What changed in this filing

/stocks — the workspaceLOADING

Item 4. Controls and Procedures

2022-11-09 compared with 2022-08-04 · 154 added, 147 removed, 874 unchanged (26% 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 June 30, 2022 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 September 30, 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)

June 30, December 31,

September 30, December 31,

Cash and due from banks $ 170,668 $ 204,949

Debt securities available-for-sale, at estimated fair value 470,300 568,255

Debt securities held-to-maturity, net of allowance for securities credit losses of $ 1,293 at June 30, 2022 and $ 1,467 at December 31, 2021 (estimated fair value of $ 987,532 at June 30, 2022 and $ 1,152,744 at December 31, 2021)

Debt securities held-to-maturity, net of allowance for securities credit losses of $ 1,234 at September 30, 2022 and $ 1,467 at December 31, 2021 (estimated fair value of $ 905,426 at September 30, 2022 and $ 1,152,744 at December 31, 2021)

1,027,712 1,139,193

1 unchanged sentence

Restricted equity investments, at cost 77,556 53,195

Loans receivable, net of allowance for loan credit losses of $ 52,061 at June 30, 2022 and $ 48,850 at December 31, 2021

Loans receivable, net of allowance for loan credit losses of $ 53,521 at September 30, 2022 and $ 48,850 at December 31, 2021

9,672,488 8,583,352

Loans held-for-sale 3,549 —

Interest and dividends receivable 38,388 32,606

16 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 June 30, 2022 and December 31, 2021

Common stock, $ 0.01 par value, 150,000,000 shares authorized, 61,863,794 and 61,535,381 shares issued at June 30, 2022 and December 31, 2021, respectively;

and 59,130,236 and 59,175,046 shares outstanding at June 30, 2022 and December 31, 2021, respectively

Preferred stock, $ 0.01 par value, $ 1,000 liquidation preference, 5,000,000 shares authorized, and 57,370 shares issued at both September 30, 2022 and December 31, 2021

Common stock, $ 0.01 par value, 150,000,000 shares authorized, 61,872,065 and 61,535,381 shares issued at September 30, 2022 and December 31, 2021, respectively;

and 59,138,507 and 59,175,046 shares outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 1,153,072 1,146,781

2 unchanged sentences

Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") ( 6,797 ) ( 8,615 )

Treasury stock, 2,733,558 and 2,360,335 shares at June 30, 2022 and December 31, 2021, respectively

Treasury stock, 2,733,558 and 2,360,335 shares at September 30, 2022 and December 31, 2021, respectively

( 69,106 ) ( 61,710 )

8 unchanged sentences

(in thousands, except per share amounts)

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

2022 2021 2022 2021

16 unchanged sentences

Fees and service charges 6,320 2,973 17,026 10,519

Net gain on sales of loans 3 1,279 180 3,195

Net (loss) gain on equity investments ( 8,078 ) 576 ( 10,864 ) 8,863

Net gain (loss) on sales of loans 168 ( 15 ) 348 3,180

Net gain (loss) on equity investments 3,362 ( 466 ) ( 7,502 ) 8,397

Net gain (loss) from other real estate operations — ( 3 ) 48 ( 12 )

13 unchanged sentences

Amortization of core deposit intangible 1,171 1,354 3,559 4,110

Branch consolidation expense, net 546 26 948 1,037

Branch consolidation (benefit) expense, net ( 346 ) 4,014 602 5,051

Merger related expenses 298 225 2,459 1,052

17 unchanged sentences

(in thousands)

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

2022 2021 2022 2021

2 unchanged sentences

Other comprehensive loss:

Net unrealized loss on debt securities (net of tax benefit of $ 4,460 and $ 8,388 in 2022 and ta x benefit of $ 102 and $ 214 in 2021, respectively)

Net unrealized loss on debt securities (net of tax benefit of $ 3,023 and $ 11,411 in 2022 and ta x benefit of $ 232 and $ 446 in 2021)

