What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-28 · 515 added, 572 removed, 1204 unchanged (47% of the section changed)

1 unchanged sentence

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

OceanFirst Financial Corp.:

Opinion on the Consolidated Financial Statements

To the Stockholders and the Board of Directors of OceanFirst Financial Corp.:

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of OceanFirst Financial Corp.

and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASC 326, Financial Instruments – Credit Losses .

and subsidiaries (the "Company") as of December 31, 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows, for the year ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for credit losses for loans evaluated on a collective portfolio segment basis

As discussed in Notes 1 and 5 in the consolidated financial statements, the Company’s allowance for credit losses (collective ACL) for loans evaluated on a collective portfolio segment basis was $48.6 million as of December 31, 2021.

The Company’s methodology to measure the collective ACL incorporates both quantitative and qualitative information to assess lifetime expected credit losses at the portfolio segment level.

The quantitative component of the loss estimation process utilizes a model, which includes the calculation of loss rates using an open pool method.

Under this quantitative model, the Company calculates a loss rate based on historical loan level loss experience for portfolio segments with similar risk characteristics.

The Company segments the commercial loan portfolios by risk rating and the residential and consumer loan portfolios by delinquency.

The historical loss rate is adjusted for the economic forecast of select macroeconomic variables that consider both historical trends as well as forecasted trends for a single economic scenario.

The adjusted loss rate is calculated for a reasonable and supportable forecast period and then reverts to the historical loss rate on a straight-line basis.

The adjusted loss rate is then applied to the exposure at default on an undiscounted basis.

The Company considers qualitative adjustments to expected credit loss estimates for information not already captured in the quantitative component of the loss estimation process.

Qualitative loss factors are based on judgments of Company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, performance trends, regulatory changes, uncertainty in economic forecasts and other asset specific risk characteristics.

We identified the assessment of the collective ACL as a critical audit matter.

A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the collective ACL.

Specifically, the assessment encompassed the evaluation of the collective ACL methodology, including methods and models used to estimate the (1) quantitative loss rates and the related significant assumptions, including the period of historical loan level loss experience, the economic forecast of select macroeconomic variables, and credit risk ratings for commercial loans, and (2) the qualitative loss factors, including the significant assumptions consisting of the adjustments made to account for the Company specific data, changes in underlying loan composition of specific portfolios, uncertainty of economic forecasts and other asset specific risk characteristics.

The assessment also included an evaluation of the performance monitoring of the open pool loss-rate methodology utilized to develop a lifetime loss estimate.

In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter.

This included controls related to the Company’s measurement of the collective ACL estimate, including controls over the:

• evaluation of the collective ACL methodology, including the appropriateness of the open pool loss-rate method

• identification and determination of the significant assumptions used in the quantitative model

• evaluation of risk ratings for commercial loans

• performance monitoring of the open pool loss-rate methodology

• evaluation of the qualitative factors, including the significant assumptions used in the measurement of those qualitative factors

• analysis of the collective ACL results, trends and ratios.

We evaluated the Company’s process to develop the collective ACL estimate by testing certain methods, assumptions and data that the Company used, and considered the relevance and reliability of such sources of data.

In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:

• evaluating the Company’s collective ACL methodology for compliance with U.S.

generally accepted accounting principles

• evaluating the judgments made by the Company relative to the development and performance testing of the open pool loss rate methodology by comparing them to relevant metrics and trends and the applicable industry and regulatory practices

• evaluating the selection of the economic forecast scenario by comparing it to forecasts frequently used in the Company’s industry.

• testing the period of historical loan level loss experience to evaluate the length of each period by comparison to the Company’s available reliable data and applicable industry practices

• testing individual credit risk ratings for a selection of commercial loans by evaluating the financial performance of the borrower, sources of repayment and any relevant guarantees or underlying collateral

• evaluating the methodology used to develop the qualitative factors and the effect of those factors on the collective ACL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying quantitative models.

We also evaluated the cumulative results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the collective ACL estimate by evaluating the:

• cumulative results of the audit procedures

• qualitative aspects of the Company’s accounting practices

• potential bias in the accounting estimate.

We have served as the Company’s auditor since 1989.

Short Hills, New Jersey

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for loan credit losses - Refer to Notes 1 and 5 to the financial statements

Critical Audit Matter Description

The allowance for loan credit losses (“ACL”) is management's estimate of credit losses currently expected over the life of the loan portfolio, or the amount of amortized cost basis not expected to be collected, at the balance sheet date.

The Company’s methodology to measure the ACL incorporates both quantitative and qualitative information to assess lifetime expected credit losses at the portfolio segment level.

The quantitative component includes the calculation of loss rates using an open pool method.

Under this method, the Company calculates a loss rate based on historical loan level loss experience for portfolio segments with similar risk characteristics.

The historical loss rate is adjusted for select macroeconomic variables that consider both historical trends as well as forecasted trends for a single economic scenario.

The adjusted loss rate is calculated for an eight-quarter forecast period then reverts to the historical loss rate on a straight-line basis over four quarters.

The Company considers qualitative adjustments to expected credit loss estimates for information not already captured in the loss estimation process.

Qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses.

Adjustments will not be made for information that has already been considered and included in the quantitative allowance.

Qualitative loss factors are based on management's judgment of company, market, industry or business specific data, changes in loan composition, performance trends, regulatory changes, uncertainty of macroeconomic forecasts, and other asset specific risk characteristics.

We identified the ACL as a critical audit matter because of the complexity of the Company’s model and the significant assumptions used by management.

Auditing the ACL required a high degree of auditor judgment and an increased extent of effort, including the need to involve credit specialists when performing audit procedures to evaluate the reasonableness of management’s model and assumptions.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to qualitative adjustments within the ACL included the following, among others:

• We tested the design and operating effectiveness of management’s controls covering the key data, assumptions and judgments impacting the ACL.

• We evaluated the appropriateness of the Company’s accounting policies and methodologies, involved in determining the ACL.

• We involved credit specialists to assist us in evaluating the Company’s development of the CECL model, including the reasonableness of the models and the selection of and calibration to economic factors.

• We assessed the reasonableness of the Company’s qualitative methodology, tested key calculations utilized within the qualitative estimate and agreed underlying data within the calculation to source documents.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania

February 24, 2023

We have served as the Company’s auditor since 2022.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

OceanFirst Financial Corp.:

To the Stockholders and the Board of Directors of OceanFirst Financial Corp.:

Opinion on Internal Control Over Financial Reporting

We have audited OceanFirst Financial Corp.

and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, statements of changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 25, 2022 expressed an unqualified opinion on those consolidated financial statements.

We have audited the internal control over financial reporting of OceanFirst Financial Corp.

and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 24, 2023, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania

February 24, 2023

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

OceanFirst Financial Corp.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statement of financial condition of OceanFirst Financial Corp.

and subsidiaries (the Company) as of December 31, 2021, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two‑year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for each of the years in the two‑year period ended December 31, 2021, in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We served as the Company’s auditor from 1989 to 2022.

Short Hills, New Jersey

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1,221,138 1,139,193

Equity investments (encumbered $ 40,122 at December 31, 2021)

Equity investments (encumbered of $ 40,122 at December 31, 2021)

102,037 101,155

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Deposits $ 9,675,206 $ 9,732,816

Securities sold under agreements to repurchase with retail customers 118,769 128,454

Federal Home Loan Bank ("FHLB") advances 1,211,166 —

Securities sold under agreements to repurchase with customers 69,097 118,769

Other borrowings 195,403 229,141

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Retained earnings 540,507 442,306

Accumulated other comprehensive (loss) income ( 2,821 ) 621

Accumulated other comprehensive loss ( 35,982 ) ( 2,821 )

Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") ( 6,191 ) ( 8,615 )

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( 69,106 ) ( 61,710 )

OceanFirst Financial Corp.

stockholders’ equity 1,584,662 1,516,553

Non-controlling interest 802 —

Total stockholders’ equity 1,585,464 1,516,553

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Net interest income 377,477 305,338 312,951

Credit loss (benefit) expense ( 11,832 ) 59,404 1,636

Net interest income after credit loss (benefit) expense 317,170 253,547 254,335

Credit loss expense (benefit) 7,768 ( 11,832 ) 59,404

Net interest income after credit loss expense (benefit) 369,709 317,170 253,547

Other income:

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Net gain on equity investments 9,685 7,145 21,214

Net (loss) gain from other real estate operations ( 15 ) 35 ( 330 )

Net gain (loss) from other real estate operations 48 ( 15 ) 35

Income from bank owned life insurance 6,578 6,832 6,424

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Professional fees 12,993 11,043 12,247

Federal Home Loan Bank (“FHLB”) advance prepayment fees — 14,257 —

FHLB advance prepayment fees — — 14,257

Amortization of core deposit intangible 4,718 5,453 6,186

Branch consolidation expense 12,337 7,623 9,050

Branch consolidation expense, net 713 12,337 7,623

Merger related expenses 2,735 1,503 15,947

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Net income 147,357 110,076 63,309

Net income attributable to non-controlling interest 754 — —

Net income attributable to OceanFirst Financial Corp.

146,603 110,076 63,309

Dividends on preferred shares 4,016 4,016 2,097

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Net income $ 147,357 $ 110,076 $ 63,309

Other comprehensive income:

Unrealized (loss) gain on debt securities (net of tax benefit of $ 1,142 in 2021, and tax expense of $ 411 and $ 470 in 2020 and 2019, respectively)

Other comprehensive (loss) income:

Unrealized (loss) gain on debt securities (net of tax benefit of $ 10,629 and $ 1,142 in 2022 and 2021, respectively, and tax expense of $ 411 in and 2020)

( 33,402 ) ( 3,837 ) 1,039

Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $ 242 , $ 272 and $ 310 in 2022, 2021, and 2020, respectively)

Reclassification adjustment for gains included in net income (net of tax expense of $ 101 in 2020)

Total other comprehensive (loss) income ( 3,442 ) 1,829 2,242

Unrealized loss on derivative hedges (net of tax benefit of $ 8 in 2022)

Reclassification adjustment on debt securities for (gains) loss included in net income (net of tax benefit of $ 26 in 2022 and tax expense of $ 101 in 2020)

Total other comprehensive (loss) income, net of tax ( 33,161 ) ( 3,442 ) 1,829

Total comprehensive income 114,196 106,634 65,138

comprehensive income attributable to non-controlling interest 754 — —

Total comprehensive income attributable to OceanFirst Financial Corp.

113,442 106,634 65,138

Dividends on preferred shares 4,016 4,016 2,097

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Plan Treasury

Stock Non-Controlling Interest Total

Balance at December 31, 2019 $ — $ 519 $ 840,691 $ 358,668 $ ( 1,208 ) $ ( 8,648 ) $ ( 36,903 ) $ — $ 1,153,119

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of tax — — — — 1,829 — — — 1,829

Stock awards — 2 3,859 — — — — 3,861

Stock compensation — 2 4,256 — — — — — 4,258

Effect of adopting ASU

2016-13 — — — ( 4 ) — — — — ( 4 )

Allocation of ESOP stock — — ( 80 ) — — 1,215 — — 1,135

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Exercise of stock options — 2 2,027 ( 788 ) — — — — 1,241

Acquisition of Capital Bank of New Jersey — 32 76,449 — — — — 76,481

Purchase 1,127,557 shares of

Repurchase 648,851 shares of

— — — — — — ( 14,814 ) ( 14,814 )

Proceeds from preferred stock issuance, net of costs 1 — 55,528 — — — — — 55,529

Preferred stock dividend — — — ( 2,097 ) — — — — ( 2,097 )

Acquisition of Two River Bancorp (“Two River”) — 42 122,501 — — — 26,066 — 148,609

Acquisition of Country Bank Holding Company, Inc.

