OCEANFIRST FINANCIAL CORP 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of OceanFirst Financial Corp.: Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition of OceanFirst Financial Corp. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows, for the years ended December 31, 2023 and 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years ended December 31, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowance for loan credit losses - Refer to Notes 1 and 5 to the financial statements Critical Audit Matter Description The allowance for loan credit losses (“ACL”) is management's estimate of credit losses currently expected over the life of the loan portfolio, or the amount of amortized cost basis not expected to be collected, at the balance sheet date. The Company’s methodology to measure the ACL incorporates both quantitative and qualitative information to assess lifetime expected credit losses at the portfolio segment level. The quantitative component includes the calculation of loss rates using an open pool method. Under this method, the Company calculates a loss rate based on historical loan level loss experience for portfolio segments with similar risk characteristics. The historical loss rate is adjusted for select macroeconomic variables that consider both historical trends as well as forecasted trends for a single economic scenario. The adjusted loss rate is calculated for an eight-quarter forecast period then reverts to the historical loss rate on a straight-line basis over four quarters. The Company considers qualitative adjustments to expected credit loss estimates for information not already captured in the loss estimation process. Qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses. 59 Adjustments will not be made for information that has already been considered and included in the quantitative allowance. Qualitative loss factors are based on management's judgment of company, market, industry or business specific data, changes in loan composition, performance trends, regulatory changes, uncertainty of macroeconomic forecasts, and other asset specific risk characteristics. We identified the ACL as a critical audit matter because of the complexity of the Company’s model and the significant assumptions used by management. Auditing the ACL required a high degree of auditor judgment and an increased extent of effort, including the need to involve credit specialists when performing audit procedures to evaluate the reasonableness of management’s model and assumptions. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to qualitative adjustments within the ACL included the following, among others: • We tested the design and operating effectiveness of management’s controls covering the key data, assumptions and judgments impacting the ACL. • We evaluated the appropriateness of the Company’s accounting policies and methodologies, involved in determining the ACL. • We involved credit specialists to assist us in evaluating the Company’s development of the CECL model, including the reasonableness of the models and the selection of and calibration to economic factors. • We assessed the reasonableness of the Company’s qualitative methodology, tested key calculations utilized within the qualitative estimate and agreed underlying data within the calculation to source documents. Goodwill - Refer to Note 1 to the financial statements Critical Audit Matter Description The Company performs an annual goodwill impairment test over the Company’s single reporting unit, as of August 31st or whenever certain triggering events occur or if changes in circumstances indicate potential impairment. An impairment charge is recognized when and to the extent the Company’s carrying amount is determined to exceed its fair value. The results of the quantitative assessment indicated that the fair value of the Company’s reporting unit exceeded its carrying amount as of the measurement date, which resulted in no impairment. The Company did not identify any triggering events between the annual assessment date and December 31, 2023. The Company estimated the fair value of its single reporting unit using a combination of an income approach and a market approach. The income approach utilized a discounted cash flow (“DCF”) analysis. A DCF analysis requires significant judgment to model financial forecasts, which includes loan and deposit growth, funding mix, income on securities, credit performance, forward interest rates, future returns driven by net interest margin, fee generation and expense incurrence, industry and economic trends, and other relevant considerations. For periods beyond those forecasted, a terminal value was estimated based on an assumed long-term growth rate, which was derived using the Gordon Growth Model. The discount rate applied to the forecasted cash flows was calculated using a build-up approach, which starts with the risk-free interest rate and then calibrated for market and company specific risk premiums, including a beta, equity risk, size, and company-specific risk premiums to reflect risks and uncertainties in the financial market and in the Company’s business projections. The market approach utilizes observable market data from comparable public companies, including price-to-tangible book value ratios, to estimate the Company’s fair value. The market approach also incorporates a control premium to represent the Company’s expectation of a hypothetical acquisition. Management uses judgment in the selection of comparable companies and includes those with similar business activities, and related operating environments. Auditing the fair value of the Company involves a high degree of subjectivity, including the need to involve our fair value specialists, as it relates to evaluating whether management's judgments in determining whether the financial forecasts, selection of terminal value growth rates and the weighted-average cost of capital used to determine the discount rates were appropriate. We also needed to evaluate whether management's judgement in selection of comparable companies within the market approach is appropriate. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the judgements made by management included the following, among others: 60 • We evaluated the reasonableness of the Company’s valuation methodologies as well as the weightings assigned to each analysis. • We tested the design and operating effectiveness of controls over goodwill, including financial forecasts, the selection of the terminal value growth rate, cost of equity used to determine the discount rate, and selection of control premium. • We evaluated the reasonableness of the Company’s financial forecasts, including forecasted revenue growth rates, by comparing to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in Company press releases and analyst reports of the Company and companies in its peer group. • With the assistance of our fair value specialists, we evaluated the discount rate, terminal value growth rate, and control premium used by the Company, including testing the underlying source information and the mathematical accuracy of the calculations by developing a range of independent estimates and comparing to those selected by management. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania February 23, 2024 We have served as the Company’s auditor since 2022. 61 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of OceanFirst Financial Corp.: Opinion on Internal Control Over Financial Reporting We have audited the internal control over financial reporting of OceanFirst Financial Corp. and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 23, 2024, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania February 23, 2024 62 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors OceanFirst Financial Corp.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows of OceanFirst Financial Corp. and subsidiaries (the Company) for the year ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations of the Company and its cash flows for the year ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ KPMG LLP We served as the Company’s auditor from 1989 to 2022. Short Hills, New Jersey February 25, 2022 63 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands, except per share amounts) December 31, 2023 December 31, 2022 Assets Cash and due from banks $ 153,718 $ 167,946 Debt securities available-for-sale, at estimated fair value (encumbered $ 304,340 at December 31, 2023 and $ 239,953 at December 31, 2022) 753,892 457,648 Debt securities held-to-maturity, net of allowance for securities credit losses of $ 1,133 at December 31, 2023 and $ 1,128 at December 31, 2022 (estimated fair value of $ 1,068,438 at December 31, 2023 and $ 1,110,041 at December 31, 2022) (encumbered $ 850,634 at December 31, 2023 and $ 778,268 at December 31, 2022) 1,159,735 1,221,138 Equity investments 100,163 102,037 Restricted equity investments, at cost 93,766 109,278 Loans receivable, net of allowance for loan credit losses of $ 67,137 at December 31, 2023 and $ 56,824 at December 31, 2022 10,136,721 9,868,718 Loans held-for-sale 5,166 690 Interest and dividends receivable 51,874 44,704 Premises and equipment, net 121,372 126,705 Bank owned life insurance 266,498 261,603 Assets held for sale 28 2,719 Goodwill 506,146 506,146 Core deposit intangible 9,513 13,497 Other assets 179,661 221,067 Total assets $ 13,538,253 $ 13,103,896 Liabilities and Stockholders’ Equity Deposits $ 10,434,949 $ 9,675,206 Federal Home Loan Bank ("FHLB") advances 848,636 1,211,166 Securities sold under agreements to repurchase with customers 73,148 69,097 Other borrowings 196,456 195,403 Advances by borrowers for taxes and insurance 22,407 21,405 Other liabilities 300,712 346,155 Total liabilities 11,876,308 11,518,432 Stockholders’ equity: Preferred stock, $ 0.01 par value, $ 1,000 liquidation preference, 5,000,000 shares authorized, 57,370 shares issued at both December 31, 2023 and December 31, 2022 1 1 Common stock, $ 0.01 par value, 150,000,000 shares authorized, 62,182,767 and 61,877,686 shares issued at December 31, 2023 and December 31, 2022, respectively; and 59,447,684 and 59,144,128 shares outstanding at December 31, 2023 and December 31, 2022, respectively 613 612 Additional paid-in capital 1,161,755 1,154,821 Retained earnings 592,542 540,507 Accumulated other comprehensive loss ( 20,862 ) ( 35,982 ) Less: Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") ( 3,780 ) ( 6,191 ) Treasury stock, 2,735,083 and 2,733,558 shares at December 31, 2023 and December 31, 2022, respectively ( 69,106 ) ( 69,106 ) OceanFirst Financial Corp. stockholders’ equity 1,661,163 1,584,662 Non-controlling interest 782 802 Total stockholders’ equity 1,661,945 1,585,464 Total liabilities and stockholders’ equity $ 13,538,253 $ 13,103,896 See accompanying Notes to Consolidated Financial Statements. 64 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amount) For the Year Ended December 31, 2023 2022 2021 Interest income: Loans $ 521,865 $ 390,386 $ 315,237 Debt securities 59,273 34,407 22,033 Equity investments and other 26,836 6,382 4,822 Total interest income 607,974 431,175 342,092 Interest expense: Deposits 172,018 31,021 25,210 Borrowed funds 66,225 22,677 11,544 Total interest expense 238,243 53,698 36,754 Net interest income 369,731 377,477 305,338 Provision for credit losses (benefit) 17,678 7,768 ( 11,832 ) Net interest income after provision for credit losses (benefit) 352,053 369,709 317,170 Other income: Bankcard services revenue 5,912 9,219 13,360 Trust and asset management revenue 2,529 2,386 2,336 Fees and service charges 21,254 22,802 13,833 Net gain on sales of loans 428 358 3,186 Net (loss) gain on equity investments ( 3,732 ) 9,685 7,145 Net gain (loss) from other real estate operations — 48 ( 15 ) Income from bank owned life insurance 5,280 6,578 6,832 Commercial loan swap income 741 7,065 4,095 Other 1,212 953 1,159 Total other income 33,624 59,094 51,931 Operating expenses: Compensation and employee benefits 135,802 131,915 120,014 Occupancy 21,188 20,817 20,481 Equipment 4,650 4,987 5,443 Marketing 4,238 2,947 2,169 Federal deposit insurance and regulatory assessments 11,157 7,359 6,155 Data processing 24,835 23,095 21,570 Check card processing 4,640 4,971 5,182 Professional fees 18,297 12,993 11,043 Amortization of core deposit intangible 3,984 4,718 5,453 Branch consolidation expense, net 70 713 12,337 Merger related expenses 22 2,735 1,503 Other operating expense 20,029 17,631 15,510 Total operating expenses 248,912 234,881 226,860 Income before provision for income taxes 136,765 193,922 142,241 Provision for income taxes 32,700 46,565 32,165 Net income 104,065 147,357 110,076 Net income attributable to non-controlling interest 36 754 — Net income attributable to OceanFirst Financial Corp. 104,029 146,603 110,076 Dividends on preferred shares 4,016 4,016 4,016 Net income available to common stockholders $ 100,013 $ 142,587 $ 106,060 Basic earnings per share $ 1.70 $ 2.43 $ 1.79 Diluted earnings per share $ 1.70 $ 2.42 $ 1.78 Average basic shares outstanding 58,948 58,730 59,406 Average diluted shares outstanding 58,957 58,878 59,649 See accompanying Notes to Consolidated Financial Statements. 65 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) For the Year Ended December 31, 2023 2022 2021 Net income $ 104,065 $ 147,357 $ 110,076 Other comprehensive income (loss): Unrealized gain (loss) on debt securities (net of tax expense of $ 4,560 in 2023, and tax benefit of $ 10,629 and $ 1,142 in 2022 and 2021, respectively) 14,312 ( 33,402 ) ( 3,837 ) Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $ 213 , $ 242 and $ 272 in 2023, 2022, and 2021, respectively) 290 348 395 Unrealized loss on derivative hedges (net of tax benefit of $ 257 and $ 8 in 2023 and 2022, respectively) ( 808 ) ( 25 ) — Reclassification adjustment for loss (gains) included in net income (net of tax expense of $ 423 in 2023 and tax benefit of $ 26 in 2022, respectively) 1,326 ( 82 ) — Total other comprehensive income (loss), net of tax 15,120 ( 33,161 ) ( 3,442 ) Total comprehensive income 119,185 114,196 106,634 Less: comprehensive income attributable to non-controlling interest 36 754 — Total comprehensive income attributable to OceanFirst Financial Corp. 119,149 113,442 106,634 Less: Dividends on preferred shares 4,016 4,016 4,016 Total comprehensive income available to common stockholders $ 115,133 $ 109,426 $ 102,618 See accompanying Notes to Consolidated Financial Statements. 66 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (dollars in thousands, except per share amounts) For the Years Ended December 31, 2023, 2022 and 2021 Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive (Loss) Gain Employee Stock Ownership Plan Treasury Stock Non-Controlling Interest Total Balance at December 31, 2020 $ 1 $ 609 $ 1,137,715 $ 378,268 $ 621 $ ( 7,433 ) $ ( 25,651 ) $ — $ 1,484,130 Net income — — — 110,076 — — — — 110,076 Other comprehensive loss, net of tax — — — — ( 3,442 ) — — — ( 3,442 ) Stock compensation — — 5,415 — — — — — 5,415 Acquisition of common stock by ESOP — — — — — ( 3,200 ) ( 3,200 ) Allocation of ESOP stock — — 179 — — 2,018 — — 2,197 Cash dividend – $ 0.68 per share — — — ( 40,494 ) — — — — ( 40,494 ) Exercise of stock options — 2 3,472 ( 1,528 ) — — — — 1,946 Repurchase 1,711,484 shares of common stock — — — — — — ( 36,059 ) ( 36,059 ) Preferred stock dividend — — — ( 4,016 ) — — — — ( 4,016 ) Balance at December 31, 2021 1 611 1,146,781 442,306 ( 2,821 ) ( 8,615 ) ( 61,710 ) — 1,516,553 Net income — — — 146,603 — — — 754 147,357 Other comprehensive loss, net of tax — — — — ( 33,161 ) — — — ( 33,161 ) Stock compensation — — 6,638 — — — — — 6,638 Allocation of ESOP stock — — 82 — — 2,424 — — 2,506 Cash dividend – $ 0.74 per share — — — ( 43,495 ) — — — — ( 43,495 ) Exercise of stock options — 1 1,320 ( 897 ) — — — — 424 Repurchase 373,223 shares of common stock — — — — — — ( 7,396 ) — ( 7,396 ) Preferred stock dividend — — — ( 4,016 ) — — — — ( 4,016 ) Acquisition of Trident Abstract Title Agency, LLC (“Trident”) — — — — — — — 836 836 Distribution to non-controlling interest — — — 6 — — — ( 788 ) ( 782 ) Balance at December 31, 2022 1 612 1,154,821 540,507 ( 35,982 ) ( 6,191 ) ( 69,106 ) 802 1,585,464 Net income — — — 104,029 — — — 36 104,065 Other comprehensive income, net of tax — — — — 15,120 — — — 15,120 Stock compensation — — 5,854 — — — — — 5,854 Allocation of ESOP stock — — ( 341 ) — — 2,411 — — 2,070 Cash dividend – $ 0.80 per share — — — ( 47,258 ) — — — — ( 47,258 ) Exercise of stock options — 1 1,421 ( 720 ) — — — — 702 Preferred stock dividend — — — ( 4,016 ) — — — — ( 4,016 ) Distribution to non-controlling interest — — — — — — — ( 55 ) ( 55 ) Balance at December 31, 2023 $ 1 $ 613 $ 1,161,755 $ 592,542 $ ( 20,862 ) $ ( 3,780 ) $ ( 69,106 ) $ 782 $ 1,661,945 See accompanying Notes to Consolidated Financial Statements. 