( 9,490 ) ( 855 ) ( 35,858 ) ( 1,658 )

1 unchanged sentence

87 95 265 303

Reclassification adjustment for gains included in net income (net of tax benefit of $ 5 and $ 26 in 2022)

( 16 ) — ( 82 ) —

Reclassification adjustment for gains included in net income (net of tax benefit of $ 26 in 2022)

Total other comprehensive loss, net of tax ( 9,403 ) ( 760 ) ( 35,675 ) ( 1,355 )

9 unchanged sentences

(dollars in thousands, except per share amounts)

For the Three Months Ended June 30, 2022 and 2021

For the Three Months Ended September 30, 2022 and 2021

Stock Additional

5 unchanged sentences

Stock Non-Controlling Interest Total

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

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

8 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 June 30, 2022 $ 1 $ 612 $ 1,151,363 $ 474,114 $ ( 29,093 ) $ ( 7,403 ) $ ( 69,106 ) $ 944 $ 1,521,432

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

Net income — — — 38,611 — — — 193 38,804

5 unchanged sentences

Exercise of stock options — — 95 — — — — — 95

Repurchase 272,779 shares of common stock

— — — — — — ( 5,252 ) — ( 5,252 )

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

Acquisition of Trident Abstract Title Agency, LLC (“Trident”) — — — — — — — 836 836

Distributions to non-controlling interest — — — ( 2 ) — — — ( 174 ) ( 176 )

Balance at June 30, 2022 $ 1 $ 612 $ 1,151,363 $ 474,114 $ ( 29,093 ) $ ( 7,403 ) $ ( 69,106 ) $ 944 $ 1,521,432

Balance at September 30, 2022 $ 1 $ 612 $ 1,153,072 $ 499,967 $ ( 38,496 ) $ ( 6,797 ) $ ( 69,106 ) $ 963 $ 1,540,216

See accompanying Notes to Unaudited Consolidated Financial Statements.

2 unchanged sentences

(dollars in thousands, except per share amounts)

For the Six Months Ended June 30, 2022 and 2021

For the Nine Months Ended September 30, 2022 and 2021

Stock Additional

16 unchanged sentences

Preferred stock dividend — — — ( 3,012 ) — — — — ( 3,012 )

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

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

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 — — — ( 3,012 ) — — — — ( 3,012 )

Acquisition of Trident — — — — — — — 836 836

Acquisition of Trident Abstract Title Agency, LLC (“Trident”) — — — — — — — 836 836

Distributions to non-controlling interest — — — 6 — — — ( 588 ) ( 582 )

Balance at June 30, 2022 $ 1 $ 612 $ 1,151,363 $ 474,114 $ ( 29,093 ) $ ( 7,403 ) $ ( 69,106 ) $ 944 $ 1,521,432

Balance at September 30, 2022 $ 1 $ 612 $ 1,153,072 $ 499,967 $ ( 38,496 ) $ ( 6,797 ) $ ( 69,106 ) $ 963 $ 1,540,216

See accompanying Notes to Unaudited Consolidated Financial Statements.

2 unchanged sentences

(dollars in thousands)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Cash flows from operating activities:

14 unchanged sentences

Net write down of fixed assets held-for-sale to net realizable value 1,427 3,114

Net gain on sale of fixed assets ( 63 ) ( 1 )

Net (gain) loss on sale of fixed assets ( 52 ) 11

Net loss (gain) on equity securities 7,502 ( 8,397 )

5 unchanged sentences

(Increase) decrease in interest and dividends receivable ( 5,782 ) 2,757

Deferred tax benefit ( 47 ) ( 95 )

Deferred tax (benefit) expense ( 66 ) 570

(Increase) decrease in other assets ( 84,582 ) 29,366

Increase in other liabilities 106,082 424

Increase (decrease) in other liabilities 185,927 ( 37,311 )

Total adjustments 115,952 31,632

20 unchanged sentences

Purchases of premises and equipment ( 14,358 ) ( 26,493 )

