OCFC filing — read by section

Item 1. Business

Item 1. Business 

 
 
 
 General 
 OceanFirst Financial Corp. (the “Company”) is incorporated under Delaware law and serves as the holding company for OceanFirst Bank N.A. (the “Bank”). At December 31, 2023, the Company had consolidated total assets of $13.5 billion and total stockholders’ equity of $1.7 billion. The Company is subject to regulation by the Board of Governors of the Federal Reserve System (the “FRB”) and the Securities and Exchange Commission (the “SEC”). The Bank is primarily subject to regulation and supervision by the Office of the Comptroller of the Currency (the “OCC”) and the Consumer Financial Protection Bureau (the “CFPB”). Currently, the Company transacts the vast majority of its business through the Bank, its subsidiary. 
 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 Bank’s principal business is originating loans, consisting of commercial real estate and other commercial loans, which have become a key focus of the Bank, and single-family, owner-occupied residential mortgage loans. The Bank also invests in other types of loans, including residential construction and consumer loans. The Bank primarily funds these loans by attracting retail and commercial deposits. In addition, the Bank invests in mortgage-backed securities (“MBS”), securities issued by the U.S. Government and agencies thereof, corporate securities and other investments permitted by applicable law and regulations. 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 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 . The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are available free of charge through its website, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The Company’s website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K. 
 Forward-Looking Statements 
 In addition to historical information, this Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project”, “will”, “should”, “may”, “view”, “opportunity”, “potential”, or similar expressions or expressions of confidence. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, those items discussed under Item 1A. Risk Factors herein and the following: changes in interest rates, 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 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. 
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 These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. 
 
 
 
 Market Area and Competition 
 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. The area is home to commuters working in and around New York City and Philadelphia and also includes a significant number of vacation and second homes in the communities along the New Jersey shore. In addition, the Bank provides banking services through teams located in the major metropolitan markets of Philadelphia, New York, Baltimore, and Boston. 
 The Bank’s future growth opportunities will be influenced by the growth and stability of its geographic marketplace and the competitive environment. The Bank faces significant competition 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, insurance companies, private lenders, and government sponsored enterprises. 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, extraordinary customer service and local decision-making. 
 
 Community Involvement 
 The Bank promotes efforts to enhance the quality of life in the communities it serves through employee volunteer efforts and the work of OceanFirst Foundation (the “Foundation”). Employees are encouraged to help their neighbors in many ways and receive up to eight hours of Bank-paid volunteer time each year. 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 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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 Lending Activities 
 Loan Portfolio Composition . 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 $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, 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. Interest rates charged by the Bank on loans are affected by the demand for such loans and the supply of money available for lending purposes and the rates offered by competitors. These factors are, in turn, affected by, among other things, economic conditions, monetary policies of the federal government, including the FRB, and legislative and tax policies. 
 
 
 The following table sets forth the composition of the Bank’s loan portfolio in dollar amounts and as a percentage of the portfolio at the dates indicated: 
 
 At December 31, 
 2023 2022 2021 
 Amount Percent
of Total Amount Percent
of Total Amount Percent
of Total 
 (dollars in thousands) 
 Commercial real estate $ 6,297,865 61.75 % $ 6,169,319 62.20 % $ 5,433,126 63.01 % 
 Commercial and industrial 666,532 6.53 622,372 6.27 449,224 5.21 
 Residential real estate 2,984,700 29.26 2,862,681 28.86 2,479,701 28.76 
 
 Consumer (1) 
 250,664 2.46 264,372 2.67 260,819 3.02 
 Total loans 10,199,761 100.00 % 9,918,744 100.00 % 8,622,870 100.00 % 
 
 Deferred origination costs (fees), net 9,263 7,488 9,332 
 Allowance for loan credit losses (67,137) (56,824) (48,850) 
 Loans receivable, net 10,141,887 9,869,408 8,583,352 
 Less: 
 Loans held for sale 5,166 690 — 
 Total loans receivable, net $ 10,136,721 $ 9,868,718 $ 8,583,352 
 Total loans: 
 Fixed rate $ 5,696,173 55.85 % $ 5,760,562 58.08 % $ 5,459,920 63.32 % 
 Adjustable rate 4,503,588 44.15 4,158,182 41.92 3,162,950 36.68 
 $ 10,199,761 100.00 % $ 9,918,744 100.00 % $ 8,622,870 100.00 % 

 (1) Consists primarily of home equity loans, home equity lines of credit, student loans, and, to a lesser extent, loans on savings accounts and overdraft lines of credit. 
 
 
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 Loan Maturity . The following table shows the contractual maturity of the Bank’s total loans at December 31, 2023. The table does not include principal prepayments: 
 
 At December 31, 2023 
 Commercial Real Estate Commercial
and
Industrial Residential 
Real Estate Consumer Total
Loans
Receivable 
 (in thousands) 
 One year or less $ 697,407 $ 190,233 $ 6,014 $ 2,565 $ 896,219 
 After one year: 
 More than one year to five years 2,956,038 344,282 26,257 69,309 3,395,886 
 More than five years to fifteen years 2,579,185 108,722 286,828 110,606 3,085,341 
 More than fifteen years 65,235 23,295 2,665,601 68,184 2,822,315 
 
 
 Total due after December 31, 2024 5,600,458 476,299 2,978,686 248,099 9,303,542 
 Total amount due $ 6,297,865 $ 666,532 $ 2,984,700 $ 250,664 10,199,761 
 
