What changed in this filing

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Item 1. Business

2023-02-24 compared with 2022-02-28 · 168 added, 215 removed, 570 unchanged (40% of the section changed)

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The Bank is primarily subject to regulation and supervision by the Office of the Comptroller of the Currency (the “OCC”) and the Consumer Financial Protection Bureau (the “CFPB”).

Currently, the Company does not transact any material business other than through the Bank, its subsidiary.

The Company has been the holding company for the Bank since it acquired the stock of the Bank upon the Bank’s conversion from a federally-chartered mutual savings bank to a federally-chartered capital stock savings bank in 1996 (the “Conversion”).

Currently, the Company transacts the vast majority of its business through the Bank, its subsidiary.

The Company has been the holding company for the Bank since the Bank’s conversion from a federally-chartered mutual savings bank to a federally-chartered capital stock savings bank in 1996 (the “Conversion”).

Effective January 31, 2018, the Bank converted to a national bank charter and the Company became a bank holding company.

The conversions on January 31, 2018 did not change the entities which regulate and supervise the Bank and Company.

The Bank’s principal business is attracting retail and commercial deposits and investing those deposits primarily in loans, consisting of commercial real estate and other commercial loans, which have become a key focus of the Bank, and single-family, owner-occupied residential mortgage loans.

The conversion on January 31, 2018 did not change the entities which regulate and supervise the Bank and Company.

The Bank’s principal business is originating loans, consisting of commercial real estate and other commercial loans, which have become a key focus of the Bank, and single-family, owner-occupied residential mortgage loans.

The Bank also invests in other types of loans, including residential construction and consumer loans.

The Bank primarily funds these loans by attracting retail and commercial deposits.

In addition, the Bank invests in mortgage-backed securities (“MBS”), securities issued by the U.S.

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The Bank’s revenues are derived principally from interest on its loans, and to a lesser extent, interest on its debt and equity securities.

The Bank also receives income from bankcard services, trust and asset management services, deposit account services, gains on sales of loans, gains on equity investments, bank owned life insurance, commercial loan swap income, and other fees.

The Bank’s primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, maturities of debt securities, Federal Home Loan Bank (“FHLB”) advances, access to the Federal Reserve discount window, other borrowings such as subordinated debt, and to a lesser extent, investment maturities and proceeds from the sale of loans and equity investments .

The Bank also receives income from bankcard services, trust and asset management products and services, deposit account services, bank owned life insurance, commercial loan swap income, gain on sale of loans, securities and equity investments, other fees and service charges.

The Bank’s primary sources of funds are deposits, principal and interest payments on loans and investments, Federal Home Loan Bank (“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 and access to the Federal Reserve discount window.

The Company’s website address is www.oceanfirst.com .

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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 plans or strategies is uncertain.

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, those items discussed under Item 1A.

Risk Factors herein and the following:

changes in interest rates, general economic conditions nationally and in local markets, unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, natural disasters and increases to flood insurance premiums, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory/tax changes, monetary and fiscal policies of the U.S.

implications arising from the termination of the proposed merger with Partners Bancorp, including reputational risks and potential adverse effects on the ability to attract other merger partners;

the impact of the COVID-19 pandemic or any other pandemic on our operations and financial results and those of our customers, changes in interest rates, inflation, general economic conditions, potential recessionary conditions, levels of unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, future natural disasters, potential 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, monetary and fiscal policies of the U.S.

Government including policies of the U.S.

Treasury and the FRB, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, disruption due to pandemic or other public health emergencies;

a failure in or breach of the Bank’s operational or security systems or infrastructure, including cyberattacks;

the failure to maintain current technologies;

the inability to successfully implement future information technology enhancements;

demand for financial services in the Company’s market area, accounting principles and guidelines, and the Bank’s ability to successfully integrate acquired operations.

Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on the Company’s business.

The extent of such impact will depend on future developments, which are highly uncertain, including when

COVID-19 can be fully controlled and abated and, the timing of full inoculation against the virus.

As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, the Company could be subject to any of the following risks, any of which could have a material, adverse effect on its business, financial condition, liquidity, and results of operations:

the demand for the Bank’s products and services may decline, making it difficult to grow assets and income;

loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

the Company’s allowance for credit losses may increase if borrowers experience financial difficulties, which will adversely affect the Company’s net income;

the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to the Bank;

if legislation or governmental or regulatory action is enacted limiting the amount of ATM fees or surcharges the Bank may receive or on its ability to charge overdraft or other fees, it could adversely impact the Company’s financial results;

the Company’s cybersecurity risks would be increased as the result of an increased use of the Bank’s online banking platform or an increase in the number of employees working remotely;

and Federal Deposit Insurance Corporation (“FDIC”) premiums may increase if the agency experiences additional resolution costs.

Treasury and the Board of Governors of the FRB, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, changes in consumer spending, borrowing and savings habits, changes in accounting principles, a failure in or breach of the Company’s

operational or security systems or infrastructure, including cyberattacks, the failure to maintain current technologies, failure to retain or attract employees and the Bank’s ability to successfully integrate acquired operations.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

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The Bank is a regional community bank offering a wide variety of financial services to meet the needs of the communities it serves.

At December 31, 2021, the Bank operated its business through its branch office and headquarters located in Toms River, New Jersey, its administrative office located in Red Bank, New Jersey, an administrative office located in Mount Laurel, New Jersey, 46 additional branch offices, and four deposit production facilities located throughout central and southern New Jersey and the greater metropolitan area of New York City and Philadelphia.

At December 31, 2022, the Bank operated its business through its branch office and headquarters located in Toms River, New Jersey, its administrative office located in Red Bank, New Jersey, and an administrative office located in Mount Laurel, New Jersey.

The Bank also conducts its business at 37 additional branch offices and deposit production facilities located throughout central and southern New Jersey and the greater metropolitan area of New York City and Philadelphia.

The Bank also operated commercial loan production offices in New Jersey, New York City, the greater Philadelphia area, Baltimore, and Boston.

The Bank is one of the largest and oldest financial institutions in New Jersey, with headquarters approximately midway between New York City and Philadelphia.

The economy in the Bank’s primary market area, which represents central and southern New Jersey, is based on a mixture of service and retail trade;

with other empl oyment provided by a variety of wholesale trade, manufacturing, federal, state and local government, hospitals and utilities.

The economy in the Bank’s primary market area, which represents central and southern New Jersey, is based on a mixture of service and retail trade, with other empl oyment provided by a variety of wholesale trade, manufacturing, federal, state and local government, hospitals and utilities.

The area is home to commuters working in and around New York City and Philadelphia and also includes a significant number of vacation and second homes in the communities along the New Jersey shore.

In addition, the Bank provides banking services through teams located in the major metropolitan markets of Philadelphia, New York, Baltimore, Washington D.C., and Boston.

In addition, the Bank provides banking services through teams located in the major metropolitan markets of Philadelphia, New York, Baltimore, and Boston.

The Bank’s future growth opportunities will be influenced by the growth and stability of its geographic marketplace and the competitive environment.

The Bank faces significant competition both in making loans and in attracting deposits.

In addition, rapid technological changes and consumer preferences may result in increased competition for the Company’s other services as a number of well-funded technology-focused companies are innovating in the payments, distributed ledger, and cryptocurrency networks to disintermediate portions of the traditional banking model.

The state of New Jersey, New York City, Philadelphia, Baltimore, Washington D.C., and Boston are attractive markets to many financial institu tions.