Purchases of operating lease equipment ( 4,789 ) —

Net cash consideration received for acquisition 38,609 —

3 unchanged sentences

(dollars in thousands)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Cash flows from financing activities:

Increase (decrease) in deposits $ 99,068 $ ( 11,452 )

Increase in deposits $ 227,192 $ 347,672

(Decrease) increase in short-term borrowings ( 22,480 ) 14,838

7 unchanged sentences

Distributions to non-controlling interest ( 582 ) —

Net cash provided by (used in) financing activities 511,781 ( 44,622 )

Net cash provided by financing activities 645,104 296,435

Net decrease in cash and due from banks and restricted cash ( 54,076 ) ( 310,989 )

30 unchanged sentences

Basis of Presentation

The consolidated financial statements include the accounts of OceanFirst Financial Corp.

The consolidated financial statements include:

the accounts of OceanFirst Financial Corp.

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

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

(the “Bank”) and OceanFirst Risk Management, Inc.;

the Bank’s direct and indirect wholly-owned subsidiaries, OceanFirst REIT Holdings, Inc., OceanFirst Management Corp., OceanFirst Realty Corp., Casaba Real Estate Holdings Corporation, and Country Property Holdings, Inc;

and a majority controlling interest in Trident Abstract Title Agency, LLC.

2 unchanged sentences

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 six months ended June 30, 2022 are not necessarily indicative of the results of operations that may be expected for the full year 2022 or any other period.

The results of operations for the three and nine months ended September 30, 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 periods presented.

7 unchanged sentences

On April 1, 2022, the Company completed its acquisition of a majority controlling interest of 60 % in 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.

Trident provides commercial and residential title services throughout New Jersey, and through strategic alliances can also service clients’ title insurance needs outside of New Jersey.

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

Total consideration paid was $ 7.1 million and goodwill from the transaction amounted to $ 5.8 million.

6 unchanged sentences

Amounts attributed to the non-controlling interest are based upon the ownership interest in Trident that the Company does not own.

For further discussion on the accounting for this arrangement refer to Note 11 Variable Interest Entity, to this Form 10-Q.

For further discussion on the accounting for this arrangement refer to Note 11 Variable Interest Entity, of this Form 10-Q.

The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed by the Company at the date of the acquisition for Trident, net of total consideration paid (in thousands):

15 unchanged sentences

Goodwill recorded $ 5,827

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

to the closing date estimates and uncertainties become available.

As the Company finalizes its review of the acquired assets and

liabilities, certain adjustments to the recorded carrying values may be required.

The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available.

As the Company finalizes its review of the acquired assets and liabilities, certain adjustments to the recorded carrying values may be required.

OceanFirst Financial Corp.

1 unchanged sentence

Earnings per Share

The following reconciles shares outstanding for basic and diluted earnings per share for the three and six months ended June 30, 2022 and 2021 (in thousands):

The following reconciles shares outstanding for basic and diluted earnings per share for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

6 unchanged sentences

Average diluted shares outstanding 58,801 59,515 58,918 59,862

For the three and six months ended June 30, 2022, antidilutive stock options of 1,577,000 and 1,573,000 , respectively, were excluded from the earnings per share calculation.

For the three and six months ended June 30, 2021, antidilutive stock options of 1,589,000 and 1,666,000 , respectively, were excluded from the earnings per share calculation.

For both the three and nine months ended September 30, 2022, antidilutive stock options of 1,552,000 were excluded from the earnings per share calculation.

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 per share calculation.

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 June 30, 2022 and December 31, 2021 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 September 30, 2022 and December 31, 2021 are as follows (in thousands):

Losses Estimated

Value Allowance for Credit Losses

At June 30, 2022

At September 30, 2022

Debt securities available-for-sale:

31 unchanged sentences

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

There was no allowance for securities credit losses on debt securities available-for-sale at June 30, 2022 or December 31, 2021.

There was no allowance for securities credit losses on debt securities available-for-sale at September 30, 2022 or December 31, 2021.

