What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-04 · 134 added, 134 removed, 280 unchanged (49% of the section changed)

2 unchanged sentences

At or for the Quarters Ended

(dollars in thousands, except per share amounts) June 30, 2022 March 31, 2022 June 30, 2021

(dollars in thousands, except per share amounts) September 30, 2022 June 30, 2022 September 30, 2021

SELECTED FINANCIAL CONDITION DATA:

47 unchanged sentences

(3) Ratios for each period are based on net income available to common stockholders.

(4) Included net expenses related to merger related expenses, net branch consolidation expenses, and net loss on equity investments of $8.8 million, or $6.7 million, net of tax benefit, for the three months ended June 30, 2022.

Included net expenses related to merger related expenses, net branch consol idation expenses, and net loss on equity investments of $5.2 million, or $4.0 million, net of tax benefit, for the three months ended March 31, 2022.

I ncluded a net benefit related to merger related expenses, net branch consolidation expenses, and net gain on equity investments of $104,000, or $78,000, net of tax expense, for the three months ended June 30, 2021.

(4) Included a net benefit related to merger related expenses, net branch consolidation (benefit) expense, and gain on equity investments of $3.4 million , or $2.6 million , net of tax expense, for the three months ended September 30, 2022.

Included a net expense related to merger related expenses, net branch consol idation expenses, and net loss on equity investments of $8.8 million , or $6.7 million , net of tax benefit, for the three months ended June 30, 2022.

I ncluded a net expense related to merger related expenses, net branch consolidation expenses, and net loss on equity investments of $4.7 million, or $3.6 million, net of tax benefit, for the three months ended September 30, 2021.

(5) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

2 unchanged sentences

(8) Non-performing assets consist of non-performing loans and real estate acquired through foreclosure.

Non-performing loans consist of all loans 90 days or more past due and other loans in the process of foreclosure.

Non-performing loans generally consist of all loans 90 days or more past due and other loans in the process of foreclosure.

It is the Company’s policy to cease accruing interest on all such loans and to reverse previously accrued interest.

1 unchanged sentence

(10) Loans acquired from prior bank acquisitions were recorded at fair value.

The net unamortized credit and purchased with credit deterioration (“PCD”) marks on these loans, not reflected in the allowance for loan credit losses, was $15.5 million, $16.9 million, and $23.6 million at June 30, 2022, March 31, 2022 and June 30, 2021, respectively.

The net unamortized credit and purchased with credit deterioration (“PCD”) marks on these loans, not reflected in the allowance for loan credit losses, was $13.6 million, $15.5 million, and $21.3 million at September 30, 2022, June 30, 2022 and September 30, 2021, respectively.

OceanFirst Financial Corp.

is the holding company for OceanFirst Bank N.A.

(the “Bank”), a regional bank serving business and retail customers throughout New Jersey and the major metropolitan areas of Philadelphia, New York, Baltimore, Washington D.C., and Boston.

(the “Bank”), a regional bank serving business and retail customers throughout New Jersey and the major metropolitan areas of Philadelphia, New York, Baltimore, and Boston.

The term “Company” refers to OceanFirst Financial Corp., the Bank and all of their subsidiaries on a consolidated basis.

3 unchanged sentences

The Company’s results of operations are also significantly affected by competition, general economic conditions, including levels of unemployment and real estate values, as well as changes in market interest rates, inflation, government policies and actions of regulatory agencies.

Key developments relating to the Company’s financial results and corporate activities for the three months ended June 30, 2022 were as follows:

Key developments relating to the Company’s financial results and corporate activities for the three months ended September 30, 2022 were as follows:

• Strengthening Net Interest Income and Margin:

Net interest income increased by $5.2 million to $96.0 million, from $90.8 million in the prior linked quarter.

Net interest margin increased to 3.29%, as compared to 3.18% in the prior linked quarter, largely driven by the impact of the rising rate environment on interest earning assets, as well as elevated prepayment fees, partly offset by increased cost of funds.

• Balance Sheet Growth and Improving Asset Quality:

Loan growth for the quarter was $315.9 million, reflecting originations of $835.5 million, and the committed loan pipeline was $385.0 million as of June 30, 2022.

Non-performing loans decreased to $20.8 million, as compared to $26.9 million in the prior linked quarter.

Deposits grew by $98.7 million year-to-date and $416.2 million as compared to June 30, 2021.

• Expense Management Discipline:

Total operating expenses increased modestly to $58.7 million, from $57.5 million in the prior linked quarter.

Operating expenses for the current quarter included $3.2 million of expenses related to the acquisition of a majority interest in Trident Abstract Title Agency, LLC (“Trident”).

The efficiency ratio improved to 59.65% from 61.77% in the prior linked quarter.

• Dividend Increase:

On July 27, 2022, the Board of Directors approved an increase to the quarterly cash dividend by $0.03, or 18%, to $0.20 per share.

Net income available to common stockholders for the three and six months ended June 30, 2022 was $28.0 million and $52.7 million, respectively, or $0.47 and $0.89 per diluted share, respectively, as compared to $29.6 million and $61.2 million, or $0.49 and $1.02 per diluted share, for the corresponding prior year periods, respectively.

The dividends paid to preferred stockholders were $1.0 million and $2.0 million for the three and six months ended June 30, 2022 and 2021, respectively.

Net income available to common stockholders for the three and six months ended June 30, 2022 included merger related expenses of $196,000 and $2.2 million, respectively, net branch consolidation expenses of $546,000 and $948,000, respectively, and net loss on equity investments of $8.1 million and $10.9 million, respectively.

