ocfc-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

________________________________________________

FORM 10-Q

________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-11713

________________________________________________

OceanFirst Financial Corp.

(Exact name of registrant as specified in its charter)

________________________________________________


Delaware			22-3412577
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


110 West Front Street,	Red Bank,	NJ	07701
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (732) 240-4500

________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value per share

OCFC

NASDAQ

Depositary Shares (each representing a 1/40th interest in a share of 7.0% Series A Non-Cumulative, perpetual preferred stock)

OCFCP

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒.

As of May 2, 2022 there were 59,390,241 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.

Table of Contents

OceanFirst Financial Corp.

INDEX TO FORM 10-Q


		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (unaudited)
	Consolidated Statements of Financial Condition as of March 31, 2022 (unaudited) and December 31, 2021	16
	Consolidated Statements of Income (unaudited) for the three months ended March 31, 2022 and 2021	17
	Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2022 and 2021	18
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2022 and 2021	19
	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2022 and 2021	20
	Notes to Unaudited Consolidated Financial Statements	22
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	15
PART II.	Other Information	43
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
Signatures		45

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


FINANCIAL SUMMARY(1)	At or for the Quarters Ended
(dollars in thousands, except per share amounts)	March 31, 2022			December 31, 2021			March 31, 2021
SELECTED FINANCIAL CONDITION DATA:
Total assets	$	12,164,945		$	11,739,616		$	11,577,472
Loans receivable, net of allowance for loan credit losses	9,065,679			8,583,352			7,820,590
Deposits	10,056,233			9,732,816			9,502,812
Stockholders’ equity	1,519,334			1,516,553			1,498,719
SELECTED OPERATING DATA:
Net interest income	84,227			80,586			73,604
Credit loss expense (benefit)	1,851			(1,573)			(620)
Other income	8,852			9,410			20,835
Operating expenses	57,495			64,834			51,683
Net income	25,759			22,657			32,697
Net income available to common stockholders	24,755			21,653			31,693
Diluted earnings per share	0.42			0.37			0.53
SELECTED FINANCIAL RATIOS:
Stockholders’ equity per common share at end of period	25.58			25.63			24.84
Cash dividend per share	0.17			0.17			0.17
Dividend payout ratio per common share	40.48		%	45.95		%	32.08		%
Stockholders’ equity to total assets	12.49			12.92			12.95
Return on average assets (2) (3)	0.84			0.72			1.12
Return on average stockholders’ equity (2) (3)	6.57			5.65			8.59
Net interest rate spread (4)	3.08			2.88			2.78
Net interest margin (5)	3.18			2.99			2.93
Operating expenses to average assets (2) (3)	1.95			2.15			1.83
Efficiency ratio (3) (6)	61.77			72.04			54.73
Loans-to-deposits ratio	90.60			88.60			82.84
ASSET QUALITY:
Non-performing loans (8)	$	26,925		$	25,494		$	42,758
Non-performing assets (8)	27,031			25,600			42,864
Allowance for loan credit losses as a percent of total loans receivable (7) (9)	0.56		%	0.57		%	0.76		%
Allowance for loan credit losses as a percent of total non-performing loans (8) (9)	187.92			191.61			140.27
Non-performing loans as a percent of total loans receivable (7) (8)	0.30			0.30			0.54
Non-performing assets as a percent of total assets (8)	0.22			0.22			0.37

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

(2) Ratios are annualized.

(3) Performance ratios included net expenses related to merger related expenses, net branch consolidation expenses, and net loss on equity investments of $5.2 million, or $4.0 million, net of tax benefit, for the quarter ended March 31, 2022. Performance ratios included net expenses related to merger related expenses, net branch consolidation expenses, and net loss on equity investments of $9.0 million, or $6.8 million, net of tax benefit, for the quarter ended December 31, 2021. Performance ratios included net benefit related to merger related expenses, net branch consolidation expenses, and net gain on equity investments of $6.9 million, or $5.2 million, net of tax expense, for the quarter ended March 31, 2021.

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

(5) Net interest margin represents net interest income as a percentage of average interest-earning assets.

(6) Efficiency ratio represents the ratio of operating expenses to the aggregate of other income and net interest income.

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

(8) Non-performing assets consist of non-performing loans and real estate acquired through foreclosure. Non-performing loans consist of all loans 90 days or more past due and other loans in the process of foreclosure. It is the Company’s policy to cease accruing interest on all such loans and to reverse previously accrued interest.

Table of Contents

(9) Loans acquired from prior bank acquisitions were recorded at fair value. The net unamortized credit and purchased with credit deterioration (“PCD”) marks on these loans, not reflected in the allowance for loan credit losses, was $16.9 million, $18.9 million, and $25.7 million at March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

Table of Contents

Summary

OceanFirst Financial Corp. is the holding company for OceanFirst Bank N.A. (the “Bank”), a regional bank serving business and retail customers throughout New Jersey and the major metropolitan areas of Philadelphia, New York, Baltimore, Washington D.C., and Boston. The term “Company” refers to OceanFirst Financial Corp., the Bank and all of their subsidiaries on a consolidated basis. The Company’s results of operations are primarily dependent on net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and investments, and the interest expense on its interest-bearing liabilities, such as deposits and borrowings. The Company also generates non-interest income such as income from bankcard services, trust and asset management products and services, sales of loans and securities, deposit account services, bank owned life insurance, commercial loan swap income, gain on sale of loans and on equity investments, and other fees. The Company’s operating expenses primarily consist of compensation and employee benefits, occupancy and equipment, marketing, federal deposit insurance and regulatory assessments, data processing, check card processing, professional fees and other general and administrative expenses. The Company’s results of operations are also significantly affected by competition, general economic conditions, including levels of unemployment and real estate values, as well as changes in market interest rates, inflation, government policies and actions of regulatory agencies.

Key developments relating to the Company’s financial results and corporate activities for the quarter ended March 31, 2022 were as follows:

•Loan and Deposit Growth: Loan growth for the quarter was $486.1 million, reflecting record loan originations of $1.02 billion and the purchase of residential loan pools of $161.7 million. The committed loan pipeline remains strong at $515.4 million. In addition, deposits increased $323.4 million during the first quarter, while cost of deposits decreased four basis points to 0.16%, from 0.20%, in the prior linked quarter. The loans-to-deposits ratio increased to 90.60%, from 88.60%, in the prior linked quarter.

•Strengthening Net Interest Income and Margin: Net interest income increased by $3.6 million to $84.2 million, from $80.6 million, in the prior linked quarter. Net interest margin increased to 3.18%, as compared to 2.99% in the prior linked quarter, largely driven by the deployment of excess liquidity to fund interest earning assets.

•Expense Management: Total operating expenses decreased to $57.5 million, from $64.8 million in the prior linked quarter, reflecting improving trends in the Bank’s cost reduction initiatives. These efforts improved the efficiency ratio to 61.77%, from 72.04%, in the prior linked quarter.

•Branch Consolidations: The Company completed its consolidation of 10 branches during the first quarter for a total of 77 branches consolidated since 2013. Average deposits per branch totaled $264.6 million as of March 31, 2022.

Net income available to common stockholders for the quarter ended March 31, 2022 was $24.8 million, or $0.42 per diluted share, as compared to $31.7 million, or $0.53 per diluted share, for the corresponding prior year period. The dividends paid to preferred stockholders were $1.0 million for each of the quarters ended March 31, 2022 and 2021. Net income available to common stockholders for the quarter ended March 31, 2022 included merger related expenses, net branch consolidation expenses, and net loss on equity investments of $2.0 million, $402,000, and $2.8 million, respectively. Net income available to common stockholders for the quarter ended March 31, 2021 included merger related expenses, net branch consolidation expenses, and a net gain on equity investments of $381,000, $1.0 million, and $8.3 million, respectively.

The Company remains well-capitalized with a stockholders’ equity to total assets ratio of 12.49% at March 31, 2022.

The Company’s Board of Directors declared a quarterly cash dividend of $0.17 per share. The dividend, related to the quarter ended March 31, 2022, will be paid on May 20, 2022 to common stockholders of record on May 9, 2022. The Board also declared a quarterly cash dividend on preferred stock of $0.4375 per depositary share, representing a 1/40th interest in the Series A Preferred Stock. This dividend will be paid on May 16, 2022 to preferred stockholders of record on April 29, 2022.

Table of Contents

Analysis of Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them. For the three months ended March 31, 2022 and 2021, interest income included net loan fees of $970,000 and $1.4 million, respectively.

The following tables set forth certain information relating to the Company for the three months ended March 31, 2022 and 2021. The yields and costs, which are annualized, are derived by dividing the income or expense by the average balance of the related assets or liabilities, respectively, for the periods shown except where noted otherwise. Average balances are derived from average daily balances. The yields and costs include certain fees and costs which are considered adjustments to yields.


	For the Three Months Ended March 31,
	2022						2021
(dollars in thousands)	Average Balance		Interest		Average Yield/ Cost (1)		Average Balance		Interest		Average Yield/ Cost (1)

Assets:
Interest-earning assets:
Interest-earning deposits and short-term investments	$	88,826	$	37	0.17	%	$	1,138,911	$	277	0.10	%
Securities (2)	1,846,452		8,478		1.86		1,311,683		6,689		2.07
Loans receivable, net (3)
Commercial	6,037,639		58,355		3.92		5,127,940		53,670		4.24
Residential real estate	2,542,655		21,339		3.36		2,327,838		20,069		3.45
Home equity loans and lines and other consumer (“other consumer”)	257,024		2,774		4.38		326,907		4,169		5.17

Allowance for loan credit losses, net of deferred loan costs and fees	(40,457)		—		—		(52,887)		—		—
Loans receivable, net	8,796,861		82,468		3.79		7,729,798		77,908		4.09
Total interest-earning assets	10,732,139		90,983		3.43		10,180,392		84,874		3.38
Non-interest-earning assets	1,215,071						1,259,109
Total assets	$	11,947,210					$	11,439,501
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing checking	$	4,377,368	2,149		0.20	%	$	3,711,976	4,311		0.47	%
Money market	788,063		318		0.16		757,634		367		0.20
Savings	1,609,415		125		0.03		1,522,603		179		0.05
Time deposits	767,709		1,449		0.77		1,221,123		3,639		1.21
Total	7,542,555		4,041		0.22		7,213,336		8,496		0.48
Federal Home Loan Bank (“FHLB”) advances	29,433		35		0.48		—		—		—
Securities sold under agreements to repurchase	117,623		42		0.14		129,444		95		0.30
Other borrowings	228,522		2,638		4.68		228,368		2,679		4.76
Total borrowings	375,578		2,715		2.93		357,812		2,774		3.14
Total interest-bearing liabilities	7,918,133		6,756		0.35		7,571,148		11,270		0.60
Non-interest-bearing deposits	2,401,797						2,212,273
Non-interest-bearing liabilities	99,441						160,500
Total liabilities	10,419,371						9,943,921
Stockholders’ equity	1,527,839						1,495,580
Total liabilities and equity	$	11,947,210					$	11,439,501
Net interest income			$	84,227					$	73,604
Net interest rate spread (4)					3.08	%					2.78	%
Net interest margin (5)					3.18	%					2.93	%
Total cost of deposits (including non-interest-bearing deposits)					0.16	%					0.37	%

(1)Average yields and costs are annualized.

