UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20222023
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☐ | 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
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OceanFirst Financial Corp.
(Exact name of registrant as specified in its charter)
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Delaware | 22-3412577 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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110 West Front Street, | Red Bank, | NJ | 07701 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (732) 240-4500
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading symbol(s) | | Name of each exchange on which registered |
Common stock, $0.01 par value per share | | OCFC | | NASDAQ |
Depositary Shares (each representing a 1/40th interest in a share of 7.0% Series A Non-Cumulative, perpetual preferred stock) | | OCFCP | | NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | | ☒ | Accelerated Filer | | ☐ |
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Non-accelerated Filer | | ☐ | Smaller Reporting Company | | ☐ |
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| | | Emerging Growth Company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒.
As of November 4, 2022,3, 2023, there were 59,141,52859,423,069 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.
OceanFirst Financial Corp.
INDEX TO FORM 10-Q
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PART I. | FINANCIAL INFORMATION | |
Item 1. | Consolidated Financial Statements (unaudited) | |
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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) | FINANCIAL SUMMARY(1) | At or for the Quarters Ended | FINANCIAL SUMMARY(1) | At or for the Quarters Ended |
(dollars in thousands, except per share amounts) | (dollars in thousands, except per share amounts) | September 30, 2022 | | June 30, 2022 | | September 30, 2021 | (dollars in thousands, except per share amounts) | September 30, 2023 | | June 30, 2023 | | September 30, 2022 |
SELECTED FINANCIAL CONDITION DATA: | SELECTED FINANCIAL CONDITION DATA: | | | | | | SELECTED FINANCIAL CONDITION DATA: | | | | | |
Total assets | Total assets | $ | 12,683,453 | | | $ | 12,438,653 | | | $ | 11,829,688 | | Total assets | $ | 13,498,183 | | | $ | 13,538,903 | | | $ | 12,683,453 | |
Loans receivable, net of allowance for loan credit losses | Loans receivable, net of allowance for loan credit losses | 9,672,488 | | | 9,380,688 | | | 8,139,961 | | Loans receivable, net of allowance for loan credit losses | 10,068,156 | | | 10,030,106 | | | 9,672,488 | |
Deposits | Deposits | 9,959,469 | | | 9,831,484 | | | 9,774,097 | | Deposits | 10,533,929 | | | 10,158,337 | | | 9,959,469 | |
Total stockholders’ equity | Total stockholders’ equity | 1,540,216 | | | 1,521,432 | | | 1,513,249 | | Total stockholders’ equity | 1,637,604 | | | 1,626,283 | | | 1,540,216 | |
SELECTED OPERATING DATA: | SELECTED OPERATING DATA: | | SELECTED OPERATING DATA: | |
Net interest income | Net interest income | 95,965 | | | 90,797 | | | 77,132 | | Net interest income | 90,996 | | | 92,109 | | | 95,965 | |
Credit loss expense (benefit) | 1,016 | | | 1,254 | | | (3,179) | | |
Provision for credit losses | | Provision for credit losses | 10,283 | | | 1,229 | | | 1,016 | |
Other income | Other income | 15,150 | | | 7,541 | | | 9,883 | | Other income | 10,762 | | | 8,928 | | | 15,150 | |
Operating expenses | Operating expenses | 58,997 | | | 58,661 | | | 58,673 | | Operating expenses | 64,484 | | | 62,930 | | | 58,997 | |
Net income | Net income | 38,804 | | | 29,483 | | | 24,167 | | Net income | 20,532 | | | 27,882 | | | 38,804 | |
Net income attributable to OceanFirst Financial Corp. | Net income attributable to OceanFirst Financial Corp. | 38,611 | | | 28,961 | | | 24,167 | | Net income attributable to OceanFirst Financial Corp. | 20,667 | | | 27,797 | | | 38,611 | |
Net income available to common stockholders | Net income available to common stockholders | 37,607 | | | 27,957 | | | 23,163 | | Net income available to common stockholders | 19,663 | | | 26,793 | | | 37,607 | |
