What changed in this filing

/stocks — the workspaceLOADING

Item 4. Controls and Procedures

2022-05-05 compared with 2021-11-04 · 248 added, 464 removed, 632 unchanged (53% of the section changed)

5 unchanged sentences

(b) Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

OceanFirst Financial Corp.

1 unchanged sentence

(dollars in thousands, except per share amounts)

September 30, December 31,

March 31, December 31,

Cash and due from banks $ 210,919 $ 204,949

Debt securities available-for-sale, at estimated fair value 546,470 568,255

Debt securities held-to-maturity, net of allowance for securities credit losses of $ 1,503 at September 30, 2021 and $ 1,715 at December 31, 2020 (estimated fair value of $ 1,143,381 at September 30, 2021 and $ 968,466 at December 31, 2020)

Debt securities held-to-maturity, net of allowance for securities credit losses of $ 1,380 at March 31, 2022 and $ 1,467 at December 31, 2021 (estimated fair value of $ 1,050,892 at March 31, 2022 and $ 1,152,744 at December 31, 2021)

1,099,514 1,139,193

1 unchanged sentence

Restricted equity investments, at cost 56,704 53,195

Loans receivable, net of allowance for loan credit losses of $ 50,153 at September 30, 2021 and $ 60,735 at December 31, 2020

Loans receivable, net of allowance for loan credit losses of $ 50,598 at March 31, 2022 and $ 48,850 at December 31, 2021

9,065,679 8,583,352

Loans held-for-sale 13,428 45,524

Interest and dividends receivable 33,353 32,606

9 unchanged sentences

Deposits $ 10,056,233 $ 9,732,816

Securities sold under agreements to repurchase with retail customers 143,292 128,454

Federal Home Loan Bank (“FHLB”) advances 75,002 —

Securities sold under agreements to repurchase with customers 117,782 118,769

Other borrowings 194,396 229,141

3 unchanged sentences

Stockholders’ equity:

Preferred stock, $ 0.01 par value, $ 1,000 liquidation preference, 5,000,000 shares authorized, and 57,370 shares issued at both September 30, 2021 and December 31, 2020

Common stock, $ 0.01 par value, 150,000,000 shares authorized, 61,526,126 and 61,040,894 shares issued at September 30, 2021 and December 31, 2020, respectively;

and 59,417,266 and 60,392,043 shares outstanding at September 30, 2021 and December 31, 2020, respectively

Preferred stock, $ 0.01 par value, $ 1,000 liquidation preference, 5,000,000 shares authorized, and 57,370 shares issued at both March 31, 2022 and December 31, 2021

Common stock, $ 0.01 par value, 150,000,000 shares authorized, 61,849,762 and 61,535,381 shares issued at March 31, 2022 and December 31, 2021, respectively;

and 59,388,983 and 59,175,046 shares outstanding at March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital 1,149,503 1,146,781

Retained earnings 456,251 442,306

Accumulated other comprehensive (loss) income ( 734 ) 621

Accumulated other comprehensive loss ( 15,170 ) ( 2,821 )

Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") ( 8,009 ) ( 8,615 )

Treasury stock, 2,108,860 and 648,851 shares at September 30, 2021 and December 31, 2020, respectively

Treasury stock, 2,460,779 and 2,360,335 shares at March 31, 2022 and December 31, 2021, respectively

( 63,854 ) ( 61,710 )

3 unchanged sentences

OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

For the Three Months Ended March 31,

Interest income:

8 unchanged sentences

Net interest income 84,227 73,604

Credit loss (benefit) expense ( 3,179 ) 35,714 ( 10,259 ) 55,332

Net interest income after credit loss (benefit) expense 80,311 41,074 235,011 179,768

Credit loss expense (benefit) 1,851 ( 620 )

Net interest income after credit loss expense (benefit) 82,376 74,224

Other income:

2 unchanged sentences

Fees and service charges 3,060 3,737

Net (loss) gain on sales of loans ( 15 ) 1,001 3,180 1,930

Net gain on sales of loans 177 1,916

Net (loss) gain on equity investments ( 2,786 ) 8,287

Net (loss) gain from other real estate operations ( 3 ) 214 ( 12 ) 12

Net loss from other real estate operations ( 2 ) ( 8 )

Income from bank owned life insurance 2,103 1,415

11 unchanged sentences

Professional fees 3,322 2,837

Other operating expense 4,477 3,644 11,315 11,784

Federal Home Loan Bank (“FHLB”) prepayment fees — — — 924

Amortization of core deposit intangible 1,210 1,395

Branch consolidation expense 4,014 830 5,051 4,287

Branch consolidation expense, net 402 1,011

Merger related expenses 1,965 381

Other operating expense 3,563 3,353

Total operating expenses 57,495 51,683

Income (loss) before provision (benefit) for income taxes 31,521 ( 7,534 ) 115,506 37,559

Provision (benefit) for income taxes 7,354 ( 2,608 ) 28,087 7,314

Net income (loss) 24,167 ( 4,926 ) 87,419 30,245

Income before provision for income taxes 33,733 43,376

Provision for income taxes 7,974 10,679

Net income 25,759 32,697

Dividends on preferred shares 1,004 1,004

Net income (loss) available to common stockholders $ 23,163 $ ( 6,019 ) $ 84,407 $ 29,152

Basic earnings (loss) per share $ 0.40 $ ( 0.10 ) $ 1.42 $ 0.49

Diluted earnings (loss) per share $ 0.39 $ ( 0.10 ) $ 1.41 $ 0.49

Net income available to common stockholders $ 24,755 $ 31,693

Basic earnings per share $ 0.42 $ 0.53

Diluted earnings per share $ 0.42 $ 0.53

Average basic shares outstanding 58,739 59,840

2 unchanged sentences

OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

Net income (loss) $ 24,167 $ ( 4,926 ) $ 87,419 $ 30,245

For the Three Months Ended March 31,

Net income $ 25,759 $ 32,697

Other comprehensive (loss) income:

Unrealized (loss) gain on debt securities (net of tax benefit of $ 232 and $ 446 in 2021 and net of tax benefit of $ 105 and net of tax expense of $ 604 in 2020, respectively)

( 855 ) ( 461 ) ( 1,658 ) 1,644

Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $ 66 and $ 209 in 2021 and $ 75 and $ 235 in 2020, respectively)

Net unrealized loss on debt securities (net of tax benefit of $ 3,928 in 2022 and $ 112 in 2021)

( 12,372 ) ( 416 )

Reclassification adjustment for gains included in net income (net of tax expense of $ 45 and $ 45 in 2020)

Total other comprehensive (loss) income ( 760 ) ( 185 ) ( 1,355 ) 2,148

Total comprehensive income (loss) 23,407 ( 5,111 ) 86,064 32,393

Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $ 65 in 2022 and $ 73 in 2021)

Reclassification adjustment for losses included in net income (net of tax benefit of $ 21 in 2022)

Total other comprehensive loss, net of tax ( 12,349 ) ( 309 )

Total comprehensive income 13,410 32,388

Dividends on preferred shares 1,004 1,004

Comprehensive income (loss) available to common stockholders $ 22,403 $ ( 6,204 ) $ 83,052 $ 31,300

See accompanying Notes to Unaudited Consolidated Financial Statements.

