to deposits.

(“Country Bank”), which after purchase accounting adjustments added $ 793.7 million of assets, $ 618.4 million of loans, and $ 652.7 million of deposits.

Total consideration paid for Country Bank was $ 112.8 million.

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On January 31, 2020, the Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value.

Inc Acquisition

On January 31, 2018, the Company completed its acquisition of Sun Bancorp, Inc.

(“Sun”), which after purchase accounting adjustments, added $ 2.0 billion to assets, $ 1.5 billion to loans, and $ 1.6 billion to deposits.

Total consideration paid for Sun was $ 474.9 million, including cash consideration of $ 72.4 million.

Sun was merged with and into the Company on the date of acquisition.

The acquisition was accounted for under the acquisition method of accounting.

Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax.

The excess of consideration paid over the estimated fair value of the net assets acquired has been recorded as goodwill.

The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the

acquisition for Sun, net of the total consideration paid (in thousands):

At January 31, 2018

Estimated Fair Value

Total Purchase Price:

Assets acquired:

Cash and cash equivalents $ 68,632

Securities 254,522

Loans 1,517,345

Accrued interest receivable 5,621

Bank owned life insurance 85,238

Deferred tax assets, net 57,597

Other assets 43,202

Core deposit intangible 11,897

Total assets acquired 2,044,054

Liabilities assumed:

Deposits ( 1,616,073 )

Borrowings ( 127,727 )

Other liabilities ( 13,242 )

Total liabilities assumed ( 1,757,042 )

Net assets acquired $ 287,012

Goodwill recorded in the merger $ 187,918

The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative

to the estimates and uncertainties used to determine fair value as of the closing date become available.

On January 31, 2019, the Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value.

Supplemental Pro Forma Financial Information

The following table presents financial information regarding the former Sun operations included in the Consolidated Statements of Income from the date of the acquisition (January 31, 2018) through December 31, 2018;

regarding the former Capital Bank operations included in the Consolidated Statements of Income from the date of the acquisition (January 31, 2019) through December 31, 2019;

The following table presents financial information regarding the former Capital Bank operations included in the Consolidated Statements of Income from the date of the acquisition (January 31, 2019) through December 31, 2019;

and regarding Two River and Country Bank operations included in the Consolidated Statements of Income from the date of the acquisition (January 1, 2020) through December 31, 2020.

In addition, the table provides condensed pro forma financial information assuming the Two River, Country Bank, Sun and Capital Bank acquisitions had been completed as of January 1, 2018, for the year ended December 31, 2018, and January 1, 2019 for the year ended December 31, 2019.

The table has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisitions occurred as of the beginning of the periods presented, nor is it indicative of future results.

Furthermore, the pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings that may have occurred as a result of the integration and consolidation of Two River’s, Country Bank’s, Sun’s and Capital Bank’s operations.

In addition, the table provides condensed pro forma financial information assuming the Two River, Country Bank, and Capital Bank acquisitions had be en completed as of January 1, 2019 for the year ended December 31, 2019.

The table has been prepared for comparative purposes onl y and is not necessarily indicative of the actual results that would have been attained had the acquisitions occurred as of the beginning of the periods presented, nor is it indicative of future results.

The pro forma information reflects adjustments related to certain purchase ac counting fair value adjustments, amortization of core deposit and other intangibles, and related income tax effects.

Two River Actual from January 1, 2020 to December 31, 2020 Country Bank Actual from January 1, 2020 to December 31, 2020 Capital Bank Actual from January 31, 2019 to December 31, 2019 Sun Actual from January 31, 2018 to December 31, 2018 Pro forma

December 31, 2019 Pro forma

Two River Actual from January 1, 2020 to December 31, 2020 Country Bank Actual from January 1, 2020 to December 31, 2020 Capital Bank Actual from January 31, 2019 to December 31, 2019 Pro forma

December 31, 2019

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Provision for income taxes 2,686 1,204 1,193 23,870

2,686 1,204 1,193 7,090 23,870 21,098

Net income $ 8,432 $ 3,778 $ 4,486 $ 109,342

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The estimated future amortization expense for the core deposit intangible over the next five years and thereafter is as follows (in thousands):

For the Year Ended December 31, Amortization Expense

For the Year Ending December 31, Amortization Expense

Thereafter 1,963

Total $ 18,215

Fair Value Measurement of Assets Acquired and Liabilities Assumed

The methods used to determine the fair value of the assets acquired and liabilities assumed in the Two River, Country Bank, Sun and Capital Bank acquisitions were as follows.

Fair Value Measurement of Assets Assumed and Liabilities Assumed

The methods used to determine the fair value of the assets acquired and liabilities assumed in the Two River, Country Bank, and Capital Bank acquisitions were as follows.

Refer to Note 15 Fair Value Measurements, for a discussion of the fair value hierarchy.

10 unchanged sentences

To prepare the interest rate fair value analysis, loans were grouped by characteristics such as loan type, term, collateral, and rate.

Market rates for similar loans were obtained from various external data sources and reviewed by the Company’s management for reasonableness.

Market rates for similar loans were obtained from various external data sources and reviewed by Company management for reasonableness.

The average of these rates was used as the fair value interest rate a market participant would utilize.

A present value approach was utilized to calculate the interest rate fair value adjustment.

The general credit fair value adjustment was calculated using a two-step analysis:

(1) expected lifetime losses and (2) estimated fair value adjustments for qualitative factors.

The general credit fair value adjustment was calculated using a two part general credit fair value analysis:

(1) expected lifetime losses and (2) estimated fair value adjustment for qualitative factors.

The expected lifetime losses were calculated using an average of historical losses of the acquired bank or historical loss experiences of peer groups where deemed appropriate.

The adjustment related to

qualitative factors, if any, was impacted by general economic conditions and the risk related to lack of experience with the originator’s underwriting process.

adjustment related to qualitative factors was impacted by general economic conditions and the risk related to lack of experience with the originator’s underwriting process.

To calculate the specific credit fair value adjustment, subsequent to January 1, 2020, the Company identified loans that experienced more-than-insignificant deterioration in credit quality since origination.

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Premises and Equipment

Fair value estimates were based upon appraisals from independent third parties.

In addition to owned properties, Two River operated 14 properties, Country Bank operated five properties, Sun operated 21 properties, and Capital Bank operated one property, subject to lease agreements.

Fair values are based upon appraisals from independent third parties.

In addition to owned properties, Two River operated 14 properties, Country Bank operated five properties, and Capital Bank operated one property subject to lease agreements.

Deposits and Core Deposit Premium

Core deposits were considered to be non-interest-bearing demand deposits, interest-bearing checking, money market and saving accounts acquired as part of the acquisitions.

The core deposit premium value represents the future economic benefit, including the present value of future tax benefits, of the potential cost saving from acquiring the core deposits as part of an acquisition compared to the cost of alternative funding sources and was valued utilizing Level 2 inputs.

The core deposit premiums totaled $ 12.1 million, $ 2.1 million, $ 2.7 million and $ 11.9 million, for the acquisitions of Two River, Country Bank, Sun and Capital Bank, respectively, and is being amortized over its estimated useful life of approximately 10 years under an accelerated method.

Core deposit premium represents the value assigned to non-interest-bearing demand deposits, interest-bearing checking, money market, and savings accounts acquired as part of an acquisition.

The core deposit premium value represents the future economic benefit, including the present value of future tax benefits, of the potential cost savings from acquiring the core deposits as part of an acquisition compared to the cost of alternative funding sources and is valued utilizing Level 2 inputs.

The core deposit premium totaled $ 12.1 million, $ 2.1 million, and $ 2.7 million for the acquisitions of Two River, Country Bank, and Capital Bank, respectively, and is being amortized over its estimated useful life of approximately 10 years using an accelerated method.

Time deposits are not considered to be core deposits as they are assumed to have a low expected average life upon acquisition.

The fair value of time deposits were determined by calculating the present value of the expected contractual payments discounted by market rates for similar time deposits and is valued utilizing Level 2 inputs.

Fair value estimates were based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.

The amortized cost, estimated fair value and allowance for credit losses of debt securities available-for-sale and held-to-maturity at December 31, 2020 and 2019 are as follows (in thousands):

The fair value of time deposits represents the present value of the expected contractual payments discounted by market rates for similar time deposits and is valued utilizing Level 2 inputs.

Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.

The amortized cost, estimated fair value, and allowance for securities credit losses of debt securities available-for-sale and held-to-maturity at December 31, 2021 and 2020 are as follows (in thousands):

Losses Estimated

Value Allowance for Credit Losses

Value Allowance for Securities Credit Losses

At December 31, 2021

Debt securities available-for-sale:

Investment securities:

government and agency obligations $ 164,756 $ 1,135 $ ( 471 ) $ 165,420 $ —

$ 173,790 $ 3,152 $ ( 2 ) $ 176,940 $ —

Collateralized loan obligations 6,174 — ( 4 ) 6,170 —

Total investment securities 179,964 3,152 ( 6 ) 183,110 —

Mortgage-backed securities - FNMA 190 2 — 192 —

Corporate debt securities 5,000 42 ( 11 ) 5,031 —

Asset-backed securities 298,976 41 ( 1,489 ) 297,528 —

Agency commercial MBS 101,142 57 ( 923 ) 100,276 —

Total debt securities available-for-sale $ 569,874 $ 1,275 $ ( 2,894 ) $ 568,255 $ —

Debt securities held-to-maturity:

Investment securities:

State and municipal obligations $ 238,405 $ 11,500 $ ( 231 ) $ 249,674 $ ( 48 )

State, municipal, and sovereign debt obligations $ 281,389 $ 10,185 $ ( 1,164 ) $ 290,410 $ ( 85 )

Corporate debt securities 68,823 1,628 ( 1,279 ) 69,172 ( 1,343 )

Total investment securities 310,710 13,115 ( 2,883 ) 320,942 ( 1,598 )

Mortgage-backed securities:

FHLMC 232,942 5,383 ( 124 ) 238,201 —

FNMA 293,615 7,640 ( 147 ) 301,108 —

GNMA 67,334 2,014 ( 12 ) 69,336 —

SBA 5,392 — ( 60 ) 5,332 —

CMO 32,321 1,226 — 33,547 ( 117 )

Agency residential 756,844 6,785 ( 7,180 ) 756,449 —

Agency commercial 4,385 7 ( 44 ) 4,348 —

Non-agency commercial 32,107 362 ( 104 ) 32,365 ( 39 )

Total mortgage-backed securities 793,336 7,154 ( 7,328 ) 793,162 ( 39 )

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Total debt securities $ 1,713,422 $ 20,242 $ ( 12,665 ) $ 1,720,999 $ ( 1,467 )

There was no allowance for credit losses on debt securities available-for-sale at December 31, 2020.

