What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-24 · 310 added, 260 removed, 253 unchanged (69% of the section changed)

2 unchanged sentences

(the “Company”) has been the holding company for OceanFirst Bank N.A.

(the “Bank”) since it acquired the stock of the Bank upon the Bank’s Conversion.

The Company conducts business primarily through its ownership of the Bank, which, at December 31, 2022, operated 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 Company’s results of operations are primarily dependent on net interest income, which is the difference between the interest income earned on the Company’s interest-earning assets, such as loans and investments, and the interest expense on its interest-bearing liabilities, such as deposits and borrowings.

The Company also generates non-interest income such as 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, title-related fees and service charges and other fees.

The Company’s operating expenses primarily consist of compensation and employee benefits, occupancy, equipment, marketing, federal deposit insurance and regulatory assessments, data processing, check card processing, professional fees, and other general and administrative expenses.

The Company’s results of operations are significantly affected by competition, general economic conditions including levels of unemployment and real estate values as well as changes in market interest rates, government policies, and actions of regulatory agencies.

Recent Acquisitions

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

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

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

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

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

The Company operates as a full-service regional community bank delivering comprehensive financial products and services, which can include commercial and consumer financing, deposit services, and wealth management products and services, throughout New Jersey and the major metropolitan markets of Philadelphia, New York, Baltimore, and Boston.

The Bank competes with larger, out-of-market financial service providers through its local and digital focus and the delivery of superior service.

The Bank also competes with smaller in-market financial service providers by offering a broad array of products and services and by having an ability to extend larger credits.

(the “Bank”) since the Company’s initial public offering.

The Company conducts business primarily through its ownership of the Bank, which, at December 31, 2023, primarily operated out of 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.

The Company’s results of operations are primarily dependent on net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and investments, and the interest expense on its interest-bearing liabilities, such as deposits and borrowings.

The Company also generates non-interest income such as income from bankcard services, trust and asset management products and services, deposit account services, and commercial loan swap income.

The Company’s operating expenses primarily consist of compensation and employee benefits, occupancy and equipment, marketing, federal deposit insurance and regulatory assessments, data processing, check card processing, professional fees and other general and administrative expenses.

The Company’s results of operations are significantly affected by competition, general economic conditions, including levels of unemployment and real estate values, as well as changes in market interest rates, inflation, government policies and actions of regulatory agencies.

The Company operates as a full-service regional community bank delivering comprehensive financial products and services, which includes commercial and consumer financing, deposit services, and wealth management products and services, throughout New Jersey and the major metropolitan markets of Philadelphia, New York, Baltimore, and Boston.

The Company competes with larger, out-of-market financial service providers through its local and digital focus and the delivery of superior service.

The Company also competes with smaller in-market financial service providers by offering a broad array of products and services as well as the ability to extend larger credits.

The Company’s strategy has been to grow profitability while limiting exposure to credit, interest rate, and operational risks.

To accomplish these objectives, the Bank has sought to:

(1) grow commercial loans through the offering of commercial lending services to local businesses and through strategic expansions to adj acent markets;

(2) grow core deposits (defined as all deposits excluding time deposits) through product offerings appealing to a broadened customer base;

an d (3) increase non-interest income by expanding the menu of fee-based products and services and investing additional resources in these product lines.

The growth in these areas has occurred both organic ally and through acquisitions and equity investments.

To accomplish these objectives, the Company has sought to:

(1) grow the commercial banking business, with a particular focus on strengthening commercial and industrial banking;

(2) expand the residential lending business, focusing on the secondary market and saleable loan business;

(3) diversify and strengthen its deposit base through product offerings appealing to a broadened customer base;

and (4) improve operating efficiency through the ongoing investment in information technology.

The Company focuses on prudent growth to create value for stockholders, which may include opportunistic acquisitions.

The Company will also continue to build additional operational infrastructure and invest in key personnel in response to growth and changing business conditions.

Growing Commercial Loans

With industry consolidation eliminating many locally-headquartered competitors, the Company fills a void for locally-delivered commercial loan and deposit services.

The Bank has strategically and steadily added experienced commercial lenders in various New Jersey counties as well as teams in New York City, the greater Philadelphia area, Baltimore, and Boston.

At December 31, 2022, commercial loans (which includes multi-family and commercial real estate loans, commercial construction loans, and commercial and industrial loans) represented 68.5% of the Bank’s total loans, as compared to 65.8% at December 31, 2020.

Although the Company’s overall long-term strategy has not changed, the Company took several precautionary measures in response to the bank failures of early 2023 and the related industry-wide concerns around liquidity, funding, and the rapidly increasing interest rate environment.

These measures included building liquidity, deposits, and contingent funding sources;

strengthening and monitoring credit quality;

re-evaluating the securities portfolio;

and building and preserving capital.

The Company has continued to maintain and strengthen its liquidity and capital position, while servicing its customers and communities.

Refer to ‘Liquidity and Capital Resources’ for further discussion.

Commercial Banking

The Company continues to distinguish itself from the mega-bank competition with access to responsive, local decision-makers and from the smaller bank competition that are unable to deliver the same depth of products, services, and technology.

The Company supports commercial business clients of varying sizes and complexity through the extension of credit and cash management services through its advisory relationship management model.

The Company has had success in developing new client relationships in the Company’s focused expansion markets, which include Philadelphia, New York, Boston, and Baltimore.

Expanding the Company’s geographies provides a hedge on risks or issues that may arise if the Company was fully concentrated in a single market.

While these growth markets are important to the Company’s strategy, the Company has continued efforts to keep the community bank feel for customers, employees, and stakeholders, which has been a focal point for longstanding stable funding, brand reputation, and community development efforts in the Company’s legacy markets.

The Company’s early expansion efforts were dependent on commercial real estate (“CRE”) lending, however, its path forward as a regional bank includes a transition away from CRE dependence and a focus on future growth predominately around the C&I portfolio.

The Company has made a significant effort to recruit new relationship managers that specialize in clients doing business in deposit rich industries.

The Company anticipates that the acquisition of these customers will help to drive quality funding with expanded yields.

Additionally, the Company continues to improve its treasury management function by enhancing capabilities through expanded product offerings and thoughtfully evaluating opportunities to further bolster talent and technology to better serve the Company’s customers.

At December 31, 2023, commercial loans (which includes multi-family and commercial real estate loans, commercial construction loans, and commercial and industrial loans) represented 68.3% of the Company’s total loans, as compared to 68.2% at December 31, 2021, while commercial and industrial loans represented 6.5% of total loans as compared to 5.2% at December 31, 2021.

