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, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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 28, 2025, 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 59 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. 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 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, 2024. The Company estimated the fair value of its single reporting unit using the market capitalization method, which is a form of a market approach. Under the market capitalization method, the Company estimated the fair value of the Company by utilizing observable market data to calculate the aggregate market value of the Company based on the total number of outstanding shares of common and preferred stock and the market prices of the shares as of the assessment date as well as consideration of initiatives unknown by the market and the evaluation of an implied control premium. The implied control premium was supported using a discounted cash flow method and evaluating the present value of market participant cost savings and synergies. Auditing the estimated 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 implied control premium was reasonable. 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: • We evaluated the reasonableness of the Company’s valuation methodology. • We tested the design and operating effectiveness of controls over goodwill, including financial forecasts, unknown conditions by the market as of the assessment date, and selection of control premium, including the estimate of market participant cost savings. • We evaluated the reasonableness of the Company’s financial forecasts by comparing to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in industry growth rate statistics. 60 • We evaluated the reasonableness of management’s estimate of market participant cost savings by (1) comparing to cost savings announced in recent bank acquisitions and (2) assessing the Company’s existing cost structure for potential cost savings and comparing that to management’s estimate. • With the assistance of our fair value specialists, we evaluated the significant valuation assumptions including, among others, the control premium used by the Company, which included 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, PA February 28, 2025 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, 2024, 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, 2024, 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, 2024, of the Company and our report dated February 28, 2025, 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 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, PA February 28, 2025 62 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands, except per share amounts) December 31, 2024 December 31, 2023 Assets Cash and due from banks $ 123,615 $ 153,718 Debt securities available-for-sale, at estimated fair value (encumbered $ 470,844 at December 31, 2024 and $ 304,340 at December 31, 2023) 827,500 753,892 Debt securities held-to-maturity, net of allowance for securities credit losses of $ 967 at December 31, 2024 and $ 1,133 at December 31, 2023 (estimated fair value of $ 952,917 at December 31, 2024 and $ 1,068,438 at December 31, 2023) (encumbered $ 599,200 at December 31, 2024 and $ 850,634 at December 31, 2023) 1,045,875 1,159,735 Equity investments 84,104 100,163 Restricted equity investments, at cost 108,634 93,766 Loans receivable, net of allowance for loan credit losses of $ 73,607 at December 31, 2024 and $ 67,137 at December 31, 2023 10,055,429 10,136,721 Loans held-for-sale 21,211 5,166 Interest and dividends receivable 45,914 51,874 Other real estate owned 1,811 — Premises and equipment, net 115,256 121,372 Bank owned life insurance 270,208 266,498 Assets held for sale — 28 Goodwill 523,308 506,146 Intangibles 12,680 9,513 Other assets 185,702 179,661 Total assets $ 13,421,247 $ 13,538,253 Liabilities and Stockholders’ Equity Deposits $ 10,066,342 $ 10,434,949 Federal Home Loan Bank ("FHLB") advances 1,072,611 848,636 Securities sold under agreements to repurchase with customers 60,567 73,148 Other borrowings 197,546 196,456 Advances by borrowers for taxes and insurance 23,031 22,407 Other liabilities 298,393 300,712 Total liabilities 11,718,490 11,876,308 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, 2024 and December 31, 2023 1 1 Common stock, $ 0.01 par value, 150,000,000 shares authorized, 62,673,192 and 62,182,767 shares issued at December 31, 2024 and December 31, 2023, respectively; and 58,554,871 and 59,447,684 shares outstanding at December 31, 2024 and December 31, 2023, respectively 613 613 Additional paid-in capital 1,168,321 1,161,755 Retained earnings 641,727 592,542 Accumulated other comprehensive loss ( 15,853 ) ( 20,862 ) Less: Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") ( 2,542 ) ( 3,780 ) Treasury stock, 4,118,321 and 2,735,083 shares at December 31, 2024 and December 31, 2023, respectively ( 90,617 ) ( 69,106 ) OceanFirst Financial Corp. stockholders’ equity 1,701,650 1,661,163 Non-controlling interest 1,107 782 Total stockholders’ equity 1,702,757 1,661,945 Total liabilities and stockholders’ equity $ 13,421,247 $ 13,538,253 See accompanying Notes to Consolidated Financial Statements. 63 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amount) For the Year Ended December 31, 2024 2023 2022 Interest income: Loans $ 545,243 $ 521,865 $ 390,386 Debt securities 77,749 59,273 34,407 Equity investments and other 19,181 26,836 6,382 Total interest income 642,173 607,974 431,175 Interest expense: Deposits 242,133 172,018 31,021 Borrowed funds 66,005 66,225 22,677 Total interest expense 308,138 238,243 53,698 Net interest income 334,035 369,731 377,477 Provision for credit losses 7,689 17,678 7,768 Net interest income after provision for credit losses 326,346 352,053 369,709 Other income: Bankcard services revenue 6,197 5,912 9,219 Trust and asset management revenue 1,745 2,529 2,386 Fees and service charges 21,791 21,254 22,802 Net gain on sales of loans 2,358 428 358 Net gain (loss) on equity investments 4,225 ( 3,732 ) 9,685 Net (loss) gain from other real estate operations ( 20 ) — 48 Income from bank owned life insurance 7,905 5,280 6,578 Commercial loan swap income 879 741 7,065 Other 5,107 1,212 953 Total other income 50,187 33,624 59,094 Operating expenses: Compensation and employee benefits 138,341 135,802 131,915 Occupancy 20,811 21,188 20,817 Equipment 4,250 4,650 4,987 Marketing 5,165 4,238 2,947 Federal deposit insurance and regulatory assessments 10,955 11,157 7,359 Data processing 24,280 24,835 23,095 Check card processing 4,412 4,640 4,971 Professional fees 9,483 18,297 12,993 Amortization of intangibles 3,333 3,984 4,718 Branch consolidation expense, net — 70 713 Merger related expenses 1,779 22 2,735 Other operating expense 23,068 20,029 17,631 Total operating expenses 245,877 248,912 234,881 Income before provision for income taxes 130,656 136,765 193,922 Provision for income taxes 30,266 32,700 46,565 Net income 100,390 104,065 147,357 Net income attributable to non-controlling interest 325 36 754 Net income attributable to OceanFirst Financial Corp. 100,065 104,029 146,603 Dividends on preferred shares 4,016 4,016 4,016 Net income available to common stockholders $ 96,049 $ 100,013 $ 142,587 Basic earnings per share $ 1.65 $ 1.70 $ 2.43 Diluted earnings per share $ 1.65 $ 1.70 $ 2.42 Average basic shares outstanding 58,296 58,948 58,730 Average diluted shares outstanding 58,297 58,957 58,878 See accompanying Notes to Consolidated Financial Statements. 64 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) For the Year Ended December 31, 2024 2023 2022 Net income $ 100,390 $ 104,065 $ 147,357 Other comprehensive income (loss): Unrealized gain (loss) on debt securities (net of tax expense of $ 1,561 and $ 4,560 in 2024 and 2023, respectively, and tax benefit of $ 10,629 in 2022) 4,698 14,312 ( 33,402 ) Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $ 169 , $ 213 and $ 242 in 2024, 2023, and 2022, respectively) 244 290 348 Unrealized loss on derivative hedges (net of tax benefit of $ 304 , $ 257 and $ 8 in 2024, 2023 and 2022, respectively) ( 956 ) ( 808 ) ( 25 ) Reclassification adjustment for loss (gains) included in net income (net of tax expense of $ 326 and $ 423 in 2024 and 2023, respectively, and net of tax benefit of $ 26 in 2022) 1,023 1,326 ( 82 ) Total other comprehensive income (loss), net of tax 5,009 15,120 ( 33,161 ) Total comprehensive income 105,399 119,185 114,196 Less: comprehensive income attributable to non-controlling interest 325 36 754 Total comprehensive income attributable to OceanFirst Financial Corp. 105,074 119,149 113,442 Less: Dividends on preferred shares 4,016 4,016 4,016 Total comprehensive income available to common stockholders $ 101,058 $ 115,133 $ 109,426 See accompanying Notes to Consolidated Financial Statements. 