Losses Estimated

At December 31, 2020

Debt securities available-for-sale:

Investment securities:

government and agency obligations $ 149,120 $ 1,408 $ ( 93 ) $ 150,435

State and municipal obligations 25 — — 25

Total investment securities 149,145 1,408 ( 93 ) 150,460

Mortgage-backed securities - FNMA 495 5 — 500

U.S government and agency obligations $ 173,790 $ 3,152 $ ( 2 ) $ 176,940 $ —

Asset-backed securities 6,174 — ( 4 ) 6,170 —

Agency residential MBS 190 2 — 192 —

Total debt securities available-for-sale $ 180,154 $ 3,154 $ ( 6 ) $ 183,302 $ —

Debt securities held-to-maturity:

Investment securities:

government and agency obligations $ 4,984 $ 14 $ — $ 4,998

State and municipal obligations 124,430 1,537 ( 208 ) 125,759

State, municipal, and sovereign debt obligations $ 238,405 $ 11,500 $ ( 231 ) $ 249,674 $ ( 48 )

Corporate debt securities 72,305 1,615 ( 2,652 ) 71,268 ( 1,550 )

Total investment securities 208,961 2,384 ( 2,629 ) 208,716

Mortgage-backed securities:

FHLMC 206,985 2,221 ( 524 ) 208,682

FNMA 244,428 2,680 ( 493 ) 246,615

GNMA 110,661 939 ( 212 ) 111,388

SBA 1,940 — ( 51 ) 1,889

Agency residential 593,891 15,037 ( 283 ) 608,645 —

Agency commercial 5,392 — ( 60 ) 5,332 —

Non-agency commercial 32,321 1,226 — 33,547 ( 117 )

Total mortgage-backed securities 631,604 16,263 ( 343 ) 647,524 ( 117 )

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Total debt securities $ 1,122,468 $ 32,532 $ ( 3,232 ) $ 1,151,768 $ ( 1,715 )

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity by major security type for the year ended December 31, 2020 (in thousands):

Investment Securities Mortgage-backed Securities

There was no allowance for securities credit losses on debt securities available-for-sale at December 31, 2021 or 2020.

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the year ended December 31, 2021 (in thousands):

For the Year Ended December 31,

Allowance for credit losses

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Impact of CECL adoption — ( 1,268 )

Provision for credit loss expense ( 330 ) ( 117 )

Benefit (Provision) for credit loss expense 248 ( 447 )

Total ending allowance balance $ ( 1,467 ) $ ( 1,715 )

During the third quarter 2013, the Bank transferred $ 536.0 million of previously designated available-for-sale debt securities to a held-to-maturity designation at estimated fair value.

The securities transferred had an unrealized net loss of $ 13.3 million at the time of transfer which continues to be reflected in accumulated other comprehensive loss on the consolidated statement of financial condition, net of subsequent amortization, which is being recognized over the life of the securities.

During 2021 and 2013, the Bank transferred $ 12.7 million and $ 536.0 million, respectively, of previously designated available-for-sale debt securities to a held-to-maturity designation at estimated fair value.

The securities transferred had an unrealized net loss of $ 209,000 and $ 13.3 million at the time of transfer in 2021 and 2013, respectively, which continues to be reflected in accumulated other comprehensive loss on the Consolidated Statements of Financial Condition, net of subsequent amortization, which is being recognized over the life of the securities.

The carrying value of the debt securities held-to-maturity at December 31, 2021 and 2020 are as follows (in thousands):

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Net loss on date of transfer from available-for-sale ( 13,556 ) ( 13,347 )

Allowance for credit loss ( 1,715 ) —

Allowance for securities credit loss ( 1,467 ) ( 1,715 )

Accretion of net unrealized loss on securities reclassified as held-to-maturity 10,668 10,001

Carrying value $ 1,139,193 $ 937,253

During the year ended December 31, 2020 there were $ 476,000 of realized gains on debt securities.

There were no realized gains or losses on debt securities for the year ended December 31, 2019.

The amortized cost and estimated fair value of investment securities at December 31, 2020 by contractual maturity, are shown below (in thousands).

Actual maturities may differ from contractual maturities in instances where issuers have the right to call or prepay obligations with or without call or prepayment penalties.

At December 31, 2020, corporate debt securities with an amortized cost and estimated fair value of $ 53.8 million and $ 52.9 million, respectively, were callable prior to the maturity date.

December 31, 2020 Amortized

During the year ended December 31, 2021 there were no realized gains on debt securities.

There were $ 476,000 of realized gains on debt securities for the year ended December 31, 2020.

The amortized cost and estimated fair value of debt securities at December 31, 2021 by contractual maturity are as follows (in thousands):

At December 31, 2021 Amortized

Cost Estimated

3 unchanged sentences

Due after ten years 294,395 301,961

Total investment securities $ 490,674 $ 504,052

$ 818,944 $ 827,561

Actual maturities may differ from contractual maturities in instances where issuers have the right to call or prepay obligations with or without call or prepayment penalties.

At December 31, 2021, corporate debt securities, state and municipal obligations, and asset-backed securities with an amortized cost of $ 66.2 million, $ 90.2 million, and $ 299.0 million, respectively, and an estimated fair value of $ 66.4 million, $ 92.5 million, and $ 297.5 million, respectively, were callable prior to the maturity date.

Mortgage-backed securities are excluded from the above table since their effective lives are expected to be shorter than the contractual maturity date due to principal prepayments.

The estimated fair value of securities pledged as required security for deposits and for other purposes required by law amounted to $ 435.9 million and $ 475.6 million at December 31, 2020 and 2019, respectively, including $ 152.7 million and $ 81.4 million at December 31, 2020 and 2019, respectively, pledged as collateral for securities sold under agreements to repurchase.

At December 31, 2020, there were no holdings of any one issuer, other than the U.S.

government and its agencies, in an amount greater than 10% of stockholders’ equity.

The estimated fair value of securities pledged as required security for deposits and for other purposes required by law amounted to $ 1.14 billion and $ 435.9 million at December 31, 2021 and 2020, respectively, including $ 142.9 million and $ 152.7 million at December 31, 2021 and 2020, respectively, pledged as collateral for securities sold under agreements to repurchase.

The estimated fair value and unrealized losses for debt securities available-for-sale and held-to-maturity at December 31, 2021 and December 31, 2020, segregated by the duration of the unrealized losses, are as follows (in thousands):

As of December 31, 2020

Less than 12 Months 12 Months or Longer Total

4 unchanged sentences

Fair Value Unrealized

At December 31, 2021

Debt securities available-for-sale:

Investment securities - U.S.

government and agency obligations $ 82,395 $ ( 471 ) $ — $ — $ 82,395 $ ( 471 )

$ 17,029 $ ( 2 ) $ — $ — $ 17,029 $ ( 2 )

Collateralized loan obligations 4,766 ( 4 ) — — 4,766 ( 4 )

Corporate debt securities 1,989 ( 11 ) — — 1,989 ( 11 )

Asset-backed securities 279,486 ( 1,489 ) — — 279,486 ( 1,489 )

Agency commercial MBS 80,726 ( 923 ) — — 80,726 ( 923 )

Total debt securities available-for-sale 444,596 ( 2,894 ) — — 444,596 ( 2,894 )

Debt securities held-to-maturity:

Investment securities:

State and municipal obligations 2,823 ( 23 ) 7,509 ( 208 ) 10,332 ( 231 )

State, municipal, and sovereign debt obligations 75,329 ( 1,063 ) 4,383 ( 101 ) 79,712 ( 1,164 )

Corporate debt securities 38,304 ( 1,279 ) — — 38,304 ( 1,279 )

Total investment securities 13,015 ( 278 ) 43,444 ( 2,605 ) 56,459 ( 2,883 )

Mortgage-backed securities:

FHLMC 24,661 ( 117 ) 669 ( 7 ) 25,330 ( 124 )

FNMA 39,365 ( 128 ) 939 ( 19 ) 40,304 ( 147 )

GNMA 5,856 ( 11 ) 207 ( 1 ) 6,063 ( 12 )

SBA 3,626 ( 12 ) 1,706 ( 48 ) 5,332 ( 60 )

Agency residential 445,399 ( 5,822 ) 50,133 ( 1,358 ) 495,532 ( 7,180 )

Agency commercial 2,255 ( 41 ) 886 ( 3 ) 3,141 ( 44 )

Non-agency commercial 10,722 ( 104 ) — — 10,722 ( 104 )

Total mortgage-backed securities 458,376 ( 5,967 ) 51,019 ( 1,361 ) 509,395 ( 7,328 )

1 unchanged sentence

Total debt securities $ 1,016,605 $ ( 11,203 ) $ 55,402 $ ( 1,462 ) $ 1,072,007 $ ( 12,665 )

As of December 31, 2019

Less than 12 months 12 months or longer Total

Fair Value Unrealized

Losses Estimated

Fair Value Unrealized

Losses Estimated

Fair Value Unrealized

At December 31, 2020

Debt securities available-for-sale:

Investment securities - U.S.

government and agency obligations

$ 25,021 $ ( 54 ) $ 22,451 $ ( 39 ) $ 47,472 $ ( 93 )

U.S government and agency obligations $ 17,029 $ ( 2 ) $ — $ — $ 17,029 $ ( 2 )

Asset-backed securities 4,766 ( 4 ) — — 4,766 ( 4 )

Total debt securities available-for-sale 21,795 ( 6 ) — — 21,795 ( 6 )

Debt securities held-to-maturity:

Investment securities:

State and municipal obligations 7,308 ( 58 ) 14,531 ( 150 ) 21,839 ( 208 )

State, municipal, and sovereign debt obligations 2,823 ( 23 ) 7,509 ( 208 ) 10,332 ( 231 )

Corporate debt securities 10,192 ( 255 ) 35,935 ( 2,397 ) 46,127 ( 2,652 )

Total investment securities 17,035 ( 271 ) 52,159 ( 2,358 ) 69,194 ( 2,629 )

Mortgage-backed securities:

FHLMC 6,329 ( 29 ) 38,641 ( 495 ) 44,970 ( 524 )

FNMA 13,682 ( 59 ) 38,568 ( 434 ) 52,250 ( 493 )

GNMA 30,268 ( 93 ) 19,828 ( 119 ) 50,096 ( 212 )

SBA — — 1,889 ( 51 ) 1,889 ( 51 )

Agency residential 69,882 ( 256 ) 1,815 ( 27 ) 71,697 ( 283 )

Agency commercial 3,626 ( 12 ) 1,706 ( 48 ) 5,332 ( 60 )

Total mortgage-backed securities 73,508 ( 268 ) 3,521 ( 75 ) 77,029 ( 343 )

1 unchanged sentence

Total debt securities $ 108,318 $ ( 552 ) $ 46,965 $ ( 2,680 ) $ 155,283 $ ( 3,232 )

At December 31, 2020, the amortized cost, estimated fair value and credit rating of the individual corporate debt securities in an unrealized loss position for greater than one year are as follows (in thousands):

As of December 31, 2020

Security Description Amortized

Cost Estimated

Fair Value Credit Rating

Chase Capital $ 10,000 $ 9,479 Baa1/BBB-

Wells Fargo Capital 5,000 4,702 A1/BBB-

Huntington Capital 5,000 4,546 Baa2/BB+

Keycorp Capital 5,000 4,647 Baa2/BB+

PNC Capital 5,000 4,743 Baa1/BBB-

State Street Capital 3,332 3,147 A3/BBB

SunTrust Capital 5,000 4,671 Not Rated/BBB-

Total $ 38,332 $ 35,935

At December 31, 2020, the estimated fair value of each of the above corporate debt securities was below cost.