Due to industry and market events during 2023, the Company methodically slowed loan growth in an effort to maintain strong liquidity and grow capital levels.

Commercial loan products entail a higher degree of credit risk than residential real estate lending activity.

As a result, management continues to employ a well-defined credit policy focusing on quality underwriting and close oversight and Board monitoring.

See Risk Factors – Risks Related to Lending Activities – The Bank’s emphasis on commercial lending may expose the Bank to increased lending risks .

Increasing Core Deposits

The Bank seeks to increase core deposits in its primary market area by improving market penetration.

The Bank has benefited from efforts to attract business deposits in conjunction with its commercial lending operations and from an expanded mix of retail core products and services.

Ongoing product development and design to deepen market penetration will allow the Bank to rely on competencies in commercial lending and the retail branch network to drive core deposit growth while the Bank is marketing non-core time deposit products as a short-term funding resource.

The Bank continues to invest in the overall customer experience with the Bank’s customer satisfaction and digital capabilities on par with national banks and fintechs companies.

Enhancing Non-Interest Income

Management continues to diversify the Bank’s product lines and expand related resources in order to enhance non-interest income.

The Bank is focused on growth opportunities in areas such as derivative contracts, trust and asset management, digital product o fferings, and equity investments in non-bank finance companies.

The Bank also offers investment products for sale through its retail branch network and a hybrid robo-advisor product offered by the Bank’s partner, Nest Egg, a registered investment adviser.

Nest Egg is an investment platform that helps customers define and reach financial goals by providing access to high quality and cost-effective investments.

It includes web-based tools as well as access to personal financial advisors via telephone, chat, or video.

At December 31, 2022, the Company had an ownership interest of less than 20% in Nest Egg and a representative on the Board of Directors.

The Company’s minority interest in Nest Egg does not require separate entity reporting.

During 2021, the Company made a minority, non-controlling equity investment of $10.0 million in Auxilior Capital Partners, Inc.

(“Auxilior”), and received representation on the Auxilior Board of Directors.

Auxilior was formed in 2020 as a nationwide specialty commercial equipment finance company focused on five key business verticals:

construction and infrastructure, transportation and logistics, franchise finance, healthcare, and bank outsourcing.

In addition to origination, underwriting, asset management, and customer service functions within each industry vertical, Auxilior can syndicate full loans as well as participations to banks, funds, and other third-party buyers of assets.

On November 29, 2022, the Company invested an additional $2.8 million as part of a new round of financing by the Company and other investors.

On April 1, 2022, the Company completed its acquisition of a majority controlling interest of 60% in Trident.

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

The acquisition is complimentary to the Company’s existing consumer and commercial lending business and provided an additional source of non-interest income to benefit the Company.

Branch Rationalization and Service Delivery

Management continued to evaluate the Bank’s branch network for consolidation opportunities.

The Bank consolidated 10 branches in 2022, following the consolidation of 13 branches in 2021 and 13 branches in 2020.

The Bank has consolidated 77 branch locations since 2013.

The Bank also sold two branches in 2021 with deposits of $100.9 million.

In addition to branch consolidations, the Bank is adapting to the industry wide trend of declining branch activity by transitioning to a universal banker staffing model, with a smaller branch staff handling sales and service transactions, as well as increasing the marketing of products that feature digital and mobile services.

In certain locations, routine transactions are handled through video teller machines, an advanced technology with live team members in a remote location that perform transactions for multiple video teller machines.

The Bank is also investing in multiple digital services to enhance the customer experience and improve security.

At December 31, 2022, all of the branch staff were trained as certified Digital Bankers to better support customers’ use and adoption of digital services.

See Risk Factors – Risks Related to Lending Activities – The Company’s emphasis on commercial lending may expose the Company to increased lending risks .

Investments in Residential Lending

The Company began its expansion of the residential lending business into new and adjacent geographies, which included the recruitment of leadership roles and sales personnel in expanded geographies and a focus on secondary marketing and saleable loans.

While the economic environment in 2023, with markedly higher rates, was a headwind, the Company remains committed to this segment and have deepened its focus on the longstanding commitment to its communities with enhanced products and pricing in the NeighborFirst and special credit programs and the recruitment of Community Reinvestment Act (“CRA”) residential loan officers for the Company’s footprint.

The Company has a long history as a residential lender and continues to expand this portfolio with a continued focus on customer relationships.

At December 31, 2023, residential loans represented 29.3% of the Company’s total loans at December 31, 2023 as compared to 28.8% at December 31, 2021.

Diversify and Strengthen Deposit Base

The Company continues to focus on deposit growth through a series of initiatives intended to both grow deposits and diversify sources of liquidity.

The Company seeks to increase deposits in its primary market area by improving market penetration.

The Company has benefited from and remains focused on efforts to attract business deposits in conjunction with its commercial lending operations and from an expanded mix of retail products and services.

Ongoing product development and design to deepen market penetration will allow the Company to rely on competencies in commercial lending and the retail branch network to drive growth and diversification of deposits.

The Company continues to invest in the overall customer experience with the Company’s customer satisfaction performance and digital capabilities on par with national banks and fintech companies.

Operating Efficiency

The Company relies on technology and the resources that support its operations to provide a broad suite of financial services and experience to its customers and employees, to differentiate the Company in its diverse markets, and to drive operational efficiencies that yield performance with strong customer services.

The Company’s investment in technology lays a foundation for future growth, scale, and operational efficiency.

Focus areas include digital-direct customer engagement, efficient customer servicing, support safe banking operations and strategic technology change, and competitively delivering new lending and customer self-service capabilities in the post-pandemic influenced environment.

Capital Management

The Company conducts capital stress testing, which includes various scenarios, as one means of evaluating capital adequacy.

The results of stress testing are considered in the capital planning process and strategy development.

In addition to the objectives described above, the Company actively manages its capital position to ensure adequate coverage and improve return on stockholders’ equity.

The Company also analyzes the need to raise additional capital in the future, through issuance of debt or equity, to meet the commitments and business needs.

Over the past few years, the Company has implemented or announced six stock repurchase programs.

The Company actively manages its capital position to ensure adequate coverage and improve return on stockholders’ equity.

The Company conducts capital stress testing, which includes evaluating the effects of various scenarios on capital, as one means of evaluating capital adequacy.

The results of stress testing are considered in the capital planning process and strategy

The Company also analyzes the need to raise additional capital in the future, through issuance of debt or equity, to meet its commitments and business needs.

Over the past five years, the Company has implemented or announced two stock repurchase programs.

