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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 September 30, 2023
☐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)
 ________________________________________________ 
Delaware22-3412577
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
110 West Front Street, Red Bank,NJ07701
(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 classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareOCFCNASDAQ
Depositary Shares (each representing a 1/40th interest in a share of 7.0% Series A Non-Cumulative, perpetual preferred stock)OCFCPNASDAQ
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

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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 November 3, 2023, there were 59,423,069 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.

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OceanFirst Financial Corp.
INDEX TO FORM 10-Q
 
  PAGE
PART I.FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements (unaudited)
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

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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)September 30, 2023June 30, 2023September 30, 2022
SELECTED FINANCIAL CONDITION DATA:
Total assets$13,498,183 $13,538,903 $12,683,453 
Loans receivable, net of allowance for loan credit losses10,068,156 10,030,106 9,672,488 
Deposits10,533,929 10,158,337 9,959,469 
Total stockholders’ equity1,637,604 1,626,283 1,540,216 
SELECTED OPERATING DATA:
Net interest income90,996 92,109 95,965 
Provision for credit losses10,283 1,229 1,016 
Other income10,762 8,928 15,150 
Operating expenses64,484 62,930 58,997 
Net income 20,532 27,882 38,804 
Net income attributable to OceanFirst Financial Corp.20,667 27,797 38,611 
Net income available to common stockholders19,663 26,793 37,607 
Diluted earnings per share0.33 0.45 0.64 
SELECTED FINANCIAL RATIOS:
Book value per common share at end of period27.56 27.37 26.04 
Cash dividend per share0.20 0.20 0.20 
Dividend payout ratio per common share60.61 %44.44 %31.25 %
Stockholders’ equity to total assets12.13 12.01 12.14 
Return on average assets (2) (3) (4)
0.57 0.80 1.19 
Return on average stockholders’ equity (2) (3) (4)
4.75 6.61 9.68 
Net interest rate spread (5)
2.37 2.52 3.19 
Net interest margin (2) (6)
2.91 3.02 3.36 
Operating expenses to average assets (2) (4)
1.88 1.87 1.87 
Efficiency ratio (4) (7)
63.37 62.28 53.10 
Loan-to-deposit ratio (8)
96.10 99.30 97.60 
ASSET QUALITY (9):
Non-performing loans (10)
$30,098 $22,758 $21,498 
Allowance for loan credit losses as a percent of total loans receivable (8) (11)
0.63 %0.61 %0.55 %
Allowance for loan credit losses as a percent of total non-performing loans (10) (11)
212.23 271.51 248.96 
Non-performing loans as a percent of total loans receivable (8) (10)
0.30 0.23 0.22 
Non-performing assets as a percent of total assets (10)
0.22 0.17 0.17 
(1) With the exception of end of quarter ratios, all ratios are based on average daily balances.
(2) Ratios are annualized.
(3) Ratios for each period are based on net income available to common stockholders.
(4) Performance ratios for the three months ended September 30, 2023 included a net gain on equity investments of $1.5 million, or $1.1 million, net of tax expense. Performance ratios for the three months ended June 30, 2023 included a net loss on equity investments of $559,000, or $397,000, net of tax benefit. Performance ratios for the three months ended September 30, 2022 included a net benefit related to merger related expenses, net branch consolidation (benefit) expense, and gain on equity investments of $3.4 million, or $2.6 million, net of tax expense.
(5) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(6) Net interest margin represents net interest income as a percentage of average interest-earning assets.
(7) Efficiency ratio represents the ratio of operating expenses to the aggregate of other income and net interest income.
(8) Total loans receivable excludes loans held-for-sale.
(9) At September 30, 2023, non-performing loans included the remaining exposure of $8.8 million on a single commercial real estate relationship that was partially charged-off of $8.4 million during the three months ended September 30, 2023.
(10) Non-performing loans and assets generally consist of all loans 90 days or more past due and other loans in the process of foreclosure. It is the Company’s policy to cease accruing interest on all such loans and to reverse previously accrued interest.
(11) Loans acquired from prior bank acquisitions were recorded at fair value. The net unamortized credit and purchased with credit deterioration (“PCD”) marks on these loans, not reflected in the allowance for loan credit losses, was $8.8 million, $9.8 million, and $13.6 million at September 30, 2023, June 30, 2023 and September 30, 2022, respectively.

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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, 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, deposit account services, bank owned life insurance, commercial loan swap income, gain on sale of loans, securities and equity investments, title-related fees and service charges 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 three months ended September 30, 2023 were as follows:

•Deposit Growth: Total deposits increased $375.6 million, or 4%, as compared to the prior linked quarter. The current quarter includes a reduction in brokered time deposits of $425.7 million and a loan-to-deposit ratio of 96.10% at September 30, 2023. The Company’s non-interest-bearing deposits declined modestly and represented 17% of the total deposits.
•Asset Quality: Asset quality metrics remain strong, despite the impact of a charge-off related to a single credit relationship. Criticized and classified loans, and non-performing loans both as a percent of total loans, were 1.30% and 0.20%, respectively, at September 30, 2023.
•Strong Capital: The Company’s common equity tier 1 capital ratio remained above “well-capitalized” levels, at 10.36% at September 30, 2023.
The current quarter results were impacted by the following matters. Net interest income and margin were adversely impacted by a continued mix-shift and repricing to higher cost deposits that outpaced the repricing and increase in yields on interest-earning assets. Deposit betas, which is the change in rates paid to customers relative to the change in federal funds target rate, increased modestly to 35%, from 29%. Additionally, the current quarter results were impacted by an increase in non-performing loans due to a single commercial real estate credit relationship totaling $17 million, which was written down to an estimated realizable value of $8.8 million. The credit was originated in June 2019 and is secured by an office building in Midtown Manhattan, New York City. The credit was also included in total delinquent loans 30 to 89 days at September 30, 2023. Lastly, the Company recognized one-time compensation and benefits expenses of $2.4 million attributable to severance and other program costs relating to performance improvement initiatives.
Net income available to common stockholders for the three and nine months ended September 30, 2023 decreased to $19.7 million and $73.3 million, respectively, or $0.33 and $1.24 per diluted share, as compared to $37.6 million and $90.3 million, or $0.64 and $1.53 per diluted share, for the corresponding prior year periods. The dividends paid to preferred stockholders were $1.0 million and $3.0 million for the three and nine months ended September 30, 2023 and 2022, respectively.
On October 19, 2023, the Company’s Board of Directors declared a quarterly cash dividend on common stock of $0.20 per share. The dividend, related to the quarter ended September 30, 2023, will be paid on November 17, 2023 to common stockholders of record on November 6, 2023. 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 November 15, 2023 to preferred stockholders of record on October 31, 2023.
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Recent Developments
The banking industry continued to experience volatility through the third quarter of 2023, which began earlier in the year with several bank failures coupled with related industry-wide concerns including liquidity, funding, and unrealized losses on securities brought on by a rapid increasing rate environment. These developments, among other industry concerns, have created volatility in stock prices across the banking industry, including the Company's own stock price. Despite these industry-concerns, the Company has continued to maintain and strengthen its liquidity and capital position, and serve its customers and communities.
The Company will continue to monitor these industry-wide matters and the impact they may have in future periods, and will respond accordingly as economic and industry conditions change. Refer to the “Liquidity and Capital Resources” section for further information regarding liquidity.
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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 and nine months ended September 30, 2023, interest income included net loan fees of $621,000 and $2.6 million, respectively, as compared to $832,000 and $5.0 million for the same prior year periods, respectively.
The following tables set forth certain information relating to the Company for the three and nine months ended September 30, 2023 and 2022. 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 September 30,
 20232022
(dollars in thousands)Average BalanceInterest
Average
Yield/
Cost (1)
Average BalanceInterest
Average
Yield/
Cost (1)
Assets:
Interest-earning assets:
Interest-earning deposits and short-term investments$470,825 $6,440 5.43 %$65,648 $336 2.03 %
Securities (2)
1,873,450 18,039 3.82 1,748,687 10,022 2.27 
Loans receivable, net (3)
Commercial6,923,743 103,069 5.91 6,509,515 74,309 4.53 
Residential real estate2,918,612 26,765 3.67 2,791,067 22,818 3.27 
Home equity loans and lines and other consumer (“other consumer”)252,126 4,097 6.45 256,638 3,014 4.66 
Allowance for loan credit losses, net of deferred loan costs and fees(53,959)— — (44,773)— — 
Loans receivable, net10,040,522 133,931 5.30 9,512,447 100,141 4.18 
Total interest-earning assets12,384,797 158,410 5.08 11,326,782 110,499 3.88 
Non-interest-earning assets1,252,416 1,191,173 
Total assets$13,637,213 $12,517,955 
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing checking$3,692,500 14,938 1.61 %$3,873,968 2,671 0.27 %
Money market832,729 5,698 2.71 793,230 721 0.36 
Savings1,391,811 3,311 0.94 1,603,147 187 0.05 
Time deposits2,867,921 29,340 4.06 1,467,297 5,659 1.53 
Total8,784,961 53,287 2.41 7,737,642 9,238 0.47 
Federal Home Loan Bank (“FHLB”) advances701,343 8,707 4.93 352,392 2,208 2.49 
Securities sold under agreements to repurchase76,620 261 1.35 96,147 35 0.14 
Other borrowings (4)
317,210 5,159 6.45 194,755 3,053 6.22 
Total borrowings1,095,173 14,127 5.12 643,294 5,296 3.27 
Total interest-bearing liabilities9,880,134 67,414 2.71 8,380,936 14,534 0.69 
Non-interest-bearing deposits1,841,198 2,328,700 
Non-interest-bearing liabilities (4)
272,982 266,564 
Total liabilities11,994,314 10,976,200 
Stockholders’ equity1,642,899 1,541,755 
Total liabilities and equity$13,637,213 $12,517,955 
Net interest income$90,996 $95,965 
Net interest rate spread (5)
2.37 %3.19 %
Net interest margin (6)
2.91 %3.36 %
Total cost of deposits (including non-interest-bearing deposits)1.99 %0.36 %
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For the Nine Months Ended September 30,
20232022
(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$304,184 $11,661 5.13 %$73,886 $472 0.85 %
Securities (2)
1,919,660 51,124 3.56 1,801,978 27,086 2.01 
Loans receivable, net (3)
Commercial6,892,456 295,199 5.73 6,275,836 198,054 4.22 
Residential real estate2,895,601 77,862 3.59 2,685,080 66,899 3.32 
Other consumer257,063 11,694 6.08 254,891 8,387 4.40 
Allowance for loan credit losses, net of deferred loan costs and fees(52,626)— — (42,987)— — 
Loans receivable, net9,992,494 384,755 5.15 9,172,820 273,340 3.98 
Total interest-earning assets12,216,338 447,540 4.90 11,048,684 300,898 3.64 
Non-interest-earning assets1,234,942 1,191,358 
Total assets$13,451,280 $12,240,042 
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing checking$3,757,417 33,171 1.18 %$4,088,759 6,433 0.21 %
Money market744,689 11,136 2.00 773,666 1,317 0.23 
Savings1,336,497 4,034 0.40 1,617,354 473 0.04 
Time deposits2,388,299 64,210 3.59 1,060,027 9,373 1.18 
Total8,226,902 112,551 1.83 7,539,806 17,596 0.31 
FHLB Advances1,055,106 38,530 4.88 308,043 3,890 1.69 
Securities sold under agreements to repurchase73,441 544 0.99 105,821 117 0.15 
Other borrowings (4)
302,649 14,008 6.19 205,796 8,306 5.40 
Total borrowings1,431,196 53,082 4.96 619,660 12,313 2.66 
Total interest-bearing liabilities9,658,098 165,633 2.29 8,159,466 29,909 0.49 
Non-interest-bearing deposits1,913,624 2,352,606 
Non-interest-bearing liabilities (4)
253,014 193,147 
Total liabilities11,824,736 10,705,219 
Stockholders’ equity1,626,544 1,534,823 
Total liabilities and equity$13,451,280 $12,240,042 
Net interest income$281,907 $270,989 
Net interest rate spread (5)
2.61 %3.15 %
Net interest margin (6)
3.09 %3.28 %
Total cost of deposits (including non-interest-bearing deposits)1.48 %0.24 %
(1)Average yields and costs are annualized.
(2)Amounts represent debt and equity securities, including FHLB and Federal Reserve Bank (“FRB”) 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)For the 2023 period, the average balances of derivative cash collateral have been reclassified from non-interest bearing liabilities to other borrowings.
(5)Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(6)Net interest margin represents net interest income divided by average interest-earning assets.
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Comparison of Financial Condition at September 30, 2023 and December 31, 2022
Total assets increased by $394.3 million to $13.50 billion, from $13.10 billion, primarily due to higher cash balances and loan growth. Cash and due from banks increased $240.9 million to $408.9 million, from $167.9 million as the Company maintained elevated levels of on-balance sheet cash from net deposit inflows. Total loans increased by $205.5 million to $10.12 billion, from $9.92 billion, due to loan originations.
Total liabilities increased by $342.1 million to $11.86 billion, from $11.52 billion. Deposits increased by $858.7 million to $10.53 billion, from $9.68 billion. Time deposits increased to $2.65 billion, from $1.54 billion, or 25.2% and 15.9% of total deposits, respectively. Brokered time deposits increased $122.1 million and retail time deposits increased $988.0 million. The loan-to-deposit ratio was 96.10%, as compared to 102.50%. FHLB advances decreased by $605.1 million to $606.1 million, from $1.21 billion due to a change in funding mix.
Other liabilities increased by $65.6 million to $411.7 million, from $346.2 million, primarily due to an increase in the market values associated with customer interest rate swaps and related collateral received from counterparties.
Total stockholders’ equity increased to $1.64 billion, as compared to $1.59 billion, primarily reflecting net income net of dividends for the nine months ended September 30, 2023. Additionally, accumulated other comprehensive loss decreased by $7.2 million primarily due to increases in fair market value of available-for-sale debt securities, net of tax.
For the nine months ended September 30, 2023, the Company did not repurchase shares under its stock repurchase program. There were 2,934,438 shares available for repurchase at September 30, 2023 under the existing repurchase program. Book value per share increased to $27.56, as compared to $26.81.