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

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

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

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

Table of Contents

Comparison of Financial Condition at March 31, 2022 and December 31, 2021

Total assets increased by $425.3 million to $12.16 billion at March 31, 2022, from $11.74 billion at December 31, 2021. Total loans increased by $486.1 million, to $9.11 billion at March 31, 2022, from $8.62 billion at December 31, 2021, primarily due to loan originations in commercial and residential real estate and purchases of $161.7 million of residential real estate loan pools. Total debt securities decreased by $61.5 million at March 31, 2022, as compared to December 31, 2021.

Deposits increased by $323.4 million to $10.06 billion at March 31, 2022, from $9.73 billion at December 31, 2021. Total deposits, excluding time deposits, increased by $211.1 million to $9.17 billion at March 31, 2022, from $8.96 billion at December 31, 2021, due to organic growth in all deposit categories. Time deposits increased to $887.3 million at March 31, 2022, from $775.0 million at December 31, 2021 primarily due to an increase in brokered time deposits, which were less costly than comparable term FHLB advances. The loans-to-deposit ratio at March 31, 2022 was 90.6%, as compared to 88.6% at December 31, 2021. FHLB advances increased to $75.0 million at March 31, 2022 from $0 at December 31, 2021 to fund loan growth. Other borrowings decreased by $34.7 million to $194.4 million at March 31, 2022, from $229.1 million at December 31, 2021, primarily due to the extinguishment of $35.0 million of subordinated debt.

Stockholders’ equity was $1.52 billion at March 31, 2022 and December 31, 2021 as net income of $25.8 million for the quarter was primarily offset by increased accumulated other comprehensive loss of $12.3 million, common and preferred stock dividends of $11.0 million, and repurchases of common stock. Accumulated other comprehensive loss increased by $12.3 million to $15.2 million at March 31, 2022 from $2.8 million at December 31, 2021, primarily due to unrealized losses on debt securities available-for-sale, which were impacted by higher interest rates. For the quarter ended March 31, 2022, the Company repurchased 100,444 shares under its stock repurchase programs at a weighted average cost of $21.35 and there were 3,207,217 shares available for repurchase at March 31, 2022 under the existing repurchase programs. Stockholders’ equity per common share decreased to $25.58 at March 31, 2022, as compared to $25.63 at December 31, 2021.

Comparison of Operating Results for the Three Months Ended March 31, 2022 and March 31, 2021

General

Net income available to common stockholders for the quarter ended March 31, 2022 was $24.8 million, or $0.42 per diluted share, as compared to $31.7 million, or $0.53 per diluted share, for the corresponding prior year period. Net income available to common stockholders for the quarter ended March 31, 2022 included merger related expenses, net branch consolidation expenses, and net loss on equity investments of $2.0 million, $402,000, and $2.8 million, respectively. These items decreased net income by $4.0 million, net of tax, for the quarter ended March 31, 2022. Net income available to common stockholders for the quarter ended March 31, 2021 included merger related expenses, net branch consolidation expenses, and a net gain on equity investments of $381,000, $1.0 million, and $8.3 million, respectively. These items increased net income by $5.2 million, net of tax, for the quarter ended March 31, 2021.

Interest Income

Interest income for the quarter ended March 31, 2022 increased to $91.0 million, as compared to $84.9 million for the corresponding prior year period. Average interest-earning assets increased by $551.7 million for the quarter ended March 31, 2022, as compared to the same prior year period, primarily due to loan and securities growth, which was primarily funded by the redeployment of excess cash. Average loans receivable, net of allowance for loan credit losses, increased by $1.07 billion for the quarter ended March 31, 2022, as compared to the same prior year period. For the quarter ended March 31, 2022, the yield on average interest-earning assets increased to 3.43%, from 3.38% for the corresponding prior year period, primarily due to the deployment of lower-yielding cash into higher-yielding loans and securities.

Interest Expense

Interest expense for the quarter ended March 31, 2022 was $6.8 million, as compared to $11.3 million in the corresponding prior year period. For the quarter ended March 31, 2022, the cost of average interest-bearing liabilities decreased to 0.35%, from 0.60% for the corresponding prior year period, as a result of the downward repricing of deposits. The total cost of deposits (including non-interest bearing deposits) was 0.16% for the quarter ended March 31, 2022, as compared to 0.37%, for the same prior year period. This was partially offset by an increase in average interest-bearing liabilities by $347.0 million for the quarter ended March 31, 2022, as compared to the same prior year period, primarily due to growth in all deposit categories, except time deposits.

Table of Contents

Net Interest Income and Margin

Net interest income for the quarter ended March 31, 2022, increased to $84.2 million, as compared to $73.6 million for the corresponding prior year period, reflecting an increase in net interest margin. Net interest margin for the quarter ended March 31, 2022 increased to 3.18%, from 2.93% for the same prior year period. The net interest margin expansion was primarily attributable to the decrease in excess balance sheet liquidity used to fund loan and securities growth.

Provision/Benefit for Credit Losses

For the quarter ended March 31, 2022, the credit loss expense was $1.9 million, as compared to a credit loss benefit of $620,000, for the corresponding prior year period. The credit loss expense for the quarter ended March 31, 2022 was driven by slowing prepayment rate assumptions primarily impacting the residential real estate portfolio. In addition, strong loan portfolio growth, and macro-economic forecast uncertainty related to the Russia-Ukraine war was partly offset by positive trends in the Bank’s criticized and classified assets and favorable employment outlook. Net loan recoveries were $92,000 for the quarter ended March 31, 2022, as compared to $280,000 for the corresponding prior year period. Non-performing loans totaled $26.9 million at March 31, 2022, as compared to $42.8 million at March 31, 2021, primarily due to loans that returned to accrual status and partly due to loans that were paid off.

Non-interest Income

For the quarter ended March 31, 2022, other income decreased to $8.9 million, as compared to $20.8 million for the corresponding prior year period. Other income for the quarters ended March 31, 2022 and 2021 included a net loss on equity investments of $2.8 million and a net gain on equity investments of $8.3 million, respectively. The remaining decrease of $910,000 was primarily due to decreases in net gain on sales of loans of $1.7 million and Paycheck Protection Program loan origination referral fees of $662,000 in the prior year, partly offset by an increase in commercial loan swap income of $1.7 million.

Non-interest Expense

Operating expenses increased to $57.5 million for the quarter ended March 31, 2022, as compared to $51.7 million in the same prior year period. Operating expenses for the quarters ended March 31, 2022 and 2021 included $2.4 million and $1.4 million, respectively, of merger related and net branch consolidation expenses. The remaining increase of $4.8 million in operating expenses for the quarter ended March 31, 2022, as compared to the corresponding prior year period, was primarily due to increases in compensation and benefits expense of $2.3 million, relating to the commercial banking strategy and the commercial banking hires in expansion markets of Boston and Baltimore as well as additional hires in New Jersey, New York and Philadelphia, data processing expense of $1.7 million, relating to the Company’s migration to a new core banking system, and occupancy expense of $683,000.

Income Tax Expense

The provision for income taxes was $8.0 million for the quarter ended March 31, 2022, as compared to $10.7 million for the same prior year period. The effective tax rate was 23.6% for the quarter ended March 31, 2022, as compared to 24.6% for the same prior year period.

Table of Contents

Liquidity and Capital Resources

The primary sources of liquidity specifically available to OceanFirst Financial Corp. are dividends from the Bank, proceeds from sale of investments, and the issuance of preferred and common stock, and debt. For the three months ended March 31, 2022, the holding company received a dividend payment of $20.0 million from the Bank. At March 31, 2022, OceanFirst Financial Corp. held $45.1 million in cash.

The Bank’s primary sources of funds are deposits, principal and interest payments on loans, FHLB advances, access to the Federal Reserve discount window, other borrowings, investment maturities, and proceeds from the sale of loans and investments. While scheduled amortization of loans and securities are predictable sources of funds, deposit flows, loan prepayments, and loan and investment sales are greatly influenced by interest rates, economic conditions, and competition. The Bank has other sources of liquidity if a need for additional funds arises, including various lines of credit at multiple financial institutions.

At March 31, 2022, the Bank had $75.0 million outstanding in overnight borrowings from the FHLB, as compared to $0 at December 31, 2021. The Bank utilizes overnight borrowings from time-to-time to fund short-term liquidity needs. There were no FHLB term advances at March 31, 2022 and December 31, 2021.

During the quarter ended March 31, 2022, the Company redeemed $35.0 million of subordinated debt due September 30, 2026. The debt carried an interest rate of 4.14% based on a floating rate of three months LIBOR plus 392 basis points.

The Company’s cash needs for the quarter ended March 31, 2022 were primarily satisfied by the increase in deposits, proceeds from FHLB advances, principal repayments on debt securities held-to-maturity, and proceeds from maturities and calls of debt securities. The cash was principally utilized for loan originations, purchases of residential loan pools, purchases of debt and equity securities, and redemption of subordinated debt. The Company’s cash needs for the quarter ended March 31, 2021 were primarily satisfied by the sale of equity investments, an increase in deposits, principal repayments on debt securities held-to-maturity, and proceeds from maturities and calls of debt securities. The cash was principally utilized for purchases of debt and equity securities and loan originations.

In the normal course of business, the Bank routinely enters into various off-balance-sheet commitments, primarily relating to the origination and sale of loans. At March 31, 2022, outstanding commitments to originate loans totaled $515.4 million and outstanding undrawn lines of credit totaled $1.63 billion, of which $1.27 billion were commitments to commercial and commercial construction borrowers and $356.0 million were commitments to consumer borrowers and residential construction borrowers. Commitments to fund undrawn lines of credit and commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the existing contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company’s exposure to credit risk is represented by the contractual amount of the instruments.

Time deposits scheduled to mature in one year or less totaled $528.6 million at March 31, 2022.

At March 31, 2022, the Company also had various contractual obligations, which included debt obligations of $387.2 million, including finance lease obligations of $1.9 million, and an additional $14.7 million in operating lease obligations included in other liabilities. The Company expects to have sufficient funds available to meet current commitments in the normal course of business.

The Company has a detailed contingency funding plan and obtains comprehensive reporting of funding trends on a monthly and quarterly basis, which are reviewed by management. Management also monitors cash on a daily basis to determine the liquidity needs of the Company and the Bank. Additionally, management performs multiple liquidity stress test scenarios on a quarterly basis. The Company and Bank continue to maintain significant liquidity under all stress scenarios.