Many of the Bank’s competitors are significantly larger institutions headquartered out-of-market that have greater financial resources than the Bank.

In addition, rapid technological changes and consumer preferences may result in increased competition for the Bank’s other services as a number of well-funded technology-focused companies are innovating in the payments, distributed ledger, and cryptocurrency networks to disintermediate portions of the traditional banking model.

The state of New Jersey, New York City, Philadelphia, Baltimore, and Boston are also attractive markets to many financial institu tions.

Many of the Bank’s competitors are significantly larger institutions that have greater financial resources than the Bank.

The Bank’s competition for loans comes principally from commercial banks, savings banks, savings and loan associations, credit unions, mortgage banking companies, internet-based providers, and insurance companies.

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Employees are encouraged to help their neighbors in many ways and receive up to eight hours of Bank-paid volunteer time each year.

Known as the WaveMakers when helping in the community, employees collectively spend thousands of hours volunteering and serving in leadership roles with local nonprofit organizations, along with participating in other activities that contribute to improving the quality of life for others.

The Foundation, established in 1996 during the Company’s initial public offering, has granted over $43.8 million to enrich the lives

of local citizens by supporting initiatives in health and human services, education, affordab le housing, youth development, and the arts.

On November 4, 2021, the Company announced the execution of a definitive agreement and plan of merger with Partners Bancorp (“Partners”), a multi-bank holding company operating under the brands of Virginia Partners Bank, Maryland Partners Bank, The Bank of Delmarva, and Liberty Bell Bank.

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

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

On January 1, 2020, the Company completed its acquisition of Two River Bancorp (“Two River”), which added $1.1 billion to assets, $940.1 million to loans, and $941.8 million to deposits.

Two River’s results of operations are included in the consolidated results for the period beginning on January 1, 2020.

On January 1, 2020, the Company completed its acquisition of Country Bank Holding Company, Inc.

(“Country Bank”), which added $793.7 million to assets, $618.4 million to loans, and $652.7 million to deposits.

Country Bank’s results of operations are included in the consolidated results for the period beginning on January 1, 2020.

On January 31, 2019, the Company completed its acquisition of Capital Bank of New Jersey (“Capital Bank”), which added $494.4 million to assets, $307.3 million to loans, and $449.0 million to deposits.

Capital Bank’s results of operations are included in the consolidated results for the period beginning on February 1, 2019.

These transactions have enhanced the Bank’s position as the premier community banking franchise in central and southern New Jersey, strengthened its presence in the major metropolitan areas of Philadelphia and New York, grown business lines, expanded its geographic footprint, and improved financial performance.

The announced transaction with Partners will supplement the Company’s existing expansion efforts into Baltimore and Washington D.C.

The Company will continue to evaluate potential acquisition opportunities to further create stockholder value.

The Company’s employees, known as the WaveMakers when helping in the community, collectively spend thousands of hours volunteering and serving in leadership roles with local nonprofit organizations, along with participating in other activities that contribute to improving the quality of life for others.

In 2022, the WaveMakers spent more than 6,400 hours volunteering their time and talents to help neighbors in need and the first Bank-wide volunteering event was held in October 2022 with more than 700 employees completing over 100 projects for non-profit organization partners in the five states served by the Bank.

The Foundation, established in 1996 during the Company’s initial public offering, has granted over $45.7 million to enrich the lives of local citizens by supporting initiatives in health and human services, education, affordab le housing, youth development, and the arts.

Lending Activities

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At December 31, 2022, the Bank had total loans outstanding of $9.92 billion, of which $6.17 billion, or 62.2% of total loans, were commercial real estate, multi-family, and land loans (collectively, “commercial real estate”).

The remainder of the portfolio consisted of:

$2.48 billion of residential real estate loans, or 28.8% of total loans;

The remainder of the portfolio consisted of $2.86 billion of residential real estate loans, or 28.9% of total loans;

$622.4 million of commercial and industrial loans, or 6.3% of total loans;

and $264.4 million of consumer loans, primarily home equity loans and lines of credit, or 2.7% of total loans.

At December 31, 2021, the Bank had no loans held-for-sale and 36.7% of the Bank’s total loans had adjustable interest rates.

At December 31, 2022, the Bank had $690,000 loans held-for-sale and 41.9% of the Bank’s total loans had adjustable interest rates.

The types of loans that the Bank may originate are subject to federal and state laws and regulations.

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(dollars in thousands)

Commercial and industrial $ 449,224 5.21 % $ 470,656 6.03 % $ 396,434 6.38 %

Commercial real estate $ 6,169,319 62.20 % $ 5,433,126 63.01 % $ 4,636,529 59.43 %

Commercial and industrial 622,372 6.27 449,224 5.21 470,656 6.03

Residential real estate 2,862,681 28.86 2,479,701 28.76 2,354,983 30.19

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Total loans 9,918,744 100.00 % 8,622,870 100.00 % 7,801,630 100.00 %

Deferred origination costs, net 9,332 9,486 9,880

Deferred origination costs (fees), net 7,488 9,332 9,486

Allowance for loan credit losses (56,824) (48,850) (60,735)

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Total loans receivable, net $ 9,868,718 $ 8,583,352 $ 7,704,857

Adjustable rate $ 3,162,950 36.68 % $ 2,991,321 38.34 % $ 2,107,790 33.92 %

Fixed rate $ 5,760,562 58.08 % $ 5,459,920 63.32 % $ 4,810,309 61.66 %

Adjustable rate 4,158,182 41.92 3,162,950 36.68 2,991,321 38.34

$ 9,918,744 100.00 % $ 8,622,870 100.00 % $ 7,801,630 100.00 %

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At December 31, 2022

Industrial Commercial Real Estate Residential

Commercial Real Estate Commercial

Industrial Residential

Real Estate Consumer Total

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Total amount due $ 6,169,319 $ 622,372 $ 2,862,681 $ 264,372 9,918,744

Deferred origination costs, net 9,332

Deferred origination costs (fees), net 7,488

Allowance for loan credit losses (56,824)

Loans receivable, net $ 9,869,408

loans held-for-sale 690

Total loans receivable, net $ 9,868,718

The following table sets forth at December 31, 2022, the dollar amount of total loans receivable, contractually due after December 31, 2023, and whether such loans have fixed interest rates or adjustable interest rates:

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(in thousands)

Commercial and industrial $ 139,447 $ 167,469 $ 306,916

Commercial real estate $ 2,611,392 $ 3,223,706 $ 5,835,098

Commercial and industrial 137,039 159,207 296,246

Residential real estate 2,610,499 249,930 2,860,429

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Total loans receivable $ 5,489,368 $ 3,764,040 $ 9,253,408

Commercial and Industrial .

At December 31, 2021, commercial and industrial (“C&I”) loans totale d $449.2 million, or 5.2% of the Bank’s total loans outstanding.

The Bank originates C&I loans and lines of credit (including for working capital, fixed asset purchases, and acquisition, receivable, and inventory financing) primarily in the Bank’s market are a.

In underwriting C&I loans and credit lines, the Bank reviews and analyzes the financial history and capacity of the borrower, collateral value, strength and character of the principals, and general payment history of the principal borrowers in coming to a credit decision.

The Bank generally originates C&I loans secured by the assets of the business including accounts receivable, inventory, and fixtures.

The Bank generally requires the personal guarantee of the principal borrowers for all C&I loans.

Risk of loss on a C&I business loan is dependent largely on the borrower’s ability to remain financially able to repay the loan from the ongoing operations of the business.