On June 25, 2021, the Company announced the authorization to repurchase up to an additional 5% of the Company’s outstanding common stock, or 3.0 million shares.

For the year ended December 31, 2022, the Company repurchased 373,223 shares of its common stock under this repurchase program and 2,934,438 shares remain available for repurchase.

For the year ended December 31, 2023, the Company did not repurchase any shares of its common stock under this repurchase program to strategically build capital.

At December 31, 2023, the Company remains authorized to repurchase 2,934,438 shares and will prudently evaluate repurchase opportunities while maintaining existing capital levels.

Selected Financial Data

12 unchanged sentences

Federal Home Loan Bank ("FHLB") advances 848,636 1,211,166 —

Securities sold under agreements to repurchase with customers and other borrowings 264,500 347,910 363,925

Securities sold under agreements to repurchase and other borrowings 269,604 264,500 347,910

Total stockholders’ equity 1,661,945 1,585,464 1,516,553

6 unchanged sentences

Net interest income 369,731 377,477 305,338

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

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

Other income (excluding net gain on equity investments and gain on sale of Paycheck Protection Program (“PPP”) loans) 49,409 44,786 47,611

Provision for credit losses (benefit) 17,678 7,768 (11,832)

Net interest income after provision for credit losses (benefit) 352,053 369,709 317,170

Other income (excluding activity related to debt and equity investments) 38,053 49,409 44,786

Net gain on equity investments 876 9,685 7,145

Gain on sale of PPP loans — — 5,101

Operating expenses (excluding branch consolidation expense, net, merger related expenses, and FHLB advance prepayment fees) 231,433 213,020 208,604

FHLB advance prepayment fees — — 14,257

Net loss on sale of investments (5,305) — —

Operating expenses (excluding Federal Deposit Insurance Corporation (“FDIC”) special assessment, merger related and net branch consolidation expense)

247,157 231,433 213,020

FDIC special assessment 1,663 — —

Branch consolidation expense, net 70 713 12,337

46 unchanged sentences

(1) With the exception of end of year ratios, all ratios are based on average daily balances.

(2) Performance ratios for 2023 included a net expense related to merger related expenses, net branch consolidation expense, FDIC special assessment, net loss on sale of investments and net gain on equity investments of $6.2 million, or $4.7 million, net of tax benefit.

Performance ratios for 2022 included a net benefit related to merger related expenses, net branch consolidation expense, and gain on equity investments of $6.2 million, or $4.6 million, net of tax expense.

Performance ratios for 2021 included a net expense related to merger related expenses, net branch consolidation expenses, and a net gain on equity investments of $6.7 million, or $5.1 million, net of tax benefit.

Performance ratios for 2020 included a net expense related to a net gain on equity investments, gain on sale of PPP loans, FHLB advance prepayment fees, merger related expenses, net branch consolidation expenses, and Two River Bancorp (“Two River”) and Country bank Holding Company, Inc.

(“Country Bank”) opening credit loss expense under the CECL model of $14.3 million, or $11.0 million, net of tax benefit.

(3) Ratios for each period are based on net income available to common stockholders.

3 unchanged sentences

(7) Total loans receivable excludes loans held-for-sale.

(8) At December 31, 2023, non-performing loans included the remaining exposure of $8.8 million on a single commercial real estate relationship that was partially charged-off during the year ended December 31, 2023.

(9) Non-performing assets consist of non-performing loans and real estate acquired through foreclosure.

1 unchanged sentence

It is the Company’s policy to cease accruing interest on all such loans and to reverse previously accrued interest.

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

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

The net unamortized credit and purchased with credit deterioration (“PCD”) marks on these loans, not reflected in the allowance for loan credit losses, was $7.5 million, $11.4 million, and $18.9 million at December 31, 2023, 2022, and 2021, respectively.

Highlights of the Company’s financial results for the year ended December 31, 2022 were as follows:

Total assets increased by $1.36 billion to $13.10 billion at December 31, 2022, from $11.74 billion at December 31, 2021.

Total loans increased by $1.30 billion to $9.92 billion at December 31, 2022, from $8.62 billion at December 31, 2021, due to strong loan originations and to a lesser extent, $171.6 million of residential loan pool purchases.

Total liabilities increased by $1.30 billion to $11.52 billion at December 31, 2022, from $10.22 billion at December 31, 2021.

FHLB advances increased to $1.21 billion at December 31, 2022 from $0 at December 31, 2021 to fund liquidity needs, as deposits decreased by $57.6 million during this period from $9.73 billion to $9.68 billion.

Net income available to common stockholders for the year ended December 31, 2022 was $142.6 million, or $2.42 per diluted share, as compared to $106.1 million, or $1.78 per diluted share for the prior year.

Net income available to common stockholders for the year ended December 31, 2022 included merger related expenses, net branch consolidation expenses, and a net gain on equity investments of $2.7 million, $713,000, and $9.7 million, respectively.

These items increased net income for the year ended December 31, 2022 by $4.6 million, net of tax.

These items increased diluted earnings per share by $0.08 for the year ended December 31, 2022.

Net income for the year ended December 31, 2021 included merger related expenses, net branch consolidation expenses, and a net gain on equity investments of $1.5 million, $12.3 million, and $7.1 million, respectively.

These items decreased net income for the year ended December 31, 2021 by $5.1 million, net of tax.

These items reduced diluted earnings per share by $0.08 for the year ended December 31, 2021.

The Company remains well-capitalized with a stockholders’ equity to total assets ratio of 12.10% at December 31, 2022.

Critical Accounting Policies and Estimates

Note 1 Summary of Significant Accounting Policies to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2022 contains a summary of significant accounting policies.

Various elements of these accounting policies, by their nature, are subject to estimation techniques, valuation assumptions and other subjective assessments.

Certain assets are carried in the consolidated statements of financial condition at estimated fair value or the lower of cost or estimated fair value.

Policies with respect to the methodology used to determine the allowance for credit losses is a critical accounting policy and estimate because of its importance to the presentation of the Company’s financial condition and results of operations.

The critical accounting policy involves a higher degree of complexity and requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters.

The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition.

The critical accounting policy and its application is reviewed periodically, and at least annually, with the Audit Committee of the Board of Directors.

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326).

Allowance for credit losses in accordance with ASU 2016-13 is a critical accounting policy in the preparation of the consolidated financial statements as of and for the period ended December 31, 2022.

Allowance for Credit Losses (“ACL”)

The Company’s methodology to measure the ACL incorporates both quantitative and qualitative information to assess lifetime

expected credit losses at the portfolio segment level.