(“Country Bank”) — 44 112,792 — — — — — 112,836

Balance at December 31, 2020 1 609 1,137,715 378,268 621 ( 7,433 ) ( 25,651 ) — 1,484,130

Net income — — — 110,076 — — — — 110,076

Other comprehensive income, net

Other comprehensive loss, net

of tax — — — — ( 3,442 ) — — — ( 3,442 )

Stock awards — 2 4,256 — — — — 4,258

Effect of adopting ASU

2016-13 — — — ( 4 ) — — — ( 4 )

Stock compensation — — 5,415 — — — — — 5,415

Acquisition of common

stock by ESOP — — — — — ( 3,200 ) — — ( 3,200 )

Allocation of ESOP stock — — 179 — — 2,018 — — 2,197

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Exercise of stock options — 2 3,472 ( 1,528 ) — — — — 1,946

Purchase 648,851 shares of

Repurchase 1,711,484 shares of

— — — — — — ( 36,059 ) — ( 36,059 )

Proceeds from preferred stock issuance, net of costs 1 — 55,528 — — — 55,529

Preferred stock dividend — — — ( 4,016 ) — — — — ( 4,016 )

Acquisition of Two River Bancorp — 42 122,501 — — — 26,066 148,609

Acquisition of Country Bank Holding Company — 44 112,792 — — — 112,836

Balance at December 31, 2021 1 611 1,146,781 442,306 ( 2,821 ) ( 8,615 ) ( 61,710 ) — 1,516,553

2 unchanged sentences

— — — — ( 33,161 ) — — — ( 33,161 )

Stock awards — — 5,415 — — — — 5,415

Acquisition of common stock by ESOP

— — — — — ( 3,200 ) ( 3,200 )

Stock compensation — — 6,638 — — — — — 6,638

Allocation of ESOP stock — — 82 — — 2,424 — — 2,506

2 unchanged sentences

Exercise of stock options — 1 1,320 ( 897 ) — — — — 424

Purchase 1,711,484 shares of

Repurchase 373,223 shares of

— — — — — — ( 7,396 ) — ( 7,396 )

Preferred stock dividend — — — ( 4,016 ) — — — — ( 4,016 )

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

Distribution to non-controlling interest — — — 6 — — — ( 788 ) ( 782 )

Balance at December 31, 2022 $ 1 $ 612 $ 1,154,821 $ 540,507 $ ( 35,982 ) $ ( 6,191 ) $ ( 69,106 ) $ 802 $ 1,585,464

11 unchanged sentences

Stock compensation 6,638 5,415 4,258

Net excess tax expense (benefit) on stock compensation 93 123 ( 357 )

Net excess tax expense on stock compensation 216 93 123

Amortization of core deposit intangible 4,718 5,453 6,186

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Net amortization of deferred costs and discounts on loans 1,129 1,242 4,872

Credit loss (benefit) expense ( 11,832 ) 59,404 1,636

Credit loss expense (benefit) 7,768 ( 11,832 ) 59,404

Deferred tax provision (benefit) 1,777 3,608 ( 4,615 )

Net (gain) loss on sale and write-down of other real estate owned — ( 390 ) 20

Net gain on sale and write-down of other real estate owned ( 54 ) — ( 390 )

Net write-down of fixed assets held-for-sale to net realizable value 1,482 7,787 3,853

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Increase in value of bank owned life insurance ( 6,578 ) ( 6,832 ) ( 6,424 )

Net (gain) loss on sale of assets held for sale ( 318 ) ( 21 ) 17

Decrease (increase) in interest and dividends receivable 2,663 ( 9,434 ) ( 397 )

Decrease (increase) in other assets 33,093 17,030 ( 32,871 )

(Decrease) increase in other liabilities ( 35,287 ) 74,494 16,948

Net gain on sale of assets held for sale ( 1,959 ) ( 318 ) ( 21 )

(Increase) decrease in interest and dividends receivable ( 12,098 ) 2,663 ( 9,434 )

(Increase) decrease in other assets ( 80,233 ) 33,093 17,030

Increase (decrease) in other liabilities 178,684 ( 35,287 ) 74,494

Total adjustments 103,093 49,896 69,347

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Purchases of premises and equipment ( 16,107 ) ( 42,039 ) ( 14,728 )

Cash held in escrow for acquisitions — — ( 46,950 )

Purchases of operating lease equipment ( 4,789 ) — —

Cash consideration received for acquisition 38,609 — 23,460

1 unchanged sentence

Cash flows from financing activities:

Net increase in deposits 407,569 1,507,943 65,687

Net (decrease) increase in deposits ( 56,963 ) 407,569 1,507,943

Net payment for sale of branches — ( 86,282 ) —

(Decrease) increase in short-term borrowings ( 9,685 ) ( 226,018 ) 105,979

Proceeds from FHLB advances — 525,000 80,000

Decrease in short-term borrowings ( 49,672 ) ( 9,685 ) ( 226,018 )

Net proceeds from FHLB advances 1,211,166 — 525,000

Repayments of FHLB advances — — ( 840,200 )

10 unchanged sentences

Dividends paid ( 47,511 ) ( 44,510 ) ( 42,917 )

Distributions to non-controlling interest ( 782 ) — —

Net cash provided by financing activities 1,013,760 223,993 1,074,948

29 unchanged sentences

Loans — — 1,558,480

Other current assets 238 — —

Premises and equipment 18 — 9,744

Right of use ("ROU") asset 779 — —

Accrued interest receivable — — 4,161

7 unchanged sentences

Borrowings — — 92,618

Lease liability 779 — —

Other liabilities 43,937 — 33,648

6 unchanged sentences

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

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

Certain other subsidiaries were dissolved in 2020 and are included in the consolidated financial statements for prior periods.

(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.

Certain other subsidiaries were dissolved in 2022 and 2020 and are included in the consolidated financial statements for prior periods.

All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain amounts previously reported have been reclassified to conform to the current year’s presentation.

The Bank provides a range of community banking services to retail and commercial customers through a network of branches and offices throughout New Jersey and the major metropolitan areas of Philadelphia, New York, Baltimore, Washington D.C., and Boston.

The Bank provides a range of regional community banking services to retail and commercial customers through a network of branches and offices throughout New Jersey and in the major metropolitan areas of Philadelphia, New York, Baltimore, and Boston.

The Bank is subject to competition from other financial institutions and certain technology companies.

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These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses.

A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for credit losses.

These estimates and assumptions are based on management’s best estimates and judgment.

8 unchanged sentences

Debt securities include U.S.

government and agency obligations, state and municipal obligations, corporate debt securities, asset-backed securities, and mortgage-backed securities (“MBS”).

government and agency obligations, state, municipal and sovereign debt obligations, corporate debt securities, asset-backed securities, and mortgage-backed securities (“MBS”).

Mortgage-backed securities include:

agency residential mortgage-backed securities which are issued and guaranteed by either the Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), and Government National Mortgage Association (“GNMA”);

agency commercial mortgage-backed securities which are issued and guaranteed by Small Business Administration (“SBA”), or agency commercial mortgage-backed securities (“ACMBS”);

agency residential mortgage-backed securities which are issued and guaranteed by either the Federal Home Loan Mortgage Corporation (“FHLMC”), the Federal National Mortgage Association (“FNMA”), or the Government National Mortgage Association (“GNMA”);

agency commercial mortgage-backed securities which are issued and guaranteed by the Small Business Administration (“SBA”), or agency commercial mortgage-backed securities (“ACMBS”);

and non-agency commercial mortgage-backed securities which are issued and guaranteed by commercial mortgage-backed securities (“CMBS”), and collateralized mortgage obligations (“CMOs”).

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Gains or losses on the sale of such securities are included in other income using the specific identification method.

During 2021 and 2013, the Company transferred securities from AFS to HTM.

Unrealized gains or losses at the time of transfer will continue to be reflected in accumulated other comprehensive income, net of subsequent amortization, which is being recognized over the remaining life of the securities.

Upon the transfer of debt securities from AFS to HTM classification, unrealized gains or losses at the transfer date continue to be reflected in accumulated other comprehensive income and are amortized into interest income over the remaining life of the securities.

Securities also include equity investments.

Equity investments with readily determinable fair value are reported at fair value, with changes in fair value reported in net income.

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Credit Losses for Available-for-Sale Debt Securities

As of January 1, 2020, the Company adopted ASC 326-30, Available-for-Sale Debt Securities.

The adoption retained the fundamental nature of other-than-temporary impairment (“OTTI”) – that entities recognize securities credit losses only once securities become impaired.

An AFS debt security is considered impaired when amounts are deemed uncollectible or when the Company intends, or more likely than not will be required to sell, the AFS debt security before recovery of the amortized cost basis.

For AFS debt securities where fair value is less than amortized cost, the security is considered impaired when amounts are deemed uncollectible or when the Company intends, or more likely than not will be required, to sell the AFS debt security before recovery of the amortized cost basis.

On a quarterly basis the Company evaluates the AFS debt securities for impairment.

Securities that are in an unrealized loss position are reviewed to determine if a securities credit loss exists based on certain quantitative and qualitative factors.

The primary factors considered in evaluating whether an impairment exists include:

(a) the extent to which the fair value is less than the amortized cost basis, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, and (d) whether the Company intends to sell the security and whether it is more likely than not that the Company will not be required to sell the security.

If a determination is made that an AFS debt security is impaired, the Company will estimate the amount of the unrealized loss that is attributable to credit and all other non-credit related factors.

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The risks and uncertainties include changes in general economic conditions, the issuer’s financial condition and/or future prospects, the effects of changes in interest rates or credit spreads, and the expected recovery period.

On a quarterly basis the Company evaluates the AFS debt securities for impairment.

Securities that are in an unrealized loss position are reviewed to determine if a securities credit loss exists based on certain quantitative and qualitative factors.

The primary factors considered in evaluating whether an impairment exists include:

Loans Receivable

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Therefore, the Company has made a policy election to exclude accrued interest from the amortized cost basis and therefore excludes it from the measurement of the ACL.

For loans under forbearance as a result of Coronavirus Disease 2019 (“COVID-19”), the Company made a policy election to include the accrued interest receivable related to such loans in the amortized cost basis and therefore includes it in the measurement of the ACL.

Accrued interest receivable related to loans at December 31, 2021 was $ 26.2 million, of which $ 4.4 million related to forbearance loans.

Expected credit losses are reflected in the ACL through a charge to credit loss expense.

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The Company has identified the following portfolio segments of financial assets with similar risk characteristics for measuring expected credit losses:

commercial and industrial, commercial real estate - owner occupied, commercial real estate - investor (including commercial real estate - construction and land), residential real estate, consumer (including student loans) and HTM debt securities.

commercial real estate - investor (including commercial real estate - construction and land), commercial real estate - owner occupied, commercial and industrial, residential real estate, consumer (including student loans) and HTM debt securities.

The Company further segments the commercial loan portfolios by risk rating and the residential and consumer loan portfolios by delinquency.

The total ACL on loans measured on a collective portfolio segment basis was $ 48.6 million as of December 31, 2021.

The HTM portfolio is segmented by rating category.

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Fair value is generally calculated based on the value of the underlying collateral less an appraisal discount and the estimated cost to sell.

Due to conditions caused by COVID-19, appraisals ordered in the current environment may not be indicative of the underlying loan collateral value.

As such, the Company may require multiple valuation approaches (sales comparison approach, income approach, and/or cost

approach), as applicable.

The Company will assess the individual facts and circumstances of COVID-19-related loan downgrades and, if a new appraisal is not necessary, an additional discount may be applied to an existing appraisal.

Troubled Debt Restructured (“TDR”) Loans

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(1) the borrower is experiencing financial difficulty and (2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics.

So long as they share similar risk characteristics, TDRs may be collectively evaluated and included in the Company’s existing portfolio segments to measure the ACL, unless the TDR is collateral dependent.

Loans modified in accordance with the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act are not considered TDRs.

For TDRs individually evaluated that have been modified and the interest rate is the primary concession, the ACL is measured using a discounted cash flow method.

Loans that were modified in accordance with the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act are not considered TDRs.

Loan Commitments and Allowance for Loan Credit Losses on Off-Balance Sheet Credit Exposures

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The Company records an allowance for loan credit losses on off-balance sheet credit exposures through a charge to loan credit loss expense for off-balance sheet credit exposures.

The ACL on off-balance sheet credit exposures is estimated by portfolio segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration management’s assumption of the likelihood that funding will occur, and is included in other liabilities on the Company’s consolidated balance sheets.

Acquired Loans

Acquired loans are recorded at fair value at the date of acquisition based on a discounted cash flow methodology that considers various factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting the Company’s assessment of risk inherent in the cash flow estimates.

Acquired loans are recorded at fair value at the date of acquisition based on a discounted cash flow methodology that considers various factors including the type of loan and related collateral, classification status, fixed or variable interest rate, loan term and whether or not the loan was amortizing, and a discount rate reflecting the Company’s assessment of risk inherent in the cash flow estimates.

Certain acquired loans are grouped together according to similar risk characteristics and are aggregated when applying various valuation techniques.

These cash flow evaluations are subjective as they require material estimates, all of which may be susceptible to significant change.

Beginning on January 1, 2020, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased with credit deterioration (“PCD”) loans.

Loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased with credit deterioration (“PCD”) loans.

The Company evaluated acquired loans for deterioration in credit quality based on any of, but not limited to, the following:

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The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.

Allowance for Loan Losses (Prior to January 1, 2020)

The allowance for loan losses (currently referred to as ACL on loans) represented a valuation account that reflected probable incurred losses in the loan portfolio.

The adequacy of the allowance for loan losses was based on management’s evaluation of the Bank’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, current economic and regulatory conditions, as well as organizational changes.

The allowance for loan losses was maintained at an amount management considered sufficient to provide for probable losses.

Reserve for Repurchased Loans and Loss Sharing Obligations

The reserve for repurchased loans and loss sharing obligations relates to potential losses on loans sold which may have to be repurchased due to a violation of representations and warranties, an estimate of the Bank’s obligation under a loss sharing arrangement for loans sold to the FHLB as well as the potential repair requests for guaranteed loans sold to the SBA.

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

The reserve represents the Company’s estimate of the total losses expected to occur and is considered to be adequate by management based upon the Company’s evaluation of the potential exposure related to the loan sale agreements and loss sharing obligations over the period of repurchase risk.

The reserve for repurchased loans and loss sharing obligations, as well as SBA repair requests, is included in other liabilities on the Company’s consolidated statement of financial condition.

Other Real Estate Owned (“OREO”)

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Operating results from other real estate owned, including rental income, operating expenses, gains and losses realized from the sales of other real estate owned, and subsequent write-downs are recorded as incurred.

During 2022, the remaining OREO was sold and there was no OREO as of December 31, 2022.

Premises and Equipment

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furniture, fixtures and other electronic equipment:

building improvements:

building and leasehold improvements:

and buildings:

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Gains and losses on dispositions are reflected in branch consolidation expenses and other income.

The Company recognizes operating lease agreements on the consolidated statements of financial condition as a right-of-use (“ROU”) asset and a corresponding lease liability.