67 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) For the Year Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net income $ 104,065 $ 147,357 $ 110,076 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment 12,327 11,683 9,357 Allocation of ESOP stock 2,070 2,506 2,197 Stock compensation 5,854 6,638 5,415 Net excess tax expense on stock compensation 243 216 93 Amortization of core deposit intangible 3,984 4,718 5,453 Net accretion of purchase accounting adjustments ( 5,848 ) ( 9,752 ) ( 14,484 ) Amortization of servicing asset 90 77 72 Net premium amortization in excess of discount accretion on securities 3,133 7,164 8,466 Net amortization of deferred costs on borrowings 598 548 824 Net amortization of deferred fees/costs and premiums/discounts on loans ( 1,094 ) 1,129 1,242 Provision for credit losses (benefit) 17,678 7,768 ( 11,832 ) Deferred tax provision 3,151 1,777 3,608 Net gain on sale of other real estate owned — ( 54 ) — Net write-down of fixed assets held-for-sale to net realizable value 459 1,482 7,787 Net gain on sale of fixed assets ( 26 ) ( 38 ) — Net loss (gain) on equity investments 3,732 ( 9,685 ) ( 7,145 ) Net gain on sales of loans ( 428 ) ( 358 ) ( 3,186 ) Net loss on sale of available-for-sale securities 697 — — Proceeds from sales of residential loans held for sale 58,495 12,616 102,648 Residential loans originated for sale ( 62,543 ) ( 13,158 ) ( 53,938 ) Increase in value of bank owned life insurance ( 5,280 ) ( 6,578 ) ( 6,832 ) Net loss (gain) on sale of assets held for sale 233 ( 1,959 ) ( 318 ) (Increase) decrease in interest and dividends receivable ( 7,170 ) ( 12,098 ) 2,663 Decrease (increase) in other assets 34,504 ( 80,233 ) 33,093 (Decrease) increase in other liabilities ( 44,663 ) 178,684 ( 35,287 ) Total adjustments 20,196 103,093 49,896 Net cash provided by operating activities 124,261 250,450 159,972 Cash flows from investing activities: Net increase in loans receivable ( 243,545 ) ( 1,126,997 ) ( 556,449 ) Purchases of loan pools ( 35,904 ) ( 171,623 ) ( 301,954 ) Premiums paid on purchased loan pools ( 1,210 ) ( 866 ) ( 8,874 ) Proceeds from sale of loans — 13,388 825 Purchase of debt securities available-for-sale ( 302,909 ) ( 69,493 ) ( 510,070 ) Purchase of debt securities held-to-maturity ( 65,567 ) ( 249,751 ) ( 447,447 ) Purchase of equity investments ( 7,661 ) ( 9,366 ) ( 86,462 ) Proceeds from maturities and calls of debt securities available-for-sale 22,376 104,449 103,720 Proceeds from maturities and calls of debt securities held-to-maturity 19,425 30,241 38,042 Proceeds from sales of debt securities available-for-sale 1,300 30,257 3,000 Proceeds from sales of equity investments 4,822 19,234 98,777 Principal repayments on debt securities available-for-sale 926 — — Principal repayments on debt securities held-to-maturity 108,037 135,417 215,734 Proceeds from bank owned life insurance 385 4,182 12,878 68 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (dollars in thousands) For the Year Ended December 31, 2023 2022 2021 Cash flows from investing activities (continued): Proceeds from the redemption of restricted equity investments 128,964 234,627 2,200 Purchases of restricted equity investments ( 113,447 ) ( 290,710 ) ( 3,267 ) Proceeds from sales of other real estate owned — 160 — Proceeds from sales of assets held-for-sale 3,719 8,130 3,544 Purchases of premises and equipment ( 7,708 ) ( 16,107 ) ( 42,039 ) Purchases of operating lease equipment — ( 4,789 ) — Net cash consideration received for acquisition — 38,609 — Net cash used in investing activities ( 487,997 ) ( 1,321,008 ) ( 1,477,842 ) Cash flows from financing activities: Net increase (decrease) in deposits 760,023 ( 56,963 ) 407,569 Net payment for sale of branches — — ( 86,282 ) Increase (decrease) in short-term borrowings 3,950 ( 49,672 ) ( 9,685 ) Net (repayment) proceeds from FHLB advances ( 362,530 ) 1,211,166 — Repayments of other borrowings — ( 35,104 ) ( 7,612 ) Increase in advances by borrowers for taxes and insurance 1,002 1,100 3,009 Exercise of stock options 702 424 1,946 Payment of employee taxes withheld from stock awards ( 2,350 ) ( 1,502 ) ( 1,183 ) Purchase of treasury stock — ( 7,396 ) ( 36,059 ) Acquisition of common stock by ESOP — — ( 3,200 ) Dividends paid ( 51,274 ) ( 47,511 ) ( 44,510 ) Distributions to non-controlling interest ( 55 ) ( 782 ) — Net cash provided by financing activities 349,468 1,013,760 223,993 Net decrease in cash and due from banks and restricted cash ( 14,268 ) ( 56,798 ) ( 1,093,877 ) Cash and due from banks and restricted cash at beginning of year 167,986 224,784 1,318,661 Cash and due from banks and restricted cash at end of year $ 153,718 $ 167,986 $ 224,784 Supplemental disclosure of cash flow information: Cash and due from banks at beginning of year $ 167,946 $ 204,949 $ 1,272,134 Restricted cash at beginning of year 40 19,835 46,527 Cash and due from banks and restricted cash at beginning of year $ 167,986 $ 224,784 $ 1,318,661 Cash and due from banks at end of year $ 153,718 $ 167,946 $ 204,949 Restricted cash at end of year — 40 19,835 Cash and due from banks and restricted cash at end of year $ 153,718 $ 167,986 $ 224,784 Cash paid during the year for: Interest $ 225,405 $ 49,700 $ 37,381 Income taxes 29,331 25,383 50,524 Non-cash activities: Accretion of unrealized loss on securities reclassified to held-to-maturity 503 590 667 Net loan charge-offs (recoveries) 8,382 ( 340 ) ( 442 ) Transfer of premises and equipment to assets held-for-sale 1,302 2,776 4,035 Transfer of debt securities from available-for-sale to held-to-maturity — — 12,721 Transfer of loans receivable to loans held-for-sale — 13,178 — 69 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (dollars in thousands) For the Year Ended December 31, 2023 2022 2021 Supplemental disclosure of cash flow information (continued): Acquisition: Non-cash assets acquired: Other current assets — 238 — Premises and equipment — 18 — Right of use ("ROU") asset — 779 — Other assets — 81 — Total non-cash assets acquired $ — $ 1,116 $ — Liabilities assumed: Lease liability — 779 — Other liabilities — 43,937 — Total liabilities assumed $ — $ 44,716 $ — See accompanying Notes to Consolidated Financial Statements. 70 Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of OceanFirst Financial Corp. (the “Company”) and its wholly-owned subsidiaries, OceanFirst Bank N.A. (the “Bank”) and OceanFirst Risk Management, Inc.; the Bank’s direct and indirect wholly-owned subsidiaries, OceanFirst REIT Holdings, Inc., OceanFirst Management Corp., OceanFirst Realty Corp., Casaba Real Estate Holdings Corporation, and Country Property Holdings, Inc.; and a majority controlling interest in Trident Abstract Title Agency, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts previously reported have been reclassified to conform to the current year’s presentation. Business The Bank provides a range of regional community banking services to retail and commercial customers through a network of branches and offices throughout New Jersey and in the major metropolitan areas of Philadelphia, New York, Baltimore, and Boston. The Bank is subject to competition from other financial institutions and certain technology companies. It is also subject to the regulations of certain regulatory agencies and undergoes periodic examinations by those regulatory authorities. Basis of Financial Statement Presentation The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). The preparation of the accompanying consolidated financial statements, in conformity with these accounting principles, requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for credit losses and goodwill. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current and forecasted economic environment, which management believes to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes, including in the economic environment, will be reflected in the financial statements in future periods. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, cash items in the process of collection, and interest-bearing deposits in other financial institutions. For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Securities Securities include debt securities held-to-maturity (“HTM”) and debt securities available-for-sale (“AFS”). Debt securities include U.S. government and agency obligations, state, municipal and sovereign debt obligations, corporate debt securities, asset-backed securities, and mortgage-backed securities (“MBS”). Mortgage-backed securities include: agency residential and commercial mortgage-backed securities which are issued and guaranteed by one of the Federal Home Loan Mortgage Corporation (“FHLMC”), the Federal National Mortgage Association (“FNMA”), the Government National Mortgage Association (“GNMA”), or the Small Business Administration (“SBA”); and non-agency commercial mortgage-backed securities. Management determines the appropriate classification at the time of purchase. If management has the positive intent not to sell a security and the Company would not be required to sell such a security prior to maturity, the securities can be classified as HTM debt securities. Such securities are stated at amortized cost. Securities in the AFS category are securities which the Company may sell prior to maturity as part of its asset/liability management strategy. Such securities are carried at estimated fair value and unrealized gains and losses, net of related tax effect, are excluded from earnings, but are included as a separate component of stockholders’ equity and as part of other comprehensive income. Gains or losses on the sale of such securities are included in other income using the specific identification method. Discounts and premiums on debt securities are accreted or amortized using the level-yield method over the estimated lives of the securities, including the effect of prepayments. 71 Upon the transfer of debt securities from AFS to HTM classification, unrealized gains or losses at the transfer date continue to be reflected in accumulated other comprehensive income and are amortized into interest income over the remaining life of the securities. Securities also include equity investments. Equity investments with readily determinable fair value are reported at fair value, with changes in fair value reported in net income. Equity investments without readily determinable fair values are carried at cost less impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer (measurement alternative). Certain equity investments without readily determinable fair values are measured at net asset value (“NAV”) per share as a practical expedient. Credit Losses for Available-for-Sale Debt Securities For AFS debt securities where fair value is less than amortized cost, the security is considered impaired when amounts are deemed uncollectible or when the Company intends, or more likely than not will be required, to sell the AFS debt security before recovery of the amortized cost basis. On a quarterly basis the Company evaluates the AFS debt securities for impairment. Securities that are in an unrealized loss position are reviewed to determine if a securities credit loss exists based on certain quantitative and qualitative factors. The primary factors considered in evaluating whether an impairment exists include: (a) the extent to which the fair value is less than the amortized cost basis, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, and (d) whether the Company intends to sell the security and whether it is more likely than not that the Company will not be required to sell the security. If a determination is made that an AFS debt security is impaired, the Company will estimate the amount of the unrealized loss that is attributable to credit and all other non-credit related factors. The credit related component will be recognized as a securities provision for credit losses through an allowance for securities credit losses. The securities provision for credit losses will be limited to the difference between the security’s amortized cost basis and fair value and any future changes may be reversed, limited to the amount previously expensed, in the period they occur. The non-credit related component will be recorded as an adjustment to accumulated other comprehensive income, net of tax. The evaluation of securities for impairment is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in the estimated fair value of investments should be recognized in current period earnings. The risks and uncertainties include changes in general economic conditions, the issuer’s financial condition and/or future prospects, the effects of changes in interest rates or credit spreads, and the expected recovery period. Loans Receivable Loans receivable, other than loans held-for-sale, are stated at unpaid principal balance, plus unamortized premiums less unearned discounts, net of deferred loan origination and commitment fees and costs, and the associated allowance for loan credit losses. Loan origination and commitment fees and certain direct loan origination costs are deferred and the net fee or cost is recognized in interest income using the level-yield method over the contractual life of the specifically identified loans, adjusted for actual prepayments. For each loan class, a loan is considered past due when a payment has not been received in accordance with the contractual terms. Loans which are more than 90 days past due, and other loans in the process of foreclosure, are placed on non-accrual status. Interest income previously accrued on these loans, but not yet received, is reversed in the current period. Any interest subsequently collected is credited to income in the period of recovery only after the full principal balance has been brought current and has returned to accrual status. A loan is returned to accrual status when all amounts due have been received, payments remain current for a period of six months, and the remaining principal and interest are deemed collectible. Loans are charged-off in the period the loans, or portion thereof, are deemed uncollectible. The Company will record a loan charge-off to reduce a loan to the estimated fair value of the underlying collateral, less cost to sell, if it is determined that it is probable that recovery will come primarily from the sale of the collateral. Loans Held for Sale Loans held for sale are carried at the lower of unpaid principal balance, net, or estimated fair value on an aggregate basis. Estimated fair value is generally determined based on bid quotations from secondary markets. 