What changed in this filing

/stocks — the workspaceLOADING

Item 4. Controls and Procedures

2023-05-01 compared with 2022-11-09 · 222 added, 292 removed, 736 unchanged (41% of the section changed)

5 unchanged sentences

(b) Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

OceanFirst Financial Corp.

1 unchanged sentence

(dollars in thousands, except per share amounts)

September 30, December 31,

March 31, December 31,

Cash and due from banks $ 496,193 $ 167,946

Debt securities available-for-sale, at estimated fair value 452,195 457,648

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

Debt securities held-to-maturity, net of allowance for securities credit losses of $ 1,043 at March 31, 2023 and $ 1,128 at December 31, 2022 (estimated fair value of $ 1,149,673 at March 31, 2023 and $ 1,110,041 at December 31, 2022)

1,245,424 1,221,138

1 unchanged sentence

Restricted equity investments, at cost 115,750 109,278

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

Loans receivable, net of allowance for loan credit losses of $ 60,195 at March 31, 2023 and $ 56,824 at December 31, 2022

9,986,949 9,868,718

1 unchanged sentence

Interest and dividends receivable 47,342 44,704

Other real estate owned — 106

Premises and equipment, net 126,019 126,705

14 unchanged sentences

Stockholders’ equity:

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

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

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

Preferred stock, $ 0.01 par value, $ 1,000 liquidation preference, 5,000,000 shares authorized, and 57,370 shares issued at both March 31, 2023 and December 31, 2022

Common stock, $ 0.01 par value, 150,000,000 shares authorized, 62,219,644 and 61,877,686 shares issued at March 31, 2023 and December 31, 2022, respectively;

and 59,486,086 and 59,144,128 shares outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,158,007 1,154,821

2 unchanged sentences

Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") ( 5,588 ) ( 6,191 )

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

Treasury stock, 2,733,558 shares at both March 31, 2023 and December 31, 2022

( 69,106 ) ( 69,106 )

8 unchanged sentences

(in thousands, except per share amounts)

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

For the Three Months Ended March 31,

Interest income:

8 unchanged sentences

Net interest income 98,802 84,227

Credit loss expense (benefit) 1,016 ( 3,179 ) 4,121 ( 10,259 )

Net interest income after credit loss expense (benefit) 94,949 80,311 266,868 235,011

Provision for credit losses 3,013 1,851

Net interest income after provision for credit losses 95,789 82,376

Other income:

2 unchanged sentences

Fees and service charges 5,159 3,060

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

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

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

Net gain on sales of loans 20 177

Net loss on equity investments ( 6,801 ) ( 2,786 )

Net loss from other real estate operations — ( 2 )

Income from bank owned life insurance 1,281 2,103

12 unchanged sentences

Amortization of core deposit intangible 1,027 1,210

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

Branch consolidation expense, net 70 402

Merger related expenses 22 1,965

17 unchanged sentences

(in thousands)

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

For the Three Months Ended March 31,

Net income $ 27,899 $ 25,759

Other comprehensive loss:

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

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

Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense o f $ 60 and $ 186 in 2022 and tax expense of $ 66 and $ 209 in 2021)

Other comprehensive income:

Net unrealized gain (loss) on debt securities (net of tax expense of $ 1,766 in 2023 and tax benefit of $ 3,928 in 2022)

5,547 ( 12,372 )

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

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

Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $ 56 in 2023 and $ 65 in 2022)

Unrealized gain on derivative hedges (net of tax expense of $ 131 in 2023)

Reclassification adjustment for losses included in net income (net of tax expense of $ 201 in 2023 and benefit of $ 21 in 2022)

Total other comprehensive income (loss), net of tax 6,667 ( 12,349 )

Total comprehensive income 34,566 13,410

3 unchanged sentences

Dividends on preferred shares 1,004 1,004

Comprehensive income available to common stockholders $ 28,204 $ 22,403 $ 54,644 $ 83,052

See accompanying Notes to Unaudited Consolidated Financial Statements.

OceanFirst Financial Corp.

Consolidated Statements of Changes in Stockholders’ Equity

(dollars in thousands, except per share amounts)

For the Three Months Ended September 30, 2022 and 2021

Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

(Loss) Income Employee

Plan Treasury

Stock Non-Controlling Interest Total

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

Net income — — — 24,167 — — — — 24,167

Other comprehensive loss, net of tax — — — — ( 760 ) — — — ( 760 )

Stock compensation — — 1,505 — — — — — 1,505

Allocation of ESOP stock — — 31 — — 305 — — 336

Cash dividend $ 0.17 per share

— — — ( 10,100 ) — — — — ( 10,100 )

Exercise of stock options — — 5 — — — — — 5

Repurchase 460,009 shares of common stock

— — — — — — ( 9,689 ) — ( 9,689 )

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

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

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

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

Other comprehensive loss, net of tax — — — — ( 9,403 ) — — — ( 9,403 )

Stock compensation — — 1,619 — — — — — 1,619

Allocation of ESOP stock — — ( 5 ) — — 606 — — 601

Cash dividend $ 0.20 per share

— — — ( 11,752 ) — — — — ( 11,752 )

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

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

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

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

Total comprehensive income available to common stockholders $ 33,546 $ 12,406

See accompanying Notes to Unaudited Consolidated Financial Statements.