65 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (dollars in thousands, except per share amounts) For the Years Ended December 31, 2024, 2023 and 2022 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, 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 Net income — — — 100,065 — — — 325 100,390 Other comprehensive income, net of tax — — — — 5,009 — — — 5,009 Stock compensation — — 6,084 — — — — — 6,084 Allocation of ESOP stock — — ( 124 ) — — 1,238 — — 1,114 Cash dividend – $ 0.80 per share — — — ( 46,864 ) — — — — ( 46,864 ) Exercise of stock options — — 571 — — — — — 571 Repurchase 1,383,238 shares of common stock — — 35 — — — ( 21,511 ) — ( 21,476 ) Preferred stock dividend — — — ( 4,016 ) — — — — ( 4,016 ) Balance at December 31, 2024 $ 1 $ 613 $ 1,168,321 $ 641,727 $ ( 15,853 ) $ ( 2,542 ) $ ( 90,617 ) $ 1,107 $ 1,702,757 See accompanying Notes to Consolidated Financial Statements. 66 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) For the Year Ended December 31, 2024 2023 2022 Cash flows from operating activities: Net income $ 100,390 $ 104,065 $ 147,357 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment 10,903 12,327 11,683 Allocation of ESOP stock 1,114 2,070 2,506 Stock compensation 6,084 5,854 6,638 Net excess tax expense on stock compensation 365 243 216 Amortization of intangibles 3,333 3,984 4,718 Net accretion of purchase accounting adjustments ( 2,865 ) ( 5,848 ) ( 9,752 ) Amortization of servicing asset 308 90 77 Net premium amortization in excess of discount accretion on securities 870 3,133 7,164 Net amortization of deferred costs on borrowings 626 598 548 Net amortization of deferred fees/costs and premiums/discounts on loans ( 3,055 ) ( 1,094 ) 1,129 Provision for credit losses 7,689 17,678 7,768 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 Net gain on sale of fixed assets ( 131 ) ( 26 ) ( 38 ) Net (gain) loss on equity investments ( 4,225 ) 3,732 ( 9,685 ) Net gain on sales of loans ( 2,358 ) ( 428 ) ( 358 ) Net loss on sale of available-for-sale securities 106 697 — Proceeds from sales of residential loans held for sale 270,171 58,495 12,616 Residential loans originated for sale ( 283,858 ) ( 62,543 ) ( 13,158 ) Increase in value of bank owned life insurance ( 6,566 ) ( 5,280 ) ( 6,578 ) Net (gain) loss on sale of assets held for sale ( 855 ) 233 ( 1,959 ) Decrease (increase) in interest and dividends receivable 5,960 ( 7,170 ) ( 12,098 ) Deferred tax (benefit) provision ( 337 ) 3,151 1,777 (Increase) decrease in other assets ( 3,364 ) 34,504 ( 80,233 ) (Decrease) increase in other liabilities ( 8,062 ) ( 44,663 ) 178,684 Total adjustments ( 8,147 ) 20,196 103,093 Net cash provided by operating activities 92,243 124,261 250,450 Cash flows from investing activities: Net decrease (increase) in loans receivable 199,094 ( 243,545 ) ( 1,126,997 ) Purchases of loan pools ( 84,464 ) ( 35,904 ) ( 171,623 ) Discounts received (premiums paid) on purchased loan pools 8,397 ( 1,210 ) ( 866 ) Proceeds from sale of loans — — 13,388 Purchase of debt securities available-for-sale ( 256,784 ) ( 302,909 ) ( 69,493 ) Purchase of debt securities held-to-maturity ( 6,971 ) ( 65,567 ) ( 249,751 ) Purchase of equity investments ( 3,082 ) ( 7,661 ) ( 9,366 ) Proceeds from maturities and calls of debt securities available-for-sale 19,537 22,376 104,449 Proceeds from maturities and calls of debt securities held-to-maturity 22,217 19,425 30,241 Proceeds from sales of debt securities available-for-sale 7,121 1,300 30,257 Proceeds from sales of equity investments 22,782 4,822 19,234 Principal repayments on debt securities available-for-sale 162,329 926 — Principal repayments on debt securities held-to-maturity 100,472 108,037 135,417 Proceeds from bank owned life insurance 2,856 385 4,182 67 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (dollars in thousands) For the Year Ended December 31, 2024 2023 2022 Cash flows from investing activities (continued): Proceeds from the redemption of restricted equity investments 81,199 128,964 234,627 Purchases of restricted equity investments ( 96,067 ) ( 113,447 ) ( 290,710 ) Proceeds from sales of other real estate owned — — 160 Proceeds from sales of assets held-for-sale 883 3,719 8,130 Purchases of premises and equipment ( 7,567 ) ( 7,708 ) ( 16,107 ) Proceeds from disposal of premises and equipment 3,380 — — Purchases of operating lease equipment — — ( 4,789 ) Net cash consideration (paid) received for acquisition ( 68,932 ) — 38,609 Net cash provided by (used in) investing activities 106,400 ( 487,997 ) ( 1,321,008 ) Cash flows from financing activities: Net (decrease) increase in deposits ( 366,502 ) 760,023 ( 56,963 ) (Decrease) increase in short-term borrowings ( 12,667 ) 3,950 ( 49,672 ) Net proceeds (repayment) from FHLB advances 223,975 ( 362,530 ) 1,211,166 Repayments of other borrowings — — ( 35,104 ) Increase in advances by borrowers for taxes and insurance 624 1,002 1,100 Exercise of stock options 571 702 424 Payment of employee taxes withheld from stock awards ( 2,391 ) ( 2,350 ) ( 1,502 ) Purchase of treasury stock ( 21,476 ) — ( 7,396 ) Dividends paid ( 50,880 ) ( 51,274 ) ( 47,511 ) Distributions to non-controlling interest — ( 55 ) ( 782 ) Net cash (used in) provided by financing activities ( 228,746 ) 349,468 1,013,760 Net decrease in cash and due from banks and restricted cash ( 30,103 ) ( 14,268 ) ( 56,798 ) Cash and due from banks and restricted cash at beginning of year 153,718 167,986 224,784 Cash and due from banks and restricted cash at end of year $ 123,615 $ 153,718 $ 167,986 Supplemental disclosure of cash flow information: Cash and due from banks at beginning of year $ 153,718 $ 167,946 $ 204,949 Restricted cash at beginning of year — 40 19,835 Cash and due from banks and restricted cash at beginning of year $ 153,718 $ 167,986 $ 224,784 Cash and due from banks at end of year $ 123,615 $ 153,718 $ 167,946 Restricted cash at end of year — — 40 Cash and due from banks and restricted cash at end of year $ 123,615 $ 153,718 $ 167,986 Cash paid during the year for: Interest $ 320,264 $ 225,405 $ 49,700 Income taxes 33,786 29,331 25,383 Non-cash activities: Accretion of unrealized loss on securities reclassified to held-to-maturity 413 503 590 Net loan charge-offs (recoveries) 1,555 8,382 ( 340 ) Transfer of premises and equipment to assets held-for-sale — 1,302 2,776 Transfer of securities from held-to-maturity to available-for-sale 500 — — Transfer of loans receivable to loans held-for-sale — — 13,178 Settlement of preexisting loan receivable from Spring Garden 96,979 — — 68 OceanFirst Financial Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (dollars in thousands) For the Year Ended December 31, 2024 2023 2022 Supplemental disclosure of cash flow information (continued): Acquisition: Non-cash assets acquired: Loans $ 140,062 $ — $ — Other current assets — — 238 Premises and equipment 157 — 18 Right of use ("ROU") asset — — 779 Other real estate owned 1,666 — — Other assets 1,122 — 81 Goodwill and other intangible assets, net 23,662 — 5,827 Total non-cash assets acquired $ 166,669 $ — $ 6,943 Liabilities assumed: Lease liability — — 779 Other liabilities 4,033 — 43,937 Total lease and other liabilities $ 4,033 $ — $ 44,716 Total liabilities assumed $ 4,033 $ — $ 44,716 See accompanying Notes to Consolidated Financial Statements. 69 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”); 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, Country Property Holdings, Inc., OFB Acquisition LLC; Spring Garden Capital Group, LLC (and it’s subsidiaries) (“Spring Garden”), and a majority controlling interest in Trident Abstract Title Agency, LLC (“Trident”). All significant intercompany accounts and transactions have been eliminated in consolidation. 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 between Massachusetts and Virginia. 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 and municipal 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. 70 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 and Mortgage Servicing Rights 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. Any reduction in loans held for sale are recorded through net gain on sales of loans. Gains or losses recognized on sales to the secondary market are also recorded in net gain on sale of loans. 71 For certain mortgage loan sales, the Company will retain the contractual right to service those loans for a fee, and as such a mortgage servicing rights asset is recorded with a corresponding gain on sale. Mortgage servicing rights represent the fair value assigned to the rights in the contracts that obligate the Company to service the loans sold in exchange for a servicing fee. The assets are subsequently accounted for under the amortization method and are amortized over the estimated economic life of the related mortgage in proportion to the estimated expected future net servicing revenue generated from servicing the loan and are periodically evaluated for impairment. Servicing income and the related amortization of servicing rights are recorded in fees and other charges within non-interest income on the Consolidated Statement of Income. Mortgage servicing assets are included within other assets on the Consolidated Statements of Financial Condition. 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 72 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. 