In addition, any collateral securing such loans may depreciate over time, may be difficult to appraise, and may fluctuate in value.

Commercial Real Estate .

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At December 31, 2022, the Bank’s total commercial real estate loans outstanding were $6.17 billion, or 62.2% of total loans, as compared to $5.43 billion, or 63.0% of total loans at December 31, 2021.

The Bank continues to grow this market segment primarily through the addition of experienced commercial lenders and through expansive commercial lending teams i n various New Jersey counties as well as teams in New York City, Philadelphia, Baltimore, Washington D.C., and Boston.

commercial real estate portfolio, 19.4% is considered owner-occupied, whereby the underlying business owner occupies a majority of the property.

The Bank continues to grow this market segment primarily through additional business and referrals from existing clients, and the addition of experienced commercial lenders i n various New Jersey counties as well as teams in New York City, Philadelphia, Baltimore, and Boston.

Of the total commercial real estate portfolio, 16.2% is considered owner-occupied, whereby the underlying business owner occupies a majority of the property.

The commercial real estate portfolio also includes loans for the construction of commercial properties.

In certain cases, these loans are underwritten based upon commercial leases in place prior to funding.

In many cases, commercial construction loans are extended to owners that intend to occupy the property for business operations, in which case the loan is based upon the financial capacity of the related business and the owner of the business.

At December 31, 2021 and 2020, the Bank had an outstanding balance in commercial construction loans of less than 5% of total exposure .

At December 31, 2022 and 2021, the Bank had an outstanding balance in commercial construction loa ns of approximately 4% and 3% o f total loans, respectively .

The Bank originates mu lti-family mortgage loans and, to a lesser extent, land loans, which are included in commercial real estate.

At December 31, 2021 and 2020, the Bank’s multi-family loans were $1.05 billion and $710.2 million, respectively, and land loans were $4.2 million and $8.2 million , respectively.

At December 31, 2022 and 2021, the Bank’s multi-family loans were $1.12 billion and $1.05 billion, respectively, and land loans were $31.1 million and $4.2 million , respectively.

Commercial and Industrial .

At December 31, 2022, commercial and industrial (“C&I”) loans totale d $622.4 million, or 6.3% of the Bank’s total loans outstanding.

The Bank originates C&I loans and lines of credit (including for working capital, fixed asset purchases, and acquisition, receivable, and inventory financing) primarily in the Bank’s market are a.

In underwriting C&I loans and credit lines, the Bank reviews and analyzes the financial history and capacity of the borrower, collateral value, financial strength and character of the principal borrowers, and general payment history of the principal borrowers in coming to a credit decision.

The Bank generally originates C&I loans secured by the assets of the business including accounts receivable, inventory, and fixtures.

The Bank generally requires the personal guarantee of the principal borrowers for all C&I loans.

Risk of loss on a C&I business loan is dependent largely on the borrower’s ability to remain financially able to repay the loan from the ongoing operations of the business.

In addition, any collateral securing such loans may depreciate over time, may be difficult to appraise, and may fluctuate in value.

Residential Real Estate .

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Loan originations are typically generated by the Bank’s commissioned loan representatives and are largely derived from contacts within the local real estate industry, members of the local communities, and the Bank’s existing or past customers.

Additionally, for the year ended December 31, 2021, the Bank purchased $302.0 million of loans originated by others.

Additionally, for the year ended December 31, 2022, the Bank purchased $171.6 million of residential real estate loan pools originated by others.

At December 31, 2022, $2.86 billion, or 28.9% of total loans, were residential real estate loans, primarily single family and owner occupied.

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The retention of fixed-rate mortgage loans may increase the level of interest rate risk exposure of the Bank, as the rates on these loans will not adjust during periods of rising interest rates and the loans can be subject to substantial increases in prepayments during periods of falling interest rates.

The Bank’s policy is to originate residential real estate loans in amounts up to 80% of the lower of the appraised value or the selling price of the property securing the loan and up to 95% of the appraised value or selling price if private mortgage insurance is obtained.

The Bank’s policy is to originate residential real estate loans in amounts up to 80% of the lower of the appraised value or the selling price of the property securing the loan, up to 95% of the appraised value or selling price if private mortgage insurance is obtained, and up to 97% of the lower of the appraised value or selling price if the borrower qualifies for the NeighborFirst or special purpose credit program available to certain census tracts.

Appraisals are obtained for loans secured by real estate properties.

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Construction lending, by its nature, entails additional risks compared to residential real estate lending, attributable primarily to the fact that funds are advanced based upon a security interest in a project which is not yet complete.

Risk of loss on a construction loan depends largely upon whether initial estimate of the property's value at completion of construction equals or exceeds the cost of the property construction.

Risk of loss on a construction loan depends largely upon whether the initial estimate of the property's value at completion of construction equals or exceeds the cost of the property construction.

During the construction phase, a number of factors can result in delays and cost overruns.

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Furthermore, the application of various federal and state laws, including federal and state bankruptcy, and insolvency laws may limit the amount that can be recovered on such loans.

The Bank also originates lines of credit that are fully secured by the cash surrender value of whole life insurance policies.

Underlying insurance companies must have a Moody’s rating of A1 or higher and/or an S&P Rating of A or higher.

These lines are originated based on the value of the collateral and secured by an assignment of the whole life policy.

Borrowers are subject to minimum credit scores and maximum debt to income ratios but the guidelines are less stringent than a mortgage or home equity loan/line as the line is fully secured by the underlying insurance policy.

Interest rates charged are set at the time of origination and payments are interest-only based on the amount of the outstanding balance.

Loan to values are limited to 95% of the cash surrender value of the whole life policy.

Each line matures in 36 months and is subject to renewal at current rates and terms.

The program was implemented in February 2022.

At December 31, 2022, these loans totaled $35.2 million.

Loan Approval Procedures and Authority .

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In addition to internal credit reviews, the Bank has engaged an independent firm specializing in commercial loan reviews to examine a selection of commercial real estate and commercial and industrial loans, and provide management with objective analysis regarding the quality of these loans throughout the year.

The independent firm reviewed 62% of the outstanding loan balances for the Bank’s commercial real estate and commercial and industrial loans during 2021.

The independent firm reviewed at least 60% of the outstanding loan balances for the Bank’s commercial real estate and commercial and industrial loans during 2022.

Their conclusion was that the Bank’s internal credit reviews are consistent with both Bank policy and general industry practice.

Loan Servicing .

Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, making inspections as required of mortgaged premises, contacting delinquent borrowers, supervising foreclosures, property dispositions in the event of defaults, making certain insurance and tax payments on behalf of the borrowers, and generally administering the

Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, making inspections as required of mortgaged premises, contacting delinquent borrowers, supervising foreclosures and property dispositions in the event of defaults, making certain insurance and tax payments on behalf of the borrowers, and generally administering the loans.

The Bank also services mortgage loans for others.

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If the loan is still not brought current and it becomes necessary for the Bank to take legal action, which typically occurs after a loan is delinquent at least 120 days or more, the Bank will either:

(i) commence litigation to realize on the collateral, including foreclosure proceedings against any real property that secures the loan;

(i) commence litigation to acquire the collateral, including foreclosure proceedings against any real property that secures the loan;

or (ii) sell non-performing loans where foreclosure proceedings may or may not have been initiated.

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The Bank classifies assets in accordance with its Classification of Assets and Allowance for Credit Losses Policy (“ACL Policy”), which considers certain regulatory guidelines and definitions.

As part of this ACL Policy, the Deputy Chief Credit Officer reviews and confirms the criticized and classified commercial loans report on a monthly basis.