The Company recognizes lease agreements on the Consolidated Statements of Financial Condition as a right-of-use (“ROU”) asset and a corresponding lease liability.

The ROU asset and lease liability are calculated as the present value of the minimum lease payments over the lease term, discounted for the rate implicit in the lease, provided the rate is readily determinable;

otherwise the Company utilizes its incremental borrowing rate, at lease inception, over a similar term.

The Company utilizes the asset and liability method of accounting for income taxes.

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Based upon its qualitative assessment of goodwill, the Company concluded that goodwill was not impaired and no further quantitative analysis was warranted .

At December 31, 2021, management performed its qualitative assessment and concluded no events or circumstances occurred subsequent to August 31, 2021 that would trigger another impairment test.

At December 31, 2022, management concluded no events or circumstances occurred subsequent to August 31, 2022 that would trigger another impairment test.

Segment Reporting

The Company’s operations are solely in the financial services industry and includes providing traditional banking and other financial services to its customers.

The Company operates throughout New Jersey and the major metropolitan markets of Philadelphia, New York, Baltimore, Washington D.C., and Boston .

The Company’s operations are solely in the financial services industry and include providing traditional banking and other financial services to its customers.

The Company operates throughout New Jersey and in the major metropolitan markets of Philadelphia, New York, Baltimore, and Boston .

Management makes operating decisions and assesses performance based on an ongoing review of the Company’s consolidated financial results.

Therefore, the Company has a single operating segment for financial reporting purposes.

Therefore, management concluded the Company has a single operating segment for financial reporting purposes.

Earnings Per Share

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Diluted earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding and potential common stock utilizing the treasury stock method.

All share amounts exclude unallocated shares of stock held by the ESOP and by incentive plans.

All share amounts exclude unallocated shares of stock held by the Company’s ESOP and by incentive plans.

Stock-Based Compensation

The Company recognizes compensation expense related to stock options and awards over the requisite service period, generally based on the instruments’ grant-date fair value, reduced by actual and estimated forfeitures.

Certain performance-based stock awards and the associated compensation expense fluctuates based on the estimated probability of achievement of the Company-defined performance goals.

Derivative Instruments

The Com pany accounts for derivative financial instruments under ASC Topic 815, Derivatives and Hedging, which requires the Company to record all derivatives on the balance sheet at fair value.

Accounting for changes in the fair value of a derivative depends on whether or not the derivative has been designated and qualifies for hedge accounting.

For derivatives not designated as hedging instruments, changes in the fair value are recognized directly in earnings.

For derivatives designated as hedging instruments, the accounting treatment is dependent upon the type of hedge.

For the year ended December 31, 2022, the Company only had a cash flow hedge.

Cash flow hedges are used to mitigate the variability in the cash flows of a specific pool of assets, or of forecasted transactions, caused by interest rate fluctuations.

The changes in the fair value of cash flow hedges are initially reported in other comprehensive income.

Amounts are subsequently reclassified from accumulated other comprehensive income to earnings when the hedged transactions occur, specifically within the same line item as the hedged item.

To qualify for hedge accounting, the Company assesses the effectiveness of the derivative in offsetting the risk associated with the exposure being hedged, at inception and on a quarterly basis thereafter.

The Company uses quantitative methods, such as regression analyses, and qualitative comparisons of critical terms and the evaluation of any changes in those terms.

If it is determined that a derivat ive is not highly effective at hedging the designated exposure, hedge accounting is discontinued prospectively.

Accounting Pronouncements Adopted in 2022

In March 2020, FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and in January 2021, the FASB issued ASU 2021-01 “Reference Rate Reform (Topic 848)”.

These ASUs provides guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting.

The updates provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions, that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met.

In addition, the updates provide optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification for contracts that are modified because of reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate.

These ASUs are effective for all companies as of March 31, 2020 through December 31, 2022.

Once elected for a Topic or an Industry Subtopic, the amendments in these updates must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic.

The Company adopted the temporary relief and optional expedients provided under these ASUs as of December 31, 2021 and will be applied prospectively until December 31 2022, except where otherwise permitted by the standard.

In January 2020, FASB issued Update 2020-01, an update to Topic 321, Investments, Topic 323, Joint Ventures and Topic 815, Derivatives and Hedging.

The update clarifies the accounting for certain equity securities upon the application or discontinuation of the equity method of accounting in accordance with Topic 321.

In addition, the update clarifies scope considerations for forward contracts and purchased options on certain securities.

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes” as part of an initiative to reduce complexity in accounting standards for income taxes.

The amendments also improve consistent application of and simplify generally accepted accounting principles for other areas of Topic 740 by clarifying and amending existing guidance.

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

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

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

In December 2022, Financial Accounting Standards Board issued ASU 2022-06, “Deferral of the Sunset Date of Topic 848”, which was effective upon issuance.

The amendments in this ASU defer the sunset date of Topic 848 (Reference Rate Reform) from December 31, 2022 to December 31, 2024.

Topic 848, originally issued in 2020 and later amended in 2021, provides optional accounting expedients and exceptions for certain loan agreements, derivatives and other transactions affected by the transition away from LIBOR towards alternative reference rates.

As of December 31, 2021, the Company adopted certain of these practical expedients in Topic 848 and will continue to apply prospectively until December 31 2024.

The Company does not expect this update to have a material impact on its consolidated financial statements.

Regulatory Matters

Applicable regulations require the Bank to maintain minimum levels of regulatory capital.

Under the regulations in effect at December 31, 2021, the Bank was required to maintain a minimum ratio of Tier 1 capital to total average assets of 4.0 %;

minimum ratio of common equity Tier 1 capital to risk-weighted assets of 7.0 %;

The Company and the Bank are required by applicable regulations to maintain minimum levels of regulatory capital.

Under the regulations in effect at December 31, 2022, the Company and the Bank were required to maintain a minimum ratio of Tier 1 capital to total average assets of 4.0 %;

a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 7.0 %;

a minimum ratio of Tier 1 capital to risk-weighted assets of 8.5 %;

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These ratios include the impact of the required 2.50 % capital conservation buffer.

With its conversion to a bank holding company on January 31, 2018, the Company became subject to substantially similar consolidated capital requirements imposed by Federal Reserve Board (“FRB”) regulations.

Under the regulatory framework for prompt corrective action, federal regulators are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution.

Such actions could have a direct material effect on the institution’s financial statements.

Such actions could have a direct material effect on an institution’s financial statements.

The regulations establish a framework for the classification of banking institutions into five categories:

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At December 31, 2022 and 2021, the Company and the Bank exceeded all regulatory capital requirements currently applicable .

The following is a summary of the Bank’s and the Company’s regulatory capital amounts and ratios as of December 31, 2021 and 2020 compared to the regulatory minimum capital adequacy requirements and the regulatory requirements for classification as a well-capitalized institution then in effect (dollars in thousands):

As of December 31, 2021 Actual For capital adequacy

The following is a summary of the Company’s and Bank’s regulatory capital amounts and ratios as of December 31, 2022 and 2021 compared to the regulatory minimum capital adequacy requirements and the regulatory requirements for classification as a well-capitalized institution then in effect (dollars in thousands):

Actual For capital adequacy

purposes To be well-capitalized

Corrective Action

Amount Ratio Amount Ratio Amount Ratio

As of December 31, 2022 Amount Ratio Amount Ratio Amount Ratio

Tier 1 capital (to average assets) $ 1,150,690 9.43 % $ 488,297 4.00 % N/A N/A

Common equity Tier 1 (to risk-weighted assets)

1,021,774 9.93 720,641 7.00 (1)

Tier 1 capital (to risk-weighted assets) 1,150,690 11.18 875,064 8.50 (1)

Total capital (to risk-weighted assets) 1,336,652 12.98 1,080,961 10.50 (1)

Tier 1 capital (to average assets) $ 1,122,946 9.20 % $ 488,033 4.00 % $ 610,041 5.00 %

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1,018,848 10.00

As of December 31, 2021

Tier 1 capital (to average assets) $ 1,044,518 9.22 % $ 453,087 4.00 % N/A N/A

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Total capital (to risk-weighted assets) 1,257,372 14.06 938,702 10.50 (1)

As of December 31, 2020 Actual For capital adequacy

purposes To be well-capitalized

corrective action

Amount Ratio Amount Ratio Amount Ratio

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

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884,541 10.00

Tier 1 capital (to average assets) $ 998,273 9.44 % $ 423,028 4.00 % N/A N/A

Common equity Tier 1 (to risk-weighted assets)

871,385 11.05 552,075 7.00 (1)

Tier 1 capital (to risk-weighted assets) 998,273 12.66 670,377 8.50 (1)

Total capital (to risk-weighted assets) 1,230,370 15.60 828,113 10.50 (1)

(1) Includes the Capital Conservation Buffer of 2.50 %.

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

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

Capital distributions and certain discretionary bonus payments are limited if the capital conservation buffer is not maintained.

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

Capital distributions and certain discretionary bonus payments are limited if the capital conservation buffer of 2.50 % is not maintained.

Applicable regulations also impose limitations upon capital distributions by the Company, such as dividends and payments to repurchase or otherwise acquire shares.

The Company may not declare or pay cash dividends on or repurchase any of its shares of common stock if the

effect thereof would cause stockholders’ equity to be reduced below applicable regulatory capital minimum requirements or if such declaration and payment would otherwise violate regulatory requirements.

The Company may not declare or pay cash dividends on or repurchase any of its shares of common stock if the effect thereof would cause stockholders’ equity to be reduced below applicable regulatory capital minimum requirements or if such declaration and payment would otherwise violate regulatory requirements.

Business Combinations

The Company incurred merger related expenses of $ 1.5 million, $ 15.9 million, and $ 10.5 million for the years ended December 31, 2021, 2020, and 2019, respectively.

The following table summarizes the merger related expenses for the years ended December 31, 2021, 2020 and 2019:

For the Year Ended December 31,

2021 2020 2019

(in thousands)

Data processing fees $ 253 $ 3,758 $ 2,514

Professional fees 343 3,638 4,239

Employee severance payments 663 7,727 2,942

Other/miscellaneous fees 244 824 808

Merger related expenses $ 1,503 $ 15,947 $ 10,503

Two River Bancorp Acquisition

On January 1, 2020, the Company completed its acquisition of Two River Bancorp (“Two River”), which after purchase accounting adjustments added $ 1.11 billion of assets, $ 940.1 million of loans, and $ 941.8 million of deposits.

Total consideration paid for Two River was $ 197.1 million, including cash consideration of $ 48.4 million.

Two River was merged with and into the Company on the date of acquisition.

The acquisition was accounted for under the acquisition method of accounting.

Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax.

The excess of consideration paid over the estimated fair value of the net assets acquired has been recorded as goodwill.

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

At January 1, 2020

Total purchase price:

Assets acquired:

Cash and cash equivalents $ 51,102

Securities 64,381

Loans 940,072

Accrued interest receivable 2,382

Bank owned life insurance 22,440

Deferred tax assets, net 3,158

Other assets 15,956

Core deposit intangible 12,130

Total assets acquired 1,111,621

Liabilities assumed:

Deposits ( 941,750 )

Other liabilities ( 59,026 )

Total liabilities assumed ( 1,000,776 )

Net assets acquired $ 110,845

Goodwill recorded in the merger $ 86,205

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

As of January 1, 2021, the Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value.

Country Bank Holding Company, Inc.

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

(“Country Bank”), which after purchase accounting adjustments added $ 793.7 million of assets, $ 618.4 million of loans, and $ 652.7 million of deposits.

Total consideration paid for Country Bank was $ 112.8 million.

Country Bank was merged with and into the Company on the date of acquisition.

The acquisition was accounted for under the acquisition method of accounting.

Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax.

The excess of consideration paid over the estimated fair value of the net assets acquired has been recorded as goodwill.

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

At January 1, 2020

Total purchase price:

Assets acquired:

Cash and cash equivalents $ 20,799

Securities 144,499

Loans 618,408

Accrued interest receivable 1,779

Deferred tax assets, net ( 3,117 )

Other assets 9,195

Core deposit intangible 2,117

Total assets acquired 793,680

Liabilities assumed:

Deposits ( 652,653 )

Other liabilities ( 67,240 )

Total liabilities assumed ( 719,893 )

Net assets acquired $ 73,787

Goodwill recorded in the merger $ 39,049

As of January 1, 2021, the Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value.

Capital Bank of New Jersey Acquisition

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

Total consideration paid for Capital Bank was $ 76.8 million, including cash consideration of $ 353,000 .

Capital Bank was merged with and into the Company on the date of acquisition.

Trident Acquisition

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 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.

The acquisition was accounted for under the acquisition method of accounting.

Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax.

The excess of consideration paid over the estimated fair value of the net assets acquired has been recorded as goodwill.

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

At January 31, 2019

Estimated Fair Value

Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values.

The excess of consideration paid over the estimated fair value of the net assets acquired, excluding the net assets attributable to the non-controlling interest, has been recorded as goodwill.

The Company consolidated Trident’s assets, liabilities and components of comprehensive income within its consolidated results.

Thus, the consolidated results include amounts attributable to the Company and the non-controlling interest.

Amounts attributable to the non-controlling interest are presented separately as a single line on the Consolidated Statements of Income (net income attributable to non-controlling interest) and the Consolidated Statements of Financial Condition (non-controlling interest in stockholders’ equity).

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 18 Variable Interest Entity, of this Form 10-K.