 Deferred origination costs (fees), net 9,263 
 Allowance for loan credit losses (67,137) 
 Loans receivable, net $ 10,141,887 
 Less: loans held-for-sale 5,166 
 Total loans receivable, net $ 10,136,721 

 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 
 Fixed Adjustable Total 
 (in thousands) 
 Commercial real estate $ 2,409,071 $ 3,191,387 $ 5,600,458 
 Commercial and industrial 156,875 319,424 476,299 
 Residential real estate 2,668,544 310,142 2,978,686 
 
 Consumer 135,533 112,566 248,099 
 Total loans receivable $ 5,370,023 $ 3,933,519 $ 9,303,542 

 Commercial Real Estate . 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. 
 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. 
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 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 
 Other (1) 
 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. 
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 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. 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 
 Other (5) 
 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 

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 (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 . At December 31, 2023, commercial and industrial (“C&I”) loans totale d $666.5 million, or 6.5% of the Bank’s total loans outstanding. The Bank originates C&I loans and lines of credit (including for working capital, fixed asset purchases, and acquisition, receivable, and inventory financing) primarily in the Bank’s market are a. In underwriting C&I loans and credit lines, the Bank reviews and analyzes the financial history and capacity of the borrower, collateral value, financial strength and character of the principal borrowers, and general payment history of the principal borrowers in coming to a credit decision. The Bank generally originates C&I loans secured by the assets of the business including accounts receivable, inventory, and fixtures. The Bank generally requires the personal guarantee of the principal borrowers for all C&I loans. Risk of loss on a C&I business loan is dependent largely on the borrower’s ability to remain financially able to repay the loan from the ongoing operations of the business. In addition, any collateral securing such loans may depreciate over time, may be difficult to appraise, and may fluctuate in value. 
 Consumer: Residential Real Estate . The Bank offers both fixed-rate and adjustable-rate mortgage (“ARM”) loans secured by one-to-four family residences with maturities up to 30 years. The majority of such loans are secured by property located in the Bank’s primary market area. 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, 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. To a lesser extent, and included in this activity, are residential mortgage loans secured by seasonal second homes, non-owner occupied investment properties and construction loans. 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 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. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. In order to minimize risks, borrowers of ARM loans with an initial fixed period of five years or less must qualify based on the greater of the note rate plus 2% or the fully-indexed rate. Seven- to ten-year ARM loans must qualify based on the note rate. The Bank does not originate ARM loans that can result in negative amortization. 
 The Bank’s fixed-rate mortgage loans are currently made for terms from ten to 30 years. 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 
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 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. Appraisals are obtained for loans secured by real estate properties. The weighted average loan-to-value ratio of the Bank’s residential real estate loans, excluding purchased loan pools, was 59% at December 31, 2023 based on appraisal values at the time of origination. Title insurance is typically required for first mortgage loans. Residential mortgage loans originated by the Bank include due-on-sale clauses which provide the Bank with the contractual right to declare the loan immediately due and payable in the event the borrower transfers ownership of the property without the Bank’s consent. Due-on-sale clauses are an important means of adjusting the rates on the Bank’s fixed-rate residential mortgage loan portfolio and the Bank has generally exercised its rights under these clauses. 
 The Bank has made, and may continue to make, residential mortgage loans that will not qualify as Qualified Mortgage Loans under the Dodd-Frank Act and the CFPB regulations. See Risk Factors – Risks Related to Lending Activities – The Dodd-Frank Act imposes obligations on originators of residential mortgage loans . 
 Included in the Bank’s residential real estate loan balance at December 31, 2023 were residential construction loans which totaled $110.0 million. The Bank originates residential construction loans primarily on a construction to permanent basis with such loans converting to an amortizing loan following the completion of the construction phase. All of the Bank’s residential construction loans are made to individuals building a residence. 
 Construction lending, by its nature, entails additional risks compared to residential real estate lending, attributable primarily to the fact that funds are advanced based upon a security interest in a project which is not yet complete. Risk of loss on a construction loan depends largely upon whether the initial estimate of the property's value at completion of construction equals or exceeds the cost of the property construction. During the construction phase, a number of factors can result in delays and cost overruns. If estimates of value are inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed. The Bank addresses these risks through its underwriting policies and procedures and its experienced staff. 
 Other Consumer: Home Equity Lines and Loans, Student Loans and Other Consumer . At December 31, 2023, th e Bank’s other consumer loans totaled $250.7 million, or 2.5% of the Bank’s total loan portfolio. Of the total consumer loan portfolio, home equity loans comprised $112.7 million; home equity lines of credit comprised $86.4 million; and student loans comprised $19.0 million. 
 The Bank originates home equity loans typically as fixed-rate loans with terms ranging from five to 20 years. The Bank also offers variable-rate home equity lines of credit. Home equity loans and lines of credit are originated based on the applicant’s income and their ability to repay and are secured by a mortgage on the underlying real estate, typically owner-occupied, one-to-four family residences. Generally, the loan when combined with the balance of any applicable first mortgage lien, may not exceed 80% of the appraised value of the property at the time of the loan commitment. The Bank charges an early termination fee should a home equity loan or line of credit be closed within two or three years of origination. A borrower is required to make monthly payments of principal and interest, at a minimum of $50, based upon a 10-, 15- or 20-year amortization period. Certain home equity lines of credit require the payment of interest-only during the first five years with fully-amortizing payments thereafter. At December 31, 2023, these loans totaled $5.7 million , as compared to $7.8 million at December 31, 2022. 
 Generally, the adjustable rate of interest charged is based upon the prime rate of interest (as published in the Wall Street Journal), although the range of interest rates charged may vary from 1.0% below prime to 1.5% over prime. The loans have an 18% lifetime cap on interest rate adjustments. 
 Other consumer loans may entail greater risk than residential real estate loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness, or personal bankruptcy. 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. 
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 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. These lines are originated based on the value of the collateral and secured by an assignment of the whole life policy. Borrowers are subject to minimum credit scores and maximum debt to income ratios, but the guidelines are less stringent than a mortgage or home equity loan/line as the line is fully secured by the underlying insurance policy. Interest rates charged are set at the time of origination and payments are interest-only based on the amount of the outstanding balance. Loan to values are limited to 95% of the cash surrender value of the whole life policy. Each line matures in 36 months and is subject to renewal at current rates and terms. At December 31, 2023, these loans totaled $31.1 million. 
 Loan Approval Procedures and Authority . The Loan Committee of the Board of Directors (“Board”) establishes the loan approval policies of the Bank based on total exposure to the individual borrower. The Board has authorized the approval of loans by a minimum of two officers of the Bank or the Management Credit Committee, on a scale which requires approval by personnel with progressively higher levels of credit approval authority as the loan amount increases. Pursuant to applicable regulations, loans to one borrower generally cannot exceed 15% of the Bank’s unimpaired capital. 
 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 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. 
 Loan Servicing . Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, making inspections as required of mortgaged premises, contacting delinquent borrowers, supervising foreclosures and property dispositions in the event of defaults, making certain insurance and tax payments on behalf of the borrowers, and generally administering the loans. The Bank also services mortgage loans for others. All of the loans currently being serviced for others are loans which were originated by the Bank. At December 31, 2023, the Bank was servicing $68.2 million of loans for others. 
 Delinquencies and Classified Assets . The steps taken by the Bank with respect to delinquencies vary depending on the nature of the loan and period of delinquency. When a borrower fails to make a required payment on a loan, the Bank takes a number of steps to have the borrower cure the delinquency and restore the loan to current status. The Bank sends the borrower a written notice of non-payment after the loan is first past due. In the event payment is not then received, additional letters and phone calls generally are made. The Bank may offer to modify the terms or take other forbearance actions which afford the borrower an opportunity to satisfy the loan terms. If the loan is still not brought current and it becomes necessary for the Bank to take legal action, which typically occurs after a loan is delinquent at least 120 days or more, the Bank will either: (i) commence litigation to acquire the collateral, including foreclosure proceedings against any real property that secures the loan; 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. Foreclosure timelines in New Jersey are among the longest in the nation and have remained protracted over the past several years. 
 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 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 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’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 
 11 