Net income available to common stockholders for the three and six months ended June 30, 2021 included merger related expenses of $446,000 and $827,000, respectively, net branch consolidation expenses of $26,000 and $1.0 million, respectively, and net gain on equity investments of $576,000 and $8.9 million, respectively.

The Company remains well-capitalized with a stockholders’ equity to total assets ratio of 12.23% at June 30, 2022.

On July 27, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.20 per share.

The dividend, related to the quarter ended June 30, 2022, will be paid on August 19, 2022 to common stockholders of record on August 8, 2022.

Net interest margin increased to 3.36%, as compared to 3.29% in the prior linked quarter, largely driven by the impact of the rising rate environment on interest earning assets, and to a lesser extent an increase in loan balances, partly offset by an increased cost of funds and lower prepayment fees.

• Loan and Deposit Growth:

Loan growth for the quarter was $293.9 million, reflecting originations of $543.8 million.

The committed loan pipeline increased to $439.5 million as of September 30, 2022.

Deposits grew by $128.0 million for the quarter and $226.7 million year-to-date.

• Interchange Fees:

Effective July 1, 2022, the Bank became subject to the Durbin amendment, as contained in the Dodd-Frank Act, which imposes limitations on debit card interchange fees collected by banks with assets of $10 billion or more.

As a result, bankcard services revenue was adversely impacted by $1.7 million.

The Company is strategically positioned to absorb the decreased fee income and continue to grow earnings.

• Partners Bancorp:

On November 9, 2022, the Company and Partners Bancorp (“Partners”) entered into a Mutual Termination Agreement (the “Termination Agreement”) pursuant to which, among other things, the Company and Partners mutually agreed to terminate the Agreement and Plan of Merger (the “Merger Agreement”) and transactions contemplated thereby.

Each party will bear its own costs and expenses in connection with the terminated transaction, and neither party will pay a termination fee in connection with the termination of the Merger Agreement.

The Termination Agreement also mutually releases the parties from any claims of liability to one another relating to the Merger Agreement and the terminated transaction.

Net income available to common stockholders for the three and nine months ended September 30, 2022 was $37.6 million and $90.3 million, respectively, or $0.64 and $1.53 per diluted share, as compared to $23.2 million and $84.4 million, or $0.39 and $1.41 per diluted share, for the corresponding prior year periods.

The dividends paid to preferred stockholders were $1.0 million and $3.0 million for the three and nine months ended September 30, 2022 and 2021, respectively.

Net income available to common stockholders for the three and nine months ended September 30, 2022 included merger related expenses of $298,000 and $2.5 million, respectively, net branch consolidation benefit of $346,000 and net branch consolidation expense of $602,000, and gain on equity investments of $3.4 million and net loss on equity investments of $7.5 million.

Net income available to common stockholders for the three and nine months ended September 30, 2021 included merger related expenses of $225,000 and $1.1 million, respectively, net branch consolidation expenses of $4.0 million and $5.1 million, and net loss on equity investments of $466,000 and net gain on equity investments of $8.4 million.

The Company remains well-capitalized with a stockholders’ equity to total assets ratio of 12.14% at September 30, 2022.

On October 24, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.20 per share.

The dividend, related to the quarter ended September 30, 2022, will be paid on November 18, 2022 to common stockholders of record on November 7, 2022.

The Board also declared a quarterly cash dividend on preferred stock of $0.4375 per depositary share, representing a 1/40th interest in the Series A Preferred Stock.

This dividend will be paid on August 15, 2022 to preferred stockholders of record on July 29, 2022.

This dividend will be paid on November 15, 2022 to preferred stockholders of record on October 31, 2022.

Analysis of Net Interest Income

1 unchanged sentence

Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them.

For the three and six months ended June 30, 2022 interest income included net loan fees of $3.2 million and $4.2 million, respectively, as compared to $1.2 million and $2.6 million for the same prior year periods, respectively.

The following tables set forth certain information relating to the Company for the three and six months ended June 30, 2022 and 2021.

For the three and nine months ended September 30, 2022 interest income included net loan fees of $832,000 and $5.0 million, respectively, as compared to $1.6 million and $4.2 million for the same prior year periods, respectively.

The following tables set forth certain information relating to the Company for the three and nine months ended September 30, 2022 and 2021.

The yields and costs, which are annualized, are derived by dividing the income or expense by the average balance of the related assets or liabilities, respectively, for the periods shown except where noted otherwise.

1 unchanged sentence

The yields and costs include certain fees and costs which are considered adjustments to yields.

For the Three Months Ended June 30,

For the Three Months Ended September 30,

(dollars in thousands) Average Balance Interest Average

36 unchanged sentences

Total cost of deposits (including non-interest-bearing deposits) 0.36 % 0.22 %

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(dollars in thousands) Average

42 unchanged sentences

(5) Net interest margin represents net interest income divided by average interest-earning assets.

Comparison of Financial Condition at June 30, 2022 and December 31, 2021

Total assets increased by $699.0 million to $12.44 billion at June 30, 2022, from $11.74 billion at December 31, 2021.

Total loans increased by $802.0 million to $9.42 billion at June 30, 2022, from $8.62 billion at December 31, 2021, due to strong loan originations.

Total debt securities decreased by $132.1 million at June 30, 2022, as compared to December 31, 2021, primarily due to principal repayments, and to a lesser extent, an increase in unrealized losses driven by the rising rate environment.