The Company concluded that these corporate debt securities were only temporarily impaired at December 31, 2020.

In concluding that the impairments were only temporary, the Company considered several factors in its analysis.

The Company concluded that debt securities were not impaired at December 31, 2021 based on a consideration of several factors.

The Company noted that each issuer made all the contractually due payments when required.

1 unchanged sentence

Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements over the life of the security.

Furthermore, the Company does not intend to sell these corporate debt securities and it is more likely than not that the Company will not be required to sell the securities.

Historically, the Company has not utilized securities sales as a source of liquidity.

The Company’s long range liquidity plans indicate adequate sources of liquidity outside the securities portfolio.

The mortgage-backed securities are issued and guaranteed by either FHLMC, FNMA, GNMA, or SBA, corporations which are chartered by the United States Government and whose debt obligations are typically rated AA+ by one of the internationally-recognized credit rating services.

Additionally, there are private label commercial mortgage-backed securities with credit ratings from multiple credit rating services ranging between Aaa and Aa2.

The Company considers the unrealized losses to be the result of changes in interest rates, and not credit quality, which over time can have both a positive and negative impact on the estimated fair value of the mortgage-backed securities.

The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost.

As a result, the Company concluded that these securities were only temporarily impaired at December 31, 2020.

State and municipal obligations are securities issued by state and local governments for various purposes.

The Company is not aware of any information subsequent to the purchase of any state and municipal obligation that indicates an inability on the part of an issuer to meet all of its financial commitments.

The weighted average credit rating of these securities is Aa/AA with no credit rating below Baa2/BBB.

The Company has the ability and stated intention to hold these securities to maturity at which time the Company expects to receive full repayment.

Current unrealized losses are considered to be the result of changes in interest rates which over time can have both a positive and negative impact on the estimated fair value of the securities.

As a result, the Company concluded that these securities were not impaired as of December 31, 2020.

The Company monitors the credit quality of debt securities held-to-maturity on a quarterly basis through the use of internal credit analysis supplemented by external credit ratings.

The following table summarized the amortized cost of debt securities held-to-maturity at December 31, 2020 aggregated by credit quality indicator (in thousands):

AAA AA A BBB BB Total

As of December 31, 2020

Investment securities:

State and municipal obligations $ 34,091 $ 130,218 $ 59,272 $ 14,824 $ — $ 238,405

Furthermore, the Company does not intend to sell these debt securities and it is more likely than not that the Company will not be required to sell the securities.

Historically, the Company has not utilized securities sales as a source of liquidity and the Company’s long range liquidity plans indicate adequate sources of liquidity outside the securities portfolio.

The Company monitors the credit quality of debt securities held-to-maturity on a quarterly basis through the use of internal credit analyses supplemented by external credit ratings.

Credit ratings of BBB- or Baa3 or higher are considered as investment grade.

The amortized cost of debt securities held-to-maturity at December 31, 2021 aggregated by credit quality indicator are as follows (in thousands):

Investment Grade Non-Investment Grade/Non-rated Total

At December 31, 2021

State, municipal, and sovereign debt obligations $ 281,389 $ — $ 281,389

Corporate debt securities 54,020 14,803 68,823

Total investment securities 34,091 130,714 71,250 63,322 11,333 310,710

Mortgage-backed securities:

CMO 11,118 21,203 — — — 32,321

Total mortgage-backed securities 11,118 21,203 — — — 32,321

Non-agency commercial MBS 32,107 — 32,107

Total debt securities held-to-maturity $ 367,516 $ 14,803 $ 382,319

At December 31, 2020, and 2019, the Company held equity investments at an estimated fair value of $ 107.1 million and $ 10.1 million, respectively.

The equity investments primarily comprised of select financial services institutions’ common stocks paying attractive dividends.

During the year ended December 31, 2020, there were $ 5.4 million of realized gains on equity securities.

There were no realized gains or losses on equity securities for the year ended December 31, 2019.

The realized and unrealized gains on equity securities for the year ended December 31, 2020 are shown in the table below (in thousands).

For the year ended

December 31, 2020

Equity Investments

At December 31, 2021 and 2020, the Company held equity investments of $ 101.2 million and $ 107.1 million, respectively.

The equity investments primarily comprised of select financial services institutions’ common and preferred stocks paying attractive dividends.

The realized and unrealized gains on equity securities for the year ended December 31, 2021 and 2020 are as follows (in thousands):

For the Year Ended December 31,

Net gain on equity investments $ 7,145 $ 21,214

Net gains recognized on equity securities sold 5,401

Unrealized gain recognized on equity securities still held $ 15,813

Net gains recognized on equity investments sold 8,123 5,401

Unrealized (loss) gain recognized on equity investments still held $ ( 978 ) $ 15,813

Loans Receivable, Net

6 unchanged sentences

Residential real estate 2,479,701 2,309,459

Home equity loans and lines 285,016 318,576

Other consumer 54,446 89,422

Home equity loans and lines and other consumer (“other consumer”) 260,819 339,462

Total consumer 2,740,520 2,648,921

1 unchanged sentence

Deferred origination costs, net of fees 9,332 9,486

Allowance for credit losses ( 60,735 ) ( 16,852 )

Allowance for loan credit losses ( 48,850 ) ( 60,735 )

Total loans receivable, net $ 8,583,352 $ 7,704,857

(1) The commercial and industrial loans balance at December 31, 2020 includes Paycheck Protection Program (“PPP”) loans of $ 95.4 million.

(1) Commercial and industrial loans at December 31, 2021 and 2020 includes Paycheck Protection Program (“PPP”) loans of $ 22.9 million and $ 95.4 million, respectively.

The Company categorizes all loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:

current financial information, historical payment experience, credit documentation, and current economic trends, among other factors.

Generally, risk ratings for loans on forbearance pursuant to the CARES Act are not re-evaluated until the initial 90-day forbearance period ends.

At that time, risk ratings are updated with an emphasis on industries that were heavily impacted by the pandemic, as well as individual borrower liquidity, and other measures of resiliency as described below.

The Company evaluates risk ratings on an ongoing basis and as such, adversely rated loans will be re-evaluated as government restrictions end and businesses resume normal operations.

Generally, risk ratings for loans on forbearance pursuant to the CARES, extended by the Coronavirus Response and Relief Supplemental Appropriations (“CRRSA”) Act of 2021, were not re-evaluated until the initial 90-day forbearance period ended.

At that time, risk ratings were updated with an emphasis on industries that were heavily impacted by the pandemic, as well as individual borrower liquidity, and other measures of resiliency as described below.

The Company evaluates risk ratings on an ongoing basis and as such, adversely rated loans will be re-evaluated as government restrictions ease and businesses resume normal operations.

The Company uses the following definitions for risk ratings:

4 unchanged sentences

This liquidity may or may not be adequate to resume operations.

If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date.

If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard :

1 unchanged sentence

Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.

This includes borrowers whose operations were negatively affected by the pandemic and whom, in the Bank’s assessment, do not have adequate liquidity available to resume operations at levels sufficient to service their current debt levels.

This includes borrowers whose operations were negatively affected by the pandemic and whom, in the assessment, do not have adequate liquidity available to resume operations at levels sufficient to service their current debt levels.

They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

The following table summarizes total loans by year of origination, internally assigned credit grades and risk characteristics (in thousands):

The following tables summarize total loans by year of origination, internally assigned credit grades, and risk characteristics (in thousands):

2021 2020 2019 2018 2017 2016 and Prior Revolving Lines of Credit Total

20 unchanged sentences

Total residential real estate 876,135 475,346 288,699 127,817 105,736 605,968 — 2,479,701

Other consumer (1)

Pass 26,512 19,168 18,179 51,954 17,955 123,783 — 257,551

1 unchanged sentence

Substandard — — — 18 — 2,928 — 2,946

Total consumer 24,954 26,659 83,296 25,469 16,715 160,224 2,145 339,462

Total loans receivable $ 1,496,628 $ 1,313,707 $ 817,607 $ 800,731 $ 620,952 $ 2,340,571 $ 365,910 $ 7,756,106

(1) For residential real estate and consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity.

Total other consumer 26,512 19,168 18,179 51,972 17,955 127,033 — 260,819

Total loans $ 2,449,710 $ 1,202,923 $ 1,061,158 $ 585,795 $ 634,834 $ 2,138,982 $ 549,468 $ 8,622,870

(1) For residential real estate and other consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity.

2020 2019 2018 2017 2016 2015 and Prior Revolving Lines of Credit Total

December 31, 2020

Commercial and industrial

Pass $ 137,262 $ 40,737 $ 27,967 $ 18,845 $ 33,568 $ 59,339 $ 134,140 $ 451,858

Special Mention 150 583 826 1,422 907 118 1,429 5,435

Substandard 581 1,284 1,243 809 439 1,706 7,301 13,363

Total commercial and industrial 137,993 42,604 30,036 21,076 34,914 61,163 142,870 470,656

Commercial real estate - owner occupied

Pass 96,888 114,506 122,962 124,050 104,264 428,423 18,932 1,010,025

Special Mention — 3,512 8,240 1,023 17,115 17,811 439 48,140

Substandard — 34,670 9,001 3,404 3,677 35,509 639 86,900

Total commercial real estate - owner occupied 96,888 152,688 140,203 128,477 125,056 481,743 20,010 1,145,065

Commercial real estate - investor

Pass 635,930 628,435 317,104 426,268 281,876 812,062 194,913 3,296,588

Special Mention — 15,979 17,113 15,225 4,234 55,872 149 108,572

Substandard 4,311 9,217 1,931 17,222 11,474 36,326 5,823 86,304

Total commercial real estate - investor 640,241 653,631 336,148 458,715 297,584 904,260 200,885 3,491,464

Residential real estate (1)

Pass 595,982 437,593 226,435 166,773 146,237 729,037 — 2,302,057

Special Mention — 532 — — 446 2,186 — 3,164

Substandard 570 — 1,489 221 — 1,958 — 4,238

Total residential real estate 596,552 438,125 227,924 166,994 146,683 733,181 — 2,309,459

Other consumer (1)

Pass 24,954 26,659 83,296 25,469 16,565 156,276 2,145 335,364

Special Mention — — — — 150 382 — 532

Substandard — — — — — 3,566 — 3,566

Total other consumer 24,954 26,659 83,296 25,469 16,715 160,224 2,145 339,462

Total loans $ 1,496,628 $ 1,313,707 $ 817,607 $ 800,731 $ 620,952 $ 2,340,571 $ 365,910 $ 7,756,106

(1) For residential real estate and other consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity.