 
 

 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. During 2022, the Company sold its remaining OREO and there was no OREO as of December 31, 2023 and 2022. 
 
 At December 31, 
 2023 2022 2021 
 (dollars in thousands) 
 Non-performing loans (1) 
 $ 29,548 $ 23,265 $ 25,494 
 OREO — — 106 
 Non-performing assets (1) 
 $ 29,548 $ 23,265 $ 25,600 
 Allowance for loan credit losses as a percent of total loans receivable (2) 
 0.66 % 0.57 % 0.57 % 
 Allowance for loan credit losses as a percent of total non-performing loans (1) (2) 
 227.21 244.25 191.61 
 Non-performing loans as a percent of total loans receivable (1) 
 0.29 0.23 0.30 
 Non-performing assets as a percent of total assets (1) 
 0.22 0.18 0.22 

 (1) Non-performing loans consist of all loans 90 days or more past due and other loans in the process of foreclosure. Non-performing assets consist of non-performing loans and OREO. 
 (2) 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 $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”): Under the current expected credit loss (“CECL”) model, the ACL on financial assets is a valuation allowance estimated at each balance sheet date in accordance with generally accepted accounting principles (“GAAP”) that is deducted from the financial assets’ amortized cost basis to present the net amount expected to be collected on the financial assets. The CECL model also applies to certain off-balance sheet credit exposures. 
 The Company estimates the loan ACL based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to write-off accrued interest receivable by reversing interest income in a timely manner. 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 and Estimates, Allowance for Credit Losses . 
 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 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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 The following table sets forth activity in the Bank’s loan ACL for the periods set forth in the table: 
 
 At or for the Year Ended December 31, 
 2023 2022 2021 
 (dollars in thousands) 
 Balance at beginning of year $ 56,824 $ 48,850 $ 60,735 
 Charge-offs: 
 Commercial real estate (1) 
 8,356 70 410 
 Commercial and industrial 129 60 154 
 Residential real estate — 56 254 
 Other consumer 208 387 213 
 Total charge-offs 8,693 573 1,031 
 Recoveries 311 913 1,492 
 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): 
 
 At or for the Year Ended December 31, 
 2023 2022 2021 
 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 — % 
 Commercial and industrial 104 — (95) — 30 — 
 Residential real estate (43) — (100) — (98) — 
 Other consumer (15) — 10 — (598) (0.01) 
 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 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 
 ACL Amount Percent of
ACL
to Total
ACL Percent
of Loans to Total
Loans ACL Amount Percent of
ACL
to Total
ACL Percent
of Loans to Total
Loans ACL Amount Percent of
ACL
to Total
ACL Percent
of Loans to Total
Loans 
 Commercial real estate $ 32,253 48.04 % 61.75 % $ 25,493 44.86 % 62.20 % $ 31,388 64.24 % 63.01 % 
 Commercial and industrial 6,867 10.23 6.53 5,695 10.02 6.27 5,039 10.32 5.21 
 Residential real estate 27,029 40.26 29.26 24,530 43.17 28.86 11,155 22.84 28.76 
 Other consumer 988 1.47 2.46 1,106 1.95 2.67 1,268 2.60 3.02 
 
