What changed in this filing

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Item 1. Business

2024-02-23 compared with 2023-02-24 · 262 added, 173 removed, 565 unchanged (44% of the section changed)

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

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

The Company has been the holding company for the Bank since the Company’s initial public offering.

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

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

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

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

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

The Bank’s primary sources of funds are deposits, principal and interest payments on loans and investments, Federal Home Loan Bank (“FHLB”) advances, other borrowings, and proceeds from the sale of loans and investments.

While scheduled payments on loans and securities are predictable sources of funds, deposit flows, loan prepayments, and loan and investment sales are greatly influenced by interest rates, economic conditions, and competition.

The Bank has other sources of liquidity if a need for additional funds arises, including various lines of credit at multiple financial institutions and access to the Federal Reserve discount window.

The Bank also receives income from other products and services it offers including bankcard services, trust and asset management products and services, deposit account services, and commercial loan swap income.

The Bank’s primary sources of funds are deposits, principal and interest payments on loans and investments, Federal Home Loan Bank (“FHLB”) advances, and other borrowings.

While scheduled payments on loans and securities are predictable sources of funds, deposit flows, loan prepayments, and loan and investment sales are greatly influenced by changes in market interest rates, competition, general economic conditions, including levels of unemployment and real estate values, and inflation.

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

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Risk Factors herein and the following:

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

the impact of the COVID-19 pandemic or any other pandemic on our operations and financial results and those of our customers, changes in interest rates, inflation, general economic conditions, potential recessionary conditions, levels of unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, future natural disasters, potential increases to flood insurance premiums, the current or anticipated impact of military conflict, terrorism or other geopolitical events, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory changes, monetary and fiscal policies of the U.S.

changes in interest rates, inflation, general economic conditions, potential recessionary conditions, levels of unemployment in the Company’s lending area, real estate market values in the Company’s lending area, potential goodwill impairment, natural disasters, potential increases to flood insurance premiums, the current or anticipated impact of military conflict, terrorism or other geopolitical events, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory changes, monetary and fiscal policies of the U.S.

Government including policies of the U.S.

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

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

Treasury and the Board of Governors of the Federal Reserve System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, changes in liquidity, including the size and composition of the Company’s deposit portfolio, including the percentage of uninsured deposits in the portfolio, changes in capital management and balance sheet strategies and the ability to successfully implement such strategies, competition, demand for financial services in the Company’s market area, changes in consumer spending, borrowing and saving habits, changes in accounting principles, a failure in or breach of the Company’s operational or security systems or infrastructure, including cyberattacks, the failure to maintain current technologies, failure to retain or attract employees, the effect of the Company’s rating under the Community Reinvestment Act, the impact of pandemics on our operations and financial results and those of our customers and the Bank’s ability to successfully integrate acquired operations.

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

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Market Area and Competition

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

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

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

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

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

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

At December 31, 2023, the Bank primarily operated its business through its headquarters located in Toms River, New Jersey, and its administrative office located in Red Bank, New Jersey.

The Bank also conducts its business at 39 branch offices and various deposit production facilities located throughout central and southern New Jersey and the greater metropolitan areas of New York City and Philadelphia.

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

One of the largest and oldest financial institutions in New Jersey, the Bank’s headquarters are approximately midway between New York City and Philadelphia.

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

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

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

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

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

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

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

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

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

Its most direct competition for deposits has historically come from commercial banks, savings banks, savings and loan associations, and credit unions.

The Bank also faces competition for deposits from short-term money market funds, other corporate and government securities funds, internet-only providers, and from other financial service institutions such as brokerage firms and insurance companies.

The Bank distinguishes itself from large bank competitors with teams of local financial experts in each market providing personalized accounts and extraordinary customer service.

The Bank distinguishes itself from large bank competitors with teams of local financial experts in each market providing personalized accounts, extraordinary customer service and local decision-making.

Community Involvement

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

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

In 2023, the WaveMakers spent nearly 7,000 hours volunteering their time and talents to help neighbors in need and the second annual Bank-wide volunteering event was held in September 2023 with more than 730 employees completing 95 projects for non-profit organization partners in the five states served by the Bank.

The Foundation, established in 1996 during the Company’s initial public offering, has granted over $48.1 million to enrich the lives of local citizens by supporting initiatives in health and human services, education, affordab le housing, youth development, and the arts.

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At December 31, 2023, the Bank had total loans outstanding of $10.20 billion, of which $6.30 billion, or 61.8% of total loans, were commercial real estate, multi-family, and land loans (collectively, “commercial real estate”).

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

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

The remainder of the portfolio consisted of $666.5 million of commercial and industrial loans, or 6.5% of total loans;

$2.98 billion of residential real estate loans, or 29.3% of total loans;

and $250.7 million of consumer loans, primarily home equity loans and lines of credit, or 2.5% of total loans.

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

At December 31, 2023, the Bank had $5.2 million of loans held-for-sale.

Additionally, at December 31, 2023, 44.2% of the Bank’s total loans had adjustable interest rates.

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

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Total loans receivable, net $ 10,136,721

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

The following table sets forth at December 31, 2023, the dollar amount of total loans receivable, contractually due after December 31, 2024, and whether such loans have fixed or adjustable interest rates:

Due After December 31, 2024

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Commercial Real Estate .

Th e Bank originates commercial real estate loans that are secured by properties, or properties under construction, that are generally used for business purposes such as office, industrial, or retail facilities.

A substantial majority of the Bank’s commercial real estate loans are located in its primary market area.