Other assets increased by $46.5 million to $193.6 million at June 30, 2022 from $147.0 million at December 31, 2021, primarily due to an increase in market values associated with the Company’s customer interest rate swap programs.

Total liabilities increased by $694.2 million to $10.92 billion at June 30, 2022, from $10.22 billion at December 31, 2021.

Deposits increased by $98.7 million to $9.83 billion at June 30, 2022, from $9.73 billion at December 31, 2021.

Total deposits, excluding time deposits, decreased by $626.3 million to $8.33 billion at June 30, 2022, from $8.96 billion at December 31, 2021, due to the net runoff of interest-bearing checking balances.

Time deposits increased to $1.50 billion at June 30, 2022, from $775.0 million at December 31, 2021, primarily due to an increase in brokered time deposits.

The Company largely completed a program to extend maturities on price sensitive deposits in a cost-effective manner, consisting of the addition of $689.2 million in brokered time deposits with laddered maturities ranging from 1 to 24 months.

The brokered time deposits carry a weighted average rate of 2.12%, a weighted average life of 9.5 months, and were issued at costs less than comparable wholesale borrowings.

The loans-to-deposit ratio at June 30, 2022 was 95.9%, as compared to 88.6% at December 31, 2021.

Overnight FHLB advances increased to $488.8 million at June 30, 2022 from $0 at December 31, 2021 to fund liquidity needs.

Other borrowings decreased by $34.5 million to $194.7 million at June 30, 2022, from $229.1 million at December 31, 2021, primarily due to the extinguishment of $35.0 million of subordinated debt in March 2022.

Other liabilities increased by $151.2 million to $273.2 million at June 30, 2022, from $122.0 million at December 31, 2021, primarily due to an increase in the market values associated with the Company’s customer interest rate swap programs and collateral received from counterparties.

Stockholders’ equity was $1.52 billion at June 30, 2022 and December 31, 2021 as net income of $55.2 million was primarily offset by an increase in accumulated other comprehensive loss, cash dividends of $0.34 per share for a cost of $20.0 million, stock repurchases of $7.4 million, and preferred stock dividends of $2.0 million.

Accumulated other comprehensive loss increased by $26.3 million to $29.1 million at June 30, 2022 from $2.8 million at December 31, 2021, primarily due to unrealized losses on debt securities available-for-sale which were adversely impacted by the rising interest rate environment.

For the six months ended June 30, 2022, the Company repurchased 373,223 shares totaling $7.4 million under its stock repurchase programs at a weighted average cost of $19.82.

There were 2,934,438 shares available for repurchase at June 30, 2022 under the existing repurchase program.

Stockholders’ equity per common share increased to $25.73 at June 30, 2022, as compared to $25.63 at December 31, 2021.

Comparison of Operating Results for the Three and Six Months Ended June 30, 2022 and June 30, 2021

These items decreased net income by $6.7 million and $10.7 million, net of tax, for the three and six months ended June 30, 2022, respectively.

Net income available to common stockholders for the three and six months ended June 30, 2021 included merger related expenses of $446,000 and $827,000, respectively, net branch consolidation expenses of $26,000 and $1.0 million, respectively, and a net gain on equity investments of $576,000 and $8.9 million, respectively.

These items increased net income by $78,000 and $5.3 million, net of tax, for the three and six months ended June 30, 2021, respectively.

Comparison of Financial Condition at September 30, 2022 and December 31, 2021

Total assets increased by $943.8 million to $12.68 billion at September 30, 2022, from $11.74 billion at December 31, 2021.

Total loans increased by $1.10 billion to $9.72 billion at September 30, 2022, from $8.62 billion at December 31, 2021, due to strong loan originations.

Total debt securities decreased by $209.4 million at September 30, 2022, as compared to December 31, 2021, primarily due to principal repayments and maturities, and to a lesser extent, an increase in unrealized losses driven by the rising rate environment.

Other assets increased by $81.1 million to $228.1 million at September 30, 2022 from $147.0 million at December 31, 2021, primarily due to an increase in market values associated with customer interest rate swap programs.

Total liabilities increased by $920.2 million to $11.14 billion at September 30, 2022, from $10.22 billion at December 31, 2021.

Deposits increased by $226.7 million to $9.96 billion at September 30, 2022, from $9.73 billion at December 31, 2021.

Total deposits, excluding time deposits, decreased by $402.7 million to $8.56 billion at September 30, 2022, from $8.96 billion at December 31, 2021, primarily due to the net runoff of interest-bearing checking balances.

Time deposits increased to $1.40 billion at September 30, 2022, from $775.0 million at December 31, 2021, primarily due to an increase in brokered time deposits, which increased to $828.7 million at September 30, 2022 from $25.0 million at December 31, 2021.

The loans-to-deposit ratio at September 30, 2022 was 97.6%, as compared to 88.6% at December 31, 2021.

FHLB advances increased to $514.2 million at September 30, 2022 from $0 at December 31, 2021 to fund liquidity needs.

Other borrowings decreased by $34.2 million to $194.9 million at September 30, 2022, from $229.1 million at December 31, 2021, primarily due to the extinguishment of $35.0 million of subordinated debt in March 2022.

Other liabilities increased by $230.9 million to $352.9 million at September 30, 2022, from $122.0 million at December 31, 2021, primarily due to an increase in the market values associated with customer interest rate swap programs and related collateral received from counterparties.

Stockholders’ equity increased to $1.54 billion at September 30, 2022, as compared to $1.52 billion at December 31, 2021.

