What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-02 · 172 added, 111 removed, 327 unchanged (46% of the section changed)

2 unchanged sentences

At or for the Quarters Ended

(dollars in thousands, except per share amounts) March 31, 2024 December 31, 2023 March 31, 2023

(dollars in thousands, except per share amounts) June 30, 2024 March 31, 2024 June 30, 2023

SELECTED FINANCIAL CONDITION DATA:

46 unchanged sentences

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

(4) Performance ratios for the quarter ended March 31, 2024 included a net benefit related to a net gain on equity investments, a net gain on sale of trust business and the Federal Deposit Insurance Corporation (“FDIC”) special assessment of $2.7 million, or $2.0 million, net of tax expense.

Performance ratios for the quarter ended December 31, 2023 included a net benefit related to a net gain on equity investments and the FDIC special assessment of $513,000, or $384,000, net of tax expense.

Performance ratios for the quarter ended March 31, 2023 included a net expense related to merger related expenses, net branch consolidation expense, net loss on equity investments, and net loss on sale of investments of $7.6 million, or $5.8 million, net of tax benefit.

(4) Performance ratios for the three months ended June 30, 2024 included a net gain on equity investments of $887,000, or $699,000, net of tax expense.

Performance ratios for the three months ended March 31, 2024 included a net benefit related to a net gain on equity investments, a net gain on sale of trust business and a Federal Deposit Insurance Corporation (“FDIC”) special assessment of $2.7 million, or $2.0 million, net of tax expense.

Performance ratios for the three months ended June 30, 2023 included a net loss on equity investments of $559,000, or $397,000, net of tax benefit.

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

2 unchanged sentences

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

(9) At March 31, 2024 and December 31, 2023, non-performing loans included the remaining exposure of $8.8 million on a single commercial real estate relationship that was partially charged-off during the year ended December 31, 2023.

(9) At June 30, 2024 and March 31, 2024, non-performing loans included the remaining exposure of $7.2 million and $8.8 million, respectively, on a commercial real estate relationship that was partially charged-off during the three months ended June 30, 2024 and in the previous year.

(10) Non-performing loans and assets generally consist of all loans 90 days or more past due and other loans in the process of foreclosure.

1 unchanged sentence

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

The net unamortized credit and purchased with credit deterioration (“PCD”) marks on these loans, not reflected in the allowance for loan credit losses, was $7.0 million, $7.5 million, and $10.5 million at March 31, 2024, December 31, 2023 and March 31, 2023, respectively.

The net unamortized credit and purchased with credit deterioration (“PCD”) marks on these loans, not reflected in the allowance for loan credit losses, was $6.1 million, $7.0 million, and $9.8 million at June 30, 2024, March 31, 2024 and June 30, 2023, respectively.

OceanFirst Financial Corp.

is the holding company for OceanFirst Bank N.A.

(the “Bank”), a regional bank serving business and retail customers throughout New Jersey and the major metropolitan areas of Philadelphia, New York, Baltimore, and Boston.

(the “Bank”), a regional bank serving business and retail customers throughout New Jersey and the major metropolitan areas between Massachusetts and Virginia.

The term “Company” refers to OceanFirst Financial Corp., the Bank and all their subsidiaries on a consolidated basis.

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

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

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

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

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

Key developments relating to the Company’s financial results and corporate activities for the quarter ended March 31, 2024 were as follows:

• Net Interest Margin:

Net interest margin of 2.81%, reflecting a level of stabilization.

• Capital Accretion:

The Company continued to build capital, while also resuming share repurchases.

The Company’s common equity tier 1 capital ratio and book value per share were 11.01% and $28.32, respectively, and increased 15 basis points and $0.36 from the prior linked quarter.

The Company repurchased 957,827 shares totaling $15.1 million.

• Expense Management:

The Company continued to exercise disciplined expense control.

Non-interest expense was $58.7 million, which included a FDIC special assessment charge of $418,000.

Key developments relating to the Company’s financial results and corporate activities for the three months ended June 30, 2024 were as follows:

• Asset Quality:

1 unchanged sentence

These metrics continue to reflect strong credit performance and remain low compared to pre-pandemic levels.

The current quarter results were impacted by the following matters.

Net interest income and margin were modestly impacted by a continued mix-shift to and repricing of higher-cost funding that offset the increase in yields on interest-earning assets.

• Capital Accretion:

Common equity tier 1 capital ratio and book value per share were 11.2% and $28.67, respectively, and increased approximately 20 basis points and $0.35 from the prior linked quarter.

• Share repurchases:

The Company repurchased 338,087 shares totaling $5.0 million.

The Company has 1,638,524 shares available for repurchase under the authorized repurchase program.

The current quarter net interest income and margin were impacted by a mix-shift to and repricing of higher cost funding, and unanticipated prepayments on commercial loans.