The Bank generally originates commercial real estate loans with terms of up to ten years and amortization schedules up to 30 years with fixed or adjustable rates.

Fixed-rate loans typically contain prepayment penalties over an initial term.

Additionally, the B ank offers an interest rate swap program that allows commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement.

In reaching its decision on whether to make a commercial real estate loan, the Bank considers the net operating income of the property and the borrower’s expertise, credit history, and profitability, among other factors.

At December 31, 2023, the Bank’s total commercial real estate loans outstanding were $6.30 billion, or 62% of total loans, as compared to $6.17 billion, or 62% of total loans at December 31, 2022.

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

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

Th e Bank originates commercial real estate loans that are secured by properties, or properties under construction, that are generally used for busin ess purposes such as office, industrial, multi-family or retail facilities.

Commercial real estate loans are provided on owner-occupied properties and on investor-owned properties.

Of the total commercial real estate portfolio, $5.35 billion or 85.0% is considered investor-owned and $943.9 million or 15.0% is considered owner-occupied.

A substantial majority of the Bank’s commercial real estate loans are located in its primary market area.

The following tables present total commercial real estate loans by industry and geography (generally based on location of collateral) as of December 31, 2023:

Investor Owned Owner Occupied Total

(dollars in thousands) Amount Percent of Total Amount Percent of Total Amount Percent of Total

Office $ 1,105,988 24 % $ 156,068 17 % $ 1,262,056 22 %

Retail 1,082,486 23 127,189 13 1,209,675 21

Multi-family 903,258 19 5,843 1 909,101 16

Industrial/warehouse 703,590 15 162,285 17 865,875 15

Hospitality 138,809 3 62,044 7 200,853 4

758,617 16 430,462 46 1,189,079 21

Total $ 4,692,748 100 % $ 943,891 100 % $ 5,636,639 100 %

Construction 661,226 661,226

Total commercial real estate $ 5,353,974 $ 6,297,865

(1) Includes co-operatives, single purpose, stores and some living units / mixed use, investor owned 1-4 family, land / development, and other.

Investor Owned Owner Occupied Total

(dollars in thousands) Amount Percent of Total Amount Percent of Total Amount Percent of Total

New Jersey $ 1,180,150 25 % $ 464,610 49 % $ 1,644,760 29 %

New York 1,556,007 33 121,373 13 1,677,380 30

Pennsylvania and Delaware 1,244,283 27 239,606 25 1,483,889 26

Maryland and District of Columbia 150,094 3 26,423 3 176,517 3

Massachusetts 123,789 3 — — 123,789 2

Other 438,425 9 91,879 10 530,304 9

Total $ 4,692,748 100 % $ 943,891 100 % $ 5,636,639 100 %

Construction 661,226 661,226

Total commercial real estate $ 5,353,974 $ 6,297,865

The Bank originates commercial real estate loans with adjustable rates and with fixed interest rates for a period that generally does not exceed ten years, and generally have an amortization schedule up to 25 years and up to 30 years for multi-family properties.

As a result, the typical amortization schedule will result in a substantial principal payment upon maturity.

The Bank generally underwrites investor commercial real estate loans to a maximum of 65% to 80% advance, and owner occupied real estate loans to a maximum of 70% to 80% advance, depending on the asset class, against either the appraised value of the property or its purchase price (for loans to fund the acquisition of real estate), whichever is less.

The Bank generally requires minimum debt service coverage of 1.20x to 1.50x for investor real estate and 1.25x to 1.40x for owner occupied real estate, depending on the asset class.

There is a potential risk that the borrower may be unable to pay off or refinance the outstanding balance at the loan maturity date.

The Bank typically lends in its primary markets to experienced owners or developers who have knowledge and expertise in the commercial real estate market.

The Bank performs extensive due diligence in underwriting commercial real estate loans due to the larger loan amounts and the riskier nature of such loans.

The Bank assesses and mitigates the risk in several ways, including inspection of all such properties and the review of the overall financial condition of the borrower and guarantors, which include, for example, the review of the rent rolls and applicable leases/lease terms and conditions and the verification of income.

A tenant analysis and market analysis are part of the underwriting.

Financial statements are also required annually for review.

With respect to investor commercial real estate loans, rent rolls are also required annually in addition to financial statements.

Generally, commercial real estate loans are supported by full or partial personal guarantees by the principals.

Generally, for commercial real estate loans secured in excess of $750,000 and for all other commercial real estate loans where it is deemed appropriate, the Bank requires environmental professionals to inspect the property and ascertain any potential environmental risks.

In accordance with regulatory guidelines, the Bank requires a full independent appraisal for commercial real estate properties for loans in excess of $500,000.

The appraiser must be selected from the Bank’s approved appraiser list.

The Bank uses an independent third party to review all applicable property appraisals to ensure compliance with regulations.

The Bank also originates multi-family family mortgage loans and, to a lesser extent, land loans The underwriting standards and procedures that are used to underwrite commercial real estate loans are used to underwrite multi-family loans, except the loan-to-value ratio generally do not exceed 75% of the appraised value of the property, the debt-service coverage is generally a minimum of 1.20x and has an amortization period of up to 30 years may be used.

Additionally, the Bank offers an interest rate swap program that allows commercial loan customers to effectively convert an adjustable-rate commercial loan agreement to a fixed-rate commercial loan agreement.

The Bank simultaneously sells an offsetting back-to-back swap to an investment grade national bank so that it does not retain this fixed-rate risk.