Accumulated other comprehensive loss increased by $35.7 million to $38.5 million at September 30, 2022 from $2.8 million at December 31, 2021, primarily due to unrealized losses on debt securities available-for-sale which were adversely impacted by the rising interest rate environment.

For the nine months ended September 30, 2022, the Company repurchased 373,223 shares totaling $7.4 million under its stock repurchase program at a weighted average cost of $19.82.

There were 2,934,438 shares available for repurchase at September 30, 2022 under the existing repurchase program.

Stockholders’ equity per common share increased to $26.04 at September 30, 2022, as compared to $25.63 at December 31, 2021.

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2022 and September 30, 2021

These items increased net income by $2.6 million and decreased net income by $8.1 million, net of tax, for the three and nine months ended September 30, 2022, respectively.

Net income available to common stockholders for the three and nine months ended September 30, 2021 included merger related expenses of $225,000 and $1.1 million, respectively, net branch consolidation expenses of $4.0 million and $5.1 million, and a net loss on equity investments of $466,000 and net gain on equity investments of $8.4 million.

These items decreased net income by $3.6 million and increased net income by $1.7 million, net of tax, for the three and nine months ended September 30, 2021, respectively.

Interest Income

Interest income for the three and six months ended June 30, 2022 increased to $99.4 million and $190.4 million, respectively, as compared to $83.3 million and $168.2 million for the corresponding prior year periods, respectively.

Average interest-earning assets increased by $801.0 million and $675.4 million for the three and six months ended June 30, 2022, respectively, as compared to the same prior year periods, primarily due to loan and securities growth funded by the redeployment of excess cash and, to a lesser extent, funding from increased deposits and borrowings.

Average loans receivable, net of allowance for loan credit losses, increased by $1.42 billion and $1.24 billion for the three and six months ended June 30, 2022, respectively, as compared to the same prior year periods.

For the three and six months ended June 30, 2022, the yield on average interest-

earning assets increased to 3.60% and 3.51%, respectively, from 3.25% and 3.32%, for the corresponding prior year periods, respectively.

Interest income for the three and nine months ended September 30, 2022 increased to $110.5 million and $300.9 million, respectively, as compared to $85.4 million and $253.6 million for the corresponding prior year periods.

Average interest-earning assets increased by $865.6 million and $739.5 million for the three and nine months ended September 30, 2022, respectively, as compared to the same prior year periods, primarily due to loan and securities growth funded by the redeployment of excess cash.

Average loans receivable, net of allowance for loan credit losses, increased by $1.65 billion and $1.38 billion for the three and nine months ended September 30, 2022, respectively, as compared to the same prior year periods.

For the three and nine months ended September 30, 2022, the yield on average interest-earning assets increased to 3.88% and

3.64%, respectively, from 3.24% and 3.29%, for the corresponding prior year periods due to interest earning asset growth funded by the redeployment of excess cash and the rising rate environment.

Interest Expense

Interest expense for the three and six months ended June 30, 2022 was $8.6 million and $15.4 million, respectively, as compared to $9.3 million and $20.6 million in the corresponding prior year periods, respectively.

For the three and six months ended June 30, 2022, the cost of average interest-bearing liabilities decreased to 0.42% and 0.39%, respectively, from 0.50% and 0.55% for the corresponding prior year periods, respectively, as a result of the downward repricing of deposits.

The total cost of deposits (including non-interest bearing deposits) was 0.18% and 0.17% for the three and six months ended June 30, 2022, respectively, as compared to 0.27% and 0.32%, for the same prior year periods, respectively, and a weighted average rate of 0.28% at June 30, 2022.

Interest expense for the three and nine months ended September 30, 2022 was $14.5 million and $29.9 million, respectively, as compared to $8.3 million and $28.9 million in the corresponding prior year periods.

For the three months ended September 30, 2022, the cost of average interest-bearing liabilities increased to 0.69% from 0.44% for corresponding prior year period, as a result of higher costs associated with FHLB advances and time deposits issued in an elevated rate environment in 2022.

For the nine months ended September 30, 2022, the cost of average interest-bearing liabilities decreased to 0.49% from 0.52% for the corresponding prior year period, as a result of downward repricing of deposits that began in the prior year and continued through the current year, partly offset by the recent pace of the rising rate environment in the current quarter and increased funding costs on FHLB advances.

The total cost of deposits (including non-interest bearing deposits) was 0.36% and 0.24% for the three and nine months ended September 30, 2022, respectively, as compared to 0.22% and 0.28%, for the same prior year periods.

Net Interest Income and Margin

Net interest income for the three and six months ended June 30, 2022 increased to $90.8 million and $175.0 million, respectively, as compared to $74.0 million and $147.6 million for the corresponding prior year periods, respectively, reflecting increases in average interest-earning assets and net interest margin.

Net interest margin for the three and six months ended June 30, 2022 increased to 3.29% and 3.24%, from 2.89% and 2.91% for the same prior year periods, respectively.

The net interest margin expansion was primarily attributable to the redeployment of excess cash into loans and securities and, to a lesser extent, the impact of the rising interest rate environment on interest earning assets and a decreased cost of funds.

Net interest income for the three and nine months ended September 30, 2022 increased to $96.0 million and $271.0 million, respectively, as compared to $77.1 million and $224.8 million for the corresponding prior year periods, reflecting an increase in average interest-earning assets and net interest margin.