Deposit beta, which is the change in rates paid to customers relative to the change in federal funds target rate, increased modestly to 42%, from 40% in the prior linked quarter.

Additionally, the results included several non-recurring matters, which included a $1.2 million gain on sale of a portion of the Company’s trust business, a $1.2 million write-off in income tax expense, $418,000 in FDIC special assessments, and $345,000 in bank owned life insurance death benefits.

Net income available to common stockholders for the quarter ended March 31, 2024 increased to $27.7 million, or $0.47 per diluted share, as compared to $26.9 million, or $0.46 per diluted share, for the corresponding prior year period.

The dividends paid to preferred stockholders were $1.0 million for each of the three months ended March 31, 2024 and 2023, respectively.

On April 18, 2024, the Company’s Board of Directors declared a quarterly cash dividend on common stock of $0.20 per share.

The dividend, related to the quarter ended March 31, 2024, will be paid on May 17, 2024 to common stockholders of record on May 6, 2024.

Additionally, the current quarter provision for credit losses includes the impact of an additional $1.6 million charge-off on the single commercial real estate relationship that was previously moved to non-accrual and partially charged-off in 2023.

The collateral related to the noted credit is currently under an agreement to sell, which is expected to occur during the third quarter of 2024.

Net income available to common stockholders for the three and six months ended June 30, 2024 decreased to $23.4 million and $51.0 million, respectively, or $0.40 and $0.87 per diluted share, as compared to $26.8 million and $53.7 million, or $0.45 and $0.91 per diluted share, for the corresponding prior year periods.

The dividends paid to preferred stockholders were $1.0 million and $2.0 million for the three and six months ended June 30, 2024 and 2023, respectively.

On July 18, 2024, the Company’s Board of Directors declared a quarterly cash dividend on common stock of $0.20 per share.

The dividend, related to the quarter ended June 30, 2024, will be paid on August 16, 2024 to common stockholders of record on August 5, 2024.

The Board also declared a quarterly cash dividend on preferred stock of $0.4375 per depositary share, representing a 1/40th interest in the Series A Preferred Stock.

This dividend will be paid on May 15, 2024 to preferred stockholders of record on April 30, 2024.

This dividend will be paid on August 15, 2024 to preferred stockholders of record on July 31, 2024.

Analysis of Net Interest Income

1 unchanged sentence

Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them.

For the three months ended March 31, 2024, interest income included net loan fees of $737,000, as compared to $598,000 for the same prior year period.

The following table sets forth certain information relating to the Company for the three months ended March 31, 2024 and 2023.

For the three and six months ended June 30, 2024, interest income included net loan fees of $708,000 and $1.4 million, respectively, as compared to $1.2 million and $1.8 million for the same prior year periods, respectively.

The following tables set forth certain information relating to the Company for the three and six months ended June 30, 2024 and 2023.

The yields and costs, which are annualized, are derived by dividing the income or expense by the average balance of the related assets or liabilities, respectively, for the periods shown except where noted otherwise.

1 unchanged sentence

The yields and costs include certain fees and costs which are considered adjustments to yields.

For the Three Months Ended March 31,

For the Three Months Ended June 30,

(dollars in thousands) Average Balance Interest Average

38 unchanged sentences

Total cost of deposits (including non-interest-bearing deposits) 2.37 % 1.52 %

For the Six Months Ended June 30,

(dollars in thousands) Average

Balance Interest Average

Interest-earning assets:

Interest-earning deposits and short-term investments $ 147,883 $ 3,995 5.43 % $ 219,482 $ 5,221 4.80 %

Securities (2)

2,078,566 43,863 4.24 1,943,148 33,085 3.43

Loans receivable, net (3)

Commercial 6,885,518 207,041 6.05 6,876,553 192,130 5.63

Residential real estate 2,976,608 57,668 3.87 2,883,904 51,097 3.54

Other consumer 247,210 8,461 6.88 259,573 7,597 5.90

Allowance for loan credit losses, net of deferred loan costs and fees (58,705) — — (51,948) — —

Loans receivable, net 10,050,631 273,170 5.46 9,968,082 250,824 5.07

Total interest-earning assets 12,277,080 321,028 5.25 12,130,712 289,130 4.80

Non-interest-earning assets 1,221,889 1,226,061

Total assets $ 13,498,969 $ 13,356,773

Liabilities and Stockholders’ Equity:

Interest-bearing liabilities:

Interest-bearing checking $ 3,894,013 41,838 2.16 % $ 3,790,413 18,234 0.97 %

Money market 1,137,716 19,653 3.47 699,940 5,437 1.57

Savings 1,259,960 7,066 1.13 1,308,381 723 0.11

Time deposits 2,375,760 51,369 4.35 2,144,514 34,870 3.28

Total 8,667,449 119,926 2.78 7,943,248 59,264 1.50

FHLB Advances 678,309 16,517 4.90 1,234,919 29,824 4.87

Securities sold under agreements to repurchase 70,403 889 2.54 71,825 282 0.79

Other borrowings (4)