OceanFirst Financial Corp.

Consolidated Statements of Changes in Stockholders’ Equity

(dollars in thousands, except per share amounts)

For the Three Months Ended September 30, 2021 and 2020

Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

(Loss) Income Employee

Plan Treasury

Balance at June 30, 2020 $ 1 $ 609 $ 1,135,839 $ 372,552 $ 1,125 $ ( 8,041 ) $ ( 25,651 ) $ 1,476,434

Net loss — — — ( 4,926 ) — — — ( 4,926 )

Other comprehensive income, net of tax — — — — ( 185 ) — — ( 185 )

Stock compensation — — 1,250 — — — — 1,250

Allocation of ESOP stock — — ( 46 ) — — 304 — 258

Cash dividend $ 0.17 per share

— — — ( 10,136 ) — — — ( 10,136 )

Exercise of stock options — — 296 — — — — 296

Issuance of preferred equity, net of costs — — ( 184 ) — — — — ( 184 )

Preferred stock dividend — — — ( 1,093 ) — — — ( 1,093 )

Balance at September 30, 2020 $ 1 $ 609 $ 1,137,155 $ 356,397 $ 940 $ ( 7,737 ) $ ( 25,651 ) $ 1,461,714

Balance at June 30, 2021 $ 1 $ 611 $ 1,143,907 $ 417,658 $ 26 $ ( 6,824 ) $ ( 46,590 ) $ 1,508,789

Net income — — — 24,167 — — — 24,167

Other comprehensive loss, net of tax — — — — ( 760 ) — — ( 760 )

Stock compensation — — 1,505 — — — — 1,505

Allocation of ESOP stock — — 31 — — 305 — 336

Cash dividend $ 0.17 per share

— — — ( 10,100 ) — — — ( 10,100 )

Exercise of stock options — — 5 — — — — 5

Repurchase 460,009 shares of common stock

— — — — — — ( 9,689 ) ( 9,689 )

Preferred stock dividend — — — ( 1,004 ) — — — ( 1,004 )

Balance at September 30, 2021 $ 1 $ 611 $ 1,145,448 $ 430,721 $ ( 734 ) $ ( 6,519 ) $ ( 56,279 ) $ 1,513,249

Comprehensive income available to common stockholders $ 12,406 $ 31,384

See accompanying Notes to Unaudited Consolidated Financial Statements.

2 unchanged sentences

(dollars in thousands, except per share amounts)

For the Nine Months Ended September 30, 2021 and 2020

For the Three Months Ended March 31, 2022 and 2021

Stock Additional

6 unchanged sentences

Net income — — — 32,697 — — — 32,697

Other comprehensive income, net of tax — — — — 2,148 — — 2,148

Other comprehensive loss, net of tax — — — — ( 309 ) — — ( 309 )

Stock compensation — — 1,237 — — — — 1,237

Effect of adopting Accounting Standards Update(“ASU”) No.

2016-13 — — — ( 4 ) — — — ( 4 )

Allocation of ESOP stock — — 48 — — 304 — 352

4 unchanged sentences

— — — — — — ( 9,994 ) ( 9,994 )

Issuance of preferred equity, net of costs 1 — 55,528 — — — — 55,529

Preferred stock dividend — — — ( 1,004 ) — — — ( 1,004 )

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

Acquisition of Country Bank Holding Company, Inc.

— 44 112,792 — — — — 112,836

Balance at September 30, 2020 $ 1 $ 609 $ 1,137,155 $ 356,397 $ 940 $ ( 7,737 ) $ ( 25,651 ) $ 1,461,714

Balance at March 31, 2021 $ 1 $ 610 $ 1,142,290 $ 398,280 $ 312 $ ( 7,129 ) $ ( 35,645 ) $ 1,498,719

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

9 unchanged sentences

Preferred stock dividend — — — ( 1,004 ) — — — ( 1,004 )

Balance at September 30, 2021 $ 1 $ 611 $ 1,145,448 $ 430,721 $ ( 734 ) $ ( 6,519 ) $ ( 56,279 ) $ 1,513,249

Balance at March 31, 2022 $ 1 $ 612 $ 1,149,503 $ 456,251 $ ( 15,170 ) $ ( 8,009 ) $ ( 63,854 ) $ 1,519,334

See accompanying Notes to Unaudited Consolidated Financial Statements.

2 unchanged sentences

(dollars in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash flows from operating activities:

11 unchanged sentences

Net amortization of deferred costs and discounts on loans 255 437

(Benefit) provision for credit losses ( 10,259 ) 55,332

Net gain on sale and write-down of other real estate owned — ( 101 )

Provision (benefit) for credit losses 1,851 ( 620 )

Net write down of fixed assets held-for-sale to net realizable value 1,404 427

Net loss on sale of fixed assets 11 6

Net (gain) loss on equity securities ( 8,397 ) 3,220

Net loss (gain) on equity securities 2,786 ( 8,287 )

Net gain on sales of loans ( 177 ) ( 1,916 )

2 unchanged sentences

Increase in value of bank owned life insurance ( 2,103 ) ( 1,415 )

Net gain on sale of assets held for sale ( 318 ) —

Decrease (increase) in interest and dividends receivable 2,757 ( 14,836 )

Deferred tax provision 570 99

Decrease in other assets 29,366 2,301

(Decrease) increase in other liabilities ( 37,311 ) 71,285

Net (gain) loss on sale of assets held for sale ( 1,200 ) 22

(Increase) decrease in interest and dividends receivable ( 747 ) 2,450

Deferred tax benefit ( 30 ) ( 57 )

(Increase) decrease in other assets ( 14,777 ) 27,442

Increase (decrease) in other liabilities 39,272 ( 21,610 )

Total adjustments 31,885 4,176

8 unchanged sentences

Purchase of equity investments ( 2,292 ) ( 10,575 )

Proceeds from sale of equity investments 98,776 891

Proceeds from maturities and calls of debt securities available-for-sale 45,000 22,850

1 unchanged sentence

Proceeds from sales of debt securities available-for-sale 22,857 —

Proceeds from sale of equity investments 4,579 99,060

Principal repayments on debt securities available-for-sale — 46

3 unchanged sentences

Purchases of restricted equity investments ( 30,100 ) ( 485 )