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):

At April 1, 2022

Total purchase price:

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Cash and cash equivalents $ 45,693

Securities 103,775

Loans 307,300

Accrued interest receivable 1,390

Bank owned life insurance 10,460

Deferred tax assets, net 4,101

Other current assets 238

Premises and equipment 18

ROU asset 779

Other assets 81

Core deposit intangible 2,662

Total assets acquired 46,809

Liabilities assumed:

Deposits ( 449,018 )

Lease liability 779

Other liabilities 43,937

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Net assets acquired $ 2,093

Goodwill recorded in the merger $ 36,646

On January 31, 2020, the Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value.

Supplemental Pro Forma Financial Information

The following table presents financial information regarding the former Capital Bank operations included in the Consolidated Statements of Income from the date of the acquisition (January 31, 2019) through December 31, 2019;

and regarding Two River and Country Bank operations included in the Consolidated Statements of Income from the date of the acquisition (January 1, 2020) through December 31, 2020.

In addition, the table provides condensed pro forma financial information assuming the Two River, Country Bank, and Capital Bank acquisitions had be en completed as of January 1, 2019 for the year ended December 31, 2019.

The table has been prepared for comparative purposes onl y and is not necessarily indicative of the actual results that would have been attained had the acquisitions occurred as of the beginning of the periods presented, nor is it indicative of future results.

Furthermore, the pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings that may have occurred as a result of the integration and consolidation of Two River’s, Country Bank’s, and Capital Bank’s operations.

The pro forma information reflects adjustments related to certain purchase ac counting fair value adjustments, amortization of core deposit and other intangibles, and related income tax effects.

Two River Actual from January 1, 2020 to December 31, 2020 Country Bank Actual from January 1, 2020 to December 31, 2020 Capital Bank Actual from January 31, 2019 to December 31, 2019 Pro forma

December 31, 2019

(in thousands, except per share amounts) (unaudited)

Net interest income $ 41,978 $ 27,411 $ 17,090 $ 329,327

Credit loss expense 6,117 4,481 385 2,686

Non-interest income 2,688 45 1,456 47,484

Non-interest expense 27,431 17,993 12,482 240,913

Provision for income taxes 2,686 1,204 1,193 23,870

Net income $ 8,432 $ 3,778 $ 4,486 $ 109,342

Fully diluted earnings per share $ 1.79

Core Deposit Intangible

The estimated future amortization expense for the core deposit intangible over the next five years and thereafter is as follows (in thousands):

Net assets attributable to non-controlling interest $ 836

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.

The Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value.

Merger Related Expenses

The Company incurred merger related expenses of $ 2.7 million, $ 1.5 million, and $ 15.9 million for the years ended December 31, 2022, 2021, and 2020, respectively.

The following table summarizes the merger related expenses for the years ended December 31, 2022, 2021 and 2020:

For the Year Ended December 31,

2022 2021 2020

(in thousands)

Data processing fees $ 790 $ 253 $ 3,758

Professional fees 1,936 343 3,638

Employee severance payments 7 663 7,727

Other/miscellaneous fees 2 244 824

Merger related expenses $ 2,735 $ 1,503 $ 15,947

Merger related expenses for 2022 included expenses related to the terminated merger agreement with Partners Bancorp.

Merger related expenses for 2021 and 2020 included expenses related to acquisitions of Two River and Country Bank, which were both completed on January 1, 2020.

Core Deposit Intangibles

The estimated future amortization expense for the core deposit intangibles over the next five years and thereafter is as follows (in thousands):

For the Year Ending December 31, Amortization Expense

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Total $ 13,497

Fair Value Measurement of Assets Assumed and Liabilities Assumed

The methods used to determine the fair value of the assets acquired and liabilities assumed in the Two River, Country Bank, and Capital Bank acquisitions were as follows.

Refer to Note 15 Fair Value Measurements, for a discussion of the fair value hierarchy.

The estimated fair values of the securities were calculated utilizing Level 2 inputs.

The securities acquired are bought and sold in active markets.

Prices for these instruments were obtained through security industry sources that actively participate in the buying and selling of securities.

The acquired loan portfolio was valued utilizing Level 3 inputs and included the use of present value techniques employing cash flow estimates and incorporated assumptions that marketplace participants would use in estimating fair values.

In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine reasonable fair value.

Specifically, the Company utilized three separate fair value analyses which a market participant would employ in estimating the total fair value adjustment.

The three separate fair valuation methodologies used were:

(1) interest rate loan fair value analysis;

(2) general credit fair value adjustment;

and (3) specific credit fair value adjustment.

To prepare the interest rate fair value analysis, loans were grouped by characteristics such as loan type, term, collateral, and rate.

Market rates for similar loans were obtained from various external data sources and reviewed by Company management for reasonableness.

The average of these rates was used as the fair value interest rate a market participant would utilize.

A present value approach was utilized to calculate the interest rate fair value adjustment.

The general credit fair value adjustment was calculated using a two part general credit fair value analysis:

(1) expected lifetime losses and (2) estimated fair value adjustment for qualitative factors.

The expected lifetime losses were calculated using an average of historical losses of the acquired bank or historical loss experiences of peer groups where deemed appropriate.

adjustment related to qualitative factors was impacted by general economic conditions and the risk related to lack of experience with the originator’s underwriting process.

To calculate the specific credit fair value adjustment, subsequent to January 1, 2020, the Company identified loans that experienced more-than-insignificant deterioration in credit quality since origination.

Loans meeting this criteria were reviewed by comparing the contractual cash flows to expected collectible cash flows.

The aggregate expected cash flows less the acquisition date fair value resulted in an accretable yield amount which will be recognized over the life of the loans on a level yield basis as an adjustment to yield.

Premises and Equipment

Fair values are based upon appraisals from independent third parties.

In addition to owned properties, Two River operated 14 properties, Country Bank operated five properties, and Capital Bank operated one property subject to lease agreements.

Deposits and Core Deposit Premium

Core deposit premium represents the value assigned to non-interest-bearing demand deposits, interest-bearing checking, money market, and savings accounts acquired as part of an acquisition.

The core deposit premium value represents the future economic benefit, including the present value of future tax benefits, of the potential cost savings from acquiring the core deposits as part of an acquisition compared to the cost of alternative funding sources and is valued utilizing Level 2 inputs.

The core deposit premium totaled $ 12.1 million, $ 2.1 million, and $ 2.7 million for the acquisitions of Two River, Country Bank, and Capital Bank, respectively, and is being amortized over its estimated useful life of approximately 10 years using an accelerated method.

Time deposits are not considered to be core deposits as they are assumed to have a low expected average life upon acquisition.

The fair value of time deposits represents the present value of the expected contractual payments discounted by market rates for similar time deposits and is valued utilizing Level 2 inputs.

Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.

The amortized cost, estimated fair value, and allowance for securities credit losses of debt securities available-for-sale and held-to-maturity at December 31, 2022 and 2021 are as follows (in thousands):

20 unchanged sentences

Debt securities available-for-sale:

U.S government and agency obligations $ 173,790 $ 3,152 $ ( 2 ) $ 176,940 $ —

government and agency obligations $ 164,756 $ 1,135 $ ( 471 ) $ 165,420 $ —

Corporate debt securities 5,000 42 ( 11 ) 5,031 —

Asset-backed securities 298,976 41 ( 1,489 ) 297,528 —

Agency residential MBS 190 2 — 192 —

Agency commercial MBS 101,142 57 ( 923 ) 100,276 —

Total debt securities available-for-sale $ 569,874 $ 1,275 $ ( 2,894 ) $ 568,255 $ —

9 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 December 31, 2021 or 2020.

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the year ended December 31, 2021 (in thousands):

For the Year Ended December 31,

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

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the years ended December 31, 2022 and 2021 (in thousands):

For the Years Ended,

Allowance for credit losses

Beginning balance $ ( 1,467 ) $ ( 1,715 )

Impact of CECL adoption — ( 1,268 )

Benefit (Provision) for credit loss expense 248 ( 447 )

Credit loss benefit 339 248

Total ending allowance balance $ ( 1,128 ) $ ( 1,467 )

During 2021 and 2013, the Bank transferred $ 12.7 million and $ 536.0 million, respectively, of previously designated available-for-sale debt securities to a held-to-maturity designation at estimated fair value.

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 Statements 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 December 31, 2021 and 2020 are as follows (in thousands):

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 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 December 31, 2022, aggregated by credit quality indicator, are as follows (in thousands):

Investment Grade Non-Investment Grade/Non-rated Total

As of December 31, 2022

State, municipal and sovereign debt obligations $ 260,249 $ — $ 260,249

Corporate debt securities 41,900 14,993 56,893

Non-agency commercial MBS 25,310 — 25,310

Total debt securities held-to-maturity $ 327,459 $ 14,993 $ 342,453

During 2021 and 2013, the Bank transferred $ 12.7 million and $ 536.0 million, respectively, of previously designated available-for-sale securities to a held-to-maturity designation at estimated fair value.

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

Amortized cost $ 1,224,564 $ 1,143,548

Net loss on date of transfer from available-for-sale ( 13,556 ) ( 13,556 )

Allowance for securities credit loss ( 1,467 ) ( 1,715 )

Allowance for securities credit losses ( 1,128 ) ( 1,467 )

Accretion of net unrealized loss on securities reclassified as held-to-maturity 11,258 10,668

Carrying value $ 1,221,138 $ 1,139,193

During the year ended December 31, 2021 there were no realized gains on debt securities.

There were $ 476,000 of realized gains on debt securities for the year ended December 31, 2020.

The amortized cost and estimated fair value of debt securities at December 31, 2021 by contractual maturity are as follows (in thousands):

There were $ 108,000 of realized losses on debt securities for the year ended December 31, 2022.

There were no realized gains or losses on debt securities for the year ended December 31, 2021.

The realized gains/losses on debt securities is presented within other of the Consolidated Statement of Income.

The amortized cost and estimated fair value of debt securities at December 31, 2022 by contractual maturity are shown below (in thousands):

At December 31, 2022 Amortized

8 unchanged sentences

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 as required security for deposits and for other purposes required by law amounted to $ 1.14 billion and $ 435.9 million at December 31, 2021 and 2020, respectively, including $ 142.9 million and $ 152.7 million at December 31, 2021 and 2020, respectively, pledged as collateral for securities sold under agreements to repurchase.

The estimated fair value and unrealized losses for debt securities available-for-sale and held-to-maturity at December 31, 2022 and December 31, 2021, segregated by the duration of the unrealized losses, are as follows (in thousands):

15 unchanged sentences

Corporate debt securities 11,783 ( 598 ) 36,152 ( 3,180 ) 47,935 ( 3,778 )

Mortgage-backed securities:

Agency residential 297,296 ( 12,404 ) 397,036 ( 71,182 ) 694,332 ( 83,586 )

1 unchanged sentence

Non-agency commercial 16,839 ( 1,621 ) 6,198 ( 653 ) 23,037 ( 2,274 )

Total mortgage-backed securities 458,376 ( 5,967 ) 51,019 ( 1,361 ) 509,395 ( 7,328 )

Total MBS 340,071 ( 15,175 ) 405,296 ( 71,874 ) 745,367 ( 87,049 )

Total debt securities held-to-maturity 485,346 ( 27,725 ) 538,583 ( 88,042 ) 1,023,929 ( 115,767 )

2 unchanged sentences

Debt securities available-for-sale:

U.S government and agency obligations $ 17,029 $ ( 2 ) $ — $ — $ 17,029 $ ( 2 )

government and agency obligations $ 82,395 $ ( 471 ) $ — $ — $ 82,395 $ ( 471 )

Corporate debt securities 1,989 ( 11 ) — — 1,989 ( 11 )

Asset-backed securities 279,486 ( 1,489 ) — — 279,486 ( 1,489 )

Agency commercial MBS 80,726 ( 923 ) — — 80,726 ( 923 )

Total debt securities available-for-sale 444,596 ( 2,894 ) — — 444,596 ( 2,894 )

2 unchanged sentences

Corporate debt securities 38,304 ( 1,279 ) — — 38,304 ( 1,279 )

Mortgage-backed securities:

Agency residential 445,399 ( 5,822 ) 50,133 ( 1,358 ) 495,532 ( 7,180 )

Agency commercial 2,255 ( 41 ) 886 ( 3 ) 3,141 ( 44 )

Total mortgage-backed securities 73,508 ( 268 ) 3,521 ( 75 ) 77,029 ( 343 )

Non-agency commercial 10,722 ( 104 ) — — 10,722 ( 104 )

Total MBS 458,376 ( 5,967 ) 51,019 ( 1,361 ) 509,395 ( 7,328 )

Total debt securities held-to-maturity 572,009 ( 8,309 ) 55,402 ( 1,462 ) 627,411 ( 9,771 )

4 unchanged sentences

Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements over the life of the security.

Furthermore, the Company does not intend to sell these debt securities and it is more likely than not that the Company will not be required to sell the securities.

Historically, the Company has not utilized securities sales as a source of liquidity and the Company’s long range liquidity plans indicate adequate sources of liquidity outside the securities portfolio.

The Company monitors the credit quality of debt securities held-to-maturity on a quarterly basis through the use of internal credit analyses supplemented by external credit ratings.