 Total $ 67,137 100.00 % 100.00 % $ 56,824 100.00 % 100.00 % $ 48,850 100.00 % 100.00 % 

 13 

 
 
 

 Investment Activities 
 The Bank views its securities portfolio primarily as a source of income and liquidity. Interest and principal payments generated from securities provide a source of liquidity to fund loans and meet short-term cash needs. The portfolio is also used to provide collateral for qualified deposits and borrowings and to manage interest rate risk. 
 The investment policy is overseen by the Board of Directors and generally limits investments to government and federal agency obligations, agency and non-agency mortgage-backed securities, municipal, corporate, and asset-backed securities. The Company’s investment policy mirrors that of the Bank except that it allows for the purchase of certain other debt, preferred stock, and equity securities in limited amounts. The Board of Directors has delegated authority to implement the investment policy to the Company and Bank’s Investment Committees under the oversight of the Asset Liability Committee. Day-to-day management of the portfolio rests with the Treasurer. 
 Classification of securities are determined by management at the time of purchase. If the Bank has the intent and the ability at the time of purchase to hold debt securities until maturity, they may be classified as held-to-maturity. Debt securities identified as held-to-maturity are carried at cost, adjusted for amortization of premium and accretion of discount, which are recognized as adjustments to interest income. Debt securities to be held for indefinite periods of time, but not necessarily to maturity, are classified as available-for-sale. Such debt securities are carried at an estimated fair value and unrealized gains and losses, net of tax effect, are included as a separate component of stockholders’ equity. Refer to Note 4 Securities, to the Consolidated Financial Statements. 
 The majority of the Bank’s residential and commercial mortgage-backed securities are issued or guaranteed by an agency of the U.S. government including Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), and Government National Mortgage Association (“GNMA”). Agency mortgage-backed securities along with obligations issued directly by the U.S. 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. government, agency, and agency guaranteed obligations are rated AA+ by Standard and Poor’s and Aaa by Moody’s. 
 The municipal portfolio provides tax-advantaged yield and diversification of risk and is generally comprised of general obligation and revenue bonds issued by states, cities, counties and other governmental entities to fund day-to-day obligations and to finance capital projects such as building schools, highways, sewer systems, hospitals, or other critical infrastructure. The asset-backed securities portfolio provides attractive yields and diversification of risk and is largely comprised of senior classes of collateralized loan obligations that invest in U.S. based broadly syndicated and middle market loans. The corporate debt securities portfolio is comprised of U.S. financial services and industrial companies that exhibit strong credit characteristics and provide attractive returns. The Bank may occasionally invest in non-agency residential or commercial mortgage-backed securities that are rated investment grade depending on credit and return on investment profiles. The vast majority of municipal, asset-backed, corporate, and other mortgage-backed securities are issued by entities with current credit ratings by one of the nationally recognized statistical rating organizations that are considered investment grade. See Note 4 Securities, to the Consolidated Financial Statements. 
 The ta ble below sets forth certain information regarding the amortized cost, weighted average yield, and contractual maturities, excluding scheduled principal amortization, of the Bank’s debt securities as of December 31, 2023. The weighted average yield is calculated based on the yield to maturity weighted for the size of each debt security over the entire portfolio of debt securities. The weighted average yields on tax-exempt obligations have been computed on a tax-equivalent basis. 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. 
 14 

 
 

 
 At December 31, 2023 
 Total 
 One Year 
or Less Amortized Cost Weighted Average Yield More than One Year to Five Years Amortized Cost Weighted Average Yield More than Five Years to Ten Years Amortized Cost Weighted Average Yield More than Ten Years Amortized Cost Weighted Average Yield Amortized
Cost Estimated
Fair
Value 
 (dollars in thousands) 
 U.S. government and agency obligations $ 11,500 2.43 % $ 40,587 1.20 % $ 14,403 1.50 % $ — — % $ 66,490 $ 60,694 
 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) 
 504 4.62 57,838 5.79 13,159 4.90 8,404 8.81 79,905 75,385 
 Asset-backed securities (2) 
 — — — — 124,145 7.56 171,651 7.62 295,796 291,544 
 
 
 Mortgage-backed securities (3) : 
 
 Agency residential 314 4.22 22,828 2.34 66,405 2.40 974,192 3.84 1,063,739 994,686 
 Agency commercial — — 44,963 2.49 77,228 1.96 70,133 5.70 192,324 173,401 
 Non-agency commercial — — — — — — 20,684 2.44 20,684 18,910 
 
 
 Total mortgage-backed securities $ 314 4.22 % $ 67,791 2.44 % $ 143,633 2.16 % $ 1,065,009 3.94 % $ 1,276,747 $ 1,186,997 
 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) $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 stocks, investments in other financial institutions and funds. 
 