Proceeds from sales of other real estate owned — 713

Proceeds from sales of assets held-for-sale 4,492 420

Purchases of premises and equipment ( 7,708 ) ( 5,336 )

Net cash consideration received for acquisition — 23,460

Net cash used in investing activities ( 424,685 ) ( 223,159 )

2 unchanged sentences

(dollars in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash flows from financing activities:

Increase in deposits $ 323,641 $ 75,694

Increase (decrease) in short-term borrowings 14,838 ( 211,649 )

(Decrease) increase in short-term borrowings ( 987 ) 6,011

Proceeds from FHLB advances 75,002 —

Repayments of FHLB advances — ( 496,200 )

Proceeds from Federal Reserve Bank advances — 3,778

Net proceeds from issuance of subordinated notes — 122,180

Repayments of other borrowings ( 35,026 ) ( 7,529 )

3 unchanged sentences

Purchase of treasury stock ( 2,144 ) ( 9,994 )

Net proceeds from the issuance of preferred stock — 55,529

Dividends paid ( 10,997 ) ( 11,156 )

Net cash provided by financing activities 353,433 57,378

Net (decrease) increase in cash and due from banks and restricted cash ( 310,989 ) 905,181

Net decrease in cash and due from banks and restricted cash ( 13,608 ) ( 128,908 )

Cash and due from banks and restricted cash at beginning of period 224,784 1,318,661

12 unchanged sentences

Accretion of unrealized loss on securities reclassified to held-to-maturity 154 180

Net loan (recoveries) charge-offs ( 442 ) 15,917

Net loan recoveries ( 92 ) ( 280 )

Transfer of loans receivable to loans held-for-sale 12,011 —

Transfer of premises and equipment to assets held-for-sale 2,776 —

Transfer of loans receivable to other real estate owned — 106

Non-cash assets acquired:

Securities $ — $ 208,880

Restricted equity investments — 5,334

Loans — 1,558,480

Premises and equipment — 9,744

Accrued interest receivable — 4,161

Bank owned life insurance — 22,440

Deferred tax assets, net — ( 509 )

Other assets — 10,073

Goodwill and other intangible assets, net — 140,031

Total non-cash assets acquired $ — $ 1,958,634

Liabilities assumed:

Deposits $ — $ 1,594,403

Borrowings — 92,618

Other liabilities — 33,628

Total liabilities assumed $ — $ 1,720,649

See accompanying Notes to Unaudited Consolidated Financial Statements.

6 unchanged sentences

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.

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 interim consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results of operations that may be expected for the full year 2021 or any other period.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that may be expected for the full year 2022 or any other period.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and the results of operations for the period.

4 unchanged sentences

Notes to Unaudited Consolidated Financial Statements (Continued)

Business Combinations

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 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.

Two River 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 Two River, net of total consideration paid (in thousands):

At January 1, 2020

Total purchase price:

Assets acquired:

Cash and cash equivalents $ 51,102

Securities 64,381

Loans 940,072

Accrued interest receivable 2,382

Bank owned life insurance 22,440

Deferred tax assets, net 3,158

Other assets 15,956

Core deposit intangible 12,130

Total assets acquired 1,111,621

Liabilities assumed:

Deposits ( 941,750 )

Other liabilities ( 59,026 )

Total liabilities assumed ( 1,000,776 )

Net assets acquired $ 110,845

Goodwill recorded in the merger $ 86,205

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.

As of January 1, 2021, the Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Country Bank Holding Company, Inc.

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 of assets, $ 618.4 million of loans, and $ 652.7 million of deposits.

Total consideration paid for Country Bank was $ 112.8 million.

Country Bank 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 Country Bank, net of total consideration paid (in thousands):

At January 1, 2020

Total purchase price:

Assets acquired:

Cash and cash equivalents $ 20,799

Securities 144,499

Loans 618,408

Accrued interest receivable 1,779

Deferred tax assets, net ( 3,117 )

Other assets 9,195

Core deposit intangible 2,117

Total assets acquired 793,680

Liabilities assumed:

Deposits ( 652,653 )

Other liabilities ( 67,240 )

Total liabilities assumed ( 719,893 )

Net assets acquired $ 73,787

Goodwill recorded in the merger $ 39,049

As of January 1, 2021, the Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value.

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 and Country Bank acquisitions were as follows.

Refer to Note 7, Fair Value Measurements, for a discussion of the fair value hierarchy.

The estimated fair values of the securities were calculated utilizing Level 2 inputs.

The securities acquired are bought and sold in active markets.

Prices for these instruments were obtained through security industry sources that actively participate in the buying and selling of securities.

The acquired loan portfolio was valued utilizing Level 3 inputs and included the use of present value techniques employing cash flow estimates and incorporated assumptions that marketplace participants would use in estimating fair values.

In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine reasonable fair value.

Specifically, the Company utilized three separate fair value analyses which a market participant would employ in estimating the total fair value adjustment.

The three separate fair valuation methodologies used were:

1) interest rate loan fair value analysis;

2) general credit fair value adjustment;

and 3) specific credit fair value adjustment.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

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 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 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 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 have experienced more-than-insignificant deterioration in credit quality since origination.

Loans meeting this criteria were reviewed by comparing the contractual cash flows to expected collectible cash flows.

The aggregate expected cash flows less the acquisition date fair value resulted in an accretable yield amount which will be recognized over the life of the loans on a level yield basis as an adjustment to yield.

Premises and Equipment

Fair values are based upon appraisals from independent third parties.

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

Deposits and Core Deposit Premium

Core deposit premium represents the value assigned to non-interest-bearing demand deposits, interest-bearing checking, money market and saving 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 and $ 2.1 million, for the acquisitions of Two River and Country 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 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.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Earnings (Loss) per Share

The following reconciles shares outstanding for basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Earnings per Share

The following reconciles shares outstanding for basic and diluted earnings per share for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Weighted average shares outstanding 59,303 60,300

5 unchanged sentences

Average diluted shares outstanding 58,943 60,101

For the three and nine months ended September 30, 2021, antidilutive stock options of 1,573,000 and 1,566,000 , respectively, were excluded from the earnings (loss) per share calculations.

For the three and nine months ended September 30, 2020, antidilutive stock options of 2,251,000 and 2,067,000 , respectively, were excluded from the earnings (loss) per share calculations.

For the three months ended September 30, 2020, 87,000 shares related to incentive awards were excluded from the diluted earnings (loss) per share calculation as they were antidilutive.

For the three months ended March 31, 2022 and 2021, antidilutive stock options of 904,000 and 1,672,000 , respectively, were excluded from the earnings per share calculations .