As of December 31, 2023, these back-to-back swaps had a notional amount of $1.42 billion

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

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

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

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

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

The Bank generally underwrites construction loans for a term of three years or less.

The majority of the Bank’s construction loans are floating-rate loans with a maximum 75% loan-to-value ratio for the completed project and a minimum debt-service coverage of 1.0x during the construction period to ensure there is sufficient interest reserve to cover interest payments.

The Bank requires a higher projected debt-service coverage on construction loans (for projects that end up being income producing) and underwrites accordingly.

The expectation is that the underlying project when complete will produce a debt service coverage ratio that is consistent with policy for completed income producing projects.

The Bank may commit to provide permanent mortgage financing on its construction loans on income-producing property.

Construction loans may have greater credit risk due to the dependence on completion of construction and other real estate improvements, as well as the sale or rental of the improved property.

The Bank generally mitigates these risks with (i) requiring an independent appraisal, which includes information on market rents and/or comparable sales for competing projects;

(ii) advances on construction loans are made in accordance with a schedule reflecting the cost of the improvements and performing site inspections to determine if the work has been completed prior to the advance of funds for the project;

and (iii) pre-sale or pre-leasing requirements and phasing of construction.

Commercial real estate loans are among the largest of the Bank’s loans, and may have higher credit risk and lending spreads.

For investor-owned properties, because repayment is often dependent on the successful management of the properties, repayment of commercial real estate loans may be affected by adverse conditions in the real estate market or the economy, the Bank is particularly vigilant of this portfolio.

The Bank believes this portfolio is highly diversified with loans secured by a variety of property types and the portfolio exhibits stable credit quality.

Commercial real estate - investor-owned portfolio composition as of December 31, 2023 is as follows:

At December 31, 2023

(dollars in thousands) Amount Percent of total Weighted Average LTV (1)

Weighted Average

Debt Service Coverage Ratio (2)

Office $ 532,697 11 % 52 % 1.8x

Medical 345,730 7 58 1.9

Credit Tenant 227,561 5 65 1.6

Total Office (3)

1,105,988 24 56 1.8

Retail 1,082,486 23 57 1.6

Multi-family (4)

903,258 19 58 1.6

Industrial/warehouse 703,590 15 51 2.1

Hospitality 138,809 3 50 1.3

758,617 16 47 1.7

Total investor owned 4,692,748 100 % 54 1.7

Construction 661,226

Total CRE investor owned and construction $ 5,353,974

(1) Represents the weighted average of loan balances as of December 31, 2023 divided by their most recent appraisal value, which is generally obtained at the time of origination.

(2) Represents the weighted average of net operating income on the property before debt service divided by the loan’s respective annual debt service based on the most recent credit review of the borrower.

(3) Central business district (“CBD”) exposure represents $123 million, or 11.3%, of the total office loan balanc e.

Office CBD loans had a weighted average LTV of 66% and weighted average debt service coverage ratio of 1.7x.

$82 million, or 75%, of the total office CBD exposure are to credit tenants, life sciences and medical borrowers.

New York City office CBD loans represent 0.12% of the Company’s total assets.

(4) New York City rent-regulated multi-family loans, where the property has more than 50% of its units rent-regulated, represent 0.27% of the Company’s total assets.

(5) Other includes co-operatives, single purpose, stores and some living units / mixed use, investor owned 1-4 family, land / development, and other.

During 2023 a repricing analysis was performed on the vast majority of the commercial real estate – investor owned and construction portfolio, stressing interest rates at 7% while keeping underwritten rents constant, and the results indicated the portfolio continues to service debt without unusual stress at a weighted average of 1.21x.

Commercial and Industrial .

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

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

Additionally, for the year ended December 31, 2023, the Bank purchased $31.9 million of residential real estate loan pools originated by others, related to Community Reinvestment Act (“CRA”) initiatives.

At December 31, 2023, $2.98 billion, or 29.3% of total loans, were residential real estate loans, primarily single family and owner occupied.

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The average size of the Bank’s residential real estate loans, excluding purchased loan pools, was approximately $324,000 at December 31, 2023.

The Bank currently offers several ARM loan programs with interest rates that adjust every one, three, five, or ten years.

The Bank’s ARM loans generally provide for periodic caps of 2% or 3% and an overall cap of 6% on the increase or decrease in the interest rate at any adjustment date and over the life of the loan.

The interest rate on these loans is indexed to the applicable three-, five- or ten-year U.S.

Treasury constant maturity yield, with a repricing margin which ranges generally from 2.75% to 3.50% above the index.

The Bank also offers three-, five-, seven- and ten-year ARM loans which operate as fixed-rate loans for the first three, five, seven, or ten years and then convert to one-year ARM loans for the remainder of the term.

The ARM loans are then indexed to a margin of generally 2.75% to 3.50% above the one-year U.S.

Treasury constant maturity yield.

The Bank currently offers several ARM loan programs with interest rates that adjust between annually to ten years, as well as loans that operate as fixed-rate loans at their onset and later convert to an ARM for the remainder of the term.

These loans have periodic and overall caps on the increase or decrease at any adjustment date and over the life of the loan.

These loans are indexed to an applicable Secured Overnight Financing Rate (“SOFR”) rate or U.S Treasury plus a margin.

The majority of the ARM portfolio is tied to the one-year U.S.

Treasury bill.

Adjustments are generally based on a margin between 2.75% and 3.25%.

Generally, the maximum interest rate on these loans is 6% above the initial interest rate.