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

The amortized cost of debt securities held-to-maturity at December 31, 2021 aggregated by credit quality indicator are as follows (in thousands):

Investment Grade Non-Investment Grade/Non-rated Total

At December 31, 2021

State, municipal, and sovereign debt obligations $ 281,389 $ — $ 281,389

Corporate debt securities 54,020 14,803 68,823

Non-agency commercial MBS 32,107 — 32,107

Total debt securities held-to-maturity $ 367,516 $ 14,803 $ 382,319

Furthermore, the change in net unrealized losses were primarily due to changes in the general credit and interest rate environment and not credit quality.

Historically, the Company has not utilized securities sales as a source of liquidity and the Company’s liquidity plans include adequate sources of liquidity outside the securities portfolio.

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 primarily comprised of select financial services institutions’ common and preferred stocks paying attractive dividends.

The realized and unrealized gains on equity securities for the year ended December 31, 2021 and 2020 are as follows (in thousands):

The equity investments primarily comprised of select financial services institutions’ preferred and common stocks, investments in funds and other financial institutions.

The realized and unrealized gains or losses on equity securities for the year ended December 31, 2022 and 2021 are shown in the table below (in thousands):

For the Year Ended December 31,

1 unchanged sentence

Net gains recognized on equity investments sold 1,351 8,123

Unrealized (loss) gain recognized on equity investments still held $ ( 978 ) $ 15,813

Unrealized gain (loss) recognized on equity investments still held $ 8,334 $ ( 978 )

Loans Receivable, Net

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

Commercial real estate - investor $ 5,171,952 $ 4,378,061

Commercial real estate - owner occupied 997,367 1,055,065

Commercial and industrial (1)

622,372 449,224

Commercial real estate - owner occupied 1,055,065 1,145,065

Commercial real estate - investor 4,378,061 3,491,464

Total commercial 6,791,691 5,882,350

6 unchanged sentences

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

(1) Commercial and industrial loans at December 31, 2021 and 2020 includes Paycheck Protection Program (“PPP”) loans of $ 22.9 million and $ 95.4 million, respectively.

(1) The commercial and industrial loans balance at December 31, 2022 and 2021 includes Paycheck Protection Program (“PPP”) loans of $ 1.6 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:

current financial information, historical payment experience, credit documentation, and current economic trends, among other factors.

Generally, risk ratings for loans on forbearance pursuant to the CARES, extended by the Coronavirus Response and Relief Supplemental Appropriations (“CRRSA”) Act of 2021, were not re-evaluated until the initial 90-day forbearance period ended.

At that time, risk ratings were updated with an emphasis on industries that were heavily impacted by the pandemic, as well as individual borrower liquidity, and other measures of resiliency as described below.

The Company evaluates risk ratings on an ongoing basis and as such, adversely rated loans will be re-evaluated as government restrictions ease and businesses resume normal operations.

The Company evaluates risk ratings on an ongoing basis.

The Company uses the following definitions for risk ratings:

2 unchanged sentences

Loans classified as Special Mention have a potential weakness that deserves management’s close attention.

This includes borrowers that have been negatively affected by the pandemic but demonstrate some degree of liquidity.

This liquidity may or may not be adequate to resume operations.

If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date.

Substandard :

Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any.

Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.

This includes borrowers whose operations were negatively affected by the pandemic and whom, in the assessment, do not have adequate liquidity available to resume operations at levels sufficient to service their current debt levels.

Loans so classified have a well-defined weakness or weaknesses that jeopardize the collection or the liquidation of the debt.

They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

3 unchanged sentences

December 31, 2022

Commercial and industrial

Commercial real estate - investor

Pass $ 1,144,763 $ 1,339,289 $ 555,937 $ 524,428 $ 220,999 $ 881,344 $ 450,787 $ 5,117,547

1 unchanged sentence

Substandard — — — 893 — 18,180 532 19,605

Total commercial and industrial 42,955 23,030 25,390 17,567 8,954 53,088 278,240 449,224

Total commercial real estate - investor 1,144,763 1,341,797 556,129 542,415 220,999 912,342 453,507 5,171,952

Commercial real estate - owner occupied

3 unchanged sentences

Total commercial real estate - owner occupied 119,912 110,440 63,702 117,422 93,769 477,190 14,932 997,367

Commercial real estate - investor

Commercial and industrial

Pass 60,078 23,724 14,072 17,175 10,992 47,370 443,211 616,622

1 unchanged sentence

Substandard — 21 76 1,083 301 2,212 120 3,813

Total commercial real estate - investor 1,387,753 614,183 588,147 284,530 386,872 856,980 259,596 4,378,061

Total commercial and industrial 60,078 23,752 14,148 18,258 11,293 49,832 445,011 622,372

Residential real estate (1)

12 unchanged sentences

December 31, 2021

Commercial and industrial

Commercial real estate - investor

Pass $ 1,387,753 $ 609,916 $ 535,551 $ 274,662 $ 375,646 $ 800,089 $ 255,613 $ 4,239,230

1 unchanged sentence

Substandard — 4,267 28,802 468 8,495 28,228 3,401 73,661

Total commercial and industrial 137,993 42,604 30,036 21,076 34,914 61,163 142,870 470,656

Total commercial real estate - investor 1,387,753 614,183 588,147 284,530 386,872 856,980 259,596 4,378,061

Commercial real estate - owner occupied

3 unchanged sentences

Total commercial real estate - owner occupied 116,355 71,196 140,743 103,909 115,317 495,913 11,632 1,055,065

Commercial real estate - investor

Commercial and industrial

Pass 42,955 22,573 22,878 16,404 8,671 50,887 271,818 436,186

1 unchanged sentence

Substandard — 457 2,281 813 198 2,029 2,777 8,555

Total commercial real estate - investor 640,241 653,631 336,148 458,715 297,584 904,260 200,885 3,491,464

Total commercial and industrial 42,955 23,030 25,390 17,567 8,954 53,088 278,240 449,224

Residential real estate (1)

11 unchanged sentences

An analysis of the allowance for credit losses on loans for the years ended December 31, 2022 and 2021 is as follows (in thousands):

Industrial Commercial Real Estate - Owner Occupied Commercial Real Estate - Investor Residential

Real Estate Other Consumer Unallocated Total

Commercial Real Estate - Investor Commercial Real Estate - Owner Occupied Commercial

Industrial Residential

Real Estate Other Consumer Total

For the Year Ended December 31, 2022

1 unchanged sentence

Balance at beginning of year $ 25,504 $ 5,884 $ 5,039 $ 11,155 $ 1,268 $ 48,850

Credit loss benefit ( 321 ) ( 9,190 ) ( 974 ) ( 761 ) ( 1,100 ) — ( 12,346 )

Credit loss (benefit) expense ( 4,481 ) ( 1,569 ) 561 13,275 ( 152 ) 7,634

Charge-offs ( 8 ) ( 62 ) ( 60 ) ( 56 ) ( 387 ) ( 573 )

4 unchanged sentences

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

Impact of CECL adoption 2,416 ( 1,109 ) ( 5,395 ) 3,833 2,981 ( 25 ) 2,701

Initial allowance for credit losses on PCD loans 1,221 26 260 109 1,023 — 2,639

Credit loss expense (benefit) (1)

1,039 15,007 34,935 8,191 ( 1,770 ) — 57,402

Credit loss benefit ( 974 ) ( 9,190 ) ( 321 ) ( 761 ) ( 1,100 ) ( 12,346 )

Charge-offs ( 345 ) ( 65 ) ( 154 ) ( 254 ) ( 213 ) ( 1,031 )

( 890 ) ( 1,769 ) ( 13,081 ) ( 3,200 ) ( 1,244 ) — ( 20,184 )

Recoveries 120 85 124 352 811 1,492

Balance at end of year $ 25,504 $ 5,884 $ 5,039 $ 11,155 $ 1,268 $ 48,850

(1) The year ended December 31, 2020 was impacted by the shift in current and forward-looking economic conditions, credit migration, and borrower vulnerability related to COVID-19.

The Company recorded $ 14.6 million of charge-offs related to the sale of higher-risk commercial loans and $ 3.3 million of charge-offs related to the sale of under-performing residential and consumer loans.

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.

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

commercial and industrial of $ 277,000 and $ 1.9 million, respectively, commercial real estate - owner occupied of $ 11.9 million and $ 13.8 million, respectively, and commercial real estate - investor of $ 3.6 million and $ 18.3 million, 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 $ 438,000 and $ 1.4 million at December 31, 2021 and 2020, respectively.

At both December 31, 2021 and 2020, the amount of foreclosed residential real estate property held by the Company was $ 106,000 .

commercial real estate - investor of $ 4.6 million and $ 3.6 million, respectively;

commercial real estate - owner occupied of $ 4.0 million and $ 11.9 million, respectively;

and commercial and industrial of $ 160,000 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 $ 858,000 and $ 438,000 at December 31, 2022 and 2021, respectively.

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

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

Commercial and industrial $ 277 $ 1,908

Commercial real estate – owner occupied 11,904 13,751

Commercial real estate – investor $ 10,483 $ 3,614

Commercial real estate – owner occupied 4,025 11,904

Commercial and industrial 331 277

Residential real estate 5,969 6,114

2 unchanged sentences

At December 31, 2022 and 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 December 31, 2022, there was one PPP loan for $ 14,000 that was past due greater than 90 days and still accruing interest.

Per 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 to 120 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.

At December 31, 2020, there were no loans that were 90 days or greater past due and still accruing interest.

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

5 unchanged sentences

December 31, 2022

Commercial and industrial $ 25 $ 151 $ 277 $ 453 $ 448,771 $ 449,224

Commercial real estate – owner occupied 599 — 575 1,174 1,053,891 1,055,065

Commercial real estate – investor $ 217 $ 875 $ 3,700 $ 4,792 $ 5,167,160 $ 5,171,952

Commercial real estate – owner occupied 143 80 3,750 3,973 993,394 997,367

Commercial and industrial 159 47 180 386 621,986 622,372

Residential real estate 7,003 4,377 2,069 13,449 2,848,542 2,861,991

Other consumer 573 673 1,882 3,128 261,244 264,372

Total loans receivable $ 12,385 $ 2,161 $ 8,182 $ 22,728 $ 8,600,142 $ 8,622,870

$ 8,095 $ 6,052 $ 11,581 $ 25,728 $ 9,892,326 $ 9,918,054

December 31, 2021

Commercial and industrial $ 3,050 $ 628 $ 327 $ 4,005 $ 466,651 $ 470,656

Commercial real estate – owner occupied 1,015 — 7,871 8,886 1,136,179 1,145,065

Commercial real estate – investor $ 1,717 $ 102 $ 1,709 $ 3,528 $ 4,374,533 $ 4,378,061

Commercial real estate – owner occupied 599 — 575 1,174 1,053,891 1,055,065

Commercial and industrial 25 151 277 453 448,771 449,224

Residential real estate 9,705 1,586 2,675 13,966 2,465,735 2,479,701

Other consumer 339 322 2,946 3,607 257,212 260,819

Total loans receivable $ 29,096 $ 7,558 $ 27,126 $ 63,780 $ 7,692,326 $ 7,756,106

The Company classifies certain loans as TDR when credit terms to a borrower in financial difficulty are modified.

$ 12,385 $ 2,161 $ 8,182 $ 22,728 $ 8,600,142 $ 8,622,870

The Company classifies certain loans as TDRs when credit terms to a borrower in financial difficulty are modified.

The modifications may include a reduction in rate, an extension in term, the capitalization of past due amounts, and/or the restructuring of scheduled principal payments.

Residential real estate and consumer loans where the borrower’s debt is discharged in a bankruptcy filing are also considered TDR loans.

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

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

At December 31, 2022 and 2021, TDR loans totaled $ 13.9 million and $ 23.6 million, respectively.

At December 31, 2022 and 2021, there were $ 6.4 million and $ 11.3 million, respectively, of TDR loans included in the non-accrual loan totals.

At December 31, 2021 and 2020, the Company had no specific reserves allocated to loans that are classified as TDRs.

Non-accrual loans which become TDRs are generally returned to accrual status after six months of payment performance and the ultimate collectability of the restructured transaction is not in doubt.

At December 31, 2022, the Company had a $ 590,000 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 TDRs.

Non-accrual loans which become TDRs 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 $ 7.5 million and $ 12.3 million at December 31, 2022 and 2021, respectively.

5 unchanged sentences

Troubled debt restructurings:

Commercial real estate – owner occupied 2 $ 6,406 $ 6,423

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

Residential real estate 3 244 336

Commercial and industrial 1 $ 65 $ 65

Other consumer 8 1,237 1,378

1 unchanged sentence

Troubled debt restructurings:

Commercial real estate – owner occupied 1 $ 1,112 $ 1,143

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

Commercial real estate – owner occupied 2 6,406 6,423

Residential real estate 3 244 336

Other consumer 3 39 49

There was one TDR consumer loan and one TDR commercial real estate - investor loan for $ 15,000 and $ 923,000 , respectively, that defaulted during the year ended December 31, 2021 which were modified within the preceding year.

The TDR commercial real estate - investor loan was current at December 31, 2021.

There were no TDR loans that defaulted during the year ended December 31, 2022, which were modified within the preceding year.

In response to the COVID-19 pandemic and its economic impact on customers, short-term modification programs that comply with the CARES Act, extended by the CRRSA Act, were implemented to provide temporary payment relief to those borrowers directly impacted by COVID-19.

The Commercial Borrower Relief Program allowed for the deferral of principal and interest or principal only.

All payments received will first be applied to all accrued and unpaid interest and the balance, if any, on account of unpaid principal, then to fees, expenses and other amounts due to the Bank.