 Sources of Funds 
 General . 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 changes in market interest rates, competition, general economic conditions, including levels of unemployment and real estate values, and inflation. 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”). 
 Deposits . The Bank offers a variety of deposit accounts with a range of interest rates and terms to retail, government, and business customers. The Bank’s deposits consist of money market accounts, savings accounts, interest-bearing checking accounts, non-interest-bearing accounts, and time deposits, including brokered deposits. 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, 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. 
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 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 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: 
 
 Maturity Period Time Deposits Weighted
Average Rate 
 (dollars in thousands) 
 Three months or less $ 252,715 4.31 % 
 Over three through six months 104,441 4.60 
 Over six through twelve months 50,513 4.39 
 Over twelve months 4,296 0.65 
 Total $ 411,965 4.36 % 

 The following table sets forth the distribution of the Bank’s average deposit accounts and the average rate paid on those deposits for the periods indicated: 
 
 For the Year Ended December 31, 
 2023 2022 2021 
 Average
Balance Percent
of Total
Average
Deposits Average
Rate
Paid Average
Balance Percent
of Total
Average
Deposits Average
Rate
Paid Average
Balance Percent
of Total
Average
Deposits Average
Rate
Paid 
 (dollars in thousands) 
 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 
 Savings accounts 1,364,333 13.29 0.68 1,597,648 16.12 0.05 1,581,472 16.40 0.04 
 Time deposits 2,440,829 23.78 3.74 1,167,499 11.78 1.43 985,328 10.22 1.02 
 Total average deposits $ 10,264,786 100.00 % 1.68 % $ 9,913,357 100.00 % 0.31 % $ 9,643,969 100.00 % 0.26 % 

 Borrowings . The Bank also obtains advances from the FHLB and other sources for cash management and interest rate risk management purposes or as an alternative to deposits. Advances are collateralized primarily by certain of the Bank’s mortgage loans and debt securities and secondarily by the Bank’s investment in capital stock of the FHLB. The maximum amount that the FHLB will advance to member institutions, including the Bank, fluctuates from time-to-time in accordance with the policies of the FHLB. At December 31, 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. Primary credit is available on a short-term basis, typically overnight, at a rate above the Federal Open Market Committee’s Federal funds target rate. All extensions of credit by the Federal Reserve Bank of Philadelphia must be secured. 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. 
 16 

 
 

 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 
 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. 
 
 Subsidiary Activities 
 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 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 Bancorp, Inc. in 2016. 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 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. as a direct subsidiary. OceanFirst Risk Management Inc. 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% interest in Trident Abstract Title Agency, LLC, a New Jersey corporation, which was acquired in 2022. This subsidiary provides commercial and residential title services throughout New Jersey, and through strategic alliances can also service clients’ title insurance needs outside of New Jersey. 
 Furthermore, the Company holds the following statutory business trusts: 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 to issue trust preferred securities. 
 
 Human Capital 
 OceanFirst’s long-term growth and success depends on its ability to attract, develop and retain a high-performing and diverse workforce. The Company strives to provide a work environment that promotes collaboration, productivity, and employee engagement, which in turn drives both employee and customer success, as well as benefits the communities. 
 The Company’s Board of Directors and Executive Team oversee the strategic management of the Company’s human capital resources and the Human Resources department manages the day-to-day of those resources. 
 Employee profile 
 As of December 31, 2023, the Bank had 857 full-time employees, 42 part-time employees, and 21 commissioned employees, for a total of 920 employees. 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. 
 17 

 
 

 Total rewards 
 As part of the Bank’s compensation philosophy, market competitive total rewards programs are maintained for employees to attract and retain superior talent. In addition to competitive base wages, additional programs include annual bonus compensation opportunities, a Bank Employee Stock Ownership Plan (“ESOP”), a Bank matched 401(k) Plan, health and welfare benefits, flexible spending accounts, paid time off, family leave, and employee assistance programs. Some employees also receive grants of equity awards in the Company’s stock and non-equity awards that mirror the Company’s stock performance. 
 In addition, the Bank promotes health and wellness by encouraging work-life balance, offering flexible work schedules and sponsoring various programs, focusing on mental, emotional, social, intellectual, and spiritual health. 
 Talent and Promoting Diversity 
 A core tenet of the Bank’s talent philosophy is to both develop talent from within and supplement with external hires. Whenever possible, the Bank seeks to fill positions by promotion and transfer from within the organization. The Bank’s talent acquisition team uses internal and external resources to recruit highly skilled and talented candidates; employee referrals are also encouraged. 
 The Company is dedicated to recruitment and career development practices that support its employees and promotes diversity in its workforce at all levels of the Company. The Company is committed to having a workforce that reflects the communities in which it serves. Partnerships are in place with several sources to assist in attracting diverse talent from a broad population, including African American, Asian American, and Latino chamber affiliations. In addition, career opportunities are shared with colleges and universities with diverse student bodies. 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. Other available tools are also utilized to connect with prospective new hires. As of December 31, 2023, 20% of the Bank’s employees were persons of color. 
 Following a multi-pronged recruiting strategy, which includes sourcing diverse candidate pools, new hires participate in an onboarding program which includes an introduction to the Bank’s culture, policies, and procedures. New employees are assigned an ambassador, who extends the integration process beyond the typical orientation experience. Retention strategies include espousing a culture that inspires loyalty and trust through ongoing communication of strategic initiatives and executive roundtable conversations, in addition to the benefits mentioned above in Total rewards . The Bank’s leadership development programs and opportunities offered through OceanFirst Bank University help ensure that motivated individuals have the opportunity for continuous improvement. Employees each maintain a professional development action plan and participate in regular evaluation and growth opportunities. The Bank’s peer recognition program provides the space for ongoing recognition and celebration of accomplishments. 
 This approach has yielded loyalty and commitment from employees which in turn grows the business, products, and customers. This approach has also added new employees and ideas, which support a continuous improvement mindset and the goals of a diverse and inclusive workforce. 
 The Bank strives to promote inclusion through defined Company values and behaviors. With the support from the Board of Directors, the Bank continues to explore additional diversity, equity, inclusion, and belonging efforts through multiple approaches to inclusion: candidates, employees, and the marketplace. The ongoing diversity and inclusion initiatives support a goal that everyone throughout the Company is engaged in creating an inclusive workplace. The Bank is focused on sourcing and hiring with fairness and equitable approaches, creating an environment where all employees can develop and thrive. 
 