2 unchanged sentences

(dollars in thousands, except per share amounts)

For the Nine Months Ended September 30, 2022 and 2021

For the Three Months Ended March 31, 2023 and 2022

Stock Additional

16 unchanged sentences

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

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

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

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

Net income — — — 27,883 — — — 16 27,899

Other comprehensive loss, net of tax — — — — ( 35,675 ) — — — ( 35,675 )

Other comprehensive income, net of tax — — — — 6,667 — — — 6,667

Stock compensation — — 1,828 — — — — — 1,828

3 unchanged sentences

Exercise of stock options — 1 1,297 ( 690 ) — — — — 608

Repurchase 373,223 shares of common stock

— — — — — — ( 7,396 ) — ( 7,396 )

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

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

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

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

Balance at March 31, 2023 $ 1 $ 613 $ 1,158,007 $ 554,941 $ ( 29,315 ) $ ( 5,588 ) $ ( 69,106 ) $ 818 $ 1,610,371

See accompanying Notes to Unaudited Consolidated Financial Statements.

2 unchanged sentences

(dollars in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash flows from operating activities:

10 unchanged sentences

Net accretion of purchase accounting adjustments ( 1,267 ) ( 3,086 )

Net amortization of deferred costs and discounts on loans 349 606

Provision (benefit) for credit losses 4,121 ( 10,259 )

Net gain on sale of other real estate owned ( 54 ) —

Net amortization of deferred fees/costs and premiums/discounts on loans ( 138 ) 255

Provision for credit losses 3,013 1,851

Net write down of fixed assets held-for-sale to net realizable value — 1,404

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

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

Net gain on sale of fixed assets ( 6 ) —

Net loss on sales of available-for-sale securities 697 —

Net loss on equity investments 6,801 2,786

Net gain on sales of loans ( 20 ) ( 177 )

3 unchanged sentences

Net gain on sale of assets held for sale — ( 1,200 )

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

Deferred tax (benefit) expense ( 66 ) 570

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

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

Increase in interest and dividends receivable ( 2,638 ) ( 747 )

Deferred tax benefit ( 16 ) ( 30 )

Decrease (increase) in other assets 23,221 ( 14,777 )

(Decrease) increase in other liabilities ( 38,834 ) 39,272

Total adjustments ( 3,525 ) 31,885

12 unchanged sentences

Proceeds from sale of equity investments 661 4,579

Principal repayments on debt securities available-for-sale — 114

Principal repayments on debt securities held-to-maturity 24,273 43,213

2 unchanged sentences

Purchases of restricted equity investments ( 64,596 ) ( 30,100 )

Proceeds from sale of other real estate owned 160 —

Proceeds from sales of assets held-for-sale — 4,492

Purchases of premises and equipment ( 2,153 ) ( 7,708 )

Purchases of operating lease equipment ( 4,789 ) —

Net cash consideration received for acquisition 38,609 —

Net cash used in investing activities ( 146,648 ) ( 424,685 )

2 unchanged sentences

(dollars in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash flows from financing activities:

Increase in deposits $ 317,973 $ 323,641

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

Increase (decrease) in short-term borrowings 1,814 ( 987 )

Net proceeds from FHLB advances 135,400 75,002

2 unchanged sentences

Exercise of stock options 608 289

Payment of employee taxes withheld from stock awards ( 1,473 ) ( 1,176 )

Payment of employee taxes withheld from stock awards and phantom stock units ( 2,308 ) ( 1,438 )

Purchase of treasury stock — ( 2,144 )

Dividends paid ( 12,759 ) ( 10,997 )

Distributions to non-controlling interest ( 582 ) —

Net cash provided by financing activities 450,521 353,433

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

Net increase (decrease) in cash and due from banks and restricted cash 328,247 ( 13,608 )

Cash and due from banks and restricted cash at beginning of period 167,986 224,784

15 unchanged sentences

Transfer of premises and equipment to assets held-for-sale — 2,776

Non-cash assets acquired:

Other current assets $ 238 $ —

Premises and equipment 18 —

Right of use (“ROU”) asset 779 —

Other assets 81 —

Total non-cash assets acquired $ 1,116 $ —

Liabilities assumed:

Lease liability $ 779 $ —

Other liabilities 43,937 —

Total liabilities assumed $ 44,716 $ —

See accompanying Notes to Unaudited Consolidated Financial Statements.