The quantitative component of the ACL involves assumptions that require a significant level of estimation;

these include historical losses as a predictor of future performance, and the accuracy of macro-economic forecasts over a reasonable and supportable forecast period.

The Company has elected to use an open pool method and extends its look back period each quarter to capture as many data points as possible in its historical loss rate calculation.

A historical data set is expected to provide the best indication of future credit performance.

Alternative loss calculation methods, such as vintage and migration methodologies, limit observable data to closed pools of loans, which excludes performance data from the historical loss rate calculation.

Macro-economic forecasts used in the quantitative analysis are provided by a leader in global forecasting.

The Company uses the base case macro-economic forecast to reflect the consensus view of future economic conditions.

Electing scenarios that are stronger or weaker than the base case would reduce or increase, respectively, the ACL measurement.

The Company measures the accuracy of the macro-economic forecasts quarterly to identify any material deviations that would be considered for a

qualitative adjustment.

The Company assumes a reasonable and supportable forecast period of 8 quarters and a reversion period of 4 quarters based on the analysis of historical U.S.

business cycles.

Prepayment and forward interest rate projections are also assumptions used in the quantitative model subject to estimation.

These assumptions are consistent with the assumptions employed by the Company’s Interest Rate Risk (“IRR”) model.

Changes in these assumptions have varying implications to the ACL measurement.

For example, faster prepayment rates would shorten the life of loans and reduce the lifetime expected credit loss, whereas slower prepayment rates would have the inverse effect.

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

Qualitative loss factors are grounded in the Company’s long-term credit losses and reflect an assumption that past behavior is a reasonable predictor of future performance.

The Company considers the peak two-year net charge off rate to capture maximum potential volatility over the reasonable and supportable forecast period.

Historical losses that inform the guardrails for the qualitative adjustments are anchored to 2005 and extended annually.

This period is intended to represent the credit profile of the current portfolio and capture prior performance in a severe economic recession.

These guardrails are updated annually to capture recent behavior that is indicative of the credit profile of the current portfolio.

Management considers subjective, objective, and unique qualitative factors at each estimation date.

Subjective factors incorporate external factors, personnel, and controls, as well as portfolio composition and performances.

Subjective factors include local competition;

portfolio nature, volume and concentration;

credit trends;

lending policy, procedure and loan review;

lending management and staff;

regulatory changes and forecast uncertainty.

Objective factors address gaps in the quantitative model, such as the limited loss history and the inherent risk of Special Mention commercial real estate loans.

Unique factors will capture one-time events, such as environmental threats and model updates that are expected to impact performance over the forecast period.

Unique factors are identified, assessed, and documented in the quarter they are applied.

The Company incorporated unique factors in 2022 to address macro-economic uncertainty and alternative economic forecast projections.

Although management believes that it uses the best information available to establish the ACL in conformity with GAAP, future adjustments to the ACL may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.

For example, at December 31, 2022, if the Company had elected a contemporaneous downside scenario where it was assumed that commercial borrowers are more adversely impacted by the velocity of interest rate change, the ACL measurement would have been approximately $2.3 million higher.

Alternatively, if the Company had elected a severely adverse economic scenario consistent with the Federal Reserve’s severe recession scenario, the ACL measurement would have been approximately $11.3 million higher.

These sensitivity scenarios do not represent a change in the Company’s expectations of credit performance or the economic environment but provide hypothetical results to access the sensitivity of the ACL to changes in key inputs.

Given the level of uncertainty and the material impact on the ACL measurement, all assumptions are reviewed and updated as necessary at each estimation date.

Other than discussed above, there were no changes in the estimation methodology for these assumptions in 2022.

Highlights of the Company’s financial results for the year ended December 31, 2023 as compared to December 31, 2022 were as follows:

Total assets increased by $434.4 million to $13.54 billion, from $13.10 billion primarily due to purchases of available-for-sale debt securities and loan growth.

Available for sale debt securities increased by $296.2 million to $753.9 million, from $457.6 million, primarily due to purchases of variable-rate mortgage-backed securities.

Total loans increased by $276.5 million to $10.19 billion, from $9.92 billion, due to loan originations and growth.

Total liabilities increased by $357.9 million to $11.88 billion, from $11.52 billion.

Total deposits increased by $759.7 million to $10.43 billion from $9.68 billion, partially offset by a decrease in FHLB advances of $362.5 million to $848.6 million from $1.21 billion, respectively, due to mix shift in funding sources from FHLB advances to deposits.

Net income available to common stockholders was $100.0 million, or $1.70 per diluted share, as compared to $142.6 million, or $2.42 per diluted share.

Net income available to common stockholders for the year ended December 31, 2023 included net loss on sale of investments of $5.3 million, a special assessment charge of $1.7 million related to the FDIC’s final rule to recover the loss on the Deposit Insurance Fund (“DIF”), net branch consolidation expenses of $70,000, merger related expenses of $22,000, and net gain on equity investments of $876,000.

These items decreased net income in the current year by $4.7 million, net of tax, and diluted earnings per share by $0.08.

Net income available to common stockholders for the year ended December 31, 2022 included net gain on equity investments of $9.7 million, merger related expenses of $2.7 million, and net branch consolidation expenses of $713,000.

These items increased net income in the prior year by $4.6 million, net of tax, and diluted earnings per share by $0.08.

The Company's estimated common equity tier 1 capital ratio increased to 10.86%.

Additionally, the Company remains well-capitalized with a stockholders’ equity to total assets ratio of 12.28% at December 31, 2023.

Analysis of Net Interest Income

23 unchanged sentences

Loans receivable, net 10,016,859 521,865 5.21 9,323,619 390,386 4.19 7,921,611 315,237 3.98

9,323,619 390,386 4.19 7,921,611 315,237 3.98 8,122,631 349,221 4.30

Total interest-earning assets

38 unchanged sentences

126.00 % 135.00 % 137.36 %

(1) Amounts represent debt and equity securities, including FHLB and Federal Reserve Bank stock, and are recorded at average amortized cost, net of allowance for securities credit losses.

(1) Amounts represent debt and equity securities, including FHLB and Federal Reserve Bank (“FRB”) stock, and are recorded at average amortized cost, net of allowance for securities credit losses.

(2) Amount is net of deferred loan costs and fees, undisbursed loan funds, discounts and premiums and allowance for loan credit losses, and includes loans held-for-sale and non-performing loans.

(3) F or 2023, the average balances of derivative cash collateral have been reclassified from non-interest bearing liabilities to other borrowings.