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The amortized cost, estimated fair value, and allowance for securities credit losses of debt securities available-for-sale and held-to-maturity at September 30, 2021 and December 31, 2020 are as follows (in thousands):

The amortized cost, estimated fair value, and allowance for securities credit losses of debt securities available-for-sale and held-to-maturity at March 31, 2022 and December 31, 2021 are as follows (in thousands):

Losses Estimated

Value Allowance for Credit Losses

At September 30, 2021

At March 31, 2022

Debt securities available-for-sale:

1 unchanged sentence

Corporate debt securities 5,000 — ( 216 ) 4,784 —

Collateralized loan obligations (“CLOs”) 145,792 8 ( 380 ) 145,420 —

Mortgage-backed securities - FNMA 12,648 1 — 12,649 —

Mortgage-backed securities - agency commercial 17,047 — ( 150 ) 16,897 —

Asset-backed securities 302,389 — ( 5,300 ) 297,089 —

Agency commercial mortgage-backed securities (“MBS”) 111,399 — ( 8,843 ) 102,556 —

Total debt securities available-for-sale $ 564,478 $ 206 $ ( 18,214 ) $ 546,470 $ —

3 unchanged sentences

Mortgage-backed securities:

FHLMC 359,449 3,568 ( 2,881 ) 360,136 —

FNMA 326,877 4,887 ( 1,964 ) 329,800 —

GNMA 44,010 1,056 ( 34 ) 45,032 —

SBA 4,654 12 ( 43 ) 4,623 —

Other 32,160 760 ( 3 ) 32,917 ( 108 )

Agency residential 730,960 467 ( 38,828 ) 692,599 —

Agency commercial 4,163 3 ( 45 ) 4,121 —

Non-agency commercial 32,057 3 ( 1,025 ) 31,035 ( 39 )

Total mortgage-backed securities 767,180 473 ( 39,898 ) 727,755 ( 39 )

4 unchanged sentences

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

CLOs 6,174 — ( 4 ) 6,170 —

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:

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 )

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 —

Other 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 )

3 unchanged sentences

Notes to Unaudited Consolidated Financial Statements (Continued)

There was no allowance for securities credit losses on debt securities available-for-sale at September 30, 2021 or December 31, 2020.

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Allowance for credit losses

There was no allowance for securities credit losses on debt securities available-for-sale at March 31, 2022 or December 31, 2021.

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Allowance for securities credit losses

Beginning balance $ ( 1,467 ) $ ( 1,715 )

Impact of current expected credit loss (“CECL”) adoption — — — ( 1,268 )

Provision for credit loss expense 106 53 212 ( 1,125 )

Benefit (provision) for credit loss expense 87 ( 2 )

Total ending allowance balance $ ( 1,380 ) $ ( 1,717 )

During 2013, the Bank transferred $ 536.0 million of previously designated available-for-sale 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 income on the consolidated statement 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 September 30, 2021 and December 31, 2020 is as follows (in thousands):

September 30, December 31,

During 2021 and 2013, the Bank transferred $ 12.7 million and $ 536.0 million, respectively, of previously designated available-for-sale 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 Statement 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 March 31, 2022 and December 31, 2021 is as follows (in thousands):

March 31, December 31,

Amortized cost $ 1,103,628 $ 1,143,548

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

Allowance for securities credit loss ( 1,503 ) ( 1,715 )

Allowance for securities credit losses ( 1,380 ) ( 1,467 )

Accretion of net unrealized loss on securities reclassified as held-to-maturity 10,822 10,668

Carrying value $ 1,099,514 $ 1,139,193

There were no realized gains or losses on debt securities for the three and nine months ended September 30, 2021, as compared to $ 244,000 of realized gains on debt securities for the corresponding prior year periods.

The amortized cost and estimated fair value of debt securities at September 30, 2021 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 September 30, 2021, corporate debt securities with an amortized cost of $ 29.4 million, and estimated fair value of $ 31.0 million, and CLOs with an amortized cost of $ 145.8 million and estimated fair value of $ 145.4 million were callable prior to the maturity date.

September 30, 2021 Amortized

There was $ 87,000 of realized losses on debt securities for the three months ended March 31, 2022.

There were no realized gains or losses on debt securities for the three months ended March 31, 2021.

The amortized cost and estimated fair value of debt securities at March 31, 2022 by contractual maturity are shown below (in thousands).

March 31, 2022 Amortized

Cost Estimated

4 unchanged sentences

$ 789,527 $ 767,051

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 March 31, 2022, corporate debt securities, state and municipal obligations, and asset-backed securities with an amortized cost of $ 63.1 million, $ 87.6 million, and $ 303.4 million, respectively, and an estimated fair value of $ 61.8 million, $ 85.4 million, and $ 297.1 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 $ 993.0 million and $ 435.9 million at September 30, 2021 and December 31, 2020, respectively, which includes $ 150.7 million and $ 152.7 million at September 30, 2021 and December 31, 2020, respectively, pledged as collateral for securities sold under agreements to repurchase.

At September 30, 2021, there were no holdings of securities of any one issuer, other than the U.S.

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

The estimated fair value of securities pledged for the ability to draw on FHLB advances, access to the Federal Reserve discount window, and other borrowings and for other purposes required by law amounted to $ 1.09 billion and $ 1.14 billion at March 31, 2022 and December 31, 2021, respectively, which includes $ 114.6 million and $ 142.9 million at March 31, 2022 and December 31, 2021, respectively, pledged as collateral for securities sold under agreements to repurchase.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The estimated fair value and unrealized losses for debt securities available-for-sale and held-to-maturity at September 30, 2021 and December 31, 2020, segregated by the duration of the unrealized losses, are as follows (in thousands):

The estimated fair value and unrealized losses for debt securities available-for-sale and held-to-maturity at March 31, 2022 and December 31, 2021, segregated by the duration of the unrealized losses, are as follows (in thousands):

Less than 12 months 12 months or longer Total

4 unchanged sentences

Value Unrealized

At September 30, 2021

At March 31, 2022

Debt securities available-for-sale:

1 unchanged sentence

Corporate debt securities 4,784 ( 216 ) — — 4,784 ( 216 )

Mortgage-backed securities 11,555 ( 150 ) — — 11,555 ( 150 )

CLOs 117,477 ( 380 ) — — 117,477 ( 380 )

Asset-backed securities 266,780 ( 5,058 ) 15,309 ( 242 ) 282,089 ( 5,300 )

Agency commercial MBS 102,556 ( 8,843 ) — — 102,556 ( 8,843 )

Total debt securities available-for-sale 450,977 ( 17,928 ) 20,326 ( 286 ) 471,303 ( 18,214 )

3 unchanged sentences

Mortgage-backed securities:

FHLMC 242,215 ( 2,823 ) 4,102 ( 58 ) 246,317 ( 2,881 )

FNMA 171,450 ( 1,776 ) 8,647 ( 188 ) 180,097 ( 1,964 )

GNMA 458 ( 3 ) 4,867 ( 31 ) 5,325 ( 34 )

SBA 1,602 ( 41 ) 969 ( 2 ) 2,571 ( 43 )

Other 4,484 ( 3 ) — — 4,484 ( 3 )

Agency residential 469,893 ( 24,938 ) 170,870 ( 13,890 ) 640,764 ( 38,828 )

Agency commercial 608 ( 2 ) 2,393 ( 43 ) 3,001 ( 45 )

Non-agency commercial 30,032 ( 1,025 ) — — 30,032 ( 1,025 )

Total mortgage-backed securities 500,533 ( 25,965 ) 173,263 ( 13,933 ) 673,797 ( 39,898 )

4 unchanged sentences

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

CLOs 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:

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 )

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 )

The Company concluded that the corporate debt securities were not impaired a t September 30, 2021 based on a consideration of several factors.