The unrealized losses across security classes were due to interest rate movements.

3 unchanged sentences

Notes to Unaudited Consolidated Financial Statements (Continued)

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the three and six months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

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, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

4 unchanged sentences

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 grade.

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

Where multiple ratings are available, the Company considers the lowest rating when determining the allowance for securities credit losses.

Under this approach, the amortized cost of debt securities held-to-maturity at June 30, 2022, aggregated by credit quality indicator, are as follows (in thousands):

Under this approach, the amortized cost of debt securities held-to-maturity at September 30, 2022, aggregated by credit quality indicator, are as follows (in thousands):

Investment Grade Non-Investment Grade/Non-rated Total

As of June 30, 2022

As of September 30, 2022

State, municipal and sovereign debt obligations $ 263,614 $ — $ 263,614

4 unchanged sentences

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 June 30, 2022 and December 31, 2021 is as follows (in thousands):

June 30, December 31,

The carrying value of the debt securities held-to-maturity at September 30, 2022 and December 31, 2021 is as follows (in thousands):

September 30, December 31,

Amortized cost $ 1,031,383 $ 1,143,548

3 unchanged sentences

Carrying value $ 1,027,712 $ 1,139,193

There were $ 21,000 and $ 108,000 of realized losses on debt securities for the three and six months ended June 30, 2022.

There were no realized gains or losses on debt securities for the three and six months ended June 30, 2021.

The amortized cost and estimated fair value of debt securities at June 30, 2022 by contractual maturity are shown below (in thousands).

June 30, 2022 Amortized

There were $ 131,000 and $ 23,000 of realized gains on debt securities for the three and nine months ended September 30, 2022.

There were no realized gains or losses on debt securities for the three and nine months ended September 30, 2021.

The amortized cost and estimated fair value of debt securities at September 30, 2022 by contractual maturity are shown below (in thousands).

September 30, 2022 Amortized

Cost Estimated

7 unchanged sentences

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 June 30, 2022, corporate debt securities, state and municipal obligations, and asset-backed securities with an amortized cost of $ 61.1 million, $ 87.2 million, and $ 296.2 million, respectively, and an estimated fair value of $ 58.0 million, $ 83.4 million, and $ 279.0 million, respectively, were callable prior to the maturity date.

At September 30, 2022, corporate debt securities, state and municipal obligations, and asset-backed securities with an amortized cost of $ 56.0 million, $ 75.0 million, and $ 296.2 million , respectively, and an estimated fair valu e of $ 52.7 million, $ 68.7 million, and $ 274.9 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 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 $ 941.9 million and $ 1.14 billion at June 30, 2022 and December 31, 2021, respectively, which includes $ 110.6 million and $ 142.9 million at June 30, 2022 and December 31, 2021, respectively, pledged as collateral for securities sold under agreements to repurchase.

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 $ 866.5 million and $ 1.14 billion at September 30, 2022 and December 31, 2021, respectively, which included $ 105.5 million and $ 142.9 million at September 30, 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 June 30, 2022 and December 31, 2021, 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 September 30, 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 June 30, 2022

At September 30, 2022

Debt securities available-for-sale:

29 unchanged sentences

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

The Company concluded that debt securities were not impaired at June 30, 2022 based on a consideration of several factors.

The Company concluded that debt securities were not impaired at September 30, 2022 based on a consideration of several factors.

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

6 unchanged sentences

Equity Investments

At June 30, 2022 and December 31, 2021, the Company held equity investments of $ 75.3 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 and six months ended June 30, 2022 and 2021 are shown in the table below (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

At September 30, 2022 and December 31, 2021, the Company held equity investments of $ 81.7 million and $ 101.2 million, respectively.