Generally, ARM loans pose credit risks different than the risks inherent in fixed-rate loans, primarily because as interest rates rise, the payments of the borrower rise, thereby increasing the potential for delinquency and default.

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The Bank’s fixed-rate mortgage loans are currently made for terms from ten to 30 years.

The Bank generally holds its residential loans for its portfolio, but from time to time may sell a portion of its longer-term, fixed-rate loans after reviewing volume and yield, and after evaluating interest rate risk and capital management considerations.

Servicing rights are generally sold as part of the loan sale.

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

The Bank either holds its residential loans for its portfolio or sells a portion of its fixed-rate and SOFR ARM loans to either government sponsored enterprises, FHLB, Freddie Mac or Fannie Mae, or to a third party aggregator.

During 2023, the Company sold $58.1 million of loans.

In certain instances, servicing rights are required to be retained, otherwise servicing rights may be sold as part of the loan sale.

The retention of fixed-rate mortgage loans may increase the level of interest rate risk exposure of the Bank, as the rates on these

loans will not adjust during periods of rising interest rates and the loans can be subject to substantial increases in prepayments during periods of falling interest rates.

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

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

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

Beginning in 2022, the Bank began originating lines of credit that are fully secured by the cash surrender value of whole life insurance policies.

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

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

The program was implemented in February 2022.

At December 31, 2023, these loans totaled $31.1 million.

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Pursuant to applicable regulations, loans to one borrower generally cannot exceed 15% of the Bank’s unimpaired capital.

Due to the Bank’s acquisition activity, significant portions of the acquired loan portfolios were underwritten according to the underwriting standards and guidelines of the acquired banks.

Due to the Bank’s past acquisitions, significant portions of the acquired loan portfolios were underwritten according to the underwriting standards and guidelines of the acquired banks.

Acquired loans are evaluated under OceanFirst’s credit risk management policies during pre-closing due diligence and during post-closing risk rating reviews.

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

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

The independent firm reviewed over 60% of the outstanding loan balances for the Bank’s commercial real estate and commercial and industrial loans during 2023.

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

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

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

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

If a foreclosure action is instituted and the loan is not brought current, paid in full, or an acceptable workout accommodation is not agreed upon before the foreclosure sale, the real property securing the loan generally is sold at foreclosure.

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

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

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

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

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

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

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

At December 31, 2023 and 2022, the Bank had $106.6 million and $50.8 million of assets classified as Substandard, respectively.

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

Special Mention assets totaled $40.4 million at December 31, 2023, as compared to $48.2 million at December 31, 2022.

The decrease in Special Mention and Substandard assets were primarily due to the improved profitability of borrowers and their ability to service their loans.

The decrease in special mention also included one commercial loan of $14.1 million, which was repaid in full during 2022.

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

The increase in substandard loans was primarily due new downgrades during the year ended December 31, 2023, and to a lesser extent, migrations from special mention, partly offset by payoffs, paydowns and upgrades.

New downgrades of $50.2 million were primarily comprised of five commercial relationships and migrations from special mention of $26.4 million were primarily comprised of two commercial relationships.

The decrease in special mention was primarily due to migrations to substandard noted above, as well as payoffs, paydowns, upgrades and a partial charge-off, which outpaced new downgrades of $32.8 million.

Non-Performing Loans and OREO.

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

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

(“Cape”), Ocean Shore Holding Co.

(“Ocean Shore”), Sun Bancorp, Inc.

(“Sun”), and Capital Bank.

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

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

(“Country Bank”).

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

The Bank’s PCD loans relate to loans acquired from prior bank acquisitions .

PCD loans are accounted for at the purchase price or acquisition date fair value, with an

estimate of expected credit losse s for groups of PCD loans with similar risk characteristics and individual PCD loans without similar characteristics, to arrive at an initial amortized cost basis.

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

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

During 2022, the Company sold its remaining OREO and there was no OREO as of December 31, 2023 and 2022.

At December 31,

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$ 29,548 $ 23,265 $ 25,494

OREO — 106 106

Non-performing assets (1)

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

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

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

The net unamortized credit and PCD marks on these loans, not reflected in the allowance for loan credit losses, were $7.5 million, $11.4 million, and $18.9 million at December 31, 2023, 2022, and 2021, respectively.

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

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

Non-performing loans totaled $29.5 million at December 31, 2023, an increase of $6.3 million as compared to December 31, 2022, primarily due to the addition of a single commercial real estate credit relationship, which was partially charged-off during 2023 and has a remaining exposure of $8.8 million, partly offset by loans that were paid off or returned to accrual status.

Allowance for Credit Losses (“ACL”):

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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 loan ACL.

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

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

At December 31, 2023 and 2022, the Bank’s loan ACL as a percentage of total loans was 0.66% and 0.57%, respectively.

The net unamortized credit and PCD marks on all acquired loans, not reflected in the allowance, was $7.5 million and $11.4 million at December 31, 2023 and 2022, respectively.

The loan ACL as a percent of total non-performing loans was 244.25% at December 31, 2022, an increase from 191.61% in the prior year.

The loan ACL as a percent of total non-performing loans was 227.21% at December 31, 2023, a decrease from 244.25% in the prior year.

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

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Recoveries 311 913 1,492

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

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

Impact of CECL adoption — — 2,701

Initial allowance for credit losses on PCD loans — — 2,639

Net charge-offs (recoveries) 8,382 (340) (461)

Provision (benefit) for credit losses 18,695 7,634 (12,346)

Balance at end of year $ 67,137 $ 56,824 $ 48,850

(1) Commercial real estate charge-offs for the year ended December 31, 2023 of $8.4 million, primarily related to one relationship, which had a partial charge-off of $8.4 million to its estimated realizable value of $8.8 million.