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2023 and September 30, 2022
General
Net income available to common stockholders for the three and nine months ended September 30, 2023 decreased to $19.7 million and $73.3 million, respectively, or $0.33 and $1.24 per diluted share, as compared to $37.6 million and $90.3 million, or $0.64 and $1.53 per diluted share, for the corresponding prior year periods. Net income for the three and nine months ended September 30, 2023 included net gain on equity investments of $1.5 million and net loss on equity investments of $1.3 million, respectively. Net income for the nine months ended September 30, 2023 also included merger related expenses of $22,000, net branch consolidation expense of $70,000 and net loss on sale of investments of $5.3 million. These items increased net income by $1.1 million and decreased net income by $5.1 million, net of tax, for the three and nine months ended September 30, 2023, respectively.
Net income for the three and nine months ended September 30, 2022 included merger related expenses of $298,000 and $2.5 million, respectively, net branch consolidation benefit of $346,000 and net branch consolidation expense of $602,000, and net gain on equity investments of $3.4 million and net loss on equity investments of $7.5 million. These items increased net income by $2.6 million and decreased net income by $8.1 million, net of tax, for the three and nine months ended September 30, 2022, respectively.
Interest Income
Interest income for the three and nine months ended September 30, 2023 increased to $158.4 million and $447.5 million, respectively, from $110.5 million and $300.9 million for the corresponding prior year periods. For the three and nine months ended September 30, 2023, the yield on average interest-earning assets increased to 5.08% and 4.90%, respectively, from 3.88% and 3.64% for the corresponding prior year periods, due to the impact of rising rates on interest-earning assets. Average interest-earning assets increased by $1.06 billion and $1.17 billion for the three and nine months ended September 30, 2023, respectively, primarily driven by commercial loan growth and increases in deposits and short-term investments.
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Interest Expense
Interest expense for the three and nine months ended September 30, 2023 increased to $67.4 million and $165.6 million, respectively, from $14.5 million and $29.9 million in the corresponding prior year periods, reflecting rising rates on costs, deposit mix shift to higher cost time deposits, and increased FHLB advances, and repricing of government deposits. For the three and nine months ended September 30, 2023, the cost of average interest-bearing liabilities increased to 2.71% and 2.29%, respectively, from 0.69% and 0.49% for the corresponding prior year periods, due to mix shift to higher cost of deposits and higher costs of FHLB advances. The total cost of deposits (including non-interest-bearing deposits) increased to 1.99% and 1.48% for the three and nine months ended September 30, 2023, respectively, from 0.36% and 0.24% for the same prior year periods.
Net Interest Income and Margin
Net interest income for the three and nine months ended September 30, 2023 decreased to $91.0 million and increased to $281.9 million, respectively, from $96.0 million and $271.0 million in the corresponding prior year periods, primarily reflecting the net impact of the higher interest rate environment. Net interest margin for the three and nine months ended September 30, 2023 decreased to 2.91% and 3.09%, respectively, from 3.36% and 3.28% for the same prior year periods. Net interest margin decreased primarily due to the increase in cost of funds outpacing the increase in yield on average interest earnings assets in the current interest rate environment and elevated levels of on-balance sheet cash.
Provision for Credit Losses
Provision for credit losses for the three and nine months ended September 30, 2023 was $10.3 million and $14.5 million, respectively, as compared to $1.0 million and $4.1 million for the corresponding prior year periods. The current quarter provision included the net impact of the $8.4 million charge-off noted above and, to a lesser extent, elevated risks and uncertainty in macro-economic conditions in a downside forecast scenario. Net loan charge-offs were $8.3 million for both the three and nine months ended September 30, 2023, respectively, as compared to net loan recoveries of $252,000 and $335,000 for the three and nine months ended September 30, 2022, respectively.
Non-interest Income
Three months ended September 30, 2023 vs. September 30, 2022
Other income decreased to $10.8 million, as compared to $15.2 million. Other income was favorably impacted by net gains on equity investments of $1.5 million and $3.4 million, for the respective quarters. The remaining decrease of $2.5 million was driven by decreases in commercial loan swap income of $1.5 million and fees and service charges of $1.1 million, which were adversely impacted by the current interest rate environment resulting in lower swap volume and mortgage activity.
Nine months ended September 30, 2023 vs. September 30, 2022
Other income decreased to $21.8 million, as compared to $31.5 million. Other income was adversely impacted by net losses on equity investments of $6.6 million, which included $5.3 million of losses related to the sale of investments in the first quarter of 2023, and $7.5 million, for the respective periods. The remaining decrease of $10.7 million was driven by decreases in commercial loan swap income on lower volume of $5.8 million, fees and service charges of $1.1 million on lower title activity, and income from bank owned life insurance of $1.0 million on non-recurring death benefits recognized in the prior year. Additionally, bankcard services revenue decreased $3.4 million, due to the Durbin Amendment which became effective for the Company on July 1, 2022.
Non-interest Expense
Three months ended September 30, 2023 vs. September 30, 2022
Operating expenses increased to $64.5 million, as compared to $59.0 million. The increase of $5.4 million was due to increases in professional fees of $2.8 million and $2.4 million in compensation and employee benefits expenses related to the Company’s ongoing investments to improve profitability and operational efficiencies, and one-time related severance and other program costs. The increase in compensation and benefits expense were partly offset by decreased employee medical benefit claims. The current quarter also included increases to federal deposit insurance and regulatory assessments of $800,000 primarily due to new assessment rates that went into effect on January 1, 2023.
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Nine months ended September 30, 2023 vs. September 30, 2022
Operating expenses increased to $188.7 million, as compared to $175.2 million. Operating expenses were adversely impacted by $92,000 and $3.1 million, for the respective periods, related to merger related expenses and net branch consolidation expense. The remaining increase of $16.5 million was due to increases in professional fees of $7.1 million and federal deposit insurance and regulatory assessments of $1.3 million that were driven by the same factors for the three months ended. The increase in compensation and benefits expense of $5.7 million was due to the $2.4 million increase noted above and merit-related increases.
Income Tax Expense
The provision for income taxes was $6.5 million and $24.1 million for the three and nine months ended September 30, 2023, respectively, as compared to $12.3 million and $29.2 million for the same prior year periods. The effective tax rate was 23.9% and 24.0% for the three and nine months ended September 30, 2023, respectively, as compared to 24.1% and 23.7% for the same prior year periods.
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Liquidity and Capital Resources
Liquidity Management
The Company manages its liquidity and funding needs through its Treasury function and the Asset Liability Committee. The Company has an internal policy that addresses liquidity and management monitors the adherence to policy limits to satisfy current and future cash flow needs. The policy includes internal limits, monitoring of key indicators, deposit concentrations, liquidity sources and availability, quarterly stress testing, collateral management, and other qualitative and quantitative metrics.
Management monitors cash on a daily basis to determine the liquidity needs of the Bank and OceanFirst Financial Corp. (the “Parent Company”), a separate legal entity from the Bank. Additionally, management performs multiple liquidity stress test scenarios on a quarterly basis. As of September 30, 2023, the Bank and Parent Company continued to maintain adequate liquidity under all stress scenarios. The Company also has a detailed contingency funding plan and obtains comprehensive reporting of funding trends on a monthly and quarterly basis, which are reviewed by management.
The Company continually evaluates its on-balance sheet liquidity, including cash and unpledged securities; and funding capacity at the FHLB and FRB Discount Window, and periodically tests each of its lines of credit. As of September 30, 2023, total on-balance sheet liquidity and funding capacity was $4.3 billion.
The Company has a highly operational and granular deposit base, with long-standing client relationships across multiple customer segments providing stable funding. The vast majority of the government deposits are protected by the Federal Deposit Insurance Corporation insurance as well as the State of New Jersey under the Government Unit Deposit Protection Act, which requires uninsured government deposits to be further collateralized by the Bank. At September 30, 2023, the Bank reported in its Call Report $5.27 billion of estimated uninsured deposits. This total included $2.16 billion of collateralized government deposits and $1.46 billion of intercompany deposits of fully consolidated subsidiaries, leaving estimated adjusted uninsured deposits of $1.65 billion, or 16% of total deposits. On balance-sheet liquidity and funding capacity represented 262% of the estimated adjusted uninsured deposits.