At December 31, 2021, the Bank h ad $148.6 million of assets, including all other real estate owned (“OREO”), classified as Substandard.

At December 31, 2020, the Bank had $194.5 million of assets, including all OREO, classified as Substandard.

As part of this ACL Policy, the Senior Credit Officer of the Special Asset Group reviews and confirms the criticized and classified commercial loans report on a monthly basis.

At December 31, 2022, the Bank h ad $50.8 million of assets classified as Substandard.

At December 31, 2021, the Bank had $148.6 million of assets, including all other real estate owned (“OREO”), classified as Substandard.

During 2022, the Company sold its remaining OREO and has no OREO at December 31, 2022.

Assets which do not currently expose the Bank to sufficient risk to warrant classification but possess potential weaknesses, such as past delinquencies, are designated Special Mention.

Special Mention assets totaled $48.2 million at December 31, 2022, as compared to $91.6 million at December 31, 2021.

The decrease in Special Mention and Substandard assets were primarily due to the improved economic outlook and greater certainty regarding these borrowers’ ability to service their loans.

Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations, Impact of COVID-19 .

The decrease in Special Mention and Substandard assets were primarily due to the 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 was repaid in full during 2022.

The decrease in substandard also included one commercial loan of $19.7 million, which was upgraded due to improved profitability in 2022.

Non-Performing Loans and OREO.

The following table sets forth information regarding non-accrual loans (“non-performing loans”) and OREO, excluding loans p urchased with credit deterioration (“PCD”, or, previously, purchased credit impaired) loans.

The following table sets forth information regarding non-accrual loans (“non-performing loans”) and OREO, including loans p urchased with credit deterioration (“PCD”) loans.

The Bank obtained purchased credit impaired loans as part of i ts acquisitions of Colonial American Bank (“Colonial American”), Cape Bancorp, Inc.

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These were reclassified as PCD loans as of January 1, 2020.

Further, the Bank obtained PCD loans from Two River and Country Bank.

Further, the Bank obtained PCD loans from Two River Bancorp (“Two River”) and Country Bank Holding Company, Inc.

(“Country Bank”).

PCD loans are accounted for at the purchase price or acquisition date fair value, with an estimate of expected credit losse s for groups of PCD loans with similar risk characteristics and individual PCD loans without similar characteristics, to arrive at an initial amortized cost basis.

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

This table includes c ertain amounts and metrics previously reported that have been reclassified to conform to the current year’s presentation.

At December 31,

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$ 23,265 $ 25,600 $ 46,969

Allowance for credit losses on loans as a percent of total loans receivable (2)

Allowance for loan credit losses as a percent of total loans receivable (2)

0.57 % 0.57 % 0.78 %

Allowance for credit losses on loans as a percent of total non-performing loans (1) (2)

Allowance for loan credit losses as a percent of total non-performing loans (1) (2)

244.25 191.61 129.60

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0.18 0.22 0.41

(1) Non-performing loans consist of all loans 90 days or more past due and other loans in the process of foreclosure, and do not include PCD loans.

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

Non-performing assets consist of non-performing loans and OREO.

(2) The loans acquired from prior bank acquisitions were recorded at fair value.

Amounts and ratios reported in the prior periods have been revised to conform with the current year’s presentation.

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

The net unamortized credit and PCD marks on these loans, not reflected in the allowance for loan credit losses, were $11.4 million, $18.9 million, and $28.0 million at December 31, 2022, 2021, and 2020, respectively.

Non-performing loans totaled $18.9 million at December 31, 2021, a decrease of $17.5 million as compared to December 31, 2020, primarily due to loans that returned to accrual status and partly due to loans that were paid off.

Non-performing loans at December 31, 2021 and 2020 do not include PCD loans acquired from prior bank acquisitions of $41.8 million and $48.5 million, respectively.

The Company’s OREO totaled $106,000 at both December 31, 2021, and December 31, 2020.

Non-performing loans totaled $23.3 million at December 31, 2022, a decrease of $2.2 million as compared to December 31, 2021, primarily due to loans that were paid off and partly due to loans that returned to accrual status.

The Company sold its remaining OREO during 2022 and has OREO assets of $0 and $106,000 at December 31, 2022, and 2021, respectively.

Allowance for Credit Losses (“ACL”):

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A description of the methodology used in establishing the ACL is set forth in the section Management’s Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Policies, Allowance for Credit Losses .

As of December 31, 2021 and 2020, the Bank’s loan ACL as a percentage of total loans were 0.57% and 0.78%, respectively.

At December 31, 2022 and 2021, the Bank’s loan ACL as a percentage of total loans was 0.57%.

The net unamortized credit and PCD marks on all acquired loans, not reflected in the allowance, was $11.4 million and $18.9 million at December 31, 2022 and 2021, respectively.

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The Bank will continue to monitor its allowance for loan credit losses as conditions dictate.

The following table sets forth activity in the Bank’s loan ACL, or allowance for loan losses, as appropriate, for the periods set forth in the table:

The following table sets forth activity in the Bank’s loan ACL for the periods set forth in the table:

At or for the Year Ended December 31,

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Balance at beginning of year $ 48,850 $ 60,735 $ 16,852

Commercial and industrial 154 890 —

Commercial real estate 70 410 14,850

Commercial and industrial 60 154 890

Residential real estate 56 254 3,200

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Net (recoveries) charge-offs (340) (461) 18,859

Credit loss (benefit) expense (12,346) 57,402 1,636

Credit loss expense (benefit) 7,634 (12,346) 57,402

Impact of CECL adoption — — 2,701

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2022 2021 2020

Net (Recoveries) Charge-offs Ratio of Net (Recoveries) Charge-offs to Average Loans Net Charge-offs Ratio of Net Charge-offs to Average Loans Net Charge-offs (Recoveries) Ratio of Net Charge-offs (Recoveries) to Average Loans

Net (Recoveries) Charge-offs Ratio of Net (Recoveries) Charge-offs to Average Loans Net (Recoveries)Charge-offs Ratio of Net (Recoveries) Charge-offs to Average Loans Net Charge-offs (Recoveries) Ratio of Net Charge-offs (Recoveries) to Average Loans

Net (recoveries) charge-offs:

Commercial and industrial $ 30 — % $ 744 0.01 % $ (160) — %

Commercial real estate $ (155) — % $ 205 — % $ 14,743 0.18 %

Commercial and industrial (95) — 30 — 744 0.01

Residential real estate (100) — (98) — 2,317 0.03

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Average net loans outstanding during the year $ 9,323,619 $ 7,921,611 $ 8,122,631

The increase in net recoveries for the year ended December 31, 2021 was primarily due to improved credit quality and successful recovery of previously charged-off balances.

The increase in net charge-offs for the year ended December 31, 2020 was primarily due to charge-offs of $14.6 million related to the sale of higher risk commercial real estate loans and $3.3 million of charge-offs related to the sale of under-performing residential and consumer loans.

The Company executed these loan sales as part of its strategy to limit exposure to credit risk, accelerated the resolution of potential credit losses on higher risk credit exposures, and minimized the operational impact associated with potential litigation and foreclosure proceedings.

The following table sets forth the Bank’s percent of loan ACL by category to the total loan ACL at December 31, 2021 and 2020, the percent of loan allowance by category to total loan allowance at December 31, 2019, and the percent of loans to total loans in each of the categories listed at the dates indicated (dollars in thousands):

The net recoveries for the year ended December 31, 2022 and 2021 was primarily due to improved credit quality and successful recovery of previously charged-off balances.