4 unchanged sentences

the accounts of OceanFirst Financial Corp.

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

(the “Company”);

its wholly-owned subsidiaries, OceanFirst Bank N.A.

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

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

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

and a majority controlling interest in Trident Abstract Title Agency, LLC (“Trident”).

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

1 unchanged sentence

The interim consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented.

The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results of operations that may be expected for the full year 2022 or any other period.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results of operations that may be expected for the full year 2023 or any other period.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and the results of operations for the periods presented.

25 unchanged sentences

Premises and equipment 18

ROU asset 779

Right-of-use (“ROU”) asset 779

Other assets 81

8 unchanged sentences

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

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

As of December 31, 2022, the Company finalized its review of the acquired assets and liabilities and did not record any further adjustments to the carrying value.

OceanFirst Financial Corp.

1 unchanged sentence

Earnings per Share

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

The following reconciles shares outstanding for basic and diluted earnings per share for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Weighted average shares outstanding 59,291 59,303

5 unchanged sentences

Average diluted shares outstanding 58,918 58,943

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

For the three and nine months ended September 30, 2021, antidilutive stock options of 1,573,000 and 1,566,000 , respectively, were excluded from the earnings per share calculation.

For the three months ended March 31, 2023 and 2022, antidilutive stock options of 852,000 and 904,000 , respectively, were excluded from the earnings per share calculation.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The amortized cost, estimated fair value, and allowance for securities credit losses of debt securities available-for-sale and held-to-maturity at September 30, 2022 and December 31, 2021 are as follows (in thousands):

The amortized cost, estimated fair value, and allowance for securities credit losses of debt securities available-for-sale and held-to-maturity at March 31, 2023 and December 31, 2022 are as follows (in thousands):

Losses Estimated

Value Allowance for Credit Losses

At September 30, 2022

At March 31, 2023

Debt securities available-for-sale:

31 unchanged sentences

Total debt securities $ 1,727,968 $ 1,245 $ ( 161,524 ) $ 1,567,689 $ ( 1,128 )

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

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

In addition, the asset-backed securities, which are largely comprised of collateralized-loan obligations, and the corporate debt securities were also impacted by credit spread widening across the fixed income markets.

All of these securities are rated investment grade.

There was no allowance for securities credit losses on debt securities available-for-sale at March 31, 2023 or December 31, 2022.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

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

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

2022 2021 2022 2021

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

Allowance for securities credit losses

Beginning balance $ ( 1,128 ) $ ( 1,467 )

Credit loss benefit 59 106 233 212

Provision for credit loss benefit 85 87

Total ending allowance balance $ ( 1,043 ) $ ( 1,380 )

2 unchanged sentences

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 September 30, 2022, aggregated by credit quality indicator, are as follows (in thousands):

Under this approach, the amortized cost of debt securities held-to-maturity at March 31, 2023, aggregated by credit quality indicator, are as follows (in thousands):

Investment Grade Non-Investment Grade/Non-rated Total

As of September 30, 2022

As of March 31, 2023

State, municipal and sovereign debt obligations $ 254,311 $ — $ 254,311

4 unchanged sentences

The securities transferred had an unrealized net loss of $ 209,000 and $ 13.3 million at the time of transfer in 2021 and 2013, respectively, which continues to be reflected in accumulated other comprehensive loss on the Consolidated Statement of Financial Condition, net of subsequent amortization, which is being recognized over the life of the securities.

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

September 30, December 31,

The carrying value of debt securities held-to-maturity at March 31, 2023 and December 31, 2022 is as follows (in thousands):

March 31, December 31,

Amortized cost $ 1,248,630 $ 1,224,564

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

Allowance for securities credit losses ( 1,043 ) ( 1,128 )

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

Accretion of net unrealized loss on securities reclassified as held-to-maturity 11,393 11,258

Carrying value $ 1,245,424 $ 1,221,138

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

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

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

September 30, 2022 Amortized

There was $ 697,000 and $ 87,000 of realized losses on sale of debt securities available-for-sale for the three months ended March 31, 2023 and 2022, respectively.

These realized losses on debt securities are presented within Other under Total other income of the Consolidated Statements of Income.

The amortized cost and estimated fair value of debt securities at March 31, 2023 by contractual maturity are shown below (in thousands):

March 31, 2023 Amortized

Cost Estimated

7 unchanged sentences

Actual maturities may differ from contractual maturities in instances where issuers have the right to call or prepay obligations with or without call or prepayment penalties.