The equity investments primarily comprised of select financial services institutions’ preferred and common 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 and nine months ended September 30, 2022 and 2021 are shown in the table below (in thousands):

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

2022 2021 2022 2021

Net (loss) gain on equity investments $ ( 8,078 ) $ 576 $ ( 10,864 ) $ 8,863

Net (losses) gains recognized on equity securities sold ( 231 ) — 1,351 8,123

Unrealized (loss) gain recognized on equity securities still held $ ( 7,847 ) $ 576 $ ( 12,215 ) $ 740

Net gain (loss) on equity investments $ 3,362 $ ( 466 ) $ ( 7,502 ) $ 8,397

Net gains recognized on equity securities sold — — 1,351 8,123

Unrealized gain (loss) recognized on equity securities still held $ 3,362 $ ( 466 ) $ ( 8,853 ) $ 274

OceanFirst Financial Corp.

1 unchanged sentence

Loans Receivable, Net

Loans receivable, net at June 30, 2022 and December 31, 2021 consisted of the following (in thousands):

June 30, December 31,

Loans receivable, net at September 30, 2022 and December 31, 2021 consisted of the following (in thousands):

September 30, December 31,

Commercial real estate – investor $ 5,007,637 $ 4,378,061

10 unchanged sentences

Total loans receivable, net $ 9,672,488 $ 8,583,352

(1) The commercial and industrial loans balance at June 30, 2022 and December 31, 2021 includes Paycheck Protection Program loans of $ 6.5 million and $ 22.9 million, respectively.

(1) The commercial and industrial loans balance at September 30, 2022 and December 31, 2021 includes Paycheck Protection Program (“PPP”) loans of $ 3.0 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:

15 unchanged sentences

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

June 30, 2022

September 30, 2022

Commercial real estate - investor

58 unchanged sentences

Notes to Unaudited Consolidated Financial Statements (Continued)

An analysis of the allowance for credit losses on loans for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):

An analysis of the allowance for credit losses on loans for the three and nine months ended September 30, 2022 and 2021 is as follows (in thousands):

Real Estate –

4 unchanged sentences

Real Estate Other Consumer Total

For the three months ended June 30, 2022

For the three months ended September 30, 2022

Allowance for credit losses on loans

Balance at beginning of period $ 22,608 $ 5,021 $ 5,240 $ 18,196 $ 996 $ 52,061

Credit loss (benefit) expense ( 1,080 ) ( 116 ) 572 1,966 130 1,472

Credit loss expense (benefit) 82 ( 1,047 ) 554 1,618 1 1,208

Charge-offs ( 3 ) — — — ( 2 ) ( 5 )

1 unchanged sentence

Balance at end of period $ 22,690 $ 4,022 $ 5,863 $ 19,858 $ 1,088 $ 53,521

For the three months ended June 30, 2021

For the three months ended September 30, 2021

Allowance for credit losses on loans

4 unchanged sentences

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

For the six months ended June 30, 2022

For the nine months ended September 30, 2022

Allowance for credit losses on loans

4 unchanged sentences

Balance at end of period $ 22,690 $ 4,022 $ 5,863 $ 19,858 $ 1,088 $ 53,521

For the six months ended June 30, 2021

For the nine months ended September 30, 2021

Allowance for credit losses on loans

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

Credit loss expense (benefit) 6,566 ( 8,740 ) ( 1,004 ) ( 2,797 ) ( 940 ) ( 6,915 )

Credit loss (benefit) expense ( 3,336 ) ( 8,225 ) 958 284 ( 705 ) ( 11,024 )

Charge-offs ( 345 ) ( 64 ) ( 83 ) ( 254 ) ( 193 ) ( 939 )

1 unchanged sentence

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

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 and therefore, non-accruing.

At June 30, 2022 and December 31, 2021, the Company had collateral dependent loans with an amortized cost balance as follows:

At September 30, 2022 and December 31, 2021, the Company had collateral dependent loans with an amortized cost balance as follows:

commercial real estate - investor of $ 3.9 million and $ 3.6 million, respectively, commercial real estate - owner occupied of $ 2.0 million and $ 11.9 million, respectively, and commercial and industrial of $ 321,000 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 $ 261,000 and $ 438,000 at June 30, 2022 and December 31, 2021, respectively.