The primary sources of liquidity specifically available to the Parent Company are dividends from the Bank, proceeds from the sale of investments, and the issuance of debt, preferred and common stock. For the nine months ended September 30, 2023, the Parent Company received dividend payments of $73.5 million from the Bank. At September 30, 2023, the Parent Company held $70.2 million in cash and cash equivalents.
The Bank’s primary sources of funds are deposits, principal and interest payments on loans and investments, FHLB advances, other borrowings, and proceeds from the sale of loans and investments. While scheduled payments on loans and securities are predictable sources of funds, deposit flows, loan prepayments, and loan and investment sales are greatly influenced by 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, access to the FRB discount window, and the Bank Term Funding Program (“BTFP”).
As of September 30, 2023, the Company pledged $7.25 billion of loans with the FHLB and FRB to enhance the Company’s borrowing capacity, and includes collateral pledged to the FHLB to obtain a municipal letter of credit to collateralize certain municipal deposits. The Company also pledged $1.09 billion of securities with FHLB and FRB to secure borrowings, enhance borrowing capacity, collateralize its repurchase agreements, and for other purposes required by law. The Company had $606.1 million of term advances from the FHLB as of September 30, 2023, as compared to $1.21 billion at December 31, 2022, reflecting a shift in funding mix to deposits. As of September 30, 2023, the Company had no overnight borrowings from the FHLB and no outstanding borrowings from the FRB discount window or the BTFP.
The Company’s cash needs for the nine months ended September 30, 2023 were primarily satisfied by the increase in deposits. The cash was primarily kept on the balance sheet to maintain liquidity on hand, and utilized for loan originations and the reduction of FHLB advances.
Off-Balance Sheet Commitments and Contractual Obligations
In the normal course of business, the Bank routinely enters into various off-balance sheet commitments, primarily relating to the origination and funding of loans. At September 30, 2023, outstanding commitments to originate loans totaled $131.2 million and outstanding undrawn lines of credit totaled $1.56 billion, of which $1.21 billion were commitments to commercial and commercial construction borrowers and $349.3 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
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fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company’s exposure to credit risk is represented by the contractual amount of the instruments.
At September 30, 2023, the Company also had various contractual obligations, which included debt obligations of $885.2 million, including finance lease obligations of $1.7 million, and an additional $20.6 million in operating lease obligations included in other liabilities. The Company expects to have sufficient funds available to meet current commitments in the normal course of business. Time deposits scheduled to mature in one year or less totaled $2.47 billion at September 30, 2023.
Liquidity Used in Stock Repurchases and Cash Dividends
Under the Company’s stock repurchase program, shares of OceanFirst Financial Corp. common stock may be purchased in the open market or 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 and nine months ended September 30, 2023, the Company did not repurchase any shares of its common stock. At September 30, 2023, there were 2,934,438 shares available to be repurchased under the authorized stock repurchase program.
Cash dividends on common stock declared and paid during the first nine months of September 30, 2023 was $35.4 million. Cash dividends on preferred stock declared and paid during the first nine months of September 30, 2023 was $3.0 million.
The Company’s ability to continue to pay dividends remains 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 Parent Company. If applicable regulations or regulatory bodies prevent the Bank from paying a dividend to the Parent 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.
Capital Management
The Company manages its capital sources, uses, and expected future needs through its Treasury function and the Asset Liability Committee. The Company has an internal policy that addresses capital and management monitors the adherence to policy limits to satisfy current and future capital needs. The policy includes internal limits, monitoring of key indicators, sources and availability, intercompany transactions, forecasts and stress testing, and other qualitative and quantitative metrics.
Additionally, management performs multiple capital stress test scenarios on a quarterly basis, varying loan growth, earnings, access to the capital markets, credit losses, and more recently, mark-to-market losses in the investment portfolio, including both available-for-sale and held-to-maturity. As of September 30, 2023, the Bank and Parent Company continued to maintain adequate capital under all stress scenarios, including a scenario where all losses related to the investment securities portfolio are realized. The Bank and the Parent Company also have detailed contingency capital plans and obtain comprehensive reporting of capital trends on a regular basis, which are reviewed by management and the Board.
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Regulatory Capital Requirements
As of September 30, 2023 and December 31, 2022, the Company and the Bank satisfied all regulatory capital requirements currently applicable as follows (dollars in thousands):
ActualFor capital adequacy
purposes		To be well-capitalized
under prompt
corrective action
As of September 30, 2023AmountRatioAmountRatioAmountRatio
Company:
Tier 1 capital (to average assets)$1,200,832 9.14 %$525,331 4.00 %N/AN/A
Common equity Tier 1 (to risk-weighted assets)
1,071,480 10.36 723,689 7.00 
(1)
N/AN/A
Tier 1 capital (to risk-weighted assets)1,200,832 11.62 878,766 8.50 
(1)
N/AN/A
Total capital (to risk-weighted assets)1,392,971 13.47 1,085,534 10.50 
(1)
N/AN/A
Bank:
Tier 1 capital (to average assets)$1,147,262 8.80 %$521,320 4.00 %$651,650 5.00 %
Common equity Tier 1 (to risk-weighted assets)
1,147,262 11.21 716,158 7.00 
(1)
665,004 6.50 
Tier 1 capital (to risk-weighted assets)1,147,262 11.21 869,620 8.50 
(1)
818,466 8.00 
Total capital (to risk-weighted assets)1,214,139 11.87 1,074,237 10.50 
(1)
1,023,083 10.00 
As of December 31, 2022
Company:
Tier 1 capital (to average assets)$1,150,690 9.43 %$488,297 4.00 %N/AN/A
Common equity Tier 1 (to risk-weighted assets)
1,021,774 9.93 720,641 7.00 
(1)
N/AN/A
Tier 1 capital (to risk-weighted assets)1,150,690 11.18 875,064 8.50 
(1)
N/AN/A
Total capital (to risk-weighted assets)1,336,652 12.98 1,080,961 10.50 
(1)
N/AN/A
Bank:
Tier 1 capital (to average assets)$1,122,946 9.20 %$488,033 4.00 %$610,041 5.00 %
Common equity Tier 1 (to risk-weighted assets)
1,122,946 11.02 713,194 7.00 
(1)
662,251 6.50 
Tier 1 capital (to risk-weighted assets)1,122,946 11.02 866,021 8.50 
(1)
815,078 8.00 
Total capital (to risk-weighted assets)1,183,705 11.62 1,069,791 10.50 
(1)
1,018,848 10.00 
(1)Includes the Capital Conservation Buffer of 2.50%.
The Company and the Bank satisfied the criteria to be “well-capitalized” under the Prompt Corrective Action regulations.
At September 30, 2023 and December 31, 2022, the Company maintained a stockholders’ equity to total assets ratio of 12.13% and 12.10%, respectively.

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Non-Performing Assets
The following table sets forth information regarding the Company’s non-performing assets, consisting of non-performing loans. 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.
September 30,December 31,
20232022
 (dollars in thousands)
Non-performing loans:
Commercial real estate – investor$20,723 $10,483 
Commercial real estate – owner occupied240 4,025 
Commercial and industrial1,120 331 
Residential real estate5,624 5,969 
Other consumer2,391 2,457 
Total non-performing loans and assets$30,098 $23,265 
PCD loans, net of allowance for loan credit losses
$18,640 $27,129 
Delinquent loans 30-89 days$20,591 $14,148 
Allowance for loan credit losses as a percent of total loans0.63 %0.57 %
Allowance for loan credit losses as a percent of total non-performing loans
212.23 244.25 
Non-performing loans as a percent of total loans receivable0.30 0.23 
Non-performing assets as a percent of total assets0.22 0.18 
The Company’s non-performing loans totaled $30.1 million at September 30, 2023, as compared to $23.3 million at December 31, 2022. At September 30, 2023, non-performing loans included the remaining exposure of $8.8 million on a single commercial real estate relationship that was partially charged-off during the three months ended September 30, 2023. At September 30, 2023, total non-performing loans included $869,000 of modified loans to borrowers experiencing financial difficulty and $5.8 million of troubled debt restructuring (“TDR”) loans that existed prior to adoption of Accounting Standards Update (“ASU”) 2022-02 on January 1, 2023. At December 31, 2022, total non-performing loans included $6.4 million of TDR loans. Included in the non-performing loans total was $3.2 million and $3.9 million of PCD loans at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023, the allowance for loan credit losses totaled $63.9 million, or 0.63% of total loans, as compared to $56.8 million, or 0.57% of total loans, at December 31, 2022. These ratios exclude existing net unamortized credit and PCD marks on acquired loans of $8.8 million and $11.4 million at September 30, 2023 and December 31, 2022, respectively. 

The Company classifies loans and other assets in accordance with regulatory guidelines. The table below excludes any loans held-for-sale and represents Special Mention and Substandard assets (in thousands):
September 30,December 31,
20232022
Special Mention$44,940 $48,214 
Substandard86,597 50,776 
The change in substandard loans was primarily due to a migration of certain loans from special mention to substandard risk rating, which partly consisted of two CRE-Investor Owned relationships totaling $16.1 million. The remaining increase in substandard loans was primarily due to three commercial relationships for $13.7 million, which were downgraded to substandard during the nine months ended September 30, 2023. Additionally, the change in special mention loans was primarily due to two commercial relationships totaling $22.9 million that were downgraded during the nine months ended September 30, 2023, partly offset by the commercial real estate relationship that was charged-off for $8.4 million for the three months ended September 30, 2023.
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Critical Accounting Policies and Estimates

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, 2022 (the “2022 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.

Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired through purchase acquisitions. Goodwill is evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates (i.e. triggering events). For the purposes of goodwill impairment testing, management has concluded that the Company has one reporting unit and the annual impairment test is performed as of August 31.

Testing of goodwill impairment comprises a two-step process. First, the Company performs a qualitative assessment to evaluate relevant events or circumstances to determine whether it is more likely than not that the fair value of the Company is less than its carrying amount, including goodwill. The factors considered in the qualitative assessment include macroeconomic conditions, industry and market conditions and overall financial performance of the Company, among other factors. If the Company determines that it is more likely than not that the fair value of the Company is less than its carrying amounts, then it proceeds to the quantitative impairment test, whereby it calculates the fair value of the Company. In its performance of impairment testing, management has the unconditional option to proceed directly to the quantitative impairment test, bypassing the qualitative assessment. If the carrying amount of the Company exceeds its fair value, the amount by which the carrying amount exceeds fair value, up to the carrying value of goodwill, is recorded through earnings as an impairment charge. If the results of the qualitative assessment indicate that it is not more likely than not that an impairment has occurred, or if the quantitative impairment test results in a fair value of the Company that is greater than the carrying amount, then no impairment charge is recorded.

As of the annual impairment testing date of August 31, 2023, the Company bypassed the qualitative assessment and proceeded directly to the quantitative impairment test based on the stock price on the measurement date and economic uncertainty and market volatility impacting the banking sector. To perform the quantitative assessment, the Company engaged a third-party service provider to assist management with the determination of the fair value of the Company. A combination of an income valuation methodology, comprising a discounted cash flow analysis, and a market valuation methodology, comprising the guideline public company method, was employed. Management then assigned weightings to the two approaches to conclude on the estimated fair value. The weightings took into consideration recent market volatility and suppressed stock price of the Company and the banking industry.

The discounted cash flow (“DCF”) estimated the present value of future cash flows. A DCF analysis requires significant judgment to model financial forecasts, which included loan and deposit growth, funding mix, income on securities, credit performance, forward interest rates, future returns driven by net interest margin, fee generation and expense incurrence, industry and economic trends, and other relevant considerations. For periods beyond those forecasted, a terminal value was estimated based on an assumed long-term growth rate, which was derived using the Gordon Growth Model. The discount rate applied to the forecasted cash flows was calculated using a build-up approach, which starts with the risk-free interest rate and then calibrated for market and company specific risk premiums, including a beta, equity risk, size, and company-specific risk premiums to reflect risks and uncertainties in the financial market and in the Company’s business projections.

The market approach utilizes observable market data from comparable public companies, including price-to-tangible book value ratios, to estimate the Company’s fair value. The market approach also incorporates a control premium to represent the Company’s expectation of a hypothetical acquisition. Management uses judgment in the selection of comparable companies and includes those with similar business activities, and related operating environments.

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The results of the quantitative assessment indicated that the fair value of the Company’s reporting unit exceeded its carrying amount, though not substantially, which resulted in no impairment loss at August 31, 2023.

Management continued to carefully assess and evaluate all available information for potential triggering events after the August 31 annual testing date. Though it observed some deterioration in inputs to the market approach, management believes that the banking sector continues to experience market dislocation and concluded no triggering events were identified subsequent to the annual test date.

Significant negative industry or economic trends, including declines in the market price of the Company’s stock, reduced estimates of future cash flows or business disruptions could result in impairments to goodwill in the future, which would result in recording an impairment loss. Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations. Management will continue evaluating the economic conditions at future reporting periods for triggering events.

Impact of New Accounting Pronouncements

Accounting Pronouncements Adopted in 2023

In March 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-01 “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method”, which made targeted improvements to the optional hedge accounting model with the objective of improving hedge accounting to better portray the economic results of an entity’s risk management activities in its financial statements. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2022. Early adoption is permitted for any entity that has adopted the amendments in ASU 2017-12 for the corresponding period. The adoption of this standard did not have an impact on the Company’s consolidated financial statements, as the Company currently does not have any fair value hedges.
In March 2022, FASB issued ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”. The amendments in this ASU were issued to (1) eliminate accounting guidance for TDRs by creditors, while enhancing disclosure requirements for loan refinancings and restructurings when a borrower is experiencing financial difficulty; (2) require disclosures of current period gross write-offs by year of origination for financing receivables and net investments in leases. For entities that have adopted the amendments in ASU 2016-13, Measurement of Credit Losses on Financial Instruments, this update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2022. Early adoption is permitted. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, where there is an option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The Company adopted this guidance prospectively, and the adoption of this standard did not have an impact on the Company’s consolidated financial statements.
In December 2022, FASB issued ASU 2022-06, “Deferral of the Sunset Date of Topic 848”, which was effective upon issuance. The amendments in this ASU defer the sunset date of Topic 848 (Reference Rate Reform) from December 31, 2022 to December 31, 2024. Topic 848, originally issued in 2020 and later amended in 2021, provides optional accounting expedients and exceptions for certain loan agreements, derivatives and other transactions affected by the transition away from London Inter-Bank Offered Rate (“LIBOR”) towards alternative reference rates. As of December 31, 2021, the Company adopted certain of these practical expedients in Topic 848 and will continue to apply prospectively until December 31, 2024. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
Transition from LIBOR
As of December 31, 2021, the Company ceased issuing LIBOR-based products and transitioned to Alternative Rates. For the tenors of U.S. dollar LIBOR utilized by the Company, the administrator of LIBOR extended publication until June 30, 2023. As of June 30, 2023, the Company has transitioned substantially all of its previously existing LIBOR-based products that were not expected to mature or settle prior to the cessation date. Contract language for all remaining LIBOR-based loans, securities, and borrowings has been reviewed and updated as necessary to automatically convert to an Alternative Rate at their next rate reset date with no action required.