Under the Company’s stock repurchase program, shares of OceanFirst Financial Corp. common stock may be purchased in the open market and through other privately-negotiated transactions, from time-to-time, depending on market conditions. The repurchased shares are held as treasury stock for general corporate purposes. For the three months ended March 31, 2022, the Company repurchased 100,444 shares of its common stock at a total cost of $2.1 million. For the three months ended March 31, 2021, the Company repurchased 500,000 shares of its common stock at a total cost of $10.0 million. At March 31, 2022, there were 3,207,217 shares available to be repurchased under the stock repurchase programs authorized.

Cash dividends on common stock declared and paid during the first three months of March 31, 2022 were $10.0 million, as compared to $10.2 million for the same prior year period. On April 28, 2022, the Company’s Board of Directors declared a

Table of Contents

quarterly cash dividend of $0.17 per common share. The dividend is payable on May 20, 2022 to common stockholders of record at the close of business on May 9, 2022.

Cash dividends on preferred stock declared and paid during the first three months of March 31, 2022 and 2021 were $1.0 million for both periods. The Company’s Board of Directors also declared a quarterly cash dividend of $0.4375 per depositary share, representing 1/40th interest in the Series A Preferred Stock, payable on May 16, 2022 to preferred stockholders of record on April 29, 2022.

The Company’s ability to continue to pay dividends will be largely dependent upon capital distributions from the Bank, which may be adversely affected by capital restraints imposed by applicable regulations. The Company cannot predict whether the Bank will be permitted under applicable regulations to pay a dividend to the Company. If applicable regulations or regulatory bodies prevent the Bank from paying a dividend to the Company, the Company may not have the liquidity necessary to pay a dividend in the future or pay a dividend at the same rate as historically paid or be able to meet current debt obligations. Additionally, regulations of the Federal Reserve may prevent the Company from either paying or increasing the cash dividend to common stockholders.

As of March 31, 2022 and December 31, 2021, the Company and the Bank satisfy all regulatory capital requirements currently applicable as follows (dollars in thousands):


	Actual				For capital adequacy purposes					To be well-capitalized under prompt corrective action
As of March 31, 2022	Amount		Ratio		Amount		Ratio			Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	1,045,703	9.24	%	$	452,600	4.00	%		$	565,750	5.00	%
Common equity Tier 1 (to risk-weighted assets)	1,045,703		11.15		656,368		7.00		(1)	609,484		6.50
Tier 1 capital (to risk-weighted assets)	1,045,703		11.15		797,018		8.50		(1)	750,135		8.00
Total capital (to risk-weighted assets)	1,099,803		11.73		984,552		10.50		(1)	937,668		10.00
Company:
Tier 1 capital (to average assets)	$	1,066,349	9.42	%	$	453,009	4.00	%		N/A		N/A
Common equity Tier 1 (to risk-weighted assets)	938,751		9.91		662,817		7.00		(1)	N/A		N/A
Tier 1 capital (to risk-weighted assets)	1,066,349		11.26		804,849		8.50		(1)	N/A		N/A
Total capital (to risk-weighted assets)	1,246,146		13.16		994,226		10.50		(1)	N/A		N/A


	Actual				For capital adequacy purposes					To be well-capitalized under prompt corrective action
As of December 31, 2021	Amount		Ratio		Amount		Ratio			Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	1,027,660	9.08	%	$	452,669	4.00	%		$	565,836	5.00	%
Common equity Tier 1 (to risk-weighted assets)	1,027,660		11.62		619,178		7.00		(1)	574,951		6.50
Tier 1 capital (to risk-weighted assets)	1,027,660		11.62		751,860		8.50		(1)	707,633		8.00
Total capital (to risk-weighted assets)	1,079,766		12.21		928,768		10.50		(1)	884,541		10.00
Company:
Tier 1 capital (to average assets)	$	1,044,518	9.22	%	$	453,087	4.00	%		N/A		N/A
Common equity Tier 1 (to risk-weighted assets)	917,088		10.26		625,801		7.00		(1)	N/A		N/A
Tier 1 capital (to risk-weighted assets)	1,044,518		11.68		759,902		8.50		(1)	N/A		N/A
Total capital (to risk-weighted assets)	1,257,372		14.06		938,702		10.50		(1)	N/A		N/A

(1)Includes the Capital Conservation Buffer of 2.50%.

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

At March 31, 2022 and December 31, 2021, the Company maintained a stockholders’ equity to total assets ratio of 12.49% and 12.92%, respectively.

Table of Contents

Non-Performing Assets

The following table sets forth information regarding the Company’s non-performing assets, consisting of non-performing loans and other real estate owned. It is the policy of the Company to cease accruing interest on loans 90 days or more past due or in the process of foreclosure.


	March 31,			December 31,
	2022			2021
	(dollars in thousands)
Non-performing loans:
Commercial real estate – investor	$	3,575		$	3,614
Commercial real estate – owner occupied	9,632			11,904
Commercial and industrial	2,830			277
Residential real estate	7,047			6,114
Other consumer	3,841			3,585

Total non-performing loans	26,925			25,494

Other real estate owned	106			106
Total non-performing assets	$	27,031		$	25,600
PCD loans	$	37,032		$	41,817
Delinquent loans 30-89 days	$	18,691		$	14,546
Allowance for loan credit losses as a percent of total loans	0.56		%	0.57		%
Allowance for loan credit losses as a percent of total non-performing loans	187.92			191.61
Non-performing loans as a percent of total loans receivable	0.30			0.30
Non-performing assets as a percent of total assets	0.22			0.22

The Company’s non-performing loans totaled $26.9 million at March 31, 2022, as compared to $25.5 million at December 31, 2021. Included in the non-performing loans total was $11.9 million and $11.3 million of troubled debt restructuring (“TDR”) loans at March 31, 2022 and December 31, 2021, respectively. Included in non-performing loans total was $3.7 million and $6.5 million of PCD loans at March 31, 2022 and December 31, 2021, respectively. At March 31, 2022, the allowance for loan credit losses totaled $50.6 million, or 0.56% of total loans, as compared to $48.9 million, or 0.57% of total loans, at December 31, 2021. These ratios exclude existing net unamortized credit and PCD marks on acquired loans of $16.9 million and $18.9 million at March 31, 2022 and December 31, 2021, respectively.

In response to the COVID-19 pandemic and its economic impact on customers, short-term modification programs that comply with the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, extended by the Coronavirus Response and Relief Supplemental Appropriations (“CRRSA”) Act of 2021, were implemented to provide temporary payment relief to those borrowers directly impacted by COVID-19. The Bank’s Commercial Borrower Relief Program allowed for the deferral of principal and interest or principal only. All payments received will first be applied to all accrued and unpaid interest and the balance, if any, of unpaid principal, then to fees, expenses and other amounts due to the Bank. Monthly payments will continue until the maturity date when all then unpaid principal, interest, fees, and all other charges are due and payable to the Bank. The Consumer Borrower Relief Program allowed for the deferral of principal and interest. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date. Provided these loans were current as of December 31, 2019 or the date of the modification, these loans are not considered TDR loans at March 31, 2022 and will not be reported as past due during the deferral period.

The Company classifies loans and other assets in accordance with regulatory guidelines. The table below excludes any loans held-for-sale (in thousands):


	March 31,		December 31,
	2022		2021
Special Mention	$	91,611	$	91,607
Substandard	114,030		148,557

The decrease in substandard loans was primarily due to improved profitability of borrowers and their ability to service their loans.

Table of Contents

Critical Accounting Policies

Note 1 to the Company’s Audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), as supplemented by this report, contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried in the consolidated statements of financial condition at estimated fair value or the lower of cost or estimated fair value. Policies with respect to the methodology used to determine the allowance for credit losses is a critical accounting policy and estimate because of its importance to the presentation of the Company’s financial condition and results of operations. The critical accounting policy involves a higher degree of complexity and requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition. The critical accounting policy and its application is reviewed periodically, and at least annually, with the Audit Committee of the Board of Directors.

Impact of New Accounting Pronouncements

Accounting Pronouncements Adopted in 2022

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes” as part of an initiative to reduce complexity in accounting standards for income taxes. The amendments also improve consistent application of and simplify generally accepted accounting principles for other areas of Topic 740 by clarifying and amending existing guidance. This update was effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2021. The adoption of this standard did not have a material impact on the Company’s financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In March 2022, FASB issued ASU 2022-01 “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method”, which made targeted improvements to the optional hedge accounting model with the objective of improving hedge accounting to better portray the economic results of an entity’s risk management activities in its financial statements. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2022. Early adoption is permitted for any entity that has adopted the amendments in ASU 2017-12 for the corresponding period. The Company currently does not apply fair value hedge accounting; however the Company is currently evaluating the potential impact of this standard to the consolidated financial statements.

In March 2022, FASB issued ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”. The amendments in this ASU were issued to (1) eliminate accounting guidance for TDRs by creditors, while enhancing disclosure requirements for loan refinancings and restructurings when a borrower is experiencing financial difficulty; (2) require disclosures of current period gross write-offs by year of origination for financing receivables and net investments in leases. For entities that have adopted the amendments in ASU 2016-13, Measurement of Credit Losses on Financial Instruments, this update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2022. Early adoption is permitted. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, where there is an option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The Company is currently evaluating the impact of this standard to the consolidated financial statements.

Private Securities Litigation Reform Act Safe Harbor Statement

In addition to historical information, this quarterly report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which are based on certain assumptions and describe future plans, strategies and expectations of OceanFirst Financial Corp. (the “Company”). These forward-looking statements are generally identified by use of the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project”, “will”, “should”, “may”, “view”, “opportunity”, “potential”, or similar expressions or expressions of confidence.

The Company’s ability to predict results or the actual effect of plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, those items discussed in the Company’s 2021 Form 10-K under Item 1A - Risk Factors, as supplemented by the Company’s subsequent filings with the Securities and Exchange Commission (the “SEC”) and elsewhere therein and the following: changes in interest rates, general economic conditions, inflation, public health crises (such as the governmental, social and economic effects of the novel coronavirus), levels of unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, future natural disasters and increases to flood insurance premiums, the current or anticipated impact of military conflict, terrorism or other geopolitical events, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory

Table of Contents

changes (particularly with respect to the novel coronavirus), monetary and fiscal policies of the U.S. Government including policies of the U.S. Treasury and Board of Governors of the Federal Reserve System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, changes in accounting principles and guidelines and the Bank’s ability to successfully integrate acquired operations.

Given its ongoing and dynamic nature, it is difficult to predict the continuing impact of the COVID-19 outbreak on the Company’s business. The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be fully controlled and abated. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, the Company could be subject to any of the following risks, any of which could have a material, adverse effect on its business, financial condition, liquidity, and results of operations: the demand for the Bank’s products and services may decline, making it difficult to grow assets and income; if the economy worsens, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; the Company’s allowance for credit losses may increase if borrowers experience financial difficulties, which will adversely affect the Company’s net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to the Bank; if legislation or governmental or regulatory action is enacted limiting the amount of ATM fees or surcharges the Bank may receive or on its ability to charge overdraft or other fees, it could adversely impact the Company’s financial results; the Company’s cyber security risks would be increased as the result of an increased use of the Bank’s online banking platform or an increase in the number of employees working remotely; and Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s interest rate sensitivity is monitored through the use of interest rate risk (“IRR”) modeling. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at March 31, 2022, which were estimated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown. At March 31, 2022, the Company’s one-year gap was positive 10.82% as compared to positive 14.15% at December 31, 2021.