The following table sets forth the net charge-offs/recoveries and the percent of net charge-offs/recoveries by loan category to average net loans outstanding for the periods indicated (dollars in thousands):

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2023 2022 2021

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

Net (recoveries) charge-offs:

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

Net charge-offs (recoveries):

Commercial real estate $ 8,336 0.08 % $ (155) — % $ 205 — %

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Other consumer (15) — 10 — (598) (0.01)

Total net (recoveries) charge-offs (340) — % (461) (0.01) % 18,859 0.23 %

Total net charge-offs (recoveries) 8,382 0.08 % (340) — % (461) (0.01) %

Average net loans outstanding during the year $ 10,016,859 $ 9,323,619 $ 7,921,611

The net charge-offs for the year ended December 31, 2023 was primarily related to the one commercial real estate relationship noted above.

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

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

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

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

The following table sets forth the Bank’s ACL by loan category and its percent to total loan ACL at December 31, 2023, 2022 and 2021, and the percent of loans to total loans in each of the categories listed at the dates indicated (dollars in thousands):

At December 31,

2023 2022 2021

Amount Percent of

ACL Amount Percent of

of Loans to Total

Loans Amount Percent of

Loans ACL Amount Percent of

of Loans to Total

Loans Amount Percent of

Loans ACL Amount Percent of

of Loans to Total

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

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

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

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

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

government and its agencies entail a lesser degree of credit risk than loans made by the Bank and most other securities by virtue of the guarantees that back them;

they require less capital under risk-based capital rules, are generally more liquid, and are more easily used to collateralize borrowings or other obligations of the Bank.

Each of the U.S.

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The weighted average yields on tax-exempt obligations have been computed on a tax-equivalent basis.

Other investments consist of mutual funds that do not have a contractual maturity date and are excluded from the table.

Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

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government and agency obligations $ 11,500 2.43 % $ 40,587 1.20 % $ 14,403 1.50 % $ — — % $ 66,490 $ 60,694

State, municipal, and sovereign debt obligations 18,497 1.76 110,725 1.57 60,734 1.97 70,293 2.34 260,249 235,355

State and municipal debt obligations 18,659 1.78 102,924 1.63 39,774 2.19 60,652 2.83 222,009 207,710

Corporate debt securities (1)

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Total debt securities $ 30,977 2.09 % $ 269,140 2.66 % $ 335,114 4.25 % $ 1,305,716 4.40 % $ 1,940,947 $ 1,822,330

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

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

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

(1) $47.6 million of the Bank’s corporate debt securities carry interest rates which adjust to a spread over SOFR on a quarterly basis.

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

(3) $335.2 million of the Bank’s mortgage-backed securities carry interest rates which generally adjust to a spread over SOFR on a quarterly basis.

Equity Investments .

At December 31, 2023, and 2022, the Company held equity investments of $100.2 million and $102.0 million, respectively.

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

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

Sources of Funds

The Bank’s primary sources of funds are deposits, principal and interest payments on loans and investments, FHLB advances, other borrowings, and proceeds from the sale of loans and investments.

The Bank has other sources of liquidity if a need for additional funds arises, including various lines of credit at multiple financial institutions and access to the Federal Reserve discount window.

The Bank’s primary sources of funds are deposits, principal and interest payments on loans and investments, FHLB advances, and other borrowings.

The Bank has other sources of liquidity if a need for additional funds arises, including various lines of credit at multiple financial institutions, access to the FRB discount window, and the Bank Term Funding Program (“BTFP”).

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

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

The Bank’s deposits are obtained predominantly from the areas in which its branch offices are located.

The Bank’s deposits are obtained predominantly from the areas in which its branch offices are located, and to a lesser extent, through digital service channels.

The Bank relies on its community-banking focus, stressing customer service and long-standing relationships with its customers to attract and retain these deposits;

however, market interest rates and rates offered by competing financial institutions could significantly affect the Bank’s ability to attract and retain deposits.

Despite the result of several bank failures in early 2023 and the related industry-wide concerns including liquidity, and funding, the Company’s deposits increased $759.7 million to $10.43 billion at December 31, 2023 from $9.68 billion in the prior year.

At December 31, 2023 and 2022, the Bank had $5.32 billion and $5.62 billion, respectively, of total uninsured deposits (in excess of the Federal Deposit Insurance Corporation limit).

At those dates, the Bank had no deposits that were otherwise uninsured.

At December 31, 2023 and 2022, this total included $2.31 billion and $2.27 billion, respectively, of collateralized government deposits, $1.42 billion and $1.44 billion of intercompany deposits of fully consolidated subsidiaries, leaving estimated adjusted uninsured deposits of $1.60 billion and $1.91 billion, or 15.2% and 19.6% of total deposits.

At December 31, 2023, the Bank had $412.0 million in time deposits in amounts of $250,000 or more maturing as follows:

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(dollars in thousands)

Interest-bearing checking accounts $ 4,063,716 40.98 % 0.28 % $ 3,878,465 40.21 % 0.35 % $ 3,168,889 35.76 % 0.61 %

Non-interest-bearing accounts $ 1,869,735 18.22 % — % $ 2,319,657 23.40 % — % $ 2,429,547 25.19 % — %

Interest-bearing checking accounts 3,795,502 36.97 1.39 4,063,716 40.98 0.28 3,878,465 40.21 0.35

Money market deposit accounts 794,387 7.74 2.35 764,837 7.72 0.29 769,157 7.98 0.14

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

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

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

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

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

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

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

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

At December 31, 2023, the Bank had $848.6 million of outstanding advances from the FHLB.