The net charge-offs for the year ended December 31, 2020 was primarily due to charge-offs of $14.6 million related to the sale of higher risk commercial real estate loans and $3.3 million of charge-offs related to the sale of under-performing residential and consumer loans.

The Company executed these loan sales during the COVID-19 pandemic as part of its strategy to limit exposure to credit risk, accelerate the resolution of potential credit losses on higher risk credit exposures, and minimize the operational impact associated with potential litigation and foreclosure proceedings.

The following table sets forth the Bank’s percent of loan ACL by category to the total loan ACL at December 31, 2022, 2021 and 2020, and the percent of loans to total loans in each of the categories listed at the dates indicated (dollars in thousands):

At December 31,

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Loans Amount Percent of

Allowance Percent

of Loans to Total

Commercial and industrial $ 5,039 10.32 % 5.21 % $ 5,390 8.87 % 6.03 % $ 1,458 8.65 % 6.38 %

Commercial real estate $ 25,493 44.86 % 62.20 % $ 31,388 64.24 % 63.01 % $ 41,757 68.76 % 59.43 %

Commercial and industrial 5,695 10.02 6.27 5,039 10.32 5.21 5,390 8.87 6.03

Residential real estate 24,530 43.17 28.86 11,155 22.84 28.76 11,818 19.46 30.19

Other consumer 1,106 1.95 2.67 1,268 2.60 3.02 1,770 2.91 4.35

Unallocated — — — — — — 25 0.15 —

Total $ 56,824 100.00 % 100.00 % $ 48,850 100.00 % 100.00 % $ 60,735 100.00 % 100.00 %

Reserve for Repurchased Loans and Loss Sharing Obligations .

The reserve for repurchased loans and loss sharing obligations was established to provide for expected losses related to repurchase requests which may be received on residential real estate loans previously sold to investors.

The reserve also includes an estimate of the Bank’s obligation under a loss sharing arrangement with the FHLB relating to loans sold into their Mortgage Partnership Finance (“MPF”) program.

The Company prepares a comprehensive analysis of the adequacy of the reserve for repurchased loans and loss sharing obligations at each quarter-end.

At December 31, 2021 and 2020, the Company maintained a reserve for repurchased loans and loss sharing obligations of $1.2 million.

Provisions or credits for losses are charged to gain on sale of loans and credited to the reserve while actual losses are charged to the reserve.

There were no losses for the years ended December 31, 2021, 2020, or 2019.

Losses on loans repurchased would include cash settlements in lieu of repurchases.

At December 31, 2021 and 2020, there were no outstanding loan repurchase requests.

Management believes that the Bank has established and maintained the reserve for repurchased loans and loss sharing obligations at adequate levels, however, future adjustments to the reserve may be necessary due to economic, operating or other conditions beyond the Bank’s control.

Investment Activities

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Interest and principal payments generated from securities provide a source of liquidity to fund loans and meet short-term cash needs.

In times of reduced loan demand, the securities portfolio can provide an alternative source of investment income.

In times of reduced loan demand, the securities portfolio can provide an alternative source of income.

The portfolio is also used to provide collateral for qualified deposits and borrowings and to manage interest rate risk.

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The Company’s investment policy mirrors that of the Bank except that it allows for the purchase of certain other debt, preferred stock, and equity securities in limited amounts.

The Board of Directors has delegated authority to implement the investment policy to the Bank’s Investment Committee under the oversight of the Asset Liability Committee.

The Board of Directors has delegated authority to implement the investment policy to the Company and Bank’s Investment Committees under the oversight of the Asset Liability Committee.

Day-to-day management of the portfolio rests with the Treasurer.

Management determines the appropriate classification of securities at the time of purchase.

Classification of securities are determined by management at the time of purchase.

If the Bank has the intent and the ability at the time of purchase to hold debt securities until maturity, they may be classified as held-to-maturity.

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Agency mortgage-backed securities along with obligations issued directly by the U.S.

government and its agencies entail a lesser degree of risk than loans made by the Bank and most other securities by virtue of the guarantees that back them, they require less capital under risk-based capital rules, are generally more liquid, and are more easily used to collateralize borrowings or other obligations of the Bank.

government and its agencies entail a lesser degree of risk than loans made by the Bank and most other securities by virtue of the guarantees that back them, that they require less capital under risk-based capital rules, are generally more liquid, and are more easily used to collateralize borrowings or other obligations of the Bank.

Each of the U.S.

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See Note 4 Securities, to the Consolidated Financial Statements.

At December 31, 2021, the amortized cost of the Company’s debt securities totaled $1.71 billion, and consisted of $164.8 million of U.S.

government and agency obligations, $281.4 million of state, municipal, and sovereign debt obligations, $73.8 million of corporate debt securities, $299.0 million of asset-backed securities, and $894.5 million of mortgage-backed securities.

The ta ble below sets forth certain information regarding the amortized cost, weighted average yield, and contractual maturities, excluding scheduled principal amortization, of the Bank’s debt securities as of December 31, 2022.

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Total debt securities $ 41,434 1.72 % $ 211,924 1.82 % $ 437,849 3.12 % $ 1,036,761 3.26 % $ 1,727,968 $ 1,567,689

(1) $53.0 million of the Bank’s corporate debt securities carry interest rates which adjust to a spread over London Inter-Bank Offered Rate (“LIBOR”) on a quarterly basis.

(2) All of the Bank’s asset-backed securities carry interest rates which adjust to a spread over LIBOR on a quarterly basis.

(1) $50.6 million of the Bank’s corporate debt securities carry interest rates which adjust to a spread over London Inter-Bank Offered Rate (“LIBOR”) on a quarterly basis and are expected to convert to a spread over Secured Overnight Financing Rate (“SOFR”) upon LIBOR cessation.

(2) All of the Bank’s asset-backed securities carry interest rates which adjust to a spread over LIBOR or SOFR on a quarterly basis.

Those referencing LIBOR are expected to convert to a spread over SOFR upon LIBOR cessation.

Equity Investments .

At December 31, 2022, and 2021, the Company held equity investments of $102.0 million and $101.2 million, respectively.

The equity investments are primarily comprised of select financial services institutions’ common or preferred stocks paying attractive dividends and funds that invest in financial services institutions.

The equity investments are primarily comprised of select financial services institutions’ preferred and common stocks and funds investing in those securities.

Sources of Funds

Repayments and prepayments of loans, proceeds from sales of loans, cash flows generated from operations, borrowings, proceeds from maturities and sales of securities, and deposits are the primary sources of the Bank’s funds for use in lending, investing and for other general purposes.

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.

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 discount window.

The Bank offers a variety of deposit accounts with a range of interest rates and terms to retail, government, and business customers.

The Bank’s deposits consist of money market accounts, savings accounts, interest-bearing checking accounts, non-interest-bearing accounts, and time deposits.

The Bank’s deposits consist of money market accounts, savings accounts, interest-bearing checking accounts, non-interest-bearing accounts, and time deposits, including brokered deposits.

The flow of deposits is influenced significantly by general economic conditions, prevailing interest rates, and competition.

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Total average deposits $ 9,913,357 100.00 % 0.31 % $ 9,643,969 100.00 % 0.26 % $ 8,859,382 100.00 % 0.55 %

From time to time, the Bank obtains advances from the FHLB and other sources for cash management and interest rate risk management purposes or as an alternative to deposits.

The Bank also obtains advances from the FHLB and other sources for cash management and interest rate risk management purposes or as an alternative to deposits.