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) modifications to borrowers experiencing financial difficulty; (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. Other Real Estate Owned (“OREO”) Other real estate owned is carried at the lower of cost or estimated fair value, less estimated costs to sell. When a property is acquired, the excess of the loan balance over estimated fair value is charged to the allowance for credit losses for loans. Operating results from other real estate owned, including rental income, operating expenses, gains and losses realized from the sales of other real estate owned, and subsequent write-downs are recorded as incurred. 73 Premises and Equipment Land is carried at cost and premises and equipment, including land improvements and 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 improvements: 10 years; leasehold improvements: the shorter of 10 years or lease term; buildings: 30 years; interactive teller machines (“ITM”): 7 years; automobiles: 3 years; solar power system: 25 years; and land improvements: the shorter of 15 years or term of lease (if applicable). 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. When incurred, death benefits in excess of carrying value are recognized in other non-interest income. Intangible Assets Intangible assets resulting from acquisitions, under the acquisition method of accounting, consists of goodwill, customer relationship intangible, and core deposit inta ngibles. Customer relationship intangible asset represents the value associated with the business relationships which was acquired through Spring Garden acquisition. The core deposit intangible asset represents the future economic benefit, including the present value of future tax benefits, of the potential cost saving from acquiring the core deposits as part of an acquisition compared to the cost of alternative funding sources. Both intangibles are recognized over is its estimated useful life and are included within amortization of intangibles within non-interest expense. Goodwill represents the excess of the purchase pric e 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 through a combination of income and market approach valuation methodologies. The Company completes its annual goodwill impairment test as of August 31 and evaluates triggering events during interim periods, as applicable. 74 The Company completed its annual goodwill impairment test as of August 31, 2024. For the annual test, the Company bypassed the qualitative assessment and proceeded directly to the quantitative impairment test based on the stock price of the Company on the measurement date and economic uncertainty. To perform the quantitative assessment, the Company estimated the fair value of equity using the market capitalization method of the market approach, consideration of initiatives unknown by the market and evaluation of any implied control premium. Management further supported the conclusions by assessing a combination of an income valuation methodology, comprising a discounted cash flow analysis and market valuation methodologies, comprising the guideline public company and guideline merged and acquired company methods. The market capitalization method calculated the aggregate market value of the Company based on the total number of outstanding shares of common and preferred stock and the market prices of the shares as of the assessment date. The Company evaluated conditions that were unknown by the market as of the assessment date and how a market participant would evaluate an implied control premium for the Company. The implied control premium was supported using a discounted cash flow analysis that contemplated the present value of assumed market participant cost savings and synergies. 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, income on securities, forward interest rates, 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, 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 for guideline public company method utilizes observable market data from comparable public companies, including price-to-tangible book value ratios, to estimate the Company’s fair value. This approach also incorporates a control premium to represent the Company’s expectation of a hypothetical acquisition. The market approach for guideline merged and acquired company method utilizes observable transactions of actual prices paid for target companies that operated in comparable industries or markets facing similar risks. Both methods of the market approach require judgment in the selection of comparable companies or comparable transactions 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, which resulted in no impairment loss at August 31, 2024. The Company did not identify any triggering events between the annual assessment date and December 31, 2024. Segment Reporting The Company’s operations are solely in the financial services industry and provides a range of regional community banking services to retail and commercial customers. The Company operates throughout New Jersey and in the major metropolitan areas between Massachusetts and Virginia. Operating segments are defined as components of an entity for which separate financial information is available and is regularly reviewed by the chief operating decision maker (“CODM”). The Company’s CODM is the Chairman and Chief Executive Officer. The CODM makes operating decisions and manages the activities of the business on a consolidated basis. Therefore, management concluded the Company has a single operating segment, and therefore one reportable segment. Further, the CODM allocates resources and assesses performance based on an ongoing review of the Company’s consolidated financial results. Specifically, the CODM reviews net income, reported within the consolidated statements of income, along with information in consolidated statement of financial condition to decide whether to reinvest profits into the Company or other strategic investments. Refer to the Consolidated Statements of Financial Condition and Consolidated Statements of Income for net income and all significant expenses regularly provided to and reviewed by the CODM. 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. 75 Stock-Based Compensation The Company recognizes compensation expense related to stock options and awards, including market-based performance 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. The Company only has 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. Accounting Pronouncements Adopted in 2024 In June 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-03, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. In addition, this update introduces new disclosure requirements to provide information about the contractual sales restriction including the nature and remaining duration of the restriction. This update is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2023. The Company adopted this standard in 2024. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In March 2023, FASB issued ASU 2023-02, “Investments - Equity Method and Joint Venture (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method”. The amendments in this ASU permit reporting entities to account for the tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method. This update is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2023. The Company adopted this standard in 2024. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In November 2023, FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”. The amendments in this ASU require improved reportable segment information on an annual and interim basis, primarily through enhanced disclosures about significant segment expenses. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2023, and interim periods for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company adopted this standard in 2024. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. 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”), as well as the FDIC as deposit insurer. 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, 2024, the Company and the Bank were required to maintain a minimum ratio of Tier 1 capital to total average assets of 4.0 %; a 76 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, 2024 and 2023, the Company and the Bank exceeded all regulatory capital requirements currently applicable. The following is a summary of the Company’s and Bank’s regulatory capital amounts and ratios as of December 31, 2024 and 2023 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, 2024 Amount Ratio Amount Ratio Amount Ratio Company: Tier 1 capital (to average assets) $ 1,235,832 9.50 % $ 520,239 4.00 % N/A N/A Common equity Tier 1 (to risk-weighted assets) 1,105,180 11.17 692,897 7.00 (1) N/A N/A Tier 1 capital (to risk-weighted assets) 1,235,832 12.49 841,375 8.50 (1) N/A N/A Total capital (to risk-weighted assets) 1,437,278 14.52 1,039,345 10.50 (1) N/A N/A Bank: Tier 1 capital (to average assets) $ 1,161,564 8.99 % $ 516,798 4.00 % $ 645,998 5.00 % Common equity Tier 1 (to risk-weighted assets) 1,161,564 11.83 687,383 7.00 (1) 638,284 6.50 Tier 1 capital (to risk-weighted assets) 1,161,564 11.83 834,679 8.50 (1) 785,580 8.00 Total capital (to risk-weighted assets) 1,238,011 12.61 1,031,074 10.50 (1) 981,975 10.00 As of December 31, 2023 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 (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. 