At September 30, 2022, corporate debt securities, state and municipal obligations, and asset-backed securities with an amortized cost of $ 56.0 million, $ 75.0 million, and $ 296.2 million , respectively, and an estimated fair valu e of $ 52.7 million, $ 68.7 million, and $ 274.9 million , respectively, were callable prior to the maturity date.

At March 31, 2023, corporate debt securities, state and municipal obligations, and asset-backed securities with an amortized cost of $ 60.4 million, $ 80.3 million, and $ 296.2 million, respectively, and an estimated fair value of $ 56.1 million, $ 76.7 million, and $ 281.8 million, respectively, were callable prior to the maturity date.

Mortgage-backed securities are excluded from the above table since their effective lives are expected to be shorter than the contractual maturity date due to principal prepayments.

The estimated fair value of securities pledged for the ability to draw on FHLB advances, access to the Federal Reserve discount window, and other borrowings and for other purposes required by law amounted to $ 866.5 million and $ 1.14 billion at September 30, 2022 and December 31, 2021, respectively, which included $ 105.5 million and $ 142.9 million at September 30, 2022 and December 31, 2021, respectively, pledged as collateral for securities sold under agreements to repurchase.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The estimated fair value and unrealized losses for debt securities available-for-sale and held-to-maturity at September 30, 2022 and December 31, 2021, segregated by the duration of the unrealized losses, are as follows (in thousands):

The estimated fair value and unrealized losses for debt securities available-for-sale and held-to-maturity at March 31, 2023 and December 31, 2022, segregated by the duration of the unrealized losses, are as follows (in thousands):

Less than 12 months 12 months or longer Total

4 unchanged sentences

Value Unrealized

At September 30, 2022

At March 31, 2023

Debt securities available-for-sale:

29 unchanged sentences

Total debt securities $ 669,487 $ ( 39,222 ) $ 812,090 $ ( 122,302 ) $ 1,481,577 $ ( 161,524 )

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

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The Company concluded that debt securities were not impaired at March 31, 2023 based on a consideration of several factors.

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

2 unchanged sentences

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.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

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 securities sales.

Equity Investments

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

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

The realized and unrealized gains or losses on equity securities for the three and nine months ended September 30, 2022 and 2021 are shown in the table below (in thousands):

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

2022 2021 2022 2021

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

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

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

At March 31, 2023 and December 31, 2022, the Company held equity investments of $ 101.0 million and $ 102.0 million, respectively.

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

The realized and unrealized gains or losses on equity securities for the three months ended March 31, 2023 and 2022 are shown in the table below (in thousands):

Three Months Ended March 31,

Net loss on equity investments $ ( 6,801 ) $ ( 2,786 )

Net (losses) gains recognized on equity investments sold ( 4,608 ) 1,582

Unrealized losses recognized on equity investments still held $ ( 2,193 ) $ ( 4,368 )

OceanFirst Financial Corp.

1 unchanged sentence

Loans Receivable, Net

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

September 30, December 31,

Loans receivable, net at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):

March 31, December 31,

Commercial real estate – investor $ 5,296,661 $ 5,171,952

1 unchanged sentence

Commercial and industrial 622,201 622,372

652,620 449,224

Total commercial 6,905,228 6,791,691

6 unchanged sentences

Total loans receivable, net $ 9,986,949 $ 9,868,718

(1) The commercial and industrial loans balance at September 30, 2022 and December 31, 2021 includes Paycheck Protection Program (“PPP”) loans of $ 3.0 million and $ 22.9 million, respectively.

The Company categorizes all loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:

15 unchanged sentences

2023 2022 2021 2020 2019 2018 and prior Revolving lines of credit Total

September 30, 2022

March 31, 2023

Commercial real estate - investor

58 unchanged sentences

Notes to Unaudited Consolidated Financial Statements (Continued)

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

An analysis of the allowance for credit losses on loans for the three months ended March 31, 2023 and 2022 was as follows (in thousands):

Real Estate –

4 unchanged sentences

Real Estate Other Consumer Total

For the three months ended September 30, 2022

Allowance for credit losses on loans

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

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

Charge-offs ( 3 ) — — — ( 2 ) ( 5 )

Recoveries 3 48 69 44 93 257

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

For the three months ended September 30, 2021

Allowance for credit losses on loans

Balance at beginning of period $ 33,037 $ 6,350 $ 4,404 $ 8,818 $ 1,267 $ 53,876

Credit loss (benefit) expense ( 9,902 ) 515 1,962 3,081 235 ( 4,109 )

Charge-offs — ( 64 ) ( 50 ) ( 12 ) ( 37 ) ( 163 )