Advances are collateralized primarily by certain of the Bank’s mortgage loans and debt securities and secondarily by the Bank’s investment in capital stock of the FHLB.

The maximum amount that the FHLB will advance to member institutions, including the Bank, fluctuates from time-to-time in accordance with the policies of the FHLB.

At December 31, 2021, the Bank had no outstanding advances from the FHLB.

The Bank also has outstanding municipal letters of credit issued by the FHLB used to secure government deposits.

At December 31, 2022, the Bank had $1.21 billion of outstanding advances from the FHLB.

The Bank also had outstanding municipal letters of credit issued by the FHLB used to secure government deposits.

At December 31, 2022, these municipal letters of credit totaled $2.00 billion.

The Bank also borrows funds using securities sold under agreements to repurchase.

The Bank also borrows funds using securities sold under agreements to repurchase with customers.

Under this form of borrowing specific securities are pledged as collateral to secure the borrowing.

These pledged securities are held by a third-party custodian.

At December 31, 2021, the Bank had borrowed $118.8 million through securities sold under agreements to repurchase.

At December 31, 2022, the Bank had borrowed $69.1 million through securities sold under agreements to repurchase with customers.

The Bank can also borrow from the Federal Reserve Bank of Philadelphia under its primary credit program.

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At December 31, 2022, the Bank had no borrowings outstanding with the Federal Reserve Bank of Philadelphia.

Recent Acquisitions

On April 1, 2022, the Company completed its acquisition of a majority controlling interest of 60% in Trident Abstract Title Agency, LLC (“Trident”), which provides commercial and residential title services.

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

Trident’s results of operations are included in the consolidated results for the period beginning on April 1, 2022.

The Company’s acquisitions over recent years have enhanced the Bank’s position as the premier community banking franchise in central and southern New Jersey, strengthened its presence in the major metropolitan areas of Philadelphia and New York, grown business lines, expanded its geographic footprint, and improved financial performance.

The Company will continue to evaluate potential acquisition opportunities to further create stockholder value.

Subsidiary Activities

At December 31, 2021, the Bank owned five direct subsidiaries:

• OceanFirst REIT Holdings, Inc.

was established in 2007 as a wholly-owned subsidiary of the Bank and now acts as the holding company for OceanFirst Management Corp, which was organized in 2016 for the purpose of holding and managing investment securities, including the stock of OceanFirst Realty Corp.

OceanFirst Realty Corp.

was established in 1997 and invests in qualifying mortgage loans and is intended to qualify as a real estate investment trust, which may, among other things, be utilized by the Company to raise capital in the future.

• Casaba Real Estate Holding Corporation was acquired by the Bank as a wholly-owned subsidiary as part of its acquisition of Cape in 2016.

At December 31, 2022, the Bank owned all or a majority interest in three direct subsidiaries:

• OceanFirst REIT Holdings, Inc., a Delaware corporation, was established in 2007 as a wholly-owned subsidiary of the Bank and now acts as the holding company for OceanFirst Management Corp, a New York corporation, which was organized in 2016 for the purpose of holding and managing investment securities, including the stock of OceanFirst Realty Corp.

OceanFirst Realty Corp., a Delaware corporation, was established in 1997 and invests in qualifying mortgage loans and is intended to qualify as a real estate investment trust, which may, among other things, be utilized by the Company to raise capital in the future.

• Casaba Real Estate Holding Corporation, a New Jersey corporation, was acquired by the Bank as a wholly-owned subsidiary as part of its acquisition of Cape in 2016.

This subsidiary is maintained for the purpose of taking legal possession of certain repossessed collateral for resale to third parties.

• CBNJ Investment Corp was acquired by the Bank as a wholly owned subsidiary as part of its acquisition of Capital Bank in 2019.

This subsidiary held certain investments of Capital Bank and is currently inactive.

• Country Property Holdings Inc.

was acquired by the Bank as a wholly-owned subsidiary as part of its acquisition of Country Bank in 2020.

• Country Property Holdings Inc., a New York corporation, was acquired by the Bank as a wholly-owned subsidiary as part of its acquisition of Country Bank in 2020.

This subsidiary is maintained for the purpose of taking legal possession of certain repossessed collateral for resale to third parties.

• TRCB Investment Corp was acquired by the Bank as a wholly owned subsidiary as part of its acquisition of Two River in 2020.

This subsidiary held certain investments of Two River and is currently inactive.

In addition to the Bank, the Company holds OceanFirst Risk Management, Inc.

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OceanFirst Risk Management Inc.

is a captive insurance company that insures certain risks relating to the business of the Bank and the Company.

is a Nevada captive insurance company that insures certain risks relating to the business of the Bank and the Company.

The Company also holds a 60% majority controlling interest in Trident Abstract Title Agency, LLC, a New Jersey corporation, which was acquired in 2022.

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

Furthermore, the Company holds the following statutory business trusts:

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Human Capital

OceanFirst’s long-term growth and success depends on its ability to attract, develop and retain a high-performing and diverse workforce.

The Company strives to provide a work environment that promotes collaboration, productivity, and employee engagement, which in turn drives both employee and customer success, as well as benefits the communities.

The Company’s Board of Directors and Executive Team oversee the strategic management of the Company’s human capital resources and the Human Resources department manages the day-to-day of those resources.

Employee profile

As of December 31, 2022, the Bank had 896 full-time employees, 43 part-time employees, and 19 commissioned employees, for a total of 958 employees.

In addition, approximately 68% of the Bank’s employees are female and 32% are male, and the average tenure was eight years as of December 31, 2021.

In addition, approximately 68% of the Bank’s employees are female and 32% are male, and the average tenure was 7.6 years as of December 31, 2022.

Total rewards

As part of the Bank’s compensation philosophy, market competitive total rewards programs are maintained for employees in order to attract and retain superior talent.

In addition to competitive base wages, additional programs include annual bonus opportunities, a Bank Employee Stock Ownership Plan (“ESOP”), a Bank matched 401(k) Plan, health and welfare benefits, flexible spending accounts, paid time off, family leave, and employee assistance programs.

Some employees also receive grants of equity awards in the Company’s stock.

Health and safety

The safety, health, and wellness of Bank employees is a top priority.

The COVID-19 pandemic presented a unique challenge with regard to maintaining employee safety while continuing successful operations.

Through teamwork and the adaptability of the Bank’s management and staff, over a short period of time, a significant majority of employees were transitioned to effectively work remotely and a safely-distanced working environment for employees with customer facing responsibilities at branches and operations centers was ensured.

The Bank has developed a process to collect COVID-19 vaccination records and monitor any recent potential exposure to COVID-19.

Employees are asked not to come to work when they experience signs or symptoms of a possible COVID-19 illness and are provided additional paid time off to cover compensation during such absences.

On an ongoing basis, the Bank further promotes health and wellness by strongly encouraging work-life balance, offering flexible work schedules, keeping the employee portion of health care premiums to a minimum, and sponsoring various wellness programs.

As part of the Bank’s compensation philosophy, market competitive total rewards programs are maintained for employees to attract and retain superior talent.

In addition to competitive base wages, additional programs include annual bonus compensation opportunities, a Bank Employee Stock Ownership Plan (“ESOP”), a Bank matched 401(k) Plan, health and welfare benefits, flexible spending accounts, paid time off, family leave, and employee assistance programs.

Some employees also receive grants of equity awards in the Company’s stock and non-equity awards that mirror the Company’s stock performance.