(4) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

6 unchanged sentences

and (iii) the net change.

There were no out-of-period amounts excluded from the following table.

The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

27 unchanged sentences

Net change in net interest income $ (14,975) $ 7,229 $ (7,746) $ 53,319 $ 18,820 $ 72,139

(1) Amounts represent debt and equity securities, including FHLB and Federal Reserve Bank stock, and are recorded at average amortized cost, net of allowance for securities credit losses.

(1) Amounts represent debt and equity securities, including FHLB and FRB stock, and are recorded at average amortized cost, net of allowance for securities credit losses.

(2) Amount is net of deferred loan costs and fees, undisbursed loan funds, discounts and premiums and allowance for loan credit losses, and includes loans held-for-sale and non-performing loans.

Comparison of Financial Condition at December 31, 2023 and December 31, 2022

Total assets increased by $1.36 billion to $13.10 billion at December 31, 2022, from $11.74 billion at December 31, 2021.

Total debt securities decreased by $28.7 million at December 31, 2022, as compared to December 31, 2021, primarily due to principal repayments and maturities, and to a lesser extent, an increase in unrealized losses driven by the rising rate environment.

This was partly offset by purchases in the second half of the year.

Other assets increased by $74.1 million to $221.1 million at December 31, 2022 from $147.0 million at December 31, 2021, primarily due to an increase in market values associated with customer interest rate swap programs.

Total liabilities increased by $1.30 billion to $11.52 billion at December 31, 2022, from $10.22 billion at December 31, 2021.

FHLB advances increased to $1.21 billion at December 31, 2022 from $0 at December 31, 2021 to fund liquidity needs, as

deposits decreased by $57.6 million during this period from $9.73 billion to $9.68 billion.

Total deposits, excluding time deposits, decreased by $824.6 million to $8.13 billion at December 31, 2022, from $8.96 billion at December 31, 2021, due to the net runoff of non-interest-bearing and interest-bearing checking balances.

Time deposits increased to $1.54 billion, or 15.9% of total deposits, at December 31, 2022, from $775.0 million, or 8.0% of total deposits, at December 31, 2021, primarily due to an increase in brokered time deposits.

The loans-to-deposit ratio at December 31, 2022 was 102.5%, as compared to 88.6% at December 31, 2021.

Other borrowings also decreased by $33.7 million to $195.4 million at December 31, 2022, from $229.1 million at December 31, 2021, primarily due to the extinguishment of $35.0 million of subordinated debt in March 2022.

Other liabilities increased by $224.1 million to $346.2 million at December 31, 2022, from $122.0 million at December 31, 2021, primarily due to an increase in the market values associated with customer interest rate swap programs and related collateral received from counterparties.

Stockholders’ equity increased to $1.59 billion at December 31, 2022, as compared to $1.52 billion at December 31, 2021.

Accumulated other comprehensive loss increased by $33.2 million to $36.0 million at December 31, 2022 from $2.8 million at December 31, 2021, primarily due to unrealized losses on debt securities available-for-sale, which were adversely impacted by the rising interest rate environment.

For the year ended December 31, 2022, the Company repurchased 373,223 shares totaling $7.4 million under its stock repurchase program at a weighted average cost of $19.82.

Total assets increased by $434.4 million to $13.54 billion, from $13.10 billion, primarily due to purchases of available-for-sale debt securities and loan growth.

Available-for-sale debt securities increased by $296.2 million to $753.9 million, from $457.6 million, primarily due to purchases of variable-rate mortgage-backed securities in the fourth quarter of 2023.

Total loans increased by $276.5 million to $10.19 billion, from $9.92 billion, due to loan originations and growth.

Other assets decreased by $41.4 million to $179.7 million, from $221.1 million, primarily due to a decrease in the market values associated with customer interest rate swap programs.

Total liabilities increased by $357.9 million to $11.88 billion, from $11.52 billion.

Deposits increased by $759.7 million to $10.43 billion, from $9.68 billion.

Time deposits increased by $903.4 million to $2.45 billion, from $1.54 billion, or 23.4% and 15.9% of total deposits, respectively.

Retail time deposits increased $1.13 billion, while brokered time deposits decreased $242.0 million.

The loans-to-deposit ratio was 97.7%, as compared to 102.5%.

FHLB advances decreased by $362.5 million to $848.6 million, from $1.21 billion due to mix shift in funding sources from FHLB advances to deposits.

Other liabilities decreased by $45.4 million to $300.7 million, from $346.2 million, primarily due to a decrease in the market values associated with customer interest rate swaps and related collateral received from counterparties.

Total stockholders’ equity increased to $1.66 billion, as compared to $1.59 billion, primarily reflecting net income, net of dividends, for the year ended December 31, 2023.

Additionally, accumulated other comprehensive loss decreased by $15.1 million primarily due to increases in fair market value of available-for-sale debt securities, net of tax.

For the year ended December 31, 2023, the Company did not repurchase shares under its stock repurchase program.

There were 2,934,438 shares available for repurchase at December 31, 2023 under the existing repurchase program.

Stockholders’ equity per common share increased to $26.81 at December 31, 2022, as compared to $25.63 at December 31, 2021.

Stockholders’ equity per common share increased to $27.96, as compared to $26.81.

Comparison of Operating Results for the Years Ended December 31, 2023 and December 31, 2022

These items increased net income for the year ended December 31, 2022 by $4.6 million, net of tax.

These items decreased net income for the year ended December 31, 2021 by $5.1 million, net of tax.

Net income available to common stockholders decreased to $100.0 million, or $1.70 per diluted share, as compared to $142.6 million, or $2.42 per diluted share.

Net income available to common stockholders for the year ended December 31, 2023 included net gain on equity investments of $876,000, net loss on sale of investments of $5.3 million, a special FDIC assessment of $1.7 million, net branch consolidation expenses of $70,000, and merger related expenses of $22,000.

These items decreased net income in the current year by $4.7 million, net of tax.

Net income for the year ended December 31, 2022 included a net gain on equity investments of $9.7 million, merger related expenses of $2.7 million, and net branch consolidation expenses of $713,000.

These items increased net income for the prior year by $4.6 million, net of tax.

Interest Income

Interest income for the year ended December 31, 2022 increased to $431.2 million, as compared to $342.1 million in the prior year.

Average interest-earning assets increased by $779.9 million for the year ended December 31, 2022, as compared to the prior year, primarily due to loan growth and, to a lesser extent securities growth, funded by the redeployment of excess cash and increased FHLB advances.