72 Allowance for Credit Losses (“ACL”) Under the current expected credit loss (“CECL”) model, the allowance for credit losses on financial assets is a valuation allowance estimated at each balance sheet date in accordance with 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 ACL on loans 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 ACL. Expected credit losses are reflected in the ACL through a charge to provision for credit losses. The Company’s estimate of the ACL reflects credit losses currently expected over the remaining contractual life of the assets. When the Company deems all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible. When available information confirms that specific financial assets, or portions thereof, are uncollectible, these amounts are charged off against the ACL. Subsequent recoveries, if any, are credited to the ACL when received. The Company measures the ACL of financial assets on a collective portfolio segment basis when the financial assets share similar risk characteristics. The Company has identified the following portfolio segments of financial assets with similar risk characteristics for measuring expected credit losses: commercial real estate - investor (including commercial real estate - construction and land), commercial real estate - owner occupied, commercial and industrial, residential real estate, consumer (including student loans) and HTM debt securities. The Company further segments the commercial loan portfolios by risk rating and the residential and consumer loan portfolios by delinquency. The HTM portfolio is segmented by rating category. The Company’s methodology to measure the ACL incorporates both quantitative and qualitative information to assess lifetime expected credit losses at the portfolio segment level. The quantitative component includes the calculation of loss rates using an open pool method. Under this method, the Company calculates a loss rate based on historical loan level loss experience for portfolio segments with similar risk characteristics. The historical loss rate is adjusted for select macroeconomic variables that consider both historical trends as well as forecasted trends for a single economic scenario. The adjusted loss rate is calculated for an eight quarter forecast period then reverts to the historical loss rate on a straight-line basis over four quarters. The Company differentiates its loss-rate method for HTM debt securities by looking to publicly available historical default and recovery statistics based on the attributes of issuer type, rating category and time to maturity. The Company measures expected credit losses of these financial assets by applying loss rates to the amortized cost basis of each asset taking into consideration amortization, prepayment and default assumptions. The Company considers qualitative adjustments to expected credit loss estimates for information not already captured in the loss estimation process. Qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses. Adjustments will not be made for information that has already been considered and included in the quantitative allowance. Qualitative loss factors are based on management's judgment of company, market, industry or business specific data, changes in loan composition, performance trends, regulatory changes, uncertainty of macroeconomic forecasts, and other asset specific risk characteristics. Collateral Dependent Financial Assets For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable and where the borrower is experiencing financial difficulty, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. Fair value is generally calculated based on the value of the underlying collateral less an appraisal discount and the estimated cost to sell. Modification to Borrowers Experiencing Financial Difficulty The Company adopted Accounting Standards Update (“ASU”) 2022-02 on January 1, 2023, which eliminated recognition and measurement for troubled debt restructuring (“TDR”) by creditors. The Company considers a loan to be a modification to borrowers experiencing financial difficulty if (1) the borrower is experiencing financial difficulty; and (2) the Company, for economic or legal reasons related to a borrower’s financial condition or difficulties, modifies the loan in the form of a reduction in interest rate, an extension in term, principal forgiveness, other than insignificant payment delay, or a combination thereof. 73 Troubled Debt Restructured Loans Prior to the adoption of ASU 2022-02, the Company classified certain loans as TDR loans when credit terms to a borrower in financial difficulty were modified in accordance with ASC 310-40. Since adoption of this ASU, the Company has ceased to recognize or measure for new TDRs but those existing at December 31, 2022 remain until settled. A loan that had been modified or renewed was considered a TDR when two conditions were met: (1) the borrower is experiencing financial difficulty and (2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics. So long as they share similar risk characteristics, TDRs may be collectively evaluated and included in the Company’s existing portfolio segments to measure the ACL, unless the TDR is collateral dependent or has been individually evaluated. For TDRs individually evaluated that have been modified and the interest rate is the primary concession, the ACL is measured using a discounted cash flow method. Loan Commitments and Allowance for Loan Credit Losses on Off-Balance Sheet Credit Exposures Financial assets include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The Company’s exposure to loan credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The Company records an allowance for loan credit losses on off-balance sheet credit exposures through a charge to loan provision for credit losses for off-balance sheet credit exposures. The ACL on off-balance sheet credit exposures is estimated by portfolio segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration management’s assumption of the likelihood that funding will occur, and is included in other liabilities on the Company’s Consolidated Statements of Financial Condition. Acquired Loans Acquired loans are recorded at fair value at the date of acquisition based on a discounted cash flow methodology that considers various factors including the type of loan and related collateral, classification status, fixed or variable interest rate, loan term and whether or not the loan was amortizing, and a discount rate reflecting the Company’s assessment of risk inherent in the cash flow estimates. Certain acquired loans are grouped together according to similar risk characteristics and are aggregated when applying various valuation techniques. These cash flow evaluations are subjective as they require material estimates, all of which may be susceptible to significant change. Loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased with credit deterioration (“PCD”) loans. The Company evaluated acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (1) non-accrual status; (2) legacy troubled debt restructured designation; (3) risk ratings of special mention, substandard or doubtful; (4) watchlist credits; and (5) delinquency status, including loans that were current on acquisition date, but had been previously delinquent. At the acquisition date, an estimate of expected credit losses was made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial allowance for credit losses is added to the purchase price, there is no provision for credit losses recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans. For acquired loans not deemed PCD at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans. At the acquisition date, an initial allowance for expected credit losses is estimated and recorded as a provision for credit losses. The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans. 74 Premises and Equipment Land is carried at cost and premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization or, in the case of acquired premises, the estimated fair value on the acquisition date. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or leases. Generally, depreciable lives are as follows: computer software and equipment: 3 years; furniture, fixtures and other electronic equipment: 5 years; building and leasehold improvements: 10 years; and buildings: 30 years. Depreciable assets are placed in service when they are in a condition for use and available for their designated function. The Company has not developed any internal use software. Repair and maintenance items are expensed and improvements are capitalized. Gains and losses on dispositions are reflected in branch consolidation expenses, other operating expense and other income. Leases The Company recognizes lease agreements on the Consolidated Statements of Financial Condition as a ROU asset and a corresponding lease liability. The ROU asset and lease liability are calculated as the present value of the minimum lease payments over the lease term, discounted for the rate implicit in the lease, provided the rate is readily determinable; otherwise the Company generally utilizes its incremental borrowing rate, at lease inception, over a similar term. Income Taxes The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Any interest and penalties on taxes payable are included as part of the provision for income taxes. Bank Owned Life Insurance (“BOLI”) Bank owned life insurance is accounted for using the cash surrender value method and is recorded at its realizable value. Part of the Company’s BOLI is invested in a separate account insurance product, which is invested in a fixed income portfolio. The separate account includes stable value protection which maintains realizable value at book value with investment gains and losses amortized over future periods. Increases in cash surrender value are included in other non-interest income, while proceeds from death benefits are generally recorded as a reduction to the carrying value. Intangible Assets Intangible assets resulting from acquisitions, under the acquisition method of accounting, consists of goodwill and core deposit intangibles. Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired through purchase acquisitions. Goodwill with an indefinite useful life is evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates. The Company prepares a qualitative assessment, and if necessary, a quantitative assessment, in determining whether goodwill may be impaired. The factors considered in the qualitative assessment include macroeconomic conditions, industry and market conditions and overall financial performance of the Company, among other factors. Under a quantitative assessment, the Company will estimate the fair value of the Company by assigning weightings to the discounted cash flow method and guideline public company method. The Company completes its annual goodwill impairment test as of August 31 and evaluates triggering events during interim periods, as applicable. The Company completed its annual goodwill impairment test as of August 31, 2023. For the annual test, the Company bypassed the qualitative assessment and proceeded directly to the quantitative impairment test based on the stock price at measurement date and economic uncertainty and market volatility impacting the banking sector. To perform the quantitative test, a combination of an income valuation methodology, comprising a discounted cash flow analysis, and a market valuation methodology, comprising the guideline public company method, was employed. Management then assigned weightings to the two approaches to conclude on the estimated fair value. The weightings took into consideration recent market volatility and the suppressed stock prices of the Company and the banking industry. The discounted cash flow (“DCF”) estimated the present value of future cash flows. A DCF analysis requires significant judgment to model financial forecasts, which included loan and deposit growth, funding mix, income on securities, credit performance, forward interest rates, future returns driven by net interest margin, fee generation and expense incurrence, industry and economic trends, and other relevant considerations. For periods beyond those forecasted, a terminal value was 75 estimated based on an assumed long-term growth rate, which was derived using the Gordon Growth Model. The discount rate applied to the forecasted cash flows was calculated using a build-up approach, which starts with the risk-free interest rate, which was then calibrated for market and company specific risk premiums, including a beta, equity risk, size, and company-specific risk premiums to reflect risks and uncertainties in the financial market and in the Company’s business projections. The market approach utilizes observable market data from comparable public companies, including price-to-tangible book value ratios, to estimate the Company’s fair value. The market approach also incorporates a control premium to represent the Company’s expectation of a hypothetical acquisition. Management uses judgment in the selection of comparable companies and includes those with similar business activities, and related operating environments. The results of the quantitative assessment indicated that the fair value of the Company’s reporting unit exceeded its carrying amount as of the measurement date, which resulted in no impairment loss at August 31, 2023. The Company did not identify any triggering events between the annual assessment date and December 31, 2023. Segment Reporting The Company’s operations are solely in the financial services industry and include providing traditional banking and other financial services to its customers. The Company operates throughout New Jersey and in the major metropolitan markets of Philadelphia, New York, Baltimore, and Boston . Management makes operating decisions and assesses performance based on an ongoing review of the Company’s consolidated financial results. Therefore, management concluded the Company has a single operating segment for financial reporting purposes. Earnings Per Share Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding. Diluted earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding and potential common stock utilizing the treasury stock method. All share amounts exclude unallocated shares of stock held by the Company’s ESOP and by incentive plans. Stock-Based Compensation The Company recognizes compensation expense related to stock options and awards over the requisite service period, generally based on the instruments’ grant-date fair value, reduced by actual and estimated forfeitures. Certain performance-based stock awards and the associated compensation expense fluctuates based on the estimated probability of achievement of the Company-defined performance goals. The Company also recognizes compensation expense on phantom stock units, which are liability-classified time-based awards, over the requisite service period based on the Company’s grant date stock price and remeasured monthly. Derivative Instruments The Com pany accounts for derivative financial instruments under ASC Topic 815, Derivatives and Hedging, which requires the Company to record all derivatives on the balance sheet at fair value. Accounting for changes in the fair value of a derivative depends on whether or not the derivative has been designated and qualifies for hedge accounting. For derivatives not designated as hedging instruments, changes in the fair value are recognized directly in earnings. For derivatives designated as hedging instruments, the accounting treatment is dependent upon the type of hedge. For the year ended December 31, 2023 , the Company only had a cash flow hedge. Cash flow hedges are used to mitigate the variability in the cash flows of a specific pool of assets, or of forecasted transactions, caused by interest rate fluctuations. The changes in the fair value of cash flow hedges are initially reported in other comprehensive income. Amounts are subsequently reclassified from accumulated other comprehensive income to earnings when the hedged transactions occur, specifically within the same line item as the hedged item. To qualify for hedge accounting, the Company assesses the effectiveness of the derivative in offsetting the risk associated with the exposure being hedged, at inception and on a quarterly basis thereafter. The Company uses quantitative methods, such as regression analyses, and qualitative comparisons of critical terms and the evaluation of any changes in those terms. If it is determined that a derivat ive is not highly effective at hedging the designated exposure, hedge accounting is discontinued prospectively. 76 Accounting Pronouncements Adopted in 2023 In March 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-01 “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method”, which made targeted improvements to the optional hedge accounting model with the objective of improving hedge accounting to better portray the economic results of an entity’s risk management activities in its financial statements. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2022. Early adoption is permitted for any entity that has adopted the amendments in ASU 2017-12 for the corresponding period. The adoption of this standard did not have an impact on the Company’s consolidated financial statements, as the Company currently does not have any fair value hedges. In March 2022, FASB issued ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”. The amendments in this ASU were issued to (1) eliminate accounting guidance for TDRs by creditors, while enhancing disclosure requirements for loan refinancings and restructurings when a borrower is experiencing financial difficulty; (2) require disclosures of current period gross write-offs by year of origination for financing receivables and net investments in leases. For entities that have adopted the amendments in ASU 2016-13, Measurement of Credit Losses on Financial Instruments, this update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2022. Early adoption is permitted. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, where there is an option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The Company adopted this guidance prospectively, and the adoption of this standard did not have an impact on the Company’s consolidated financial statements. In December 2022, FASB issued ASU 2022-06, “Deferral of the Sunset Date of Topic 848”, which was effective upon issuance. The amendments in this ASU defer the sunset date of Topic 848 (Reference Rate Reform) from December 31, 2022 to December 31, 2024. Topic 848, originally issued in 2020 and later amended in 2021, provides optional accounting expedients and exceptions for certain loan agreements, derivatives and other transactions affected by the transition away from London Inter-Bank Offered Rate (“LIBOR”) towards alternative reference rates. As of December 31, 2021, the Company adopted certain of these practical expedients in Topic 848 and will continue to apply prospectively until December 31, 2024. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. Transition from LIBOR As of December 31, 2021, the Company ceased issuing LIBOR-based products and transitioned to Alternative Rates. For the tenors of U.S. dollar LIBOR utilized by the Company, the administrator of LIBOR extended publication until June 30, 2023, which was the cessation date. The Company has transitioned all of its previously existing LIBOR-based products. For products which were not expected to mature or settle prior to the cessation date, the Company reviewed and updated contract language as necessary to automatically convert to an Alternative Rate at their next rate reset date with no action required. Note 2. Regulatory Matters The Company is subject to regulation by the Board of Governors of the Federal Reserve System (the “FRB”) and 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”). The Company and the Bank are required by applicable regulations to maintain minimum levels of regulatory capital. Under the regulations in effect at December 31, 2023, the Company and the Bank were required to maintain a minimum ratio of Tier 1 capital to total average assets of 4.0 %; a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 7.0 %; a minimum ratio of Tier 1 capital to risk-weighted assets of 8.5 %; and a minimum ratio of total (core and supplementary) capital to risk-weighted assets of 10.5 %. These ratios include the impact of the required 2.50 % capital conservation buffer. Under the regulatory framework for prompt corrective action, federal regulators are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on an institution’s financial statements. The regulations establish a framework for the classification of banking institutions into five categories: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Generally, an institution is considered well-capitalized if it has a Tier 1 capital rati o of 5.0%; a common equity Tier 1 risk-based ratio of at least 6.5%; a Tier 1 risk-based ratio of at least 8.0%; and a total risk-based capital ratio of at least 10.0%. At December 31, 2023 and 2022, the Company and the Bank exceeded all regulatory capital requirements currently applicable. 77 The following is a summary of the Company’s and Bank’s regulatory capital amounts and ratios as of December 31, 2023 and 2022 compared to the regulatory minimum capital adequacy requirements and the regulatory requirements for classification as a well-capitalized institution then in effect (dollars in thousands): Actual For capital adequacy purposes To be well-capitalized under Prompt Corrective Action As of December 31, 2023 Amount Ratio Amount Ratio Amount Ratio Company: Tier 1 capital (to average assets) $ 1,218,142 9.31 % $ 523,588 4.00 % N/A N/A Common equity Tier 1 (to risk-weighted assets) 1,088,542 10.86 701,778 7.00 (1) N/A N/A Tier 1 capital (to risk-weighted assets) 1,218,142 12.15 852,159 8.50 (1) N/A N/A Total capital (to risk-weighted assets) 1,413,400 14.10 1,052,667 10.50 (1) N/A N/A Bank: Tier 1 capital (to average assets) $ 1,155,896 8.90 % $ 519,690 4.00 % $ 649,612 5.00 % Common equity Tier 1 (to risk-weighted assets) 1,155,896 11.65 694,620 7.00 (1) 645,004 6.50 Tier 1 capital (to risk-weighted assets) 1,155,896 11.65 843,467 8.50 (1) 793,852 8.00 Total capital (to risk-weighted assets) 1,226,154 12.36 1,041,930 10.50 (1) 992,315 10.00 As of December 31, 2022 Company: Tier 1 capital (to average assets) $ 1,150,690 9.43 % $ 488,297 4.00 % N/A N/A Common equity Tier 1 (to risk-weighted assets) 1,021,774 9.93 720,641 7.00 (1) N/A N/A Tier 1 capital (to risk-weighted assets) 1,150,690 11.18 875,064 8.50 (1) N/A N/A Total capital (to risk-weighted assets) 1,336,652 12.98 1,080,961 10.50 (1) N/A N/A Bank: Tier 1 capital (to average assets) $ 1,122,946 9.20 % $ 488,033 4.00 % $ 610,041 5.00 % Common equity Tier 1 (to risk-weighted assets) 1,122,946 11.02 713,194 7.00 (1) 662,251 6.50 Tier 1 capital (to risk-weighted assets) 1,122,946 11.02 866,021 8.50 (1) 815,078 8.00 Total capital (to risk-weighted assets) 1,183,705 11.62 1,069,791 10.50 (1) 1,018,848 10.00 (1) Includes the Capital Conservation Buffer of 2.50 %. The Company and the Bank satisfied the criteria to be “well-capitalized” under the Prompt Corrective Action regulations. Capital distributions and certain discretionary bonus payments are limited if the capital conservation buffer of 2.50 % is not maintained. Applicable regulations also impose limitations upon capital distributions by the Company, such as dividends and payments to repurchase or otherwise acquire shares. The Company may not declare or pay cash dividends on or repurchase any of its shares of common stock if the effect thereof would cause stockholders’ equity to be reduced below applicable regulatory capital minimum requirements or if such declaration and payment would otherwise violate regulatory requirements. 78 Note 3. Business Combinations Trident Acquisition On April 1, 2022, the Company completed its acquisition of a majority controlling interest of 60 % in Trident. Trident provides commercial and residential title services throughout New Jersey, and through strategic alliances can also service clients’ title insurance needs outside of New Jersey. The acquisition is complimentary to the Company’s existing consumer and commercial lending business. Total consideration paid was $ 7.1 million and goodwill from the transaction amounted to $ 5.8 million. The Company consolidated Trident’s assets, liabilities and components of comprehensive income within its consolidated results. Thus, the consolidated results include amounts attributable to the Company and the non-controlling interest. Amounts attributable to the non-controlling interest are presented separately as a single line on the Consolidated Statements of Income (net income attributable to non-controlling interest) and the Consolidated Statements of Financial Condition (non-controlling interest in stockholders’ equity). Amounts attributed to the non-controlling interest are based upon the ownership interest in Trident that the Company does not own. For further discussion on the accounting for this arrangement refer to Note 18 Variable Interest Entity, of this Form 10-K. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed by the Company at the date of the acquisition for Trident, net of total consideration paid (in thousands): At April 1, 2022 Estimated Fair Value Total purchase price: $ 7,084 Assets acquired: Cash and cash equivalents $ 45,693 Other current and non-current assets 1,116 Total assets acquired 46,809 Liabilities assumed: Lease liability 779 Other liabilities 43,937 Total liabilities assumed $ 44,716 Net assets acquired $ 2,093 Net assets attributable to non-controlling interest $ 836 Goodwill recorded $ 5,827 The calculation of goodwill was subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties became available, and was finalized as of December 31, 2022. 79 Merger Related Expenses The Company incurred merger related expenses of $ 22,000 , $ 2.7 million, and $ 1.5 million for the years ended December 31, 2023, 2022, and 2021, respectively. The following table summarizes the merger related expenses for the years ended December 31, 2023, 2022 and 2021: For the Year Ended December 31, 2023 2022 2021 (in thousands) Data processing fees $ 10 $ 790 $ 253 Professional fees 12 1,936 343 Employee severance payments — 7 663 Other/miscellaneous fees — 2 244 Merger related expenses $ 22 $ 2,735 $ 1,503 Merger related expenses for 2022 included expenses related to the terminated merger agreement with Partners Bancorp. Merger related expenses for 2021 included expenses related to acquisitions of Two River and Country Bank, which were both completed on January 1, 2020. Core Deposit Intangibles The estimated future amortization expense for the core deposit intangibles over the next five years and thereafter is as follows (in thousands): For the Year Ending December 31, Amortization Expense 2024 $ 3,250 2025 2,516 2026 1,784 2027 1,112 2028 588 Thereafter 263 Total $ 9,513 80 Note 4. Securities The amortized cost, estimated fair value, and allowance for securities credit losses of debt securities available-for-sale and held-to-maturity at December 31, 2023 and 2022 are as follows (in thousands): Amortized Cost (1) Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Allowance for Securities Credit Losses At December 31, 2023 Debt securities available-for-sale: U.S. government and agency obligations $ 66,490 $ — $ ( 5,796 ) $ 60,694 $ — Corporate debt securities 10,096 11 ( 981 ) 9,126 — Asset-backed securities 295,796 — ( 4,252 ) 291,544 — Mortgage-backed securities: Agency residential 298,107 183 ( 97 ) 298,193 — Agency commercial 109,590 — ( 15,255 ) 94,335 — Total mortgage-backed securities 407,697 183 ( 15,352 ) 392,528 — Total debt securities available-for-sale $ 780,079 $ 194 $ ( 26,381 ) $ 753,892 $ — Debt securities held-to-maturity: State and municipal debt obligations $ 222,009 $ 251 $ ( 14,550 ) $ 207,710 $ ( 39 ) Corporate debt securities 69,809 391 ( 3,941 ) 66,259 ( 987 ) Mortgage-backed securities: Agency residential 765,632 901 ( 70,040 ) 696,493 — Agency commercial 82,734 10 ( 3,678 ) 79,066 — Non-agency commercial 20,684 — ( 1,774 ) 18,910 ( 107 ) Total mortgage-backed securities 869,050 911 ( 75,492 ) 794,469 ( 107 ) Total debt securities held-to-maturity $ 1,160,868 $ 1,553 $ ( 93,983 ) $ 1,068,438 $ ( 1,133 ) Total debt securities $ 1,940,947 $ 1,747 $ ( 120,364 ) $ 1,822,330 $ ( 1,133 ) At December 31, 2022 Debt securities available-for-sale: U.S. government and agency obligations $ 87,648 $ 1 $ ( 7,635 ) $ 80,014 $ — Corporate debt securities 8,928 — ( 756 ) 8,172 — Asset-backed securities 296,222 — ( 19,349 ) 276,873 — Agency commercial MBS 110,606 — ( 18,017 ) 92,589 — Total debt securities available-for-sale $ 503,404 $ 1 $ ( 45,757 ) $ 457,648 $ — Debt securities held-to-maturity: State, municipal and sovereign debt obligations $ 260,249 $ 46 $ ( 24,940 ) $ 235,355 $ ( 60 ) Corporate debt securities 54,880 380 ( 1,765 ) 53,495 ( 1,059 ) Mortgage-backed securities: Agency residential 849,701 795 ( 83,302 ) 767,194 — Agency commercial 32,127 23 ( 1,189 ) 30,961 — Non-agency commercial 25,310 — ( 2,274 ) 23,036 ( 9 ) Total mortgage-backed securities 907,138 818 ( 86,765 ) 821,191 ( 9 ) Total debt securities held-to-maturity $ 1,222,267 $ 1,244 $ ( 113,470 ) $ 1,110,041 $ ( 1,128 ) Total debt securities $ 1,725,671 $ 1,245 $ ( 159,227 ) $ 1,567,689 $ ( 1,128 ) (1) The amortized cost for held-to-maturity securities included net unrealized losses of $ 1.8 million and $ 2.3 million, at December 31, 2023 and 2022, respectively, related to securities transferred from available-for-sale to held-to-maturity in prior years. These unrealized losses continue to be reflected within accumulated other comprehensive income, net of subsequent amortization, which is to be recognized over the life of the securities. There was no allowance for securities credit losses on debt securities available-for-sale at December 31, 2023 and 2022. 81 The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the years ended December 31, 2023 and 2022 (in thousands): For the Years Ended, 2023 2022 Allowance for securities credit losses Beginning balance $ ( 1,128 ) $ ( 1,467 ) (Provision) benefit for credit losses ( 5 ) 339 Total ending allowance balance $ ( 1,133 ) $ ( 1,128 ) The Company monitors the credit quality of debt securities held-to-maturity on a quarterly basis through the use of internal credit analysis supplemented by external credit ratings. Credit ratings of BBB- or Baa3 or higher are considered investment grade. Where multiple ratings are available, the Company considers the lowest rating when determining the allowance for securities credit losses. Under this approach, the amortized cost of debt securities held-to-maturity at December 31, 2023, aggregated by credit quality indicator, are as follows (in thousands): Investment Grade Non-Investment Grade/Non-rated Total As of December 31, 2023 State and municipal debt obligations $ 222,009 $ — $ 222,009 Corporate debt securities 55,737 14,072 69,809 Non-agency commercial MBS 20,684 — 20,684 Total debt securities held-to-maturity $ 298,430 $ 14,072 $ 312,502 There were $ 697,000 and $ 108,000 of realized losses on sale of debt securities available-for-sale for the years ended December 31, 2023 and December 31, 2022, respectively. The realized gains/losses on debt securities is presented within Other under Total other income of the Consolidated Statements of Income. The amortized cost and estimated fair value of debt securities at December 31, 2023 by contractual maturity are shown below (in thousands): At December 31, 2023 Amortized Cost Estimated Fair Value Less than one year $ 30,663 $ 30,443 Due after one year through five years 201,348 187,396 Due after five years through ten years 191,482 185,225 Due after ten years 240,707 232,269 $ 664,200 $ 635,333 Actual maturities may differ from contractual maturities in instances where issuers have the right to call or prepay obligations with or without call or prepayment penalties. At December 31, 2023, corporate debt securities, state and municipal obligations, and asset-backed securities with an amortized cost of $ 78.8 million, $ 62.5 million, and $ 295.8 million, respectively, and an estimated fair value of $ 74.3 million, $ 60.9 million, and $ 291.5 million, respectively, were callable prior to the maturity date. Mortgage-backed securities are excluded from the above table since their effective lives are expected to be shorter than the contractual maturity date due to principal prepayments. 82 The estimated fair value and unrealized losses for debt securities available-for-sale and held-to-maturity at December 31, 2023 and December 31, 2022, segregated by the duration of the unrealized losses, are as follows (in thousands): Less than 12 Months 12 Months or Longer Total Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses At December 31, 2023 Debt securities available-for-sale: U.S. government and agency obligations $ 833 $ ( 2 ) $ 59,861 $ ( 5,794 ) $ 60,694 $ ( 5,796 ) Corporate debt securities 1,543 ( 165 ) 6,116 ( 816 ) 7,659 ( 981 ) Asset-backed securities — — 291,544 ( 4,252 ) 291,544 ( 4,252 ) MBS: Agency residential 169,000 ( 97 ) — — 169,000 ( 97 ) Agency commercial — — 94,335 ( 15,255 ) 94,335 ( 15,255 ) Total MBS 169,000 ( 97 ) 94,335 ( 15,255 ) 263,335 ( 15,352 ) Total debt securities available-for-sale 171,376 ( 264 ) 451,856 ( 26,117 ) 623,232 ( 26,381 ) Debt securities held-to-maturity: State and municipal debt obligations 6,671 ( 23 ) 191,511 ( 14,527 ) 198,182 ( 14,550 ) Corporate debt securities 3,084 ( 473 ) 58,386 ( 3,468 ) 61,470 ( 3,941 ) MBS: Agency residential 95,776 ( 693 ) 525,751 ( 69,347 ) 621,527 ( 70,040 ) Agency commercial 18,902 ( 370 ) 55,051 ( 3,308 ) 73,953 ( 3,678 ) Non-agency commercial — — 18,910 ( 1,774 ) 18,910 ( 1,774 ) Total MBS 114,678 ( 1,063 ) 599,712 ( 74,429 ) 714,390 ( 75,492 ) Total debt securities held-to-maturity 124,433 ( 1,559 ) 849,609 ( 92,424 ) 974,042 ( 93,983 ) Total debt securities $ 295,809 $ ( 1,823 ) $ 1,301,465 $ ( 118,541 ) $ 1,597,274 $ ( 120,364 ) At December 31, 2022 Debt securities available-for-sale: U.S. government and agency obligations $ 27,232 $ ( 450 ) $ 52,782 $ ( 7,185 ) $ 80,014 $ ( 7,635 ) Corporate debt securities 4,735 ( 193 ) 3,437 ( 563 ) 8,172 ( 756 ) Asset-backed securities 143,392 ( 9,179 ) 133,481 ( 10,170 ) 276,873 ( 19,349 ) Agency commercial MBS 8,782 ( 1,675 ) 83,807 ( 16,342 ) 92,589 ( 18,017 ) Total debt securities available-for-sale 184,141 ( 11,497 ) 273,507 ( 34,260 ) 457,648 ( 45,757 ) Debt securities held-to-maturity: State, municipal and sovereign debt obligations 133,492 ( 11,952 ) 97,135 ( 12,988 ) 230,627 ( 24,940 ) Corporate debt securities 11,783 ( 598 ) 36,152 ( 1,167 ) 47,935 ( 1,765 ) MBS: Agency residential 297,297 ( 12,388 ) 397,036 ( 70,914 ) 694,333 ( 83,302 ) Agency commercial 25,936 ( 1,150 ) 2,062 ( 39 ) 27,998 ( 1,189 ) Non-agency commercial 16,838 ( 1,621 ) 6,198 ( 653 ) 23,036 ( 2,274 ) Total MBS 340,071 ( 15,159 ) 405,296 ( 71,606 ) 745,367 ( 86,765 ) Total debt securities held-to-maturity 485,346 ( 27,709 ) 538,583 ( 85,761 ) 1,023,929 ( 113,470 ) Total debt securities $ 669,487 $ ( 39,206 ) $ 812,090 $ ( 120,021 ) $ 1,481,577 $ ( 159,227 ) The Company concluded that no debt securities were impaired at December 31, 2023 based on consideration of several factors. The Company noted that each issuer made all the contractually due payments when required. There were no defaults on principal or interest payments, and no interest payments were deferred. Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements over the life of the security. Furthermore, the net unrealized losses were primarily due to changes in the general credit and interest rate environment and not credit 83 quality. Additionally, the Company has not utilized securities sales as a source of liquidity and the Company’s liquidity plans include adequate sources of liquidity outside securities sales. Equity Investments At 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. The realized and unrealized gains or losses on equity securities for the year ended December 31, 2023 and 2022 are shown in the table below (in thousands): For the Year Ended December 31, 2023 2022 2021 Net (loss) gain on equity investments $ ( 3,732 ) $ 9,685 $ 7,145 Less: Net (losses) gains recognized on equity investments sold ( 5,462 ) 1,351 8,123 Unrealized gains (losses) recognized on equity investments still held $ 1,730 $ 8,334 $ ( 978 ) 84 Note 5. Loans Receivable, Net Loans receivable, net at December 31, 2023 and 2022 consisted of the following (in thousands): December 31, 2023 2022 Commercial: Commercial real estate - investor $ 5,353,974 $ 5,171,952 Commercial real estate - owner occupied 943,891 997,367 Commercial and industrial 666,532 622,372 Total commercial 6,964,397 6,791,691 Consumer: Residential real estate 2,979,534 2,861,991 Home equity loans and lines and other consumer (“other consumer”) 250,664 264,372 Total consumer 3,230,198 3,126,363 Total loans receivable 10,194,595 9,918,054 Deferred origination costs, net of fees 9,263 7,488 Allowance for loan credit losses ( 67,137 ) ( 56,824 ) Total loans receivable, net $ 10,136,721 $ 9,868,718 The Company categorizes all loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, and current economic trends, among other factors. The Company evaluates risk ratings on an ongoing basis. The Company uses the following definitions for risk ratings: Pass : Loans classified as Pass are well protected by the paying capacity and net worth of the borrower. Special Mention : Loans classified as Special Mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date. Substandard : Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the collection or the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful : Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. 85 The following tables summarize total loans by year of origination, internally assigned credit grades, and risk characteristics (in thousands): 2023 2022 2021 2020 2019 2018 and prior Revolving lines of credit Total December 31, 2023 Commercial real estate - investor Pass $ 137,028 $ 1,165,955 $ 1,328,012 $ 529,745 $ 490,438 $ 930,337 $ 679,804 $ 5,261,319 Special Mention — — 2,413 790 1,446 22,147 — 26,796 Substandard — — 648 3,750 13,275 48,186 — 65,859 Total commercial real estate - investor 137,028 1,165,955 1,331,073 534,285 505,159 1,000,670 679,804 5,353,974 Commercial real estate - owner occupied Pass 66,642 120,280 103,104 59,179 102,703 441,713 21,052 914,673 Special Mention — — — — 1,272 8,314 — 9,586 Substandard — — — — 2,019 16,900 713 19,632 Total commercial real estate - owner occupied 66,642 120,280 103,104 59,179 105,994 466,927 21,765 943,891 Commercial and industrial Pass 112,914 64,770 19,473 8,645 7,778 51,082 383,013 647,675 Special Mention — — — — — 184 2,859 3,043 Substandard — 622 117 — 145 1,385 13,545 15,814 Total commercial and industrial 112,914 65,392 19,590 8,645 7,923 52,651 399,417 666,532 Residential real estate (1) Pass 283,296 916,153 564,515 388,392 223,247 600,118 — 2,975,721 Special Mention — — — — 131 271 — 402 Substandard 323 366 — 258 487 1,977 — 3,411 Total residential real estate 283,619 916,519 564,515 388,650 223,865 602,366 — 2,979,534 Other consumer (1) Pass 32,859 19,918 20,737 12,675 12,937 118,486 30,658 248,270 Special Mention — 172 — — — 386 — 558 Substandard — — — — 6 1,698 132 1,836 Total other consumer 32,859 20,090 20,737 12,675 12,943 120,570 30,790 250,664 Total loans $ 633,062 $ 2,288,236 $ 2,039,019 $ 1,003,434 $ 855,884 $ 2,243,184 $ 1,131,776 $ 10,194,595 (1) For residential real estate and other consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity. 86 2022 2021 2020 2019 2018 2017 and prior Revolving lines of credit Total December 31, 2022 Commercial real estate - investor Pass $ 1,144,763 $ 1,339,289 $ 555,937 $ 524,428 $ 220,999 $ 881,344 $ 450,787 $ 5,117,547 Special Mention — 2,508 192 17,094 — 12,818 2,188 34,800 Substandard — — — 893 — 18,180 532 19,605 Total commercial real estate - investor 1,144,763 1,341,797 556,129 542,415 220,999 912,342 453,507 5,171,952 Commercial real estate - owner occupied Pass 119,912 110,440 59,952 115,385 88,204 458,708 14,932 967,533 Special Mention — — — — 748 5,679 — 6,427 Substandard — — 3,750 2,037 4,817 12,803 — 23,407 Total commercial real estate - owner occupied 119,912 110,440 63,702 117,422 93,769 477,190 14,932 997,367 Commercial and industrial Pass 60,078 23,724 14,072 17,175 10,992 47,370 443,211 616,622 Special Mention — 7 — — — 250 1,680 1,937 Substandard — 21 76 1,083 301 2,212 120 3,813 Total commercial and industrial 60,078 23,752 14,148 18,258 11,293 49,832 445,011 622,372 Residential real estate (1) Pass 919,364 591,745 419,712 247,387 99,945 577,392 — 2,855,545 Special Mention — 193 1,514 204 59 2,407 — 4,377 Substandard — — — 656 286 1,127 — 2,069 Total residential real estate 919,364 591,938 421,226 248,247 100,290 580,926 — 2,861,991 Other consumer (1) Pass 24,069 24,111 15,440 15,471 39,057 108,818 34,851 261,817 Special Mention — — — 75 — 598 — 673 Substandard — — — 157 18 1,707 — 1,882 Total other consumer 24,069 24,111 15,440 15,703 39,075 111,123 34,851 264,372 Total loans $ 2,268,186 $ 2,092,038 $ 1,070,645 $ 942,045 $ 465,426 $ 2,131,413 $ 948,301 $ 9,918,054 (1) For residential real estate and other consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity. 87 An analysis of the allowance for credit losses on loans for the years ended December 31, 2023 and 2022 was as follows (in thousands): Commercial Real Estate - Investor Commercial Real Estate - Owner Occupied Commercial and Industrial Residential Real Estate Other Consumer Total For the Year Ended December 31, 2023 Allowance for credit losses on loans Balance at beginning of year $ 21,070 $ 4,423 $ 5,695 $ 24,530 $ 1,106 $ 56,824 Provision (benefit) for credit losses 15,173 ( 77 ) 1,276 2,456 ( 133 ) 18,695 Charge-offs (1) ( 8,350 ) ( 6 ) ( 129 ) — ( 208 ) ( 8,693 ) Recoveries 6 14 25 43 223 311 Balance at end of year $ 27,899 $ 4,354 $ 6,867 $ 27,029 $ 988 $ 67,137 For the Year Ended December 31, 2022 Allowance for credit losses on loans Balance at beginning of year $ 25,504 $ 5,884 $ 5,039 $ 11,155 $ 1,268 $ 48,850 (Benefit) provision for credit losses ( 4,481 ) ( 1,569 ) 561 13,275 ( 152 ) 7,634 Charge-offs ( 8 ) ( 62 ) ( 60 ) ( 56 ) ( 387 ) ( 573 ) Recoveries 55 170 155 156 377 913 Balance at end of year $ 21,070 $ 4,423 $ 5,695 $ 24,530 $ 1,106 $ 56,824 (1) Gross charge-offs for the year ended December 31, 2023 of $ 8.7 million, primarily related to one commercial relationship, which was originated in 2019 and had a partial charge-off of $ 8.4 million. The remainder of the current year gross charge-offs were related to loans that were originated in and prior to 2018. A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral and, therefore, is classified as non-accruing. At December 31, 2023 and 2022, the Company had collateral dependent loans with an amortized cost balance as follows: commercial real estate - investor of $ 15.2 million and $ 4.6 million, respectively, commercial real estate - owner occupied of $ 352,000 and $ 4.0 million, respectively, and commercial and industrial of $ 304,000 and $ 160,000 , respectively. In addition, the Company had residential and consumer loans collateralized by residential real estate, which are in the process of foreclosure, with an amortized cost balance of $ 2.6 million and $ 858,000 at December 31, 2023 and 2022, respectively. The following table presents the recorded investment in non-accrual loans by loan portfolio segment as of December 31, 2023 and 2022 (in thousands): December 31, 2023 2022 Commercial real estate – investor (1) $ 20,820 $ 10,483 Commercial real estate – owner occupied 351 4,025 Commercial and industrial 304 331 Residential real estate 5,542 5,969 Other consumer 2,531 2,457 $ 29,548 $ 23,265 (1) At December 31, 2023, non-performing loans included the remaining exposure of $ 8.8 million on a commercial real estate relationship that was partially charged-off during the year ended December 31, 2023. At December 31, 2023 and 2022, non-accrual loans were included in the allowance for credit loss calculation and the Company did not recognize or accrue interest income on these loans. At December 31, 2023, there were no loans that were past due 90 days or greater and still accruing interest. At December 31, 2022, there was one Paycheck Protection Program (“PPP”) loan for $ 14,000 that was past due 90 days or greater and still accrued interest, which subsequently became current. Per SBA guidelines, the SBA will pay accrued interest through the deferral period up to a maximum of 120 days past due. Given these servicing guidelines, PPP loans that are 90 to 120 days past due will be reported as accruing loans. 88 The following table presents the aging of the recorded investment in past due loans as of December 31, 2023 and 2022 by loan portfolio segment (in thousands): 30-59 Days Past Due 60-89 Days Past Due 90 Days or Greater Past Due Total Past Due Loans Not Past Due Total December 31, 2023 Commercial real estate – investor (1) $ 978 $ 684 $ 15,201 $ 16,863 $ 5,337,111 $ 5,353,974 Commercial real estate – owner occupied 335 352 293 980 942,911 943,891 Commercial and industrial 163 — 145 308 666,224 666,532 Residential real estate 14,858 402 3,411 18,671 2,960,863 2,979,534 Other consumer 872 558 1,836 3,266 247,398 250,664 $ 17,206 $ 1,996 $ 20,886 $ 40,088 $ 10,154,507 $ 10,194,595 December 31, 2022 Commercial real estate – investor $ 217 $ 875 $ 3,700 $ 4,792 $ 5,167,160 $ 5,171,952 Commercial real estate – owner occupied 143 80 3,750 3,973 993,394 997,367 Commercial and industrial 159 47 180 386 621,986 622,372 Residential real estate 7,003 4,377 2,069 13,449 2,848,542 2,861,991 Other consumer 573 673 1,882 3,128 261,244 264,372 $ 8,095 $ 6,052 $ 11,581 $ 25,728 $ 9,892,326 $ 9,918,054 (1) At December 31, 2023, 90 days or greater past due loans included the remaining exposure of $ 8.8 million on a commercial real estate relationship that was partially charged-off during the year ended December 31, 2023. The Company adopted ASU 2022-02 on January 1, 2023. Since adoption, the Company has modified certain loans to borrowers experiencing financial difficulty. These modifications may include a reduction in interest rate, an extension in term, principal forgiveness and/or other than insignificant payment delay. At December 31, 2023, loans with modifications to borrowers experiencing financial difficulty totaled $ 8.9 million related to term extensions and interest rate reductions, which included one commercial real estate - investor relationship of $ 7.8 million, residential real estate loans of $ 715,000 and other consumer loans of $ 471,000 . The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table provides the performance of loans as of December 31, 2023, which have been modified since adoption (dollars in thousands): Payment Status Current 60 - 89 Days Past Due 90 Days or Greater past Due Loan type: Commercial real estate – investor $ 7,759 $ — $ — Residential real estate 419 156 140 Other consumer 471 — — $ 8,649 $ 156 $ 140 Prior to the adoption of ASU 2022-02, the Company classified certain loans as TDR loans when credit terms to a borrower in financial difficulty were modified in accordance with ASC 310-40. Since adoption of this ASU, the Company has ceased to recognize or measure for new TDRs but those existing at December 31, 2022 remain until settled. At December 31, 2023 and 2022, TDR loans totaled $ 12.8 million and $ 13.9 million, respectively. At December 31, 2023 and 2022, there were $ 5.7 million and $ 6.4 million, respectively, of TDR loans included in the non-accrual loan totals. At December 31, 2023 and 2022, the Company had a $ 282,000 and $ 590,000 , respectively, of specific reserve allocated to one loan that was classified as a TDR loan. Non-accrual loans which become TDR loans are generally returned to accrual status after six months of performance. In addition to the TDR loans included in non-accrual loans, the Company also has TDR loans classified as accruing loans, which totaled $ 7.1 million and $ 7.5 million at December 31, 2023 and 2022, respectively. 89 The following table presents information about TDR loans which occurred during the year ended December 31, 2022 (dollars in thousands): Number of Loans Pre-modification Recorded Investment Post-modification Recorded Investment For the Year Ended December 31, 2022 Troubled debt restructurings: Commercial and industrial 1 $ 65 $ 65 Other consumer 8 1,237 1,378 There were no TDR loans that defaulted during the year ended December 31, 2023, which were modified within the preceding year. Note 6. Interest and Dividends Receivable Interest and dividends receivable at December 31, 2023 and 2022 are summarized as follows (in thousands): December 31, 2023 2022 Loans receivable $ 40,985 $ 36,052 Debt securities 9,829 7,634 Equity investments and other (1) 1,060 1,018 Total interest and dividends receivable $ 51,874 $ 44,704 (1) Dividend income is included within equity investments and other on the Consolidated Statements of Income. Note 7. Premises and Equipment, Net Premises and equipment, net of accumulated depreciation and amortization expense at December 31, 2023 and 2022 are summarized as follows (in thousands): December 31, 2023 2022 Land $ 16,387 $ 15,916 Buildings and improvements 132,048 131,837 Leasehold improvements 6,547 6,647 Furniture and equipment 35,835 34,692 Capitalized software 8,348 7,588 Finance lease 3,339 3,189 Other 3,286 2,559 Total 205,790 202,428 Accumulated depreciation and amortization ( 84,418 ) ( 75,723 ) Total premises and equipment, net $ 121,372 $ 126,705 Depreciation and amortization expense amounted to $ 11.5 million for both years ended December 31, 2023 and 2022, while it amounted to $ 9.4 million for the year ended December 31, 2021. Depreciation and amortization expense is presented within occupancy, equipment, and data processing expenses of the Consolidated Statements of Income. 90 Note 8. Deposits The major types of deposits at December 31, 2023 and 2022 were as follows (dollars in thousands): December 31, 2023 2022 Amount Weighted Average Cost Amount Weighted Average Cost Non-interest-bearing $ 1,657,119 — % $ 2,101,308 — % Interest-bearing checking 3,911,766 2.02 3,829,683 0.45 Money market deposit 1,021,805 3.18 714,386 0.57 Savings 1,398,837 1.36 1,487,809 0.07 Time deposits 2,445,422 4.12 1,542,020 2.34 Total deposits $ 10,434,949 2.21 % $ 9,675,206 0.60 % Accrued interest payable related to deposits was $ 14.5 million and $ 2.0 million at December 31, 2023 and 2022, respectively. Time deposits included $ 412.0 million and $ 117.7 million in deposits of $250,000 or more at December 31, 2023 and 2022, respectively. Time deposits also include brokered deposits of $ 631.5 million and $ 873.4 million at December 31, 2023 and 2022, respectively. Time deposits at December 31, 2023 mature as follows (in thousands): For the Year Ending December 31, Time Deposit Maturities 2024 $ 2,298,130 2025 95,554 2026 30,478 2027 12,512 2028 7,470 Thereafter 1,278 Total $ 2,445,422 Interest expense on deposits for the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands): For the Year Ended December 31, 2023 2022 2021 Interest-bearing checking $ 52,898 $ 11,344 $ 13,400 Money market deposit 18,656 2,234 1,105 Savings 9,227 758 631 Time deposits 91,237 16,685 10,074 Total interest expense on deposits $ 172,018 $ 31,021 $ 25,210 91 Note 9. Borrowed Funds Borrowed funds are summarized as follows (dollars in thousands): December 31, 2023 2022 Amount Weighted Average Rate Amount Weighted Average Rate FHLB advances $ 848,636 5.01 % $ 1,211,166 4.59 % Securities sold under agreements to repurchase with customers 73,148 2.10 69,097 0.16 Other borrowings 196,456 6.25 195,403 5.87 Total borrowed funds $ 1,118,240 5.04 % $ 1,475,666 4.55 % The Company had no FHLB overnight advances and no borrowings from the FRB Discount Window or Bank Term Funding Program at December 31, 2023 and December 31, 2022. FHLB advances and repurchase agreements had contractual maturities at December 31, 2023 as follows (in thousands): FHLB Advances Repurchase Agreements For the Year Ended December 31, 2024 $ 244,390 $ 73,148 2025 204,246 — 2026 200,000 — 2027 200,000 — Total $ 848,636 $ 73,148 The other borrowings at December 31, 2023 included the following (in thousands): Type of Debt Stated Value Carrying Value Interest Rate Maturity Subordinated debt $ 125,000 $ 124,135 5.701 % (1) May 15, 2030 Trust preferred 10,000 8,273 3 month SOFR plus 2.51 % (2) December 15, 2034 Trust preferred 30,000 23,936 3 month SOFR plus 1.61 % (2) March 15, 2036 Trust preferred 5,000 5,000 3 month SOFR plus 1.91 % (2) August 1, 2036 Trust preferred 7,500 7,500 3 month SOFR plus 1.92 % (2) November 1, 2036 Trust preferred 10,000 8,023 3 month SOFR plus 1.79 % (2) June 30, 2037 Trust preferred 10,000 10,000 3 month SOFR plus 2.01 % (2) September 1, 2037 Trust preferred 10,000 7,904 3 month SOFR plus 1.65 % (2) October 1, 2037 Finance lease 1,685 1,685 5.625 % July 31, 2029 Total $ 209,185 $ 196,456 (1) Adjusts to a floating rate of 5.095 % over 3 month Secured Overnight Financing Rate (“SOFR”) on May 15, 2025. (2) All trust preferred debts carry interest rates which adjust to a spread over SOFR. The 3-month tenor increased 0.26 % related to the conversion from LIBOR to SOFR. All of the trust preferred debt is currently callable. 