In addition, the Bank promotes health and wellness by encouraging work-life balance, offering flexible work schedules and sponsoring various programs, focusing on mental, emotional, social, intellectual, and spiritual health.

Talent and Promoting Diversity

A core tenet of the Bank’s talent philosophy is to both develop talent from within and supplement with external hires.

Whenever possible, the Bank seeks to fill positions by promotion and transfer from within the organization.

The Bank’s talent acquisition team uses internal and external resources to recruit highly skilled and talented candidates, and employee referrals for open positions are encouraged.

Diverse candidate pools are required for open positions within OceanFirst Bank branches and corporate offices.

In the past year, a partnership with the African American Chamber of Commerce has provided increased connection with diverse candidates.

The Bank’s talent acquisition team uses internal and external resources to recruit highly skilled and talented candidates;

employee referrals are also encouraged.

The Company is dedicated to recruitment and career development practices that support its employees and promotes diversity in its workforce at all levels of the Company.

The Company is committed to having a workforce that reflects the communities in which it serves.

Partnerships are in place with several sources to assist in attracting diverse talent from a broad population, including African American, Asian American, and Latino chamber affiliations.

In addition, career opportunities are shared with colleges and universities with diverse student bodies.

The Internship program and the EDGE program (an entry level development program) also serve as a pipeline of diverse talent for full time employment.

Other available tools are also utilized to connect with prospective new hires.

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Retention strategies include espousing a culture that inspires loyalty and trust through ongoing communication of strategic initiatives and executive roundtable conversations, in addition to the benefits mentioned above in Total rewards .

The Bank’s leadership development programs and opportunities offered through OceanFirst Bank University help ensure that motivated individuals have the

opportunity for continuous improvement.

The Bank’s leadership development programs and opportunities offered through OceanFirst Bank University help ensure that motivated individuals have the opportunity for continuous improvement.

Employees each maintain a professional development action plan and participate in regular evaluation and growth opportunities.

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REGULATION AND SUPERVISION

Prior to January 2018, the Bank was a Federally-chartered savings bank, and the Company was registered as a savings and loan holding company.

Effective January 31, 2018, the Bank converted to a national bank charter, and the Company became a bank holding company (“BHC”) under Section 3 of the Bank Holding Company Act of 1956, as amended (the “BHC Act”).

The Company is a bank holding company (“BHC”) under Section 3 of the Bank Holding Company Act of 1956, as amended (the “BHC Act”).

As a bank holding company, the Company is subject to the requirements of the BHC Act, including required approvals for investments in or acquisitions of banking organizations, or entities involved in activities that are deemed closely related to banking, capital adequacy standards, and limitations on nonbanking activities.

The Company is registered with the FRB and is required by Federal law to file reports with, and comply with the rules and regulations of the FRB.

The Bank is a member of the FHLB System and, with respect to deposit insurance, of the Deposit Insurance Fund (“DIF”) managed by the FDIC.

The Bank is a member of the FHLB System and, with respect to deposit insurance, of the Deposit Insurance Fund (“DIF”) managed by the Federal Deposit Insurance Corporation (“FDIC”).

The Bank is subject to extensive regulation, examination, and supervision by the OCC, as its primary federal regulator, and the FDIC, as the deposit insurer.

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The Dodd-Frank Act also requires that the amount of any interchange fee received by a debit card issuer with respect to debit card transactions be reasonable and proportional to the cost incurred by the issuer with respect to the transaction.

Rules adopted by the FRB to implement these requirements limit interchange fees per debit card transaction collected by banks with assets of $10 billion or more.

For the year ended December 31, 2021, the Bank’s revenues from interchange fees was $12.7 million, an increase of $1.8 million from 2020, and the average interchange fee per transaction is forty four cents ($0.44).

Under the temporary relief provisions of a joint rule published by the OCC, the FDIC, and the FRB, the Bank received relief from Dodd-Frank limitations on debit card interchange fees collected by banks with assets of $10 billion or more and will remain exempt from limits on debit card interchange fees until July 2022.

At December 31, 2021, the Bank’s total assets were $11.74 billion and will therefore be subject to reduced interchange fees in 2022.

For further discussion, see Risk Factors – Risks Related to Laws and Regulations – The Company and the Bank operated in a highly regulated environment and may be adversely affected by changes in laws and regulations .

Rules adopted by the FRB to implement these requirements limit interchange fees per debit card transaction collected by banks with assets of $10 billion or mor e.

However, the Bank was subject to reduced interchange fees beginning in July 2022.

In addition, market forces may result in reduced fees charged by all issuers, regardless of asset size, which may result in reduced revenues for the Bank.

For the year ended December 31, 2022, the Bank’s revenues from interchange fees were $8.3 million, a decrease of $4.4 million from 2021, due to limitation on debit card interchange fees and the 2022 average interchange fee per transaction was twenty-nine cents ($0.29).

The Dodd-Frank Act mandates that institutions with more than $10 billion in assets clear all eligible dealer swaps through a futures commission merchant to a central counterparty clearing house.

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While many of its provisions are aimed at larger institutions, such as raising the threshold to be considered a systemically important financial institution to $250 billion in assets from $50 billion in assets, many of its provisions provide regulatory relief to those institutions with $10 billion or more in assets.

Among other things, the EGRRCPA increased the asset threshold for depository institutions and holding companies to perform stress tests required under Dodd Frank from $10 billion to $250 billion in total consolidated assets, and raised the threshold for the requirement that publicly traded holding companies have a risk committee from $10 billion in consolidated assets to $50 billion in consolidated assets.

traded holding companies have a risk committee from $10 billion in consolidated assets to $50 billion in consolidated assets.

In addition, the EGRRCPA limited the definition of loans that would be subject to the higher risk weighting applicable to high volatility commercial real estate.

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The Dodd-Frank Act requires capital rules and the application of the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies.

In addition to making bank holding companies subject to the same capital requirements as their bank subsidiaries, these

provisions (often referred to as the Collins Amendment to the Dodd-Frank Act) were also intended to eliminate or significantly reduce the use of hybrid capital instruments, especially trust preferred securities, as regulatory capital.

In addition to making bank holding companies subject to the same capital requirements as their bank subsidiaries, these provisions (often referred to as the Collins Amendment to the Dodd-Frank Act) were also intended to eliminate or significantly reduce the use of hybrid capital instruments, especially trust preferred securities, as regulatory capital.

At December 31, 2022 , the Company exceeded all regulatory capital requirements currently applicable.

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Alternatively, the financial holding company may elect to limit its activities and the activities of its subsidiaries to those permissible for a bank holding company that is not a financial holding company.

If any subsidiary bank of a financial holding company receives a rating under the CRA of less than “satisfactory,” then the financial holding company is prohibited from engaging in new activities or acquiring companies other than bank holding companies, banks, or savings associations until the rating is raised to “satisfactory” or better.

If any subsidiary bank of a financial holding company receives a rating under the Community Reinvestment Act (the “CRA”) of less than “satisfactory,” then the financial holding company is prohibited from engaging in new activities or acquiring companies other than bank holding companies, banks, or savings associations until the rating is raised to “satisfactory” or better.

Regulation of Bank Subsidiary

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In addition to establishing the minimum regulatory capital requirements, regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.50% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

On January 1, 2019, the full capital conservation buffer requirement of 2.50% became effective.

Both the Bank and the Company are in compliance with the capital conservation buffer requirements applicable to them.

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Various restrictions, including as to growth and capital distributions, also apply to “undercapitalized” institutions.