Diluted earnings per share | Diluted earnings per share | 0.64 | | | 0.47 | | | 0.39 | | Diluted earnings per share | 0.33 | | | 0.45 | | | 0.64 | |
SELECTED FINANCIAL RATIOS: | SELECTED FINANCIAL RATIOS: | | SELECTED FINANCIAL RATIOS: | |
Stockholders’ equity per common share at end of period | 26.04 | | | 25.73 | | | 25.47 | | |
Book value per common share at end of period | | Book value per common share at end of period | 27.56 | | | 27.37 | | | 26.04 | |
Cash dividend per share | Cash dividend per share | 0.20 | | | 0.17 | | | 0.17 | | Cash dividend per share | 0.20 | | | 0.20 | | | 0.20 | |
Dividend payout ratio per common share | Dividend payout ratio per common share | 31.25 | % | | 36.17 | % | | 43.59 | % | Dividend payout ratio per common share | 60.61 | % | | 44.44 | % | | 31.25 | % |
Stockholders’ equity to total assets | Stockholders’ equity to total assets | 12.14 | | | 12.23 | | | 12.79 | | Stockholders’ equity to total assets | 12.13 | | | 12.01 | | | 12.14 | |
Return on average assets (2) (3) (4) | Return on average assets (2) (3) (4) | 1.19 | | | 0.92 | | | 0.78 | | Return on average assets (2) (3) (4) | 0.57 | | | 0.80 | | | 1.19 | |
Return on average stockholders’ equity (2) (3) (4) | Return on average stockholders’ equity (2) (3) (4) | 9.68 | | | 7.31 | | | 6.05 | | Return on average stockholders’ equity (2) (3) (4) | 4.75 | | | 6.61 | | | 9.68 | |
Net interest rate spread (5) | Net interest rate spread (5) | 3.19 | | | 3.18 | | | 2.80 | | Net interest rate spread (5) | 2.37 | | | 2.52 | | | 3.19 | |
Net interest margin (2) (6) | Net interest margin (2) (6) | 3.36 | | | 3.29 | | | 2.93 | | Net interest margin (2) (6) | 2.91 | | | 3.02 | | | 3.36 | |
Operating expenses to average assets (2) (4) | Operating expenses to average assets (2) (4) | 1.87 | | | 1.92 | | | 1.98 | | Operating expenses to average assets (2) (4) | 1.88 | | | 1.87 | | | 1.87 | |
Efficiency ratio (4) (7) | Efficiency ratio (4) (7) | 53.10 | | | 59.65 | | | 67.43 | | Efficiency ratio (4) (7) | 63.37 | | | 62.28 | | | 53.10 | |
Loans-to-deposits ratio | 97.60 | | | 95.90 | | | 83.71 | | |
ASSET QUALITY: | | |
Non-performing loans (8) | $ | 21,498 | | | $ | 20,753 | | | $ | 30,304 | | |
Non-performing assets (8) | 21,498 | | | 20,753 | | | 30,410 | | |
Allowance for loan credit losses as a percent of total loans receivable (9) (10) | 0.55 | % | | 0.55 | % | | 0.61 | % | |
Allowance for loan credit losses as a percent of total non-performing loans (8) (10) | 248.96 | | | 250.86 | | | 165.50 | | |
Non-performing loans as a percent of total loans receivable (8) (9) | 0.22 | | | 0.22 | | | 0.37 | | |
Non-performing assets as a percent of total assets (8) | 0.17 | | | 0.17 | | | 0.26 | | |
Loan-to-deposit ratio (8) | | Loan-to-deposit ratio (8) | 96.10 | | | 99.30 | | | 97.60 | |
ASSET QUALITY (9): | | ASSET QUALITY (9): | |
Non-performing loans (10) | | Non-performing loans (10) | $ | 30,098 | | | $ | 22,758 | | | $ | 21,498 | |
| Allowance for loan credit losses as a percent of total loans receivable (8) (11) | | 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) | | 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) | | 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) | | 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) IncludedPerformance 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, for the three months ended September 30, 2022. Included a net expense related to merger related expenses, net branch consolidation expenses, and net loss on equity investments of $8.8 million, or $6.7 million, net of tax benefit, for the three months ended June 30, 2022. Included a net expense related to merger related expenses, net branch consolidation expenses, and net loss on equity investments of $4.7$3.4 million, or $3.6$2.6 million, net of tax benefit, for the three months ended September 30, 2021.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.
(8) Non-performing assets consist of(9) At September 30, 2023, non-performing loans andincluded the remaining exposure of $8.8 million on a single commercial real estate acquired through foreclosure.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.