The table is intended to provide an approximation of the projected repricing of assets and liabilities at March 31, 2022 on the basis of contractual maturities, anticipated prepayments, scheduled rate adjustments, and the rate sensitivity of non-maturity deposits within a three month period and subsequent selected time intervals.


At March 31, 2022	3 Months or Less			More than 3 Months to 1 Year			More than 1 Year to 3 Years			More than 3 Years to 5 Years			More than 5 Years			Total
(dollars in thousands)
Interest-earning assets:
Interest-earning deposits and short-term investments	$	46,956		$	2,422		$	1,483		$	—		$	—		$	50,861
Debt securities	445,703			193,651			298,644			257,575			472,533			1,668,106

Equity investments	250			—			30,641			32,087			30,910			93,888
Restricted equity investments	—			—			—			—			56,704			56,704
Loans receivable (1)	2,397,914			1,007,939			2,140,639			1,656,683			1,905,801			9,108,976
Total interest-earning assets	2,890,823			1,204,012			2,471,407			1,946,345			2,465,948			10,978,535
Interest-bearing liabilities:
Interest-bearing checking accounts	1,540,606			208,953			482,827			391,090			1,664,269			4,287,745
Money market deposit accounts	50,876			55,166			128,310			355,225			222,011			811,588
Savings accounts	111,869			132,046			298,312			233,645			848,879			1,624,751
Time deposits	174,700			370,194			298,226			30,245			13,951			887,316
FHLB advances	75,002			—			—			—			—			75,002
Securities sold under agreements to repurchase and other borrowings	187,267			141			465			123,636			669			312,178
Total interest-bearing liabilities	2,140,320			766,500			1,208,140			1,133,841			2,749,779			7,998,580
Interest sensitivity gap (2)	$	750,503		$	437,512		$	1,263,267		$	812,504		$	(283,831)		$	2,979,955
Cumulative interest sensitivity gap	$	750,503		$	1,188,015		$	2,451,282		$	3,263,786		$	2,979,955		$	2,979,955
Cumulative interest sensitivity gap as a percent of total interest-earning assets	6.84		%	10.82		%	22.33		%	29.73		%	27.14		%	27.14		%

(1)For purposes of the gap analysis, loans receivable includes loans held for sale and non-performing loans gross of the allowance for loan credit losses, unamortized discounts and deferred loan costs and fees.

(2)Interest sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities.

Certain shortcomings are inherent in gap analysis. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, loan prepayment rates and average lives of deposits would likely deviate significantly from those assumed in the calculation. Finally, the ability of many borrowers to service their adjustable-rate loans may be impaired in the event of an interest rate increase.

Table of Contents

Additionally, the table below sets forth the Company’s exposure to IRR as measured by the change in economic value of equity (“EVE”) and net interest income under varying rate shocks as of March 31, 2022 and December 31, 2021. All methods used to measure interest rate sensitivity involve the use of assumptions, which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. The Company’s interest rate sensitivity should be reviewed in conjunction with the financial statements and notes thereto contained in the 2021 Form 10-K.


	March 31, 2022										December 31, 2021
Change in Interest Rates in Basis Points (Rate Shock)	Economic Value of Equity						Net Interest Income				Economic Value of Equity						Net Interest Income
	Amount		% Change		EVE Ratio		Amount		% Change		Amount		% Change		EVE Ratio		Amount		% Change
(dollars in thousands)
300	$	1,770,119	4.7	%	16.2	%	$	376,201	7.6	%	$	1,817,134	24.5	%	16.7	%	$	346,723	10.3	%
200	1,775,649		5.0		15.8		367,951		5.3		1,738,602		19.1		15.6		336,816		7.1
100	1,753,575		3.7		15.2		359,026		2.7		1,621,984		11.1		14.2		325,960		3.7
Static	1,690,769		—		14.3		349,511		—		1,459,706		—		12.5		314,395		—
(100)	1,576,895		(6.7)		12.9		334,858		(4.2)		1,230,947		(15.7)		10.3		299,994		(4.6)

The change in interest rate sensitivity quarter over quarter was impacted by the deployment of cash into loans, an increase in overnight borrowings, shorter-term time deposits, and a significant increase in market interest rates.

As is the case with the gap calculation, certain shortcomings are inherent in the methodology used in the EVE and net interest income IRR measurements. The model requires the making of certain assumptions which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. First, the model assumes that the composition of the Company’s interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured. Second, the model assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Third, the model does not take into account the Company’s business or strategic plans. Accordingly, although the above measurements provide an indication of the Company’s IRR exposure at a particular point in time, such measurements are not intended to provide a precise forecast of the effect of changes in market interest rates on the Company’s EVE and net interest income, and can be expected to differ from actual results.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective. Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table of Contents

OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in thousands, except per share amounts)


	March 31,		December 31,
	2022		2021
	(Unaudited)
Assets
Cash and due from banks	$	210,919	$	204,949

Debt securities available-for-sale, at estimated fair value	546,470		568,255
Debt securities held-to-maturity, net of allowance for securities credit losses of $1,380 at March 31, 2022 and $1,467 at December 31, 2021 (estimated fair value of $1,050,892 at March 31, 2022 and $1,152,744 at December 31, 2021)	1,099,514		1,139,193
Equity investments	93,888		101,155
Restricted equity investments, at cost	56,704		53,195
Loans receivable, net of allowance for loan credit losses of $50,598 at March 31, 2022 and $48,850 at December 31, 2021	9,065,679		8,583,352

Interest and dividends receivable	33,353		32,606
Other real estate owned	106		106
Premises and equipment, net	126,767		125,828

Bank owned life insurance	259,121		259,207

Assets held for sale	5,676		6,229
Goodwill	500,319		500,319
Core deposit intangible	17,005		18,215
Other assets	149,424		147,007
Total assets	$	12,164,945	$	11,739,616
Liabilities and Stockholders’ Equity
Deposits	$	10,056,233	$	9,732,816
Federal Home Loan Bank (“FHLB”) advances	75,002		—
Securities sold under agreements to repurchase with customers	117,782		118,769
Other borrowings	194,396		229,141
Advances by borrowers for taxes and insurance	25,398		20,305
Other liabilities	176,800		122,032
Total liabilities	10,645,611		10,223,063
Stockholders’ equity:
Preferred stock, $0.01 par value, $1,000 liquidation preference, 5,000,000 shares authorized, and 57,370 shares issued at both March 31, 2022 and December 31, 2021	1		1
Common stock, $0.01 par value, 150,000,000 shares authorized, 61,849,762 and 61,535,381 shares issued at March 31, 2022 and December 31, 2021, respectively; and 59,388,983 and 59,175,046 shares outstanding at March 31, 2022 and December 31, 2021, respectively	612		611
Additional paid-in capital	1,149,503		1,146,781
Retained earnings	456,251		442,306
Accumulated other comprehensive loss	(15,170)		(2,821)
Less: Unallocated common stock held by Employee Stock Ownership Plan ("ESOP")	(8,009)		(8,615)
Treasury stock, 2,460,779 and 2,360,335 shares at March 31, 2022 and December 31, 2021, respectively	(63,854)		(61,710)


Total stockholders’ equity	1,519,334		1,516,553
Total liabilities and stockholders’ equity	$	12,164,945	$	11,739,616

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)


	For the Three Months Ended March 31,
	2022		2021
	(Unaudited)
Interest income:
Loans	$	82,468	$	77,908
Debt securities	7,504		5,355
Equity investments and other	1,011		1,611
Total interest income	90,983		84,874
Interest expense:
Deposits	4,041		8,496
Borrowed funds	2,715		2,774
Total interest expense	6,756		11,270
Net interest income	84,227		73,604
Credit loss expense (benefit)	1,851		(620)
Net interest income after credit loss expense (benefit)	82,376		74,224
Other income:
Bankcard services revenue	2,963		3,052
Trust and asset management revenue	609		599
Fees and service charges	3,060		3,737



Net gain on sales of loans	177		1,916
Net (loss) gain on equity investments	(2,786)		8,287
Net loss from other real estate operations	(2)		(8)
Income from bank owned life insurance	2,103		1,415
Commercial loan swap income	2,781		1,111
Other	(53)		726
Total other income	8,852		20,835
Operating expenses:
Compensation and employee benefits	30,695		28,366
Occupancy	5,744		5,061
Equipment	1,370		1,578
Marketing	616		434
Federal deposit insurance and regulatory assessments	1,890		1,864
Data processing	5,736		4,031
Check card processing	982		1,372
Professional fees	3,322		2,837

Amortization of core deposit intangible	1,210		1,395
Branch consolidation expense, net	402		1,011
Merger related expenses	1,965		381
Other operating expense	3,563		3,353
Total operating expenses	57,495		51,683
Income before provision for income taxes	33,733		43,376
Provision for income taxes	7,974		10,679
Net income	25,759		32,697
Dividends on preferred shares	1,004		1,004
Net income available to common stockholders	$	24,755	$	31,693
Basic earnings per share	$	0.42	$	0.53
Diluted earnings per share	$	0.42	$	0.53
Average basic shares outstanding	58,739		59,840
Average diluted shares outstanding	58,943		60,101

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

OceanFirst Financial Corp.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)


	For the Three Months Ended March 31,
	2022		2021
	(Unaudited)
Net income	$	25,759	$	32,697
Other comprehensive (loss) income:
Net unrealized loss on debt securities (net of tax benefit of $3,928 in 2022 and $112 in 2021)	(12,372)		(416)
Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $65 in 2022 and $73 in 2021)	89		107
Reclassification adjustment for losses included in net income (net of tax benefit of $21 in 2022)	(66)		—

Total other comprehensive loss, net of tax	(12,349)		(309)
Total comprehensive income	13,410		32,388
Less: Dividends on preferred shares	1,004		1,004
Comprehensive income available to common stockholders	$	12,406	$	31,384

See accompanying Notes to Unaudited Consolidated Financial Statements.

OceanFirst Financial Corp.