Recoveries 5 26 50 292 176 549

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

For the nine months ended September 30, 2022

For the three months ended March 31, 2023

Allowance for credit losses on loans

Balance at beginning of period $ 21,070 $ 4,423 $ 5,695 $ 24,530 $ 1,106 $ 56,824

Credit loss (benefit) expense ( 2,865 ) ( 2,003 ) 720 8,612 ( 128 ) 4,336

Provision (benefit) for credit losses 1,379 ( 304 ) 131 2,390 ( 272 ) 3,324

Charge-offs (1)

— ( 6 ) ( 3 ) — ( 1 ) ( 10 )

Recoveries 2 3 4 8 40 57

Balance at end of period $ 22,451 $ 4,116 $ 5,827 $ 26,928 $ 873 $ 60,195

For the nine months ended September 30, 2021

For the three months ended March 31, 2022

Allowance for credit losses on loans

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

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

(Benefit) provision for credit losses ( 1,867 ) ( 840 ) ( 406 ) 5,028 ( 259 ) 1,656

Charge-offs — ( 4 ) — — ( 139 ) ( 143 )

1 unchanged sentence

Balance at end of period $ 23,637 $ 5,053 $ 4,649 $ 16,277 $ 982 $ 50,598

(1) Gross charge-offs for the three months ended March 31, 2023, related to loans that originated prior to 2018.

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral and, therefore, is classified as non-accruing.

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

commercial real estate - investor of $ 3.9 million and $ 3.6 million, respectively, commercial real estate - owner occupied of $ 2.0 million and $ 11.9 million, respectively, and commercial and industrial of $ 321,000 and $ 277,000 , respectively.

In addition, the Company had residential and consumer loans collateralized by residential real estate, which are in the process of foreclosure, with an amortized cost balance of $ 1.1 million and $ 438,000 at September 30, 2022 and December 31, 2021, respectively.

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

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

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

September 30, December 31,

At March 31, 2023 and December 31, 2022, the Company had collateral dependent loans with an amortized cost balance as follows:

commercial real estate - investor of $ 7.8 million and $ 4.6 million, respectively, commercial real estate - owner occupied of $ 251,000 and $ 4.0 million, respectively, and commercial and industrial of $ 141,000 and $ 160,000 , respectively.

In addition, the Company had residential and consumer loans collateralized by residential real estate, which are in the process of foreclosure, with an amortized cost balance of $ 1.5 million and $ 858,000 at March 31, 2023 and December 31, 2022, respectively.

The following table presents the recorded investment in non-accrual loans, by loan portfolio segment as of March 31, 2023 and December 31, 2022 (in thousands):

March 31, December 31,

Commercial real estate – investor $ 13,643 $ 10,483

4 unchanged sentences

$ 22,437 $ 23,265

At September 30, 2022 and December 31, 2021, the non-accrual loans were included in the allowance for credit loss calculation and the Company did not recognize or accrue interest income on these loans.

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

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

At March 31, 2023 and December 31, 2022, 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 March 31, 2023, there were no loans that were past due 90 days or greater and still accruing interest.

At December 31, 2022, there was one Paycheck Protection Program (“PPP”) loan for $ 14,000 that was past due 90 days or greater 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.

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

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The following table presents the aging of the recorded investment in past due loans as of March 31, 2023 and December 31, 2022 by loan portfolio segment (in thousands):

Past Due 60-89

2 unchanged sentences

Past Due Total

September 30, 2022

March 31, 2023

Commercial real estate – investor $ 634 $ 50 $ 6,983 $ 7,667 $ 5,288,994 $ 5,296,661

11 unchanged sentences

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

The Company classifies certain loans as troubled debt restructuring (“TDR”) loans 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 Bank retains its security interest in the real estate collateral.

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

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

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

At December 31, 2021, the Company had no specific reserves allocated to loans that were classified as TDR loans.

The Company modified certain loans to borrowers experiencing financial difficulty.

These modifications may have included a reduction in interest rate, an extension in term, principal forgiveness and/or other than insignificant payment delay.

At March 31, 2023, loans with modifications to borrowers experiencing financial difficulty totaled $ 475,000 , which included residential real estate of $ 435,000 and other consumer of $ 40,000 .

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

Of the $ 475,000 of loans with modifications to borrowers experiencing financial difficulty, $ 337,000 were current, and one loan for $ 138,000 was 30 days past due (which became current subsequent to March 31, 2023).

No loans that were modified to borrowers experiencing financial difficulty since adoption had a payment default during the three months ended March 31, 2023.

Prior to the adoption of ASU 2022-02 on January 1, 2023, the Company classified certain loans as troubled debt restructuring (“TDR”) loans when credit terms to a borrower in financial difficulty were modified, in accordance with ASC 310-40.