92 Interest expense on borrowings for the years ended December 31, 2023, 2022, and 2021 was as follows (in thousands): For the Year Ended December 31, 2023 2022 2021 FHLB advances $ 46,000 $ 10,365 $ — Reverse repurchase agreements 931 159 253 Other borrowings 19,294 12,153 11,291 Total interest expense on borrowings $ 66,225 $ 22,677 $ 11,544 Pledged assets The following table presents the assets pledged to secure borrowings, borrowing capacity, repurchase agreements, letters of credit, and for other purposes required by law at carrying value (in thousands): Loans Debt Securities Total December 31, 2023 FHLB and FRB $ 7,255,671 $ 1,051,558 $ 8,307,229 Repurchase agreements — 103,416 103,416 Total pledged assets $ 7,255,671 $ 1,154,974 $ 8,410,645 December 31, 2022 FHLB and FRB $ 6,487,980 $ 830,057 $ 7,318,037 Repurchase agreements — 105,294 105,294 Total pledged assets $ 6,487,980 $ 935,351 $ 7,423,331 The securities pledged, which collateralize the repurchase agreements are delivered to the lender, with whom each transaction is executed, or to a third-party custodian. The lender, who may sell, loan or otherwise dispose of such securities to other parties in the normal course of their operations, agrees to resell to the Company substantially the same securities at the maturity of the repurchase agreements. 93 Note 10. Income Taxes The provision for income taxes for the years ended December 31, 2023, 2022 and 2021 consisted of the following (in thousands): For the Year Ended December 31, 2023 2022 2021 Current Federal $ 20,894 $ 32,981 $ 19,696 State 8,655 11,807 8,861 Total current 29,549 44,788 28,557 Deferred Federal 4,250 2,231 3,228 State ( 1,099 ) ( 454 ) 380 Total deferred 3,151 1,777 3,608 Total provision for income taxes $ 32,700 $ 46,565 $ 32,165 Included in other comprehensive income was the income tax impact attributable to the unrealized gain/loss on debt securities, accretion of unrealized losses on debt securities reclassified to held-to-maturity, unrealized loss on derivative hedges and the related reclassification adjustments included in net income. These items resulted in a tax expense of $ 4.9 million for the year ended December 31, 2023 and a tax benefit of $ 10.4 million a nd $ 870,000 for the years ended December 31, 2022 and 2021 , respectively. The income tax provision reconciled to the income taxes that would have been computed at the statutory federal rate for the years ended December 31, 2023, 2022 and 2021 is as follows (dollars in thousands): For the Year Ended December 31, 2023 2022 2021 Income before provision for income taxes $ 136,765 $ 193,922 $ 142,241 Federal income tax, at statutory rates 21.0 % 21.0 % 21.0 % Computed “expected” federal income tax expense $ 28,721 $ 40,724 $ 29,871 Increase (decrease) in federal income tax expense resulting from State income taxes, net of federal benefit 5,979 8,927 7,223 Earnings on BOLI ( 1,109 ) ( 1,381 ) ( 1,435 ) Tax exempt interest ( 606 ) ( 786 ) ( 768 ) Merger related expenses — 90 24 Stock compensation ( 298 ) 26 ( 110 ) Reclassification of certain tax effect from accumulated other comprehensive income ( 94 ) ( 157 ) ( 173 ) Research and development and other credits ( 557 ) ( 471 ) ( 475 ) Dividends received deduction ( 368 ) ( 371 ) ( 510 ) Other items, net 1,032 ( 36 ) ( 1,482 ) Total provision for income taxes $ 32,700 $ 46,565 $ 32,165 94 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2023 and 2022 are presented in the following table (in thousands): December 31, 2023 2022 Deferred tax assets: Allowance for credit losses on loans and debt securities HTM $ 16,951 $ 14,887 Other reserves 2,482 2,870 Incentive compensation 3,871 4,715 Deferred compensation 370 419 Stock plans 2,474 2,693 Unrealized losses on assets held-for-sale 392 1,080 Unrealized losses on AFS securities 7,274 11,849 Net operating loss carryforwards related to acquisition 21,077 23,100 Section 174 Capitalized Costs 3,737 2,348 Federal and state alternative minimum tax 1,196 2,294 Other, net 653 683 Total gross deferred tax assets 60,477 66,938 Deferred tax liabilities: Unrealized gain on equity securities ( 3,386 ) ( 2,155 ) Premises and equipment ( 4,891 ) ( 4,362 ) Deferred loan and commitment costs, net ( 2,317 ) ( 1,937 ) Purchase accounting related adjustments ( 1,716 ) ( 2,300 ) Investments, discount accretion ( 73 ) ( 365 ) Total gross deferred tax liabilities ( 12,383 ) ( 11,119 ) Net deferred tax assets $ 48,094 $ 55,819 The Company has federal net operating losses from the acquisitions of Colonial American Bank (“Colonial American”) and Sun Bancorp, Inc. (“Sun”). At December 31, 2023 and 2022, the net operating losses from Colonial American were $ 3.6 million and $ 3.9 million, respectively. These net operating losses are subject to annual limitation under Code Section 382 of approximately $ 330,000 , and will expire between 2029 and 2034. At December 31, 2023 and 2022, the net operating losses from Sun were $ 96.8 million and $ 106.1 million, respectively. These net operating losses are subject to annual limitation under Code Section 382 of approximately $ 9.3 million. These net operating losses will expire between 2029 and 2036. At both December 31, 2023 and 2022, the Company had $ 1.2 million and $ 2.3 million, respectively, of Alternative Minimum Tax tax credits that were part of the Sun acquisition. These credits are subject to the same Code Section 382 limitation as indicated above but do not expire. At December 31, 2023, 2022 and 2021, the Company determined that it is not required to establish a valuation reserve for the remaining net deferred tax assets since it is “more likely than not” that the net deferred tax assets will be realized through future reversals of existing taxable temporary differences, future taxable income and tax planning strategies. The conclusion that it is “more likely than not” that the remaining net deferred tax assets will be realized is based on the history of earnings and the prospects for continued growth. Management will continue to review the tax criteria related to the recognition of deferred tax assets. Retai ned earnings at December 31, 2023 included approximately $ 10.8 million for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only for tax years prior to 1988. If the Bank were to liquidate, the entire amount would have to be recaptured and would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The Company’s federal and state income tax returns are routinely subject to examination by the Internal Revenue Service and New Jersey, New York, Pennsylvania, and several other state and city tax authorities the Company operates in. The Company believes the assumptions used to record tax-related assets or liabilities have been appropriate. However, such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. 95 The Company is currently under examination by the New York State Department of Taxation and Finance in connection with the 2019 to 2021 tax years. As of December 31, 2023, the Company has not received any notices of proposed adjustments from this audit. The tax years that remain subject to examination by the federal government and most state or city tax authorities include the tax years 2020 and forward. With the enactment of the Tax Reform on December 22, 2017, the federal corporate income tax rate was reduced from 35% to 21% effective January 1, 2018. Accounting guidance required that the effect of income tax law changes on deferred taxes be recognized as a component of income tax expense related to continuing operations, but also to items initially recognized in other comprehensive income. As a result of the reduction in the U.S. federal statutory income tax rate, the Company recognized an additional income tax benefit of $ 1.9 million for the year ended December 31, 2018 and additional income tax expense of $ 3.6 million for the year ended December 31, 2017. Because accounting guidance requires the effect of income tax law changes on deferred taxes to be recognized as a component of income tax expense related to continuing operations, this additional income tax expense included $ 1.8 million related to items recognized in other comprehensive income. These amounts will continue to be reported as separate components of accumulated other comprehensive income until such time as the underlying transactions from which such amounts arose are settled through continuing operations. At such time, the reclassification from accumulated other comprehensive income will be recognized as a net tax benefit. The amount included in accumulated other comprehensive income at December 31, 2023, subject to reclassification, was $ 413,000 . There were no unrecognized tax benefits for the years ended December 31, 2023, 2022 and 2021. Note 11. Employee Stock Ownership Plan The Bank maintains an ESOP which all full-time employees are eligible to participate in after they attain age 21 and complete one year of service during which they work at least 1000 hours. ESOP shares are allocated among participants on the basis of compensation earned during the year. Employees are fully vested in their ESOP account after the completion of five years of credited service or completely, if service was terminated due to death, retirement, disability or change in control of the Company. ESOP participants are entitled to receive distributions from the ESOP account only upon termination of service, which includes retirement and death, except that a participant may elect to have dividends distributed as a cash payment on a quarterly basis. Over the years, the ESOP has borrowed from the Company to purchase shares of common stock. During 2023, the ESOP had two outstanding loan agreements with the Bank (“the 2018 loan” and “the 2021 loan”). The 2018 loan originally allowed the ESOP to borrow an additional $ 8.4 million from the Company at a fixed interest rate of 3.25 %, which matures on December 31, 2026, to purchase 292,592 shares of common stock. The 2021 loan originally allowed the ESOP to borrow an additional $ 3.2 million from the Company at a fixed interest rate of 0.22 % to purchase 145,693 shares of common stock, which matured on December 31, 2023. Both loans are to be repaid from contributions by the Bank to the ESOP trustee. The Bank is required to make contributions to the ESOP in amounts at least equal to the principal and interest requirement of both debts. The Bank’s obligation to make such contributions is reduce d to the extent of any dividends paid by the Company on unallocated shares and any investment earnings realized on such dividends. As of December 31, 2023 and 2022, contributions to the ESOP, which were used to fund principal and interest payments on the ESOP loans, both totaled $ 2.7 million . During 2023 and 2022, $ 254,000 and $ 245,000 , respectively, of dividends paid on unallocated ESOP shares were used for debt service. At December 31, 2023 and 2022, the loan had an outstanding balance of $ 4.2 million and $ 6.8 million, respectively, and the ESOP had unallocated shares of 197,588 and 317,343 , respectively. At December 31, 2023, the unallocated shares had a fair value of $ 3.4 million . The unamortized balance of the ESOP is shown as unallocated common stock held by the ESOP and is reflected as a reduction of stockholders’ equity. For the year ended December 31, 2023, the Bank recorded compensation expense related to the ESOP of $ 2.1 million which included $ 341,000 related to a decrease in compensation expense to reflect the decrease in the average fair value of shares committed to be released and allocated shares below the Bank’s cost. For the years ended December 31, 2022, and 2021, the Bank recorded compensation expense related to the ESOP of $ 2.5 million and $ 2.2 million, respectively, which included $ 82,000 and $ 179,000 , respectively, of additional compensation expense to reflect the increase in the average fair value of shares committed to be released and allocated shares in excess of the Bank’s cost. As of December 31, 2023, 2,765,724 shares had been allocated to participants and 119,755 shares were committed to be released for services rendered in 2023. 96 Note 12. Long-Term Incentive Plans The Company offers long-term incentive plans that provide for the granting of stock awards (both time-vested and performance-based) and stock options, as well as phantom stock units. The Company has established these plans to attract and retain qualified personnel in key positions, provide officers, employees, and non-employee directors with a proprietary interest in the Company as an incentive to contribute to the success of the Company, align the interests of management with those of other stockholders and reward employees for outstanding performance. All officers, other employees, and non-employee directors of the Company and its affiliates are eligible to receive awards under the plans. Overview of Incentive Plans The OceanFirst Financial Corp. 2011 Stock Incentive Plan, which authorized the granting of stock options or awards of common stock, was approved by stockholders in 2011. This plan was subsequently amended in 2017 to increase the number of authorized shares available for grant and to update the performance goals under which performance-based awards may be granted. The OceanFirst Financial Corp. 2020 Stock Incentive Plan, which also authorized the granting of stock options or awards of common stock, was approved by stockholders in 2020. This plan was subsequently amended in 2021 to increase the number of shares authorized for issuance through equity awards. The following table presents the amount of the plans’ authorized shares and those that remain available for issuance as of December 31, 2023. Both plans allowed the Company to authorize shares subject to options or, in lieu of options, shares in the form of stock awards. Authorized Awards Authorized but Not Issued Stock Options or Stock Awards Stock Options or Stock Awards 2020 Plan 6,950,000 2,780,000 3,822,733 1,529,093 2011 Plan (1) 4,000,000 1,600,000 248,013 99,205 Total 10,950,000 4,380,000 4,070,746 1,628,298 (1) The 2011 Stock Incentive Plan expired and the Company will not issue any further shares from this plan. Stock Awards The Company grants time-based and performance-based restricted stock awards. Time-based awards vest ratably, and generally have a three - to five- year vesting period. Performance-based stock awards, which are granted to certain senior executives, vest based on the estimated probability of achievement of defined tiered performance goals or include market-based conditions. Tiered performance goals for each metric are aligned with corresponding tiered vesting values and have been set using financial data from the applicable strategic plan as approved by the Board. The Company granted performance-based stock awards in 2023, 2022 and 2021. The 2023 and 2022 performance-based stock awards were issued with a three year cliff vesting schedule and the 2021 performance-based stock awards vest in equal amounts over a four year period. The 2023 and 2022 performance-based stock awards include a market-based condition. The fair value of these awards were estimated through the use of the Monte Carlo valuation model at the time of grant, applying the following assumptions: 2023 2022 Risk-free interest rate 4.56 % 1.36 % Expected performance period 2.8 years 2.9 years Expected volatility 35.80 % 41.10 % 97 The risk-free interest rate is based on the U.S Treasury rate, with a term equal to the expected performance period. The expected performance period