Monthly payments will continue until the maturity date when all then unpaid principal, interest, fees, and all other charges are due and payable to the Bank.

The Consumer Borrower Relief Program allowed for the deferral of principal and interest.

The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date.

Provided these loans were current as of either December 31, 2019 or the date of the modification, these loans are not considered TDR loans at December 31, 2021 and will not be reported as past due during the deferral period.

The TDR consumer loan is no longer in default as of December 31, 2022 and the TDR commercial real estate - investor loan was subsequently paid in full as of June 30, 2022.

Interest and Dividends Receivable

12 unchanged sentences

Finance lease 3,189 2,386

38,057 10,270

Total 202,428 199,553

1 unchanged sentence

Total premises and equipment, net $ 126,705 $ 125,828

(1) Includes assets under construction of $ 36.2 million related to the expansion of the Company’s headquarters in Toms River, New Jersey.

(1) 2021 included assets under construction of $ 36.2 million related to the expansion of the Company’s headquarters in Toms River, New Jersey, which was completed in 2022.

In 2022, the Company’s headquarters in Toms River was classified within buildings and improvements.

Depreciation and amortization expense for the years ended December 31, 2022, 2021, and 2020 amounted to $ 11.5 million, $ 9.4 million, and $ 8.5 million, respectively.

9 unchanged sentences

Total deposits $ 9,675,206 0.60 % $ 9,732,816 0.19 %

Accrued interest payable related to deposits was $ 244,000 and $ 367,000 at December 31, 2021 and 2020, respectively.

Accrued interest payable related to deposits was $ 2.0 million and $ 244,000 at December 31, 2022 and 2021, respectively.

Time deposits included $ 117.7 million and $ 145.4 million in deposits of $250,000 or more at December 31, 2022 and 2021, respectively.

Time deposits also include brokered deposits of $ 873.4 million and $ 25.0 million at December 31, 2022 and 2021, respectively.

Time deposits at December 31, 2022 mature as follows (in thousands):

15 unchanged sentences

Rate Amount Weighted

Securities sold under agreements to repurchase with retail customers $ 118,769 0.16 % $ 128,454 0.33 %

FHLB advances $ 1,211,166 4.59 % $ — — %

Securities sold under agreements to repurchase with customers 69,097 0.16 118,769 0.16

Other borrowings 195,403 5.87 229,141 4.47

Total borrowed funds $ 1,475,666 4.55 % $ 347,910 3.00 %

In addition to the advances that matured, the Company prepaid all of its FHLB advances in 2020.

Information concerning FHLB advances and securities sold under agreements to repurchase with retail customers (“reverse repurchase agreements”) is summarized as follows (dollars in thousands):

Advances Reverse Repurchase

In March 2022, the Company redeemed $ 35.0 million of subordinated debt due September 30, 2026, which was reported in Other borrowings.

The debt carried an interest rate of 4.14 % based on a floating rate of three months LIBOR plus 392 basis points.

The Company pledges certain securities and loans to secure various borrowings or borrowing capacity.

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 $ 935.4 million and $ 1.14 billion at December 31, 2022 and 2021, respectively, which included $ 105.3 million and $ 142.9 million at December 31, 2022 and 2021, respectively, pledged as collateral for securities sold under agreements to repurchase with customers.

The securities pledged, which collateralize the repurchase agreements are delivered to the lender, with whom each transaction is executed, or to a third-party custodian.

The lender, who may sell, loan or otherwise dispose of such securities to other parties in the normal course of their operations, agrees to resell to the Company substantially the same securities at the maturity of the repurchase agreements.

The Company also pledges eligible mortgage loans to secure FHLB and Federal Reserve System (“FRB”) advances.

At December 31, 2022, the Bank pledged $ 6.49 billion of eligible mortgage loans to secure FHLB and FRB advances.

FHLB advances and repurchase agreements had contractual maturities at December 31, 2022 as follows (in thousands):

FHLB Advances Repurchase Agreements

For the Year Ended December 31,

2023 $ 1,209,500 $ 69,097

Average balance $ 413,290 $ 134,939 $ 125,500

Maximum amount outstanding at any month end 825,824 156,433 153,810

Average interest rate for the year 1.70 % 0.19 % 0.45 %

Amortized cost of collateral:

Debt and equity securities $ — $ 141,423 $ 147,445

Estimated fair value of collateral:

Debt and equity securities — 142,924 152,679

The securities collateralizing the reverse repurchase agreements are delivered to the lender, with whom each transaction is executed, or to a third-party custodian.

Refer to Note 4 Securities.

All reverse repurchase agreements have contractual maturities during 2022.

The other borrowings at December 31, 2021 include the following (in thousands):

Total $ 1,211,166 $ 69,097

The other borrowings at December 31, 2022 included the following (in thousands):

Type of Debt Stated Value Carrying Value Interest Rate Maturity

Subordinated debt $ 125,000 $ 123,537 5.701 % (1)

September 30, 2026

Subordinated debt 125,000 122,989 5.250 % (2)

Trust preferred 10,000 8,123 3 month LIBOR plus 225 basis points

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October 1, 2037

Finance lease 1,904 1,904 5.625 % June 30, 2029

Finance lease 1,934 1,934 5.625 % July 31, 2029

Total $ 209,434 $ 195,403

(1) Based on a floating rate of 392 basis points over 3 month London Inter-bank Offered Rate (“LIBOR”).

(2) Adjusts to a floating rate of 509.5 basis points over 3 month Secured Overnight Financing Rate on May 15, 2025.

(1) Adjusts to a floating rate of 509.5 basis points over 3 month Secured Overnight Financing Rate (“SOFR”) on May 15, 2025.

(2) All trust preferred debt carry interest rates which adjust to a spread over LIBOR on a quarterly basis and are expected to convert to a spread over the SOFR upon LIBOR cessation.

All of the trust preferred debt is currently callable.

Subsequent to year-end, the Company provided notice to its trustee that, as of March 30, 2022, it will redeem the $ 35.0 million of subordinated debt maturing September 30, 2026.

Interest expense on borrowings for the years ended December 31, 2022, 2021, and 2020 was as follows (in thousands):

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Total provision for income taxes $ 46,565 $ 32,165 $ 17,733

Included in other comprehensive income was income tax impact attributable to the unrealized gain/loss on debt securities and accretion of unrealized losses on debt securities reclassified to held-to-maturity arising during the year in the amount of $ 870,000 , $ 721,000 , and $ 874,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

Included in other comprehensive income was the income tax impact attributable to the unrealized gain/loss on debt securities and accretion of unrealized losses on debt securities reclassified to held-to-maturity arising during the year in the amount of $ 10.4 million, $ 870,000 , and $ 721,000 for the years ended December 31, 2022, 2021 and 2020, respectively.

The income tax provision reconciled to the income taxes that would have been computed at the statutory federal rate for the years ended December 31, 2022, 2021 and 2020 is as follows (dollars in thousands):

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Stock compensation 26 ( 110 ) ( 136 )

Revaluation of state deferred tax asset — — ( 2,205 )

Reclassification of certain tax effect from accumulated other comprehensive income ( 157 ) ( 173 ) ( 204 )

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Stock plans 2,693 2,565

Unrealized loss on assets held-for-sale 1,626 2,435

Unrealized loss on securities 1,332 272

Unrealized losses on assets held-for-sale 1,080 1,626

Unrealized losses on AFS securities 11,849 1,332

Net operating loss carryforwards related to acquisition 23,100 28,057

Deferred fees on PPP loans 187 517

Other, net 3,031 1,867

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Investments, discount accretion ( 365 ) ( 371 )

Other, net — ( 783 )

Total gross deferred tax liabilities ( 11,119 ) ( 10,710 )

Net deferred tax assets $ 55,819 $ 47,079

The 2020 deferred tax expense does not equal the change in net deferred tax assets as a result of net deferred liabilities recorded in connection with the Two River and Country Bank acquisitions of approximately $ 4.5 million.

The Company has federal net operating losses from the acquisitions of Colonial American Bank (“Colonial American”) and Sun Bancorp, Inc.

The Co mpany has federal net operating losses from the acquisitions of Colonial American Bank (“Colonial American”) and Sun Bancorp, Inc.

At December 31, 2022 and 2021, the net operating losses from Colonial American were $ 3.9 million and $ 4.3 million, respectively.

These net operating losses are subject to annual limitation under Code Section 382 of approximately $ 330,000 , and will expire between 2029 and 2034.

At December 31, 2021 and 2020, the net operating losses from Sun were $ 129.4 million and $ 152.6 million, respectively.

These net operating losses are subject to annual limitation under Code Section 382 of approximately $ 23.3 million, which will expire in 2022 and $ 9.3 million, which will expire between 2029 and 2036.

As of December 31, 2020 , the Company had $ 1.8 million of New Jersey Alternative Minimum Assessment Tax (“AMT”) Credits of which $ 1.4 million was utilized in 2020 and the remainder was utilized in 2021.

At both December 31, 2021 and 2020 , the Company had $ 2.3 million of AMT Tax Credits that were part of the Sun acquisition.

These credits are subject to the same Code Section 382 limitation as indicated above but do not expire.

At December 31, 2022 and 2021, the net operating losses

from Sun were $ 106.1 million and $ 129.4 million, respectively.

These net operating losses are subject to annual limitation under Code Section 382 of approximately $ 23.3 million through 2022 and $ 9.3 million thereafter.

These net operating losses will expire between 2029 and 2036.

At both December 31, 2022 and 2021, the Company had $ 2.3 million of Alternative Minimum Tax (“ AMT”) Tax Credits that were part of the Sun acquisition.

These credits are subject to the same Code Section 382 limitation as indic ated above but do not expire.

At December 31, 2022, 2021 and 2020, the Company determi ned that it is not required to establish a valuation reserve for the remaining net deferred tax assets since it is “more likely than not” that the net deferred tax assets will be realized through future reversals of existing taxable temporary differences, future taxable income and tax planning strategies.

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Management will continue to review the tax criteria related to the recognition of deferred tax assets.

Retained earnings at December 31, 2021 included approximately $ 10.8 million for which no provision for income tax has been made.

This amount represented an allocation of income to bad debt deductions for tax purposes only.

Events that would result in taxation of these reserves include failure to qualify as a bank for tax purposes, distributions in complete or partial liquidation,

stock redemptions and excess distributions to stockholders.

At December 31, 2021, the Company had an unrecognized deferred tax liability of $ 2.8 million with respect to this reserve.

There were no unrecognized tax benefits for the years ended December 31, 2021, 2020 and 2019.

The tax years that remain subject to examination by the federal government and the state of New York include the years ended December 31, 2018 and forward.

The tax years that remain subject to examination by the state of New Jersey include the years ended December 31, 2017 and forward.

On July 1, 2018, New Jersey enacted changes to the corporate business tax laws.

This legislation required a combined group to file combined returns for tax years beginning in 2019.

However, due to technical issues and inconsistencies with existing tax law, it was initially determined that the tax law change did not have an impact on deferred taxes.

In December 2019, the State of New Jersey issued a clarifying technical bulletin related to the impact of the new tax legislation.

This technical bulletin provided clarification to the combined income tax reporting for certain members of a unitary business group.

Accordingly, this required a revaluation of some of the Company’s deferred tax assets.

As a result of the revaluation of the state deferred tax assets, the Company recognized an additional income tax benefit of $ 2.2 million for the year ended December 31, 2019.

Retained earnings at December 31, 2022 included approximately $ 10.8 million for which no deferred income tax liability has been recognized.

This amount represents an allocation of income to bad debt deductions for tax purposes only for tax years prior to 1988.

If the Bank were to liquidate, the entire amount would have to be recaptured and would create income for tax purposes only, which would be subject to the then-current corporate income tax rate.

The Company’s federal and state income tax returns are routinely subject to examination by the Internal Revenue Service and New Jersey, New York, Pennsylvania, and several other state and city tax authorities the Company operates in.

The Company believes the assumptions used to record tax-related assets or liabilities have been appropriate.

However, such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions.

The Company is currently under examination by the New Jersey Department of Taxation in connection with the 2014 to 2017 tax years.

As of December 31, 2022, the Company has not received any notices of proposed adjustments from this audit.

The Company also received notification of an upcoming examination by the New York State Department of Taxation and Finance in connection with the 2019 to 2021 tax years.

The tax years that remain subject to examination by the federal government and most state or city tax authorities include the tax years 2019 and forward.

Excluding the above, the tax years that remain subject to examination by New Jersey are 2018 and forward.

With the enactment of the Tax Reform on December 22, 2017, the federal corporate income tax rate was reduced from 35% to 21% effective January 1, 2018.

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The amount included in accumulated other comprehensive income at December 31, 2022, subject to reclassification, was $ 550,000 .

There were no unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020.

Employee Stock Ownership Plan

The Bank maintains an Employee Stock Ownership Plan (“ESOP”).

All full-time employees are eligible to participate in the ESOP after they attain age 21 and complete one year of service during which they work at least 1000 hours.

The Bank maintains an ESOP which all full-time employees are eligible to participate in after they attain age 21 and complete one year of service during which they work at least 1000 hours.

ESOP shares are allocated among participants on the basis of compensation earned during the year.

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At the same time, the term of the loan was extended from the initial 12 years to 30 years.

In 2018, the loan agreement was amended (“amended loan”) to allow the ESOP to borrow an additional $ 8.4 million in order to fund the purchase of 292,592 shares of common stock.