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

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At December 31, 2023, the Bank had no borrowings outstanding with the Federal Reserve Bank of Philadelphia.

As of December 31, 2023, the Company pledged $7.26 billion of loans with the FHLB and FRB to enhance the Company’s borrowing capacity, and includes collateral pledged to the FHLB to obtain a municipal letter of credit to collateralize certain government municipal deposits.

At December 31, 2023, the Bank had outstanding municipal letters of credit of $1.30 billion issued by the FHLB used to secure such government deposits.

The Company also pledged $1.15 billion of securities with FHLB and FRB to secure borrowings, enhance borrowing capacity, collateralize its repurchase agreements, and for other purposes required by law.

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

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

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

At December 31, 2023, the Bank had borrowed $73.1 million through securities sold under agreements to repurchase with customers.

The Bank has access to the FRB discount window and the BTFP as additional sources of funds.

As of December 31, 2023 the Bank had no borrowings outstanding with either the FRB discount window or the BTFP.

Recent Acquisitions

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

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

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

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

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

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

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At December 31, 2023, the Bank owned all or a majority interest in three direct subsidiaries:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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OceanFirst Capital Trust I, OceanFirst Capital Trust II, OceanFirst Capital Trust III, Sun Statutory Trust VII, Sun Capital Trust VII, Sun Capital Trust VIII, and Country Bank Statutory Trust I, collectively known as the “Trusts”.

All of the Trusts are incorporated in Delaware and were formed for the issuance of trust preferred securities.

All of the Trusts are incorporated in Delaware and were formed to issue trust preferred securities.

Human Capital

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As of December 31, 2023, the Bank had 857 full-time employees, 42 part-time employees, and 21 commissioned employees, for a total of 920 employees.

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

Approximately 67% of the Bank’s employees are female and 33% are male, and the average tenure was over seven years .

Of the Bank’s managers, 61% are female as of December 31, 2023.

Additionally, 42% of the employees are either Millennial or Generation Z.

Total rewards

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

Social media branding has increased to attract top talent who are seeking careers with employers who are genuinely committed to DEI.

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

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

The Bank must file reports with the OCC and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to consummating certain transactions such as mergers with, or acquisitions of, other insured depository institutions.

The Bank must file reports with the OCC and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to consummating

certain transactions such as mergers with, or acquisitions of, other insured depository institutions.

The OCC conducts periodic examinations to test the Bank’s safety and soundness and compliance with various regulatory requirements.

This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors and to ensure the safe and sound operation of the Bank.

This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the DIF and depositors and to ensure the safe and sound operation of the Bank.

The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate allowance for credit losses for regulatory purposes.

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The CFPB has examination and enforcement authority over all banks with more than $10 billion in assets.

At December 31, 2022, the Bank’s total assets were $13.10 billion and, therefore, the Bank is subject to CFPB supervision and examination of compliance with Federal consumer protection laws.

At December 31, 2023, the Bank’s total assets were $13.54 billion and, therefore, the Bank is subject to CFPB supervision and examination for compliance with specified Federal consumer protection laws.

Additionally, the Dodd-Frank Act includes a series of provisions covering mortgage loan origination standards affecting, among other things, originator compensation, minimum repayment standards and prepayments.

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

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

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

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

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

For the year ended December 31, 2023, the Bank’s revenues from interchange fees were $5.0 million, a decrease of $3.3 million from 2022, due to limitation on debit card interchange fees which became effective for the Company on July 1, 2022.

The 2023 average net interchange fee per transaction was fourteen cents ($0.14), as compared to twenty nine cents ($0.29) in the prior year.

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

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

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

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

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

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The Company is a BHC and is supervised by the FRB and is required to file reports with the FRB and provide such additional information as the FRB may require.

The Company and its subsidiaries are subject to examination by the FRB.

FRB regulations provide that a BHC is expected to act as a source of financial and managerial strength to its subsidiary bank and to commit resources to support the subsidiary bank in circumstances in which it might not do so absent those regulations.

The Company and its non-bank subsidiaries are subject to examination by the FRB.

FRB regulations provide that a BHC is expected to act as a source of financial and managerial strength to its subsidiary bank and to commit resources to support the subsidiary banks in circumstances in which it might not do so absent those regulations.

Holding Company Consolidated Capital Requirements .

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

The FRB has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies.

In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality, and overall financial condition.

Dividends and repurchase of common stock .

The FRB has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by BHCs.

In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the BHC appears consistent with the organization’s capital needs, asset quality, and overall financial condition.

Regulatory pressures to reclassify and charge off loans and to establish additional credit loss reserves can have the effect of reducing current operating earnings and thus impacting an institution’s ability to pay dividends.

Further, regulatory guidance provides for prior regulatory review of capital distributions in certain circumstances such as where the Company’s net income for the past four quarters, net of dividends previously paid over that period is insufficient to fully fund the dividend, the proposed dividend exceeds earnings for the period for which it is being paid, or the Company’s overall rate of earnings retention is inconsistent with the Company’s capital needs and overall financial condition.

The guidance also provides for prior consultation with supervisory staff for material increases in the amount of a banking holding company’s common stock dividend.