521,084 15,209 5.87 295,248 8,849 6.04

Total borrowings 1,269,796 32,615 5.17 1,601,992 38,955 4.90

Total interest-bearing liabilities 9,937,245 152,541 3.09 9,545,240 98,219 2.08

Non-interest-bearing deposits 1,630,374 1,950,437

Non-interest-bearing liabilities (4)

257,603 242,864

Total liabilities 11,825,222 11,738,541

Stockholders’ equity 1,673,747 1,618,232

Total liabilities and equity $ 13,498,969 $ 13,356,773

Net interest income $ 168,487 $ 190,911

Net interest rate spread (5)

2.16 % 2.72 %

Net interest margin (6)

2.76 % 3.17 %

Total cost of deposits (including non-interest-bearing deposits) 2.34 % 1.21 %

(1) Average yields and costs are annualized.

1 unchanged sentence

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

(4) For 2023, includes reclassifications to conform with current period presentation.

(4) For the three and six months ended June 30, 2023, includes reclassifications to conform with current period presentation.

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

(6) Net interest margin represents net interest income divided by average interest-earning assets.

Comparison of Financial Condition at March 31, 2024 and December 31, 2023

Comparison of Financial Condition at June 30, 2024 and December 31, 2023

Total assets decreased by $216.5 million to $13.32 billion, from $13.54 billion, primarily due to decreases in loans and debt securities.

Total loans decreased by $68.9 million to $10.13 billion, from $10.19 billion, due to loan payoffs and lower loan originations.

Total loans decreased by $175.3 million to $10.02 billion, from $10.19 billion, primarily due to a decrease in the total commercial portfolio of $165.3 million driven by loan payoffs and lower loan originations.

The loan pipeline increased by $76.1 million to $259.1 million from $183.0 million.

For more information on the composition of the loan portfolio, see “Lending Activities.” Held-to-maturity debt securities decreased by $53.9 million to $1.11 billion, from $1.16 billion, primarily due to principal repayments.

Other assets increased by $20.3 million to $200.0 million, from $179.7 million, primarily due to an increase in market values associated with customer interest rate swap programs.

Debt securities available-for-sale decreased $32.4 million to $721.5 million, from $753.9 million, primarily due to principal reductions and maturities.

Other assets increased by $23.3 million to $203.0 million, from $179.7 million, primarily due to an increase in the market values of derivatives associated with customer interest rate swap programs.

Total liabilities decreased by $231.2 million to $11.65 billion, from $11.88 billion primarily related to lower deposits and a funding mix shift.

Deposits decreased by $198.1 million to $10.24 billion, from $10.43 billion.

Time deposits decreased to $2.32 billion, from $2.45 billion, or 22.7% and 23.4% of total deposits, respectively, which was primarily related to planned runoff of brokered time deposits, which decreased by $88.1 million.

Deposits decreased by $440.9 million to $9.99 billion, from $10.43 billion, primarily due to decreases in high-yield savings accounts of $283.1 million and interest bearing deposits of $243.9 million.

Time deposits decreased to $2.37 billion, from $2.45 billion, representing 23.7% and 23.4% of total deposits, respectively, which was primarily related to planned runoff of brokered time deposits, which decreased by $229.9 million, offset by increases in retail time deposits of $161.7 million.

The loan-to-deposit ratio was 100.3%, as compared to 97.7%.

FHLB advances decreased by $190.2 million to $658.4 million, from $848.6 million due to mix shift in funding sources to other borrowings, which increased by $229.3 million to $425.7 million, from $196.5 million, as a result of lower cost funding availability.

Other liabilities increased by $36.4 million to $337.1 million, from $300.7 million, primarily due to an increase in the market values associated with customer interest rate swaps and related collateral received from counterparties.

Capital levels remain strong and in excess of “well-capitalized” regulatory levels at March 31, 2024, including the Company’s common equity tier one capital ratio which increased to 11.01%, up 15 basis points from December 31, 2023.

FHLB advances decreased by $59.3 million to $789.3 million, from $848.6 million due to a mix shift in funding sources to other borrowings, which increased by $228.0 million to $424.5 million, from $196.5 million, as a result of lower cost funding availability.

Other liabilities increased by $31.4 million to $332.1 million, from $300.7 million, primarily due to an increase in the market values of derivatives associated with customer interest rate swaps and related collateral received from counterparties.

Capital levels remain strong and in excess of “well-capitalized” regulatory levels at June 30, 2024, including the Company’s estimated common equity tier one capital ratio, which increased to 11.23%, up approximately 35 basis points from December 31, 2023.