In 2018, the loan agreement was amended (“amended loan”) to allow the ESOP to borrow an additional $ 8.4 million in order to

fund the purchase of 292,592 shares of common stock.

At the same time, the fixed interest rate of the loan was reduced from 8.25 % to 3.25 %.

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The Bank is required to make contributions to the ESOP in amounts at least equal to the principal and interest requirement of both debts.

The Bank’s obligation to make such contributions is reduced to the extent of any dividends paid by the Company on unallocated shares and any investment earnings realized on such dividends.

The Bank’s obligation to make such contributions is reduce d to the extent of any dividends paid by the Company on unallocated shares and any investment earnings realized on such dividends.

As of December 31, 2022 and 2021, contributions to the ESOP, which were used to fund principal and interest payments on the ESOP loans, totaled $ 2.7 million and $ 2.3 million, respectively.

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The unamortized balance of the ESOP is shown as unallocated common stock held by the ESOP and is reflected as a reduction of stockholders’ equity.

For the years ended December 31, 2021, and 2019, the Bank recorded compensation expense related to the ESOP of $ 2.2 million and $ 1.6 million, respectively, which included $ 179,000 and $ 366,000 , respectively, of additional compensation

expense to reflect the increase in the average fair value of shares committed to be released and allocated shares in access of the Bank’s cost.

For the years ended December 31, 2022, and 2021, the Bank recorded compensation expense related to the ESOP of $ 2.5 million and $ 2.2 million, respectively, which included $ 82,000 and $ 179,000 , respectively, of additional compensation expense to reflect the increase in the average fair value of shares committed to be released and allocated shares in excess of the Bank’s cost.

For the year ended December 31, 2020, the Bank recorded compensation expense related to the ESOP of $ 1.1 million including $ 80,000 related to a decrease in compensation expense to reflect the decrease in the average fair value of shares committed to be released and allocated shares below the Bank’s cost.

As of December 31, 2021, 2,543,294 shares had been allocated to participants and 102,048 shares were committed to be released.

Incentive Plan

As of December 31, 2022, 2,645,342 shares had been allocated to participants and 120,382 shares were committed to be released for services rendered in 2022.

Incentive Plans

The Company offers long-term incentive plans that provide for the granting of stock awards (both time-vested and performance-based) and stock options, as well as phantom stock units.

The Company has established these plans to attract and retain qualified personnel in key positions, provide officers, employees, and non-employee directors with a proprietary interest in the Company as an incentive to contribute to the success of the Company, align the interests of management with those of other stockholders and reward employees for outstanding performance.

All officers, other employees, and non-employee directors of the Company and its affiliates are eligible to receive awards under the plans.

Overview of Incentive Plans

The OceanFirst Financial Corp.

2011 Stock Incentive Plan, which authorizes the granting of stock options or awards of common stock, was approved by stockholders in 2011.

2011 Stock Incentive Plan, which authorized the granting of stock options or awards of common stock, was approved by stockholders in 2011.

This plan was subsequently amended in 2017 to increase the number of authorized shares available for grant and to update the performance goals under which performance-based awards may be granted.

In 2018, the Company implemented a performance-based stock plan for select senior management executives.

On May 20, 2020, the OceanFirst Financial Corp.

2020 Stock Incentive Plan, which also authorizes the granting of stock options or awards of common stock, was approved by stockholders.

On March 24, 2021, the 2020 Stock Incentive Plan was amended to increase the number of shares authorized for issuance through equity awards.

The purpose of these plans is to attract and retain qualified personnel in key positions, provide officers, employees, and non-employee directors with a proprietary interest in the Company as an incentive to contribute to the success of the Company, align the interests of management with those of other stockholders and reward employees for outstanding performance.

All officers, other employees, and non-employee directors of the Company and its affiliates are eligible to receive awards under the plans.

Under the amended 2020 Stock Incentive Plan, the Company is authorized to issue up to 6,950,000 shares subject to option or, in lieu of options, up to 2,780,000 shares in the form of stock awards.

At December 31, 2021, 5,000,294 options or 2,000,118 awards remain available for issuance.

Under the amended 2011 Stock Incentive Plan, the Company is authorized to issue up to an additional 4,000,000 shares subject to option or, in lieu of options, up to 1,600,000 shares in the form of stock awards.

At December 31, 2021, 149,343 options or 59,737 awards remain available for issuance.

Stock awards vest ratably over the vesting period.

The Company granted to senior executives performance-based awards in 2021, 2020 and 2019, which vest in equal amounts over a three - to five-year period when a specific performance metric has been attained or exceeded.

Tiered performance goals for each metric are aligned with corresponding tiered vesting values and have been set using financial data from the applicable strategic plan as approved by the Board.

The Company accrues expenses for the performance-based awards based on the estimated probability of achievement of the defined performance goals.

Options expire 10 years from the date of grant and generally vest at the rate of 20 % per year.

The OceanFirst Financial Corp.

2020 Stock Incentive Plan, which also authorized the granting of stock options or awards of common stock, was approved by stockholders in 2020.

This plan was subsequently amended in 2021 to increase the number of shares authorized for issuance through equity awards.

The following table presents the amount of the plans’ authorized shares and those that remain available for issuance as of December 31, 2022.

Both plans allowed the Company to authorize shares subject to options or, in lieu of options, shares in the form of stock awards.

Authorized Awards Authorized but Not Issued

Stock Options or Stock Awards Stock Options or Stock Awards

2020 Plan 6,950,000 2,780,000 4,354,574 1,741,830

2011 Plan 4,000,000 1,600,000 200,003 80,001

Total 10,950,000 4,380,000 4,554,577 1,821,831

The Company grants time-based and performance-based stock awards.

Time-based awards vest ratably, and generally have a three - to five- year vesting period.

Performance-based stock awards, which are granted to certain senior executives, vest based on the estimated probability of achievement of defined tiered performance goals or include market-based conditions.

performance goals for each metric are aligned with corresponding tiered vesting values and have been set using financial data from the applicable strategic plan as approved by the Board.

The Company granted performance-based stock awards in 2022, 2021 and 2020.

The 2022 performance-based stock awards were issued with a three year cliff vesting schedule and the 2021 and 2020 performance-based stock awards vest in equal amounts over a four - to five-year period.

The 2022 performance-based stock awards include market-based condition awards.

The fair value of these awards were estimated through the use of the Monte Carlo valuation model applying the following assumptions:

Risk-free interest rate 1.36 %

Expected performance period 2.9 years

Expected volatility 41.10 %

The risk-free interest rate is based on the U.S Treasury rate, at valuation date, with a term equal to the expected performance period.

The expected performance period reflects the remaining term of the awards’ performance period.

Expected volatility is based on actual historical results.

A summary of the granted but unvested stock award activity, which included both time- and performance-based stock awards, for the years ended December 31, 2022, 2021 and 2020 is as follows:

2022 2021 2020

Shares Weighted

Fair Value Number

Shares Weighted

Fair Value Number

Shares Weighted

Outstanding at beginning of year:

778,971 $ 22.30 575,996 $ 23.42 451,443 $ 25.61

Granted 279,750 21.47 388,392 21.53 256,649 20.38

Vested ( 190,094 ) 23.14 ( 126,292 ) 24.04 ( 96,564 ) 24.41

Forfeited ( 33,287 ) 22.17 ( 59,125 ) 24.39 ( 35,532 ) 26.56

Outstanding at end of year 835,340 $ 21.84 778,971 $ 22.30 575,996 $ 23.42

Stock Options

The Company’s stock options expire 10 years from the date of grant and generally vest at a rate of 20 % per year.

The exercise price of each option equals the closing market price of the Company’s stock on the grant date.

The Company typically issues treasury shares or authorized but unissued shares to satisfy stock option exercises.

The Company recognizes the grant-date fair value of stock options and other stock-based compensation issued to employees in the income statement.

The modified prospective transition method was adopted and, as a result, the income statement includes $ 1.2 million, $ 1.5 million, and $ 973,000 , of expenses for stock option grants and $ 4.2 million, $ 2.8 million, and $ 2.9 million, of expense for stock award grants, for the years ended December 31, 2021, 2020 and 2019, respectively.

At December 31, 2021, the Company had $ 14.7 million in compensation costs related to non-vested options and stock awards not yet recognized.

This cost will be recognized over the remaining vesting period of 2.79 years.

The fair value of stock options granted by the Company was estimated through the use of the Black-Scholes option pricing model applying the following assumptions:

The Company did not grant stock options for the years ended December 31, 2022 and 2021.

The fair value of stock options granted in 2020 was estimated through the use of the Black-Scholes option pricing model applying the following assumptions:

Risk-free interest rate 1.03 %

Expected option life 7 years 7 years

Expected option life 7 years

Expected volatility 23 %

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Intrinsic value of options exercised during the year (in thousands) 2,499

For the year ended December 31, 2021, there were no stock options granted by the Company.

The risk-free interest rate is based on the U.S.

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Expected volatility is based on actual historical results.

Compensation cost is recognized on a straight line basis over the vesting period.

A summary of option activity for the years ended December 31, 2022, 2021 and 2020 is as follows:

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The aggregate intrinsic value for stock options outstanding and stock options exercisable at December 31, 2022 was $ 3.7 million and $ 3.4 million, respectively.

A summary of the granted but unvested stock award activity for the years ended December 31, 2021, 2020 and 2019 is as follows:

2021 2020 2019

Shares Weighted

Fair Value Number

Shares Weighted

Fair Value Number

Shares Weighted

Outstanding at beginning of year:

Phantom Stock Units

In 2022, the Company also established the OceanFirst Bank Phantom Equity Plan to issue phantom stock units to select senior management employees.

The phantom stock units are liability-classified time-based awards, which vest ratably over a three - to five- year period.

The fair value is determined based on the Company’s stock price at the grant date and remeasured quarterly.

The phantom stock units are settled in cash when they vest.

Compensation Expense

The compensation expense for stock awards, stock options and phantom stock units were as follows (in thousands):

For the Year Ended December 31,

2022 2021 2020

Granted 388,392 21.53 256,649 20.38 249,651 24.80

Vested ( 126,292 ) 24.04 ( 96,564 ) 24.41 ( 105,307 ) 24.49

Forfeited ( 59,125 ) 24.39 ( 35,532 ) 26.56 ( 23,499 ) 26.38

Outstanding at end of year 778,971 $ 22.30 575,996 $ 23.42 451,443 $ 25.61

Stock awards $ 5,698 $ 4,161 $ 2,792

Stock options 940 1,244 1,466

Phantom stock units 554 — —

Total $ 7,192 $ 5,405 $ 4,258

At December 31, 2022, the Company had an estimated $ 15.1 million of unrecognized compensation costs related to non-vested stock awards, stock options, and phantom stock units.

This cost will be recognized over the remaining vesting period of 2.23 years.

Commitments, Contingencies, and Concentrations of Credit Risk

The Company, in the normal course of business, is party to financial instruments and commitments which involve, to varying degrees, elements of risk in excess of the amounts recognized in the consolidated financial statements.

These financial instruments and commitments include unused consumer lines of credit, construction loan lines of credit, commercial lines of credit, and commitments to extend credit.

These financial

instruments and commitments include unused consumer lines of credit, construction loan lines of credit, commercial lines of credit, and commitments to extend credit.

At December 31, 2022, the following commitments and contingent liabilities existed which are not reflected in the accompanying consolidated financial statements (in thousands):

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At December 31, 2022, the Company is obligated under noncancelable operating leases for premises and equipment.

Rental and lease expense under these leases aggregated approximately $ 7.2 million, $ 7.9 million, and $ 5.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Rental and lease expense under these leases were $ 6.3 million, $ 7.2 million, and $ 7.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Refer to Note 17 Leases for the projected minimum lease commitments as of December 31, 2022.

The Company grants residential real estate and first mortgage commercial real estate loans to borrowers primarily located throughout New Jersey and the major metropolitan markets of Philadelphia, New York, Baltimore, Washington D.C., and Boston.

The ability of borrowers to repay their obligations is dependent upon various factors including the borrowers’ income, net worth, cash flows generated by the underlying collateral, value of the underlying collateral, and priority of the Company’s lien on the property.

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Debt securities classified as available-for-sale are reported at fair value.

Fair value for these debt securities is determined using inputs other than quoted prices that are based on market observable information (Level 2 ) and Level 3 inputs which were utilized for certain state and municipal obligations known as bond anticipation notes (“BANs”).

Fair value for these debt securities is determined using inputs other than quoted prices that are based on market observable information (Level 2 ).

Level 2 debt securities are priced through third-party pricing services or s ecurity industry sources that actively participate in the buying and selling of securities.

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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.

alternative).

Certain equity investments without readily determinable fair values are measured at net asset value (“NAV”) per share as a practical expedient, which are excluded from the fair value hierarchy levels in the table below.