If an “undercapitalized” institution fails to submit an acceptable capital plan, it is treated as

“significantly undercapitalized.” “Significantly undercapitalized” institutions must comply with one or more additional restrictions including, but not limited to, an order by the OCC to sell sufficient voting stock to become adequately capitalized, a requirement to reduce total assets, cease receipt of deposits from correspondent banks, or dismiss officers or directors and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company.

If an “undercapitalized” institution fails to submit an acceptable capital plan, it is treated as “significantly undercapitalized.” “Significantly undercapitalized” institutions must comply with one or more additional restrictions including, but not limited to, an order by the OCC to sell sufficient voting stock to become adequately capitalized, a requirement to reduce total assets, cease receipt of deposits from correspondent banks, or dismiss officers or directors and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company.

Critically undercapitalized institutions are subject to the appointment of a receiver or conservator.

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Assessments for institutions with $10 billion or more of assets are primarily based on a scorecard approach by the FDIC, including factors such as examination ratings and modeling measuring the institution’s ability to withstand asset-related and funding-related stress and potential loss to the DIF should the bank fail.

The assessment range (inclusive of possible adjustments specified by the regulations) for institutions with greater than $10 billion of total assets is 1.5 to 40 basis points.

As a result of the increase in assessment rates, described below, the assessment range (inclusive of possible adjustments specified by the regulations) for institutions with greater than $10 billion of total assets is 3.5 to 42 basis points.

The FDIC has authority to increase insurance assessments.

The FDIC adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023.

Any significant increases would have an adverse effect on the Bank’s operating expenses and results of operations.

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The management of the Bank does not know of any practice, condition, or violation that might lead to termination of deposit insurance.

The total expense incurred in 2021 and 2020 for the deposit insurance assessment were $4.8 million and $3.8 million, respectively.

The total deposit insurance assessment expenses incurred in 2022 and 2021 were $5.9 million and $4.8 million, respectively.

Loans to One Borrower .

Subject to certain exceptions, a national bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus.

An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by specified readily-marketable collateral, which generally does not include real estate.

An additional amount may be lent, equal to

10% of unimpaired capital and surplus, if secured by specified readily-marketable collateral, which generally does not include real estate.

As of December 31, 2022, the Bank was in compliance with the loans-to-one borrower limitations.

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A national bank may be further limited in payment of cash dividends if it does not maintain the capital conservation buffer.

In the event the Bank’s capital fell below its regulatory requirements or the OCC notified it that it was in need of more than normal supervision, the Bank’s ability to make capital distributions could be restricted.

In the event the Bank’s capital fell below its regulatory requirements or the OCC notified that it was in need of more than normal supervision, the Bank’s ability to make capital distributions could be restricted.

In addition, the OCC could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the OCC determines that such distribution would constitute an unsafe or unsound practice.

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The assessments, paid on a semi-annual basis, are based upon the institution’s total assets, including consolidated subsidiaries as reported in the Bank’s latest quarterly regulatory report, as well as the institution’s regulatory rating and complexity component.

The assessments paid by the Bank for the years ended December 31, 2021 and 2020 totaled $1.4 million and $1.1 million, respectively.

The assessments paid by the Bank totaled $1.4 million for the years ended December 31, 2022 and 2021.

Transactions with Related Parties .

The Bank’s authority to engage in transactions with affiliates (e.g., any company that controls or is under common control with an institution, including the Company and its non-bank subsidiaries) is limited by

The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the bank.

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In addition, banks are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no bank may purchase the securities of any affiliate other than a subsidiary.

Federal Home Loan Bank System (“FHLB”)

Community Reinvestment Act and Fair Lending Laws.

All national banks have a responsibility under the CRA and related federal regulations to help meet the credit needs of their communities, including low- and moderate- income neighborhoods.

In connection with its examination of a national bank, the OCC is required to evaluate and rate the bank’s record of compliance with the CRA.

In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices based on the characteristics specified in those statutes.

A national bank’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on certain of its activities such as branching or mergers.

The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice.

On May 5, 2022, the OCC, FRB and FDIC released a notice of proposed rule making to strengthen and modernize the CRA regulations and framework.

Federal Home Loan Bank System

The Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional FHLBs.

12 unchanged sentences

For 2022, the asset level is $11.23 billion, and financial institutions whose assets exceed that level receive dividends generally equal to the rate of the 10-year Treasury note, as opposed to 6% for smaller financial institutions.

Such reduction has significantly decreased the dividends received from the Federal Reserve Bank of Philadelphia, which totaled $591,000 for the year ended December 31, 2021.

FEDERAL AND STATE TAXATION

Federal Taxation

The Company and the Bank report their income on a calendar year basis using the accrual method of accounting, and are subject to Federal income taxation in the same manner as other corporations with some exceptions, including particularly the Bank’s reserve for bad debts.

The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or the Company.

The current applicable statutory tax rate is 21%.

Dividends Received Deduction and Other Matters .

The Company may exclude from its income 100% of dividends received from the Bank as a member of the same affiliated group of corporations.

The corporate dividends received deduction is generally 50% in the case of dividends received from unaffiliated corporations with which the Company and the Bank will not file a consolidated tax return, except that if the Company or the Bank own more than 20% of the stock of a corporation distributing a dividend then 65% of any dividends received may be deducted.

State and Local Taxation

New Jersey Taxation .

The Company files New Jersey income tax returns.

For New Jersey income tax purposes, the Company is subject to a tax rate of 9% of taxable income.

For this purpose, taxable income generally means Federal taxable income, excluding some entities not included in the unitary filing and other adjustments (including addition of interest income on state and municipal obligations).

The Company is required to file a New Jersey income tax return because it does business in New Jersey.

For New Jersey tax purposes, regular corporations are presently taxed at a rate equal to 9% of taxable income.

New Jersey also imposes a temporary surtax of 2.5% which is effective through December 31, 2023.

For 2019 and prospectively, New Jersey law requires

combined filing for members of an affiliated group, but excludes companies that qualify as a New Jersey Investment Company and Real Estate Investment Companies.

New Jersey also requires combined filing for members of an affiliated group for tax years beginning on or after January 1, 2019, changing New Jersey’s current status as a separate return state.

These changes are not temporary.

As a result of the change in New Jersey tax code, the Company revalued its deferred tax asset resulting in a reduction of state income tax expense of $2.2 million for the year ended December 31, 2019.

OceanFirst REIT Holdings, Inc.

files a separate New Jersey income tax return since it qualifies as a New Jersey Investment Company.

It is taxed at a rate presently equal to 3.60% of taxable income.

New York Taxation .

The Company is required to file New York State, MTA, and New York City tax returns.

The New York State and New York City returns require consolidation of all entities, including OceanFirst Realty, and taxable income, consistent with other states, generally means Federal taxable income subject to certain adjustments.

The allocation and apportionment of taxable income to New York State and New York City may affect the overall tax rate.

Pennsylvania Taxation .

The Bank is required to file a Pennsylvania bank shares tax return.

The Bank’s net assets, less allowable deductions, are taxed at a rate presently equal to 0.95% of apportioned net assets.

The allocation and apportionment to Pennsylvania may affect the overall tax rate.

Delaware Taxation .

As a Delaware holding company not earning income in Delaware, the Company is exempted from Delaware corporate income tax but is required to file an annual report with and pay an annual franchise tax to the State of Delaware.

Such reduction has significantly decreased the dividends received from the Federal Reserve Bank of Philadelphia, which totaled $1.3 million for the year ended December 31, 2022.

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-K

Item 1. Business