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Recent Accounting Pronouncements Not Yet Adopted
In June 2022, FASB issued ASU 2022-03, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. In addition, this update introduces new disclosure requirements to provide information about the contractual sales restriction including the nature and remaining duration of the restriction. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2023. Early adoption is permitted. The Company does not expect this standard to have a material impact to the consolidated financial statements.
In March 2023, FASB issued ASU 2023-02, “Investments - Equity Method and Joint Venture (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method”. The amendments in this ASU permit reporting entities to account for the tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of this standard on the consolidated financial statements.
In August 2023, FASB issued ASU 2023-05, “Business Combinations - Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement”. The amendments in this ASU require that a joint venture, upon formation, apply a new basis of accounting and initially measure assets and liabilities at fair value, with exceptions to fair value measurement that are consistent with the business combinations guidance. This update will be effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. Early adoption is permitted. The Company does not expect this standard to have a material impact 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 future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to: changes in interest rates, inflation, general economic conditions, potential recessionary conditions, levels of unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, including specific loan exposures, such as lending for office space, potential goodwill impairment, future natural disasters, potential increases to flood insurance premiums, the current or anticipated impact of military conflict, terrorism or other geopolitical events, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, changes in liquidity, including the size and composition of the Company’s deposit portfolio, including the percentage of uninsured deposits in the portfolio, competition, demand for financial services in the Company’s market area, changes in consumer spending, borrowing and saving habits, changes in accounting principles, a failure in or breach of the Company’s operational or security systems or infrastructure, including cyberattacks, the failure to maintain current technologies, failure to retain or attract employees, the impact of the COVID-19 pandemic or any other pandemic on our operations and financial results and those of our customers and the Bank’s ability to successfully integrate acquired operations.
These risks and uncertainties are further discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, under Item 1A - Risk Factors and elsewhere, and subsequent securities filings and should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. 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.
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Item 3.    Quantitative and Qualitative Disclosures About Market Risk
Management of Interest Rate Risk (“IRR”)
Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from the IRR inherent in its lending, investment, deposit-taking, and funding activities. The Company’s profitability is affected by fluctuations in interest rates. Changes in interest rates may negatively or positively impact the Company’s earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis. Changes in interest rates may also negatively or positively impact the market value of the Company’s investment securities, in particular fixed-rate instruments. Net gains or losses in available-for-sale securities can increase or decrease accumulated other comprehensive income or loss and total stockholders’ equity. To that end, management actively monitors and manages IRR. The extent of the movement of interest rates, higher or lower, is an uncertainty that could have a substantial impact on the earnings and stockholders’ equity of the Company.
The principal objectives of the IRR management function are to: evaluate the IRR inherent in the Company’s business; determine the level of risk appropriate given the Company’s business focus, operating environment, capital, and liquidity requirements and performance objectives; and manage the risk consistent with Board approved guidelines. The Company’s Board has established an Asset Liability Committee (“ALCO”) consisting of members of management, responsible for reviewing asset liability policies and the IRR position. ALCO meets regularly and reports the Company’s IRR position and trends to the Board on a regular basis.
The Company utilizes a number of strategies to manage IRR including, but not limited to: (1) managing the origination, purchase, sale, and retention of various types of loans with differing IRR profiles; (2) attempting to reduce the overall interest rate sensitivity of liabilities by emphasizing core and longer-term deposits; (3) selectively purchasing interest rate swaps and caps converting the rates for customer loans to manage individual loans and the Bank’s overall IRR profile; (4) managing the investment portfolio IRR profile; (5) managing the maturities and rate structures of borrowings and time deposits; and (6) purchasing interest rate swaps to manage overall balance sheet interest rate risk.
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive.” Interest rate sensitivity is monitored through the use of an IRR model, which measures the change in the institution’s economic value of equity (“EVE”) and net interest income under various interest rate scenarios. EVE is the difference between the net present value of assets, liabilities and off-balance-sheet contracts. The EVE ratio, in any interest rate scenario, is defined as the EVE in that scenario divided by the fair value of assets in the same scenario. Interest rate sensitivity is monitored by management through the use of a model which measures IRR by modeling the change in EVE and net interest income over a range of interest rate scenarios. Modeled assets and liabilities are assumed to reprice at respective repricing or maturity dates. Pricing caps and floors are included in the results, where applicable. The Company uses prepayment expectations set forth by market sources as well as Company generated data where applicable. Generally, cash flows from loans and securities are assumed to be reinvested to maintain a static balance sheet. Other assumptions about balance sheet mix are generally held constant. The Company’s interest rate sensitivity should be reviewed in conjunction with the financial statements and notes thereto contained in the 2022 Form 10-K.
The methodologies and assumptions used in this analysis are periodically evaluated and refined in response to changes in the market environment, changes in the Company’s balance sheet composition, enhancements in the Company’s modeling and other factors. Such changes may affect historical comparisons of these results.
In the third quarter of 2023, the Company refined certain fair value assumptions related to the loan portfolio, including prepayment rates. This resulted in a modest increase to EVE and a decrease to its sensitivity, and had a marginal impact to the net interest income scenarios.

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The Company performs a variety of EVE and twelve-month net interest income sensitivity scenarios. The following table sets forth sensitivity scenarios for a specific range of interest rate scenarios as of September 30, 2023 and December 31, 2022 (dollars in thousands).
 September 30, 2023December 31, 2022
Change in Interest Rates in Basis Points (Rate Shock)Economic Value of EquityNet Interest IncomeEconomic Value of EquityNet Interest Income
Amount% ChangeEVE RatioAmount% ChangeAmount% ChangeEVE RatioAmount% Change
(dollars in thousands)          
200$1,259,131 (5.8)%10.7 %$366,350 2.3 %$1,574,239 (8.5)%13.7 %$440,916 1.2 %
1001,292,658 (3.3)10.8 362,079 1.1 1,646,301 (4.3)13.9 438,280 0.6 
Static1,337,280 — 10.9 357,985 — 1,719,619 — 14.1 435,492 — 
(100)1,409,846 5.4 11.2 353,749 (1.2)1,762,678 2.5 14.0 428,519 (1.6)
(200)1,486,373 11.1 11.4 347,889 (2.8)1,740,837 1.2 13.5 412,038 (5.4)
The net interest income sensitivity results indicate that at both September 30, 2023 and December 31, 2022 the Company was modestly asset sensitive. The change in sensitivity between these periods was impacted by growth in floating rate loan and an increase in cash on hand, offset by the deposit mix shift into short-term time deposits and higher-yield savings deposits.

Overall, the measure of EVE at risk increased in all rising rate scenarios from December 31, 2022 to September 30, 2023. This increase was the result of rising market rates resulting in lower market values in the loan and investment portfolios, along with the impact of an increase in deposit costs and a shift from lower cost, long-term non-maturity deposits to short-term higher cost time deposits and higher-yield savings deposits.
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 or any steps it may take to respond to changes in rates. Fourth, prepayment, rate sensitivity, and average life assumptions can have a significant impact on the IRR model results. Lastly, the model utilizes data derived from historical performance. 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, given the unique nature of the post-pandemic interest rate environment and the speed with which interest rates have been changing, the projections noted above on the Company’s EVE and net interest income and can be expected to significantly 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 Securities and Exchange Commission (“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 September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
September 30,December 31,
20232022
 (Unaudited) 
Assets
Cash and due from banks$408,882 $167,946 
Debt securities available-for-sale, at estimated fair value453,208 457,648 
Debt securities held-to-maturity, net of allowance for securities credit losses of $932 at September 30, 2023 and $1,128 at December 31, 2022 (estimated fair value of $1,047,342 at September 30, 2023 and $1,110,041 at December 31, 2022)
1,189,339 1,221,138 
Equity investments97,908 102,037 
Restricted equity investments, at cost82,484 109,278 
Loans receivable, net of allowance for loan credit losses of $63,877 at September 30, 2023 and $56,824 at December 31, 2022
10,068,156 9,868,718 
Loans held-for-sale— 690 
Interest and dividends receivable50,030 44,704 
Premises and equipment, net122,646 126,705 
Bank owned life insurance265,071 261,603 
Assets held for sale3,004 2,719 
Goodwill506,146 506,146 
Core deposit intangible10,489 13,497 
Other assets240,820 221,067 
Total assets$13,498,183 $13,103,896 
Liabilities and Stockholders’ Equity
Deposits$10,533,929 $9,675,206 
Federal Home Loan Bank (“FHLB”) advances606,056 1,211,166 
Securities sold under agreements to repurchase with customers82,981 69,097 
Other borrowings196,183 195,403 
Advances by borrowers for taxes and insurance29,696 21,405 
Other liabilities411,734 346,155 
Total liabilities11,860,579 11,518,432 
Stockholders’ equity:
Preferred stock, $0.01 par value, $1,000 liquidation preference, 5,000,000 shares authorized, and 57,370 shares issued at both September 30, 2023 and December 31, 2022
1 1 
Common stock, $0.01 par value, 150,000,000 shares authorized, 62,156,581 and 61,877,686 shares issued at September 30, 2023 and December 31, 2022, respectively; and 59,421,498 and 59,144,128 shares outstanding at September 30, 2023 and December 31, 2022, respectively
613 612 
Additional paid-in capital1,160,869 1,154,821 
Retained earnings577,708 540,507 
Accumulated other comprehensive loss(28,811)(35,982)
Less: Unallocated common stock held by Employee Stock Ownership Plan ("ESOP")(4,383)(6,191)
Treasury stock, 2,735,083 and 2,733,558 shares at September 30, 2023 and December 31, 2022
(69,106)(69,106)
OceanFirst Financial Corp. stockholders’ equity1,636,891 1,584,662 
Non-controlling interest713 802 
Total stockholders’ equity1,637,604 1,585,464 
Total liabilities and stockholders’ equity$13,498,183 $13,103,896 

See accompanying Notes to Unaudited Consolidated Financial Statements.
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OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
 For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2023202220232022
 (Unaudited)(Unaudited)
Interest income:
Loans$133,931 $100,141 $384,755 $273,340 
Debt securities15,223 8,479 43,829 23,456 
Equity investments and other9,256 1,879 18,956 4,102 
Total interest income158,410 110,499 447,540 300,898 
Interest expense:
Deposits53,287 9,238 112,551 17,596 
Borrowed funds14,127 5,296 53,082 12,313 
Total interest expense67,414 14,534 165,633 29,909 
Net interest income90,996 95,965 281,907 270,989 
Provision for credit losses10,283 1,016 14,525 4,121 
Net interest income after provision for credit losses80,713 94,949 267,382 266,868 
Other income:
Bankcard services revenue1,507 1,509 4,381 7,782 
Trust and asset management revenue662 568 1,919 1,835 
Fees and service charges5,178 6,320 15,939 17,026 
Net gain on sales of loans66 168 119 348 
Net gain (loss) on equity investments1,452 3,362 (5,908)(7,502)
Net gain from other real estate operations— — — 48 
Income from bank owned life insurance1,390 1,356 3,853 4,881 
Commercial loan swap income11 1,471 712 6,546 
Other496 396 748 579 
Total other income10,762 15,150 21,763 31,543 
Operating expenses:
Compensation and employee benefits35,534 34,124 103,676 97,972 
Occupancy5,466 5,288 15,970 15,790 
Equipment1,172 1,150 3,478 3,856 
Marketing1,183 655 3,126 2,242 
Federal deposit insurance and regulatory assessments2,557 1,757 6,771 5,435 
Data processing6,086 6,560 18,405 18,466 
Check card processing1,154 1,231 3,649 3,728 
Professional fees5,258 2,502 15,439 8,296 
Amortization of core deposit intangible987 1,171 3,008 3,559 
Branch consolidation (benefit) expense, net— (346)70 602 
Merger related expenses— 298 22 2,459 
Other operating expense5,087 4,607 15,109 12,748 
Total operating expenses64,484 58,997 188,723 175,153 
Income before provision for income taxes26,991 51,102 100,422 123,258 
Provision for income taxes6,459 12,298 24,109 29,212 
Net income20,532 38,804 76,313 94,046 
Net (loss) income attributable to non-controlling interest(135)193 (34)715 
Net income attributable to OceanFirst Financial Corp.20,667 38,611 76,347 93,331 
Dividends on preferred shares1,004 1,004 3,012 3,012 
Net income available to common stockholders$19,663 $37,607 $73,335 $90,319 
Basic earnings per share$0.33 $0.64 $1.24 $1.54 
Diluted earnings per share$0.33 $0.64 $1.24 $1.53 
Average basic shares outstanding59,104 58,681 59,037 58,777 
Average diluted shares outstanding59,111 58,801 59,068 58,918 
See accompanying Notes to Unaudited Consolidated Financial Statements.
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OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 
 For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2023202220232022
 (Unaudited)(Unaudited)
Net income$20,532 $38,804 $76,313 $94,046 
Other comprehensive income (loss):
Net unrealized gain (loss) on debt securities (net of tax expense of $572 and $2,430 in 2023 and tax benefit of $3,023 and $11,411 in 2022, respectively)
1,797 (9,490)7,626 (35,858)
Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $66 and $176 in 2023 and tax expense of $60 and $186 in 2022, respectively)
116 87 277 265 
Unrealized loss on derivative hedges (net of tax benefit of $198 and $573 in 2023)
(622)— (1,798)— 
Reclassification adjustment for losses (gains) included in net income (net of tax expense of $78 and $340 in 2023 and tax benefit $26 in 2022, respectively)
246 — 1,066 (82)
Total other comprehensive income (loss), net of tax1,537 (9,403)7,171 (35,675)
Total comprehensive income22,069 29,401 83,484 58,371 
Less: comprehensive (loss) income attributable to non-controlling interest(135)193 (34)715 
Comprehensive income attributable to OceanFirst Financial Corp.22,204 29,208 83,518 57,656 
Less: Dividends on preferred shares1,004 1,004 3,012 3,012 
Total comprehensive income available to common stockholders$21,200 $28,204 $80,506 $54,644 
See accompanying Notes to Unaudited Consolidated Financial Statements.
24

OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(dollars in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended September 30, 2023 and 2022
Preferred
Stock		Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Employee
Stock
Ownership
Plan		Treasury
Stock		Non-Controlling InterestTotal
Balance at June 30, 2022$1 $612 $1,151,363 $474,114 $(29,093)$(7,403)$(69,106)$944 $1,521,432 
Net income— — — 38,611 — — — 193 38,804 
Other comprehensive loss, net of tax— — — — (9,403)— — — (9,403)
Stock compensation— — 1,619 — — — — — 1,619 
Allocation of ESOP stock— — (5)— — 606 — — 601 
Cash dividend $0.20 per share
— — — (11,752)— — — — (11,752)
Exercise of stock options— — 95 — — — — — 95 
Preferred stock dividend— — — (1,004)— — — — (1,004)
Distributions to non-controlling interest— — — (2)— — — (174)(176)
Balance at September 30, 2022$1 $612 $1,153,072 $499,967 $(38,496)$(6,797)$(69,106)$963 $1,540,216 
Balance at June 30, 2023$1 $613 $1,159,394 $569,867 $(30,348)$(4,986)$(69,106)$848 $1,626,283 
Net income (loss)— — — 20,667 — — — (135)20,532 
Other comprehensive income, net of tax— — — — 1,537 — — — 1,537 
Stock compensation— — 1,574 — — — — — 1,574 
Allocation of ESOP stock— — (99)— — 603 — — 504 
Cash dividend $0.20 per share
— — — (11,822)— — — — (11,822)
Preferred stock dividend— — — (1,004)— — — — (1,004)
Balance at September 30, 2023$1 $613 $1,160,869 $577,708 $(28,811)$(4,383)$(69,106)$713 $1,637,604 

















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OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(dollars in thousands, except per share amounts)
(Unaudited)
For the Nine Months Ended September 30, 2023 and 2022
Preferred
Stock		Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Employee
Stock
Ownership
Plan		Treasury
Stock		Non-Controlling InterestTotal
Balance at December 31, 2021$1 $611 $1,146,781 $442,306 $(2,821)$(8,615)$(61,710)$— $1,516,553 
Net income— — — 93,331 — — — 715 94,046 
Other comprehensive loss, net of tax— — — — (35,675)— — — (35,675)
Stock compensation— — 5,019 — — — — — 5,019 
Allocation of ESOP stock— — 30 — — 1,818 — — 1,848 
Cash dividend $0.54 per share
— — — (31,767)— — — — (31,767)
Exercise of stock options— 1 1,242 (897)— — — — 346 
Repurchase 373,223 shares of common stock
— — — — — — (7,396)— (7,396)
Preferred stock dividend— — — (3,012)— — — — (3,012)
Acquisition of Trident Abstract Title Agency, LLC (“Trident”)— — — — — — — 836 836 
Distributions to non-controlling interest— — — 6 — — — (588)(582)
Balance at September 30, 2022$1 $612 $1,153,072 $499,967 $(38,496)$(6,797)$(69,106)$963 $1,540,216 
Balance at December 31, 2022$1 $612 $1,154,821 $540,507 $(35,982)$(6,191)$(69,106)$802 $1,585,464 
Net income (loss)— — — 76,347 — — — (34)76,313 
Other comprehensive income, net of tax— — — — 7,171 — — — 7,171 
Stock compensation— — 4,910 — — — — — 4,910 
Allocation of ESOP stock— — (174)— — 1,808 — — 1,634 
Cash dividend $0.60 per share
— — — (35,414)— — — — (35,414)
Exercise of stock options— 1 1,312 (720)— — — — 593 
Preferred stock dividend— — — (3,012)— — — — (3,012)
Distributions to non-controlling interest— — — — — — — (55)(55)
Balance at September 30, 2023$1 $613 $1,160,869 $577,708 $(28,811)$(4,383)$(69,106)$713 $1,637,604 
See accompanying Notes to Unaudited Consolidated Financial Statements.
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OceanFirst Financial Corp.
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
 For the Nine Months Ended September 30,
 20232022
 (Unaudited)
Cash flows from operating activities:
Net income$76,313 $94,046 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment9,164 8,526 
Allocation of ESOP stock1,634 1,848 
Stock compensation4,910 5,019 
Net excess tax expense on stock compensation243 215 
Amortization of servicing asset54 77 
Net premium amortization in excess of discount accretion on securities3,818 5,522 
Net amortization of deferred costs on borrowings445 416 
Amortization of core deposit intangible3,008 3,559 
Net accretion of purchase accounting adjustments(4,219)(7,433)
Net amortization of deferred fees/costs and premiums/discounts on loans(940)349 
Provision for credit losses14,525 4,121 
Net gain on sale of other real estate owned— (54)
Net write down of fixed assets held-for-sale to net realizable value459 1,427 
Net gain on sale of fixed assets(26)(52)
Net loss on sales of available-for-sale securities697 — 
Net loss on equity investments5,908 7,502 
Net gain on sales of loans(119)(348)
Proceeds from sales of residential loans held for sale38,048 10,266 
Residential loans originated for sale(37,239)(13,677)
Increase in value of bank owned life insurance(3,853)(4,881)
Net loss (gain) on sale of assets held for sale7 (1,947)
Increase in interest and dividends receivable(5,326)(5,782)
Deferred tax benefit(93)(66)
Increase in other assets(22,350)(84,582)
Increase in other liabilities66,016 185,927 
Total adjustments74,771 115,952 
Net cash provided by operating activities151,084 209,998 
Cash flows from investing activities:
Net increase in loans receivable(210,412)(938,915)
Proceeds from sale of loans— 13,388 
Purchase of residential loan pool— (161,701)
Premiums paid on purchased loan pool— (495)
Purchase of debt securities available-for-sale(4,287)(64,862)
Purchase of debt securities held-to-maturity(65,567)(26,666)
Purchase of equity investments(7,383)(5,935)
Proceeds from maturities and calls of debt securities available-for-sale16,950 84,200 
Proceeds from maturities and calls of debt securities held-to-maturity13,940 25,126 
Proceeds from sales of debt securities available-for-sale1,300 30,257 
Proceeds from sale of equity investments4,822 19,235 
Principal repayments on debt securities held-to-maturity82,661 111,283 
Proceeds from bank owned life insurance385 2,970 
Proceeds from the redemption of restricted equity investments128,544 164,939 
Purchases of restricted equity investments(101,745)(189,300)
Proceeds from sale of other real estate owned— 160 
Proceeds from sales of assets held-for-sale969 7,676 
Purchases of premises and equipment(6,062)(14,358)
Purchases of operating lease equipment — (4,789)
Net cash consideration received for acquisition— 38,609 
Net cash used in investing activities(145,885)(909,178)
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OceanFirst Financial Corp.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(dollars in thousands)
 For the Nine Months Ended September 30,
 20232022
 (Unaudited)
Cash flows from financing activities:
Increase in deposits$858,947 $227,192 
Increase (decrease) in short-term borrowings13,807 (22,480)
Net (repayment) proceeds from FHLB advances(605,110)514,200 
Repayments of other borrowings— (35,076)
Increase in advances by borrowers for taxes and insurance8,291 5,152 
Exercise of stock options593 346 
Payment of employee taxes withheld from stock awards and phantom stock units(2,350)(1,473)
Purchase of treasury stock— (7,396)
Dividends paid(38,426)(34,779)
Distributions to non-controlling interest(55)(582)
Net cash provided by financing activities235,697 645,104 
Net increase (decrease) in cash and due from banks and restricted cash240,896 (54,076)
Cash and due from banks and restricted cash at beginning of period167,986 224,784 
Cash and due from banks and restricted cash at end of period$408,882 $170,708 
Supplemental Disclosure of Cash Flow Information:
Cash and due from banks at beginning of period$167,946 $204,949 
Restricted cash at beginning of period40 19,835 
Cash and due from banks and restricted cash at beginning of period$167,986 $224,784 
Cash and due from banks at end of period$408,882 $170,668 
Restricted cash at end of period— 40 
Cash and due from banks and restricted cash at end of period$408,882 $170,708 
Cash paid during the period for:
Interest$148,950 $27,953 
Income taxes28,151 12,633 
Non-cash activities:
Accretion of unrealized loss on securities reclassified to held-to-maturity453 451 
Net loan charge-offs (recoveries) 8,271 (335)
Transfer of loans receivable to loans held-for-sale— 13,178 
Transfer of premises and equipment to assets held-for-sale1,302 2,776 
Acquisition:
Non-cash assets acquired:
Other current assets$— $238 
Premises and equipment— 18 
Right of use (“ROU”) asset— 779 
Other assets— 81 
Total non-cash assets acquired$— $1,116 
Liabilities assumed:
Lease liability$— $779 
Other liabilities— 43,937 
Total liabilities assumed$— $44,716 

See accompanying Notes to Unaudited Consolidated Financial Statements.
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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”); its wholly-owned subsidiaries, OceanFirst Bank N.A. (the “Bank”) and OceanFirst Risk Management, Inc.; the Bank’s direct and indirect wholly-owned subsidiaries, OceanFirst REIT Holdings, Inc., OceanFirst Management Corp., OceanFirst Realty Corp., Casaba Real Estate Holdings Corporation, and Country Property Holdings, Inc; and a majority controlling interest in Trident. Certain other subsidiaries were dissolved in 2022 and are included in the consolidated financial statements for previous periods. 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 and nine months ended September 30, 2023 are not necessarily indicative of the results of operations that may be expected for the full year 2023 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 periods presented. 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, 2022.

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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 and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
 2023202220232022
Weighted average shares outstanding59,422 59,134 59,388 59,245 
Less: Unallocated ESOP shares(243)(363)(272)(393)
 Unallocated incentive award shares(75)(90)(79)(75)
Average basic shares outstanding59,104 58,681 59,037 58,777 
Add: Effect of dilutive securities:
Incentive awards7 120 31 141 
Average diluted shares outstanding59,111 58,801 59,068 58,918 
For the three and nine months ended September 30, 2023, antidilutive stock options of 1,961,000 and 1,525,000, respectively, were excluded from the earnings per share calculation. For both the three and nine months ended September 30, 2022, antidilutive stock options of 1,552,000 were excluded from the earnings per share calculation.
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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 September 30, 2023 and December 31, 2022 are as follows (in thousands):
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value		Allowance for Credit Losses
At September 30, 2023
Debt securities available-for-sale:
U.S. government and agency obligations$71,895 $— $(7,815)$64,080 $— 
Corporate debt securities10,084 — (1,132)8,952 — 
Asset-backed securities296,212 — (5,768)290,444 — 
Agency commercial mortgage-backed securities (“MBS”)109,827 — (20,095)89,732 — 
Total debt securities available-for-sale$488,018 $— $(34,810)$453,208 $— 
Debt securities held-to-maturity:
State and municipal debt obligations$228,779 $30 $(26,705)$202,104 $(41)
Corporate debt securities71,430 373 (6,106)65,697 (868)
Mortgage-backed securities:
Agency residential787,875 3 (103,865)684,013 — 
Agency commercial83,322 16 (6,392)76,946 (16)
Non-agency commercial20,760 — (2,178)18,582 (7)
Total mortgage-backed securities891,957 19 (112,435)779,541 (23)
Total debt securities held-to-maturity$1,192,166 $422 $(145,246)$1,047,342 $(932)
Total debt securities$1,680,184 $422 $(180,056)$1,500,550 $(932)
At December 31, 2022
Debt securities available-for-sale:
U.S. government and agency obligations$87,648 $1 $(7,635)$80,014 $— 
Corporate debt securities8,928 — (756)8,172 — 
Asset-backed securities296,222 — (19,349)276,873 — 
Agency commercial MBS110,606 — (18,017)92,589 — 
Total debt securities available-for-sale$503,404 $1 $(45,757)$457,648 $— 
Debt securities held-to-maturity:
State, municipal, and sovereign debt obligations$260,249 $46 $(24,940)$235,355 $(60)
Corporate debt securities56,893 380 (3,778)53,495 (1,059)
Mortgage-backed securities:
Agency residential849,985 795 (83,586)767,194 — 
Agency commercial32,127 23 (1,189)30,961 — 
Non-agency commercial25,310 — (2,274)23,036 (9)
Total mortgage-backed securities907,422 818 (87,049)821,191 (9)
Total debt securities held-to-maturity$1,224,564 $1,244 $(115,767)$1,110,041 $(1,128)
Total debt securities$1,727,968 $1,245 $(161,524)$1,567,689 $(1,128)