reflects the remaining term of the awards’ performance period. Expected volatility is based on actual historical results. A summary of the granted but unvested stock award activity, which included both time- and performance-based stock awards, for the years ended December 31, 2023, 2022 and 2021 is as follows: 2023 2022 2021 Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value Outstanding at beginning of year: 835,340 $ 21.84 778,971 $ 22.30 575,996 $ 23.42 Granted 322,425 22.14 279,750 21.47 388,392 21.53 Vested ( 228,370 ) 22.55 ( 190,094 ) 23.14 ( 126,292 ) 24.04 Forfeited ( 114,906 ) 22.07 ( 33,287 ) 22.17 ( 59,125 ) 24.39 Outstanding at end of year 814,489 $ 21.73 835,340 $ 21.84 778,971 $ 22.30 Stock Options The Company’s stock options expire 10 years from the date of grant and generally vest at a rate of 20 % per year. The exercise price of each option equals the closing market price of the Company’s stock on the grant date. The Company typically issues treasury shares or authorized but unissued shares to satisfy stock option exercises. The Company did not grant stock options for the years ended December 31, 2023, 2022 or 2021, and has not granted stock options since 2020. A summary of option activity for the years ended December 31, 2023, 2022 and 2021 is as follows: 2023 2022 2021 Number of Shares Weighted Average Exercise Price Number of Shares Weighted Average Exercise Price Number of Shares Weighted Average Exercise Price Outstanding at beginning of year 2,210,684 $ 21.66 2,458,255 $ 21.02 2,838,867 $ 20.67 Exercised ( 195,684 ) 14.59 ( 217,038 ) 14.17 ( 264,717 ) 14.80 Forfeited ( 15,358 ) 20.44 — — ( 1,828 ) 23.78 Expired ( 30,203 ) 18.32 ( 30,533 ) 23.68 ( 114,067 ) 26.62 Outstanding at end of year 1,969,439 $ 22.42 2,210,684 $ 21.66 2,458,255 $ 21.02 Options exercisable 1,663,506 1,645,901 1,583,521 The following table summarizes information about stock options outstanding at December 31, 2023: Options Outstanding Options Exercisable Exercise Prices Number of Options Weighted Average Remaining Contractual Life Weighted Average Exercise Price Number of Options Weighted Average Remaining Contractual Life Weighted Average Exercise Price $ 12.72 to $ 16.79 12,500 1.2 years $ 14.10 12,500 1.2 years $ 14.10 16.80 to 20.86 1,108,815 3.9 19.27 875,029 3.3 18.95 20.87 to 24.93 30,005 2.2 22.69 30,005 2.2 22.69 24.94 to 29.01 818,119 4.0 26.82 745,972 3.9 26.98 1,969,439 3.9 years $ 22.42 1,663,506 3.5 years $ 22.58 The aggregate intrinsic value for both stock options outstanding and stock options exercisable at December 31, 2023 was $ 57,000 . 98 Phantom Stock Units In 2022, the Company also established the OceanFirst Bank Phantom Equity Plan to issue phantom stock units to select senior management employees. The phantom stock units are liability-classified time-based awards, which vest ratably over a three - to five- year period. The fair value is determined based on the Company’s stock price at the grant date and remeasured monthly. The phantom stock units are settled in cash when they vest. Compensation Expense The compensation expense for stock awards, stock options and phantom stock units were as follows (in thousands): For the Year Ended December 31, 2023 2022 2021 Stock awards $ 5,154 $ 5,698 $ 4,161 Stock options 700 940 1,244 Phantom stock units 1,092 554 — Total $ 6,946 $ 7,192 $ 5,405 At December 31, 2023, the Company had an estimated $ 13.1 million of unrecognized compensation costs related to non-vested stock awards, stock options, and phantom stock units. This cost will be recognized over the remaining vesting period of 1.97 years. Note 13. Commitments, Contingencies, and Concentrations of Credit Risk The Company, in the normal course of business, is party to financial instruments and commitments which involve, to varying degrees, elements of risk in excess of the amounts recognized in the consolidated financial statements. These financial instruments and commitments include unused consumer lines of credit, construction loan lines of credit, commercial lines of credit, and commitments to extend credit. At December 31, 2023, the following commitments and contingent liabilities existed which are not reflected in the accompanying consolidated financial statements (in thousands): December 31, 2023 Unused consumer and residential construction loan lines of credit (primarily floating-rate) $ 349,382 Unused commercial and commercial construction loan lines of credit (primarily floating-rate) 1,098,322 Other commitments to extend credit: Fixed-rate 48,214 Adjustable-rate 14,870 Floating-rate 119,941 The Company’s fixed-rate loan commitments generally expire within 90 days of issuance and carried interest rates ranging from 5.50 % to 10.50 % at December 31, 2023. At December 31, 2023, the Company had $ 2.1 million of unfunded capital commitments related to investment funds. The Company’s maximum exposure to credit losses in the event of nonperformance by the other party to these financial instruments and commitments is represented by the contractual amounts. The Company uses the same credit policies in granting commitments and conditional obligations as it does for financial instruments recorded in the Consolidated Statements of Financial Condition. These commitments and obligations do not necessarily represent future cash flow requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s assessment of risk. Substantially all of the unused consumer and construction loan lines of credit are collateralized by mortgages on real estate. At December 31, 2023, the Company is obligated under noncancelable operating leases and rental agreements for premises and equipment. Rental and lease expense under these leases were $ 5.7 million, $ 6.3 million, and $ 7.2 million for the years ended 99 December 31, 2023, 2022 and 2021, respectively. Refer to Note 17 Leases for the projected minimum lease commitments as of December 31, 2023. The Company grants residential real estate and first mortgage commercial real estate loans to borrowers primarily located throughout New Jersey and the major metropolitan markets of Philadelphia, New York, Baltimore, and Boston. The ability of borrowers to repay their obligations is dependent upon various factors including the borrowers’ income, net worth, cash flows generated by the underlying collateral, value of the underlying collateral, and priority of the Company’s lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the Company’s control. The Company is, therefore, subject to risk of loss. A decline in real estate values could cause some residential and commercial real estate loans to become inadequately collateralized, which would expose the Company to a greater risk of loss. The Company believes its lending policies and procedures adequately minimize the potential exposure to such risks and collateral and/or guarantees are required for most loans. The Company is a defendant in certain claims and legal actions arising in the ordinary course of business. Management and its legal counsel are of the opinion that the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial condition, results of operations, or liquidity. Note 14. Earnings Per Share The following reconciles shares outstanding for basic and diluted earnings per share for the years ended December 31, 2023, 2022 and 2021 (in thousands): December 31, 2023 2022 2021 Weighted average shares outstanding 59,399 59,219 59,873 Less: Unallocated ESOP shares ( 257 ) ( 378 ) ( 360 ) Unallocated incentive award shares ( 194 ) ( 111 ) ( 107 ) Average basic shares outstanding 58,948 58,730 59,406 Add: Effect of dilutive securities: Incentive awards 9 148 243 Average diluted shares outstanding 58,957 58,878 59,649 For the years ended December 31, 2023, 2022 and 2021, antidilutive stock options of 1,775,000 , 1,544,000 , and 1,566,000 , respectively, were excluded from the earnings per share calculation. 100 Note 15. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The Company uses valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability and developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability and developed based on the best information available in the circumstances. In that regard, a fair value hierarchy has been established for valuation inputs that gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlations or other means. Level 3 Inputs – Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities. Assets and Liabilities Measured at Fair Value A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Debt Securities Available-for-Sale Debt securities classified as available-for-sale are reported at fair value. Fair value of U.S. Treasuries are determined using quoted prices in active markets (Level 1). The majority of the other debt securities are determined using inputs other than quoted prices that are based on market observable information (Level 2). Level 2 debt securities are priced through third-party pricing services or security industry sources that actively participate in the buying and selling of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain debt securities without relying exclusively on quoted prices for the specific securities, but comparing the debt securities to benchmark or comparable debt securities. Equity Investments Equity investments with readily determinable fair value are reported at fair value. Fair value for these investments is primarily determined using a quoted price in an active market or exchange (Level 1) or using inputs other than quoted prices that are based on market observable information (Level 2). Equity investments without readily determinable fair values are carried at cost less impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer (measurement alternative). Certain equity investments without readily 101 determinable fair values are measured at NAV per share as a practical expedient, which are excluded from the fair value hierarchy levels in the table below. Interest Rate Derivatives The Company’s interest rate swaps and cap contracts are reported at fair value utilizing discounted cash flow models provided by an independent, third-party and observable market data (Level 2). When entering into an interest rate swap or cap contract, the Company is exposed to fair value changes due to interest rate movements, and also the potential nonperformance of the contract counterparty. Loans Individually Measured for Impairment Loans measured for impairment based on the fair value of the underlying collateral are recorded at estimated fair value, less estimated selling costs. Fair value is generally based on independent appraisals (Level 3), which may be adjusted by management for qualitative factors, such as economic factors and estimated liquidation expenses. The following table summarizes financial assets and financial liabilities measured at fair value as of December 31, 2023 and 2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands): Fair Value Measurements at Reporting Date Using: Total Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs December 31, 2023 Items measured on a recurring basis: Debt securities available-for-sale $ 753,892 $ 43,036 $ 710,856 $ — Equity investments 53,166 — 53,166 — Interest rate derivative asset 87,776 — 87,776 — Interest rate derivative liability ( 87,848 ) — ( 87,848 ) — Items measured on a non-recurring basis: Equity investments (1) (2) 46,997 — — 43,576 Loans measured for impairment based on the fair value of the underlying collateral (3) 18,509 — — 18,509 December 31, 2022 Items measured on a recurring basis: Debt securities available-for-sale $ 457,648 $ — $ 457,648 $ — Equity investments 61,942 430 61,511 — Interest rate derivative asset 113,420 — 113,420 — Interest rate derivative liability ( 113,473 ) — ( 113,473 ) — Items measured on a non-recurring basis: Equity investments (1) (2) 40,095 — — 37,076 Loans measured for impairment based on the fair value of the underlying collateral (3) 9,635 — — 9,635 (1) As of December 31, 2023 and 2022, equity investments of $ 47.0 million and $ 40.1 million, respectively, included $ 43.6 million and $ 37.1 million, respectively, of equity investments measured under the measurement alternative. This included no unrealized gains or losses for the year ended December 31, 2023 and $ 20.0 million of unrealized gains for the year ended December 31, 2022. (2) As of December 31, 2023 and 2022, equity investments of $ 47.0 million and $ 40.1 million, respectively, included $ 3.4 million and $ 3.0 million, respectively, of certain equity investment funds measured at NAV per share (or its equivalent) as a practical expedient to fair value and these equity investments have not been classified in the fair value hierarchy levels. (3) Primarily consists of commercial loans, which are collateral dependent. The range may vary but is generally 0 % to 8 % on the discount for costs to sell and 0 % to 10 % on appraisal adjustments. 102 The following table reconciles the beginning and ending balances for equity investments that are recognized at fair value on a recurring basis, in the Consolidated Statements of Financial Condition, using significant unobservable inputs (in thousands): For the Year Ended December 31, December 31, 2022 Beginning balance $ 2,718 Transfers out of Level 3 ( 2,718 ) Ending balance $ — The Company recognizes transfers between levels of the valuation hierarchy at the end of the applicable reporting periods. There were no assets in Level 3 that were recognized at fair value on a recurring basis or transfers into or out of Level 3 for the year ended December 31, 2023. During the year ended December 31, 2022, the Company executed its right to convert $ 2.7 million of preferred stock into common stock, which resulted in a transfer from Level 3 into Level 1. Assets and Liabilities Disclosed at Fair Value A description of the valuation methodologies used for assets and liabilities disclosed at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. Cash and Due from Banks For cash and due from banks, the carrying amount approximates fair value. Debt Securities Held-to-Maturity Debt securities classified as held-to-maturity are carried at amortized cost, as the Company has the positive intent and ability to hold these debt securities to maturity. The Company determines the fair value of the debt securities utilizing Level 2 and, infrequently, Level 3 inputs. Most of the Company’s debt securities are fixed income instruments that are not quoted on an exchange, but are bought and sold in active markets. Prices for these instruments are obtained through third-party pricing vendors or security industry sources that actively participate in the buying and selling of debt securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain debt securities without relying exclusively on quoted prices for the specific debt securities, but comparing the debt securities to benchmark or comparable debt securities. Management’s policy is to obtain and review all available documentation from the third-party pricing service relating to their fair value determinations, including their methodology and summary of inputs. Management reviews this documentation, makes inquiries of the third-party pricing service and decides as to the level of the valuation inputs. Based on the Company’s review of the available documentation from the third-party pricing service, management concluded that Level 2 inputs were utilized for all securities except for certain debt securities where management utilized Level 3 inputs, such as broker or dealer quotes with limited levels of activity and price transparency. Restricted Equity Investments The fair value of these investments, which are primarily Federal Home Loan Bank of New York and Federal Reserve Bank stock, is its carrying value since this is the amount for which it could be redeemed. There is no active market for this stock and the Company is required to maintain a minimum investment as stipulated by the respective entities. Loans Receivable and Loans Held-for-Sale Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential real estate, consumer and commercial. Each loan category is further segmented into fixed and adjustable rate interest terms. Fair value of performing and non-performing loans, which is based on an exit price notion, was estimated by discounting the future cash flows, net of estimated prepayments, at market discount rates that reflect the credit and interest rate risk inherent in the loan. Loans held for sale are carried at the lower of unpaid principal balance, net, or estimated fair value on an aggregate basis. Estimated fair value is generally determined based on bid quotations from secondary markets. 