Consolidated Statements of Changes in Stockholders’ Equity

(dollars in thousands, except per share amounts)

(Unaudited)

For the Three Months Ended March 31, 2022 and 2021


	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Employee Stock Ownership Plan		Treasury Stock		Total
Balance at December 31, 2020	$	1	$	609	$	1,137,715	$	378,268	$	621	$	(7,433)	$	(25,651)	$	1,484,130
Net income	—		—		—		32,697		—		—		—		32,697
Other comprehensive loss, net of tax	—		—		—		—		(309)		—		—		(309)
Stock compensation	—		—		1,237		—		—		—		—		1,237




Allocation of ESOP stock	—		—		48		—		—		304		—		352
Cash dividend $0.17 per share	—		—		—		(10,152)		—		—		—		(10,152)
Exercise of stock options	—		1		3,290		(1,529)		—		—		—		1,762

Repurchase 500,000 shares of common stock	—		—		—		—		—		—		(9,994)		(9,994)



Preferred stock dividend	—		—		—		(1,004)		—		—		—		(1,004)
Balance at March 31, 2021	$	1	$	610	$	1,142,290	$	398,280	$	312	$	(7,129)	$	(35,645)	$	1,498,719

Balance at December 31, 2021	$	1	$	611	$	1,146,781	$	442,306	$	(2,821)	$	(8,615)	$	(61,710)	$	1,516,553
Net income	—		—		—		25,759		—		—		—		25,759
Other comprehensive loss, net of tax	—		—		—		—		(12,349)		—		—		(12,349)
Stock compensation	—		—		1,552		—		—		—		—		1,552



Allocation of ESOP stock	—		—		65		—		—		606		—		671
Cash dividend $0.17 per share	—		—		—		(9,993)		—		—		—		(9,993)
Exercise of stock options	—		1		1,105		(817)		—		—		—		289
Repurchase 100,444 shares of common stock	—		—		—		—		—		—		(2,144)		(2,144)



Preferred stock dividend	—		—		—		(1,004)		—		—		—		(1,004)


Balance at March 31, 2022	$	1	$	612	$	1,149,503	$	456,251	$	(15,170)	$	(8,009)	$	(63,854)	$	1,519,334

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

OceanFirst Financial Corp.

Consolidated Statements of Cash Flows

(dollars in thousands)


	For the Three Months Ended March 31,
	2022		2021
	(Unaudited)
Cash flows from operating activities:
Net income	$	25,759	$	32,697
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment	2,759		2,064
Allocation of ESOP stock	671		352
Stock compensation	1,552		1,237

Net excess tax expense on stock compensation	214		90
Amortization of servicing asset	14		25
Net premium amortization in excess of discount accretion on securities	1,859		1,467
Net amortization of deferred costs on borrowings	137		212
Amortization of core deposit intangible	1,210		1,395
Net accretion of purchase accounting adjustments	(3,086)		(3,804)
Net amortization of deferred costs and discounts on loans	255		437
Provision (benefit) for credit losses	1,851		(620)

Net write down of fixed assets held-for-sale to net realizable value	1,404		427


Net loss (gain) on equity securities	2,786		(8,287)
Net gain on sales of loans	(177)		(1,916)
Proceeds from sales of residential loans held for sale	724		69,416
Mortgage loans originated for sale	(703)		(65,151)
Increase in value of bank owned life insurance	(2,103)		(1,415)
Net (gain) loss on sale of assets held for sale	(1,200)		22
(Increase) decrease in interest and dividends receivable	(747)		2,450
Deferred tax benefit	(30)		(57)


(Increase) decrease in other assets	(14,777)		27,442
Increase (decrease) in other liabilities	39,272		(21,610)
Total adjustments	31,885		4,176
Net cash provided by operating activities	57,644		36,873
Cash flows from investing activities:
Net increase in loans receivable	(331,568)		(111,302)
Proceeds from sale of loans	12,167		—
Purchase of residential loan pool	(161,701)		—
Premiums paid on purchased loan pool	(495)		—
Purchase of debt securities available-for-sale	(47,817)		(100,921)
Purchase of debt securities held-to-maturity	(16,397)		(178,316)
Purchase of equity investments	(2,292)		(10,575)
Proceeds from maturities and calls of debt securities available-for-sale	45,000		22,850
Proceeds from maturities and calls of debt securities held-to-maturity	12,305		6,565
Proceeds from sales of debt securities available-for-sale	22,857		—

Proceeds from sale of equity investments	4,579		99,060
Principal repayments on debt securities available-for-sale	—		46
Principal repayments on debt securities held-to-maturity	43,213		52,371
Proceeds from bank owned life insurance	2,189		2,120
Proceeds from the redemption of restricted equity investments	26,591		344
Purchases of restricted equity investments	(30,100)		(485)

Proceeds from sales of assets held-for-sale	4,492		420
Purchases of premises and equipment	(7,708)		(5,336)


Net cash used in investing activities	(424,685)		(223,159)

Table of Contents

OceanFirst Financial Corp.

Consolidated Statements of Cash Flows (Continued)

(dollars in thousands)


	For the Three Months Ended March 31,
	2022		2021
	(Unaudited)
Cash flows from financing activities:
Increase in deposits	$	323,641	$	75,694
(Decrease) increase in short-term borrowings	(987)		6,011
Proceeds from FHLB advances	75,002		—



Repayments of other borrowings	(35,026)		(7,529)
Increase in advances by borrowers for taxes and insurance	5,093		3,684
Exercise of stock options	289		1,762
Payment of employee taxes withheld from stock awards	(1,438)		(1,094)
Purchase of treasury stock	(2,144)		(9,994)


Dividends paid	(10,997)		(11,156)
Net cash provided by financing activities	353,433		57,378
Net decrease in cash and due from banks and restricted cash	(13,608)		(128,908)
Cash and due from banks and restricted cash at beginning of period	224,784		1,318,661
Cash and due from banks and restricted cash at end of period	$	211,176	$	1,189,753
Supplemental Disclosure of Cash Flow Information:
Cash and due from banks at beginning of period	$	204,949	$	1,272,134
Restricted cash at beginning of period	19,835		46,527

Cash and due from banks and restricted cash at beginning of period	$	224,784	$	1,318,661
Cash and due from banks at end of period	$	210,919	$	1,173,665
Restricted cash at end of period	257		16,088

Cash and due from banks and restricted cash at end of period	$	211,176	$	1,189,753
Cash paid during the period for:
Interest	$	5,088	$	10,376
Income taxes	573		568
Non-cash activities:
Accretion of unrealized loss on securities reclassified to held-to-maturity	154		180
Net loan recoveries	(92)		(280)
Transfer of loans receivable to loans held-for-sale	12,011		—
Transfer of premises and equipment to assets held-for-sale	2,776		—

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements

Note 1. Basis of Presentation

The consolidated financial statements include the accounts of OceanFirst Financial Corp. (the “Company”) and its wholly-owned subsidiaries, OceanFirst Bank N.A. (the “Bank”) and OceanFirst Risk Management, Inc., and the Bank’s direct and indirect wholly-owned subsidiaries, OceanFirst REIT Holdings, Inc., OceanFirst Management Corp., OceanFirst Realty Corp. Casaba Real Estate Holdings Corporation, CBNJ Investments Corp., Country Property Holdings, Inc., and TRCB Investment Corp. All significant intercompany accounts and transactions have been eliminated in consolidation.

The interim consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that may be expected for the full year 2022 or any other period. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and the results of operations for the period. Actual results could differ from these estimates.

Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Note 2. Earnings per Share

The following reconciles shares outstanding for basic and diluted earnings per share for the three months ended March 31, 2022 and 2021 (in thousands):


	Three Months Ended March 31,
	2022	2021
Weighted average shares outstanding	59,303	60,300
Less: Unallocated ESOP shares	(422)	(386)
Unallocated incentive award shares	(142)	(74)
Average basic shares outstanding	58,739	59,840
Add: Effect of dilutive securities:
Incentive awards	204	261

Average diluted shares outstanding	58,943	60,101

For the three months ended March 31, 2022 and 2021, antidilutive stock options of 904,000 and 1,672,000, respectively, were excluded from the earnings per share calculations.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Note 3. Securities

The amortized cost, estimated fair value, and allowance for securities credit losses of debt securities available-for-sale and held-to-maturity at March 31, 2022 and December 31, 2021 are as follows (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Allowance for Credit Losses
At March 31, 2022
Debt securities available-for-sale:
U.S. government and agency obligations	$	145,690	$	206	$	(3,855)	$	142,041	$	—
Corporate debt securities	5,000		—		(216)		4,784		—
Asset-backed securities	302,389		—		(5,300)		297,089		—

Agency commercial mortgage-backed securities (“MBS”)	111,399		—		(8,843)		102,556		—
Total debt securities available-for-sale	$	564,478	$	206	$	(18,214)	$	546,470	$	—
Debt securities held-to-maturity:
State, municipal and sovereign debt obligations	$	272,250	$	396	$	(12,673)	$	259,973	$	(69)
Corporate debt securities	64,198		917		(1,951)		63,164		(1,272)
Mortgage-backed securities:
Agency residential	730,960		467		(38,828)		692,599		—
Agency commercial	4,163		3		(45)		4,121		—
Non-agency commercial	32,057		3		(1,025)		31,035		(39)
Total mortgage-backed securities	767,180		473		(39,898)		727,755		(39)
Total debt securities held-to-maturity	$	1,103,628	$	1,786	$	(54,522)	$	1,050,892	$	(1,380)
Total debt securities	$	1,668,106	$	1,992	$	(72,736)	$	1,597,362	$	(1,380)
At December 31, 2021
Debt securities available-for-sale:
U.S. government and agency obligations	$	164,756	$	1,135	$	(471)	$	165,420	$	—
Corporate debt securities	5,000		42		(11)		5,031		—
Asset-backed securities	298,976		41		(1,489)		297,528		—
Agency commercial MBS	101,142		57		(923)		100,276		—
Total debt securities available-for-sale	$	569,874	$	1,275	$	(2,894)	$	568,255	$	—
Debt securities held-to-maturity:
State, municipal, and sovereign debt obligations	$	281,389	$	10,185	$	(1,164)	$	290,410	$	(85)
Corporate debt securities	68,823		1,628		(1,279)		69,172		(1,343)
Mortgage-backed securities:
Agency residential	756,844		6,785		(7,180)		756,449		—
Agency commercial	4,385		7		(44)		4,348		—
Non-agency commercial	32,107		362		(104)		32,365		(39)
Total mortgage-backed securities	793,336		7,154		(7,328)		793,162		(39)
Total debt securities held-to-maturity	$	1,143,548	$	18,967	$	(9,771)	$	1,152,744	$	(1,467)
Total debt securities	$	1,713,422	$	20,242	$	(12,665)	$	1,720,999	$	(1,467)

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

There was no allowance for securities credit losses on debt securities available-for-sale at March 31, 2022 or December 31, 2021.

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the three months ended March 31, 2022 and 2021 (in thousands):


	Three Months Ended March 31,
	2022		2021
Allowance for securities credit losses
Beginning balance	$	(1,467)	$	(1,715)

Benefit (provision) for credit loss expense	87		(2)



Total ending allowance balance	$	(1,380)	$	(1,717)

During 2021 and 2013, the Bank transferred $12.7 million and $536.0 million, respectively, of previously designated available-for-sale securities to a held-to-maturity designation at estimated fair value. The securities transferred had an unrealized net loss of $209,000 and $13.3 million at the time of transfer in 2021 and 2013, respectively, which continues to be reflected in accumulated other comprehensive loss on the Consolidated Statement of Financial Condition, net of subsequent amortization, which is being recognized over the life of the securities. The carrying value of the debt securities held-to-maturity at March 31, 2022 and December 31, 2021 is as follows (in thousands):


	March 31,		December 31,
	2022		2021
Amortized cost	$	1,103,628	$	1,143,548
Net loss on date of transfer from available-for-sale	(13,556)		(13,556)
Allowance for securities credit losses	(1,380)		(1,467)
Accretion of net unrealized loss on securities reclassified as held-to-maturity	10,822		10,668
Carrying value	$	1,099,514	$	1,139,193

There was $87,000 of realized losses on debt securities for the three months ended March 31, 2022. There were no realized gains or losses on debt securities for the three months ended March 31, 2021.

The amortized cost and estimated fair value of debt securities at March 31, 2022 by contractual maturity are shown below (in thousands).


March 31, 2022	Amortized Cost		Estimated Fair Value
Less than one year	$	95,878	$	95,857
Due after one year through five years	153,847		148,910
Due after five years through ten years	242,079		232,695
Due after ten years	297,723		289,589
	$	789,527	$	767,051

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 March 31, 2022, corporate debt securities, state and municipal obligations, and asset-backed securities with an amortized cost of $63.1 million, $87.6 million, and $303.4 million, respectively, and an estimated fair value of $61.8 million, $85.4 million, and $297.1 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.

The estimated fair value of securities pledged for the ability to draw on FHLB advances, access to the Federal Reserve discount window, and other borrowings and for other purposes required by law amounted to $1.09 billion and $1.14 billion at March 31, 2022 and December 31, 2021, respectively, which includes $114.6 million and $142.9 million at March 31, 2022 and December 31, 2021, respectively, pledged as collateral for securities sold under agreements to repurchase.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The estimated fair value and unrealized losses for debt securities available-for-sale and held-to-maturity at March 31, 2022 and December 31, 2021, 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 March 31, 2022
Debt securities available-for-sale:
U.S. government and agency obligations	$	76,857	$	(3,811)	$	5,017	$	(44)	$	81,874	$	(3,855)
Corporate debt securities	4,784		(216)		—		—		4,784		(216)
Asset-backed securities	266,780		(5,058)		15,309		(242)		282,089		(5,300)
Agency commercial MBS	102,556		(8,843)		—		—		102,556		(8,843)
Total debt securities available-for-sale	450,977		(17,928)		20,326		(286)		471,303		(18,214)
Debt securities held-to-maturity:


State, municipal and sovereign debt obligations	203,363		(11,481)		15,508		(1,192)		218,871		(12,673)
Corporate debt securities	6,080		(87)		36,467		(1,864)		42,547		(1,951)

Mortgage-backed securities:
Agency residential	469,893		(24,938)		170,870		(13,890)		640,764		(38,828)
Agency commercial	608		(2)		2,393		(43)		3,001		(45)
Non-agency commercial	30,032		(1,025)		—		—		30,032		(1,025)
Total mortgage-backed securities	500,533		(25,965)		173,263		(13,933)		673,797		(39,898)
Total debt securities held-to-maturity	709,976		(37,533)		225,238		(16,989)		935,215		(54,522)
Total debt securities	$	1,160,953	$	(55,461)	$	245,564	$	(17,275)	$	1,406,518	$	(72,736)
At December 31, 2021
Debt securities available-for-sale:
U.S. government and agency obligations	$	82,395	$	(471)	$	—	$	—	$	82,395	$	(471)
Corporate debt securities	1,989		(11)		—		—		1,989		(11)
Asset-backed securities	279,486		(1,489)		—		—		279,486		(1,489)
Agency commercial MBS	80,726		(923)		—		—		80,726		(923)
Total debt securities available-for-sale	444,596		(2,894)		—		—		444,596		(2,894)
Debt securities held-to-maturity:


State, municipal, and sovereign debt obligations	75,329		(1,063)		4,383		(101)		79,712		(1,164)
Corporate debt securities	38,304		(1,279)		—		—		38,304		(1,279)

Mortgage-backed securities:
Agency residential	445,399		(5,822)		50,133		(1,358)		495,532		(7,180)
Agency commercial	2,255		(41)		886		(3)		3,141		(44)
Non-agency commercial	10,722		(104)		—		—		10,722		(104)
Total mortgage-backed securities	458,376		(5,967)		51,019		(1,361)		509,395		(7,328)
Total debt securities held-to-maturity	572,009		(8,309)		55,402		(1,462)		627,411		(9,771)
Total debt securities	$	1,016,605	$	(11,203)	$	55,402	$	(1,462)	$	1,072,007	$	(12,665)

The Company concluded that debt securities were not impaired at March 31, 2022 based on a consideration of several factors. The Company noted that each issuer made all the contractually due payments when required. There were no defaults on principal or interest payments, and no interest payments were deferred. Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements over the life of the security. Furthermore, the change in net unrealized losses were primarily due to changes in the general interest rate environment and not credit quality. Historically, the Company has not utilized securities sales as a source of liquidity and the Company’s liquidity plans include adequate sources of liquidity outside the securities portfolio.

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 as investment

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

grade. The amortized cost of debt securities held-to-maturity at March 31, 2022, aggregated by credit quality indicator are as follows (in thousands):



	Investment Grade		Non-Investment Grade/Non-rated		Total
As of March 31, 2022


State, municipal and sovereign debt obligations	$	272,250	$	—	$	272,250
Corporate debt securities	48,211		15,987		64,198






Non-agency commercial MBS	32,057		—		32,057

Total debt securities held-to-maturity	$	352,518	$	15,987	$	368,505

Equity Investments

At March 31, 2022 and December 31, 2021, the Company held equity investments of $93.9 million and $101.2 million, respectively. The equity investments primarily comprised of select financial services institutions’ common and preferred stocks and to a lesser extent other equity investments in funds and other financial institutions.

The realized and unrealized gains or losses on equity securities for the three months ended March 31, 2022 and 2021 are shown in the table below (in thousands):


	Three Months Ended March 31,
	2022		2021
Net (loss) gain on equity investments	$	(2,786)	$	8,287
Less: Net gains recognized on equity securities sold	1,582		8,123
Unrealized (loss) gain recognized on equity securities still held	$	(4,368)	$	164

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Note 4. Loans Receivable, Net

Loans receivable, net at March 31, 2022 and December 31, 2021 consisted of the following (in thousands):


	March 31,		December 31,
	2022		2021
Commercial:
Commercial real estate – investor	$	4,607,880	$	4,378,061
Commercial real estate – owner occupied	1,057,246		1,055,065
Commercial and industrial (1)	502,739		449,224
Total commercial	6,167,865		5,882,350
Consumer:
Residential real estate	2,687,927		2,479,701

Home equity loans and lines and other consumer (“other consumer”)	253,184		260,819

Total consumer	2,941,111		2,740,520
Total loans receivable	9,108,976		8,622,870
Deferred origination costs, net of fees	7,301		9,332
Allowance for loan credit losses	(50,598)		(48,850)
Total loans receivable, net	$	9,065,679	$	8,583,352

(1) The commercial and industrial loans balance at March 31, 2022 and December 31, 2021 includes Paycheck Protection Program loans of $15.0 million and $22.9 million, respectively.

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. Generally, risk ratings for loans on forbearance pursuant to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, extended by the Coronavirus Response and Relief Supplemental Appropriations (“CRRSA”) Act of 2021, were not re-evaluated until the initial 90-day forbearance period ended. At that time, risk ratings were updated with an emphasis on industries that were heavily impacted by the pandemic, as well as individual borrower liquidity, and other measures of resiliency as described below. The Company evaluates risk ratings on an ongoing basis and as such, adversely rated loans will be re-evaluated as government restrictions ease and businesses resume normal operations. 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. This includes borrowers that have been negatively affected by the pandemic but demonstrate some degree of liquidity. This liquidity may or may not be adequate to resume operations. 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. This includes borrowers whose operations were negatively affected by the pandemic and whom, in the assessment, do not have adequate liquidity available to resume operations at levels sufficient to service their current debt levels. 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.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The following tables summarize total loans by year of origination, internally assigned credit grades and risk characteristics (in thousands):


	2022		2021		2020		2019		2018		2017 and prior		Revolving lines of credit		Total
March 31, 2022

Commercial real estate - investor
Pass	$	325,263	$	1,368,731	$	611,037	$	537,525	$	262,169	$	1,110,883	$	277,149	$	4,492,757
Special Mention	—		—		—		19,416		9,378		31,267		655		60,716
Substandard	—		—		—		21,625		83		30,803		1,896		54,407
Total commercial real estate - investor	325,263		1,368,731		611,037		578,566		271,630		1,172,953		279,700		4,607,880
Commercial real estate - owner occupied
Pass	36,220		119,031		73,971		123,635		90,325		530,927		10,408		984,517
Special Mention	—		—		—		10,851		4,610		9,395		260		25,116
Substandard	—		—		—		4,600		7,722		35,128		163		47,613
Total commercial real estate - owner occupied	36,220		119,031		73,971		139,086		102,657		575,450		10,831		1,057,246
Commercial and industrial
Pass	17,126		36,479		20,194		19,933		14,809		57,415		324,808		490,764
Special Mention	—		—		—		658		269		325		3,207		4,459
Substandard	—		—		423		1,764		813		2,124		2,392		7,516
Total commercial and industrial	17,126		36,479		20,617		22,355		15,891		59,864		330,407		502,739


Residential real estate (1)
Pass	313,669		869,552		453,895		267,613		114,815		665,096		—		2,684,640
Special Mention	—		—		—		684		—		461		—		1,145
Substandard	—		—		—		—		—		2,142		—		2,142
Total residential real estate	313,669		869,552		453,895		268,297		114,815		667,699		—		2,687,927
Other consumer (1)
Pass	6,056		27,264		17,848		17,712		48,383		133,500		—		250,763
Special Mention	—		—		—		—		—		175		—		175
Substandard	—		—		—		—		60		2,186		—		2,246
Total other consumer	6,056		27,264		17,848		17,712		48,443		135,861		—		253,184

Total loans	$	698,334	$	2,421,057	$	1,177,368	$	1,026,016	$	553,436	$	2,611,827	$	620,938	$	9,108,976

(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.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)


	2021		2020		2019		2018		2017		2016 and prior		Revolving lines of credit		Total
December 31, 2021
Commercial real estate - investor
Pass	$	1,387,753	$	609,916	$	535,551	$	274,662	$	375,646	$	800,089	$	255,613	$	4,239,230
Special Mention	—		—		23,794		9,400		2,731		28,663		582		65,170
Substandard	—		4,267		28,802		468		8,495		28,228		3,401		73,661
Total commercial real estate - investor	1,387,753		614,183		588,147		284,530		386,872		856,980		259,596		4,378,061
Commercial real estate - owner occupied
Pass	116,355		71,196		125,212		91,531		109,232		449,966		10,913		974,405
Special Mention	—		—		1,365		3,829		479		14,371		2		20,046
Substandard	—		—		14,166		8,549		5,606		31,576		717		60,614
Total commercial real estate - owner occupied	116,355		71,196		140,743		103,909		115,317		495,913		11,632		1,055,065
Commercial and industrial
Pass	42,955		22,573		22,878		16,404		8,671		50,887		271,818		436,186
Special Mention	—		—		231		350		85		172		3,645		4,483
Substandard	—		457		2,281		813		198		2,029		2,777		8,555
Total commercial and industrial	42,955		23,030		25,390		17,567		8,954		53,088		278,240		449,224
Residential real estate (1)
Pass	876,135		475,134		288,699		127,756		105,385		602,331		—		2,475,440
Special Mention	—		212		—		61		—		1,313		—		1,586
Substandard	—		—		—		—		351		2,324		—		2,675
Total residential real estate	876,135		475,346		288,699		127,817		105,736		605,968		—		2,479,701
Other consumer (1)
Pass	26,512		19,168		18,179		51,954		17,955		123,783		—		257,551
Special Mention	—		—		—		—		—		322		—		322
Substandard	—		—		—		18		—		2,928		—		2,946
Total other consumer	26,512		19,168		18,179		51,972		17,955		127,033		—		260,819
Total loans	$	2,449,710	$	1,202,923	$	1,061,158	$	585,795	$	634,834	$	2,138,982	$	549,468	$	8,622,870

(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.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

An analysis of the allowance for credit losses on loans for the three months ended March 31, 2022 and 2021 is as follows (in thousands):


	Commercial Real Estate – Investor		Commercial Real Estate – Owner Occupied		Commercial and Industrial		Residential Real Estate		Other Consumer		Unallocated		Total
For the three months ended March 31, 2022
Allowance for credit losses on loans
Balance at beginning of period	$	25,504	$	5,884	$	5,039	$	11,155	$	1,268	$	—	$	48,850
Credit loss (benefit) expense	(1,867)		(840)		(406)		5,028		(259)		—		1,656
Charge-offs	—		(4)		—		—		(139)		—		(143)
Recoveries	—		13		16		94		112		—		235
Balance at end of period	$	23,637	$	5,053	$	4,649	$	16,277	$	982	$	—	$	50,598
For the three months ended March 31, 2021
Allowance for credit losses on loans
Balance at beginning of period	$	26,703	$	15,054	$	5,390	$	11,818	$	1,770	$	—	$	60,735
Credit loss expense (benefit)	10,149		(7,257)		(2,875)		(335)		(721)		—		(1,039)


Charge-offs	(34)		—		—		(242)		(80)		—		(356)
Recoveries	104		30		26		39		437		—		636
Balance at end of period	$	36,922	$	7,827	$	2,541	$	11,280	$	1,406	$	—	$	59,976

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, non-accruing. At March 31, 2022 and December 31, 2021, the Company had collateral dependent loans with an amortized cost balance as follows: commercial real estate - investor of $3.6 million for each period, commercial real estate - owner occupied of $9.6 million and $11.9 million, respectively, and commercial and industrial of $2.8 million and $277,000, respectively. In addition, the Company had residential and consumer loans collateralized by residential real estate, which are in the process of foreclosure, with an amortized cost balance of $440,000 and $438,000 at March 31, 2022 and December 31, 2021, respectively. At both March 31, 2022 and December 31, 2021, the amount of foreclosed residential real estate property held by the Company was $106,000.

The following table presents the recorded investment in non-accrual loans, by loan portfolio segment as of March 31, 2022 and December 31, 2021 (in thousands):


	March 31,		December 31,
	2022		2021
Commercial real estate – investor	$	3,575	$	3,614
Commercial real estate – owner occupied	9,632		11,904
Commercial and industrial	2,830		277
Residential real estate	7,047		6,114
Other consumer	3,841		3,585
	$	26,925	$	25,494

At March 31, 2022 and December 31, 2021, the 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 March 31, 2022, there were no loans that were 90 days or greater past due and still accruing. At December 31, 2021, there was one loan for $46,000 that was 90 days or greater past due and still accruing interest that was fully paid on January 14, 2022.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The following table presents the aging of the recorded investment in past due loans as of March 31, 2022 and December 31, 2021 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
March 31, 2022
Commercial real estate – investor	$	2,109	$	74	$	1,663	$	3,846	$	4,604,034	$	4,607,880
Commercial real estate – owner occupied	4,465		18		373		4,856		1,052,390		1,057,246
Commercial and industrial	66		43		356		465		502,274		502,739
Residential real estate	9,816		1,146		2,142		13,104		2,674,823		2,687,927
Other consumer	779		175		2,246		3,200		249,984		253,184
	$	17,235	$	1,456	$	6,780	$	25,471	$	9,083,505	$	9,108,976
December 31, 2021
Commercial real estate – investor	$	1,717	$	102	$	1,709	$	3,528	$	4,374,533	$	4,378,061
Commercial real estate – owner occupied	599		—		575		1,174		1,053,891		1,055,065
Commercial and industrial	25		151		277		453		448,771		449,224
Residential real estate	9,705		1,586		2,675		13,966		2,465,735		2,479,701
Other consumer	339		322		2,946		3,607		257,212		260,819
	$	12,385	$	2,161	$	8,182	$	22,728	$	8,600,142	$	8,622,870

The Company classifies certain loans as troubled debt restructuring (“TDR”) loans when credit terms to a borrower in financial difficulty are modified. The modifications may include a reduction in rate, an extension in term, the capitalization of past due amounts and/or the restructuring of scheduled principal payments. Residential real estate and consumer loans where the borrower’s debt is discharged in a bankruptcy filing are also considered TDR loans. For these loans, the Bank retains its security interest in the real estate collateral. At March 31, 2022 and December 31, 2021, TDR loans totaled $19.6 million and $23.6 million, respectively. At March 31, 2022 and December 31, 2021, there were $11.9 million and $11.3 million, respectively, of TDR loans included in the non-accrual loan totals. At March 31, 2022 and December 31, 2021, the Company had no specific reserves allocated to loans that were classified as TDR loans. Non-accrual loans which become TDR loans are generally returned to accrual status after six months of performance. In addition to the TDR loans included in non-accrual loans, the Company also has TDR loans classified as accruing loans which totaled $7.7 million and $12.3 million at March 31, 2022 and December 31, 2021, respectively.

The following table presents information about TDR loans which occurred during the three months ended March 31, 2022 and 2021 (dollars in thousands):


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Three months ended March 31, 2022
Troubled debt restructurings:

Commercial and industrial	1	$	65	$	65
Other consumer	3	991		1,109


Three months ended March 31, 2021
Troubled debt restructurings:




Other consumer	2	$	26	$	33

There were no TDR loans that defaulted during the three months ended March 31, 2022 and 2021, which were modified within the preceding year.

In response to the COVID-19 pandemic and its economic impact on customers, short-term modification programs that comply with the CARES Act, extended by the CRRSA Act, were implemented to provide temporary payment relief to those borrowers directly impacted by COVID-19. The Bank’s Commercial Borrower Relief Program allowed for the deferral of principal and interest or principal only. All payments received will first be applied to all accrued and unpaid interest and the balance, if any, of unpaid principal, then to fees, expenses and other amounts due to the Bank. Monthly payments will continue until the maturity date when all then unpaid principal, interest, fees, and all other charges are due and payable to the Bank. The Consumer Borrower Relief Program allowed for the deferral of principal and interest. The deferred payments along with

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

interest accrued during the deferral period are due and payable on the maturity date. Provided these loans were current as of either December 31, 2019 or the date of the modification, these loans are not considered TDR loans at March 31, 2022 and 2021 and will not be reported as past due during the deferral period.

Note 5. Deposits

The major types of deposits at March 31, 2022 and December 31, 2021 were as follows (in thousands):


Type of Account	March 31,		December 31,
	2022		2021
Non-interest-bearing	$	2,444,833	$	2,412,056
Interest-bearing checking	4,287,745		4,201,736
Money market deposit	811,588		736,090
Savings	1,624,751		1,607,933
Time deposits	887,316		775,001
Total deposits	$	10,056,233	$	9,732,816

Included in time deposits at March 31, 2022 and December 31, 2021 was $104.6 million and $145.4 million, respectively, in deposits of $250,000 or more.

Note 6. Borrowed Funds

Borrowed funds at March 31, 2022 and December 31, 2021 were as follows (in thousands):


	March 31,		December 31,
	2022		2021
FHLB advances	$	75,002	$	—
Securities sold under agreements to repurchase with customers	117,782		118,769
Other borrowings	194,396		229,141
Total borrowed funds	$	387,180	$	347,910

At March 31, 2022, there was $75.0 million outstanding in overnight borrowings from the FHLB, as compared to $0 at December 31, 2021. There were no FHLB term advances at March 31, 2022 and December 31, 2021.

During the three months ended March 31, 2022, the Company redeemed $35.0 million of subordinated debt due September 30, 2026. The debt carried an interest rate of 4.14% based on a floating rate of three months LIBOR plus 392 basis points.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Note 7. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The Company uses valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability and developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability and developed based on the best information available in the circumstances. In that regard, a fair value hierarchy has been established for valuation inputs that gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlations or other means.

Level 3 Inputs – Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.

Assets and Liabilities Measured at Fair Value

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

Debt Securities Available-for-Sale

Debt securities classified as available-for-sale are reported at fair value. Fair value for these debt securities is 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). Fair value for certain securities, including convertible preferred stock, was determined using broker or dealer quotes with limited levels of activity and price transparency (Level 3). 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.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

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).

The following table summarizes financial assets and financial liabilities measured at fair value as of March 31, 2022 and December 31, 2021, 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
March 31, 2022
Items measured on a recurring basis:
Debt securities available-for-sale	$	546,470	$	—	$	546,470	$	—
Equity investments	81,588		12,517		69,071		—
Interest rate derivative asset	45,611		—		45,611		—
Interest rate derivative liability	(45,643)		—		(45,643)		—

Items measured on a non-recurring basis:
Equity investments	12,300		—		—		12,300
Other real estate owned	106		—		—		106
Loans measured for impairment based on the fair value of the underlying collateral	16,477		—		—		16,477
December 31, 2021
Items measured on a recurring basis:
Debt securities available-for-sale	$	568,255	$	—	$	568,255	$	—
Equity investments	90,726		14,608		73,400		2,718
Interest rate derivative asset	22,787		—		22,787		—
Interest rate derivative liability	(22,855)		—		(22,855)		—
Items measured on a non-recurring basis:
Equity investments	10,429		—		—		10,429
Other real estate owned	106		—		—		106
Loans measured for impairment based on the fair value of the underlying collateral	16,233		—		—		16,233

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The following table reconciles, for the three months ended March 31, 2022 and 2021, the beginning and ending balances for equity investments available-for-sale that are recognized at fair value on a recurring basis, in the Consolidated Statements of Financial Condition, using significant unobservable inputs (in thousands):


	For the Three Months Ended March 31,
	2022		2021
	Equity Investments
Beginning balance	$	2,718	$	2,540
Total gains included in earnings	—		398

Sales	—		—

Transfers out of Level 3	(2,718)		—
Ending balance	$	—	$	2,938

The Company recognizes transfers between levels of the valuation hierarchy at the end of the applicable reporting periods. During the three months ended March 31, 2022, the Company executed its right to convert $2.7 million preferred stock into common stock, which resulted in a transfer from Level 3 into Level 1. There were no transfers into or out of Level 3 assets and liabilities in the fair value hierarchy for the three months ended March 31, 2021.