77 Note 3. Business Combinations Merger Related Expenses The Company incurred merger related expenses of $ 1.8 million, $ 22,000 , and $ 2.7 million for the years ended December 31, 2024, 2023, and 2022, respectively. The following table summarizes the merger related expenses for the years ended December 31, 2024, 2023 and 2022: For the Year Ended December 31, 2024 2023 2022 (in thousands) Data processing fees $ — $ 10 $ 790 Professional fees 1,506 12 1,936 Other/miscellaneous fees 273 — 9 Merger related expenses $ 1,779 $ 22 $ 2,735 Merger related expenses for 2024 primarily include expenses related to the acquisition of Spring Garden, which was completed on October 1, 2024. Merger related expenses for 2022 included expenses related to the terminated merger agreement with Partners Bancorp. Spring Garden Acquisition On October 1, 2024, the Company completed its acquisition of Spring Garden. The acquisition is complimentary to the Company’s existing products and will expand the Company’s specialty finance offerings. Total consideration paid was $ 162.7 million and goodwill from the transaction amounted to $ 17.2 million. The acquisition was accounted for under the acquisition method of accounting. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values. The excess of consideration paid over the estimated fair value of the net assets acquired has been recorded as goodwill. 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 Spring Garden, net of total consideration paid (in thousands): At October 1, 2024 Estimated Fair Value Total consideration paid (1) $ 162,704 Assets acquired: Cash and cash equivalents $ 68 Loans 140,062 Other real estate owned 1,666 Premises and equipment 157 Other assets 1,122 Customer relationship intangible 6,500 Total assets acquired 149,575 Liabilities assumed: Other liabilities 4,033 Total liabilities assumed 4,033 Net assets acquired $ 145,542 Goodwill recorded $ 17,162 (1) Cash consideration paid was $ 68 million. The difference between the cash and total consideration paid includes adjustments for the settlement of pre-existing relationships. 78 The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available. While the calculation of goodwill is subject to change, the Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value. Fair Value Measurement of Assets Acquired and Liabilities Assumed The methods used to determine the fair value of the assets acquired and liabilities assumed in the Spring Garden acquisition were as follows. Refer to Note 15 Fair Value Measurements, for a discussion of the fair value hierarchy. L oans The acquired loan portfolio was valued utilizing Level 3 inputs and included the use of present value techniques employing cash flow estimates and incorporated assumptions that marketplace participants would use in estimating fair values. In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine reasonable fair value. Specifically, the Company utilized three separate fair value analyses which a market participant would employ in estimating the total fair value adjustment. The three separate fair valuation methodologies used were: (1) interest rate loan fair value analysis; (2) general credit fair value adjustment; and (3) specific credit fair value adjustment. To prepare the interest rate fair value analysis, market rates for similar loans were obtained from various external data sources and reviewed by the Company’s management for reasonableness. The weighted average of these rates was used as the fair value interest rate a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value adjustment. The general credit fair value adjustment was calculated using expected lifetime losses and estimated fair value adjustments for qualitative factors. The expected lifetime losses were calculated using an average of historical losses of the loan portfolio amongst peer groups were deemed appropriate. The adjustment related to qualitative factors, if any, was impacted by general economic conditions. To calculate the specific credit fair value adjustment, the Company identified loans that experienced more-than-insignificant deterioration in credit quality since origination. Loans meeting this criteria were reviewed by comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition date fair value resulted in an accretable yield amount which will be recognized over the life of the loans. Customer Relationship Intangible The customer relationship intangible asset represents the value associated with the commercial construction business that was acquired, which was valued using the multi-period excess earnings method under the income approach. The customer relationship intangible totaled $ 6.5 million, and is being amortized over its estimated useful life of approximately 7 years. Intangibles The estimated future amortization expense for core deposit intangible and customer relationship intangible over the next five years and thereafter are as follows (in thousands): For the Year Ending December 31, Amortization Expense 2025 $ 3,634 2026 3,269 2027 2,616 2028 1,600 2029 918 Thereafter 643 Total $ 12,680 79 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, 2024 and 2023 are as follows (in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Allowance for Securities Credit Losses At December 31, 2024 Debt securities available-for-sale: U.S. government and agency obligations $ 62,396 $ 11 $ ( 5,022 ) $ 57,385 $ — Corporate debt securities 14,042 43 ( 762 ) 13,323 — Asset-backed securities 197,116 235 ( 84 ) 197,267 — Mortgage-backed securities: Agency residential 465,108 1,256 ( 801 ) 465,563 — Agency commercial 108,610 — ( 14,648 ) 93,962 — Total mortgage-backed securities 573,718 1,256 ( 15,449 ) 559,525 — Total debt securities available-for-sale $ 847,272 $ 1,545 $ ( 21,317 ) $ 827,500 $ — Debt securities held-to-maturity: State and municipal debt obligations $ 201,369 $ 199 $ ( 13,665 ) $ 187,903 $ ( 31 ) Corporate debt securities 65,350 775 ( 1,416 ) 64,709 ( 734 ) Mortgage-backed securities: Agency residential 680,052 44 ( 73,110 ) 606,986 — Agency commercial 79,925 1 ( 5,878 ) 74,048 — Non-agency commercial 20,146 — ( 875 ) 19,271 ( 202 ) Total mortgage-backed securities 780,123 45 ( 79,863 ) 700,305 ( 202 ) Total debt securities held-to-maturity $ 1,046,842 $ 1,019 $ ( 94,944 ) $ 952,917 $ ( 967 ) Total debt securities $ 1,894,114 $ 2,564 $ ( 116,261 ) $ 1,780,417 $ ( 967 ) 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 ) 80 The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the years ended December 31, 2024 and 2023 (in thousands): For the Years Ended, 2024 2023 Allowance for securities credit losses Beginning balance $ ( 1,133 ) $ ( 1,128 ) Benefit (provision) for credit losses 166 ( 5 ) Total ending allowance balance $ ( 967 ) $ ( 1,133 ) 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, 2024, aggregated by credit quality indicator, are as follows (in thousands): Investment Grade Non-Investment Grade/Non-rated Total As of December 31, 2024 State and municipal debt obligations $ 200,533 $ 836 $ 201,369 Corporate debt securities 51,525 13,825 65,350 Non-agency commercial MBS 20,146 — 20,146 Total debt securities held-to-maturity $ 272,204 $ 14,661 $ 286,865 There were $ 156,000 , $ 697,000 and $ 108,000 of realized losses on sale of debt securities available-for-sale for the years ended December 31, 2024, 2023 and 2022 respectively. The realized 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, 2024 by contractual maturity are shown below (in thousands): At December 31, 2024 Amortized Cost Estimated Fair Value Less than one year $ 40,608 $ 40,314 Due after one year through five years 175,759 166,437 Due after five years through ten years 213,825 209,342 Due after ten years 110,081 104,494 $ 540,273 $ 520,587 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, 2024, corporate debt securities, state and municipal obligations, and asset-backed securities with an amortized cost of $ 78.8 million, $ 56.1 million, and $ 197.1 million, respectively, and an estimated fair value of $ 77.5 million, $ 54.8 million, and $ 197.3 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. 