 
 
 REGULATION AND SUPERVISION 
 
 General 
 The Company is a bank holding company (“BHC”) under Section 3 of the Bank Holding Company Act of 1956, as amended (the “BHC Act”). As a bank holding company, the Company is subject to the requirements of the BHC Act, including required approvals for investments in or acquisitions of banking organizations, or entities involved in activities that are deemed closely related to banking, capital adequacy standards, and limitations on nonbanking activities. The Company is registered with the FRB and is required by Federal law to file reports with, and comply with the rules and regulations of the FRB. The Bank is a member of the FHLB System and, with respect to deposit insurance, of the Deposit Insurance Fund (“DIF”) managed by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is subject to extensive regulation, examination, and supervision by the OCC, as its primary federal regulator, and the FDIC, as the deposit insurer. 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 
 18 

 
 

 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 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. 
 In addition, the Company elected to become a financial holding company under the Gramm-Leach Bliley Act (the “GLBA”) amendments to the BHC Act. Financial holding companies, and the nonbank companies under their control, are permitted to engage in activities considered financial in nature or incidental to financial activities and, if the FRB determines that they pose no risk to the safety or soundness of depository institutions or the financial system in general, activities that are considered complementary to financial activities. 
 The banking industry is highly regulated. Both the scope of the laws and regulations and the intensity of supervision to which the Company and the Bank are subject to have increased in recent years, in response to the financial crisis as well as other factors such as technological and market changes. Many of these changes have occurred as a result of the Dodd-Frank Act and its implementing regulations. In addition, in 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “EGRRCPA”) was enacted. This legislation includes targeted amendments to the Dodd-Frank Act and other financial services laws. 
 Statutory and regulatory controls increase a BHC’s cost of doing business and limit the options of its management to deploy assets and maximize income. The following discussion is not intended to be a complete list of all the activities regulated by the banking laws or of the impact of such laws and regulations on the Company or the Bank. It is intended only to briefly summarize some material provisions. 
 The description of statutory provisions and regulations applicable to national banks and BHCs set forth in this Form 10-K does not purport to be a complete description of such statutes and regulations and their effects on the Bank and the Company, is subject to change and is qualified in its entirety by reference to the actual laws and regulations involved. 
 The Dodd-Frank Act . The Dodd-Frank Act significantly changed the bank regulatory structure and affects the lending, deposit, investment, compliance, and operating activities of financial institutions and their holding companies. 
 The Dodd-Frank Act created the CFPB with broad p owers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over all banks with more than $10 billion in assets. 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. The Dodd-Frank Act requires originators to make a reasonable and good faith determination based on documented information that a borrower has a reasonable ability to repay a particular mortgage loan over the long term and establishes certain protections from liability under this requirement for “qualified mortgages”. The Ability-To-Repay/Qualified Mortgage Rule defines several categories of “qualified mortgage” loans, which obtain certain protections from liability. For further discussion, refer to Risk Factors – Risks Related to Lending Activities – The Dodd-Frank Act imposes obligations on originators of residential mortgage loans . 
 The Dodd-Frank Act also requires that the amount of any interchange fee received by a debit card issuer with respect to debit card transactions be reasonable and proportional to the cost incurred by the issuer with respect to the transaction. Rules adopted by the FRB to implement these requirements limit interchange fees per debit card transaction collected by banks with assets of $10 billion or 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, but 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, 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. 
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 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. The Bank has entered into relationships with a futures commission merchant and two central counterparty clearing houses. 
 Economic Growth, Regulatory Relief and Consumer Protection Act . EGRRCPA was intended to provide regulatory relief to midsized and regional banks. While many of its provisions are aimed at larger institutions, such as raising the threshold to be considered a systemically important financial institution to $250 billion in assets from $50 billion in assets, many of its provisions provide regulatory relief to those institutions with $10 billion or more in assets. Among other things, the EGRRCPA increased the asset threshold for depository institutions and holding companies to perform stress tests required under Dodd Frank from $10 billion to $250 billion in total consolidated assets, and raised the threshold for the requirement that publicly traded holding companies have a risk committee from $10 billion in consolidated assets to $50 billion in consolidated assets. 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. 
 Volcker Rule . Under the provisions of the Volcker Rule, insured depository institutions and companies affiliated with insured depository institutions (collectively, “banking entities”) are prohibited from: (i) engaging in short-term proprietary trading for their own account; and (ii) having certain investments in, and relationships with, hedge funds, private equity funds and similar funds, subject to certain exemptions, in each case as the applicable terms are defined in the Volcker Rule and the implementing regulations. The implementing regulations also require banking entities to establish and maintain a compliance program to ensure adherence with the Volcker Rule requirements. 
 