An analysis of the allowance for credit losses on loans for the years ended December 31, 2021 and 2020 is as follows (in thousands):

Industrial Commercial Real Estate - Owner Occupied Commercial Real Estate - Investor Residential

Real Estate Consumer Unallocated Total

Real Estate Other Consumer Unallocated Total

For the Year Ended December 31, 2021

1 unchanged sentence

Balance at beginning of year $ 5,390 $ 15,054 $ 26,703 $ 11,818 $ 1,770 $ — $ 60,735

Impact of CECL adoption 2,416 ( 1,109 ) ( 5,395 ) 3,833 2,981 ( 25 ) 2,701

Initial allowance for credit losses on PCD loans 1,221 26 260 109 1,023 — 2,639

Credit loss expense (benefit) (1)

1,039 15,007 34,935 8,191 ( 1,770 ) — 57,402

Credit loss benefit ( 321 ) ( 9,190 ) ( 974 ) ( 761 ) ( 1,100 ) — ( 12,346 )

Charge-offs ( 154 ) ( 65 ) ( 345 ) ( 254 ) ( 213 ) — ( 1,031 )

( 890 ) ( 1,769 ) ( 13,081 ) ( 3,200 ) ( 1,244 ) — ( 20,184 )

Recoveries 124 85 120 352 811 — 1,492

3 unchanged sentences

Balance at beginning of year $ 1,458 $ 2,893 $ 9,883 $ 2,002 $ 591 $ 25 $ 16,852

Credit loss (benefit) expense ( 311 ) 947 638 792 567 ( 997 ) 1,636

Impact of CECL adoption 2,416 ( 1,109 ) ( 5,395 ) 3,833 2,981 ( 25 ) 2,701

Initial allowance for credit losses on PCD loans 1,221 26 260 109 1,023 — 2,639

Credit loss expense (benefit) (1)

1,039 15,007 34,935 8,191 ( 1,770 ) — 57,402

Charge-offs (1)

( 890 ) ( 1,769 ) ( 13,081 ) ( 3,200 ) ( 1,244 ) — ( 20,184 )

Recoveries 146 6 101 883 189 — 1,325

3 unchanged sentences

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.

At December 31, 2020, the Company had collateral dependent loans with an amortized cost balance as follows:

commercial and industrial of $ 1.9 million, commercial real estate - owner occupied of $ 13.8 million, and commercial real estate - investor of $ 18.3 million.

In addition, the Company had residential and consumer loans collateralized by residential real estate, which are in the process of foreclosure, with an amortized cost balance of $ 1.4 million and $ 1.8 million at December 31, 2020 and December 31, 2019, respectively.

The amount of foreclosed residential real estate property held by the Company was $ 106,000 and $ 51,000 at December 31, 2020 and December 31, 2019, respectively.

In accordance with ASC 310, prior to the adoption of ASU 2016-13, the following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2019, excluding PCI loans (in thousands):

Industrial Commercial Real Estate - Owner Occupied Commercial Real Estate - Investor Residential Real Estate Consumer Unallocated Total

At December 31, 2019

Allowance for loan losses:

Ending allowance balance attributed to loans:

Individually evaluated for impairment $ — $ 474 $ — $ — $ 2 $ — $ 476

Collectively evaluated for impairment 1,458 2,419 9,883 2,002 589 25 16,376

Total ending allowance balance $ 1,458 $ 2,893 $ 9,883 $ 2,002 $ 591 $ 25 $ 16,852

Loans individually evaluated for impairment $ 243 $ 6,163 $ 5,584 $ 11,009 $ 3,511 $ — $ 26,510

Loans collectively evaluated for impairment 395,848 785,778 2,279,114 2,309,812 404,325 — 6,174,877

Total ending loan balance $ 396,091 $ 791,941 $ 2,284,698 $ 2,320,821 $ 407,836 $ — $ 6,201,387

As of December 31, 2019, the Company defined an impaired loan as non-accrual commercial real estate, multi-family, land, construction and commercial loans in excess of $ 250,000 .

Impaired loans also included all loans modified as troubled debt restructurings.

At December 31, 2019, the impaired loan portfolio totaled $ 26.5 million for which there was a $ 476,000 specific allocation in the allowance for loan losses.

The average balance of impaired loans for the year ended December 31, 2019 was $ 29.4 million.

If interest income on non-accrual loans and impaired loans had been current in accordance with their original terms, approximately $ 372,000 and $ 419,000 of interest income for the years ended December 31, 2019 and 2018, respectively, would have been recorded.

At December 31, 2019, impaired loans include TDR loans of $ 24.6 million, of which $ 18.0 million were performing in accordance with their restructured terms for a minimum of six months and were accruing interest.

The summary of loans individually evaluated for impairment by loan portfolio segment as of December 31, 2019 was as follows, excluding PCI loans (in thousands):

Balance Recorded

Investment Allowance for

At December 31, 2019

With no related allowance recorded:

Commercial and industrial $ 265 $ 243 $ —

Commercial real estate – owner occupied 4,062 3,968 —

Commercial real estate – investor 6,665 5,584 —

Residential real estate 11,009 11,009 —

Consumer 3,734 3,509 —

Total with no related allowance recorded $ 25,735 $ 24,313 $ —

With an allowance recorded:

Commercial and industrial $ — $ — $ —

Commercial real estate – owner occupied 2,376 2,195 474

Commercial real estate – investor — — —

Residential real estate — — —

Consumer 2 2 2

Total with an allowance recorded $ 2,378 $ 2,197 $ 476

For the Year Ended December 31, 2019

Investment Interest

With no related allowance recorded:

Commercial and industrial $ 523 $ 5

Commercial real estate – owner occupied 4,171 179

Commercial real estate – investor 9,012 222

Residential real estate 10,275 548

Consumer 3,275 178

Total with no related allowance recorded $ 27,256 $ 1,132

With an allowance recorded:

Commercial and industrial $ — $ —

Commercial real estate – owner occupied 2,173 138

Commercial real estate – investor — —

Residential real estate — —

Total with an allowance recorded $ 2,173 $ 138

At December 31, 2021 and 2020, the Company had collateral dependent loans with an amortized cost balance as follows:

commercial and industrial of $ 277,000 and $ 1.9 million, respectively, commercial real estate - owner occupied of $ 11.9 million and $ 13.8 million, respectively, and commercial real estate - investor of $ 3.6 million and $ 18.3 million, respectively.

In addition, the Company had residential and consumer loans collateralized by residential real estate, which are in the process of foreclosure, with an amortized cost balance of $ 438,000 and $ 1.4 million at December 31, 2021 and 2020, respectively.

At both December 31, 2021 and 2020, the amount of foreclosed residential real estate property held by the Company was $ 106,000 .

The following table presents the recorded investment in non-accrual loans by loan portfolio segment as of December 31, 2021 and 2020 (in thousands).

The December 31, 2020 balances include PCD loans while the December 31, 2019 balances exclude PCI loans (in accordance with ASC 310, prior to the adoption of ASU 2016-13 on January 1, 2020).

Commercial and industrial $ 277 $ 1,908

2 unchanged sentences

Residential real estate 6,114 8,671

Consumer 4,246 2,733

Other consumer 3,585 4,246

Total non-accrual loans $ 25,494 $ 46,863

At December 31, 2020, the non-accrual loans were included in the allowance for credit loss calculation and the Company did not recognize or accrue interest income on these loans.

At December 31, 2020 and December 31, 2019, there were no loans that were 90 days or greater past due and still accruing interest.

At December 31, 2021 and 2020, the non-accrual loans were included in the allowance for credit loss calculation and the Company did not recognize or accrue interest income on these loans.

At December 31, 2021, there was one loan for $ 46,000 that was 90 days or greater past due and still accruing interest that was fully paid on January 14, 2022.

At December 31, 2020, there were no loans that were 90 days or greater past due and still accruing interest.

The following table presents the aging of the recorded investment in past due loans as of December 31, 2021 and 2020 by loan portfolio segment (in thousands).

The December 31, 2020 balances include PCD loans while the December 31, 2019 balances exclude PCI loans (in accordance with ASC 310, prior to the adoption of ASU 2016-13 on January 1, 2020).

Past Due 60-89

8 unchanged sentences

Residential real estate 9,705 1,586 2,675 13,966 2,465,735 2,479,701

Consumer 978 533 3,568 5,079 334,383 339,462

Other consumer 339 322 2,946 3,607 257,212 260,819

Total loans receivable $ 12,385 $ 2,161 $ 8,182 $ 22,728 $ 8,600,142 $ 8,622,870

4 unchanged sentences

Residential real estate 15,156 3,164 4,238 22,558 2,286,901 2,309,459

Consumer 1,048 491 2,388 3,927 403,909 407,836

Other consumer 978 533 3,568 5,079 334,383 339,462

Total loans receivable $ 29,096 $ 7,558 $ 27,126 $ 63,780 $ 7,692,326 $ 7,756,106

The Company classifies certain loans as TDRs when credit terms to a borrower in financial difficulty are modified.

The Company classifies certain loans as TDR when credit terms to a borrower in financial difficulty are modified.

The modifications may include a reduction in rate, an extension in term, the capitalization of past due amounts, and/or the restructuring of scheduled principal payments.

Residential real estate and consumer loans where the borrower’s debt is discharged in a bankruptcy filing are also considered TDRs.

For these loans, the Bank retains its security interest in the real estate collateral.

Residential real estate and consumer loans where the borrower’s debt is discharged in a bankruptcy filing are also considered TDR loans.

For these loans, the Company retains its security interest in the real estate collateral.

At December 31, 2021 and 2020, TDR loans totaled $ 23.6 million and $ 17.5 million, respectively.

Included in the non-accrual loan total at December 31, 2020 and 2019 were $ 5.5 million and $ 6.6 million, respectively, of TDRs.

At December 31, 2020 and 2019, the Company had $ 0 and $ 476,000 , respectively, of specific reserves allocated to loans that are classified as TDRs.

Non-accrual loans which become TDRs are generally returned to accrual status after six months of performance.

In addition to the TDRs included in non-accrual loans, the Company also has loans classified as accruing TDRs at December 31, 2020 and 2019 which totaled $ 12.0 million and $ 18.0 million, respectively.

The following table presents information about TDRs which occurred during the years ended December 31, 2020 and 2019, and TDRs modified within the previous year and which defaulted during the years ended December 31, 2020 and 2019 (dollars in thousands):

At December 31, 2021 and 2020, there were $ 11.3 million and $ 5.5 million, respectively, of TDR loans included in the non-accrual loan totals.

At December 31, 2021 and 2020, the Company had no specific reserves allocated to loans that are classified as TDRs.

Non-accrual loans which become TDRs are generally returned to accrual status after six months of payment performance and the ultimate collectability of the restructured transaction is not in doubt.

In addition to the TDR loans included in non-accrual loans, the Company also has TDR loans classified as accruing loans, which totaled $ 12.3 million and $ 12.0 million at December 31, 2021 and 2020, respectively.

The following table presents information about TDRs which occurred during the years ended December 31, 2021 and 2020 (dollars in thousands):

of Loans Pre-modification

6 unchanged sentences

Residential real estate 3 244 336

Consumer 6 1,035 668

Number of Loans Recorded Investment

Troubled debt restructurings

Which subsequently defaulted:

of Loans Pre-modification

Recorded Investment Post-modification

Recorded Investment

Other consumer 3 39 49

For the Year Ended December 31, 2020

3 unchanged sentences

Residential real estate 6 1,018 1,065

Consumer 7 663 683

Number of Loans Recorded Investment

Troubled debt restructurings

Which subsequently defaulted:

Consumer 1 $ 115

In response to the COVID-19 pandemic and its economic impact on customers, short-term modification programs that comply with the CARES Act were implemented to provide temporary payment relief to those borrowers directly impacted by COVID-19.