Total stockholders’ equity increased to $1.68 billion, as compared to $1.66 billion, primarily reflecting net income, partially offset by capital returns comprising of share repurchases and dividends.

For the quarter ended March 31, 2024, the Company repurchased 957,827 shares totaling $15.1 million representing a weighted average cost per share of $15.64.

For the six months ended June 30, 2024, the Company repurchased 1,295,914 shares totaling $20.1 million representing a weighted average cost of $15.35.

The Company had 1,638,524 shares available for repurchase under the authorized repurchase program.

1 unchanged sentence

The Company’s stockholders’ equity to assets ratio was 12.59%, as compared to 12.28% and book value per share increased to $28.67, as compared to $27.96.

Comparison of Operating Results for the Three Months Ended March 31, 2024 and March 31, 2023

Net income available to common stockholders increased to $27.7 million, or $0.47 per diluted share, as compared to $26.9 million, or $0.46 per diluted share.

Net income for the quarter ended March 31, 2024 included net gains on equity investments of $1.9 million, a net gain on sale of a portion of its trust business of $1.2 million, and the special FDIC assessment of $418,000.

These items increased net income by $2.0 million, net of tax, for the quarter ended March 31, 2024.

Net income for the quarter ended March 31, 2023 included merger related expenses of $22,000, net branch consolidation expense of $70,000, net loss on equity investments of $2.2 million and net loss on sale of investments of $5.3 million.

These items decreased net income by $5.8 million, net of tax, for the quarter ended March 31, 2023.

Comparison of Operating Results for the Three and Six Months Ended June 30, 2024 and June 30, 2023

Net income available to common stockholders for the three and six months decreased to $23.4 million and $51.0 million, respectively, or $0.40 and $0.87 per diluted share, as compared to $26.8 million and $53.7 million, or $0.45 and $0.91 per diluted share, for the corresponding prior year periods.

Net income for the three and six months ended June 30, 2024 included net gains on equity investments of $887,000 and $2.8 million, respectively.

Net income for the six months ended June 30, 2024 also included a net gain on sale of a portion of its trust business of $1.2 million, and a special FDIC assessment of $418,000.

These items increased net income by $699,000 and $2.7 million, net of tax, for the three and six months ended June 30, 2024, respectively.

Net income for the three and six months ended June 30, 2023 included net loss on equity investments of $559,000 and $2.8 million, respectively.

Net income for the six months ended June 30, 2023 also included merger related expenses of $22,000, net branch consolidation expense of $70,000 and net loss on sale of investments of $5.3 million.

These items decreased net income by $397,000 and $6.2 million, net of tax, for the three and six months ended June 30, 2023, respectively.

Interest Income

Interest income increased to $161.6 million, from $139.0 million and the yield on average interest-earning assets increased to 5.26%, from 4.68%.

The average balance of interest-earning assets increased by $340.3 million, primarily driven by growth of $163.9 million in total loans and $143.0 million in securities.

Interest income for the three and six months ended June 30, 2024 increased to $159.4 million and $321.0 million, respectively, from $150.1 million and $289.1 million for the corresponding prior year periods.

For the three and six months ended June 30, 2024, the yield on average interest-earning assets increased to 5.25%, for both periods, from 4.91% and 4.80% for the corresponding prior year periods.

The average balance of interest-earning assets decreased by $46.3 million for the three months ended June 30, 2024, due to balance sheet contraction.

The average balance of interest-earning assets increased by $146.4 million for the six months ended June 30, 2024, primarily driven by securities growth of $135.4 million.

Interest Expense

Interest expense increased to $75.4 million, from $40.2 million, primarily due to a $1.02 billion increase in the average balance of deposits and a $194.7 million increase in the average balance of other borrowings, partly offset by a $578.0 million decrease in the average balance of FHLB advances, which reflect a shift in funding sources.

The cost of average interest-bearing liabilities increased to 3.03%, from 1.74%, primarily due to higher cost of deposits.

The total cost of deposits (including non-interest-bearing deposits) increased to 2.31%, from 0.88%.

Interest expense for the three and six months ended June 30, 2024 increased to $77.2 million and $152.5 million, respectively, from $58.0 million and $98.2 million in the corresponding prior year periods, primarily due to an increase in the cost of interest-bearing liabilities and an increase in total deposits, partly offset by a decrease in total borrowings.

For the three and six months ended June 30, 2024, the cost of average interest-bearing liabilities increased to 3.14% and 3.09%, respectively, from 2.39% and 2.08% for the corresponding prior year periods, primarily due to higher cost of deposits.

The total cost of deposits (including non-interest-bearing deposits) increased to 2.37% and 2.34% for the three and six months ended June 30, 2024, respectively, from 1.52% and 1.21% for the same prior year periods.