Interest Rate Derivatives

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Interest rate derivative assets 113,420 — 113,420 —

Interest rate derivative liabilities ( 22,855 ) — ( 22,855 ) —

Interest rate derivative liability ( 113,473 ) — ( 113,473 ) —

Items measured on a non-recurring basis:

Equity investments (1) (2)

Other real estate owned 106 — — 106

40,095 — — 37,076

Loans measured for impairment based on the fair value of the underlying collateral (3)

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Interest rate derivative assets 22,787 — 22,787 —

Interest rate derivative liabilities ( 45,429 ) — ( 45,429 ) —

Interest rate derivative liability ( 22,855 ) — ( 22,855 ) —

Items measured on a non-recurring basis:

Equity investments 10,429 — — 10,429

Other real estate owned 106 — — 106

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16,233 — — 16,233

The following table reconciles, for the year ended December 31, 2021 and 2020, the beginning and ending balances for equity investments and debt securities available-for-sale that are recognized at fair value on a recurring basis, in the Consolidated Statements of Financial Condition, using significant unobservable inputs (in thousands):

(1) Primarily consists of $ 37.1 million of equity investments measured under the measurement alternative, which included $ 20.0 million of unrealized gains as a result of observable price changes in the investments for the year ended December 31, 2022.

(2) Equity investments of $ 40.1 million includes $ 3.0 million of certain equity investment funds measured at NAV per share (or its equivalent) as a practical expedient to fair value and these equity investments have not been classified in the fair value hierarchy levels.

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

The amounts are based on independent appraisals, which may be adjusted by management for qualitative factors, such as economic factors and estimated liquidation expenses.

The range may vary but is generally 0 % to 8 % on the discount for costs to sell and 0 % to 10 % on appraisal adjustments.

The following table reconciles, for the year ended December 31, 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 Year Ended December 31,

Equity Investments Equity Investments Debt Securities

Beginning balance $ 2,718 $ 2,540

Purchases — 2,000 2,377

Total gains included in earnings — 178

Maturities — — ( 2,402 )

Transfers out of Level 3 ( 2,718 ) —

Ending balance $ — $ 2,718

There were no debt securities in Level 3 for the year ended December 31, 2021.

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 assets or liabilities in the fair value hierarchy for the years ended December 31, 2021 and 2020.

During the year ended December 31, 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 or liabilities in the fair value hierarchy for the year ended December 31, 2021.

Assets and Liabilities Disclosed at Fair Value

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The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Securities Sold Under Agreements to Repurchase with Retail Customers

Securities Sold Under Agreements to Repurchase with Customers

Fair value approximates the carrying amount as these borrowings are payable on demand and the interest rate adjusts monthly.

Borrowed Funds

FHLB Advances and Other Borrowings

Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.

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1,542,020 — 1,504,601 —

Other borrowings 229,141 — 251,491 —

Securities sold under agreements to repurchase with retail customers

118,769 118,769 — —

FHLB advances and other borrowings 1,406,569 — 1,416,384 —

Securities sold under agreements to repurchase with customers 69,097 69,097 — —

December 31, 2021

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Other borrowings 229,141 — 251,491 —

Securities sold under agreements to repurchase with retail customers

128,454 128,454 — —

Securities sold under agreements to repurchase with customers 118,769 118,769 — —

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument.

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In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Derivatives, Hedging Activities and Other Financial Instruments

The Company enters into derivative financial instruments which involve, to varying degrees, interest rate, market and credit risk.

Derivatives and Hedging Activities

The Company enters into derivative financial instruments which involve, to varying degrees, interest rate and credit risk.

The Company manages these risks as part of its asset and liability management process and through credit policies and procedures, seeking to minimize counterparty credit risk by establishing credit limits and collateral agreements.

The Company utilizes certain derivative financial instruments to enhance its ability to manage interest rate risk that exists as part of its ongoing business operations.

The derivative financial instruments entered into by the Company are an economic hedge of a derivative offering to Bank customers.

The Company utilizes derivative financial instruments to accommodate the business needs of its customers as well as to economically hedge the exposure that this creates for the Company.

Additionally, the Company enters into certain derivative financial instruments to enhance its ability to manage interest rate risk that exists as part of its ongoing business operations.

The Company does not use derivative financial instruments for trading purposes.

Customer Derivatives – Interest Rate Swaps and Cap Contracts

Derivatives Not Designated as Hedging Instruments

The Company enters into interest rate swaps that allow commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement.

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The Company then enters into an offsetting interest rate cap contract with a third party in order to economically hedge its exposure through the customer agreement.

The interest rate swaps and cap contracts with both the customers and third parties are not designated as hedges under FASB Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging, and are marked to market through earnings.

These interest rate swaps and cap contracts with both the customers and third parties are not designated as hedges under ASC Topic 815, Derivatives and Hedging, therefore changes in fair value are reported in earnings.

As the interest rate swaps and cap contracts are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings;

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 gains of $ 72,000 and $ 428,000 , and a loss of $ 478,000 in other income resulting from fair value adjustments for the period ended December 31, 2021, 2020 and 2019, respectively.

The notional amount of derivatives not designated as hedging instruments was $ 938.7 million and $ 725.9 million at December 31, 2021 and 2020, 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 2021 2020

Other assets $ 22,787 $ 45,289

Other liabilities 22,855 45,429

however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by ASC Topic 820, Fair Value Measurements.

The Company recognized gains of $ 49,000 , $ 72,000 , and $ 428,000 in commercial loan swap income resulting from fair value adjustments for the years ended December 31, 2022, 2021 and 2020, respectively.

Derivatives Designated as Hedging Instruments

For the year ended December 31, 2022, the Company entered into an interest rate swap intended to add stability to its net interest income and to manage its exposure to future interest rate movements associated with a pool of floating rate commercial loans.

The swap requires the Company to pay variable-rate amounts indexed to one-month term SOFR to the counterparty in exchange for the receipt of fixed-rate amounts at 4.0 % from the counterparty.

The swap was designated and qualified as a cash flow hedge, under ASC Topic 815, Derivatives and Hedging.

The maximum length of time over which forecasted cash flows are hedged is approximately three years.

The effect on the Company’s accumulated other comprehensive income attributable to cash flow hedge derivative, net of tax, was a $ 25,000 loss for the year ended December 31, 2022 due to unrealized mark to market losses on the derivative.

There were no gains or losses recognized in income from the Company’s cash flow hedge for the year ended December 31, 2022.

The table below presents the notional amount and fair value of derivatives designated and not designated as hedging instruments, as well as their location on the Consolidated Statements of Financial Condition (in thousands):

Notional Fair Value

Other assets Other liabilities

As of December 31, 2022

Derivatives Not Designated as Hedging Instruments

Interest rate swaps and cap contracts $ 1,368,245 $ 113,420 $ 113,440

Derivatives Designated as Cash Flow Hedge

Interest rate swap contract 100,000 — 33

Total Derivatives $ 1,468,245 $ 113,420 $ 113,473

As of December 31, 2021

Derivatives Not Designated as Hedging Instruments

Interest rate swaps and cap contracts $ 938,727 $ 22,787 $ 22,855

Credit Risk-Related Contingent Features

The Company is a party to International Swaps and Derivatives Association agreements with third party broker-dealers that require a minimum dollar transfer amount upon a margin call.

The Company is exposed to credit risk in the event of nonperformance by the interest rate derivative counterparty.

The Company minimizes this risk by being a party to International Swaps and Derivatives Association agreements with third party broker-dealers that require a minimum dollar transfer amount upon a margin call.

This requirement is dependent on certain specified credit measures.

The amount of collateral posted with third parties was $ 19.8 million and $ 46.5 million at December 31, 2021 and 2020, respectively.

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

The amount of collateral received from third parties was $ 104.5 million at December 31, 2022.

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 $ 113.5 million and $ 22.9 million at December 31, 2022 and 2021, respectively.

The interest rate derivatives which the Company executes with the commercial borrowers are collateralized by the borrowers’ commercial real estate financed by the Company.

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

1 unchanged sentence

The Company has one existing finance lease, which has a lease term through 2029.

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

The following table represents the classification of the Company’s ROU assets and lease liabilities on the Consolidated Statements of Financial Condition (in thousands):

For the Year Ended

9 unchanged sentences

Total lease liabilities $ 21,987 $ 19,886

(1) Operating lease liabilities excludes liabilities for future rent and lease termination payments related to closed branches of $ 8.2 million and $ 7.4 million as of December 31, 2021 and 2020, respectively.

(1) Operating lease liabilities excludes liabilities for future rent and estimated lease termination payments related to closed branches of $ 7.7 million and $ 8.2 million as of December 31, 2022 and 2021, respectively.

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.

1 unchanged sentence

If the exercise of a renewal option is considered to be reasonably certain, the Company includes the extended term in the calculation of the ROU asset and lease liability.

For the discount rate, Leases (Topic 842) requires the Company to use the rate implicit in the lease, provided the rate is readily determinable.

For the discount rate, ASC Topic 842, Leases requires the Company to use the rate implicit in the lease, provided the rate is readily determinable.

As this rate is rarely determinable, the Company utilizes its incremental borrowing rate, at lease inception, over a similar term.

23 unchanged sentences

(1) Included in borrowed funds interest expense on the Consolidated Statements of Income.

All other costs are included in occupancy expense.

During the year ended December 31, 2021, the Company sold two branches, including owned premises and equipment, all deposits associated with the branches, and selected performing loans.

The Company recognized $ 2.0 million of gains related to the sale, which is presented in branch consolidation expense on the Consolidated Statements of Income.

The Company also consolidated 4 branches in early 2021, 9 branches in late 2021, and expects to consolidate 10 branches and 1 deposit gathering location in early 2022.

These plans have resulted in a shortened estimated useful life for premises and equipment and accelerated recognition of lease expenses associated with these locations, which the effect on income totaled $ 13.0 million and is presented in branch consolidation expense and is excluded from the table above.

Other operating expenses related to these closures totaled $ 1.3 million and are presented in branch consolidation expense.

All other costs are included in occupancy expense on the Consolidated Statements of Income.

Future minimum payments for the finance lease and operating leases with initial or remaining terms of one year or more as of December 31, 2022 were as follows (in thousands):

10 unchanged sentences

Total lease liabilities $ 1,934 $ 20,053

Variable Interest Entity

The Company accounts for Trident as a variable interest entity (“VIE”) under ASC 810, Consolidation, for which the Company is considered the primary beneficiary (i.e.

the party that has a controlling financial interest).

In accordance with ASC 810, Consolidation, the Company has consolidated Trident’s assets and liabilities.

For further discussion on the acquisition of Trident refer to Note 3 Business Combinations, to this Form 10-K.

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

As of December 31, 2022

Cash and cash equivalents $ 30,062

Other assets 941

Total assets 31,003

Other liabilities 28,998

Net assets $ 2,005

Parent-Only Financial Information

The following condensed statements of financial condition at December 31, 2022 and 2021 and condensed statements of operations and cash flows for the years ended December 31, 2022, 2021 and 2020 for OceanFirst Financial Corp.

(parent company only) reflect the Company’s investment in its wholly-owned subsidiaries, the Bank, and OceanFirst Risk Management, Inc., using the equity method of accounting.

(parent company only) reflect the Company’s investment in its wholly-owned subsidiaries, the Bank, and OceanFirst Risk Management, Inc., and non-wholly owned subsidiary, Trident, using the equity method of accounting.

Condensed Statement of Financial Condition

7 unchanged sentences

1,630,199 1,575,549

Goodwill 5,827 —

Total assets $ 1,783,261 $ 1,747,466

2 unchanged sentences

Other liabilities

OceanFirst Financial Corp.

stockholders’ equity 1,584,662 1,516,553

1,516,553 1,484,130

Non-controlling interest 802 —

Total stockholders’ equity 1,585,464 1,516,553

Total liabilities and stockholders’ equity

4 unchanged sentences

2022 2021 2020

Dividend income – subsidiary Bank

$ 40,000 $ 54,000 $ 79,000

Dividend income – subsidiaries $ 73,011 $ 40,000 $ 54,000

Interest and dividend income – debt and equity securities 2,387 2,070 949

7 unchanged sentences

4,258 3,307 3,382

Income before income taxes and undistributed earnings of subsidiary Bank

35,747 62,139 71,722

Income before income taxes and undistributed earnings of subsidiaries 69,041 35,747 62,139

Benefit (provision) for income taxes 959 1,018 ( 2,901 )

Income before undistributed earnings of subsidiary Bank

36,765 59,238 72,646

Undistributed earnings of subsidiary Bank

73,311 4,071 15,928

Income before undistributed earnings of subsidiaries 70,000 36,765 59,238

Undistributed earnings of subsidiaries 77,357 73,311 4,071

Net income 147,357 110,076 63,309

Net income attributable to non-controlling interest 754 — —

Net income attributable to OceanFirst Financial Corp.

$ 146,603 $ 110,076 $ 63,309

Condensed Statements of Cash Flows

17 unchanged sentences

Repayments on ESOP loan receivable 2,480 2,040 1,200

Net cash provided by (used in) investing activities 11,169 ( 78,689 ) 1,160

Cash consideration for acquisition, net of cash received ( 7,084 ) — —

Net cash (used in) provided by investing activities ( 5,329 ) 11,169 ( 78,689 )

Cash flows from financing activities:

5 unchanged sentences

Exercise of stock options 424 1,946 1,241

Net cash provided by (used in) financing activities ( 86,123 ) 113,220 ( 58,972 )

Distributions to non-controlling interest ( 788 ) — —

Net cash (used in) provided by financing activities ( 90,271 ) ( 86,123 ) 113,220

Net increase in cash and due from banks 1,820 1,616 1,745

1 unchanged sentence

Cash and due from banks at end of year $ 10,623 $ 8,803 $ 7,187

Subsequent Events

In February 2022 , the Company signed an agreement to acquire a majority interest in Trident Abstract Title Agency, LLC with the right to acquire 100 %.

This transaction will provide an additional source of non-interest income to benefit the Company.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data