 Bank Holding Company Regulation 
 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 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 . The Dodd-Frank Act requires capital rules and the application of the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies. In addition to making bank holding companies subject to the same capital requirements as their bank subsidiaries, these provisions (often referred to as the Collins Amendment to the Dodd-Frank Act) were also intended to eliminate or significantly reduce the use of hybrid capital instruments, especially trust preferred securities, as regulatory capital. 
 At December 31, 2023 , the Company exceeded all regulatory capital requirements currently applicable. The following table presents the Company’s capital position at December 31, 2023 : 
 
 Capital 
 As of December 31, 2023 Actual Capital Required Capital Excess Amount Actual Percent Required Percent 
 OceanFirst Financial Corp: (dollars in thousands) 
 Tier 1 capital (to average assets) $ 1,218,142 $ 523,588 $ 694,554 9.31 % 4.00 % 
 Common equity Tier 1 (to risk-weighted assets) 1,088,542 701,778 386,764 10.86 7.00 (1) 
 
 Tier 1 capital (to risk-weighted assets) 1,218,142 852,159 365,983 12.15 8.50 (1) 
 
 Total capital (to risk-weighted assets) 1,413,400 1,052,667 360,733 14.10 10.50 (1) 
 

 (1) Includes the Capital Conservation Buffer of 2.50%. 
 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 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 
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 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 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 
 When the Bank converted to a national bank charter and the Company became a BHC, the Company elected to become a financial holding company. Financial holding companies may engage in a broader scope of activities than a BHC. In addition, financial holding companies may undertake certain activities without prior FRB approval. 
 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. Activities that are financial in nature include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and insurance agency activities; merchant banking; and activities that the FRB determines to be financial in nature or incidental to a financial activity or which are complementary to a financial activity and do not pose a safety and soundness risk. 
 A financial holding company that engages in activities that are financial in nature or incidental to a financial activity but not previously authorized by the FRB must obtain approval from the FRB before engaging in such activity. Also, a financial holding company may seek FRB approval to engage in an activity that is complementary to a financial activity, if it shows, among other things, that the activity does not pose a substantial risk to the safety and soundness of its insured depository institutions or the financial system. 
 A financial holding company generally may acquire a company (other than a BHC, bank, or savings association) engaged in activities that are financial in nature or incidental to activities that are financial in nature without prior approval from the FRB. Prior FRB approval is required, however, before the financial holding company may acquire control of more than 5% of the voting shares or substantially all of the assets of a BHC, bank, or savings association. In addition, under the FRB's merchant banking regulations, a financial holding company is authorized to invest in companies that engage in activities that are not financial in nature, as long as the financial holding company makes its investment with the intention of limiting the duration of the investment, does not manage the company on a day-to-day basis, and the company does not cross-market its products or services with any of the financial holding company's controlled depository institutions. 
 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 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. 
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 Regulation of Bank Subsidiary 
 Business Activities . The operations of the Bank are subject to requirements and restrictions under federal law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted, and limitations on the types of investments that may be made and the types of services which may be offered. Various consumer laws and regulations also affect the operations of the Bank. Approval of the OCC is required for branching, bank mergers in which the continuing bank is a national bank, and in connection with certain fundamental corporate changes affecting the Bank. There are various legal limitations, including Sections 23A and 23B of the Federal Reserve Act, as implemented by Regulation W, which govern the extent to which a bank subsidiary may finance or otherwise supply funds to its holding company or its holding company’s non-bank subsidiaries. 
 Capital Requirements . 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 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. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets. Unrealized gains and losses on certain available-for-sale securities are included for purposes of calculating regulatory capital unless a one-time opt-out is exercised. The Bank has exercised the opt-out. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, federal regulators take into consideration, not only these numeric factors, but qualitative factors as well, and have the authority to establish higher capital requirements for individual banks where necessary. 
 In addition to establishing the minimum regulatory capital requirements, regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.50% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. Both the Bank and the Company are in compliance with the capital conservation buffer requirements applicable to them. 
 The federal banking agencies, including the OCC, have also adopted regulations to require an assessment of an institution’s exposure to declines in the ec onomic value of a bank’s capital due to changes in interest rates when assessing the bank’s capital adequacy. Under such a risk assessment, examiners evaluate a bank’s capital for interest rate risk on a case-by-case basis, with consideration of both quantitative and qualitative factors. Institutions with significant interest rate risk may be required to hold additional capital. According to the federal banking agencies, applicable considerations include: quality of the bank’s interest rate risk management process; the overall financial condition of the bank; and the level of other risks at the bank for which capital is needed. 
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 At December 31, 2023, the Bank exceeded all regulatory capital requirements currently applicable . The following table presents the Bank’s capital position at December 31, 2023: 
 
 Capital 
 As of December 31, 2023 Actual
Capital Required
Capital Excess
Amount Actual
Percent Required
Percent 
 Bank: (dollars in thousands) 
 Tier 1 capital (to average assets) $ 1,155,896 $ 519,690 $ 636,206 8.90 % 4.00 % 
 Common equity Tier 1 (to risk-weighted assets) 1,155,896 694,620 461,276 11.65 7.00 (1) 
 
 Tier 1 capital (to risk-weighted assets) 1,155,896 843,467 312,429 11.65 8.50 (1) 
 
 Total capital (to risk-weighted assets) 1,226,154 1,041,930 184,224 12.36 10.50 (1) 
 