Average loans receivable, net of allowance for loan credit losses, increased by $1.40 billion for the year ended December 31, 2022, as compared to the prior year, primarily in commercial loans.

The yield on average interest-earning assets increased to 3.85% for the year ended December 31, 2022, as compared to 3.29% for the prior year, primarily due to the impact of the rising rate environment on interest-earning assets.

Interest income increased to $608.0 million, from $431.2 million.

The yield on average interest-earning assets increased to 4.96%, from 3.85%, due to the impact of rising rates.

Average interest-earning assets increased by $1.06 billion, primarily driven by increases in total loans of $693.2 million and interest-earning deposits and short-term investments of $254.6 million.

Interest Expense

Interest expense for the year ended December 31, 2022 was $53.7 million, as compared to $36.8 million in the prior year.

For the year ended December 31, 2022, the cost of average interest-bearing liabilities increased to 0.65%, from 0.49% in the prior year, as a result of higher costs associated with FHLB advances and interest-bearing deposits, including time deposits issued in an elevated rate environment in 2022.

The total cost of deposits (including non-interest bearing deposits) increased to 0.31% for the year ended December 31, 2022, as compared to 0.26% for the prior year.

Interest expense increased to $238.2 million, from $53.7 million, reflecting rising rates on costs and deposit mix shift to higher cost time deposits.

The cost of average interest-bearing liabilities increased to 2.45%, from 0.65%, primarily due to higher cost of deposits and FHLB advances.

The total cost of deposits (including non-interest bearing deposits) increased to 1.68%, from 0.31%.

Net Interest Income and Margin

Net interest income for the year ended December 31, 2022 increased to $377.5 million, as compared to $305.3 million for the prior year, reflecting an increase in average interest-earning assets and net interest margin.

Net interest margin increased to 3.37% for the year ended December 31, 2022, from 2.93% for the prior year.

The net interest margin expansion was enhanced by the impact of the rising rate environment on interest-earning assets and the redeployment of excess cash into loans, partly offset by an increased cost of funds and the growth of interest-bearing liabilities.

Credit Loss Expense (Benefit)

Credit loss expense for the year ended December 31, 2022 was $7.8 million, as compared to credit loss benefit of $11.8 million for the prior year.

The credit loss expense for the year ended December 31, 2022 was primarily influenced by loan growth, slowing prepayment assumptions, and increasingly uncertain macro-economic forecasts due to persistent inflation, interest rate increases, and global economic headwinds, partly offset by positive trends in the Company’s criticized and classified assets.

Net loan recoveries were $340,000 for the year ended December 31, 2022, as compared to $461,000 in the prior year.

Non-performing loans totaled $23.3 million at December 31, 2022, as compared to $25.5 million at December 31, 2021.

The decrease was primarily due to loans that were paid off and partly due to loans that returned to accrual status.

Net interest income decreased to $369.7 million, from $377.5 million, reflecting the net impact of the higher interest rate environment.

Net interest margin decreased to 3.02%, from 3.37%.

Net interest margin decreased primarily due to a mix-shift to and repricing of higher cost deposits that outpaced the increase in yields on interest-earning assets.

Provision for Credit Losses

During 2023, a single commercial relationship had a $8.4 million partial charge-off, which resulted in a remaining exposure of $8.8 million.

Provision for credit losses was $17.7 million, as compared to $7.8 million.

The provision for credit losses for the year ended December 31, 2023 included the net impact of the charge-off noted above, and to a lesser extent, the net effect of credit rating migrations.

Net loan charge-offs were $8.4 million for the current year, as compared to net loan recoveries of $340,000 in the prior year.

The increase in net loan charge-offs was due to the single commercial relationship charge-off noted above.

Non-performing loans totaled $29.5 million, as compared to $23.3 million.

The increase in non-performing loans was primarily due to the remaining exposure of the charge-off noted above, partly offset by loans that were paid off or returned to accrual status.

Non-interest Income

Other income for the year ended December 31, 2022 increased to $59.1 million, as compared to $51.9 million for the prior year.

The increase was driven by the impact of Trident, which added $10.4 million primarily related to title-related fees and service charges;

an increase in commercial loan swap income of $3.0 million;

and an increase in net gain on equity investments of $2.5 million.

Net gains on equity investments in the current year included a $17.5 million unrealized gain on the Auxilior investment.

These increases were partly offset by decreases in bankcard services of $4.1 million, primarily as a result of the Durbin amendment, net gain on sale of loans of $2.8 million, fees and service charges (excluding Trident) of $814,000, and Paycheck Protection Program loan origination referral fees of $800,000 recognized in the prior year.

Other income decreased to $33.6 million, from $59.1 million.

Other income for the year ended December 31, 2023 was adversely impacted by net losses on equity investments of $4.4 million, which included $5.3 million of losses related to the sale of investments in the first quarter of 2023.

Other income for the year ended December 31, 2022 was favorably impacted by net gains on equity investments of $9.7 million in the prior year, which included an unrealized gain on the Auxilior Capital Partners, Inc.

(“Auxilior”) investment.

The remaining decrease of $11.4 million for the year ended December 31, 2023, as compared to the prior year, was driven by decreases in commercial loan swap income of $6.3 million on lower volume, fees and service charges of $1.5 million primarily due to lower title activity, and bank owned life insurance of $1.3 million related to non-recurring death benefits recognized in the prior year.

Additionally, bankcard services revenue decreased $3.3 million due to the Durbin Amendment, which became effective for the Company on July 1, 2022.

Non-interest Expense

Operating expenses for the year ended December 31, 2022 increased to $234.9 million, as compared to $226.9 million in the prior year.

Operating expenses for the year ended December 31, 2022 and 2021 included $3.4 million and $13.8 million, respectively, of merger related and net branch consolidation expenses.

The remaining increase of $18.4 million in operating expenses for the year ended December 31, 2022, as compared to the prior year, was partly due to the impact of Trident, which added $8.5 million of expenses.

Other increases included compensation and benefits expense of $6.6 million, primarily related to higher compensation and incentive costs, professional fees of $1.9 million, data processing expense of $1.5 million, and federal deposit insurance and regulatory assessments of $1.2 million, partly offset by a decrease in amortization of core deposit intangible of $734,000.

Operating expenses increased to $248.9 million, from $234.9 million.

Operating expenses for the year ended December 31, 2023 and 2022 included $92,000 and $3.4 million, respectively, of merger related and net branch consolidation expenses.

Operating expenses for the year ended December 31, 2023 also included an FDIC special assessment of $1.7 million.