Net Interest Income and Margin

Net interest income decreased to $86.2 million, from $98.8 million, primarily reflecting the net impact of the higher interest rate environment.

The net interest margin decreased to 2.81%, from 3.34%, primarily due to the increase in cost of funds outpacing the increase in yield on average interest-earning assets.

Net interest income for the three and six months ended June 30, 2024 decreased to $82.3 million and $168.5 million, respectively, from $92.1 million and $190.9 million in the corresponding prior year periods, primarily reflecting the net impact of the higher interest rate environment.

The net interest margin for the three and six months ended June 30, 2024 decreased to 2.71% and 2.76%, respectively, from 3.02% and 3.17% for the same prior year periods.

The net interest margin decreased primarily due to the increase in cost of funds outpacing the increase in yield on average interest-earning assets.

Provision for Credit Losses

Provision for credit losses was $591,000, as compared to $3.0 million.

The current quarter provision was driven by the net effect of continued uncertainty impacting the banking industry and improvements in macro-economic forecasts.

Net loan charge-offs were $349,000 primarily related to a single consumer borrower, as compared to net loan recoveries of $47,000.

Provision for credit losses for the three and six months ended June 30, 2024 was $3.1 million and $3.7 million, respectively, as compared to $1.2 million and $4.2 million for the corresponding prior year periods.

The current quarter provision was driven by the additional charge-off previously noted in the “Summary” section above and changes in the external macro-economic forecasts, partly offset by lower loan balances.

Net loan charge-offs were $1.5 million and $1.8 million for the three and six months ended June 30, 2024, respectively, as compared to $123,000 and $76,000 for the same prior year periods.

Non-interest Income

Three months ended June 30, 2024 vs.

June 30, 2023

Other income increased to $11.0 million, as compared to $8.9 million.

Other income was favorably impacted by net gains on equity investments of $1.9 million and a net gain on sale of a portion of its trust business of $1.2 million.

The prior year period’s other income was adversely impacted by a net loss equity investments of $2.2 million and net loss on sale of investment of $5.3 million.

The remaining decrease of $370,000 was driven by a decrease in fees and service charges of $686,000 on lower retail deposit fees and title activity.

Other income was favorably impacted by net gains on equity investments of $887,000 for the current quarter, and adversely impacted by net losses on equity investments of $559,000 for the prior year.

The remaining increase of $611,000 was primarily driven by increases in the cash surrender value of bank owned life insurance of $544,000 and net gain on sale of loans of $387,000, partially offset by a decrease in fees and service charges of $587,000 on lower title activity and retail deposit fees.

Six months ended June 30, 2024 vs.

June 30, 2023

Other income increased to $23.3 million, as compared to $11.0 million.

The current period was favorably impacted by net gains on equity investments of $2.8 million and a net gain on sale of a portion of its trust business of $1.2 million.

The prior year was adversely impacted by a net loss on equity investments of $8.1 million, primarily related to losses on sale of investments.

The remaining increase of $241,000 was primarily driven by increases in the cash surrender value of bank owned life insurance of $1.1 million, which included one-time death benefits in the current period, and net gain on sale of loans of $724,000.

This was partially offset by a decrease in fees and service charges of $1.3 million, which was driven by the same factors as noted above.

Non-interest Expense

Three months ended June 30, 2024 vs.

June 30, 2023

Operating expenses decreased $4.3 million to $58.6 million, from $62.9 million.

The primary drivers were decreases in professional fees of $2.9 million and compensation and employee benefits expenses of $1.1 million, which reflect the net realization of the Company’s performance improvements initiatives and strategic investments made over the past year.

Six months ended June 30, 2024 vs.

June 30, 2023

Operating expenses decreased to $117.3 million, as compared to $124.2 million.

Operating expenses were adversely impacted by an FDIC special assessment of $418,000 in the current year, and $92,000 from merger-related and net branch consolidation expenses in the prior year.

The remaining decrease of $3.0 million was driven by decreases in professional fees of $2.4 million and compensation and employee benefits expenses of $1.2 million, which reflect the net realization of the Company’s performance improvements initiatives and strategic investments made over the past year.

Operating expenses were adversely impacted by an FDIC special assessment of $418,000 in the current year, and merger related and net branch consolidation expenses of $92,000 in the prior year.

The remaining decrease of $7.3 million were driven by decreases in professional fees of $5.3 million and compensation and employee benefits expenses of $2.2 million, which reflect the net realization of the Company’s performance improvements initiatives and strategic investments made over the past year.

Income Tax Expense

The provision for income taxes was $10.6 million, as compared to $8.7 million.

The effective tax rate was 27.1%, as compared to 23.7%.

The current quarter's effective tax rate was negatively impacted by 3.0% due to a write-off of a deferred tax asset of $1.2 million.