 (1) Includes the Capital Conservation Buffer of 2.50%. 
 Prompt Corrective Action. Federal law requires, among other things, that the federal bank regulatory authorities take prompt corrective action with respect to insured depository institutions that do not meet minimum capital requirements. For these purposes, the law establishes five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. The FDIC’s regulations define the five categories as follows: 
 An institution is classified as well capitalized if: 
 • it has a leverage ratio of 5% or greater; and 
 • it has common equity Tier 1 ratio of 6.5% or greater; and 
 • it has a Tier 1 risk-based capital ratio of 8% or greater; and 
 • it has a total risk-based capital ratio of 10% or greater; and 
 • 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: 
 • it has a leverage ratio of less than 4%; and 
 • it has a common equity Tier 1 ratio of 4.5% or greater; and 
 • it has a Tier 1 risk-based capital ratio of 6%; and 
 • it has a total risk-based capital ratio of 8% or greater. 
 An institution is classified as undercapitalized if: 
 • it has a leverage ratio of less than 4%; or 
 • it has a common equity Tier 1 ratio of less than 4.5%; or 
 • it has a Tier 1 risk-based capital ratio of less than 6%; or 
 • it has a total risk-based capital ratio of less than 8%. 
 An institution is classified as significantly undercapitalized if: 
 • it has a leverage ratio of less than 3%; or 
 • it has a common equity Tier 1 ratio of less than 3%; or 
 • it has a Tier 1 risk-based capital ratio of less than 4%; or 
 • 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 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 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. The OCC may also take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the issuance of a capital directive. 
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 Based on the regulatory guidelines, the Bank satisfies the criteria to be well-capitalized at December 31, 2023. 
 Insurance of Deposit Accounts . Deposit accounts at the Bank are insured by the DIF of the FDIC up to a maximum of $250,000 per separately insured depositor. 
 The FDIC charges insured depository institutions premiums to maintain the DIF. Under the FDIC’s risk-based assessment system, institutions deemed less risky pay lower FDIC assessments. Assessments for institutions with $10 billion or more of assets are primarily based on a scorecard approach by the FDIC, including factors such as examination ratings and modeling measuring the institution’s ability to withstand asset-related and funding-related stress and potential loss to the DIF should the bank fail. As a result of the increase in assessment rates, described below, the assessment range (inclusive of possible adjustments specified by the regulations) for institutions with greater than $10 billion of total assets is 2.5 to 42 basis points. 
 The FDIC has authority to increase insurance assessments. The FDIC adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points 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. The Bank cannot predict what assessment rates will be in the future. 
 The FDIC may terminate the insurance of an institution’s deposits upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. The management of the Bank does not know of any practice, condition, or violation that might lead to termination of deposit insurance. 
 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. As of December 31, 2023, the Bank was in compliance with the loans-to-one borrower limitations. 
 Limitation on Capital Distributions . Applicable regulations impose limitations upon all capital distributions by a banking institution, including cash dividends, payments to repurchase its shares and payments to stockholders of another institution in a cash-out merger. Under the regulations, an application to and the approval of the OCC, is required prior to any capital distribution if the total capital distributions for the calendar year exceeds net income for that year plus the amount of retained net income for the preceding two years. A national bank may not pay a dividend if it would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with the OCC. 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 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. If the Bank is unable for any reason to pay a dividend to the Company, the Company may not have the liquidity necessary to pay a dividend in the future, pay a dividend at the same rate as historically paid, be able to repurchase stock, or to meet current debt obligations. In addition, capital requirements made applicable to the Company as a result of the Dodd-Frank Act and Basel III may limit the Company’s ability to pay dividends or repurchase stock in the future. The Company may also be required to receive non-objection letters prior to performing any actions that may impact the Company’s capital. 
 Assessments . 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 $1.2 million and $1.4 million, respectively, for the years ended December 31, 2023 and 2022. 
 Transactions with Related Parties . The Bank’s authority to engage in transactions with affiliates (e.g., any company that controls or is under common control with an institution, including the Company and its non-bank subsidiaries) is limited by federal law. 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 
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 and surplus. 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. 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. All national banks have a responsibility under the CRA and related federal regulations to help meet the credit needs of their communities, including low- and moderate- income neighborhoods. In connection with its examination of a national bank, the OCC is required to evaluate and rate the bank’s record of compliance with the CRA. 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. A national bank’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on certain of its activities such as branching or mergers. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice. 
 
 Federal Home Loan Bank System 
 The Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional FHLBs. Each FHLB provides member institutions with a central credit facility. The Bank, as a member of the FHLB New York is required to acquire and hold shares of capital stock in that FHLB in a specified amount. The Bank was in compliance with this requirement with an investment in FHLB New York stock at December 31, 2023 and 2022 of $53.7 million and $69.4 million, respectively. 
 
 Federal Reserve System 
 The FRB regulations require depository institutions to maintain reserves against their transaction accounts (primarily interest-bearing checking and regular checking accounts). Effective March 26, 2020, the FRB reduced reserve requirement ratios to zero, effectively eliminating the requirements. The FRB indicated that it has no plans to re-impose reserve requirements but could in the future if conditions warrant. 
 In addition, as a national bank, the Bank is required to hold capital stock of the Federal Reserve Bank of Philadelphia. The required shares may be adjusted up or down based on changes to the Bank's common stock and paid-in surplus. The Bank is in compliance with these requirements, with a total investment in Federal Reserve Bank of Philadelphia stock of $39.7 million and $39.5 million at December 31, 2023 and 2022, respectively. 
 The Federal Reserve Bank of Philadelphia pays dividends on the common stock held by the Bank. However, the level of dividends is reduced for financial institutions that exceed a certain asset size. For 2023, the asset level is $12.12 billion, and 
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 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.
OCEANFIRST FINANCIAL CORP 10-K

Item 1. Business