With the adoption of ASU 2022-02 as of January 1, 2023, the Company has ceased to recognize or measure for new TDRs but those existing at December 31, 2022 will remain until settled.

At March 31, 2023 and December 31, 2022, TDR loans totaled $ 13.7 million and $ 13.9 million, respectively.

At March 31, 2023 and December 31, 2022, there were $ 6.3 million and $ 6.4 million, respectively, of TDR loans included in the non-accrual loan totals.

At March 31, 2023 and December 31, 2022 the Company had $ 513,000 and $ 590,000 , respectively, of specific reserve allocated to one loan that was classified as a TDR loan.

Non-accrual loans which become TDR loans are generally returned to accrual status after six months of performance.

In addition to the TDR loans included in non-accrual loans, the Company also has TDR loans classified as accruing loans, which totaled $ 6.1 million and $ 12.3 million at September 30, 2022 and December 31, 2021, respectively.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

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

In addition to the TDR loans included in non-accrual loans, the Company also has TDR loans classified as accruing loans, which totaled $ 7.4 million and $ 7.5 million at March 31, 2023 and December 31, 2022, respectively.

The following table presents information about TDR loans which occurred during the three months ended March 31, 2022 (dollars in thousands):

Number of Loans Pre-modification

1 unchanged sentence

Recorded Investment

Three months ended September 30, 2022

Troubled debt restructurings:

Other consumer 3 $ 114 $ 124

Three months ended September 30, 2021

Troubled debt restructurings:

Commercial real estate - owner occupied 1 $ 93 $ 110

Nine months ended September 30, 2022

Three months ended March 31, 2022

Troubled debt restructurings:

1 unchanged sentence

Other consumer 3 991 1,109

Nine months ended September 30, 2021

Troubled debt restructurings:

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

Commercial real estate - owner occupied 1 93 110

Residential real estate 3 244 336

Other consumer 2 26 33

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

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

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

Type of Account September 30, December 31,

There were no TDR loans that defaulted during the three months ended March 31, 2023 and 2022, which were modified within the preceding year.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The major types of deposits at March 31, 2023 and December 31, 2022 were as follows (in thousands):

Type of Account March 31, December 31,

Non-interest-bearing $ 1,984,197 $ 2,101,308

4 unchanged sentences

Total deposits $ 9,993,095 $ 9,675,206

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

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

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Included in time deposits at March 31, 2023 and December 31, 2022 was $ 257.1 million and $ 117.7 million, respectively, in deposits of $250,000 or more.

Time deposits also include brokered deposits of $ 1.24 billion and $ 873.4 million at March 31, 2023 and December 31, 2022, respectively.

Borrowed Funds

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

September 30, December 31,

Borrowed funds at March 31, 2023 and December 31, 2022 were as follows (in thousands):

March 31, December 31,

FHLB advances $ 1,346,566 $ 1,211,166

2 unchanged sentences

Total borrowed funds $ 1,613,167 $ 1,475,666

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

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

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

The Company had no FHLB overnight advances or borrowings from the Federal Reserve Bank (“FRB”) Discount Window or Bank Term Funding Program at March 31, 2023 and December 31, 2022.

Pledged assets

The following table presents the assets pledged to secure borrowings, borrowing capacity, repurchase agreements, letters of credit, and for other purposes required by law at carrying value (in thousands):

Loans Debt securities Total

March 31, 2023

FHLB and FRB $ 7,052,912 $ 1,120,068 $ 8,172,980

Repurchase agreements — 75,859 75,859

Total pledged assets $ 7,052,912 $ 1,195,927 $ 8,248,839

December 31, 2022

FHLB and FRB $ 6,487,980 $ 830,057 $ 7,318,037

Repurchase agreements — 105,294 105,294

Total pledged assets $ 6,487,980 $ 935,351 $ 7,423,331

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.

OceanFirst Financial Corp.

32 unchanged sentences

Fair value for these investments is primarily determined using a quoted price in an active market or exchange (Level 1) or using inputs other than quoted prices that are based on market observable information (Level 2).

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

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 (measurement alternative).

Certain equity investments without readily

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

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

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

1 unchanged sentence

When entering into an interest rate swap or cap contract, the Company is exposed to fair value changes due to interest rate movements, and also the potential nonperformance of the contract counterparty.

Other Real Estate Owned and Loans Individually Measured for Impairment

Other real estate owned and loans measured for impairment based on the fair value of the underlying collateral are recorded at estimated fair value, less estimated selling costs.

Loans Individually Measured for Impairment

Loans measured for impairment based on the fair value of the underlying collateral are recorded at estimated fair value, less estimated selling costs.

Fair value is based on independent appraisals (Level 3).