Assets and Liabilities Disclosed at Fair Value

A description of the valuation methodologies used for assets and liabilities disclosed at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy is set forth below.

Cash and Due from Banks

For cash and due from banks, the carrying amount approximates fair value.

Debt Securities Held-to-Maturity

Debt securities classified as held-to-maturity are carried at amortized cost, as the Company has the positive intent and ability to hold these debt securities to maturity. The Company determines the fair value of the debt securities utilizing Level 2 and, infrequently, Level 3 inputs. Most of the Company’s debt securities are fixed income instruments that are not quoted on an exchange, but are bought and sold in active markets. Prices for these instruments are obtained through third-party pricing vendors or security industry sources that actively participate in the buying and selling of debt securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain debt securities without relying exclusively on quoted prices for the specific debt securities, but comparing the debt securities to benchmark or comparable debt securities.

Management’s policy is to obtain and review all available documentation from the third-party pricing service relating to their fair value determinations, including their methodology and summary of inputs. Management reviews this documentation, makes inquiries of the third-party pricing service and decides as to the level of the valuation inputs. Based on the Company’s review of the available documentation from the third-party pricing service, management concluded that Level 2 inputs were utilized for all securities except for certain state and municipal obligations, known as bond anticipation notes, as well as certain debt securities where management utilized Level 3 inputs, such as broker or dealer quotes with limited levels of activity and price transparency.

Restricted Equity Investments

The fair value for Federal Home Loan Bank of New York, Federal Reserve Bank stock, and Atlantic Community Bankers Bank 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 was estimated by discounting the future cash flows, net of estimated prepayments, at a rate for which similar loans would be originated to new borrowers with similar terms.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The fair value of loans was measured using the exit price notion.

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.

Borrowed Funds

Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.

The book value and estimated fair value of the Company’s significant financial instruments not recorded at fair value as of March 31, 2022 and December 31, 2021 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
March 31, 2022
Financial Assets:
Cash and due from banks	$	210,919	$	210,919	$	—	$	—
Debt securities held-to-maturity	1,099,514		—		1,038,041		12,851
Restricted equity investments	56,704		—		—		56,704
Loans receivable, net and loans held-for-sale	9,065,679		—		—		8,798,688
Financial Liabilities:
Deposits other than time deposits	9,168,917		—		9,168,917		—
Time deposits	887,316		—		872,733		—
FHLB advances and other borrowings	269,398		—		290,103		—
Securities sold under agreements to repurchase with customers	117,782		117,782		—		—
December 31, 2021
Financial Assets:
Cash and due from banks	$	204,949	$	204,949	$	—	$	—
Debt securities held-to-maturity	1,139,193		—		1,138,529		14,215
Restricted equity investments	53,195		—		—		53,195
Loans receivable, net and loans held-for-sale	8,583,352		—		—		8,533,506
Financial Liabilities:
Deposits other than time deposits	8,957,815		—		8,957,815		—
Time deposits	775,001		—		773,766		—
Other borrowings	229,141		—		251,491		—
Securities sold under agreements to repurchase with customers	118,769		118,769		—		—

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

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

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.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Note 8. Derivatives, Hedging Activities and Other Financial Instruments

The Company enters into derivative financial instruments which involve, to varying degrees, interest rate, market 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 certain derivative financial instruments to enhance its ability to manage interest rate risk that exists as part of its ongoing business operations. The derivative financial instruments entered into by the Company are an economic hedge of a derivative offering to Bank customers. The Company does not use derivative financial instruments for trading purposes.

Customer Derivatives – Interest Rate Swaps and Cap Contracts

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.

The interest rate swaps and cap contracts with both the customers and third parties are not designated as hedges under FASB Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging, and are marked to market through 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 FASB ASC Topic 820, Fair Value Measurements. For the three months ended March 31, 2022 and 2021, the Company recognized a gain of $37,000 and $64,000, respectively, in commercial loan swap income resulting from fair value adjustments. The notional amount of derivatives not designated as hedging instruments was $1.10 billion and $938.7 million at March 31, 2022 and December 31, 2021, respectively.

The table below presents the fair value of derivatives not designated as hedging instruments as well as their location on the consolidated statements of financial condition (in thousands):


	Fair Value
Balance Sheet Location	March 31,		December 31,
	2022		2021
Other assets	$	45,611	$	22,787
Other liabilities	45,643		22,855

Credit Risk-Related Contingent Features

The Company is 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 $257,000 and $19.8 million at March 31, 2022 and December 31, 2021, respectively. The amount of collateral posted with 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 $45.6 million and $22.9 million at March 31, 2022 and December 31, 2021, respectively.

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Note 9. 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 right-of-use (“ROU”) assets and lease liabilities on the consolidated statements of financial condition (in thousands):


		March 31,		December 31,
		2022		2021
Lease ROU Assets	Classification
Operating lease ROU assets	Other assets	$	14,249	$	17,442
Finance lease ROU asset	Premises and equipment, net	1,446		1,495
Total lease ROU assets		$	15,695	$	18,937

Lease Liabilities
Operating lease liabilities (1)	Other liabilities	$	14,720	$	17,982
Finance lease liability	Other borrowings	1,854		1,904
Total lease liabilities		$	16,574	$	19,886

(1) Operating lease liabilities excludes liabilities for future rent and estimated lease termination payments related to closed branches of $8.6 million and $8.2 million as of March 31, 2022 and December 31, 2021, 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, Leases (Topic 842) requires the Company to use the rate implicit in the lease, provided the rate is readily determinable. As this rate is rarely determinable, the Company 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.


	March 31,		December 31,
	2022		2021
Weighted-Average Remaining Lease Term
Operating leases	7.86 years		8.22 years
Finance lease	7.35 years		7.59 years
Weighted-Average Discount Rate
Operating leases	2.84	%	2.97	%
Finance lease	5.63		5.63

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

The following table represents lease expenses and other lease information (in thousands):


	Three Months Ended March 31,
	2022		2021
Lease Expense
Operating lease expense	$	1,258	$	1,490
Finance lease expense:
Amortization of ROU assets	50		50
Interest on lease liabilities(1)	26		29
Total	$	1,334	$	1,569

Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,162	$	1,450
Operating cash flows from finance leases	26		29
Financing cash flows from finance leases	51		48

(1)Included in borrowed funds interest expense on the consolidated statements of income. All other costs are included in occupancy expense.

The Company sold two branches, including owned premises and equipment, all deposits associated with the branches, and selected performing loans in December 2021. The Company also consolidated four branches in early 2021, nine branches in late 2021, and 10 branches and one deposit gathering location in early 2022. These plans have resulted in a shortened estimated useful life for premises and equipment and accelerated recognition of lease expenses, including the gains or losses related to subsequent sales or lease terminations, associated with these locations, totaling $62,000 and $980,000, for the three months ended March 31, 2022 and 2021, respectively, which is presented in branch consolidation expense, net, and is excluded from the table above. Other operating expenses related to these closures totaled $340,000 and $31,000, for the three months ended March 31, 2022 and 2021, respectively, and are presented in branch consolidation expense, net.

Future minimum payments for the finance lease and operating leases with initial or remaining terms of one year or more as of March 31, 2022 were as follows (in thousands):


	Finance Lease		Operating Leases
For the Twelve Months Ending March 31,
2023	$	307	$	3,366
2024	307		2,579
2025	307		2,448
2026	307		1,879
2027	307		1,224
Thereafter	721		5,283
Total	2,256		16,779
Less: Imputed interest	(402)		(2,059)
Total lease liabilities	$	1,854	$	14,720

Table of Contents

OceanFirst Financial Corp.

Notes to Unaudited Consolidated Financial Statements (Continued)

Note 10. Subsequent Event

On April 1, 2022, the Company completed its previously announced agreement to acquire a majority interest of 60% in Trident Abstract Title Agency, LLC (“Trident”). Trident provides commercial and residential title services throughout New Jersey; and through strategic alliances can also service client’s title insurance needs outside of New Jersey. The acquisition is expected to be complimentary to the Company’s existing consumer and commercial lending business. The purchase price was $7.1 million and estimated goodwill from the transaction amounted to $5.7 million.

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company and the Bank are not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Such routine legal proceedings in the aggregate are believed by management to be immaterial to the Company’s financial condition or results of operations.

Item 1A. Risk Factors

For a summary of risk factors relevant to the Company, see Part I, Item 1A, “Risk Factors,” in the 2021 Form 10-K. There have been no material changes to risk factors relevant to the Company’s operations since December 31, 2021. Additional risks not presently known to the Company, or that the Company currently deems immaterial, may also adversely affect the business, financial condition or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On December 18, 2019, the Company announced the authorization by the Board of Directors to repurchase up to 5% of the Company’s outstanding common stock, or 2.5 million shares. The repurchase plan has no expiration date. On June 25, 2021, the Company announced the authorization by the Board of Directors to repurchase up to an additional 5% of the Company’s outstanding common stock, or 3.0 million shares. The Company repurchased 100,444 shares of its common stock during the three month period ended March 31, 2022. At March 31, 2022, there were 3,207,217 shares available for repurchase under the Company’s stock repurchase programs.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2022 through January 31, 2022	—	$	—	—	3,307,661
February 1, 2022 through February 28, 2022	—	—		—	3,307,661
March 1, 2022 through March 31, 2022	100,444	21.35		100,444	3,207,217

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

Table of Contents

Item 6. Exhibits

Exhibit No:

Exhibit Description

Reference

10.47

Executive Employment Agreement between OceanFirst Financial Corp. and Patrick Barrett

Incorporated herein by reference from Exhibit to Form 8-K filed on March 17, 2022.

10.48

Confidentiality and Executive Restriction Agreement

Incorporated herein by reference from Exhibit to Form 8-K filed on March 17, 2022.

10.49

Executive Change in Control Agreement

Incorporated herein by reference from Exhibit to Form 8-K filed on March 17, 2022.

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed here within this document

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed here within this document

32.0

Certification pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002

Filed here within this document

101.0

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements

104.0

Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			OceanFirst Financial Corp.
			Registrant


DATE:	May 5, 2022	/s/ Christopher D. Maher
		Christopher D. Maher
		Chairman and Chief Executive Officer


DATE:	May 5, 2022	/s/ Michael J. Fitzpatrick
		Michael J. Fitzpatrick
		Executive Vice President and Chief Financial Officer