The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized.

The policy statement also states that a holding company should inform the FRB supervisory staff prior to redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction in the amount of such instruments outstanding from the beginning of the quarter in which the redemption or repurchase occurred compared with the end of such quarter.

These regulatory policies may affect the ability of the Company to pay dividends, repurchase shares of common stock, or otherwise engage in capital distributions.

Further, regulatory guidance provides for prior regulatory review of capital distributions in certain circumstances such as where the BHC’s net income for the past four quarters, net of dividends previously paid over that period is insufficient to fully fund the dividend, the proposed dividend exceeds earnings for the period for which it is being paid, or the BHC’s overall rate of earnings retention is inconsistent with the BHC’s capital needs and overall financial condition.

The guidance also provides for prior consultation with supervisory staff for material increases in the amount of a

BHC’s common stock dividend.

The ability of a BHC to pay dividends may be restricted if a subsidiary bank becomes undercapitalized.

The policy statement also states that a BHC should inform the FRB supervisory staff prior to redeeming or repurchasing common stock or perpetual preferred stock if the BHC is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction in the amount of such instruments outstanding from the beginning of the quarter in which the redemption or repurchase occurred compared with the end of such quarter.

These regulatory policies may affect the ability of the BHC to pay dividends, repurchase shares of common stock, or otherwise engage in capital distributions.

Acquisition of the Company .

Under the Change in Bank Control Act, no person may acquire control of a bank holding company, such as the Company, unless the FRB has been given 60 days prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquiror and the competitive effects of the acquisition.

Control, as defined for this purpose, means ownership, control of power to vote 25% or more of any class of voting stock.

There is a rebuttable presumption of control upon the acquisition of 10% or more of a class of voting stock if the holding company involved has its shares registered under the Securities Exchange Act of 1934, or if no other persons will own, control or hold the power to vote a greater percentage of that class of voting security after the acquisition.

Under the Change in Bank Control Act, no person may acquire control of a BHC, such as the Company, unless the FRB has been given 60 days prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquiror and the competitive effects of the acquisition.

Control, as defined for this purpose, means ownership, control, or power to vote 25% or more of any class of voting stock.

There is a rebuttable presumption of control upon the acquisition of 10% or more of a class of voting stock if the BHC involved has its shares registered under the Securities Exchange Act of 1934, or if no other persons will own, control or hold the power to vote a greater percentage of that class of voting security after the acquisition.

Financial Holding Company Status

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A financial holding company may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or incidental or complementary to activities that are financial in nature.

Financial in nature activities include securities underwriting, dealing and market making;

Activities that are financial in nature include securities underwriting, dealing and market making;

sponsoring mutual funds and investment companies;

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If any subsidiary bank of a financial holding company ceases to be “well-capitalized” or “well-managed” and fails to correct its condition within the time period that the FRB specifies, the FRB has authority to order the financial holding company to divest its subsidiary banks.

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

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

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

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

For additional information, refer to Regulation of Bank Subsidiary – Community Reinvestment Act and Fair Lending Laws.

Regulation of Bank Subsidiary

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Federal regulations require banks to maintain minimum levels of capital including:

a common equity Tier 1 capital to risk-weighted assets ratio of 4.5%, a Tier 1 capital to risk-weighted assets ratio of 6.0%, a total capital to risk-weighted assets of 8.0%, and a Tier 1 capital to total assets leverage ratio of 4.0%.

a common equity Tier 1 capital to risk-weighted assets ratio of 4.5%, a Tier 1 capital to risk-weighted assets ratio of 6.0%, a total capital to risk-weighted assets ratio of 8.0%, and a Tier 1 capital to total assets leverage ratio of 4.0%.

In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset.

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An institution is classified as well capitalized if:

• its ratio of Tier 1 capital to total assets is at least 5%, and it is not subject to any order or directive by the FDIC to meet a specific capital level;

• its ratio of common equity tier 1 capital to risk-weighted assets is at least 6.5%;

• its ratio to Tier 1 capital to risk-weighted assets is at least 8%;

• its ratio of total capital to risk-weighted assets is at least 10%.

• it has a leverage ratio of 5% or greater;

• it has common equity Tier 1 ratio of 6.5% or greater;

• it has a Tier 1 risk-based capital ratio of 8% or greater;

• it has a total risk-based capital ratio of 10% or greater;

• it is not subject to any written agreement, order or capital directive, or prompt corrective action directive issued by the OCC to meet and maintain a specific capital level for any capital measure.

An institution is classified as adequately capitalized if:

• its ratio of Tier 1 capital to total assets is at least 4%;

• its ratio of common equity tier 1 capital to risk-weighted assets is at least 4.5%;

• its ratio to Tier 1 capital to risk-weighted assets is at least 6%;

• its ratio of total capital to risk-weighted assets is at least 8%.

• it has a leverage ratio of less than 4%;

• it has a common equity Tier 1 ratio of 4.5% or greater;

• it has a Tier 1 risk-based capital ratio of 6%;

• it has a total risk-based capital ratio of 8% or greater.

An institution is classified as undercapitalized if:

• its leverage ratio is less than 4%;

• its ratio of common equity tier 1 capital to risk-weighted assets is less than 4.5%;

• its ratio to Tier 1 risk based capital is at less than 6%;

• its ratio of total capital to risk-weighted assets is at least 8%.

• it has a leverage ratio of less than 4%;

• it has a common equity Tier 1 ratio of less than 4.5%;

• it has a Tier 1 risk-based capital ratio of less than 6%;

• it has a total risk-based capital ratio of less than 8%.