Other consumer 6 1,035 668

There was one TDR consumer loan and one TDR commercial real estate - investor loan for $ 15,000 and $ 923,000 , respectively, that defaulted during the year ended December 31, 2021 which were modified within the preceding year.

The TDR commercial real estate - investor loan was current at December 31, 2021.

There were no TDR loans that defaulted during the year ended December 31, 2020 which were modified within the preceding year.

In response to the COVID-19 pandemic and its economic impact on customers, short-term modification programs that comply with the CARES Act, extended by the CRRSA Act, were implemented to provide temporary payment relief to those borrowers directly impacted by COVID-19.

The Commercial Borrower Relief Program allowed for the deferral of principal and interest or principal only.

For principal and interest deferrals as well as principal only deferrals, all payments received are first applied to all accrued and unpaid interest and the balance, if any, on account of unpaid principal, is then applied to fees, expenses and other amounts due to the Bank.

All payments received will first be applied to all accrued and unpaid interest and the balance, if any, on account of unpaid principal, then to fees, expenses and other amounts due to the Bank.

Monthly payments will continue until the maturity date when all then unpaid principal, interest, fees, and all other charges are due and payable to the Bank.

1 unchanged sentence

The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date.

Provided these loans were current as of either year end or the date of the modification, these loans were not considered TDR loans at December 31, 2020 and will not be reported as past due during the deferral period.

As part of the Two River and Country Bank acquisitions, the Company purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.

The carrying amount of the PCD loans is as follows (in thousands):

Two River Country Bank

January 1, 2020 January 1, 2020

Purchase price of loans at acquisition $ 26,354 $ 24,667

Allowance for credit losses at acquisition 1,343 1,296

Non-credit discount at acquisition 3,589 5,334

Par value of acquired loans at acquisition $ 31,286 $ 31,297

The following table summarizes the changes in accretable yield for PCI loans during the year ended December 31, 2019 (in thousands):

For the Year Ended December 31,

Beginning balance $ 3,630

Acquisition 691

Accretion ( 2,613 )

Reclassification from non-accretable difference 1,317

Ending balance $ 3,025

Provided these loans were current as of either December 31, 2019 or the date of the modification, these loans are not considered TDR loans at December 31, 2021 and will not be reported as past due during the deferral period.

Interest and Dividends Receivable

1 unchanged sentence

Loans receivable $ 26,208 $ 30,893

Debt securities, equity investments and other 3,169 2,827

Mortgage-backed securities 1,207 1,183

Debt securities 5,753 4,184

Equity investments and other 645 192

Total interest and dividends receivable $ 32,606 $ 35,269

5 unchanged sentences

Furniture and equipment 30,314 28,707

Capitalized software 6,989 2,932

Finance lease 2,386 1,845

Other 10,270 2,764

38,057 10,270

Total 199,553 174,853

1 unchanged sentence

Total premises and equipment, net $ 125,828 $ 107,094

(1) Includes assets under construction of $ 36.2 million related to the expansion of the Company’s headquarters in Toms River, New Jersey.

Depreciation and amortization expense for the years ended December 31, 2021, 2020, and 2019 amounted to $ 9.4 million, $ 8.5 million, and $ 8.2 million, respectively.

Deposits, including accrued interest payable of $ 367,000 at December 31, 2020 and $ 238,000 at December 31, 2019, are summarized as follows (in thousands):

Depreciation and amortization expense is presented within occupancy, equipment, and data processing expenses of the Consolidated Statement of Income.

The major types of deposits at December 31, 2021 and 2020 were as follows (dollars in thousands):

Amount Weighted

Cost Amount Weighted

Non-interest-bearing accounts $ 2,133,195 — % $ 1,377,396 — %

Interest-bearing checking accounts 3,646,866 0.49 2,539,428 0.68

Money market deposit accounts 783,521 0.19 578,147 0.68

Savings accounts 1,491,251 0.05 898,174 0.13

Non-interest-bearing $ 2,412,056 — % $ 2,133,195 — %

Interest-bearing checking 4,201,736 0.24 3,646,866 0.49

Money market deposit 736,090 0.06 783,521 0.19

Savings 1,607,933 0.03 1,491,251 0.05

Time deposits 775,001 0.95 1,372,783 1.51

Total deposits $ 9,732,816 0.19 % $ 9,427,616 0.43 %

Included in time deposits at December 31, 2020 and 2019 were $ 409.5 million and $ 150.6 million, respectively, in deposits of $250,000 and over.

Accrued interest payable related to deposits was $ 244,000 and $ 367,000 at December 31, 2021 and 2020, respectively.

Time deposits included $ 145.4 million and $ 409.5 million in deposits of $250,000 or more at December 31, 2021 and 2020, respectively.

Time deposits at December 31, 2021 mature as follows (in thousands):

For the Year Ended December 31, Time Deposit Maturities

For the Year Ending December 31, Time Deposit Maturities

2022 $ 552,666

4 unchanged sentences

2021 2020 2019

Interest-bearing checking accounts $ 19,395 $ 16,820 $ 9,219

Money market deposit accounts 2,902 4,919 2,818

Savings accounts 2,505 1,195 990

Interest-bearing checking $ 13,400 $ 19,395 $ 16,820

Money market deposit 1,105 2,902 4,919

Savings 631 2,505 1,195

Time deposits 10,074 23,488 15,498

1 unchanged sentence

Borrowed Funds

Borrowed funds are summarized as follows (in thousands):

Borrowed funds are summarized as follows (dollars in thousands):

Amount Weighted

Rate Amount Weighted

FHLB advances $ — — % $ 519,260 1.84 %

Securities sold under agreements to repurchase with retail customers $ 118,769 0.16 % $ 128,454 0.33 %

1 unchanged sentence

Total borrowed funds $ 347,910 3.00 % $ 363,925 3.08 %

The Company prepaid all of its FHLB advances, in addition to the advances that matured, in 2020.

The total FHLB prepayment fees incurred for the year ended December 31, 2020 was $ 14.3 million.

Information concerning FHLB advances and securities sold under agreements to repurchase with retail customers (“reverse repurchase agreements”) is summarized as follows (in thousands):

In addition to the advances that matured, the Company prepaid all of its FHLB advances in 2020.

Information concerning FHLB advances and securities sold under agreements to repurchase with retail customers (“reverse repurchase agreements”) is summarized as follows (dollars in thousands):

Advances Reverse Repurchase

4 unchanged sentences

Amortized cost of collateral:

Mortgage-backed securities $ — $ — $ 147,445 $ 80,436

Debt and equity securities $ — $ 141,423 $ 147,445

Estimated fair value of collateral:

Mortgage-backed securities — — 152,679 81,365

Debt and equity securities — 142,924 152,679

The securities collateralizing the reverse repurchase agreements are delivered to the lender, with whom each transaction is executed, or to a third-party custodian.

The lender, who may sell, loan or otherwise dispose of such securities to other parties in

the normal course of their operations, agrees to resell to the Company substantially the same securities at the maturity of the reverse repurchase agreements.

The lender, who may sell, loan or otherwise dispose of such securities to other parties in the normal course of their operations, agrees to resell to the Company substantially the same securities at the maturity of the reverse repurchase agreements.

Refer to Note 4 Securities.

Reverse repurchase agreements have contractual maturities at December 31, 2020 as follows (in thousands):

For the Year Ended December 31,

2021 $ 128,454

Total $ 128,454

All reverse repurchase agreements have contractual maturities during 2022.

The other borrowings at December 31, 2021 include the following (in thousands):

3 unchanged sentences

Subordinated debt 125,000 122,989 5.250 % (2)

Subordinated debt 7,500 7,539 7.210 % (3)

October 1, 2025

Trust preferred 10,000 7,965 3 month LIBOR plus 225 basis points

August 1, 2036

December 15, 2034

Trust preferred 30,000 23,258 3 month LIBOR plus 135 basis points

1 unchanged sentence

Trust preferred 5,000 5,000 3 month LIBOR plus 165 basis points

August 1, 2036

Trust preferred 7,500 7,500 3 month LIBOR plus 166 basis points

November 1, 2036

Trust preferred 10,000 7,828 3 month LIBOR plus 153 basis points

April 19, 2037

June 30, 2037

Trust preferred 10,000 10,000 3 month LIBOR plus 175 basis points

2 unchanged sentences

October 1, 2037

Trust preferred 10,000 7,800 3 month LIBOR plus 225 basis points

December 15, 2034

Finance lease 1,904 1,904 5.625 % June 30, 2029

Total $ 244,404 $ 229,141

(1) Adjusts to a floating rate of 392 basis points over 3 month London Inter-bank Offered Rate (“LIBOR”) on September 30, 2021.

(1) Based on a floating rate of 392 basis points over 3 month London Inter-bank Offered Rate (“LIBOR”).

(2) Adjusts to a floating rate of 509.5 basis points over 3 month Secured Overnight Financing Rate on May 15, 2025.

(3) In January 2021, the Company prepaid the subordinated debt in its entirety.

All of the trust preferred debt is currently callable.

Subsequent to year-end, the Company provided notice to its trustee that, as of March 30, 2022, it will redeem the $ 35.0 million of subordinated debt maturing September 30, 2026.

Interest expense on borrowings for the years ended December 31, 2021, 2020, and 2019 was as follows (in thousands):

5 unchanged sentences

Total interest expense on borrowings $ 11,544 $ 18,367 $ 14,391

As a member of the FHLB of New York, the Bank is required to maintain a minimum investment in the capital stock of the FHLB, at cost, in an amount equal to 0.125 % of the Bank’s mortgage-related assets, plus 4.5 % of the specified value of certain transactions between the Bank and the FHLB.

The provision for income taxes for the years ended December 31, 2020, 2019 and 2018 consists of the following (in thousands):

The provision for income taxes for the years ended December 31, 2021, 2020 and 2019 consisted of the following (in thousands):

For the Year Ended December 31,

7 unchanged sentences

Total provision for income taxes $ 32,165 $ 17,733 $ 18,784

Included in other comprehensive income was income tax expense attributable to the net accretion of unrealized losses on debt securities available-for-sale arising during the year in the amount of $ 721,000 , $ 874,000 , and $ 1.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

A reconciliation between the provision for income taxes and the expected amount computed by multiplying income before the provision for income taxes times the applicable statutory Federal income tax rate for the years ended December 31, 2020, 2019 and 2018 was as follows (in thousands):

Included in other comprehensive income was income tax impact attributable to the unrealized gain/loss on debt securities and accretion of unrealized losses on debt securities reclassified to held-to-maturity arising during the year in the amount of $ 870,000 , $ 721,000 , and $ 874,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

The income tax provision reconciled to the income taxes that would have been computed at the statutory federal rate for the years ended December 31, 2021, 2020 and 2019 is as follows (dollars in thousands):

For the Year Ended December 31,

1 unchanged sentence

Income before provision for income taxes $ 142,241 $ 81,042 $ 107,358

Applicable statutory Federal income tax rate 21.0 % 21.0 % 21.0 %

Federal income tax, at statutory rates 21.0 % 21.0 % 21.0 %

Computed “expected” federal income tax expense $ 29,871 $ 17,019 $ 22,545

6 unchanged sentences

Revaluation of state deferred tax asset — — ( 2,205 )

Impact of Tax Cuts and Jobs Act (“Tax Reform”) — — ( 1,854 )

Reclassification of certain tax effect from accumulated other comprehensive income ( 173 ) ( 204 ) ( 221 )

Research and development and other credits ( 475 ) — —

Dividends received deduction ( 510 ) — —

Other items, net ( 1,482 ) ( 325 ) ( 26 )

7 unchanged sentences

Stock plans 2,565 2,214

Unrealized loss on properties available-for-sale 2,435 1,438

Unrealized loss on assets held-for-sale 1,626 2,435

Unrealized loss on securities 1,332 272

10 unchanged sentences

Investments, discount accretion ( 371 ) ( 452 )

Undistributed REIT income — ( 4,735 )

Other, net — ( 783 )

2 unchanged sentences

The 2020 deferred tax expense does not equal the change in net deferred tax assets as a result of net deferred liabilities recorded in connection with the Two River and Country Bank acquisitions of approximately $ 4.5 million.