Net interest margin for the three and nine months ended September 30, 2022 increased to 3.36% and 3.28%, respectively, from 2.93% and 2.91% from the same prior year periods.

The net interest margin expansion was positively impacted by the redeployment of excess cash into loans and the impact of the rising rate environment on interest earning assets, partly offset by an increased cost of funds and the growth in interest-bearing liabilities balances.

Credit Loss Expense (Benefit)

For the three and six months ended June 30, 2022, the credit loss expense was $1.3 million and $3.1 million, respectively, as compared to a credit loss benefit of $6.5 million and $7.1 million, for the corresponding prior year periods, respectively.

The credit loss expense for the three and six months ended June 30, 2022 was influenced by strong loan portfolio growth, cooling and increasingly uncertain macro-economic forecasts due to conflicting economic signals, partly offset by ongoing positive trends in the Company’s asset quality and continued robust employment levels.

Net loan charge-offs were $9,000 and $224,000 for the three months ended June 30, 2022 and 2021, respectively.

Net loan recoveries were $83,000 and $56,000 for the six months ended June 30, 2022 and 2021, respectively.

Non-performing loans totaled $20.8 million at June 30, 2022, as compared to $38.7 million at June 30, 2021, primarily due to loans that returned to accrual status and partly due to loans that were paid off.

Credit loss expense for the three and nine months ended September 30, 2022 was $1.0 million and $4.1 million, respectively, as compared to a credit loss benefit of $3.2 million and $10.3 million, for the corresponding prior year periods.

The credit loss expense for the three and nine months ended September 30, 2022 was influenced by loan growth, slowing prepayment rates, and increasingly uncertain macro-economic forecasts due to rising interest rates, inflation, and global economic headwinds, partly offset by positive trends in the Company’s criticized and classified assets.

Net loan recoveries were $252,000 and $386,000 for the three months ended September 30, 2022 and 2021, respectively.

Net loan recoveries were $335,000 and $442,000 for the nine months ended September 30, 2022 and 2021, respectively.

Non-performing loans totaled $21.5 million at September 30, 2022, as compared to $30.3 million at September 30, 2021, primarily due to loans that were paid off and partly due to loans that returned to accrual status.

Non-interest Income

For the three months ended June 30, 2022, other income decreased to $7.5 million, as compared to $11.8 million for the corresponding prior year period.

The decrease was driven by a net loss on equity investments of $8.1 million compared to a net gain on equity investments of $576,000 in the prior year period, along with lower net gain on sale of loans of $1.3 million and fees and service charges of $510,000.

The decrease was partially offset by the acquisition of a majority interest in Trident, which added $4.5 million of title-related fees and service charges and an increase in commercial loan swap income of $2.2 million.

For the six months ended June 30, 2022, other income decreased to $16.4 million, as compared to $32.6 million for the corresponding prior year period.

The decrease was driven by a net loss on equity investments of $10.9 million compared to a net gain on equity investments of $8.9 million in the prior period, along with lower net gain on sale of loans of $3.0 million, deposit fees and service charges of $1.2 million, and Paycheck Protection Program (“PPP”) loan origination referral fees of $776,000.

Other income increased to $15.2 million for the three months ended September 30, 2022, as compared to $9.9 million for the corresponding prior year period.

The increase was driven by a gain on equity investments of $3.4 million as compared to a net loss on equity investments of $466,000 in the prior year period, along with the acquisition of a majority interest in Trident Abstract Title Agency, LLC (“Trident”), which added $3.3 million of title-related fees and service charges.

These increases were partially offset by lower income from bankcard services of $1.9 million, primarily as a result of the impact of the Durbin amendment, which became effective for the Company on July 1, 2022.

Other income decreased to $31.5 million for the nine months ended September 30, 2022, as compared to $42.5 million for the corresponding prior year period.

The decrease was driven by a net loss on equity investments of $7.5 million as compared to a net gain on equity investments of $8.4 million in the prior year period, along with decreases in net gain on sale of loans of $2.8 million, income from bankcard services of $2.3 million primarily as a result of the impact of the Durbin amendment, fees and service charges of $849,000, and Paycheck Protection Program (“PPP”) loan origination referral fees of $800,000.

These decreases were partially offset by the impact of Trident, which added $7.8 million of title-related fees and service charges and an increase in commercial loan swap income of $3.8 million.

Non-interest Expense

Operating expenses increased to $58.7 million for the three months ended June 30, 2022, as compared to $51.7 million in the same prior year period.

Operating expenses for the three months ended June 30, 2022 and 2021 included $742,000 and $472,000, respectively, of merger related and net branch consolidation expenses.

The remaining increase of $6.7 million in operating expenses for the three months ended June 30, 2022, as compared to the corresponding prior year period, was partly due to the acquisition of majority interest in Trident, which added $3.2 million of expenses.

The further remaining increase of $3.5 million in operating expense for the three months ended June 30, 2022 was due to increases in data processing expense of $1.8 million, as a result of the migration to a new core banking system, compensation and benefits expense of $1.2 million partly relating to the commercial banking strategy and the commercial banking hires in expansion markets of Boston and

Baltimore, and an increase in the Company’s federal deposit insurance and regulatory assessments of $689,000 as a result of a higher assessment base and multiplier.

Operating expenses increased to $116.2 million for the six months ended June 30, 2022, as compared to $103.4 million in the same prior year period.

Operating expenses for the six months ended June 30, 2022 and 2021 included $3.1 million and $1.9 million, respectively, of merger related and net branch consolidation expenses.