At June 30, 2022 and December 31, 2021, the amount of foreclosed residential real estate property held by the Company was $ 0 and $ 106,000 , 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 $ 1.1 million and $ 438,000 at September 30, 2022 and December 31, 2021, respectively.

At September 30, 2022 and December 31, 2021, the amount of foreclosed residential real estate property held by the Company was $ 0 and $ 106,000 , respectively.

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 June 30, 2022 and December 31, 2021 (in thousands):

June 30, December 31,

The following table presents the recorded investment in non-accrual loans, by loan portfolio segment as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, December 31,

Commercial real estate – investor $ 9,866 $ 3,614

4 unchanged sentences

$ 21,498 $ 25,494

At June 30, 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 June 30, 2022, there were no loans that were 90 days or greater past due and still accruing.

At September 30, 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 September 30, 2022, there was one PPP loan for $ 21,000 that was past due greater than 90 days and still accruing interest.

Per Small Business Association (“SBA”) guidelines, the SBA will pay accrued interest through the deferral period up to a maximum of 120 days past due.

Given these servicing guidelines, PPP loans that are 90 to120 days past due will be reported as accruing loans.

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

The following table presents the aging of the recorded investment in past due loans as of June 30, 2022 and December 31, 2021 by loan portfolio segment (in thousands):

The following table presents the aging of the recorded investment in past due loans as of September 30, 2022 and December 31, 2021 by loan portfolio segment (in thousands):

Past Due 60-89

2 unchanged sentences

Past Due Total

June 30, 2022

September 30, 2022

Commercial real estate – investor $ — $ 968 $ 2,025 $ 2,993 $ 5,004,644 $ 5,007,637

15 unchanged sentences

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

At June 30, 2022 and December 31, 2021, TDR loans totaled $ 17.4 million and $ 23.6 million, respectively.

At June 30, 2022 and December 31, 2021, there were $ 10.5 million and $ 11.3 million, respectively, of TDR loans included in the non-accrual loan totals.

At June 30, 2022 the Company had a $ 744,000 specific reserve allocated to a loan that was classified as a TDR loan.

At September 30, 2022 and December 31, 2021, TDR loans totaled $ 16.1 million and $ 23.6 million, respectively.

At September 30, 2022 and December 31, 2021, there were $ 10.0 million and $ 11.3 million, respectively, of TDR loans included in the non-accrual loan totals.

At September 30, 2022 the Company had a $ 667,000 specific reserve allocated to a loan that was classified as a TDR loan.

At 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 TDR loans classified as accruing loans, which totaled $ 6.9 million and $ 12.3 million at June 30, 2022 and December 31, 2021, respectively.

In addition to the TDR loans included in non-accrual loans, the Company also has TDR loans classified as accruing loans, which totaled $ 6.1 million and $ 12.3 million at September 30, 2022 and December 31, 2021, 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 six months ended June 30, 2022 and 2021 (dollars in thousands):

The following table presents information about TDR loans which occurred during the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):

Number of Loans Pre-modification

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Recorded Investment

Three months ended June 30, 2022

Three months ended September 30, 2022

Troubled debt restructurings:

None None None

Three months ended June 30, 2021

Other consumer 3 $ 114 $ 124

Three months ended September 30, 2021

Troubled debt restructurings:

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

Residential real estate 3 244 336

Six months ended June 30, 2022

Commercial real estate - owner occupied 1 $ 93 $ 110

Nine months ended September 30, 2022

Troubled debt restructurings:

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Other consumer 6 1,105 1,233

Six months ended June 30, 2021

Nine months ended September 30, 2021

Troubled debt restructurings:

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

Commercial real estate - owner occupied 1 93 110

Residential real estate 3 244 336

Other consumer 2 26 33

There were no TDR loans that defaulted during the three and six months ended June 30, 2022, which were modified within the preceding year.