The Company has Federal net operating losses from the acquisitions of Colonial American Bank (“Colonial American”) and Sun.

The Company has federal net operating losses from the acquisitions of Colonial American Bank (“Colonial American”) and Sun Bancorp, Inc.

At December 31, 2021 and 2020, the net operating losses from Colonial American were $ 4.3 million and $ 4.6 million, respectively.

2 unchanged sentences

These net operating losses are subject to annual limitation under Code Section 382 of approximately $ 23.3 million, which will expire in 2022 and $ 9.3 million, which will expire between 2029 and 2036.

As of December 31, 2020 and 2019 , the Company had $ 1.8 million of New Jersey Alternative Minimum Assessment Tax (“AMT”) Credits.

These credits do not expire.

As of December 31, 2020 and 2019 , the Company had $ 0 and $ 1.0 million, respectively, of AMT Tax Credits that were part of the Cape Bancorp, Inc.

(“Cape”) acquisition and $ 2.3 million of AMT Tax Credits that were part of the Sun acquisition.

As of December 31, 2020 , the Company had $ 1.8 million of New Jersey Alternative Minimum Assessment Tax (“AMT”) Credits of which $ 1.4 million was utilized in 2020 and the remainder was utilized in 2021.

At both December 31, 2021 and 2020 , the Company had $ 2.3 million of AMT Tax Credits that were part of the Sun acquisition.

These credits are subject to the same Code Section 382 limitation as indicated above but do not expire.

At December 31, 2020, 2019 and 2018, the Company determined that it is not required to establis h a valuation reserve for the remaining net deferred tax assets since it is “more likely than not” that the net deferred tax assets will be realized through future reversals of existing taxable temporary differences, future taxable income and tax planning strategies.

At December 31, 2021, 2020 and 2019, the Company determi ned that it is not required to establish a valuation reserve for the remaining net deferred tax assets since it is “more likely than not” that the net deferred tax assets will be realized through future reversals of existing taxable temporary differences, future taxable income and tax planning strategies.

The conclusion that it is “more likely than not” that the remaining net deferred tax assets will be realized is based on the history of earnings and the prospects for continued growth.

11 unchanged sentences

However, due to technical issues and inconsistencies with existing tax law, it was initially determined that the tax law change did not have an impact on deferred taxes.

In December 2019, the State of New Jersey issued a clarifying technical bulletin related to the impact of the new tax legislation enacted in July 2018.

In December 2019, the State of New Jersey issued a clarifying technical bulletin related to the impact of the new tax legislation.

This technical bulletin provided clarification to the combined income tax reporting for certain members of a unitary business group.

16 unchanged sentences

The ESOP originally borrowed $ 13.4 million from the Company to purchase 2,013,137 shares of common stock.

On May 12, 1998, the initial loan agreement was amended to allow the ESOP to borrow an additional $ 8.2 million in order to fund the purchase of 633,750 shares of common stock.

At the same time, the term of the loan was extended from the initial twelve years to thirty years .

On May 1, 2018, the loan agreement was amended to allow the ESOP to borrow an additional $ 8.4 million in order to fund the purchase of 292,592 shares of common stock.

In 1998, the initial loan agreement was amended to allow the ESOP to borrow an additional $ 8.2 million in order to fund the purchase of 633,750 shares of common stock.

At the same time, the term of the loan was extended from the initial 12 years to 30 years.

In 2018, the loan agreement was amended (“amended loan”) to allow the ESOP to borrow an additional $ 8.4 million in order to fund the purchase of 292,592 shares of common stock.

At the same time, the fixed interest rate of the loan was reduced from 8.25 % to 3.25 %.

The amended loan is to be repaid from contributions by the Bank to the ESOP trust.

The Bank is required to make contributions to the ESOP in amounts at least equal to the principal and interest requirement of the debt.

On November 9, 2021, the ESOP borrowed an additional $ 3.2 million from the Company to fund the purchase of 145,693 shares of common stock (“2021 loan”), and the loan had a fixed interest rate of 0.22 % that matures on December 31, 2023.

Both the amended loan and 2021 loan are to be repaid from contributions by the Bank to the ESOP trustee.

The Bank is required to make contributions to the ESOP in amounts at least equal to the principal and interest requirement of both debts.

The Bank’s obligation to make such contributions is reduced to the extent of any dividends paid by the Company on unallocated shares and any investment earnings realized on such dividends.

As of December 31, 2020 and 2019, contributions to the ESOP, which were used to fund principal and interest payments on the ESOP debt, totaled $ 1.5 million.

As of December 31, 2021 and 2020, contributions to the ESOP, which were used to fund principal and interest payments on the ESOP loans, totaled $ 2.3 million and $ 1.5 million, respectively.

During 2021 and 2020, $ 268,000 and $ 313,000 , respectively, of dividends paid on unallocated ESOP shares were used for debt service.

2 unchanged sentences

The unamortized balance of the ESOP is shown as unallocated common stock held by the ESOP and is reflected as a reduction of stockholders’ equity.

For the year ended December 31, 2020, the Bank recorded compensation expense related to the ESOP of $ 1.1 million including $ 80,000 representing a decrease in compensation expense to reflect the decrease in the average fair value of shares committed to be released and allocated shares below the Bank’s cost.

For the years ended December 31, 2019 and 2018, the Bank recorded compensation expense related to the ESOP of $ 1.6 million, and $ 1.6 million, respectively, including $ 366,000 , and $ 596,000 ,

respectively, representing additional compensation expense to reflect the increase in the average fair value of shares committed to be released and allocated shares in excess of the Bank’s cost.

For the years ended December 31, 2021, and 2019, the Bank recorded compensation expense related to the ESOP of $ 2.2 million and $ 1.6 million, respectively, which included $ 179,000 and $ 366,000 , respectively, of additional compensation

expense to reflect the increase in the average fair value of shares committed to be released and allocated shares in access of the Bank’s cost.

For the year ended December 31, 2020, the Bank recorded compensation expense related to the ESOP of $ 1.1 million including $ 80,000 related to a decrease in compensation expense to reflect the decrease in the average fair value of shares committed to be released and allocated shares below the Bank’s cost.

As of December 31, 2021, 2,543,294 shares had been allocated to participants and 102,048 shares were committed to be released.

Incentive Plan

On May 5, 2011, the OceanFirst Financial Corp.

2011 Stock Incentive Plan, which authorizes the granting of stock options or awards of common stock, was approved by stockholders.

This plan was subsequently amended on June 2, 2017.

In January 2018, the Company implemented a performance-based stock plan for select senior management executives.

The OceanFirst Financial Corp.

2011 Stock Incentive Plan, which authorizes the granting of stock options or awards of common stock, was approved by stockholders in 2011.

This plan was subsequently amended in 2017 to increase the number of authorized shares available for grant and to update the performance goals under which performance-based awards may be granted.

In 2018, the Company implemented a performance-based stock plan for select senior management executives.

On May 20, 2020, the OceanFirst Financial Corp.

2020 Stock Incentive Plan, which also authorizes the granting of stock options or awards of common stock, was approved by stockholders.

The purpose of these plans is to attract and retain qualified personnel in key positions, provide officers, employees and non-employee directors (“Outside Directors”) with a proprietary interest in the Company as an incentive to contribute to the success of the Company, align the interests of management with those of other stockholders and reward employees for outstanding performance.

All officers, other employees and Outside Directors of the Company and its affiliates are eligible to receive awards under the plans.

Under the 2020 Stock Incentive Plan, the Company is authorized to issue up to 2,000,000 shares subject to option or, in lieu of options, up to 800,000 shares in the form of stock awards.

On March 24, 2021, the 2020 Stock Incentive Plan was amended to increase the number of shares authorized for issuance through equity awards.

The purpose of these plans is to attract and retain qualified personnel in key positions, provide officers, employees, and non-employee directors with a proprietary interest in the Company as an incentive to contribute to the success of the Company, align the interests of management with those of other stockholders and reward employees for outstanding performance.

All officers, other employees, and non-employee directors of the Company and its affiliates are eligible to receive awards under the plans.

Under the amended 2020 Stock Incentive Plan, the Company is authorized to issue up to 6,950,000 shares subject to option or, in lieu of options, up to 2,780,000 shares in the form of stock awards.

At December 31, 2021, 5,000,294 options or 2,000,118 awards remain available for issuance.

1 unchanged sentence

At December 31, 2021, 149,343 options or 59,737 awards remain available for issuance.

As part of the Sun acquisition, 491,248 options were granted in 2018 for the conversion of outstanding Sun options.

These options had a weighted average exercise price of $ 21.92 per option and were fully vested upon acquisition.

The Company will not recognize compensation expense in the future on these options as they were accounted for as part of the acquisition.

Stock awards generally vest at the rate of 20 % per year.

The Company granted to senior executives performance-based awards in 2020, 2019 and 2018, which vest in equal amounts over a five-year period (for 2020 and 2019 awards) or a three-year period (for 2018 awards) when a specific performance metric has been attained or exceeded.

Stock awards vest ratably over the vesting period.

The Company granted to senior executives performance-based awards in 2021, 2020 and 2019, which vest in equal amounts over a three - to five-year period when a specific performance metric has been attained or exceeded.

Tiered performance goals for each metric are aligned with corresponding tiered vesting values and have been set using financial data from the applicable strategic plan as approved by the Board.

The Company accrues expense for the performance-based awards based on the estimated probability of achievement of the defined performance goals.

The Company accrues expenses for the performance-based awards based on the estimated probability of achievement of the defined performance goals.

Options expire 10 years from the date of grant and generally vest at the rate of 20 % per year.

The exercise price of each option equals the closing market price of the Company’s stock on the date of grant.

The exercise price of each option equals the closing market price of the Company’s stock on the grant date.

The Company typically issues treasury shares or authorized but unissued shares to satisfy stock option exercises.

The Company recognizes the grant-date fair value of stock options and other stock-based compensation issued to employees in the income statement.