The remaining increase of $11.6 million in operating expenses for the six months ended June 30, 2022, as compared to the corresponding prior year period, was partly due to the acquisition of majority interest in Trident, which added $3.2 million of expenses.

The further remaining increase of $8.4 million in operating expense for the six months ended June 30, 2022 was primarily due to increases in data processing expense of $3.5 million as a result of the migration to a new core banking system, compensation and benefits expense of $3.5 million partly relating to the commercial banking strategy and the commercial banking hires in expansion markets of Boston and Baltimore, federal deposit insurance and regulatory assessments of $715,000 as a result of a higher assessment base and multiplier, and professional fees of $547,000.

Operating expenses increased to $59.0 million for the three months ended September 30, 2022, as compared to $58.7 million in the same prior year period.

Operating expenses for the three months ended September 30, 2022 and 2021 included $48,000 and $4.2 million, respectively, of merger related expenses and net branch consolidation benefit/expense.

The remaining increase of $4.6 million in operating expenses for the three months ended September 30, 2022, as compared to the corresponding prior year

period, was partly due to the acquisition of a majority interest in Trident, which added $2.8 million of expenses, compensation and benefits expense of $1.8 million primarily related to increased employee medical benefit claims, and data processing expense of $1.2 million, as a result of the migration to a new core banking system.

These increases were partly offset by a decrease in professional fees of $615,000.

Operating expenses increased to $175.2 million for the nine months ended September 30, 2022, as compared to $162.0 million in the same prior year period.

Operating expenses for the nine months ended September 30, 2022 and 2021 included $3.1 million and $6.1 million, respectively, of merger related and net branch consolidation expenses.

The remaining increase of $16.2 million in operating expenses for the nine months ended September 30, 2022, as compared to the corresponding prior year period, was partly due to the impact of Trident, which added $6.0 million of expenses, and increases in compensation and benefits expense of $5.3 million partly relating to the commercial banking strategy and commercial banking hires in expansion markets of Boston and Baltimore, data processing expense of $4.6 million as a result of the migration to a new core banking system, and federal deposit insurance and regulatory assessments of $1.0 million as a result of a higher assessment base and multiplier.

These increases were partly offset by a decrease in amortization of core deposit intangible of $551,000.

Income Tax Expense

The provision for income taxes was $8.9 million and $16.9 million for the three and six months ended June 30, 2022, respectively, as compared to $10.1 million and $20.7 million for the same prior year periods.

The effective tax rate was 23.3% and 23.4% for the three and six months ended June 30, 2022, respectively, as compared to 24.8% and 24.7% for the same prior year periods, respectively.

The provision for income taxes was $12.3 million and $29.2 million for the three and nine months ended September 30, 2022, respectively, as compared to $7.4 million and $28.1 million for the same prior year periods.

The effective tax rate was 24.1% and 23.7% for the three and nine months ended September 30, 2022, respectively, as compared to 23.3% and 24.3% for the same prior year periods.

Liquidity and Capital Resources

1 unchanged sentence

are dividends from the Bank, proceeds from sale of investments, and the issuance of preferred and common stock, and debt.

For the six months ended June 30, 2022, the holding company received dividend payments of $30.0 million from the Bank.

At June 30, 2022, OceanFirst Financial Corp.

For the nine months ended September 30, 2022, the holding company received dividend payments of $50.0 million from the Bank.

At September 30, 2022, OceanFirst Financial Corp.

held $38.2 million in cash.

The Bank’s primary sources of funds are deposits, principal and interest payments on loans and investments, FHLB advances, access to the Federal Reserve discount window, other borrowings, and proceeds from the sale of loans and investments .

The Bank’s primary sources of funds are deposits, principal and interest payments on loans and investments, FHLB advances, other borrowings, and proceeds from the sale of loans and investments .

While scheduled payments on loans and securities are predictable sources of funds, deposit flows, loan prepayments, and loan and investment sales are greatly influenced by interest rates, economic conditions, and competition.

The Bank has other sources of liquidity if a need for additional funds arises, including various lines of credit at multiple financial institutions.

At June 30, 2022, the Bank had $488.8 million outstanding in overnight borrowings from the FHLB, as compared to $0 at December 31, 2021.

The Bank utilizes overnight borrowings from time-to-time to fund short-term liquidity needs.

There were no FHLB term advances at June 30, 2022 and December 31, 2021.

The Company’s cash needs for the six months ended June 30, 2022 were primarily satisfied by the increase in net proceeds from FHLB advances, deposits, which included the issuance of brokered time deposits, proceeds from maturities and calls of debt maturities, and principal repayments on debt securities.

The cash was principally utilized for loan originations, purchases of residential loan pools, purchases of debt and equity securities, and redemption of subordinated debt.

The Company’s cash needs for the six months ended June 30, 2021 were primarily satisfied by principal repayments on debt securities held-to-maturity, proceeds from sales of loans and equity investments, and proceeds from maturities and calls of debt securities.

The cash was principally utilized for purchases of debt and equity securities, and loan originations.

The Bank has other sources of liquidity if a need for additional funds arises, including various lines of credit at multiple financial institutions and access to the Federal Reserve Bank discount window.

At September 30, 2022, the Bank had $500.0 million of short-term advances and $14.2 million of overnight borrowings from the FHLB, as compared to $0 at December 31, 2021.

The Bank regularly utilizes overnight and short-term borrowings to fund short-term liquidity needs.