The Company concluded that debt securities were not impaired at March 31, 2022 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 and 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 the SBA, corporations which are chartered by the United States Government and whose debt obligations are rated AA+/Aaa by S&P and Moody’s,

Furthermore, the change in net unrealized losses were primarily due to changes in the general interest rate environment and not credit quality.

Historically, the Company has not utilized securities sales as a source of liquidity and the Company’s liquidity plans include 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 analysis supplemented by external credit ratings.

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

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

respectively.

Additionally, there are private label commercial mortgage-backed securities with credit ratings ranging between Aaa and Aa3.

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 not impaired at September 30, 2021.

State, municipal, and sovereign debt obligations are securities issued by state, local and national governments for various purposes.

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

The credit rating of these securities is between Aaa/AAA and 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 September 30, 2021.

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 September 30, 2021, aggregated by credit quality indicator (in thousands):

AAA AA A BBB BB Total

As of September 30, 2021

The amortized cost of debt securities held-to-maturity at March 31, 2022, aggregated by credit quality indicator are as follows (in thousands):

Investment Grade Non-Investment Grade/Non-rated Total

As of March 31, 2022

State, municipal and sovereign debt obligations $ 272,250 $ — $ 272,250

Corporate debt securities 48,211 15,987 64,198

Mortgage-backed securities - other 11,093 21,067 — — — 32,160

Non-agency commercial MBS 32,057 — 32,057

Total debt securities held-to-maturity $ 352,518 $ 15,987 $ 368,505

Equity Investments

At September 30, 2021 and December 31, 2020, the Company held equity investments of $ 101.3 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 or losses on equity securities for the three and nine months ended September 30, 2021 and September 30, 2020 are shown in the table below (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

At March 31, 2022 and December 31, 2021, the Company held equity investments of $ 93.9 million and $ 101.2 million, respectively.

The equity investments primarily comprised of select financial services institutions’ common and preferred stocks and to a lesser extent other equity investments in funds and other financial institutions.

The realized and unrealized gains or losses on equity securities for the three months ended March 31, 2022 and 2021 are shown in the table below (in thousands):

Three Months Ended March 31,

Net (loss) gain on equity investments $ ( 2,786 ) $ 8,287

Net gains (losses) recognized on equity securities sold — — 8,123 ( 53 )

Net gains recognized on equity securities sold 1,582 8,123

Unrealized (loss) gain recognized on equity securities still held $ ( 4,368 ) $ 164

2 unchanged sentences

Loans Receivable, Net

Loans receivable, net at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30, December 31,

Loans receivable, net at March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

March 31, December 31,

Commercial real estate – investor $ 4,607,880 $ 4,378,061

Commercial real estate – owner occupied 1,057,246 1,055,065

Commercial and industrial (1)

502,739 449,224

Commercial real estate – owner occupied 1,123,973 1,145,065

Commercial real estate – investor 3,922,983 3,491,464

Total commercial 6,167,865 5,882,350

Residential real estate 2,687,927 2,479,701

Home equity loans and lines and other consumer 275,962 339,462

Home equity loans and lines and other consumer (“other consumer”) 253,184 260,819

Total consumer 2,941,111 2,740,520

Total loans receivable 9,108,976 8,622,870

Deferred origination costs, net 8,282 9,486

Deferred origination costs, net of fees 7,301 9,332

Allowance for loan credit losses ( 50,598 ) ( 48,850 )

Total loans receivable, net $ 9,065,679 $ 8,583,352

(1) The commercial and industrial loans balance at September 30, 2021 and December 31, 2020 includes Paycheck Protection Program (“PPP”) loans of $ 52.5 million and $ 95.4 million, respectively.

(1) The commercial and industrial loans balance at March 31, 2022 and December 31, 2021 includes Paycheck Protection Program loans of $ 15.0 million and $ 22.9 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 Coronavirus Aid, Relief and Economic Security (“CARES”) Act, extended by the Coronavirus Response and Relief Supplemental Appropriations (“CRRSA”) Act of 2021, 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 Coronavirus Aid, Relief and Economic Security (“CARES”) Act, 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:

7 unchanged sentences

Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any.

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

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

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.

5 unchanged sentences

2022 2021 2020 2019 2018 2017 and prior Revolving lines of credit Total

September 30, 2021

Commercial and industrial

March 31, 2022

Commercial real estate - investor

Pass $ 325,263 $ 1,368,731 $ 611,037 $ 537,525 $ 262,169 $ 1,110,883 $ 277,149 $ 4,492,757

1 unchanged sentence

Substandard — — — 21,625 83 30,803 1,896 54,407

Total commercial and industrial 67,130 26,625 30,510 19,075 10,509 75,593 228,232 457,674

Total commercial real estate - investor 325,263 1,368,731 611,037 578,566 271,630 1,172,953 279,700 4,607,880

Commercial real estate - owner occupied

3 unchanged sentences

Total commercial real estate - owner occupied 36,220 119,031 73,971 139,086 102,657 575,450 10,831 1,057,246

Commercial real estate - investor

Commercial and industrial

Pass 17,126 36,479 20,194 19,933 14,809 57,415 324,808 490,764

1 unchanged sentence

Substandard — — 423 1,764 813 2,124 2,392 7,516

Total commercial real estate - investor 878,697 629,083 588,774 284,762 396,844 904,045 240,778 3,922,983

Total commercial and industrial 17,126 36,479 20,617 22,355 15,891 59,864 330,407 502,739

Residential real estate (1)

3 unchanged sentences

Total residential real estate 313,669 869,552 453,895 268,297 114,815 667,699 — 2,687,927

Other consumer (1)

Pass 6,056 27,264 17,848 17,712 48,383 133,500 — 250,763

1 unchanged sentence

Substandard — — — — 60 2,186 — 2,246

Total consumer 20,208 21,016 18,985 58,410 18,930 138,413 — 275,962

Total other consumer 6,056 27,264 17,848 17,712 48,443 135,861 — 253,184

Total loans $ 698,334 $ 2,421,057 $ 1,177,368 $ 1,026,016 $ 553,436 $ 2,611,827 $ 620,938 $ 9,108,976

(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.

(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.

OceanFirst Financial Corp.

2 unchanged sentences

December 31, 2021

Commercial and industrial

Commercial real estate - investor

Pass $ 1,387,753 $ 609,916 $ 535,551 $ 274,662 $ 375,646 $ 800,089 $ 255,613 $ 4,239,230

1 unchanged sentence

Substandard — 4,267 28,802 468 8,495 28,228 3,401 73,661

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

Total commercial real estate - investor 1,387,753 614,183 588,147 284,530 386,872 856,980 259,596 4,378,061

Commercial real estate - owner occupied

3 unchanged sentences

Total commercial real estate - owner occupied 116,355 71,196 140,743 103,909 115,317 495,913 11,632 1,055,065

Commercial real estate - investor

Commercial and industrial

Pass 42,955 22,573 22,878 16,404 8,671 50,887 271,818 436,186

1 unchanged sentence

Substandard — 457 2,281 813 198 2,029 2,777 8,555

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

Total commercial and industrial 42,955 23,030 25,390 17,567 8,954 53,088 278,240 449,224

Residential real estate (1)

3 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 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 consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity.

(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.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

An analysis of the allowance for credit losses on loans for the three and nine months ended September 30, 2021 and 2020 is as follows (in thousands):

Industrial Commercial

An analysis of the allowance for credit losses on loans for the three months ended March 31, 2022 and 2021 is as follows (in thousands):

Real Estate –

Occupied Commercial

Investor Commercial

Real Estate –

Investor Residential

Real Estate Consumer Unallocated Total

For the three months ended

September 30, 2021

Allowance for credit losses on loans

Balance at beginning of period $ 4,404 $ 6,350 $ 33,037 $ 8,818 $ 1,267 $ — $ 53,876

Credit loss expense (benefit) 1,962 515 ( 9,902 ) 3,081 235 — ( 4,109 )

Charge-offs ( 50 ) ( 64 ) — ( 12 ) ( 37 ) — ( 163 )

Recoveries 50 26 5 292 176 — 549

Balance at end of period $ 6,366 $ 6,827 $ 23,140 $ 12,179 $ 1,641 $ — $ 50,153

Occupied Commercial

Industrial Residential

Real Estate Other Consumer Unallocated Total

For the three months ended

September 30, 2020

March 31, 2022

Allowance for credit losses on loans

4 unchanged sentences

Balance at end of period $ 23,637 $ 5,053 $ 4,649 $ 16,277 $ 982 $ — $ 50,598

For the nine months ended

September 30, 2021

For the three months ended

March 31, 2021

Allowance for credit losses on loans

4 unchanged sentences

Balance at end of period $ 36,922 $ 7,827 $ 2,541 $ 11,280 $ 1,406 $ — $ 59,976

For the nine months ended

September 30, 2020

Allowance for credit losses on loans

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

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

Credit loss (benefit) expense ( 275 ) 6,120 34,208 10,749 ( 727 ) — 50,075

Initial allowance for credit losses on purchased with credit deterioration (“PCD”) loans 1,221 26 260 109 1,023 — 2,639

Charge-offs ( 575 ) ( 2,253 ) ( 12,062 ) ( 1,351 ) ( 723 ) — ( 16,964 )

Recoveries 82 4 92 766 103 — 1,047

Balance at end of period $ 4,327 $ 5,681 $ 26,986 $ 16,108 $ 3,248 $ — $ 56,350

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 September 30, 2021 and December 31, 2020, the Company had collateral dependent loans with an amortized cost balance as follows:

commercial and industrial of $ 416,000 and $ 1.9 million, respectively, commercial real estate - owner occupied of $ 12.5 million and $ 13.8 million, respectively, and commercial real estate - investor of $ 8.5 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 $ 669,000 and $ 1.4 million at September 30, 2021 and December 31, 2020, respectively.

At both September 30, 2021 and December 31, 2020, the amount of foreclosed residential real estate property held by the Company was $ 106,000 .

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The following table presents the recorded investment in non-accrual loans by loan portfolio segment as of September 30, 2021 and December 31, 2020 (in thousands):

September 30, December 31,

Commercial and industrial $ 418 $ 1,908

Commercial real estate – owner occupied 12,524 13,751

At March 31, 2022 and December 31, 2021, the Company had collateral dependent loans with an amortized cost balance as follows:

commercial real estate - investor of $ 3.6 million for each period, commercial real estate - owner occupied of $ 9.6 million and $ 11.9 million, respectively, and commercial and industrial of $ 2.8 million and $ 277,000 , 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 $ 440,000 and $ 438,000 at March 31, 2022 and December 31, 2021, respectively.

At both March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021 (in thousands):

March 31, December 31,

Commercial real estate – investor $ 3,575 $ 3,614

Commercial real estate – owner occupied 9,632 11,904

Commercial and industrial 2,830 277

Residential real estate 7,047 6,114

Consumer 3,351 4,246

Other consumer 3,841 3,585

$ 26,925 $ 25,494

At September 30, 2021, 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 September 30, 2021 and 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 September 30, 2021 and December 31, 2020 by loan portfolio segment (in thousands):

At March 31, 2022 and December 31, 2021, 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 March 31, 2022, there were no loans that were 90 days or greater past due and still accruing.

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.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The following table presents the aging of the recorded investment in past due loans as of March 31, 2022 and December 31, 2021 by loan portfolio segment (in thousands):

Past Due 60-89

2 unchanged sentences

Past Due Total

September 30, 2021

Commercial and industrial $ 1,797 $ — $ 354 $ 2,151 $ 455,523 $ 457,674

Commercial real estate – owner occupied 515 — 6,992 7,507 1,116,466 1,123,973

March 31, 2022

Commercial real estate – investor $ 2,109 $ 74 $ 1,663 $ 3,846 $ 4,604,034 $ 4,607,880

Commercial real estate – owner occupied 4,465 18 373 4,856 1,052,390 1,057,246

Commercial and industrial 66 43 356 465 502,274 502,739

Residential real estate 9,816 1,146 2,142 13,104 2,674,823 2,687,927

Consumer 1,255 369 2,626 4,250 271,712 275,962

Other consumer 779 175 2,246 3,200 249,984 253,184

$ 17,235 $ 1,456 $ 6,780 $ 25,471 $ 9,083,505 $ 9,108,976

December 31, 2021

Commercial and industrial $ 3,050 $ 628 $ 327 $ 4,005 $ 466,651 $ 470,656

Commercial real estate – owner occupied 1,015 — 7,871 8,886 1,136,179 1,145,065

Commercial real estate – investor $ 1,717 $ 102 $ 1,709 $ 3,528 $ 4,374,533 $ 4,378,061

Commercial real estate – owner occupied 599 — 575 1,174 1,053,891 1,055,065

Commercial and industrial 25 151 277 453 448,771 449,224

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

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

The Company classifies certain loans as troubled debt restructured (“TDR”) loans when credit terms to a borrower in financial difficulty are modified.

The Company classifies certain loans as troubled debt restructuring (“TDR”) loans 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.

1 unchanged sentence

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

At September 30, 2021 and December 31, 2020, TDR loans totaled $ 19.6 million and $ 17.5 million, respectively.

Included in the non-accrual loan total at September 30, 2021 and December 31, 2020 were $ 10.0 million and $ 5.5 million, respectively, of TDR loans.

At September 30, 2021 and December 31, 2020, the Company had no specific reserves allocated to loans that are classified as TDR loans.

At March 31, 2022 and December 31, 2021, TDR loans totaled $ 19.6 million and $ 23.6 million, respectively.

At March 31, 2022 and December 31, 2021, there were $ 11.9 million and $ 11.3 million, respectively, of TDR loans included in the non-accrual loan totals.

At March 31, 2022 and December 31, 2021, the Company had no specific reserves allocated to loans that were classified as TDR loans.

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

In addition to the TDR loans included in non-accrual loans, the Company also has loans classified as accruing loans which totaled $ 9.6 million and $ 12.0 million at September 30, 2021 and December 31, 2020, respectively.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The following table presents information about TDR loans which occurred during the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):

In addition to the TDR loans included in non-accrual loans, the Company also has TDR loans classified as accruing loans which totaled $ 7.7 million and $ 12.3 million at March 31, 2022 and December 31, 2021, respectively.

The following table presents information about TDR loans which occurred during the three months ended March 31, 2022 and 2021 (dollars in thousands):

Number of Loans Pre-modification

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Recorded Investment

Three months ended September 30, 2021

Troubled debt restructurings:

Commercial real estate - owner occupied 1 $ 93 $ 110

Three months ended September 30, 2020

Troubled debt restructurings:

Commercial real estate – investor 1 $ 928 $ 993

Residential real estate 1 418 418

Consumer 1 16 16

Nine months ended September 30, 2021

Three months ended March 31, 2022

Troubled debt restructurings:

Commercial real estate - owner occupied 1 $ 93 $ 110

Commercial real estate – investor 1 4,903 4,903

Residential real estate 3 244 336

Consumer 2 26 33

Nine months ended September 30, 2020

Commercial and industrial 1 $ 65 $ 65

Other consumer 3 991 1,109

Three months ended March 31, 2021

Troubled debt restructurings:

Commercial real estate - owner occupied 1 $ 1,112 $ 1,143

Commercial real estate – investor 1 928 993

Residential real estate 5 849 865

Consumer 5 175 193

There were no TDR loans that defaulted during the three months ended September 30, 2021 which were modified within the preceding year.

There was one TDR commercial real estate - investor loan for $ 923,000 that defaulted during the nine months ended September 30, 2021 which was modified within the preceding year and the loan is now current.

There were no TDR loans that defaulted during the three and nine months ended September 30, 2020 which were modified within the preceding year.

Other consumer 2 $ 26 $ 33

There were no TDR loans that defaulted during the three months ended March 31, 2022 and 2021, 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.

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.

The Bank’s Commercial Borrower Relief Program allowed for the deferral of principal and interest or principal only.

All payments received will first be applied to all accrued and unpaid interest and the balance, if any, 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.

The Consumer Borrower Relief Program allowed for the deferral of principal and interest.

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 December 31, 2019 or the date of the modification, these loans are not considered TDR loans at September 30, 2021 and will not be reported as past due during the deferral period.

The deferred payments along with

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The major types of deposits at September 30, 2021 and December 31, 2020 were as follows (in thousands):

Type of Account September 30, December 31,

interest accrued during the deferral period are due and payable on the maturity date.

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 March 31, 2022 and 2021 and will not be reported as past due during the deferral period.

The major types of deposits at March 31, 2022 and December 31, 2021 were as follows (in thousands):

Type of Account March 31, December 31,

Non-interest-bearing $ 2,444,833 $ 2,412,056

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Total deposits $ 10,056,233 $ 9,732,816

Included in time deposits at September 30, 2021 and December 31, 2020 was $ 137.7 million and $ 409.5 million, respectively, in deposits of $250,000 or more.

Included in time deposits at March 31, 2022 and December 31, 2021 was $ 104.6 million and $ 145.4 million, respectively, in deposits of $250,000 or more.

Borrowed Funds

Borrowed funds at March 31, 2022 and December 31, 2021 were as follows (in thousands):

March 31, December 31,

FHLB advances $ 75,002 $ —

Securities sold under agreements to repurchase with customers 117,782 118,769

Other borrowings 194,396 229,141

Total borrowed funds $ 387,180 $ 347,910

At March 31, 2022, there was $ 75.0 million outstanding in overnight borrowings from the FHLB, as compared to $ 0 at December 31, 2021.

There were no FHLB term advances at March 31, 2022 and December 31, 2021.

During the three months ended March 31, 2022, the Company redeemed $ 35.0 million of subordinated debt due September 30, 2026.

The debt carried an interest rate of 4.14 % based on a floating rate of three months LIBOR plus 392 basis points.

OceanFirst Financial Corp.

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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).

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.

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.

OceanFirst Financial Corp.

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Fair value is based on independent appraisals (Level 3).

The following table summarizes financial assets and financial liabilities measured at fair value as of September 30, 2021 and December 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

The following table summarizes financial assets and financial liabilities measured at fair value as of March 31, 2022 and December 31, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

Fair Value Measurements at Reporting Date Using:

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Inputs Level 3

September 30, 2021

March 31, 2022

Items measured on a recurring basis:

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Items measured on a non-recurring basis:

Equity investments 10,429 — — 10,429

Other real estate owned 106 — — 106

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Notes to Unaudited Consolidated Financial Statements (Continued)

The following table reconciles, for the three and nine months ended September 30, 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 Three Months Ended September 30, For the Nine Months Ended September 30,

2021 2020 2021 2020

Equity Investments Debt Securities Equity Investments Debt Securities

The following table reconciles, for the three months ended March 31, 2022 and 2021, the beginning and ending balances for equity investments 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 Three Months Ended March 31,

Equity Investments

Beginning balance $ 2,718 $ 2,540

Total losses included in earnings ( 622 ) — ( 184 ) —

Purchases — — — 2,377

Total gains included in earnings — 398

Transfers out of Level 3 ( 2,718 ) —

Ending balance $ — $ 2,938

There were no debt securities in Level 3 for the three and nine months ended September 30, 2021.

There were no equity securities in Level 3 for the three and nine months ended September 30, 2020.

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 three and nine months ended September 30, 2021 and 2020.