The modified prospective transition method was adopted and, as a result, the income statement includes $ 1.5 million, $ 973,000 , and $ 1.0 million, of expense for stock option grants and $ 2.8 million, $ 2.9 million, and $ 2.0 million, of expense for stock award grants, for the years ended December 31, 2020, 2019 and 2018, respectively.

At December 31, 2020, the Company had $ 12.5 million in compensation cost related to non-vested options and stock awards not yet recognized.

The modified prospective transition method was adopted and, as a result, the income statement includes $ 1.2 million, $ 1.5 million, and $ 973,000 , of expenses for stock option grants and $ 4.2 million, $ 2.8 million, and $ 2.9 million, of expense for stock award grants, for the years ended December 31, 2021, 2020 and 2019, respectively.

At December 31, 2021, the Company had $ 14.7 million in compensation costs related to non-vested options and stock awards not yet recognized.

This cost will be recognized over the remaining vesting period of 2.79 years.

The fair value of stock options granted by the Company was estimated through the use of the Black-Scholes option pricing model applying the following assumptions:

2020 2019 2018

Risk-free interest rate 1.03 % 2.63 %

Expected option life 7 years 7 years 7 years

Expected option life 7 years 7 years

Expected volatility 23 % 21 %

2 unchanged sentences

Intrinsic value of options exercised during the year (in thousands) 2,499 2,994

For the year ended December 31, 2021, there were no stock options granted by the Company.

The risk-free interest rate is based on the U.S.

10 unchanged sentences

Granted — — 699,651 20.44 461,407 25.20

Assumed in acquisition — — — — 491,248 21.92

Exercised ( 264,717 ) 14.80 ( 213,506 ) 9.50 ( 227,189 ) 11.24

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The Company, in the normal course of business, is party to financial instruments and commitments which involve, to varying degrees, elements of risk in excess of the amounts recognized in the consolidated financial statements.

These financial instruments and commitments include unused consumer lines of credit and commitments to extend credit.

These financial instruments and commitments include unused consumer lines of credit, construction loan lines of credit, commercial lines of credit, and commitments to extend credit.

At December 31, 2021, the following commitments and contingent liabilities existed which are not reflected in the accompanying consolidated financial statements (in thousands):

December 31, 2021

Unused consumer and construction loan lines of credit (primarily floating-rate) $ 372,159

Unused commercial loan lines of credit (primarily floating-rate) 668,114

Unused consumer and residential construction loan lines of credit (primarily floating-rate) $ 358,586

Unused commercial and commercial construction loan lines of credit (primarily floating-rate) 1,011,233

Other commitments to extend credit:

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The Company’s fixed-rate loan commitments expire within 90 days of issuance and carried interest rates ranging from 1.43 % to 9.00 % at December 31, 2021.

At December 31, 2021, the Company had $ 9.1 million of unfunded capital commitments related to investment funds.

The Company’s maximum exposure to credit losses in the event of nonperformance by the other party to these financial instruments and commitments is represented by the contractual amounts.

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Refer to Note 17 Leases for the projected minimum lease commitments as of December 31, 2021.

The Company grants residential real estate and first mortgage commercial real estate loans to borrowers primarily located throughout New Jersey and the metropolitan areas of Philadelphia and New York City.

The ability of borrowers to repay their obligations is dependent upon various factors including the borrowers’ income and net worth, cash flows generated by the underlying collateral, value of the underlying collateral and priority of the Company’s lien on the property.

The Company grants residential real estate and first mortgage commercial real estate loans to borrowers primarily located throughout New Jersey and the major metropolitan markets of Philadelphia, New York, Baltimore, Washington D.C., and Boston.

The ability of borrowers to repay their obligations is dependent upon various factors including the borrowers’ income, net worth, cash flows generated by the underlying collateral, value of the underlying collateral, and priority of the Company’s lien on the property.

Such factors are dependent upon various economic conditions and individual circumstances beyond the Company’s control.

The Company is, therefore, subject to risk of loss.

A decline in real estate values could cause some residential and commercial real estate loans to become inadequately collateralized, which would expose the Bank to a greater risk of loss.

The Company believes its lending policies and procedures adequately minimize the potential exposure to such risks.

Collateral and/or guarantees are required for all loans.

A decline in real estate values could cause some residential and commercial real estate loans to become inadequately collateralized, which would expose the Company to a greater risk of loss.

The Company believes its lending policies and procedures adequately minimize the potential exposure to such risks and collateral and/or guarantees are required for most loans.

The Company is a defendant in certain claims and legal actions arising in the ordinary course of business.

5 unchanged sentences

Unallocated ESOP shares ( 360 ) ( 426 ) ( 493 )

Unallocated incentive award shares and shares held by deferred compensation plan

( 13 ) ( 42 ) ( 58 )

Unallocated incentive award shares ( 107 ) ( 13 ) ( 42 )

Average basic shares outstanding 59,406 59,919 50,166

Effect of dilutive securities:

Incentive awards and shares held by deferred compensation plan 153 580 884

Incentive awards 243 153 580

Average diluted shares outstanding 59,649 60,072 50,746

3 unchanged sentences

A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or in the absence of a principal market, the most advantageous market for the asset or liability.

The price in the principal (or the most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs.

The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs.

An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities;

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Equity Investments

Equity investments are reported at fair value.

Fair value for these investments is primarily determined using a quoted price in an active market or exchange (Level 1).

Equity securities include convertible preferred stock for which fair value was determined using broker or dealer quotes with limited levels of activity and price transparency (Level 3).

Interest Rate Swaps

The Company’s interest rate swaps are reported at fair value utilizing models provided by an independent, third-party and observable market data.

When entering into an interest rate swap agreement, the Company is exposed to fair value changes due to interest rate movements, and also the potential nonperformance of our contract counterparty.

Equity investments with readily determinable fair value are reported at fair value.

Fair value for these investments is primarily determined using a quoted price in an active market or exchange (Level 1) or using inputs other than quoted prices that are based on market observable information (Level 2).

Fair value for certain securities, including convertible preferred stock, was determined using broker or dealer quotes with limited levels of activity and price transparency (Level 3).

Interest Rate Derivatives

The Company’s interest rate swaps and cap contracts are reported at fair value utilizing discounted cash flow models provided by an independent, third-party and observable market data (Level 2).

When entering into an interest rate swap or cap contract, the Company is exposed to fair value changes due to interest rate movements, and also the potential nonperformance of the contract counterparty.

Other Real Estate Owned and Loans Individually Measured for Impairment

Other real estate owned and loans measured for impairment based on the fair value of the underlying collateral are recorded at estimated fair value, less estimated selling costs.

Fair value is based on independent appraisals.

Fair value is based on independent appraisals (Level 3).

The following table summarizes financial assets and financial liabilities measured at fair value as of December 31, 2021 and 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

7 unchanged sentences

Equity investments 90,726 14,608 73,400 2,718

Interest rate swaps asset 45,289 — 45,289 —

Interest rate swaps liability ( 45,429 ) — ( 45,429 ) —

Interest rate derivative assets 22,787 — 22,787 —

Interest rate derivative liabilities ( 22,855 ) — ( 22,855 ) —

Items measured on a non-recurring basis:

Equity investments 10,429 — — 10,429

Other real estate owned 106 — — 106

5 unchanged sentences

Equity investments 107,079 104,539 — 2,540

Interest rate swaps asset 10,141 — 10,141 —

Interest rate swaps liability ( 10,708 ) — ( 10,708 ) —

Interest rate derivative assets 45,289 — 45,289 —

Interest rate derivative liabilities ( 45,429 ) — ( 45,429 ) —

Items measured on a non-recurring basis:

2 unchanged sentences

35,366 — — 35,366

The Company recognizes transfers between levels of the valuation hierarchy at the end of the applicable reporting periods.

There were no transfers of assets between Level 1 and Level 2 during the years ended December 31, 2020 and 2019.

The following table reconciles, for the year ended December 31, 2020, the beginning and ending balances for debt securities available-for-sale that are recognized at fair value on a recurring basis, in the consolidated statements of financial condition, using significant unobservable inputs (in thousands):

For the Year Ended

December 31, 2020

The following table reconciles, for the year ended December 31, 2021 and 2020, the beginning and ending balances for equity investments and debt securities available-for-sale that are recognized at fair value on a recurring basis, in the Consolidated Statements of Financial Condition, using significant unobservable inputs (in thousands):

For the Year Ended December 31,

Equity Investments Equity Investments Debt Securities

Beginning balance $ 2,540 $ — $ 25

Total gains (losses) included in earnings —

Purchases — 2,000 2,377

Transfers into Level 3 —

Transfers out of Level 3 —

Total gains included in earnings 178 540 —

Maturities — — ( 2,402 )

Ending balance $ 2,718 $ 2,540 $ —

The Company purchased $ 2.4 million (fair value) of equity investments, consisting of convertible preferred stock, classified as Level 3 at December 31, 2020 as the fair value was determined using broker or dealer quotes with limited levels of activity and price transparency.

There were no debt securities in Level 3 for the year ended December 31, 2021.

The Company recognizes transfers between levels of the valuation hierarchy at the end of the applicable reporting periods.

There were no transfers into or out of Level 3 assets or liabilities in the fair value hierarchy for the years ended December 31, 2021 and 2020.

Assets and Liabilities Disclosed at Fair Value

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The Company determines the fair value of the debt securities utilizing Level 2 and, infrequently, Level 3 inputs.

Most of the Company’s investment and mortgage-backed securities, are fixed income instruments that are not quoted on an exchange, but are bought and sold in active markets.

Most of the Company’s debt securities are fixed income instruments that are not quoted on an exchange, but are bought and sold in active markets.

Prices for these instruments are obtained through third-party pricing vendors or security industry sources that actively participate in the buying and selling of debt securities.

3 unchanged sentences

Management reviews this documentation, makes inquiries of the third-party pricing service and decides as to the level of the valuation inputs.

Based on the Company’s review of the available documentation from the third-party pricing service, management concluded that Level 2 inputs were utilized for all securities except for certain state and municipal obligations known as BANs as well as certain debt securities where management utilized Level 3 inputs, such as broker or dealer quotes with limited levels of activity and price transparency.

Based on the Company’s review of the available documentation from the third-party pricing service, management concluded that Level 2 inputs were utilized for all securities except for certain state and municipal obligations, known as bond anticipation notes, as well as certain debt securities where management utilized Level 3 inputs, such as broker or dealer quotes with limited levels of activity and price transparency.

Restricted Equity Investments

The fair value for Federal Home Loan Bank of New York and Federal Reserve Bank stock is its carrying value since this is the amount for which it could be redeemed.

There is no active market for this stock and the Company is required to maintain a minimum investment as stipulated by the respective agencies.

The fair value for Federal Home Loan Bank of New York, Federal Reserve Bank stock, and Atlantic Community Bankers Bank is its carrying value since this is the amount for which it could be redeemed.

There is no active market for this stock and the Company is required to maintain a minimum investment as stipulated by the respective entities.

Loans Receivable and Loans Held-for-Sale

3 unchanged sentences

Fair value of performing and non-performing loans was estimated by discounting the future cash flows, net of estimated prepayments, at a rate for which similar loans would be originated to new borrowers with similar terms.

In accordance with the prospective adoption of ASU 2016-01, the fair value of loans was measured using the exit price notion.