The following table summarizes financial assets and financial liabilities measured at fair value as of September 30, 2022 and December 31, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

The following table summarizes financial assets and financial liabilities measured at fair value as of March 31, 2023 and December 31, 2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

Fair Value Measurements at Reporting Date Using:

2 unchanged sentences

Inputs Level 3

September 30, 2022

March 31, 2023

Items measured on a recurring basis:

20 unchanged sentences

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)

9,635 — — 9,635

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

(1) As of March 31, 2023 and December 31, 2022, primarily consists of $ 43.6 million and $ 37.1 million, respectively, of equity investments measured under the measurement alternative.

This included no unrealized gains or losses for the three months ended March 31, 2023 as a result of observable price changes in the investment and $ 20.0 million of unrealized gains for the year ended December 31, 2022.

(2) As of March 31, 2023 and December 31, 2022, equity investments of $ 46.6 million and $ 40.1 million, respectively, included $ 3.0 million for both periods, 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.

3 unchanged sentences

Notes to Unaudited Consolidated Financial Statements (Continued)

The following table reconciles, for the three and nine months ended September 30, 2022 and 2021, the beginning and ending balances for equity investments that are recognized at fair value on a recurring basis, in the Consolidated Statements of Financial Condition, using significant unobservable inputs (in thousands):

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

2022 2021 2022 2021

The following table reconciles the beginning and ending balances for equity investments that are recognized at fair value on a recurring basis, in the Consolidated Statements of Financial Condition, using significant unobservable inputs (in thousands):

For the Three Months Ended March 31,

Beginning balance $ 2,718

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

Transfers out of Level 3 ( 2,718 )

1 unchanged sentence

The Company recognizes transfers between levels of the valuation hierarchy at the end of the applicable reporting periods.

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

During the nine months ended September 30, 2022, the Company executed its right to convert $ 2.7 million of preferred stock into common stock, which resulted in a transfer from Level 3 into Level 1.

There were no transfers into or out of Level 3 assets and liabilities in the fair value hierarchy for the three and nine months ended September 30, 2021.

There were no assets in Level 3 that were recognized at fair value on a recurring basis or transfers into or out of Level 3 for the three months ended March 31, 2023.

During the three months ended March 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.

Assets and Liabilities Disclosed at Fair Value

11 unchanged sentences

Management reviews this documentation, makes inquiries of the third-party pricing service and decides as to the level of the valuation inputs.

Based on the Company’s review of the available documentation from the third-party pricing service, management concluded that Level 2 inputs were utilized for all securities except for certain state and municipal obligations, known as bond anticipation notes, as well as certain debt securities where management utilized Level 3 inputs, such as broker or dealer quotes with limited levels of activity and price transparency.

Based on the Company’s review of the available documentation from the third-party pricing service, management concluded that Level 2 inputs were utilized for all securities except for certain debt securities where management utilized Level 3 inputs, such as broker or dealer quotes with limited levels of activity and price transparency.

Restricted Equity Investments

7 unchanged sentences

The fair value of loans was measured using the exit price notion.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Deposits Other than Time Deposits

The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, and interest-bearing checking accounts and money market accounts is, by definition, equal to the amount payable on demand.

The related insensitivity of the majority of these deposits to interest rate changes creates a significant inherent value which is not reflected in the fair value reported.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

insensitivity of the majority of these deposits to interest rate changes creates a significant inherent value which is not reflected in the fair value reported.

Time Deposits

3 unchanged sentences

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.

The book value and estimated fair value of the Company’s significant financial instruments not recorded at fair value as of September 30, 2022 and December 31, 2021 are presented in the following tables (in thousands):

The book value and estimated fair value of the Company’s significant financial instruments not recorded at fair value as of March 31, 2023 and December 31, 2022 are presented in the following tables (in thousands):

Fair Value Measurements at Reporting Date Using:

2 unchanged sentences

Inputs Level 3

September 30, 2022

March 31, 2023

Financial Assets:

17 unchanged sentences

Time deposits 1,542,020 — 1,504,601 —

Other borrowings 229,141 — 251,491 —

FHLB advances and other borrowings 1,406,569 — 1,416,384 —

Securities sold under agreements to repurchase with customers 69,097 69,097 — —

1 unchanged sentence

These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.

Because a limited market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience,

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

current economic conditions, risk characteristics of various financial instruments and other significant unobservable inputs.

Because a limited market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other significant unobservable inputs.

These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision.

Changes in assumptions could significantly affect the estimates.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

3 unchanged sentences

Notes to Unaudited Consolidated Financial Statements (Continued)

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 its 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.

4 unchanged sentences

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

The notional amount of derivatives not designated as hedging instruments was $ 1.30 billion and $ 938.7 million at September 30, 2022 and December 31, 2021, respectively.

The table below presents the fair value of derivatives not designated as hedging instruments as well as their location on the consolidated statements of financial condition (in thousands):

Balance Sheet Location September 30, December 31,

Other assets $ 122,605 $ 22,787

Other liabilities 122,618 22,855

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 losses of $ 22,000 and gains of $ 37,000 in commercial loan swap income resulting from the fair value adjustment for the three months ended March 31, 2023 and 2022, respectively.

Derivatives Designated as Hedging Instruments

During the fourth quarter of 2022, the Company entered into a three-year 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 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 (interest income).

Therefore a portion of the balance reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income as interest payments are made or received on the Company’s interest rate swaps.

The table below presents the effect on the Company’s accumulated other comprehensive income/loss (“AOCI” or “AOCL”) attributable to the cash flow hedge derivative, net of tax, and the related gains/(losses) reclassified from AOCI into income (in thousands):

For the Three Months Ended March 31,

AOCL balance at beginning of period, net of tax $ ( 25 )

Unrealized gains recognized in OCI 412

Losses reclassified from AOCI into interest income 101

AOCI balance at end of period, net of tax $ 488

During the next twelve months, the Company estimates that an additional $ 640,000 will be reclassified as a reduction to interest income.

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

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 March 31, 2023

Derivatives Not Designated as Hedging Instruments

Interest rate swaps and cap contracts $ 1,456,913 $ 91,659 $ 91,701

Derivatives Designated as Cash Flow Hedge

Interest rate swap contract 100,000 643 —

Total Derivatives $ 1,556,913 $ 92,302 $ 91,701

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

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 $ 40,000 and $ 19.8 million at September 30, 2022 and December 31, 2021, respectively.

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

The amount of collateral posted with third parties was $ 40,000 at both March 31, 2023 and December 31, 2022.

The amount of collateral received from third parties was $ 89.0 million and $ 104.5 million at March 31, 2023 and December 31, 2022, respectively.

The amount of collateral posted with third parties and received from third parties is deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures.

The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with third parties was $ 122.6 million and $ 22.9 million at September 30, 2022 and December 31, 2021, respectively.

The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with third parties was $ 91.7 million and $ 113.5 million at March 31, 2023 and December 31, 2022, 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.

OceanFirst Financial Corp.

3 unchanged sentences

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 assets and lease liabilities on the consolidated statements of financial condition (in thousands):

September 30, December 31,

The following table represents the classification of the Company’s ROU assets and lease liabilities on the Consolidated Statements of Financial Condition (in thousands):

March 31, December 31,

Lease ROU Assets Classification

7 unchanged sentences

Total lease liabilities $ 22,957 $ 21,987

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

(1) Operating lease liabilities excludes liabilities for future rent and estimated lease termination payments related to closed branches of $ 7.2 million and $ 7.7 million at March 31, 2023 and December 31, 2022, 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.

As this rate is rarely determinable, the Company utilizes its incremental borrowing rate, at lease inception, over a similar term.

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 not readily determinable, the Company utilizes its incremental borrowing rate, at lease inception, over a similar term.

For operating leases existing prior to January 1, 2019, the Company used the incremental borrowing rate for the remaining lease term as of January 1, 2019.

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

September 30, December 31,

March 31, December 31,

Weighted-Average Remaining Lease Term

7 unchanged sentences

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Lease Expense

10 unchanged sentences

(1) Included in borrowed funds interest expense on the Consolidated Statements of Income.

All other costs are included in occupancy expense.

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

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 were as follows (in thousands):

Finance Lease Operating Leases

For the Twelve Months Ending September 30,

For the Year Ending December 31,

2023 $ 263 $ 3,487

7 unchanged sentences

Total lease liabilities $ 1,873 $ 21,084

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Variable Interest Entity

On April 1, 2022, the Company acquired a 60 % ownership in Trident, and held a variable interest in the entity.

Trident meets the definition of a variable interest entity (“VIE”) under ASC 810, Consolidation, for which the Company is considered the primary beneficiary (i.e.

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).

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For further discussion on the acquisition of Trident refer to Note 2 Business Combinations, to this Form 10-Q.

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

As of September 30, 2022

The summarized financial information for the Company’s consolidated VIE at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):

March 31, 2023 December 31, 2022

Cash and cash equivalents $ 27,557 $ 30,062

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Net assets $ 2,045 $ 2,005

Subsequent Events

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

(“Merger Sub”).

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

On November 9, 2022, the Company and Partners entered into a Mutual Termination Agreement (the “Termination Agreement”) pursuant to which, among other things, the Company and Partners mutually agreed to terminate the Merger Agreement and transactions contemplated thereby, which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 9, 2022.

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

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

OTHER INFORMATION

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 4. Controls and Procedures