81 The estimated fair value and unrealized losses for debt securities available-for-sale and held-to-maturity at December 31, 2024 and December 31, 2023, 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, 2024 Debt securities available-for-sale: U.S. government and agency obligations $ 3,221 $ — $ 49,538 $ ( 5,022 ) $ 52,759 $ ( 5,022 ) Corporate debt securities 4,793 ( 55 ) 6,029 ( 707 ) 10,822 ( 762 ) Asset-backed securities 31,588 ( 21 ) 59,148 ( 63 ) 90,736 ( 84 ) MBS: Agency residential 202,961 ( 801 ) — — 202,961 ( 801 ) Agency commercial — — 93,962 ( 14,648 ) 93,962 ( 14,648 ) Total MBS 202,961 ( 801 ) 93,962 ( 14,648 ) 296,923 ( 15,449 ) Total debt securities available-for-sale 242,563 ( 877 ) 208,677 ( 20,440 ) 451,240 ( 21,317 ) Debt securities held-to-maturity: State and municipal debt obligations 7,098 ( 176 ) 169,434 ( 13,489 ) 176,532 ( 13,665 ) Corporate debt securities 1,247 ( 219 ) 25,518 ( 1,197 ) 26,765 ( 1,416 ) MBS: Agency residential 114,557 ( 1,647 ) 479,847 ( 71,463 ) 594,404 ( 73,110 ) Agency commercial 3,894 ( 20 ) 69,912 ( 5,858 ) 73,806 ( 5,878 ) Non-agency commercial — — 19,271 ( 875 ) 19,271 ( 875 ) Total MBS 118,451 ( 1,667 ) 569,030 ( 78,196 ) 687,481 ( 79,863 ) Total debt securities held-to-maturity 126,796 ( 2,062 ) 763,982 ( 92,882 ) 890,778 ( 94,944 ) Total debt securities $ 369,359 $ ( 2,939 ) $ 972,659 $ ( 113,322 ) $ 1,342,018 $ ( 116,261 ) 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 ) The Company concluded that no debt securities were impaired at December 31, 2024 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 82 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 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, 2024 and 2023, the Company held equity investments of $ 84.1 million and $ 100.2 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, 2024, 2023 and 2022 are shown in the table below (in thousands): For the Year Ended December 31, 2024 2023 2022 Net gain (loss) on equity investments $ 4,225 $ ( 3,732 ) $ 9,685 Less: Net (losses) gains recognized on equity investments sold ( 49 ) ( 5,462 ) 1,351 Unrealized gains recognized on equity investments still held $ 4,274 $ 1,730 $ 8,334 83 Note 5. Loans Receivable, Net Loans receivable, net at December 31, 2024 and 2023 consisted of the following (in thousands): December 31, 2024 2023 Commercial: Commercial real estate - investor $ 5,287,683 $ 5,353,974 Commercial real estate - owner occupied 902,219 943,891 Commercial and industrial 647,945 666,532 Total commercial 6,837,847 6,964,397 Consumer: Residential real estate 3,049,763 2,979,534 Home equity loans and lines and other consumer (“other consumer”) 230,462 250,664 Total consumer 3,280,225 3,230,198 Total loans receivable 10,118,072 10,194,595 Deferred origination costs, net of fees 10,964 9,263 Allowance for loan credit losses ( 73,607 ) ( 67,137 ) Total loans receivable, net $ 10,055,429 $ 10,136,721 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. The following tables summarize total loans by year of origination, internally assigned credit grades, and risk characteristics (in thousands): 84 2024 2023 2022 2021 2020 2019 and prior Revolving lines of credit Total December 31, 2024 Commercial real estate - investor Pass $ 75,225 $ 140,863 $ 1,142,790 $ 1,290,047 $ 510,906 $ 1,264,536 $ 750,607 $ 5,174,974 Special Mention 15 — 21,285 — — 18,225 4,477 44,002 Substandard 95 8 3,784 — 6,111 44,636 14,073 68,707 Total commercial real estate - investor 75,335 140,871 1,167,859 1,290,047 517,017 1,327,397 769,157 5,287,683 Commercial real estate - owner occupied Pass 82,104 62,799 140,578 90,720 40,746 442,685 31,776 891,408 Special Mention — — — — — 2,918 — 2,918 Substandard — — — — 256 7,503 134 7,893 Total commercial real estate - owner occupied 82,104 62,799 140,578 90,720 41,002 453,106 31,910 902,219 Commercial and industrial Pass 81,867 30,084 35,469 14,276 3,873 180,695 278,217 624,481 Special Mention — 4,735 — — 235 16 96 5,082 Substandard — 4,326 1,019 749 — 256 12,032 18,382 Total commercial and industrial 81,867 39,145 36,488 15,025 4,108 180,967 290,345 647,945 Residential real estate (1) Pass 277,009 270,225 547,093 796,790 366,649 783,204 — 3,040,970 Special Mention — 92 224 449 — 1,476 — 2,241 Substandard 215 415 1,583 445 — 3,894 — 6,552 Total residential real estate 277,224 270,732 548,900 797,684 366,649 788,574 — 3,049,763 Other consumer (1) Pass 27,316 27,596 17,029 16,511 10,694 107,045 21,991 228,182 Special Mention — — — 62 — 219 — 281 Substandard — 97 18 343 — 1,541 — 1,999 Total other consumer 27,316 27,693 17,047 16,916 10,694 108,805 21,991 230,462 Total loans $ 543,846 $ 541,240 $ 1,910,872 $ 2,210,392 $ 939,470 $ 2,858,849 $ 1,113,403 $ 10,118,072 (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. 85 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 An analysis of the allowance for credit losses on loans for the years ended December 31, 2024 and 2023 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, 2024 Allowance for credit losses on loans Balance at beginning of year $ 27,899 $ 4,354 $ 6,867 $ 27,029 $ 988 $ 67,137 Initial allowance on acquired loans from Spring Garden 2,547 — — — — 2,547 Provision (benefit) for credit losses 1,774 ( 569 ) 3,586 428 259 5,478 Charge-offs ( 1,659 ) — — ( 76 ) ( 485 ) ( 2,220 ) Recoveries 219 32 18 206 190 665 Balance at end of year $ 30,780 $ 3,817 $ 10,471 $ 27,587 $ 952 $ 73,607 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 ( 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 The following tables summarize gross charge-offs by vintage (in thousands): 2023 2022 2021 2019 and prior Total For the Year Ended December 31, 2024 Commercial real estate – investor (1) $ — $ ( 13 ) $ ( 46 ) $ ( 1,600 ) $ ( 1,659 ) Residential real estate ( 33 ) ( 41 ) — ( 2 ) ( 76 ) Other consumer — — — ( 485 ) ( 485 ) Total charge-offs $ ( 33 ) $ ( 54 ) $ ( 46 ) $ ( 2,087 ) $ ( 2,220 ) 2019 2018 and prior Total For the Year Ended December 31, 2023 Commercial real estate – investor (1) $ ( 8,350 ) $ — $ ( 8,350 ) Commercial real estate – owner occupied — ( 6 ) ( 6 ) Commercial and industrial — ( 129 ) ( 129 ) Other consumer — ( 208 ) ( 208 ) Total charge-offs $ ( 8,350 ) $ ( 343 ) $ ( 8,693 ) (1) Gross charge-offs of $ 1.7 million and $ 8.4 million primarily related to a single commercial relationship which had partial charge-offs during the year ended December 31, 2024 and 2023, respectively. This was resolved via sale of collateral during 2024. 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, 2024 and 2023, the Company had collateral dependent loans with an amortized cost balance as follows: commercial real estate - investor of $ 11.8 million and $ 15.2 million, respectively, commercial real estate - owner occupied of $ 4.8 million and $ 352,000 , respectively, and commercial and industrial of $ 32,000 and $ 304,000 , respectively. In addition, the Company had collateral dependent residential and consumer loans with an amortized cost balance of $ 8.6 million and $ 2.6 million at December 31, 2024 and 2023, respectively. 87 The following table presents the recorded investment in non-accrual loans, by loan portfolio segment as of December 31, 2024 and 2023 (in thousands): December 31, 2024 2023 Commercial real estate – investor (1) (2) $ 17,000 $ 20,820 Commercial real estate – owner occupied 4,787 351 Commercial and industrial 32 304 Residential real estate 10,644 5,542 Other consumer 3,064 2,531 $ 35,527 $ 29,548 (1) December 31, 2024 includes the addition of $ 4.8 million non-accrual loans related to the acquisition of Spring Garden. (2) December 31, 2023 includes the exposure of $ 8.4 million of the single commercial real estate relationship resolved during 2024. At December 31, 2024 and 2023, 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, 2024 and 2023, there were no loans that were past due 90 days or greater and still accruing interest. The following table presents the aging of the recorded investment in past due loans as of December 31, 2024 and 2023 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, 2024 Commercial real estate – investor (1) $ 4,624 $ 8,880 $ 10,877 $ 24,381 $ 5,263,302 $ 5,287,683 Commercial real estate – owner occupied 941 — 1,392 2,333 899,886 902,219 Commercial and industrial 3 — 16 19 647,926 647,945 Residential real estate 18,518 2,242 6,551 27,311 3,022,452 3,049,763 Other consumer 1,060 282 1,999 3,341 227,121 230,462 $ 25,146 $ 11,404 $ 20,835 $ 57,385 $ 10,060,687 $ 10,118,072 December 31, 2023 Commercial real estate – investor (2) $ 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 (1) December 31, 2024 includes the addition of $ 7.4 million past due loans related to the acquisition of Spring Garden. (2) December 31, 2023 includes the exposure of $ 8.4 million of the single commercial real estate relationship resolved during 2024 . Loan Modifications to Borrowers Experiencing Financial Difficulty The Company adopted ASU 2022-02 on January 1, 2023. Since adoption, the Company has modified and may modify in the future 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. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount, and the allowance for credit losses is subsequently adjusted by an amount equal to the total loss rate as applied to the reduced amortized cost basis. As of December 31, 2024 and 2023, loans with modifications to borrowers experiencing financial difficulty totaled $ 30.9 million and $ 8.9 million, respectively. There were no outstanding commitments to lend additional funds to such borrowers with loan modifications as of December 31, 2024 or December 31, 2023. 88 The following table presents loans modifications made to borrowers experiencing financial difficulty during the years ended December 31, 2024 and 2023 (in thousands): Term Extension Interest Rate Reduction Combination of Term Extension and Interest Rate Reduction Other Than Insignificant Payment Delay Combination of Term Extension, Interest Rate Reduction and Other Than Insignificant Payment Delay Total % of Total by Loan Portfolio Segment For the Year Ended December 31, 2024 Commercial real estate – investor $ — $ 4,858 $ 7,000 $ 5,685 $ 1,604 $ 19,147 0.36 % Commercial real estate – owner occupied — — — 2,822 — 2,822 0.31 Residential real estate 128 — — — — 128 — Other consumer — — 146 — — 146 0.06 $ 128 $ 4,858 $ 7,146 $ 8,507 $ 1,604 $ 22,243 0.22 % For the Year Ended December 31, 2023 Commercial real estate – investor $ — $ — $ 7,759 $ — $ — $ 7,759 0.14 % Residential real estate 715 — — — — 715 0.02 Other consumer 275 — 196 — — 471 0.19 $ 990 $ — $ 7,955 $ — $ — $ 8,945 0.09 % The modifications during the periods presented had an insignificant financial effect on the Company. 