103 Deposits Other than Time Deposits The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, and interest-bearing checking accounts and money market accounts is, by definition, equal to the amount payable on demand. The related insensitivity of the majority of these deposits to interest rate changes creates a significant inherent value which is not reflected in the fair value reported. Time Deposits The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. Securities Sold Under Agreements to Repurchase with Customers Fair value approximates the carrying amount as these borrowings are payable on demand and the interest rate adjusts monthly. FHLB Advances and Other Borrowings Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities. The book value and estimated fair value of the Company’s significant financial instruments not recorded at fair value as of December 31, 2023 and 2022 are presented in the following tables (in thousands): Fair Value Measurements at Reporting Date Using Book Value Level 1 Inputs Level 2 Inputs Level 3 Inputs December 31, 2023 Financial Assets: Cash and due from banks $ 153,718 $ 153,718 $ — $ — Debt securities held-to-maturity 1,159,735 — 1,068,438 — Restricted equity investments 93,766 — — 93,766 Loans receivable, net and loans held-for-sale 10,141,887 — — 9,606,498 Financial Liabilities: Deposits other than time deposits (1) 7,989,527 — 7,989,527 — Time deposits 2,445,422 — 2,421,058 — FHLB advances and other borrowings 1,045,092 — 1,008,351 — Securities sold under agreements to repurchase with customers 73,148 73,148 — — December 31, 2022 Financial Assets: Cash and due from banks $ 167,946 $ 167,946 $ — $ — Debt securities held-to-maturity 1,221,138 — 1,097,984 12,057 Restricted equity investments 109,278 — — 109,278 Loans receivable, net and loans held-for-sale 9,869,408 — — 9,103,137 Financial Liabilities: Deposits other than time deposits (1) 8,133,186 — 8,133,186 — Time deposits 1,542,020 — 1,504,601 — FHLB advances and other borrowings 1,406,569 — 1,416,384 — Securities sold under agreements to repurchase with customers 69,097 69,097 — — (1) The estimated fair value of non-maturity deposits does not consider any inherent value and represents the amount payable on demand. However, non-maturity deposits do contain significant inherent value to the Company, particularly when overnight funding costs are greater than the deposit costs. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time 104 the Company’s entire holdings of a particular financial instrument. Because a limited market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other significant unobservable inputs. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include premises and equipment, bank owned life insurance, deferred tax assets and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. 105 Note 16. Derivatives and Hedging Activities The Company enters into derivative financial instruments which involve, to varying degrees, interest rate and credit risk. The Company manages these risks as part of its asset and liability management process and through credit policies and procedures, seeking to minimize counterparty credit risk by establishing credit limits and collateral agreements. The Company utilizes derivative financial instruments to accommodate the business needs of its customers as well as to economically hedge the exposure that this creates for the Company. Additionally, the Company enters into certain derivative financial instruments to enhance its ability to manage interest rate risk that exists as part of its ongoing business operations. The Company does not use derivative financial instruments for trading purposes. Customer Derivatives – Interest Rate Swaps and Cap Contracts Derivatives Not Designated as Hedging Instruments The Company enters into interest rate swaps that allow commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s variable-rate loan into a fixed-rate loan. The Company then enters into a corresponding swap agreement with a third party in order to economically hedge its exposure through the customer agreement. The Company also enters into interest rate cap contracts that enable commercial loan customers to lock in a cap on a variable-rate commercial loan agreement. This feature prevents the loan from repricing to a level that exceeds the cap contract’s specified interest rate, which serves to hedge the risk from rising interest rates. The Company then enters into an offsetting interest rate cap contract with a third party in order to economically hedge its exposure through the customer agreement. These interest rate swaps and cap contracts with both the customers and third parties are not designated as hedges under ASC Topic 815, Derivatives and Hedging, therefore changes in fair value are reported in earnings. As the interest rate swaps and cap contracts are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by ASC Topic 820, Fair Value Measurements. The Company recognized losses of $ 5,000 and gains of $ 49,000 and $ 72,000 in commercial loan swap income resulting from fair value adjustments for the years ended December 31, 2023, 2022 and 2021, respectively. Derivatives Designated as Hedging Instruments During the fourth quarter of 2022, the Company entered into a three-year interest rate swap intended to add stability to its net interest income and to manage its exposure to future interest rate movements associated with a pool of floating rate commercial loans. The swap requires the Company to pay variable-rate amounts indexed to one-month term SOFR to the counterparty in exchange for the receipt of fixed-rate amounts at 4.0 % from the counterparty. The swap was designated and qualified as a cash flow hedge, under ASC Topic 815, Derivatives and Hedging. The changes in the fair value of cash flow hedges are initially reported in other comprehensive income. Amounts are subsequently reclassified from accumulated other comprehensive income to earnings when the hedged transactions occur, specifically within the same line item as the hedged item (interest income). Therefore, a portion of the balance reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income as interest payments are made or received on the Company’s interest rate swaps. The table below presents the effect on the Company’s accumulated other comprehensive income/loss (“AOCI” or “AOCL”) attributable to the cash flow hedge derivative, net of tax, and the related gains/(losses) reclassified from AOCI into income (in thousands): For the Year Ended December 31, 2023 2022 AOCL balance at beginning of period, net of tax $ ( 25 ) $ — Unrealized losses recognized in OCI ( 808 ) ( 25 ) Losses reclassified from AOCI into interest income 797 — AOCL balance at end of period, net of tax $ ( 36 ) $ ( 25 ) During the next twelve months ending December 31, 2024, the Company estimates that an additional $ 809,000 will be reclassified as a reduction to interest income. 106 The table below presents the notional amount and fair value of derivatives designated and not designated as hedging instruments, as well as their location on the Consolidated Statements of Financial Condition (in thousands): Notional Fair Value Other assets Other liabilities As of December 31, 2023 Derivatives Not Designated as Hedging Instruments Interest rate swaps and cap contracts $ 1,418,276 $ 87,776 $ 87,801 Derivatives Designated as Cash Flow Hedge Interest rate swap contract 100,000 — 47 Total Derivatives $ 1,518,276 $ 87,776 $ 87,848 As of December 31, 2022 Derivatives Not Designated as Hedging Instruments Interest rate swaps and cap contracts $ 1,368,245 $ 113,420 $ 113,440 Derivatives Designated as Cash Flow Hedge Interest rate swaps contract 100,000 — 33 Total Derivatives $ 1,468,245 $ 113,420 $ 113,473 Credit Risk-Related Contingent Features The Company is exposed to credit risk in the event of nonperformance by the interest rate derivative counterparty. The Company minimizes this risk by being a party to International Swaps and Derivatives Association agreements with third party broker-dealers that require a minimum dollar transfer amount upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted with third parties was $ 0 and $ 40,000 at December 31, 2023 and 2022, respectively. The amount of collateral received from third parties was $ 88.3 million and $ 104.5 million at December 31, 2023 and 2022, respectively. The amount of collateral posted with third parties and received from third parties is deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures. The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with third parties was $ 87.8 million and $ 113.5 million at December 31, 2023 and 2022, respectively. The interest rate derivatives which the Company executes with the commercial borrowers are collateralized by the borrowers’ commercial real estate financed by the Company. 107 Note 17. Leases A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company’s leases are comprised of real estate property for branches, automated teller machine locations and office space with terms extending through 2038. The Company has one existing finance lease, which has a lease term through 2029. The following table represents the classification of the Company’s ROU assets and lease liabilities on the Consolidated Statements of Financial Condition (in thousands): For the Year Ended December 31, 2023 December 31, 2022 Lease ROU Assets Classification Operating lease ROU assets Other assets $ 18,979 $ 19,055 Finance lease ROU asset Premises and equipment, net 1,304 1,532 Total lease ROU assets $ 20,283 $ 20,587 Lease Liabilities Operating lease liabilities (1) Other liabilities $ 20,018 $ 20,053 Finance lease liability Other borrowings 1,685 1,934 Total lease liabilities $ 21,703 $ 21,987 (1) Operating lease liabilities excludes liabilities for future rent and estimated lease termination payments related to closed branches of $ 5.9 million and $ 7.7 million as of December 31, 2023 and 2022, respectively. The calculated amount of the ROU assets and lease liabilities are impacted by the lease term and the discount rate used to calculate the present value of the minimum lease payments. Lease agreements often include one or more options to renew the lease at the Company’s discretion. If the exercise of a renewal option is considered to be reasonably certain, the Company includes the extended term in the calculation of the ROU asset and lease liability. For the discount rate, ASC Topic 842, Leases requires the Company to use the rate implicit in the lease, provided the rate is readily determinable. As this rate is not readily determinable, the Company generally utilizes its incremental borrowing rate, at lease inception, over a similar term. For operating leases existing prior to January 1, 2019, the Company used the incremental borrowing rate for the remaining lease term as of January 1, 2019. For the finance lease, the Company utilized its incremental borrowing rate at lease inception. December 31, 2023 December 31, 2022 Weighted-Average Remaining Lease Term Operating leases 6.52 years 6.87 years Finance lease 5.60 years 6.60 years Weighted-Average Discount Rate Operating leases 3.02 % 2.86 % Finance lease 5.63 5.63 108 The following table represents lease expenses and other lease information (in thousands): For the Year Ended December 31, 2023 2022 2021 Lease Expense Operating lease expense $ 4,634 $ 5,000 $ 5,935 Finance lease expense: Amortization of ROU assets 228 207 199 Interest on lease liabilities (1) 101 104 112 Total $ 4,963 $ 5,311 $ 6,246 Other Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 4,571 $ 4,466 $ 5,263 Operating cash flows from finance leases 101 104 112 Financing cash flows from finance leases 249 214 195 (1) Included in borrowed funds interest expense on the Consolidated Statements of Income. All other costs are included in occupancy expense on the Consolidated Statements of Income. Future minimum payments for the finance lease and operating leases with initial or remaining terms were as follows (in thousands): Finance Lease Operating Leases For the Year Ending December 31, 2024 $ 350 $ 4,376 2025 350 4,401 2026 350 3,833 2027 350 2,678 2028 350 1,524 Thereafter 209 5,544 Total 1,959 22,356 Less: Imputed interest ( 274 ) ( 2,338 ) Total lease liabilities $ 1,685 $ 20,018 Note 18. Variable Interest Entity The Company accounts for Trident as a variable interest entity (“VIE”) under ASC 810, Consolidation, for which the Company is considered the primary beneficiary (i.e. the party that has a controlling financial interest). In accordance with ASC 810, Consolidation, the Company has consolidated Trident’s assets and liabilities. For further discussion on the acquisition of Trident refer to Note 3 Business Combinations, to this Form 10-K. The summarized financial information for the Company’s consolidated VIE consisted of the following (in thousands): December 31, 2023 December 31, 2022 Cash and cash equivalents $ 22,151 $ 30,062 Other assets 606 941 Total assets 22,757 31,003 Other liabilities 20,803 28,998 Net assets $ 1,954 $ 2,005 109 Note 19. Parent-Only Financial Information The following condensed statements of financial condition at December 31, 2023 and 2022 and condensed statements of operations and cash flows for the years ended December 31, 2023, 2022 and 2021 for OceanFirst Financial Corp. (parent company only) reflect the Company’s investment in its wholly-owned subsidiaries, the Bank, and OceanFirst Risk Management, Inc., and non-wholly owned subsidiary, Trident, using the equity method of accounting. Condensed Statement of Financial Condition (in thousands) December 31, 2023 2022 Assets: Cash and due from banks $ 12,083 $ 10,623 Advances to Bank 67,289 32,840 Equity securities 93,387 95,261 ESOP loan receivable 4,241 6,751 Investment in subsidiaries 1,672,406 1,630,199 Goodwill 5,827 5,827 Other assets 6,059 1,760 Total assets $ 1,861,292 $ 1,783,261 Liabilities and Stockholders’ Equity: Borrowings $ 194,771 $ 193,469 Other liabilities 4,576 4,328 OceanFirst Financial Corp. stockholders’ equity 1,661,163 1,584,662 Non-controlling interest 782 802 Total stockholders’ equity 1,661,945 1,585,464 Total liabilities and stockholders’ equity $ 1,861,292 $ 1,783,261 Condensed Statements of Operations (in thousands) For the Year Ended December 31, 2023 2022 2021 Dividend income – subsidiaries $ 97,043 $ 73,011 $ 40,000 Interest and dividend income – debt and equity securities 2,981 2,387 2,070 Interest income – advances to subsidiary Bank 2,182 562 298 Interest income – ESOP loan receivable 183 227 289 Net (loss) gain on equity investments ( 3,732 ) 7,973 7,499 Total income 98,657 84,160 50,156 Interest expense – borrowings 13,569 10,861 11,102 Operating expenses 4,050 4,258 3,307 Income before income taxes and undistributed earnings of subsidiaries 81,038 69,041 35,747 Benefit for income taxes 3,807 959 1,018 Income before undistributed earnings of subsidiaries 84,845 70,000 36,765 Undistributed earnings of subsidiaries 19,220 77,357 73,311 Net income 104,065 147,357 110,076 Net income attributable to non-controlling interest 36 754 — Net income attributable to OceanFirst Financial Corp. $ 104,029 $ 146,603 $ 110,076 110 Condensed Statements of Cash Flows (in thousands) For the Year Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net income $ 104,065 $ 147,357 $ 110,076 (Increase) decrease in advances to subsidiary Bank ( 34,449 ) 30,640 37,824 Undistributed earnings of subsidiary Bank ( 19,220 ) ( 77,357 ) ( 73,311 ) Net loss (gain) on equity investments 3,732 ( 7,973 ) ( 7,499 ) Net premium amortization in excess of discount accretion on securities 981 1,185 755 Amortization of deferred costs on borrowings 598 548 824 Net amortization of purchase accounting adjustments 704 684 542 Change in other assets and other liabilities ( 3,995 ) 2,336 7,359 Net cash provided by operating activities 52,416 97,420 76,570 Cash flows from investing activities: Proceeds from sales of equity investments 4,822 6,482 98,791 Purchase of equity investments ( 7,661 ) ( 7,207 ) ( 86,462 ) Increase in ESOP loan receivable — — ( 3,200 ) Repayments on ESOP loan receivable 2,510 2,480 2,040 Cash consideration for acquisition, net of cash received — ( 7,084 ) — Net cash (used in) provided by investing activities ( 329 ) ( 5,329 ) 11,169 Cash flows from financing activities: Repayments of other borrowings — ( 35,000 ) ( 7,500 ) Dividends paid ( 51,274 ) ( 47,511 ) ( 44,510 ) Purchase of treasury stock — ( 7,396 ) ( 36,059 ) Exercise of stock options 702 424 1,946 Distributions to non-controlling interest ( 55 ) ( 788 ) — Net cash used in financing activities ( 50,627 ) ( 90,271 ) ( 86,123 ) Net increase in cash and due from banks 1,460 1,820 1,616 Cash and due from banks at beginning of year 10,623 8,803 7,187 Cash and due from banks at end of year $ 12,083 $ 10,623 $ 8,803 111 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.