There was one TDR commercial real estate - investor loan for $ 923,000 that defaulted during the three and six months ended June 30, 2021, which was modified within the preceding year and the loan was subsequently paid in full as of June 30, 2022.

The major types of deposits at June 30, 2022 and December 31, 2021 were as follows (in thousands):

Type of Account June 30, December 31,

There were no TDR loans that defaulted during the three and nine months ended September 30, 2022, which were modified within the preceding year.

There was one TDR commercial real estate - investor loan for $ 923,000 that defaulted during the three and nine months ended September 30, 2021, which was modified within the preceding year and the loan was subsequently paid in full as of June 30, 2022.

The major types of deposits at September 30, 2022 and December 31, 2021 were as follows (in thousands):

Type of Account September 30, December 31,

Non-interest-bearing $ 2,325,547 $ 2,412,056

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Total deposits $ 9,959,469 $ 9,732,816

Included in time deposits at June 30, 2022 and December 31, 2021 was $ 90.3 million and $ 145.4 million, respectively, in deposits of $250,000 or more.

Time deposits also include brokered deposits of $ 887.6 million and $ 25.0 million at June 30, 2022 and December 31, 2021, respectively.

Included in time deposits at September 30, 2022 and December 31, 2021 was $ 94.1 million and $ 145.4 million, respectively, in deposits of $250,000 or more.

Time deposits also include brokered deposits of $ 828.7 million and $ 25.0 million at September 30, 2022 and December 31, 2021, respectively.

OceanFirst Financial Corp.

1 unchanged sentence

Borrowed Funds

Borrowed funds at June 30, 2022 and December 31, 2021 were as follows (in thousands):

June 30, December 31,

Borrowed funds at September 30, 2022 and December 31, 2021 were as follows (in thousands):

September 30, December 31,

FHLB advances $ 514,200 $ —

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Total borrowed funds $ 805,403 $ 347,910

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

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

At September 30, 2022, there were $ 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.

In March 2022, the Company redeemed $ 35.0 million of subordinated debt due September 30, 2026.

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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 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.

Equity investments without readily determinable fair values are carried at cost less impairment, if any, plus or minus adjustments resulting from

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

observable price changes in orderly transactions for the identical or similar investment of the same issuer (measurement alternative).

Interest Rate Derivatives

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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 June 30, 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):

The following table summarizes financial assets and financial liabilities measured at fair value as of September 30, 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

June 30, 2022

September 30, 2022

Items measured on a recurring basis:

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16,233 — — 16,233

(1) Primarily consists of $ 16.8 million of equity investments measured under the measurement alternative, which included a $ 2.5 million unrealized gain for the three months ended September 30, 2022.

(2) Primarily consists of commercial loans, which are collateral dependent.

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Notes to Unaudited Consolidated Financial Statements (Continued)

The following table reconciles, for the three and six months ended June 30, 2022 and 2021, the beginning and ending balances for equity investments 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 June 30, For the Six Months Ended June 30,

The following table reconciles, for the three and nine months ended September 30, 2022 and 2021, the beginning and ending balances for equity investments 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,

2022 2021 2022 2021

Beginning balance $ — $ 2,978 $ 2,718 $ 2,540

Total gains included in earnings — 40 — 438

Purchases — 40 — 5,040

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

Transfers out of Level 3 — — ( 2,718 ) —

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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 for the three months ended June 30, 2022.

During the six months ended June 30, 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 and six months ended June 30, 2021.

There were no transfers into or out of Level 3 for the three months ended September 30, 2022.

During the nine months ended September 30, 2022, the Company executed its right to convert $ 2.7 million of 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 and nine months ended September 30, 2021.

Assets and Liabilities Disclosed at Fair Value

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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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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 June 30, 2022 and December 31, 2021 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 September 30, 2022 and December 31, 2021 are presented in the following tables (in thousands):

Fair Value Measurements at Reporting Date Using:

2 unchanged sentences

Inputs Level 3

June 30, 2022

September 30, 2022

Financial Assets:

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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

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,

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

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.