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 modified to borrowers experiencing financial difficulty during the twelve months ended December 31, 2024 and since adoption of the standard for December 31, 2023 (in thousands): Current 60 - 89 Days Past Due 90 Days or Greater Past Due Total December 31, 2024 Commercial real estate – investor $ 19,147 $ — $ — $ 19,147 Commercial real estate – owner occupied 2,822 — — 2,822 Residential real estate — — 128 (1) 128 Other consumer — — 146 (1) 146 $ 21,969 $ — $ 274 $ 22,243 December 31, 2023 Commercial real estate – investor $ 7,759 $ — $ — $ 7,759 Residential real estate 419 156 140 (2) 715 Other consumer 471 — — 471 $ 8,649 $ 156 $ 140 $ 8,945 (1) Represents one residential loan and one other consumer loan that defaulted during the year ended December 31, 2024, which had been modified within the last 12 months. (2) Represents one residential loan that defaulted during the year ended December 31, 2023, which had been modified since the adoption of the standard. 89 Note 6. Interest and Dividends Receivable Interest and dividends receivable at December 31, 2024 and 2023 are summarized as follows (in thousands): December 31, 2024 2023 Loans receivable $ 37,836 $ 40,985 Debt securities 7,349 9,829 Equity investments and other (1) 729 1,060 Total interest and dividends receivable $ 45,914 $ 51,874 (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, 2024 and 2023 are summarized as follows (in thousands): December 31, 2024 2023 Land $ 16,605 $ 16,387 Buildings and improvements 133,312 132,048 Leasehold improvements 7,074 6,547 Furniture and equipment 37,079 35,835 Capitalized software 8,722 8,348 Finance lease 1,272 3,339 Other 3,376 3,286 Total 207,440 205,790 Accumulated depreciation and amortization ( 92,184 ) ( 84,418 ) Total premises and equipment, net $ 115,256 $ 121,372 Depreciation and amortization expense amounted to $ 10.9 million for the year ended December 31, 2024 and $ 11.5 million for both years ended December 31, 2023 and 2022. Depreciation and amortization expense is presented within occupancy, equipment, and data processing expenses of the Consolidated Statements of Income. Note 8. Deposits The major types of deposits at December 31, 2024 and 2023 were as follows (dollars in thousands): December 31, 2024 2023 Amount Weighted Average Cost Amount Weighted Average Cost Non-interest-bearing $ 1,617,182 — % $ 1,657,119 — % Interest-bearing checking 4,000,553 2.11 3,911,766 2.02 Money market deposit 1,301,197 3.00 1,021,805 3.18 Savings 1,066,438 0.72 1,398,837 1.36 Time deposits 2,080,972 4.18 2,445,422 4.12 Total deposits $ 10,066,342 2.17 % $ 10,434,949 2.21 % Accrued interest payable related to deposits was $ 1.2 million and $ 14.5 million at December 31, 2024 and 2023, respectively. Time deposits included $ 457.2 million and $ 412.0 million in deposits of $250,000 or more at December 31, 2024 and 2023, respectively. Time deposits also include brokered deposits of $ 74.7 million and $ 631.5 million at December 31, 2024 and 2023, respectively. 90 Time deposits at December 31, 2024 mature as follows (in thousands): For the Year Ending December 31, Time Deposit Maturities 2025 $ 2,018,607 2026 35,689 2027 16,294 2028 5,872 2029 3,765 Thereafter 745 Total $ 2,080,972 Interest expense on deposits for the years ended December 31, 2024, 2023 and 2022 were as follows (in thousands): For the Year Ended December 31, 2024 2023 2022 Interest-bearing checking $ 86,320 $ 52,898 $ 11,344 Money market deposit 41,948 18,656 2,234 Savings 11,422 9,227 758 Time deposits 102,443 91,237 16,685 Total interest expense on deposits $ 242,133 $ 172,018 $ 31,021 Note 9. Borrowed Funds Borrowed funds are summarized as follows (dollars in thousands): December 31, 2024 2023 Amount Weighted Average Rate Amount Weighted Average Rate FHLB advances $ 1,072,611 4.62 % $ 848,636 5.01 % Securities sold under agreements to repurchase with customers 60,567 2.29 73,148 2.10 Other borrowings 197,546 5.96 196,456 6.25 Total borrowed funds $ 1,330,724 4.71 % $ 1,118,240 5.04 % At December 31, 2024, there were $ 1.07 billion of FHLB term advances as compared to $ 848.6 million at December 31, 2023. There were no overnight borrowings from the FHLB for both December 31, 2024 and 2023. FHLB advances and repurchase agreements had contractual maturities at December 31, 2024 as follows (in thousands): FHLB Advances Repurchase Agreements For the Year Ended December 31, 2025 $ 447,110 $ 60,567 2026 425,000 — 2027 200,501 — Total $ 1,072,611 $ 60,567 91 The other borrowings at December 31, 2024 included the following (in thousands): Type of Debt Stated Value Carrying Value Interest Rate Maturity Subordinated debt $ 125,000 $ 124,761 5.701 % (1) May 15, 2030 Trust preferred 10,000 8,419 3 month SOFR plus 2.51 % (2) December 15, 2034 Trust preferred 30,000 24,303 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 8,128 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 8,014 3 month SOFR plus 1.65 % (2) October 1, 2037 Finance lease 1,421 1,421 5.625 % July 31, 2029 Total $ 208,921 $ 197,546 (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 London Inter-Bank Offered Rate (“LIBOR”) to SOFR. All of the trust preferred debt is currently callable. Interest expense on borrowings for the years ended December 31, 2024, 2023, and 2022 was as follows (in thousands): For the Year Ended December 31, 2024 2023 2022 FHLB advances $ 35,686 $ 46,000 $ 10,365 Securities sold under agreements to repurchase with customers 1,893 931 159 Other borrowings 28,426 19,294 12,153 Total interest expense on borrowings $ 66,005 $ 66,225 $ 22,677 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, 2024 FHLB and FRB $ 7,427,247 $ 984,515 $ 8,411,762 Repurchase agreements — 85,529 85,529 Total pledged assets $ 7,427,247 $ 1,070,044 $ 8,497,291 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 The securities that collateralize the repurchase agreements are delivered to the lender, with whom each transaction is executed, to a third-party custodian, or held at the Company. The lender agrees to resell to the Company substantially the same securities at the maturity of the repurchase agreements. 92 Note 10. Income Taxes The provision for income taxes for the years ended December 31, 2024, 2023 and 2022 consisted of the following (in thousands): For the Year Ended December 31, 2024 2023 2022 Current Federal $ 23,315 $ 20,894 $ 32,981 State 7,288 8,655 11,807 Total current 30,603 29,549 44,788 Deferred Federal 214 4,250 2,231 State ( 551 ) ( 1,099 ) ( 454 ) Total deferred ( 337 ) 3,151 1,777 Total provision for income taxes $ 30,266 $ 32,700 $ 46,565 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 $ 1.8 million and $ 4.9 million for the years ended December 31, 2024 and 2023, respectively, and a tax benefit of $ 10.4 million for the year ended December 31, 2022. 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, 2024, 2023 and 2022 is as follows (dollars in thousands): For the Year Ended December 31, 2024 2023 2022 Income before provision for income taxes $ 130,656 $ 136,765 $ 193,922 Federal income tax, at statutory rates 21.0 % 21.0 % 21.0 % Computed “expected” federal income tax expense $ 27,438 $ 28,721 $ 40,724 Increase (decrease) in federal income tax expense resulting from State income taxes, net of federal benefit 5,518 5,979 8,927 Earnings on BOLI ( 1,660 ) ( 1,109 ) ( 1,381 ) Tax exempt interest ( 547 ) ( 606 ) ( 786 ) Merger related expenses — — 90 Stock compensation 391 ( 298 ) 26 Alternative minimum tax write-off 1,196 — — Research and development and other credits ( 735 ) ( 557 ) ( 471 ) Dividends received deduction ( 322 ) ( 368 ) ( 371 ) Other items, net ( 1,013 ) 938 ( 193 ) Total provision for income taxes $ 30,266 $ 32,700 $ 46,565 93 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2024 and 2023 are presented in the following table (in thousands): December 31, 2024 2023 Deferred tax assets: Allowance for credit losses on loans and debt securities HTM $ 18,981 $ 16,951 Other reserves 2,790 2,482 Incentive compensation 4,345 3,871 Deferred compensation 338 370 Stock plans 2,239 2,474 Unrealized losses on assets held-for-sale 347 392 Unrealized losses on AFS securities 5,346 7,274 Net operating loss carryforwards related to acquisition 19,053 21,077 Section 174 capitalized costs 5,457 3,737 Federal and state alternative minimum tax — 1,196 Other, net 866 653 Total gross deferred tax assets 59,762 60,477 Deferred tax liabilities: Unrealized gain on equity securities ( 4,568 ) ( 3,386 ) Premises and equipment ( 3,104 ) ( 4,891 ) Deferred loan and commitment costs, net ( 2,814 ) ( 2,317 ) Purchase accounting related adjustments ( 1,698 ) ( 1,716 ) Investments, discount accretion ( 185 ) ( 73 ) Other, net ( 402 ) — Total gross deferred tax liabilities ( 12,771 ) ( 12,383 ) Net deferred tax assets $ 46,991 $ 48,094 The Company has federal net operating losses from the acquisitions of Colonial American Bank (“Colonial American”) and Sun Bancorp, Inc. (“Sun”). At December 31, 2024 and 2023, the net operating losses from Colonial American were $ 3.3 million and $ 3.6 million, respe ctively. These net operating losses are subject to annual limitation under Code Section 382 of approximately $ 22,000 , and will expire between 2029 and 2034. At December 31, 2024 and 2023, the net operating losses from Sun were $ 87.5 million and $ 96.8 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 December 31, 2024 and 2023, the Compan y had $ 0 and $ 1.2 million, re spectively, of Alternative Minimum 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. During 2024, the Company wrote off the remaining tax credits of $ 1.2 million. At December 31, 2024, 2023 and 2022 , 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, 2024 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. 