The provision for income taxes was $7.1 million and $17.7 million for the three and six months ended June 30, 2024, respectively, as compared to $9.0 million and $17.7 million for the same prior year periods.

The effective tax rate was 22.5% and 25.0% for the three and six months ended June 30, 2024, respectively, as compared to 24.4% and 24.0% for the same prior year periods.

The current year’s effective tax rates was negatively impacted by 1.6% due to a non-recurring write-off of a deferred tax asset of $1.2 million.

Liquidity and Capital Resources

6 unchanged sentences

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

As of March 31, 2024, the Bank and the Parent Company continued to maintain adequate liquidity under all stress scenarios.

As of June 30, 2024, the Bank and the Parent Company continued to maintain adequate liquidity under all stress scenarios.

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

The Company continually evaluates its on-balance sheet liquidity, including cash and unpledged securities and funding capacity at the FHLB and FRB Discount Window, and periodically tests each of its lines of credit.

As of March 31, 2024, total on-balance sheet liquidity and funding capacity was $3.7 billion.

As of June 30, 2024, total on-balance sheet liquidity and funding capacity was $3.9 billion.

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

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

At March 31, 2024, the Bank reported in its Call Report $5.36 billion of estimated uninsured deposits.

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

At June 30, 2024, the Bank reported in its Call Report $5.33 billion of estimated uninsured deposits.

This total included $2.24 billion of collateralized government deposits and $1.53 billion of intercompany deposits of fully consolidated subsidiaries, leaving estimated adjusted uninsured deposits of $1.55 billion, or 15.4% of total deposits.

1 unchanged sentence

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

For the three months ended March 31, 2024, the Parent Company received dividend payments of $41.0 million from the Bank.

At March 31, 2024, the Parent Company held $90.5 million in cash and cash equivalents.

For the six months ended June 30, 2024, the Parent Company received dividend payments of $59.0 million from the Bank.

At June 30, 2024, the Parent Company held $87.5 million in cash and cash equivalents.

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

1 unchanged sentence

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

As of March 31, 2024, the Company pledged $7.34 billion of loans with the FHLB and FRB to enhance the Company’s borrowing capacity, which included collateral pledged to the FHLB to obtain a municipal letter of credit to collateralize certain municipal deposits.

As of June 30, 2024, the Company pledged $7.37 billion of loans with the FHLB and FRB to enhance the Company’s borrowing capacity, which included collateral pledged to the FHLB to obtain a municipal letter of credit to collateralize certain municipal deposits.

The Company also pledged $1.26 billion of securities to secure borrowings, enhance borrowing capacity, collateralize its repurchase agreements, and for other purposes required by law.

The Company had $658.4 million of FHLB advances, including $49.8 million of overnight borrowings as of March 31, 2024, as compared to $848.6 million of FHLB term advances at December 31, 2023, and no outstanding overnight borrowings from the FHLB.

The Company had $425.7 million of other borrowings as of March 31, 2024, as compared to $196.5 million at December 31, 2023, reflecting a shift in funding sources from FHLB advances to other borrowings.

The Company had no outstanding borrowings from the FRB discount window at both March 31, 2024 or December 31, 2023.

The Com pany’s cash needs for the quarter ended March 31, 2024 were primarily satisfied by the increase in other borrowings.

The cash was utilized for the reduction of FHLB advances and deposits.

The Company had $789.3 million of FHLB advances, including $104.5 million of overnight borrowings as of June 30, 2024, as compared to $848.6 million of FHLB term advances and no outstanding overnight borrowings from the FHLB at December 31, 2023.

The Company had $424.5 million of other borrowings as of June 30, 2024, as compared to $196.5 million at December 31, 2023, reflecting a shift in funding sources from FHLB advances to other borrowings.

The Com pany’s cash needs for the six months ended June 30, 2024 were primarily satisfied by the increase in other borrowings.

The cash was utilized for the reduction of deposits and FHLB advances.

Off-Balance Sheet Commitments and Contractual Obligations

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

At March 31, 2024, outstanding commitments to originate loans totaled $136.5 million and outstanding undrawn lines of credit totaled $1.40 billion, of which $1.07 billion were commitments to commercial and commercial construction borrowers and $330.4 million were commitments to consumer and residential construction borrowers.

At June 30, 2024, outstanding commitments to originate loans totaled $259.1 million and outstanding undrawn lines of credit totaled $1.32 billion, of which $1.00 billion were commitments to commercial and commercial construction borrowers and $315.1 million were commitments to consumer and residential construction borrowers.

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

Commitments generally have fixed expiration

dates or other termination clauses and may require payment of a fee.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company’s exposure to credit risk is represented by the contractual amount of the instruments.

At March 31, 2024, the Company also had various contractual obligations, which included debt obligations of $1.15 billion, including finance lease obligations of $1.6 million, and an additional $19.1 million in operating lease obligations included in other liabilities.