The remaining increase of $15.7 million for the year ended December 31, 2023, as compared to the prior year, was due to increases in professional fees of $5.3 million and compensation and benefits of $3.9 million related to the Company’s performance improvement initiatives and strategic investments, as well as related severance and other program costs.

Additionally, there were increases in federal deposit insurance and regulatory assessments of $2.1 million, primarily due to new assessment rates that went into effect on January 1, 2023, and data processing expense of $1.7 million, partly driven by one-time recoveries recorded in the prior year.

Marketing expense also increased $1.3 million due to the Company’s enhanced digital strategy efforts, and other operating expenses included higher expenses of $1.1 million primarily related to real estate charges on assets sold during the period from assets held for sale.

Income Tax Expense

The provision for income taxes for the year ended December 31, 2022 was $46.6 million, as compared to $32.2 million for the prior year, primarily reflecting the increase in income before provision for income taxes.

The effective tax rate was 24.0% for the year ended December 31, 2022, as compared to 22.6% for the prior year.

The provision for income taxes was $32.7 million, as compared to $46.6 million, primarily reflecting the decrease in income before provision for income taxes.

The effective tax rate was 23.9%, as compared to 24.0%.

Comparison of Operating Results for the Years Ended December 31, 2022 and December 31, 2021

1 unchanged sentence

Liquidity and Capital Resources

The primary sources of liquidity specifically available to OceanFirst Financial Corp.

are dividends from the Bank, proceeds from sale of investments, the issuance of preferred and common stock, and debt.

For the year ended December 31, 2022, the holding company received dividend payments of $73.0 million primarily from the Bank.

At December 31, 2022, OceanFirst Financial Corp.

held $43.5 million in cash.

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 .

Liquidity Management

The Company manages its liquidity and funding needs through its Treasury function and the Asset Liability Committee.

The Company has an internal policy that addresses liquidity and management monitors the adherence to policy limits to satisfy current and future cash flow needs.

The policy includes internal limits, monitoring of key indicators, deposit concentrations, liquidity sources and availability, quarterly stress testing, collateral management, and other qualitative and quantitative metrics.

Management monitors cash on a daily basis to determine the liquidity needs of the Bank and OceanFirst Financial Corp.

(the “Parent Company”), a separate legal entity from the Bank.

Additionally, management performs multiple liquidity stress test scenarios on a quarterly basis.

As of December 31, 2023, the Bank and Parent Company continued to maintain adequate liquidity under all stress scenarios.

The Company also has a detailed contingency funding plan and obtains comprehensive reporting of funding trends on a monthly and quarterly basis, which are reviewed by management.

The Company continually evaluates its on-balance sheet liquidity, including cash and unpledged securities and funding capacity at the FHLB, FRB Discount Window, and Bank Term Funding Program (“BTFP”), and periodically tests each of its lines of credit.

As of December 31, 2023, total on-balance sheet liquidity and funding capacity was $3.7 billion.

The Company has a highly operational and granular deposit base, with long-standing client relationships across multiple customer segments providing stable funding.

The vast majority of the government deposits are protected by the Federal Deposit Insurance Corporation insurance as well as the State of New Jersey under the Government Unit Deposit Protection Act, which requires uninsured government deposits to be further collateralized by the Bank.

At December 31, 2023, the Bank reported in its Call Report $5.32 billion of total uninsured deposits.

This total included $2.31 billion of collateralized government deposits and $1.42 billion of intercompany deposits of fully consolidated subsidiaries, leaving estimated adjusted uninsured deposits of $1.60 billion, or 15.2% of total deposits.

On balance-sheet liquidity and funding capacity represented 230% of the estimated adjusted uninsured deposits.

The primary sources of liquidity specifically available to the Parent Company are dividends from the Bank, proceeds from sale of investments, and the issuance of debt, preferred and common stock.

For the year ended December 31, 2023, the Parent Company received dividend payments of $97.0 million from the Bank.

At December 31, 2023, the Parent Company held $79.4 million in cash and cash equivalents.

The Bank’s primary sources of funds are deposits, principal and interest payments on loans and investments, 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 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 Bank discount window.

At December 31, 2022 the Bank had $1.21 billion of term advances and no overnight borrowings from the FHLB, as compared to $0 at December 31, 2021.

The Bank regularly utilizes overnight and short-term borrowings to fund short-term liquidity needs.

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 BTFP.

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, which included collateral pledged to the FHLB to obtain a municipal letter of credit to collateralize certain municipal deposits.

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

The Company had $848.6 million of term advances from the FHLB as of December 31, 2023, as compared to $1.21 billion at December 31, 2022, reflecting a shift in funding mix to deposits.

As of December 31, 2023, the Company had no overnight borrowings from the FHLB and no outstanding borrowings from the FRB discount window or the BTFP.

The Company’s cash needs for the year ended December 31, 2023 were primarily satisfied by the increase in deposits.

The cash was invested in debt securities, and utilized for the reduction of FHLB advances and loan originations.

The Company’s cash needs for the year ended December 31, 2022 were primarily satisfied by the net proceeds from FHLB advances, principal repayments on debt securities and loans, and proceeds from maturities and calls of debt maturities.

The cash was principally utilized for loan originations, purchases of residential loan pools, purchases of debt securities, dividend payments, and redemption of subordinate debt.

The Company’s cash needs for the year ended December 31, 2021 were primarily satisfied by the increase in deposits, principal repayments on debt securities held-to-maturity, and proceeds from maturities and calls of debt securities.

The cash was principally utilized for purchases of debt and equity securities, purchases of residential loan pools, loan originations, and payment for sale of branches.

In the normal course of business, the Bank routinely enters into various off-balance-sheet commitments, primarily relating to the origination and sale of loans.

At December 31, 2022, outstanding commitments to originate loans totaled $166.1 million and outstanding undrawn lines of credit totaled $1.78 billion, of which $1.37 billion were commitments to commercial and commercial construction borrowers and $410.9 million were commitments to consumer borrowers and residential construction borrowers.

Off-Balance Sheet Commitments and Contractual Obligations

In the normal course of business, the Bank routinely enters into various off-balance-sheet commitments, primarily relating to the origination and funding of loans.

At December 31, 2023, outstanding commitments to originate loans totaled $183.0 million and outstanding undrawn lines of credit totaled $1.45 billion, of which $1.10 billion were commitments to commercial and commercial construction borrowers and $349.4 million were commitments to consumer and residential construction borrowers.

Commitments to fund undrawn lines of credit and commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the existing contracts.

3 unchanged sentences

These commitments are further discussed in Note 13 Commitments, Contingencies and Concentrations of Credit Risk, to the Consolidated Financial Statements.