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 a gain of $ 0 and $ 37,000 in commercial loan swap income resulting from the fair value adjustment for the three and six months ended June 30, 2022, respectively, as compared to a loss of $ 23,000 and a gain of $ 41,000 for the three and six months ended June 30, 2021, respectively.

The notional amount of derivatives not designated as hedging instruments was $ 1.24 billion and $ 938.7 million at June 30, 2022 and December 31, 2021, respectively.

The Company recognized a gain of $ 19,000 and $ 56,000 in commercial loan swap income resulting from the fair value adjustment for the three and nine months ended September 30, 2022, respectively, as compared to gains of $ 14,000 and $ 55,000 for the three and nine months ended September 30, 2021, respectively.

The notional amount of derivatives not designated as hedging instruments was $ 1.30 billion and $ 938.7 million at September 30, 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 June 30, December 31,

Balance Sheet Location September 30, December 31,

Other assets $ 122,605 $ 22,787

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This requirement is dependent on certain specified credit measures.

The amount of collateral posted with third parties was $ 40,000 and $ 19.8 million at June 30, 2022 and December 31, 2021, respectively.

The amount of collateral received from third parties was $ 69.1 million and $ 0 at June 30, 2022 and December 31, 2021, respectively.

The amount of collateral posted with third parties was $ 40,000 and $ 19.8 million at September 30, 2022 and December 31, 2021, respectively.

The amount of collateral received from third parties was $ 112.1 million and $ 0 at September 30, 2022 and December 31, 2021, respectively.

The amount of collateral posted with third parties and received from 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 $ 74.1 million and $ 22.9 million at June 30, 2022 and December 31, 2021, 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 $ 122.6 million and $ 22.9 million at September 30, 2022 and December 31, 2021, respectively.

OceanFirst Financial Corp.

4 unchanged sentences

The following table represents the classification of the Company’s right-of-use assets and lease liabilities on the consolidated statements of financial condition (in thousands):

June 30, December 31,

September 30, December 31,

Lease ROU Assets Classification

7 unchanged sentences

Total lease liabilities $ 22,180 $ 19,886

(1) Operating lease liabilities excludes liabilities for future rent and estimated lease termination payments related to closed branches of $ 8.5 million and $ 8.2 million as of June 30, 2022 and December 31, 2021, respectively.

(1) Operating lease liabilities excludes liabilities for future rent and estimated lease termination payments related to closed branches of $ 8.2 million at both September 30, 2022 and December 31, 2021.

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.

5 unchanged sentences

For the finance lease, the Company utilized its incremental borrowing rate at lease inception.

June 30, December 31,

September 30, December 31,

Weighted-Average Remaining Lease Term

7 unchanged sentences

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

Three Months Ended June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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All other costs are included in occupancy expense.

Future minimum payments for the finance lease and operating leases with initial or remaining terms of one year or more as of June 30, 2022 were as follows (in thousands):

Future minimum payments for the finance lease and operating leases with initial or remaining terms of one year or more as of September 30, 2022 were as follows (in thousands):

Finance Lease Operating Leases

For the Twelve Months Ending June 30,

For the Twelve Months Ending September 30,

2023 $ 307 $ 4,268

16 unchanged sentences

The summarized financial information for the Company’s consolidated VIE consisted of the following (in thousands):

As of June 30, 2022

As of September 30, 2022

Cash and cash equivalents $ 33,234

3 unchanged sentences

Net assets $ 2,407

Subsequent Events

As previously disclosed, on November 4, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Partners Bancorp (“Partners”) and Coastal Merger Sub Corp.

(“Merger Sub”).

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, (i) Merger Sub would merge with and into Partners, with Partners as the surviving entity, and (ii) immediately thereafter, Partners would merge with and into the Company, with the Company as the surviving entity.

On November 9, 2022, the Company and 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 Merger Agreement and transactions contemplated thereby, which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 9, 2022.

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.

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