At June 30, 2024, the Company also had various contractual obligations, which included debt obligations of $1.29 billion, including finance lease obligations of $1.6 million, and an additional $18.8 million in operating lease obligations included in other liabilities.

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

Time deposits scheduled to mature in one year or less totaled $2.24 billion at March 31, 2024.

Time deposits scheduled to mature in one year or less totaled $2.29 billion at June 30, 2024.

Liquidity Used in Stock Repurchases and Cash Dividends

2 unchanged sentences

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

For the quarter ended March 31, 2024, the Company resumed repurchase activity, repurchasing 957,827 shares of its common stock totaling $15.1 million.

At March 31, 2024, there were 1,976,611 shares available to be repurchased under the authorized stock repurchase program.

Cash dividends on common stock declared and paid during the first three months of March 31, 2024 were $11.9 million.

Cash dividends on preferred stock declared and paid during the first three months of March 31, 2024 were $1.0 million.

For the three and six months ended June 30, 2024, the Company repurchased 338,087 and 1,295,914 shares of its common stock, respectively, totaling $5.0 million and $20.1 million, respectively.

At June 30, 2024, there were 1,638,524 shares available to be repurchased under the authorized stock repurchase program.

Cash dividends on common stock declared and paid during the first six months of June 30, 2024 were $23.6 million.

Cash dividends on preferred stock declared and paid during the first six months of June 30, 2024 were $2.0 million.

The Company’s ability to continue to repurchase shares of common stock and pay dividends remain dependent upon capital distributions from the Bank, which may be adversely affected by capital restraints imposed by applicable regulations.

7 unchanged sentences

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

As of March 31, 2024, the Bank and Parent Company continued to maintain adequate capital under all stress scenarios, including a scenario where all losses related to the investment securities portfolio are realized.

As of June 30, 2024, the Bank and Parent Company continued to maintain adequate capital under all stress scenarios, including a scenario where all losses related to the investment securities portfolio are realized.

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

Regulatory Capital Requirements

As of March 31, 2024 and December 31, 2023, the Company and the Bank satisfied all regulatory capital requirements currently applicable as follows (dollars in thousands):

As of June 30, 2024 and December 31, 2023, the Company and the Bank satisfied all regulatory capital requirements currently applicable as follows (dollars in thousands):

Actual For capital adequacy

1 unchanged sentence

corrective action

As of March 31, 2024 Amount Ratio Amount Ratio Amount Ratio

As of June 30, 2024 Amount Ratio Amount Ratio Amount Ratio

Tier 1 capital (to average assets) $ 1,233,052 9.54 % $ 517,236 4.00 % N/A N/A

22 unchanged sentences

(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.

At March 31, 2024 and December 31, 2023, the Company maintained a stockholders’ equity to total assets ratio of 12.41% and 12.28%, respectively.

At June 30, 2024 and December 31, 2023, the Company and the Bank satisfied the criteria to be “well-capitalized” under the Prompt Corrective Action regulations.

At June 30, 2024 and December 31, 2023, the Company maintained a stockholders’ equity to total assets ratio of 12.59% and 12.28%, respectively.

Lending Activities

Loan Portfolio Composition .

At March 31, 2024, the Company had total loans outstanding of $10.13 billion, of which $6.24 billion, or 61.6% of total loans, were commercial real estate, multi-family, and land loans (collectively, “commercial real estate”).

The remainder of the portfolio consisted of $677.2 million of commercial and industrial loans, or 6.7% of total loans;

At June 30, 2024, the Company had total loans outstanding of $10.02 billion, of which $6.18 billion, or 61.7% of total loans, were commercial real estate, multi-family, and land loans (collectively, “commercial real estate”).

The remainder of the portfolio consisted of:

$616.4 million of commercial and industrial loans, or 6.2% of total loans;

$2.98 billion of residential real estate loans, or 29.7% of total loans;

3 unchanged sentences

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

At March 31, 2024, of the total commercial real estate portfolio, $5.32 billion or 85.3% was considered investor-owned and $914.6 million or 14.7% was considered owner-occupied.

At June 30, 2024, of the total commercial real estate portfolio, $5.32 billion or 86.1% was considered investor-owned and $857.7 million or 13.9% was considered owner-occupied.

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

4 unchanged sentences

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

The following tables present additional information on the Company’s commercial real estate - investor owned loans.

The Company’s commercial real estate - investor owned loans by industry as of March 31, 2024:

As of March 31, 2024

The following table presents the Company’s commercial real estate - investor owned loans by industry as of June 30, 2024:

As of June 30, 2024

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

14 unchanged sentences

Total CRE Investor owned and construction $ 5,324,994

(1) Represents the weighted average of loan balances as of March 31, 2024 divided by their most recent appraisal value, which is generally obtained at the time of origination.