Time deposits scheduled to mature in one year or less totaled $1.04 billion at December 31, 2022.

At December 31, 2023, the Company also had various contractual obligations, which included debt obligations of $1.12 billion, including finance lease obligations of $1.7 million and an additional $20.0 million in operating lease obligations included in other liabilities, and purchase obligations of $82.8 million.

3 unchanged sentences

The Company expects to have sufficient funds available to meet current commitments in the normal course of business.

The Company has a detailed contingency funding plan and obtains comprehensive reporting of funding trends on a monthly and quarterly basis which are reviewed by management.

Management also monitors cash on a daily basis to determine the liquidity needs of the Company and the Bank.

Additionally, management performs multiple liquidity stress test scenarios on a quarterly basis.

The Company and Bank continue to maintain adequate liquidity under all stress scenarios.

Time deposits scheduled to mature in one year or less totaled $2.30 billion at December 31, 2023.

If these deposits do not remain with the Company, it may need to seek other sources of funds, including other deposit products, advances from the Federal Home Loan Bank of New York and other borrowing sources.

Depending on market conditions, the Company may pay higher rates on such deposits or other borrowings than it currently pays on the certificates of deposit due on or after December 31, 2023.

The Company believes, however, based on past experience that a significant portion of such deposits will remain with us.

The Company has the ability to attract and retain deposits by adjusting the interest rates offered.

Liquidity Used in Stock Repurchases and Cash Dividends

Under the Company’s stock repurchase program, shares of OceanFirst Financial Corp.

1 unchanged sentence

The repurchased shares are held as treasury stock for general corporate purposes.

For the year ended December 31, 2022, the Company repurchased 373,223 shares of its common stock at a total cost of $7.4 million.

For the year ended December 31, 2021, the Company repurchased 1,711,484 shares of its common stock at a total cost of $36.1 million.

For the year ended December 31, 2023, the Company did not repurchase any shares of its common stock.

At December 31, 2023, there were 2,934,438 shares available to be repurchased under the authorized stock repurchase program.

Cash dividends on common stock declared and paid during the year ended December 31, 2023 were $47.3 million, as compared to $43.5 million for the prior year.

The increase in dividends was a result of an increase in the dividend rate from $0.17 to $0.20 per common share.

On January 19, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.20 per common share.

The dividend was paid on February 17, 2023 to common stockholders of record at the close of business on February 6, 2023.

Cash dividends on preferred stock declared and paid during the years ended December 31, 2023 and 2022 were $4.0 million for both periods.

The Company’s Board of Directors also declared a quarterly cash dividend of $0.4375 per depositary share, representing 1/40th interest in the Series A Preferred Stock, paid on February 15, 2023 to preferred stockholders of record on January 31, 2023.

The Company’s ability to continue to pay dividends remains dependent upon capital distributions from the Bank, which may be adversely affected by capital restraints imposed by applicable regulations.

1 unchanged sentence

If applicable regulations or regulatory bodies prevent the Bank from paying a dividend to the Company, the Company may not have the liquidity necessary to pay a dividend in the future or pay a dividend at the same rate as historically paid or be able to meet current debt obligations.

Additionally,

regulations of the Federal Reserve may prevent the Company from either paying or increasing the cash dividend to common stockholders.

Additionally, regulations of the Federal Reserve may prevent the Company from either paying or increasing the cash dividend to common stockholders.

Capital Management

The Company manages its capital sources, uses, and expected future needs through its Treasury function and the Asset Liability Committee.

The Company has an internal policy that addresses capital and management monitors the adherence to policy limits to satisfy current and future capital needs.

The policy includes internal limits, monitoring of key indicators, sources and availability, intercompany transactions, forecasts and stress testing, and other qualitative and quantitative metrics.

Additionally, management performs multiple capital stress test scenarios on a quarterly basis, varying loan growth, earnings, access to the capital markets, credit losses, and mark-to-market losses in the investment portfolio, including both available-for-sale and held-to-maturity.

As of December 31, 2023, the Bank and Parent Company continued to maintain adequate capital under all stress scenarios, including a scenario where all losses related to the investment securities portfolio are realized.

The Bank and the Parent Company also have detailed contingency capital plans and obtain comprehensive reporting of capital trends on a regular basis, which are reviewed by management and the Board.

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

See Regulation and Supervision—Bank Regulation – Capital Requirements .

At December 31, 2022, the Company maintained stockholders’ equity to total assets ratio of 12.10%.

At December 31, 2023 and 2022, the Company maintained stockholders’ equity to total assets ratio of 12.28% and 12.10%, respectively.

Critical Accounting Policies and Estimates

Note 1 Summary of Significant Accounting Policies to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2023 contains a summary of significant accounting policies.

Various elements of these accounting

policies, by their nature, are subject to estimation techniques, valuation assumptions and other subjective assessments.

Certain assets are carried on the consolidated statements of financial condition at estimated fair value or the lower of cost or estimated fair value.

The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition.

The critical accounting policy and its application is reviewed periodically, and at least annually, with the Audit Committee of the Board of Directors.

The Company adopted Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326).

Allowance for credit losses in accordance with ASU 2016-13 was a critical accounting policy in the preparation of the consolidated financial statements as of and for the period ended December 31, 2023.

Goodwill in accordance with ASC 350, Intangibles - Goodwill and Other was a critical accounting estimate in the preparation of the consolidated financial statements as of and for the period ended December 31, 2023.

Allowance for Credit Losses (“ACL”)

The Company’s methodology to measure the ACL incorporates both quantitative and qualitative information to assess lifetime

expected credit losses at the portfolio segment level.

The quantitative component of the ACL involves assumptions that require a significant level of estimation;

these include historical losses as a predictor of future performance, and the accuracy of macro-economic forecasts over a reasonable and supportable forecast period.

The Company has elected to use an open pool method and extends its look back period each quarter to capture as many data points as possible in its historical loss rate calculation.

A historical data set is expected to provide the best indication of future credit performance.

Macro-economic forecasts used in the quantitative analysis are provided by a leader in global forecasting.

The Company uses the base case macro-economic forecast to reflect the consensus view of future economic conditions.

Electing scenarios that are stronger or weaker than the base case would reduce or increase, respectively, the ACL measurement.

The Company measures the accuracy of the macro-economic forecasts quarterly to identify any material deviations that would be considered for a qualitative adjustment.

The Company assumes a reasonable and supportable forecast period of eight quarters and a reversion period of four quarters based on the analysis of historical U.S.