There was no allowance for securities credit losses on debt securities available-for-sale at September 30, 2023 or December 31, 2022.
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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Allowance for securities credit losses
Beginning balance$(964)$(1,293)$(1,128)$(1,467)
Provision for credit loss benefit32 59 196 233 
Total ending allowance balance$(932)$(1,234)$(932)$(1,234)
The Company monitors the credit quality of debt securities held-to-maturity on a quarterly basis through the use of internal credit analysis supplemented by external credit ratings. Credit ratings of BBB- or Baa3 or higher are considered investment grade. Where multiple ratings are available, the Company considers the lowest rating when determining the allowance for securities credit losses. Under this approach, the amortized cost of debt securities held-to-maturity at September 30, 2023, aggregated by credit quality indicator, are as follows (in thousands):
Investment GradeNon-Investment Grade/Non-ratedTotal
As of September 30, 2023
State and municipal debt obligations$228,779 $— $228,779 
Corporate debt securities57,050 14,380 71,430 
Agency commercial MBS83,323 — 83,323 
Non-agency commercial MBS20,760 — 20,760 
Total debt securities held-to-maturity$389,912 $14,380 $404,292 
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 debt securities held-to-maturity at September 30, 2023 and December 31, 2022 was as follows (in thousands): 
September 30,December 31,
20232022
Amortized cost$1,192,166 $1,224,564 
Allowance for securities credit losses(932)(1,128)
Net loss on date of transfer from available-for-sale(13,556)(13,556)
Accretion of net unrealized loss on securities reclassified as held-to-maturity11,661 11,258 
Carrying value$1,189,339 $1,221,138 
There were $0 realized gains/losses and $697,000 of realized losses on sale of debt securities available-for-sale for the three and nine months ended September 30, 2023, respectively, as compared to realized gains of $131,000 and $23,000 for the corresponding prior year periods, respectively. These realized gains/losses on debt securities are presented within Other under Total other income of the Consolidated Statements of Income.
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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

The amortized cost and estimated fair value of debt securities at September 30, 2023 by contractual maturity are shown below (in thousands):
September 30, 2023Amortized
Cost		Estimated
Fair Value
Less than one year$39,412 $38,958 
Due after one year through five years183,574 166,592 
Due after five years through ten years205,459 192,786 
Due after ten years249,955 232,941 
$678,400 $631,277 
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 September 30, 2023, corporate debt securities, state and municipal obligations, and asset-backed securities with an amortized cost of $80.4 million, $63.9 million, and $296.2 million, respectively, and an estimated fair value of $73.6 million, $59.6 million, and $290.4 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.
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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 September 30, 2023 and December 31, 2022, segregated by the duration of the unrealized losses, are as follows (in thousands):
 Less than 12 months12 months or longerTotal
 Estimated
Fair
Value		Unrealized
Losses		Estimated
Fair
Value		Unrealized
Losses		Estimated
Fair
Value		Unrealized
Losses
At September 30, 2023
Debt securities available-for-sale:
U.S. government and agency obligations$1,060 $(11)$63,020 $(7,804)$64,080 $(7,815)
Corporate debt securities6,519 (565)2,433 (567)8,952 (1,132)
Asset-backed securities— — 290,444 (5,768)290,444 (5,768)
Agency commercial MBS— — 89,732 (20,095)89,732 (20,095)
Total debt securities available-for-sale7,579 (576)445,629 (34,234)453,208 (34,810)
Debt securities held-to-maturity:
State and municipal debt obligations9,266 (397)187,876 (26,308)197,142 (26,705)
Corporate debt securities38,247 (3,634)22,687 (2,472)60,934 (6,106)
MBS:
Agency residential222,066 (13,368)461,630 (90,497)683,696 (103,865)
Agency commercial52,836 (5,460)16,431 (932)69,267 (6,392)
Non-agency commercial— — 18,582 (2,178)18,582 (2,178)
Total MBS274,902 (18,828)496,643 (93,607)771,545 (112,435)
Total debt securities held-to-maturity322,415 (22,859)707,206 (122,387)1,029,621 (145,246)
Total debt securities$329,994 $(23,435)$1,152,835 $(156,621)$1,482,829 $(180,056)
At December 31, 2022
Debt securities available-for-sale:
U.S. government and agency obligations$27,232 $(450)$52,782 $(7,185)$80,014 $(7,635)
Corporate debt securities4,735 (193)3,437 (563)8,172 (756)
Asset-backed securities143,392 (9,179)133,481 (10,170)276,873 (19,349)
Agency commercial MBS8,782 (1,675)83,807 (16,342)92,589 (18,017)
Total debt securities available-for-sale184,141 (11,497)273,507 (34,260)457,648 (45,757)
Debt securities held-to-maturity:
State, municipal, and sovereign debt obligations133,492 (11,952)97,135 (12,988)230,627 (24,940)
Corporate debt securities11,783 (598)36,152 (3,180)47,935 (3,778)
MBS:
Agency residential297,296 (12,404)397,036 (71,182)694,332 (83,586)
Agency commercial25,936 (1,150)2,062 (39)27,998 (1,189)
Non-agency commercial16,839 (1,621)6,198 (653)23,037 (2,274)
Total MBS340,071 (15,175)405,296 (71,874)745,367 (87,049)
Total debt securities held-to-maturity485,346 (27,725)538,583 (88,042)1,023,929 (115,767)
Total debt securities$669,487 $(39,222)$812,090 $(122,302)$1,481,577 $(161,524)

The Company concluded that debt securities were not impaired at September 30, 2023 based on consideration of several factors. The Company noted that each issuer made all the contractually due payments when required. There were no defaults on principal or interest payments, and no interest payments were deferred. Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements over the life of the security. Furthermore, the change in net unrealized losses were primarily due to changes in the general credit and 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 securities sales.
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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Equity Investments
At September 30, 2023 and December 31, 2022, the Company held equity investments of $97.9 million and $102.0 million, respectively. The equity investments are primarily comprised of select financial services institutions’ preferred stocks, investments in funds and other financial institutions.
The realized and unrealized gains or losses on equity securities for the three and nine months ended September 30, 2023 and 2022 are shown in the table below (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net gain (loss) on equity investments$1,452 $3,362 $(5,908)$(7,502)
Less: Net (losses) gains recognized on equity investments sold— — (5,462)1,351 
Unrealized gains (losses) recognized on equity investments still held$1,452 $3,362 $(446)$(8,853)
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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Note 4. Loans Receivable, Net
Loans receivable, net at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
September 30,December 31,
20232022
Commercial:
Commercial real estate – investor$5,334,279 $5,171,952 
Commercial real estate – owner occupied957,216 997,367 
Commercial and industrial652,119 622,372 
Total commercial6,943,614 6,791,691 
Consumer:
Residential real estate2,928,259 2,861,991 
Home equity loans and lines and other consumer (“other consumer”)251,698 264,372 
Total consumer3,179,957 3,126,363 
Total loans receivable10,123,571 9,918,054 
Deferred origination costs, net of fees8,462 7,488 
Allowance for loan credit losses(63,877)(56,824)
Total loans receivable, net$10,068,156 $9,868,718 
The Company categorizes all loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, and current economic trends, among other factors. The Company evaluates risk ratings on an ongoing basis. The Company uses the following definitions for risk ratings:
    Pass: Loans classified as Pass are well protected by the paying capacity and net worth of the borrower.
    Special Mention: Loans classified as Special Mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date.
    Substandard: Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the collection or the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
    Doubtful: Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

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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):
202320222021202020192018 and priorRevolving lines of creditTotal
September 30, 2023
Commercial real estate - investor
Pass$126,967 $1,165,509 $1,314,561 $527,205 $497,540 $972,537 $658,558 $5,262,877 
Special Mention— — 2,437 187 60 17,893 1,388 21,965 
Substandard— — — 3,750 11,907 32,980 800 49,437 
Total commercial real estate - investor126,967 1,165,509 1,316,998 531,142 509,507 1,023,410 660,746 5,334,279 
Commercial real estate - owner occupied
Pass54,658 115,573 109,260 65,866 106,434 461,324 13,543 926,658 
Special Mention— — — — — 4,542 457 4,999 
Substandard— 3,278 — — 1,986 20,205 90 25,559 
Total commercial real estate - owner occupied54,658 118,851 109,260 65,866 108,420 486,071 14,090 957,216 
Commercial and industrial
Pass98,193 58,728 20,374 10,087 9,193 53,478 379,799 629,852 
Special Mention— 654 197 — — 197 14,625 15,673 
Substandard— — — — 902 1,438 4,254 6,594 
Total commercial and industrial98,193 59,382 20,571 10,087 10,095 55,113 398,678 652,119 
Residential real estate (1)
Pass182,209 926,600 571,434 397,584 225,997 618,805 — 2,922,629 
Special Mention— 1,332 187 205 123 456 — 2,303 
Substandard62 — — 258 487 2,520 — 3,327 
Total residential real estate182,271 927,932 571,621 398,047 226,607 621,781 — 2,928,259 
Other consumer (1)
Pass26,676 20,640 21,656 13,339 13,142 124,084 30,481 250,018 
Substandard— — — 1 6 1,673 — 1,680 
Total other consumer26,676 20,640 21,656 13,340 13,148 125,757 30,481 251,698 
Total loans$488,765 $2,292,314 $2,040,106 $1,018,482 $867,777 $2,312,132 $1,103,995 $10,123,571 
(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.


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Notes to Unaudited Consolidated Financial Statements (Continued)

202220212020201920182017 and priorRevolving lines of creditTotal
December 31, 2022
Commercial real estate - investor
Pass$1,144,763 $1,339,289 $555,937 $524,428 $220,999 $881,344 $450,787 $5,117,547 
Special Mention— 2,508 192 17,094 — 12,818 2,188 34,800 
Substandard— — — 893 — 18,180 532 19,605 
Total commercial real estate - investor1,144,763 1,341,797 556,129 542,415 220,999 912,342 453,507 5,171,952 
Commercial real estate - owner occupied
Pass119,912 110,440 59,952 115,385 88,204 458,708 14,932 967,533 
Special Mention— — — — 748 5,679 — 6,427 
Substandard— — 3,750 2,037 4,817 12,803 — 23,407 
Total commercial real estate - owner occupied119,912 110,440 63,702 117,422 93,769 477,190 14,932 997,367 
Commercial and industrial
Pass60,078 23,724 14,072 17,175 10,992 47,370 443,211 616,622 
Special Mention— 7 — — — 250 1,680 1,937 
Substandard— 21 76 1,083 301 2,212 120 3,813 
Total commercial and industrial60,078 23,752 14,148 18,258 11,293 49,832 445,011 622,372 
Residential real estate (1)
Pass919,364 591,745 419,712 247,387 99,945 577,392 — 2,855,545 
Special Mention— 193 1,514 204 59 2,407 — 4,377 
Substandard— — — 656 286 1,127 — 2,069 
Total residential real estate919,364 591,938 421,226 248,247 100,290 580,926 — 2,861,991 
Other consumer (1)
Pass24,069 24,111 15,440 15,471 39,057 108,818 34,851 261,817 
Special Mention— — — 75 — 598 — 673 
Substandard— — — 157 18 1,707 — 1,882 
Total other consumer24,069 24,111 15,440 15,703 39,075 111,123 34,851 264,372 
Total loans$2,268,186 $2,092,038 $1,070,645 $942,045 $465,426 $2,131,413 $948,301 $9,918,054 
(1)For residential real estate and other consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity.