(1) Represents the weighted average of loan balances as of June 30, 2024 divided by their most recent appraisal value, which is generally obtained at the time of origination.

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

5 unchanged sentences

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

The following table presents total commercial real estate - investor owned loans by geography (generally based on location of collateral) as of March 31, 2024:

As of March 31, 2024

The following table presents total commercial real estate - investor owned loans by geography (generally based on location of collateral) as of June 30, 2024:

As of June 30, 2024

(dollars in thousands) Amount Percent of Total

2 unchanged sentences

New Jersey 1,187,934 25

Maryland and District of Columbia 149,624 3

Massachusetts 148,817 3

Maryland and District of Columbia 143,634 3

Other 424,185 9

5 unchanged sentences

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

March 31, December 31,

June 30, December 31,

(dollars in thousands)

15 unchanged sentences

Non-performing assets as a percent of total assets 0.25 0.22

(1) As of March 31, 2024 and December 31, 2023, non-performing loans included the remaining exposure of $8.8 million on a single commercial real estate relationship that was partially charged-off during 2023

(1) At June 30, 2024 and December 31, 2023, non-performing loans included the remaining exposure of $7.2 million and $8.8 million, respectively, on a commercial real estate relationship that was partially charged-off during the three months ended June 30, 2024, and previously partially charged-off during the year ended December 31, 2023.

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

The net unamortized credit and PCD marks on these loans, not reflected in the allowance for loan credit losses, were $7.0 million and $7.5 million at March 31, 2024 and December 31, 2023, respectively.

Overall asset quality metrics remained strong for the quarter.

The net unamortized credit and PCD marks on these loans, not reflected in the allowance for loan credit losses, were $6.1 million and $7.5 million at June 30, 2024 and December 31, 2023, respectively.

Overall asset quality metrics remained stable.

The Company’s non-performing loans represented 0.33% and 0.29% of total loans, respectively.

1 unchanged sentence

The level of 30 to 89 days delinquent loans decreased to $9.7 million, from $19.2 million.

The Company’s allowance for loan credit losses was 0.66% of total loans for each period.

The Company’s allowance for loan credit losses was 0.69%, as compared to 0.66%.

The Company classifies loans and other assets in accordance with regulatory guidelines.

The table below excludes any loans held-for-sale and represents Special Mention and Substandard assets (in thousands):

March 31, December 31,

June 30, December 31,

Special Mention $ 49,767 $ 40,385

Substandard 92,846 106,552

The increase in special mention loans was primarily due to new downgrades of three commercial relationships totaling $33.5 million, partly offset by three commercial loans totaling $3.5 million which were upgraded during the quarter.

Additionally, the decrease in substandard loans was primarily due to two CRE-Investor Owned relationships totaling $7.6 million that migrated from substandard to pass.

The increase in special mention loans was primarily due to new downgrades of three commercial relationships totaling $24.8 million, partly offset by four commercial loans totaling $10.1 million, which were upgraded and one commercial loan of $5.9 million moving from special mention to substandard during the six months ended June 30, 2024.

Additionally, the decrease in substandard loans was primarily due to eight commercial relationships totaling $17.0 million that were paid off or were upgraded, which was partially offset by the $5.9 million category change noted above.

Critical Accounting Policies and Estimates

6 unchanged sentences

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

Goodwill in accordance with ASC 350, Intangibles – Goodwill and Other was a critical accounting estimate in the preparation of the consolidated financial statements.

Goodwill in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other was a critical accounting estimate in the preparation of the consolidated financial statements at June 30, 2024 and December 31, 2023.

Significant negative industry or economic trends, including declines in the market price of the Company’s stock, reduced estimates of future cash flows or business disruptions could result in impairments to goodwill in the future, which may result in recording an impairment loss.

Any resulting impairment loss may have a material adverse impact on the Company’s financial condition and results of operations and is considered a non-cash event with no impact to the Company’s regulatory capital ratios, liquidity position, and ongoing operations.

Management continued to carefully assess and evaluate all available information for potential triggering events and concluded no triggering events were identified through the reporting period.

The Company customarily performs its annual goodwill impairment assessment during the third quarter.

Impact of New Accounting Pronouncements

25 unchanged sentences

Early adoption is permitted.

The Company does not expect this standard to have an impact on the consolidated financial statements.

The Company does not expect this standard to have a material impact on the financial condition or results of operations but is currently assessing the impact of additional disclosures to the consolidated financial statements.

In December 2023, FASB issued ASU 2023-09, “Income Taxes (Topic 740):

11 unchanged sentences

Risk Factors herein and the following:

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

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

Government including policies of the U.S.

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

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

These risks and uncertainties are further discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, under Item 1A - Risk Factors and elsewhere, and subsequent securities filings and should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis