OCEANFIRST FINANCIAL CORP 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company’s interest rate sensitivity is monitored through the use of interest rate risk (“IRR”) modeling. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at June 30, 2022, which were estimated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown. At June 30, 2022, the Company’s one-year gap was positive 7.62% as compared to positive 14.15% at December 31, 2021. The table is intended to provide an approximation of the projected repricing of assets and liabilities at June 30, 2022 on the basis of contractual maturities, anticipated prepayments, scheduled rate adjustments, and the rate sensitivity of non-maturity deposits within a three month period and subsequent selected time intervals. At June 30, 2022 3 Months or Less More than 3 Months to 1 Year More than 1 Year to 3 Years More than 3 Years to 5 Years More than 5 Years Total (dollars in thousands) Interest-earning assets: Interest-earning deposits and short-term investments $ 59,520 $ 1,489 $ 1,982 $ — $ — $ 62,991 Debt securities 440,003 137,611 264,336 265,032 508,690 1,615,672 Equity investments — 1,966 — — 73,303 75,269 Restricted equity investments — — — — 76,047 76,047 Loans receivable (1) 2,743,535 917,387 2,139,439 1,663,605 1,960,919 9,424,885 Total interest-earning assets 3,243,058 1,058,453 2,405,757 1,928,637 2,618,959 11,254,864 Interest-bearing liabilities: Interest-bearing checking accounts 1,238,842 186,697 431,400 349,434 1,489,694 3,696,067 Money market deposit accounts 48,978 49,682 115,129 296,182 206,811 716,782 Savings accounts 111,381 130,668 295,198 231,207 838,080 1,606,534 Time deposits 420,545 592,925 442,727 30,832 12,946 1,499,975 FHLB advances 488,750 — — — — 488,750 Securities sold under agreements to repurchase and other borrowings 175,134 143 123,728 518 626 300,149 Total interest-bearing liabilities 2,483,630 960,115 1,408,182 908,173 2,548,157 8,308,257 Interest sensitivity gap (2) $ 759,428 $ 98,338 $ 997,575 $ 1,020,464 $ 70,802 $ 2,946,607 Cumulative interest sensitivity gap $ 759,428 $ 857,766 $ 1,855,341 $ 2,875,805 $ 2,946,607 $ 2,946,607 Cumulative interest sensitivity gap as a percent of total interest-earning assets 6.75 % 7.62 % 16.48 % 25.55 % 26.18 % 26.18 % (1) For purposes of the gap analysis, loans receivable includes non-performing loans gross of the allowance for loan credit losses, unamortized discounts and deferred loan costs and fees. (2) Interest sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities. Certain shortcomings are inherent in gap analysis. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, loan prepayment rates and average lives of deposits would likely deviate significantly from those assumed in the calculation. Finally, the ability of many borrowers to service their adjustable-rate loans may be impaired in the event of an interest rate increase. 17 Table of Contents Additionally, the table below sets forth the Company’s exposure to IRR as measured by the change in economic value of equity (“EVE”) and net interest income under varying rate shocks as of June 30, 2022 and December 31, 2021. All methods used to measure interest rate sensitivity involve the use of assumptions, which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. The Company’s interest rate sensitivity should be reviewed in conjunction with the financial statements and notes thereto contained in the 2021 Form 10-K. June 30, 2022 December 31, 2021 Change in Interest Rates in Basis Points (Rate Shock) Economic Value of Equity Net Interest Income Economic Value of Equity Net Interest Income Amount % Change EVE Ratio Amount % Change Amount % Change EVE Ratio Amount % Change (dollars in thousands) 300 $ 1,786,484 (1.9) % 16.2 % $ 404,020 6.5 % $ 1,817,134 24.5 % 16.7 % $ 346,723 10.3 % 200 1,828,376 0.4 16.1 396,572 4.6 1,738,602 19.1 15.6 336,816 7.1 100 1,843,051 1.2 15.8 388,496 2.4 1,621,984 11.1 14.2 325,960 3.7 Static 1,821,246 — 15.2 379,219 — 1,459,706 — 12.5 314,395 — (100) 1,720,450 (5.5) 14.0 357,004 (5.9) 1,230,947 (15.7) 10.3 299,994 (4.6) The change in interest rate sensitivity was impacted by the deployment of cash into loans, an increase in overnight borrowings, change in deposit mix resulting in an increase in shorter-term time deposits, and a significant increase in market interest rates. As is the case with the gap calculation, certain shortcomings are inherent in the methodology used in the EVE and net interest income IRR measurements. The model requires the making of certain assumptions which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. First, the model assumes that the composition of the Company’s interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured. Second, the model assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Third, the model does not take into account the Company’s business or strategic plans. Accordingly, although the above measurements provide an indication of the Company’s IRR exposure at a particular point in time, such measurements are not intended to provide a precise forecast of the effect of changes in market interest rates on the Company’s EVE and net interest income, and can be expected to differ from actual results.