The fair value of loans was measured using the exit price notion.

Deposits Other than Time Deposits

8 unchanged sentences

Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.

The book value and estimated fair value of the Bank’s significant financial instruments not recorded at fair value as of December 31, 2020 and December 31, 2019 are presented in the following tables (in thousands):

The book value and estimated fair value of the Company’s significant financial instruments not recorded at fair value as of December 31, 2021 and 2020 are presented in the following tables (in thousands):

Fair Value Measurements at Reporting Date Using

5 unchanged sentences

Cash and due from banks $ 204,949 $ 204,949 $ — $ —

$ 1,272,134 $ 1,272,134 $ — $ —

Debt securities held-to-maturity

9 unchanged sentences

775,001 — 773,766 —

FHLB advances and other borrowings 235,471 — 251,798 —

Other borrowings 229,141 — 251,491 —

Securities sold under agreements to repurchase with retail customers

15 unchanged sentences

1,372,783 — 1,383,173 —

FHLB advances and other borrowings 616,061 — 626,225 —

Other borrowings 235,471 — 251,798 —

Securities sold under agreements to repurchase with retail customers

2 unchanged sentences

These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.

Because a limited market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other significant unobservable inputs.

Because a limited market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience,

current economic conditions, risk characteristics of various financial instruments and other significant unobservable inputs.

These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision.

9 unchanged sentences

The Company does not use derivative financial instruments for trading purposes.

Customer Derivatives – Interest Rate Swaps

Customer Derivatives – Interest Rate Swaps and Cap Contracts

The Company enters into interest rate swaps that allow commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement.

1 unchanged sentence

The Company then enters into a corresponding swap agreement with a third party in order to economically hedge its exposure through the customer agreement.

The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC Topic 815, Derivatives and Hedging, and are marked to market through earnings.

As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings;

The Company also enters into interest rate cap contracts that enable commercial loan customers to lock in a cap on a variable-rate commercial loan agreement.

This feature prevents the loan from repricing to a level that exceeds the cap contract’s specified interest rate, which serves to hedge the risk from rising interest rates.

The Company then enters into an offsetting interest rate cap contract with a third party in order to economically hedge its exposure through the customer agreement.

The interest rate swaps and cap contracts with both the customers and third parties are not designated as hedges under FASB Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging, and are marked to market through earnings.

As the interest rate swaps and cap contracts are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings;

however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC Topic 820, Fair Value Measurements.

For the period ended December 31, 2020, the Company recognized a gain of $ 428,000 , and for the period ended December 31, 2019 the Company recognized a loss of $ 478,000 , in other income resulting from a fair value adjustment.

The Company recognized gains of $ 72,000 and $ 428,000 , and a loss of $ 478,000 in other income resulting from fair value adjustments for the period ended December 31, 2021, 2020 and 2019, respectively.

The notional amount of derivatives not designated as hedging instruments was $ 938.7 million and $ 725.9 million at December 31, 2021 and 2020, respectively.

10 unchanged sentences

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

The Company’s leases are comprised of real estate property for branches, ATM locations and office space with terms extending through 2050.

The Company has one existing finance lease, which was acquired in the Sun acquisition and has a lease term through 2029.

The following table represents the classification of the Company’s ROU assets and lease liabilities on the consolidated statements of financial condition (in thousands):

The Company’s leases are comprised of real estate property for branches, automated teller machine locations and office space with terms extending through 2050.

The Company has one existing finance lease, which has a lease term through 2029.

The following table represents the classification of the Company’s right-of-use (“ROU”) assets and lease liabilities on the consolidated statements of financial condition (in thousands):

For the Year Ended

December 31, 2021 December 31, 2020

Lease ROU Assets Classification

Operating lease ROU asset Other assets $ 22,555 $ 18,682

Operating lease ROU assets Other assets $ 17,442 $ 22,555

Finance lease ROU asset Premises and equipment, net 1,495 1,694

Total lease ROU asset $ 24,249 $ 20,216

Total lease ROU assets $ 18,937 $ 24,249

Lease Liabilities

Operating lease liability Other liabilities $ 22,990 $ 18,893

Operating lease liabilities (1)

Other liabilities $ 17,982 $ 22,990

Finance lease liability Other borrowings 1,904 2,100

Total lease liability $ 25,090 $ 20,846

Total lease liabilities $ 19,886 $ 25,090

(1) Operating lease liabilities excludes liabilities for future rent and lease termination payments related to closed branches of $ 8.2 million and $ 7.4 million as of December 31, 2021 and 2020, respectively.

The calculated amount of the ROU assets and lease liabilities are impacted by the lease term and the discount rate used to calculate the present value of the minimum lease payments.

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The following table represents lease expenses and other lease information (in thousands):

For Year Ended December 31, 2020 For Year Ended December 31, 2019

For the Year Ended December 31,

2021 2020 2019

Lease Expense

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All other costs are included in occupancy expense.

During the year ended December 31, 2021, the Company sold two branches, including owned premises and equipment, all deposits associated with the branches, and selected performing loans.

The Company recognized $ 2.0 million of gains related to the sale, which is presented in branch consolidation expense on the Consolidated Statements of Income.

The Company also consolidated 4 branches in early 2021, 9 branches in late 2021, and expects to consolidate 10 branches and 1 deposit gathering location in early 2022.

These plans have resulted in a shortened estimated useful life for premises and equipment and accelerated recognition of lease expenses associated with these locations, which the effect on income totaled $ 13.0 million and is presented in branch consolidation expense and is excluded from the table above.

Other operating expenses related to these closures totaled $ 1.3 million and are presented in branch consolidation expense.

Future minimum payments for the finance lease and operating leases with initial or remaining terms of one year or more as of December 31, 2021 were as follows (in thousands):

Finance Lease Operating Leases

For the Twelve Months Ended December 31,

For the Year Ending December 31,

2022 $ 307 $ 4,404

15 unchanged sentences

Advances to Bank 63,480 101,304

Investment securities

Equity securities 87,622 93,207

ESOP loan receivable

15 unchanged sentences

$ 40,000 $ 54,000 $ 79,000

Interest and dividend income – investment securities

Interest and dividend income – debt and equity securities 2,070 949 63

Interest income – advances to subsidiary Bank 298 403 426

8 unchanged sentences

35,747 62,139 71,722

(Provision) benefit for income taxes ( 2,901 ) 924 846

Benefit (Provision) for income taxes 1,018 ( 2,901 ) 924

Income before undistributed earnings of subsidiary Bank

9 unchanged sentences

Net income $ 110,076 $ 63,309 $ 88,574

(Increase) decrease in advances to subsidiary Bank ( 73,426 ) ( 13,852 ) 15,262

Decrease (increase) in advances to subsidiary Bank 37,824 ( 73,426 ) ( 13,852 )

Undistributed earnings of subsidiary Bank ( 73,311 ) ( 4,071 ) ( 15,928 )

Net gain on sales of investment securities ( 20,460 ) — —

Net gain on equity investments ( 7,499 ) ( 20,460 ) —

Net premium amortization in excess of discount accretion on securities 755 — —

Amortization of deferred costs on borrowings 824 576 261

1 unchanged sentence

Change in other assets and other liabilities 7,359 648 ( 184 )

Net cash (used in) provided by operating activities ( 32,786 ) 59,324 46,371

Net cash provided by (used in) operating activities 76,570 ( 32,786 ) 59,324

Cash flows from investing activities:

Proceeds from sale of investment securities 15,339 — —

Purchase of investment securities ( 95,228 ) — —

Proceeds from sales of equity investments 98,791 15,339 —

Purchase of equity investments ( 86,462 ) ( 95,228 ) —

Increase in ESOP loan receivable ( 3,200 ) — —

Repayments on ESOP loan receivable 2,040 1,200 1,160

Net cash (used in) provided by investing activities ( 78,689 ) 1,160 ( 7,380 )

Net cash provided by (used in) investing activities 11,169 ( 78,689 ) 1,160

Cash flows from financing activities:

Net proceeds from issuance of subordinated notes — 122,180 —

Repayment of borrowings ( 7,999 ) — —

Repayments of other borrowings ( 7,500 ) ( 7,999 ) —

Dividends paid ( 44,510 ) ( 42,917 ) ( 34,241 )

6 unchanged sentences

Cash and due from banks at end of year $ 8,803 $ 7,187 $ 5,442

Supplemental disclosure of cash flow information:

Non-cash activities:

Unsettled trades of equity securities $ 8,142 $ — $ —

SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA

(dollars in thousands, except per share data)

For the Quarter Ended

December 31 September 30 June 30 March 31

Interest income

$ 92,562 $ 92,962 $ 95,877 $ 98,207

Interest expense

14,711 16,174 17,210 18,562

Net interest income

77,851 76,788 78,667 79,645

Credit loss expense 4,072 35,714 9,649 9,969

Net interest income after credit loss expense 73,779 41,074 69,018 69,676

Other income (excluding net gain (loss) on equity investments and gain on sale of PPP loans) 11,032 11,755 11,282 13,542

Net gain (loss) on equity investments 24,487 ( 3,576 ) 148 155

Gain on sale of PPP loans 5,101 — — —

Operating expenses (excluding FHLB advance prepayment fees, branch consolidation and merger related expenses) 53,053 52,801 51,075 51,675

FHLB advance prepayment fees 13,333 — 924 —

Branch consolidation expense 3,336 830 863 2,594

Merger related expenses 1,194 3,156 3,070 8,527

Income (loss) before provision (benefit) for income taxes 43,483 ( 7,534 ) 24,516 20,577

Provision (benefit) for income taxes 10,419 ( 2,608 ) 5,878 4,044

Net income (loss) $ 33,064 $ ( 4,926 ) $ 18,638 $ 16,533

Net income (loss) available to common stockholders $ 32,060 $ ( 6,019 ) $ 18,638 $ 16,533

Basic earnings (loss) per share $ 0.53 $ ( 0.10 ) $ 0.31 $ 0.28

Diluted earnings (loss) per share $ 0.54 $ ( 0.10 ) $ 0.31 $ 0.27

Interest income

$ 77,075 $ 76,887 $ 78,410 $ 76,422

Interest expense

13,721 13,495 13,573 12,034

Net interest income

63,354 63,392 64,837 64,388

Credit loss expense 355 305 356 620

Net interest income after credit loss expense 62,999 63,087 64,481 63,768

11,231 11,543 9,879 9,512

Operating expenses (excluding merger related expenses and branch consolidation expenses)

43,589 40,884 43,289 41,827

Merger related and branch consolidation expenses

4,010 2,473 7,626 5,444

Income before provision for income taxes

26,631 31,273 23,445 26,009

Provision for income taxes

3,181 6,302 4,465 4,836

$ 23,450 $ 24,971 $ 18,980 $ 21,173

Basic earnings per share

$ 0.47 $ 0.50 $ 0.37 $ 0.43

Diluted earnings per share

$ 0.47 $ 0.49 $ 0.37 $ 0.42

Subsequent Events

In February 2022 , the Company signed an agreement to acquire a majority interest in Trident Abstract Title Agency, LLC with the right to acquire 100 %.

This transaction will provide an additional source of non-interest income to benefit the Company.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data