94 As of December 31, 2024, the Company is not under examination in connection to any tax years. The tax years that remain subject to examination by the federal government and most state or city tax authorities include the tax years 2021 and forward. The Company incurred income tax expense of $ 1.8 million recognized in other comprehensive income related to Tax Reform in 2018. These amounts have been reported as separate components of accumulated other comprehensive income and reclassified and recognized as a net tax benefit in the periods in which the underlying transactions are settled through continuing operations. The amount included in accumulated other comprehensive income at December 31, 2024, subject to reclassification, was $ 295,000 . There were no unrecognized tax benefits for the years ended December 31, 2024, 2023 and 2022. 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 2024, the ESOP had one outstanding loan agreement with the Bank (“the 2018 loan”), while 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 the debt. 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, 2024 and 2023, contributions to the ESOP, which were used to fund principal and interest payments on the ESOP loans, totaled $ 1.5 million and $ 2.7 million, respectively . During 2024 and 2023, $ 158,000 and $ 254,000 , respectively, of dividends paid on unallocated ESOP shares were used for debt service. At December 31, 2024 and 2023, the loan had an outstanding balance of $ 2.9 million and $ 4.2 million , respectively, and the ESOP had unallocated shares of 131,672 and 197,588 , respectively. At December 31, 2024, the unallocated shares had a fair value of $ 2.4 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, 2024 and 2023, the Bank recorded compensation expense related to the ESOP of $ 1.1 million and $ 2.1 million, respectively, which included $ 124,000 and $ 341,000 related to a decrease in compensation 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 year ended December 31, 2022, the Bank recorded compensation expense related to the ESOP of $ 2.5 million, which included $ 82,000 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, 2024, 2,885,479 shares had been allocated to participants and 65,916 shares were committed to be released for services rendered in 2024. 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. Equity awards are discretionary and are targeted to a broad range of employees, including those in leadership roles, revenue generators, key contributors, and high-potential individuals who have contributed to the Company’s long-term strategic objectives. 95 Overview of Incentive Plans 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 plan’s authorized shares and those that remain available for issuance as of December 31, 2024. The Plan 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 2,734,577 1,093,830 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 and senior management employees, vest based on the estimated probability of achievement of defined tiered performance goals or include market-based conditions. Performance-based stock awards have tiered performance goals for each metric and are aligned with corresponding tiered vesting values. Performance-based stock awards have been set using financial data from the applicable strategic plan as approved by the Board, or based on financial metrics relative to the peer index. The Company granted performance-based stock awards in 2024, 2023 and 2022. The 2024 performance-based stock awards were issued with a three year cliff vesting schedule or vest ratably over a four year period. The 2023 and 2022 performance-based stock awards were issued with a three year cliff vesting schedule. Certain 2024, 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: 2024 2023 2022 Risk-free interest rate 4.47 % 4.56 % 1.36 % Expected performance period 2.8 years 2.8 years 2.9 years Expected volatility 34.00 % 35.80 % 41.10 % 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, 2024, 2023 and 2022 is as follows: 2024 2023 2022 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: 814,489 $ 21.73 835,340 $ 21.84 778,971 $ 22.30 Granted 554,081 15.35 322,425 22.14 279,750 21.47 Vested ( 200,254 ) 22.41 ( 228,370 ) 22.55 ( 190,094 ) 23.14 Forfeited ( 96,781 ) 21.93 ( 114,906 ) 22.07 ( 33,287 ) 22.17 Outstanding at end of year 1,071,535 $ 18.29 814,489 $ 21.73 835,340 $ 21.84 96 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, 2024, 2023 or 2022, and has not granted stock options since 2020. A summary of option activity for the years ended December 31, 2024, 2023 and 2022 is as follows: 2024 2023 2022 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 1,969,439 $ 22.42 2,210,684 $ 21.66 2,458,255 $ 21.02 Exercised ( 33,125 ) 17.24 ( 195,684 ) 14.59 ( 217,038 ) 14.17 Forfeited ( 15,358 ) 20.44 ( 15,358 ) 20.44 — — Expired ( 291,354 ) 20.74 ( 30,203 ) 18.32 ( 30,533 ) 23.68 Outstanding at end of year 1,629,602 $ 22.85 1,969,439 $ 22.42 2,210,684 $ 21.66 Options exercisable 1,528,067 $ 23.01 1,663,506 $ 22.58 1,645,901 $ 21.57 The aggregate intrinsic value for both stock options outstanding and stock options exercisable at December 31, 2024 was $ 253,000 . The weighted average remaining contractual life of stock options outstanding and stock options exercisable at December 31, 2024 was 3.26 years and 3.13 years, respectively. 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, 2024 2023 2022 Stock awards $ 5,724 $ 5,154 $ 5,698 Stock options 360 700 940 Phantom stock units 1,707 1,092 554 Total $ 7,791 $ 6,946 $ 7,192 At December 31, 2024, the Company had an estimated $ 12.5 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 1.84 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. 97 At December 31, 2024, the following commitments and contingent liabilities existed which are not reflected in the accompanying consolidated financial statements (in thousands): December 31, 2024 Unused consumer and residential construction loan lines of credit (primarily floating-rate) $ 310,798 Unused commercial and commercial construction loan lines of credit (primarily floating-rate) 1,061,313 Other commitments to extend credit: Fixed-rate 101,058 Adjustable-rate 15,856 Floating-rate 189,745 The Company’s fixed-rate loan commitments generally expire within 90 days of issuance and carried interest rates ranging from 5.00 % to 9.88 % at December 31, 2024. At December 31, 2024, the Company had $ 6.3 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, 2024, the Company is obligated under noncancelable operating leases and rental agreements for premises and equipment. Rental and lease expense under these leases were $ 5.8 million, $ 5.7 million , and $ 6.3 million for the years ended December 31, 2024, 2023 and 2022, respectively. Refer to Note 17 Leases for the projected minimum lease commitments as of December 31, 2024. The Company grants residential real estate and first mortgage commercial real estate loans to borrowers primarily located throughout New Jersey and in the major metropolitan areas between Massachusetts and Virginia. 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. 98 Note 14. Earnings Per Share The following reconciles shares outstanding for basic and diluted earnings per share for the years ended December 31, 2024, 2023 and 2022 (in thousands): December 31, 2024 2023 2022 Weighted average shares outstanding 58,704 59,399 59,219 Less: Unallocated ESOP shares ( 164 ) ( 257 ) ( 378 ) Unallocated incentive award shares ( 244 ) ( 194 ) ( 111 ) Average basic shares outstanding 58,296 58,948 58,730 Add: Effect of dilutive securities: Incentive awards 1 9 148 Average diluted shares outstanding 58,297 58,957 58,878 For the years ended December 31, 2024, 2023 and 2022, antidilutive stock options of 1,755,000 , 1,775,000 , and 1,544,000 , respectively, were excluded from the earnings per share calculation. 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. 99 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 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. Other Real Estate Owned and Loans Individually Measured for Impairment Other real estate owned and 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 based on independent appraisals (Level 3). 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. 