During the three months ended March 31, 2022, the Company executed its right to convert $ 2.7 million preferred stock into common stock, which resulted in a transfer from Level 3 into Level 1.

There were no transfers into or out of Level 3 assets and liabilities in the fair value hierarchy for the three months ended March 31, 2021.

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.

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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 Bond Anticipation Notes (“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

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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.

The fair value of loans was measured using the exit price notion.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The fair value of loans was measured using the exit price notion.

Deposits Other than Time Deposits

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The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Securities Sold Under Agreements to Repurchase with Retail Customers

Securities Sold Under Agreements to Repurchase with Customers

Fair value approximates the carrying amount as these borrowings are payable on demand and the interest rate adjusts monthly.

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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 Company’s significant financial instruments not recorded at fair value as of September 30, 2021 and December 31, 2020 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 March 31, 2022 and December 31, 2021 are presented in the following tables (in thousands):

Fair Value Measurements at Reporting Date Using:

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Inputs Level 3

September 30, 2021

March 31, 2022

Financial Assets:

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Time deposits 887,316 — 872,733 —

Other borrowings 228,887 — 256,577 —

Securities sold under agreements to repurchase with retail customers 143,292 143,292 — —

FHLB advances and other borrowings 269,398 — 290,103 —

Securities sold under agreements to repurchase with customers 117,782 117,782 — —

December 31, 2021

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Time deposits 775,001 — 773,766 —

FHLB advances and other borrowings 235,471 — 251,798 —

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

Other borrowings 229,141 — 251,491 —

Securities sold under agreements to repurchase with customers 118,769 118,769 — —

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument.

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,

These estimates do not reflect any premium or discount that could result from offering for sale at one time

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

current economic conditions, risk characteristics of various financial instruments and other significant unobservable inputs.

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.

These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision.

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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.

The Company recognized gains of $ 14,000 and $ 55,000 in other income resulting from fair value adjustments for the three and nine months ended September 30, 2021, respectively, as compared to gains of $ 15,000 and $ 364,000 in other income resulting from fair value adjustments for the three and nine months ended September 30, 2020, respectively.

The notional amount of derivatives not designated as hedging instruments was $ 925.4 million and $ 725.9 million at September 30, 2021 and December 31, 2020, respectively.

For the three months ended March 31, 2022 and 2021, the Company recognized a gain of $ 37,000 and $ 64,000 , respectively, in commercial loan swap income resulting from fair value adjustments.

The notional amount of derivatives not designated as hedging instruments was $ 1.10 billion and $ 938.7 million at March 31, 2022 and December 31, 2021, respectively.

The table below presents the fair value of derivatives not designated as hedging instruments as well as their location on the consolidated statements of financial condition (in thousands):

Balance Sheet Location September 30, December 31,

Balance Sheet Location March 31, December 31,

Other assets $ 45,611 $ 22,787

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This requirement is dependent on certain specified credit measures.

The amount of collateral posted with third parties was $ 26.5 million and $ 46.5 million at September 30, 2021 and December 31, 2020, respectively.

The amount of collateral posted with third parties was $ 257,000 and $ 19.8 million at March 31, 2022 and December 31, 2021, respectively.

The amount of collateral posted with third parties is deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures.

The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with third parties was $ 27.6 million and $ 45.4 million at September 30, 2021 and December 31, 2020, respectively.

The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with third parties was $ 45.6 million and $ 22.9 million at March 31, 2022 and December 31, 2021, respectively.

OceanFirst Financial Corp.

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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):

September 30, December 31,

March 31, December 31,

Lease ROU Assets Classification

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Total lease liabilities $ 16,574 $ 19,886

(1) Operating lease liabilities excludes liabilities for future rent and lease termination payments related to closed branches of $ 5.3 million and $ 7.4 million as of September 30, 2021 and December 31, 2020, respectively.

(1) Operating lease liabilities excludes liabilities for future rent and estimated lease termination payments related to closed branches of $ 8.6 million and $ 8.2 million as of March 31, 2022 and December 31, 2021, 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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For the finance lease, the Company utilized its incremental borrowing rate at lease inception.

September 30, December 31,

March 31, December 31,

Weighted-Average Remaining Lease Term

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The following table represents lease expenses and other lease information (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Lease Expense

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All other costs are included in occupancy expense.

The Company previously announced plans to sell two branches, including owned premises and equipment, all deposits associated with the branches and selected performing loans to First Bank which is expected to take place in early December 2021.

The Company also announced plans to consolidate 20 deposit gathering locations in late 2021 and 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 branches.

The effect on income for the three and nine months ended September 30, 2021 is included in branch consolidation expenses and totaled $ 3.8 million, which are excluded above.

Future minimum payments for the finance lease and operating leases with initial or remaining terms of one year or more as of September 30, 2021 were as follows (in thousands):

The Company sold two branches, including owned premises and equipment, all deposits associated with the branches, and selected performing loans in December 2021.

The Company also consolidated four branches in early 2021, nine branches in late 2021, and 10 branches and one 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, including the gains or losses related to subsequent sales or lease terminations, associated with these locations, totaling $ 62,000 and $ 980,000 , for the three months ended March 31, 2022 and 2021, respectively, which is presented in branch consolidation expense, net, and is excluded from the table above.

Other operating expenses related to these closures totaled $ 340,000 and $ 31,000 , for the three months ended March 31, 2022 and 2021, respectively, and are presented in branch consolidation expense, net.

Future minimum payments for the finance lease and operating leases with initial or remaining terms of one year or more as of March 31, 2022 were as follows (in thousands):

Finance Lease Operating Leases

For the Twelve Months Ending September 30,

For the Twelve Months Ending March 31,

2023 $ 307 $ 3,366

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Subsequent Event

On November 4, 2021, the Company announced the execution of a definitive agreement and plan of merger (the merger agreement) with Partners Bancorp.

(“Partners”), a multi-bank holding company operating under the brands of Virginia Partners Bank, Maryland Partners Bank, The Bank of Delmarva, and Liberty Bell Bank.

The transaction is subject to receipt of the approval of Partners’ stockholders and required regulatory approval.

Subject to receipt of those approvals and fulfillment of other customary closing conditions, the Company expects to close the transaction in the first half of 2022.

On April 1, 2022, the Company completed its previously announced agreement to acquire a majority interest of 60 % in Trident Abstract Title Agency, LLC (“Trident”).

Trident provides commercial and residential title services throughout New Jersey;

and through strategic alliances can also service client’s title insurance needs outside of New Jersey.

The acquisition is expected to be complimentary to the Company’s existing consumer and commercial lending business.

The purchase price was $ 7.1 million and estimated goodwill from the transaction amounted to $ 5.7 million.

OTHER INFORMATION

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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-Q

Item 4. Controls and Procedures