The Com pany’s cash needs for the nine months ended September 30, 2022 were primarily satisfied by the net proceeds from FHLB advances, deposits, which included the issuance of brokered time deposits, principal repayments on debt securities and loans, and proceeds from maturities and calls of debt maturities.

The cash was principally utilized for loan originations, purchases of residential loan pools, purchases of debt and equity securities, redemption of subordinated debt, and dividend payments.

The Company’s cash needs for the nine months ended September 30, 2021 were primarily satisfied by the increase in deposits, proceeds from sales of loans and equity investments, principal repayments on debt securities held-to-maturity, and proceeds from maturities and calls of debt securities.

The cash was principally utilized for purchases of debt and equity securities, a purchase of a residential loan pool, and loan originations.

In the normal course of business, the Bank routinely enters into various off-balance-sheet commitments, primarily relating to the origination and sale of loans.

At June 30, 2022, outstanding commitments to originate loans totaled $385.0 million and outstanding undrawn lines of credit totaled $1.78 billion, of which $1.42 billion were commitments to commercial and commercial construction borrowers and $359.5 million were commitments to consumer borrowers and residential construction borrowers.

At September 30, 2022, outstanding commitments to originate loans totaled $439.5 million and outstanding undrawn lines of credit totaled $1.72 billion, of which $1.34 billion were commitments to commercial and commercial construction borrowers and $382.3 million were commitments to consumer borrowers and residential construction borrowers.

Commitments to fund undrawn lines of credit and commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the existing contracts.

2 unchanged sentences

The Company’s exposure to credit risk is represented by the contractual amount of the instruments.

Time deposits scheduled to mature in one year or less totaled $1.01 billion at June 30, 2022.

At June 30, 2022, the Company also had various contractual obligations, which included debt obligations of $788.9 million, including finance lease obligations of $1.8 million, and an additional $21.2 million in operating lease obligations included in other liabilities.

Time deposits scheduled to mature in one year or less totaled $866.3 million at September 30, 2022.

At September 30, 2022, the Company also had various contractual obligations, which included debt obligations of $805.4 million, including finance lease obligations of $1.8 million, and an additional $20.4 million in operating lease obligations included in other liabilities.

The Company expects to have sufficient funds available to meet current commitments in the normal course of business.

6 unchanged sentences

The repurchased shares are held as treasury stock for general corporate purposes.

For the three and six months ended June 30, 2022, the Company repurchased 272,779 and 373,223 shares of its common stock, respectively, at a total cost of $5.3 million and $7.4 million, respectively.

For the three and six months ended June 30, 2021, the Company repurchased 500,000 and 1.0 million shares of its common stock, respectively, at a total cost of $10.9 million and $20.9 million, respectively.

At June 30, 2022, there were 2,934,438 shares available to be repurchased under the authorized stock repurchase program.

Cash dividends on common stock declared and paid during the first six months of June 30, 2022 were $20.0 million, as compared to $20.3 million for the same prior year period.

On July 27, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.20 per common share.

The dividend is payable on August 19, 2022 to common stockholders of record at the close of business on August 8, 2022.

Cash dividends on preferred stock declared and paid during the first six months of June 30, 2022 and 2021 were $2.0 million for both periods.

The Company’s Board of Directors also declared a quarterly cash dividend of $0.4375 per depositary share, representing 1/40th interest in the Series A Preferred Stock, payable on August 15, 2022 to preferred stockholders of record on July 29, 2022.

For the three months ended September 30, 2022, the Company did not repurchase any shares of its common stock.

For the nine months ended September 30, 2022, the Company repurchased 373,223 shares of its common stock, at a total cost of $7.4 million.

For the three and nine months ended September 30, 2021, the Company repurchased 460,009 and 1.5 million shares of its common stock, respectively, at a total cost of $9.7 million and $30.6 million, respectively.

At September 30, 2022, there were 2,934,438 shares available to be repurchased under the authorized stock repurchase program.

Cash dividends on common stock declared and paid during the first nine months of September 30, 2022 were $31.8 million, as compared to $30.4 million for the same prior year period.

The increase in dividends was a result of an increase in the dividend rate from $0.17 to $0.20 per common share.

On October 24, 2022, the Company’s Board of Directors declared a quarterly cash

dividend of $0.20 per common share.

The dividend is payable on November 18, 2022 to common stockholders of record at the close of business on November 7, 2022.

Cash dividends on preferred stock declared and paid during the first nine months of September 30, 2022 and 2021 were $3.0 million for both periods.

The Company’s Board of Directors also declared a quarterly cash dividend of $0.4375 per depositary share, representing 1/40th interest in the Series A Preferred Stock, payable on November 15, 2022 to preferred stockholders of record on October 31, 2022.

The Company’s ability to continue to pay dividends remains dependent upon capital distributions from the Bank, which may be adversely affected by capital restraints imposed by applicable regulations.

2 unchanged sentences

Additionally, regulations of the Federal Reserve may prevent the Company from either paying or increasing the cash dividend to common stockholders.