100 The following table summarizes financial assets and financial liabilities measured at fair value as of December 31, 2024 and 2023, 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, 2024 Items measured on a recurring basis: Debt securities available-for-sale $ 827,500 $ 49,466 $ 778,034 $ — Equity investments 40,447 — 40,447 — Interest rate derivative asset 91,352 — 91,352 — Interest rate derivative liability ( 91,483 ) — ( 91,483 ) — Items measured on a non-recurring basis: Equity investments (1) (2) 43,657 — — 39,676 Other real estate owned 1,811 — — 1,811 Loans measured for impairment based on the fair value of the underlying collateral (3) 25,148 — — 25,148 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 (1) As of December 31, 2024 and 2023, equity investments included $ 39.7 million and $ 43.6 million, respectively, of equity investments measured under the measurement alternative. There were no unrealized gains or losses for the years ended December 31, 2024 and 2023. (2) As of December 31, 2024 and 2023, equity investments included $ 4.0 million and $ 3.4 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. 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, 2024 and 2023. 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. 101 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 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. 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. 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. 102 The book value and estimated fair value of the Company’s significant financial instruments not recorded at fair value as of December 31, 2024 and 2023 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, 2024 Financial Assets: Cash and due from banks $ 123,615 $ 123,615 $ — $ — Debt securities held-to-maturity 1,045,875 — 952,917 — Restricted equity investments 108,634 — — 108,634 Loans receivable, net and loans held-for-sale 10,076,640 — — 9,551,156 Financial Liabilities: Deposits other than time deposits (1) 7,985,370 — 7,985,370 — Time deposits 2,080,972 — 2,074,698 — FHLB advances and other borrowings 1,270,157 — 1,264,260 — Securities sold under agreements to repurchase with customers 60,567 60,567 — — 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 — — (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 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. 103 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 gains of $ 8,000 , losses of $ 5,000 and gains of $ 49,000 in commercial loan swap income resulting from fair value adjustments for the years ended December 31, 2024, 2023 and 2022, respectively. Derivatives Designated as Hedging Instruments During 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, 2024 2023 2022 AOCL balance at beginning of period, net of tax $ ( 36 ) $ ( 25 ) $ — Unrealized losses recognized in OCI ( 956 ) ( 808 ) ( 25 ) Losses reclassified from AOCL into interest income 905 797 — AOCL balance at end of period, net of tax $ ( 87 ) $ ( 36 ) $ ( 25 ) During the next twelve months ending December 31, 2025, the Company estimates that an additional $ 115,000 will be reclassified as a reduction to interest income. 104 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, 2024 Derivatives Not Designated as Hedging Instruments Interest rate swaps and cap contracts $ 1,468,022 $ 91,352 $ 91,368 Derivatives Designated as Cash Flow Hedge Interest rate swap contract 100,000 — 115 Total Derivatives $ 1,568,022 $ 91,352 $ 91,483 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 swaps contract 100,000 — 47 Total Derivatives $ 1,518,276 $ 87,776 $ 87,848 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 at both December 31, 2024 and 2023. The amount of collateral received from third parties was $ 93.3 million and $ 88.3 million at December 31, 2024 and 2023, 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 $ 91.5 million and $ 87.8 million at December 31, 2024 and 2023, 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. 105 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, 2024 December 31, 2023 Lease ROU Assets Classification Operating lease ROU assets Other assets $ 15,452 $ 18,979 Finance lease ROU asset Premises and equipment, net 1,071 1,304 Total lease ROU assets $ 16,523 $ 20,283 Lease Liabilities Operating lease liabilities (1) Other liabilities $ 17,114 $ 20,018 Finance lease liability Other borrowings 1,421 1,685 Total lease liabilities $ 18,535 $ 21,703 (1) Operating lease liabilities excludes liabilities for future rent and estimated lease termination payments related to closed branches of $ 4.4 million and $ 5.9 million as of December 31, 2024 and 2023, 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, 2024 December 31, 2023 Weighted-Average Remaining Lease Term Operating leases 5.84 years 6.52 years Finance lease 4.59 years 5.60 years Weighted-Average Discount Rate Operating leases 3.08 % 3.02 % Finance lease 5.63 5.63 106 The following table represents lease expenses and other lease information (in thousands): For the Year Ended December 31, 2024 2023 2022 Lease Expense Operating lease expense $ 4,586 $ 4,634 $ 5,000 Finance lease expense: Amortization of ROU assets 233 228 207 Interest on lease liabilities (1) 86 101 104 Total $ 4,905 $ 4,963 $ 5,311 Other Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 4,773 $ 4,571 $ 4,466 Operating cash flows from finance leases 86 101 104 Financing cash flows from finance leases 264 249 214 (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, 2025 $ 350 $ 4,934 2026 350 4,211 2027 350 2,715 2028 350 1,537 2029 209 1,421 Thereafter — 4,124 Total 1,609 18,942 Less: Imputed interest ( 188 ) ( 1,828 ) Total lease liabilities $ 1,421 $ 17,114 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. The summarized financial information for the Company’s consolidated VIE consisted of the following (in thousands): December 31, 2024 December 31, 2023 Cash and cash equivalents $ 21,642 $ 22,151 Other assets 457 606 Total assets 22,099 22,757 Other liabilities 19,333 20,803 Net assets $ 2,766 $ 1,954 107 Note 19. Parent-Only Financial Information The following condensed statements of financial condition at December 31, 2024 and 2023 and condensed statements of operations and cash flows for the years ended December 31, 2024, 2023 and 2022 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, 2024 2023 Assets: Cash and due from banks $ 13,214 $ 12,083 Advances to Bank 98,321 67,289 Equity securities 77,327 93,387 ESOP loan receivable 2,871 4,241 Investment in subsidiaries 1,704,037 1,672,406 Goodwill 5,827 5,827 Other assets 1,817 6,059 Total assets $ 1,903,414 $ 1,861,292 Liabilities and Stockholders’ Equity: Borrowings $ 196,124 $ 194,771 Other liabilities 4,533 4,576 Total liabilities 200,657 199,347 OceanFirst Financial Corp. stockholders’ equity 1,701,650 1,661,163 Non-controlling interest 1,107 782 Total stockholders’ equity 1,702,757 1,661,945 Total liabilities and stockholders’ equity $ 1,903,414 $ 1,861,292 Condensed Statements of Operations (in thousands) For the Year Ended December 31, 2024 2023 2022 Dividend income – subsidiaries $ 86,350 $ 97,043 $ 73,011 Interest and dividend income – debt and equity securities 3,319 2,981 2,387 Interest income – advances to subsidiary Bank 4,423 2,182 562 Interest income – ESOP loan receivable 138 183 227 Net gain (loss) on equity investments 4,225 ( 3,732 ) 7,973 Total income 98,455 98,657 84,160 Interest expense – borrowings 13,840 13,569 10,861 Operating expenses 4,875 4,050 4,258 Income before income taxes and undistributed earnings of subsidiaries 79,740 81,038 69,041 Benefit for income taxes 1,226 3,807 959 Income before undistributed earnings of subsidiaries 80,966 84,845 70,000 Undistributed earnings of subsidiaries 19,424 19,220 77,357 Net income 100,390 104,065 147,357 Net income attributable to non-controlling interest 325 36 754 Net income attributable to OceanFirst Financial Corp. $ 100,065 $ 104,029 $ 146,603 108 Condensed Statements of Cash Flows (in thousands) For the Year Ended December 31, 2024 2023 2022 Cash flows from operating activities: Net income $ 100,390 $ 104,065 $ 147,357 (Increase) decrease in advances to subsidiary Bank ( 31,032 ) ( 34,449 ) 30,640 Undistributed earnings of subsidiary Bank ( 19,424 ) ( 19,220 ) ( 77,357 ) Net (gain) loss on equity investments ( 4,225 ) 3,732 ( 7,973 ) Net premium amortization in excess of discount accretion on securities 584 981 1,185 Amortization of deferred costs on borrowings 626 598 548 Net amortization of purchase accounting adjustments 727 704 684 Change in other assets and other liabilities 4,199 ( 3,995 ) 2,336 Net cash provided by operating activities 51,845 52,416 97,420 Cash flows from investing activities: Proceeds from sales of equity investments 22,783 4,822 6,482 Purchase of equity investments ( 3,082 ) ( 7,661 ) ( 7,207 ) Repayments on ESOP loan receivable 1,370 2,510 2,480 Cash consideration for acquisition, net of cash received — — ( 7,084 ) Net cash provided by (used in) investing activities 21,071 ( 329 ) ( 5,329 ) Cash flows from financing activities: Repayments of other borrowings — — ( 35,000 ) Dividends paid ( 50,880 ) ( 51,274 ) ( 47,511 ) Purchase of treasury stock ( 21,476 ) — ( 7,396 ) Exercise of stock options 571 702 424 Distributions to non-controlling interest — ( 55 ) ( 788 ) Net cash used in financing activities ( 71,785 ) ( 50,627 ) ( 90,271 ) Net increase in cash and due from banks 1,131 1,460 1,820 Cash and due from banks at beginning of year 12,083 10,623 8,803 Cash and due from banks at end of year $ 13,214 $ 12,083 $ 10,623 109 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.