An institution is classified as significantly undercapitalized if:

• its leverage ratio is less than 3%;

• its ratio of common equity tier 1 capital to risk-weighted assets is less than 3%;

• its ratio to Tier 1 risk based capital is at less than 4%;

• its total risk-based capital is less than 6%.

• it has a leverage ratio of less than 3%;

• it has a common equity Tier 1 ratio of less than 3%;

• it has a Tier 1 risk-based capital ratio of less than 4%;

• it has a total risk-based capital ratio of less than 6%.

An institution that has a tangible capital to total assets ratio equal to or less than 2% is deemed to be critically undercapitalized.

The regulations provide that a capital restoration plan must be filed with the OCC within 45 days of the date a national bank receives notice that it is “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized.” Any holding company for the bank required to submit a capital restoration plan must guarantee the lesser of an amount equal to 5.0% of the bank’s assets at the time it was notified or deemed to be undercapitalized by the OCC, or the amount necessary to restore the bank to adequately capitalized status.

The regulations provide that a capital restoration plan must be filed with the OCC within 45 days of the date a national bank receives notice that it is “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized.” Any BHC for the bank required to submit a capital restoration plan must guarantee the lesser of an amount equal to 5.0% of the bank’s assets at the time it was notified or deemed to be undercapitalized by the OCC, or the amount necessary to restore the bank to adequately capitalized status.

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

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

If an “undercapitalized” institution fails to submit an acceptable capital restoration plan, it is treated as “significantly undercapitalized.” “Significantly undercapitalized” institutions must comply with one or more additional restrictions including, but not limited to:

an order by the OCC to sell sufficient voting stock to become adequately capitalized;

a requirement to reduce total assets, cease receipt of deposits from correspondent banks, or dismiss officers or directors;

and limitations on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company.

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

8 unchanged sentences

The FDIC has authority to increase insurance assessments.

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

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

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

3 unchanged sentences

The total deposit insurance assessment expenses incurred in 2023 and 2022 were $9.9 million and $5.9 million, respectively.

The increase in expenses in 2023 was primarily due to the FDIC approval of a final rule to implement a special assessment to recover the loss to the DIF associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.

As a result of this rule, the Bank incurred a special assessment of $1.7 million for the year ended December 31, 2023.

Loans to One Borrower .

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

An additional amount may be lent, equal to

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

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

As of December 31, 2023, the Bank was in compliance with the loans-to-one borrower limitations.

4 unchanged sentences

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

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

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

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

3 unchanged sentences

Assessments .

Banking institutions are required to pay assessments to fund regulatory operations.

Banking institutions are required to pay OCC assessments to fund regulatory operations.

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

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

The assessments paid by the Bank totaled $1.2 million and $1.4 million, respectively, for the years ended December 31, 2023 and 2022.

Transactions with Related Parties .

1 unchanged sentence

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

The aggregate amount of covered transactions with all affiliates is limited to 20% of the bank’s capital and surplus.

The aggregate amount of “covered transactions” with all affiliates is limited to 20% of the bank’s capital

Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in federal law.

The purchase of low quality assets from affiliates is generally prohibited.

The transactions with affiliates must be on terms and under circumstances, that are at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies.

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

Transactions with affiliates must generally be on terms and under circumstances that are substantially the same, or that are at least as favorable to the institution as those prevailing at the time for comparable transactions with or involving non-affiliated companies.

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

Community Reinvestment Act and Fair Lending Laws.

1 unchanged sentence

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

On October 24, 2023, the FDIC, the FRB, and the OCC issued a final rule to strengthen and modernize the CRA regulations.

Under the final rule, banks with assets of at least $2 billion as of December 31 in both of the prior two calendar years will be a “large bank.” The agencies will evaluate large banks under four performance tests:

the Retail Lending Test, the Retail Services and Products Test, the Community Development Financing Test, and the Community Development Services Test.

The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027.

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

During 2023, the Bank received a CRA Performance Evaluation from the OCC with a rating of “Needs to Improve” for the evaluation period January 1, 2018 through December 31, 2020.

Based on its performance on the individual components of the CRA tests, the Bank received a rating of “Low Satisfactory” for the Lending, Investment, and Service Tests.

The Bank’s final overall rating, however, was downgraded to “Needs to Improve” because of a Fair Housing Act violation cited by the OCC.

The Bank’s management has taken actions, including adding to its compliance staff, to address the deficiencies and is committed to taking further voluntary corrective actions.

A “Needs to Improve” rating may restrict certain expansionary activities, including certain mergers and acquisitions and the establishment of Bank branches.

The rating also results in a loss of expedited processing of applications to undertake certain activities.

The rating will remain in place until the OCC issues a revised CRA rating following a subsequent CRA examination.

The next CRA examination is expected to commence sometime in 2024 for the CRA examination period 2021 to 2023.

The precise timing of the examination and any results therefrom will not be known until after the completion of the examination.

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

1 unchanged sentence

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

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

Federal Home Loan Bank System

12 unchanged sentences

However, the level of dividends is reduced for financial institutions that exceed a certain asset size.

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

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

For 2023, the asset level is $12.12 billion, and

financial institutions whose assets exceed that level receive dividends generally equal to the rate of the 10-year Treasury note, which totaled $1.6 million for the year ended December 31, 2023, as compared to $1.3 million in the prior year.

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

What changed 10-K

Item 1. Business