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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)


An analysis of the allowance for credit losses on loans for the three and nine months ended September 30, 2023 and 2022 was as follows (in thousands):
 Commercial
Real Estate –
Investor		Commercial
Real Estate –
Owner
Occupied		Commercial
and 
Industrial		Residential
Real Estate		Other ConsumerTotal
For the three months ended September 30, 2023
Allowance for credit losses on loans
Balance at beginning of period$24,481 $4,342 $5,945 $26,152 $871 $61,791 
Provision (benefit) for credit losses9,602 119 604 95 (63)10,357 
Charge-offs (1)
(8,350)— — — (29)(8,379)
Recoveries2 3 13 17 73 108 
Balance at end of period$25,735 $4,464 $6,562 $26,264 $852 $63,877 
For the three months ended September 30, 2022
Allowance for credit losses on loans
Balance at beginning of period$22,608 $5,021 $5,240 $18,196 $996 $52,061 
Provision (benefit) for credit losses82 (1,047)554 1,618 1 1,208 
Charge-offs(3)— — — (2)(5)
Recoveries3 48 69 44 93 257 
Balance at end of period$22,690 $4,022 $5,863 $19,858 $1,088 $53,521 
For the nine months ended September 30, 2023
Allowance for credit losses on loans
Balance at beginning of period$21,070 $4,423 $5,695 $24,530 $1,106 $56,824 
Provision (benefit) for credit losses13,010 38 974 1,700 (322)15,400 
Charge-offs (1)
(8,350)(6)(128)— (111)(8,595)
Recoveries5 9 21 34 179 248 
Balance at end of period$25,735 $4,464 $6,562 $26,264 $852 $63,877 
For the nine months ended September 30, 2022
Allowance for credit losses on loans
Balance at beginning of period$25,504 $5,884 $5,039 $11,155 $1,268 $48,850 
(Benefit) provision for credit losses(2,865)(2,003)720 8,612 (128)4,336 
Charge-offs(3)(18)— (56)(358)(435)
Recoveries54 159 104 147 306 770 
Balance at end of period$22,690 $4,022 $5,863 $19,858 $1,088 $53,521 
(1) Gross charge-offs for the three and nine months ended September 30, 2023 of $8.4 million and $8.6 million, respectively, primarily related to one commercial relationship, which was originated in 2019 and had a partial charge-off of $8.4 million in the third quarter of 2023 to its estimated realizable value of $8.8 million. The remainder of the charge-offs were related to loans that were originated in and prior to 2018.
A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral and, therefore, is classified as non-accruing. At September 30, 2023 and December 31, 2022, the Company had collateral dependent loans with an amortized cost balance as follows: commercial real estate - investor of $15.1 million and $4.6 million, respectively, commercial real estate - owner occupied of $240,000 and $4.0 million, respectively, and commercial and industrial of $1.1 million and $160,000, respectively. In addition, the Company had residential and consumer loans collateralized by residential real estate, which are in the process of foreclosure, with an amortized cost balance of $2.7 million and $858,000 at September 30, 2023 and December 31, 2022, respectively. 

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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

The following table presents the recorded investment in non-accrual loans, by loan portfolio segment as of September 30, 2023 and December 31, 2022 (in thousands):
September 30,December 31,
20232022
Commercial real estate – investor (1)
$20,723 $10,483 
Commercial real estate – owner occupied240 4,025 
Commercial and industrial1,120 331 
Residential real estate5,624 5,969 
Other consumer2,391 2,457 
$30,098 $23,265 
(1) At September 30, 2023, non-performing loans included the remaining exposure of $8.8 million on a commercial real estate relationship that was partially charged-off during the three months ended September 30, 2023.

At September 30, 2023 and December 31, 2022, non-accrual loans were included in the allowance for credit loss calculation and the Company did not recognize or accrue interest income on these loans. At September 30, 2023, there were no loans that were past due 90 days or greater and still accruing interest. At December 31, 2022, there was one Paycheck Protection Program (“PPP”) loan for $14,000 that was past due 90 days or greater and still accrued interest, which subsequently became current. Per Small Business Administration (“SBA”) guidelines, the SBA will pay accrued interest through the deferral period up to a maximum of 120 days past due. Given these servicing guidelines, PPP loans that are 90 to 120 days past due will be reported as accruing loans.
The following table presents the aging of the recorded investment in past due loans as of September 30, 2023 and December 31, 2022 by loan portfolio segment (in thousands):
30-59
Days
Past Due		60-89
Days
Past Due		90 Days or Greater Past DueTotal
Past Due		Loans Not
Past Due		Total
September 30, 2023
Commercial real estate – investor (1)
$999 $11,266 $3,791 $16,056 $5,318,223 $5,334,279 
Commercial real estate – owner occupied799 1,529 35 2,363 954,853 957,216 
Commercial and industrial1,773 803 145 2,721 649,398 652,119 
Residential real estate— 2,303 3,327 5,630 2,922,629 2,928,259 
Other consumer1,119 — 1,680 2,799 248,899 251,698 
$4,690 $15,901 $8,978 $29,569 $10,094,002 $10,123,571 
December 31, 2022
Commercial real estate – investor$217 $875 $3,700 $4,792 $5,167,160 $5,171,952 
Commercial real estate – owner occupied143 80 3,750 3,973 993,394 997,367 
Commercial and industrial159 47 180 386 621,986 622,372 
Residential real estate7,003 4,377 2,069 13,449 2,848,542 2,861,991 
Other consumer573 673 1,882 3,128 261,244 264,372 
$8,095 $6,052 $11,581 $25,728 $9,892,326 $9,918,054 
(1) At September 30, 2023, 60-89 days past due loans included the remaining exposure of $8.8 million on a commercial real estate relationship that was partially charged-off during the three months ended September 30, 2023.
The Company adopted Accounting Standards Update (“ASU”) 2022-02 on January 1, 2023. Since adoption, the Company has modified certain loans to borrowers experiencing financial difficulty. These modifications may include a reduction in interest rate, an extension in term, principal forgiveness and/or other than insignificant payment delay. At September 30, 2023, loans with modifications to borrowers experiencing financial difficulty totaled $1.1 million related to term extensions and interest rate reductions, which included residential real estate loans of $723,000 and other consumer loans of $410,000.
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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. Of the $1.1 million loans with modifications to borrowers experiencing financial difficulty, $994,000 were current and one residential loan of $140,000 had a payment default during the three and nine months ended September 30, 2023.
Prior to the adoption of ASU 2022-02, the Company classified certain loans as troubled debt restructuring (“TDR”) loans when credit terms to a borrower in financial difficulty were modified in accordance with ASC 310-40. Since adoption of this ASU, the Company has ceased to recognize or measure for new TDRs but those existing at December 31, 2022 remain until settled.
At September 30, 2023 and December 31, 2022, TDR loans totaled $13.2 million and $13.9 million, respectively. At September 30, 2023 and December 31, 2022, there were $5.8 million and $6.4 million, respectively, of TDR loans included in the non-accrual loan totals. At September 30, 2023 and December 31, 2022, the Company had $354,000 and $590,000, respectively, of specific reserve allocated to one loan that was classified as a TDR loan. Non-accrual loans which become TDR loans are generally returned to accrual status after six months of performance. In addition to the TDR loans included in non-accrual loans, the Company also has TDR loans classified as accruing loans, which totaled $7.4 million and $7.5 million at September 30, 2023 and December 31, 2022, respectively. 
The following table presents information about TDR loans which occurred during the three and nine months ended September 30, 2022 (dollars in thousands):
Number of LoansPre-modification
Recorded Investment		Post-modification
Recorded Investment
Three months ended September 30, 2022
Troubled debt restructurings:
Other consumer3$114 $124 
Nine months ended September 30, 2022
Troubled debt restructurings:
Commercial and industrial165 65 
Other consumer61,105 1,233 
There were no TDR loans that defaulted during the three and nine months ended September 30, 2023 and 2022, which were modified within the preceding year.

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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Note 5. Deposits
The major types of deposits at September 30, 2023 and December 31, 2022 were as follows (in thousands):
Type of AccountSeptember 30,December 31,
20232022
Non-interest-bearing$1,827,381 $2,101,308 
Interest-bearing checking3,708,874 3,829,683 
Money market deposit860,025 714,386 
Savings1,484,000 1,487,809 
Time deposits2,653,649 1,542,020 
Total deposits$10,533,929 $9,675,206 
Included in time deposits at September 30, 2023 and December 31, 2022 was $381.4 million and $117.7 million, respectively, of deposits of $250,000 or more. Time deposits also include brokered deposits of $995.5 million and $873.4 million at September 30, 2023 and December 31, 2022, respectively.
Note 6. Borrowed Funds
Borrowed funds at September 30, 2023 and December 31, 2022 were as follows (in thousands):
September 30,December 31,
20232022
FHLB advances$606,056 $1,211,166 
Securities sold under agreements to repurchase with customers82,981 69,097 
Other borrowings196,183 195,403 
Total borrowed funds$885,220 $1,475,666 
The Company had no FHLB overnight advances and no borrowings from the Federal Reserve Bank (“FRB”) Discount Window or Bank Term Funding Program at September 30, 2023 and December 31, 2022.
Pledged assets
The following table presents the assets pledged to secure borrowings, borrowing capacity, repurchase agreements, letters of credit, and for other purposes required by law at carrying value (in thousands):
LoansDebt securitiesTotal
September 30, 2023
FHLB and FRB$7,253,277 $997,973 $8,251,250 
Repurchase agreements— 93,145 93,145 
Total pledged assets$7,253,277 $1,091,118 $8,344,395 
December 31, 2022
FHLB and FRB$6,487,980 $830,057 $7,318,037 
Repurchase agreements— 105,294 105,294 
Total pledged assets$6,487,980 $935,351 $7,423,331 

The securities pledged, which collateralize the repurchase agreements are delivered to the lender, with whom each transaction is executed, or to a third-party custodian. The lender, who may sell, loan or otherwise dispose of such securities to other parties in the normal course of their operations, agrees to resell to the Company substantially the same securities at the maturity of the repurchase agreements.
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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 of U.S. Treasuries are determined using quoted prices in active markets (Level 1). The majority of the other debt securities are determined using inputs other than quoted prices that are based on market observable information (Level 2). Level 2 debt securities are priced through third-party pricing services or security industry sources that actively participate in the buying and selling of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain debt securities without relying exclusively on quoted prices for the specific securities, but comparing the debt securities to benchmark or comparable debt securities.
Equity Investments
Equity investments with readily determinable fair value are reported at fair value. Fair value for these investments is primarily determined using a quoted price in an active market or exchange (Level 1) or using inputs other than quoted prices that are based on market observable information (Level 2). Equity investments without readily determinable fair values are carried at cost less impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer (measurement alternative). Certain equity investments without readily
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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

determinable fair values are measured at net asset value (“NAV”) per share as a practical expedient, which are excluded from the fair value hierarchy levels in the table below.
Interest Rate Derivatives
The Company’s interest rate swaps and cap contracts are reported at fair value utilizing discounted cash flow models provided by an independent, third-party and observable market data (Level 2). When entering into an interest rate swap or cap contract, the Company is exposed to fair value changes due to interest rate movements, and also the potential nonperformance of the contract counterparty.
Loans Individually Measured for Impairment
Loans measured for impairment based on the fair value of the underlying collateral are recorded at estimated fair value, less estimated selling costs. Fair value is generally based on independent appraisals (Level 3), which may be adjusted by management for qualitative factors, such as economic factors and estimated liquidation expenses.
The following table summarizes financial assets and financial liabilities measured at fair value as of September 30, 2023 and December 31, 2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):
  Fair Value Measurements at Reporting Date Using:
Total Fair
Value		Level 1
Inputs		Level 2
Inputs		Level 3
Inputs
September 30, 2023
Items measured on a recurring basis:
Debt securities available-for-sale
$453,208 $42,054 $411,154 $— 
Equity investments
50,945 — 50,945 — 
Interest rate derivative asset137,090 — 137,090 — 
Interest rate derivative liability(138,806)— (138,806)— 
Items measured on a non-recurring basis:
Equity investments (1) (2)
46,963 — — 43,576 
Loans measured for impairment based on the fair value of the underlying collateral (3)
19,080 — — 19,080 
December 31, 2022
Items measured on a recurring basis:
Debt securities available-for-sale
$457,648 $— $457,648 $— 
Equity investments
61,942 430 61,511 — 
Interest rate derivative asset113,420 — 113,420 — 
Interest rate derivative liability(113,473)— (113,473)— 
Items measured on a non-recurring basis:
Equity investments (1) (2)
40,095 — — 37,076 
Loans measured for impairment based on the fair value of the underlying collateral (3)
9,635 — — 9,635 
(1)    As of September 30, 2023 and December 31, 2022, primarily consists of $43.6 million and $37.1 million, respectively, of equity investments measured under the measurement alternative. This included no unrealized gains or losses for the nine months ended September 30, 2023 and $20.0 million of unrealized gains for the year ended December 31, 2022.
(2)    As of September 30, 2023 and December 31, 2022, equity investments of $47.0 million and $40.1 million, respectively, included $3.4 million and $3.0 million, respectively, of certain equity investment funds measured at NAV per share (or its equivalent) as a practical expedient to fair value and these equity investments have not been classified in the fair value hierarchy levels.
(3) Primarily consists of commercial loans, which are collateral dependent. The range may vary but is generally 0% to 8% on the discount for costs to sell and 0% to 10% on appraisal adjustments.

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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

The following table reconciles the beginning and ending balances for equity investments that are recognized at fair value on a recurring basis, in the Consolidated Statements of Financial Condition, using significant unobservable inputs (in thousands):
For the Nine Months Ended September 30,
2022
Beginning balance$2,718 
Transfers out of Level 3(2,718)
Ending balance$— 
The Company recognizes transfers between levels of the valuation hierarchy at the end of the applicable reporting periods. There were no assets in Level 3 that were recognized at fair value on a recurring basis or transfers into or out of Level 3 for the three and nine months ended September 30, 2023. During the nine months ended September 30, 2022, the Company executed its right to convert $2.7 million of preferred stock into common stock, which resulted in a transfer from Level 3 into Level 1.

