OCEANFIRST FINANCIAL CORP 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company’s interest rate sensitivity is monitored through the use of interest rate risk (“IRR”) modeling. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at September 30, 2022, which were estimated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown. At September 30, 2022, the Company’s one-year gap was positive 7.90% as compared to positive 14.15% at December 31, 2021. The table is intended to provide an approximation of the projected repricing of assets and liabilities at September 30, 2022 on the basis of contractual maturities, anticipated prepayments, scheduled rate adjustments, and the rate sensitivity of non-maturity deposits within a three month period and subsequent selected time intervals. At September 30, 2022 3 Months or Less More than 3 Months to 1 Year More than 1 Year to 3 Years More than 3 Years to 5 Years More than 5 Years Total (dollars in thousands) Interest-earning assets: Interest-earning deposits and short-term investments $ 24,618 $ 2,877 $ 1,637 $ — $ — $ 29,132 Debt securities 428,968 116,384 257,157 246,065 502,106 1,550,680 Equity investments — 1,976 — — 79,746 81,722 Restricted equity investments — — — — 77,556 77,556 Loans receivable (1) 2,867,647 906,276 2,012,915 1,708,759 2,226,712 9,722,309 Total interest-earning assets 3,321,233 1,027,513 2,271,709 1,954,824 2,886,120 11,461,399 Interest-bearing liabilities: Interest-bearing checking accounts 1,363,083 193,502 447,123 362,170 1,543,986 3,909,864 Money market deposit accounts 49,750 51,889 120,292 331,950 195,348 749,229 Savings accounts 110,277 127,553 288,159 225,694 818,789 1,570,472 Time deposits 319,431 547,092 497,972 29,314 10,548 1,404,357 FHLB advances 514,200 — — — — 514,200 Securities sold under agreements to repurchase and other borrowings 166,100 145 123,875 525 558 291,203 Total interest-bearing liabilities 2,522,841 920,181 1,477,421 949,653 2,569,229 8,439,325 Interest sensitivity gap (2) $ 798,392 $ 107,332 $ 794,288 $ 1,005,171 $ 316,891 $ 3,022,074 Cumulative interest sensitivity gap $ 798,392 $ 905,724 $ 1,700,012 $ 2,705,183 $ 3,022,074 $ 3,022,074 Cumulative interest sensitivity gap as a percent of total interest-earning assets 6.97 % 7.90 % 14.83 % 23.60 % 26.37 % 26.37 % (1) For purposes of the gap analysis, loans receivable includes loans held for sale and non-performing loans gross of the allowance for loan credit losses, unamortized discounts and deferred loan costs and fees. (2) Interest sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities. Certain shortcomings are inherent in gap analysis. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, loan prepayment rates and average lives of deposits would likely deviate significantly from those assumed in the calculation. Finally, the ability of many borrowers to service their adjustable-rate loans may be impaired in the event of an interest rate increase. 17 Table of Contents Additionally, the table below sets forth the Company’s exposure to IRR as measured by the change in economic value of equity (“EVE”) and net interest income under varying rate shocks as of September 30, 2022 and December 31, 2021. All methods used to measure interest rate sensitivity involve the use of assumptions, which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. The Company’s interest rate sensitivity should be reviewed in conjunction with the financial statements and notes thereto contained in the 2021 Form 10-K. September 30, 2022 December 31, 2021 Change in Interest Rates in Basis Points (Rate Shock) Economic Value of Equity Net Interest Income Economic Value of Equity Net Interest Income Amount % Change EVE Ratio Amount % Change Amount % Change EVE Ratio Amount % Change (dollars in thousands) 300 $ 1,543,173 (12.7) % 14.3 % $ 449,321 5.4 % $ 1,817,134 24.5 % 16.7 % $ 346,723 10.3 % 200 1,611,932 (8.8) 14.5 441,660 3.6 1,738,602 19.1 15.6 336,816 7.1 100 1,650,035 (6.7) 14.4 432,993 1.6 1,621,984 11.1 14.2 325,960 3.7 Static 1,768,413 — 14.9 426,313 — 1,459,706 — 12.5 314,395 — (100) 1,682,967 (4.8) 13.9 405,872 (4.8) 1,230,947 (15.7) 10.3 299,994 (4.6) The change in interest rate sensitivity was impacted by the deployment of cash into loans, a shift out of overnight borrowings into short-term borrowings, a slowdown in loan and securities prepayment speeds, and a significant increase in market interest rates. As is the case with the gap calculation, certain shortcomings are inherent in the methodology used in the EVE and net interest income IRR measurements. The model requires the making of certain assumptions which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. First, the model assumes that the composition of the Company’s interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured. Second, the model assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Third, the model does not take into account the Company’s business or strategic plans or any steps it may take to respond to changes in rates. Accordingly, although the above measurements provide an indication of the Company’s IRR exposure at a particular point in time, such measurements are not intended to provide a precise forecast of the effect of changes in market interest rates on the Company’s EVE and net interest income, and can be expected to differ from actual results.