As of June 30, 2022 and December 31, 2021, the Company and the Bank satisfy all regulatory capital requirements currently applicable as follows (dollars in thousands):

As of September 30, 2022 and December 31, 2021, the Company and the Bank satisfy all regulatory capital requirements currently applicable as follows (dollars in thousands):

Actual For capital adequacy

1 unchanged sentence

corrective action

As of June 30, 2022 Amount Ratio Amount Ratio Amount Ratio

As of September 30, 2022 Amount Ratio Amount Ratio Amount Ratio

Tier 1 capital (to average assets) $ 1,097,654 9.23 % $ 475,574 4.00 % $ 594,467 5.00 %

9 unchanged sentences

Total capital (to risk-weighted assets) 1,289,224 12.78 1,059,533 10.50 (1)

Actual For capital adequacy

purposes To be well-capitalized

corrective action

As of December 31, 2021 Amount Ratio Amount Ratio Amount Ratio

As of December 31, 2021

Tier 1 capital (to average assets) $ 1,027,660 9.08 % $ 452,669 4.00 % $ 565,836 5.00 %

11 unchanged sentences

The Company and the Bank satisfied the criteria to be “well-capitalized” under the Prompt Corrective Action Regulations.

At June 30, 2022 and December 31, 2021, the Company maintained a stockholders’ equity to total assets ratio of 12.23% and 12.92%, respectively.

At September 30, 2022 and December 31, 2021, the Company maintained a stockholders’ equity to total assets ratio of 12.14% and 12.92%, respectively.

Non-Performing Assets

1 unchanged sentence

It is the policy of the Company to cease accruing interest on loans 90 days or more past due or in the process of foreclosure.

June 30, December 31,

September 30, December 31,

(dollars in thousands)

8 unchanged sentences

Total non-performing assets $ 21,498 $ 25,600

PCD loans, net of allowance for loan credit losses

$ 29,249 $ 41,817

5 unchanged sentences

Non-performing assets as a percent of total assets 0.17 0.22

The Company’s non-performing loans totaled $20.8 million at June 30, 2022, as compared to $25.5 million at December 31, 2021, primarily due to loans that returned to accrual status and partly due to loans that were paid off.

Included in the non-performing loans total was $10.5 million and $11.3 million of troubled debt restructuring (“TDR”) loans at June 30, 2022 and December 31, 2021, respectively.

Included in the non-performing loans total was $3.5 million and $6.5 million of PCD loans at June 30, 2022 and December 31, 2021, respectively.

At June 30, 2022, the allowance for loan credit losses totaled $52.1 million, or 0.55% of total loans, as compared to $48.9 million, or 0.57% of total loans, at December 31, 2021.

These ratios exclude existing net unamortized credit and PCD marks on acquired loans of $15.5 million and $18.9 million at June 30, 2022 and December 31, 2021, respectively.

The Company’s non-performing loans totaled $21.5 million at September 30, 2022, as compared to $25.5 million at December 31, 2021, primarily due to loans that were paid off and partly due to loans that returned to accrual status.

Included in the non-performing loans total was $10.0 million and $11.3 million of troubled debt restructuring (“TDR”) loans at September 30, 2022 and December 31, 2021, respectively.

Included in the non-performing loans total was $3.0 million and $6.5 million of PCD loans at September 30, 2022 and December 31, 2021, respectively.

At September 30, 2022, the allowance for loan credit losses totaled $53.5 million, or 0.55% of total loans, as compared to $48.9 million, or 0.57% of total loans, at December 31, 2021.

These ratios exclude existing net unamortized credit and PCD marks on acquired loans of $13.6 million and $18.9 million at September 30, 2022 and December 31, 2021, respectively.

The Company classifies loans and other assets in accordance with regulatory guidelines.

The table below represents Special Mention and Substandard assets (in thousands):

June 30, December 31,

The table below excludes any loans held-for-sale and represents Special Mention and Substandard assets (in thousands):

September 30, December 31,

Special Mention $ 54,330 $ 91,607

1 unchanged sentence

The decreases in special mention and substandard loans were primarily due to improved profitability of borrowers and their ability to service their loans.

The decrease in special mention also included one commercial loan of $14.1 million, which paid in full during the six months ended June 30, 2022.

The decrease in special mention also included one commercial loan of $14.1 million, which was repaid in full during the nine months ended September 30, 2022.

Critical Accounting Policies

11 unchanged sentences

This update was effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2021.

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

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

Recent Accounting Pronouncements Not Yet Adopted

5 unchanged sentences

Early adoption is permitted.

The Company is currently evaluating the potential impact of this standard to the consolidated financial statements.

The Company does not expect this standard to have a material impact to the consolidated financial statements.

In March 2022, FASB issued ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326):

10 unchanged sentences

Early adoption is permitted for any entity that has adopted the amendments in ASU 2017-12 for the corresponding period.

The Company currently does not apply fair value hedge accounting;

however the Company is currently evaluating the potential impact of this standard to the consolidated financial statements.

The Company does not expect this standard to have a material impact to the consolidated financial statement s.

Private Securities Litigation Reform Act Safe Harbor Statement

1 unchanged sentence

(the “Company”).

These forward-looking statements are generally identified by

use of the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project”, “will”, “should”, “may”, “view”, “opportunity”, “potential”, or similar expressions or expressions of confidence.

These forward-looking statements are generally identified by use of the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project”, “will”, “should”, “may”, “view”, “opportunity”, “potential”, or similar expressions or expressions of confidence.

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain.

Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to:

implications arising from the termination of the proposed merger with Partners Bancorp;

the impact of the COVID-19 or any other pandemic on our operations and financial results and those of our customers, changes in interest rates, inflation, general economic conditions, levels of unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, future natural disasters and increases to flood insurance premiums, the current or anticipated impact of military conflict, terrorism or other geopolitical events, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory changes, volatility and deterioration in the credit and equity markets, our ability to access low-cost funding, monetary and fiscal policies of the U.S.

5 unchanged sentences

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 2. Management’s Discussion and Analysis