Assets and Liabilities Disclosed at Fair Value
A description of the valuation methodologies used for assets and liabilities disclosed at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy is set forth below.
Cash and Due from Banks
For cash and due from banks, the carrying amount approximates fair value.
Debt Securities Held-to-Maturity
Debt securities classified as held-to-maturity are carried at amortized cost, as the Company has the positive intent and ability to hold these debt securities to maturity. The Company determines the fair value of the debt securities utilizing Level 2 and, infrequently, Level 3 inputs. Most of the Company’s debt securities are fixed income instruments that are not quoted on an exchange, but are bought and sold in active markets. Prices for these instruments are obtained through third-party pricing vendors or security industry sources that actively participate in the buying and selling of debt securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain debt securities without relying exclusively on quoted prices for the specific debt securities, but comparing the debt securities to benchmark or comparable debt securities.
Management’s policy is to obtain and review all available documentation from the third-party pricing service relating to their fair value determinations, including their methodology and summary of inputs. Management reviews this documentation, makes inquiries of the third-party pricing service and decides as to the level of the valuation inputs. Based on the Company’s review of the available documentation from the third-party pricing service, management concluded that Level 2 inputs were utilized for all securities except for certain debt securities where management utilized Level 3 inputs, such as broker or dealer quotes with limited levels of activity and price transparency.
Restricted Equity Investments
The fair value 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, which is based on an exit price notion, was estimated by discounting the future cash flows, net of estimated prepayments, at market discount rates that reflect the credit and interest rate risk inherent in the loan.
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
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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

insensitivity of the majority of these deposits to interest rate changes creates a significant inherent value which is not reflected in the fair value reported.
Time Deposits
The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.
Securities Sold Under Agreements to Repurchase with Customers
Fair value approximates the carrying amount as these borrowings are payable on demand and the interest rate adjusts monthly.
FHLB Advances and Other Borrowings
Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.
The book value and estimated fair value of the Company’s significant financial instruments not recorded at fair value as of September 30, 2023 and December 31, 2022 are presented in the following tables (in thousands):
  Fair Value Measurements at Reporting Date Using:
Book
Value		Level 1
Inputs		Level 2
Inputs		Level 3
Inputs
September 30, 2023
Financial Assets:
Cash and due from banks$408,882 $408,882 $— $— 
Debt securities held-to-maturity1,189,339 — 1,047,342 — 
Restricted equity investments82,484 — — 82,484 
Loans receivable, net and loans held-for-sale 10,068,156 — — 9,035,358 
Financial Liabilities:
Deposits other than time deposits (1)
7,880,280 — 7,880,280 — 
Time deposits2,653,649 — 2,626,602 — 
FHLB advances and other borrowings802,239 — 770,544 — 
Securities sold under agreements to repurchase with customers82,981 82,981 — — 
December 31, 2022
Financial Assets:
Cash and due from banks$167,946 $167,946 $— $— 
Debt securities held-to-maturity1,221,138 — 1,097,984 12,057 
Restricted equity investments109,278 — — 109,278 
Loans receivable, net and loans held-for-sale9,869,408 — — 9,103,137 
Financial Liabilities:
Deposits other than time deposits (1)
8,133,186 — 8,133,186 — 
Time deposits1,542,020 — 1,504,601 — 
FHLB advances and other borrowings1,406,569 — 1,416,384 — 
Securities sold under agreements to repurchase with customers69,097 69,097 — — 
(1)    The estimated fair value of non-maturity deposits does not consider any inherent value and represents the amount payable on demand. However, non-maturity deposits do contain significant inherent value to the Company, particularly when overnight funding costs are greater than the deposit costs.

Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time 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,
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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

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.

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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Note 8. Derivatives and Hedging Activities
The Company enters into derivative financial instruments which involve, to varying degrees, interest rate and credit risk. The Company manages these risks as part of its asset and liability management process and through credit policies and procedures, seeking to minimize counterparty credit risk by establishing credit limits and collateral agreements. The Company utilizes derivative financial instruments to accommodate the business needs of its customers as well as to economically hedge the exposure that this creates for the Company. Additionally, the Company enters into certain derivative financial instruments to enhance its ability to manage interest rate risk that exists as part of its ongoing business operations. The Company does not use derivative financial instruments for trading purposes.
Customer Derivatives – Interest Rate Swaps and Cap Contracts
Derivatives Not Designated as Hedging Instruments
The Company enters into interest rate swaps that allow commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s variable-rate loan into a fixed-rate loan. The Company then enters into a corresponding swap agreement with a third party in order to economically hedge its exposure through the customer agreement. The Company also enters into interest rate cap contracts that enable commercial loan customers to lock in a cap on a variable-rate commercial loan agreement. This feature prevents the loan from repricing to a level that exceeds the cap contract’s specified interest rate, which serves to hedge the risk from rising interest rates. The Company then enters into an offsetting interest rate cap contract with a third party in order to economically hedge its exposure through the customer agreement.
These interest rate swaps and cap contracts with both the customers and third parties are not designated as hedges under ASC Topic 815, Derivatives and Hedging, therefore changes in fair value are reported in earnings. As the interest rate swaps and cap contracts are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by ASC Topic 820, Fair Value Measurements. The Company recognized losses of $2,000 and $2,000 in commercial loan swap income resulting from the fair value adjustment for the three and nine months ended September 30, 2023, respectively, as compared to gains of $19,000 and $56,000 for the corresponding prior year periods.
Derivatives Designated as Hedging Instruments
During the fourth quarter of 2022, the Company entered into a three-year interest rate swap intended to add stability to its net interest income and to manage its exposure to future interest rate movements associated with a pool of floating rate commercial loans. The swap requires the Company to pay variable-rate amounts indexed to one-month term Secured Overnight Financing Rate (“SOFR”) to the counterparty in exchange for the receipt of fixed-rate amounts at 4.0% from the counterparty. The swap was designated and qualified as a cash flow hedge, under ASC Topic 815, Derivatives and Hedging. The changes in the fair value of cash flow hedges are initially reported in other comprehensive income. Amounts are subsequently reclassified from accumulated other comprehensive income to earnings when the hedged transactions occur, specifically within the same line item as the hedged item (interest income). Therefore, a portion of the balance reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income as interest payments are made or received on the Company’s interest rate swaps.
The table below presents the effect on the Company’s accumulated other comprehensive income/loss (“AOCI” or “AOCL”) attributable to the cash flow hedge derivative, net of tax, and the related gains/(losses) reclassified from AOCI into income (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20232023
AOCL balance at beginning of period, net of tax$(909)$(25)
Unrealized losses recognized in OCI(622)(1,798)
Losses reclassified from AOCI into interest income246 538 
AOCL balance at end of period, net of tax$(1,285)$(1,285)
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OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

During the next twelve months ending September 30, 2024, the Company estimates that an additional $1.4 million will be reclassified as a reduction to interest income.
The table below presents the notional amount and fair value of derivatives designated and not designated as hedging instruments, as well as their location on the Consolidated Statements of Financial Condition (in thousands):
NotionalFair Value
Other assetsOther liabilities
As of September 30, 2023
Derivatives Not Designated as Hedging Instruments
Interest rate swaps and cap contracts$1,420,826 $137,090 $137,111 
Derivatives Designated as Cash Flow Hedge
Interest rate swap contract100,000 — 1,695 
Total Derivatives$1,520,826 $137,090 $138,806 
As of December 31, 2022
Derivatives Not Designated as Hedging Instruments
Interest rate swaps and cap contracts$1,368,245 $113,420 $113,440 
Derivatives Designated as Cash Flow Hedge
Interest rate swap contract100,000 — 33 
Total Derivatives$1,468,245 $113,420 $113,473 
Credit Risk-Related Contingent Features
The Company is exposed to credit risk in the event of nonperformance by the interest rate derivative counterparty. The Company minimizes this risk by being a party to International Swaps and Derivatives Association agreements with third party broker-dealers that require a minimum dollar transfer amount upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted with third parties was $0 and $40,000 at September 30, 2023 and December 31, 2022, respectively. The amount of collateral received from third parties was $142.3 million and $104.5 million at September 30, 2023 and December 31, 2022, respectively. The amount of collateral posted with third parties and received from third parties is deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures. The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with third parties was $138.8 million and $113.5 million at September 30, 2023 and December 31, 2022, respectively.
The interest rate derivatives which the Company executes with the commercial borrowers are collateralized by the borrowers’ commercial real estate financed by the Company.

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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 ROU assets and lease liabilities on the Consolidated Statements of Financial Condition (in thousands):
September 30,December 31,
20232022
Lease ROU AssetsClassification
Operating lease ROU assetsOther assets$19,610 $19,055 
Finance lease ROU assetPremises and equipment, net1,362 1,532 
Total lease ROU assets$20,972 $20,587 
Lease Liabilities
Operating lease liabilities (1)
Other liabilities$20,645 $20,053 
Finance lease liabilityOther borrowings1,748 1,934 
Total lease liabilities$22,393 $21,987 
(1) Operating lease liabilities excludes liabilities for future rent and estimated lease termination payments related to closed branches of $6.3 million and $7.7 million at September 30, 2023 and December 31, 2022, respectively.
The calculated amount of the ROU assets and lease liabilities are impacted by the lease term and the discount rate used to calculate the present value of the minimum lease payments. Lease agreements often include one or more options to renew the lease at the Company’s discretion. If the exercise of a renewal option is considered to be reasonably certain, the Company includes the extended term in the calculation of the ROU asset and lease liability. For the discount rate, ASC Topic 842, Leases requires the Company to use the rate implicit in the lease, provided the rate is readily determinable. As this rate is not readily determinable, the Company generally utilizes its incremental borrowing rate, at lease inception, over a similar term. For operating leases existing prior to January 1, 2019, the Company used the incremental borrowing rate for the remaining lease term as of January 1, 2019. For the finance lease, the Company utilized its incremental borrowing rate at lease inception.
September 30,December 31,
20232022
Weighted-Average Remaining Lease Term
Operating leases6.59 years6.87 years
Finance lease5.85 years6.60 years
Weighted-Average Discount Rate
Operating leases2.95 %2.86 %
Finance lease5.63 5.63 






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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 September 30,Nine Months Ended September 30,
2023202220232022
Lease Expense
Operating lease expense$1,153 $1,159 $3,472 $3,857 
Finance lease expense:
Amortization of ROU assets58 49 170 149 
Interest on lease liabilities (1)
25 24 77 76 
Total$1,236 $1,232 $3,719 $4,082 
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$1,154 $955 $3,414 $3,366 
Operating cash flows from finance leases25 24 77 76 
Financing cash flows from finance leases63 52 186 154 
(1)Included in borrowed funds interest expense on the Consolidated Statements of Income. All other costs are included in occupancy expense on the Consolidated Statements of Income.
Future minimum payments for the finance lease and operating leases with initial or remaining terms were as follows (in thousands):
Finance LeaseOperating Leases
For the Year Ending December 31,
2023$88 $1,157 
2024350 4,334 
2025350 4,351 
2026350 3,784 
2027350 2,628 
Thereafter559 6,754 
Total2,047 23,008 
Less: Imputed interest(299)(2,363)
Total lease liabilities$1,748 $20,645 
Note 10. Variable Interest Entity
The Company accounts for Trident as a variable interest entity (“VIE”) under ASC 810, Consolidation, for which the Company is considered the primary beneficiary (i.e. the party that has a controlling financial interest). In accordance with ASC 810, Consolidation, the Company has consolidated Trident’s assets and liabilities.

The summarized financial information for the Company’s consolidated VIE at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
September 30, 2023December 31, 2022
Cash and cash equivalents$26,082 $30,062 
Other assets937 941 
Total assets27,019 31,003 
Other liabilities25,237 28,998 
Net assets$1,782 $2,005 

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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 2022 Form 10-K and Part II, Item 1A, “Risk Factors,” in the Form 10-Q for the quarter ended March 31, 2023. Except as previously disclosed, there have been no material changes to risk factors relevant to the Company’s operations since December 31, 2022. 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, Use of Proceeds, and Purchases of Equity Securities
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 did not repurchase any shares of its common stock under its repurchase program during the three month period ended September 30, 2023. At September 30, 2023, there were 2,934,438 shares available for repurchase under the Company’s stock repurchase program.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information

During the three months ended September 30, 2023, no directors or executive officers of the Company adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and/or any “Rule 10b5-1 trading arrangement.”


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Item 6. Exhibits
 
Exhibit No:Exhibit DescriptionReference
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed with this document
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed with this document
Certification pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002Filed with this document
101.0
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, 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
104.0Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)



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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:November 7, 2023/s/ Christopher D. Maher
Christopher D. Maher
Chairman and Chief Executive Officer
DATE:November 7, 2023/s/ Patrick S. Barrett
Patrick S. Barrett
Executive Vice President and Chief Financial Officer

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