(9) Total loans receivable excludes loans held-for-sale.
(10)(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 $13.6$8.8 million, $15.5$9.8 million, and $21.3$13.6 million at September 30, 2022,2023, June 30, 20222023 and September 30, 2021,2022, respectively.
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 on 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, 20222023 were as follows:
•Strengthening Net Interest Income and Margin:Deposit Growth: Net interest incomeTotal deposits increased by $5.2$375.6 million, or 4%, as compared to $96.0 million, from $90.8 million in the prior linked quarter. Net interest margin increased to 3.36%, as compared to 3.29%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 prior linked quarter, largely driven bytotal deposits.
•Asset Quality: Asset quality metrics remain strong, despite the impact of the rising rate environment on interest earning assets, anda charge-off related to a lesser extentsingle 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 loan balances, partly offsetnon-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 increased cost of funds and lower prepayment fees.
•Loan and Deposit Growth: Loan growth for the quarteroffice building in Midtown Manhattan, New York City. The credit was $293.9 million, reflecting originations of $543.8 million. The committed loan pipeline increasedalso included in total delinquent loans 30 to $439.5 million as of89 days at September 30, 2022. Deposits grew by $128.0 million for the quarter and $226.7 million year-to-date.
•Interchange Fees: Effective July 1, 2022,the Bank became subject to the Durbin amendment, as contained in the Dodd-Frank Act, which imposes limitations on debit card interchange fees collected by banks with assets of $10 billion or more. As a result, bankcard services revenue was adversely impacted by $1.7 million. The Company is strategically positioned to absorb the decreased fee income and continue to grow earnings.
•Partners Bancorp: On November 9, 2022,2023. Lastly, the Company recognized one-time compensation and Partners Bancorp (“Partners”) entered into a Mutual Termination Agreement (the “Termination Agreement”) pursuantbenefits expenses of $2.4 million attributable to which, amongseverance and other things, the Company and Partners mutually agreed to terminate the Agreement and Plan of Merger (the “Merger Agreement”) and transactions contemplated thereby. Each party will bear its ownprogram costs and expenses in connection with the terminated transaction, and neither party will pay a termination fee in connection with the termination of the Merger Agreement. The Termination Agreement also mutually releases the parties from any claims of liability to one another relating to the Merger Agreement and the terminated transaction.performance improvement initiatives.
Net income available to common stockholders for the three and nine months ended September 30, 2022 was $37.62023 decreased to $19.7 million and $90.3$73.3 million, respectively, or $0.64$0.33 and $1.53$1.24 per diluted share, as compared to $23.2$37.6 million and $84.4$90.3 million, or $0.39$0.64 and $1.41$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, and 2021, respectively. Net income available to common stockholders 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 gain on equity investments of $3.4 million and net loss on equity investments of $7.5 million. Net income available to common stockholders for the three and nine months ended September 30, 2021 included merger related expenses of $225,000 and $1.1 million, respectively, net branch consolidation expenses of $4.0 million and $5.1 million, and net loss on equity investments of $466,000 and net gain on equity investments of $8.4 million.
The Company remains well-capitalized with a stockholders’ equity to total assets ratio of 12.14% at September 30, 2022.
On October 24, 2022,19, 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, 2022,2023, will be paid on November 18, 202217, 2023 to common stockholders of record on November 7, 2022.6, 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, 20222023 to preferred stockholders of record on October 31, 2022.2023.
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.
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, 20222023, interest income included net loan fees of $832,000$621,000 and $5.0$2.6 million, respectively, as compared to $1.6 million$832,000 and $4.2$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, 20222023 and 2021.2022. 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, | | For the Three Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
(dollars in thousands) | (dollars in thousands) | Average Balance | | Interest | | Average Yield/ Cost (1) | | Average Balance | | Interest | | Average Yield/ Cost (1) | (dollars in thousands) | Average Balance | | Interest | | Average Yield/ Cost (1) | | Average Balance | | Interest | | Average Yield/ Cost (1) |
| Assets: | Assets: | | | | | | | | | | | | Assets: | | | | | | | | | | | |
Interest-earning assets: | Interest-earning assets: | | Interest-earning assets: | |
Interest-earning deposits and short-term investments | Interest-earning deposits and short-term investments | $ | 65,648 | | | $ | 336 | | | 2.03 | % | | $ | 1,053,797 | | | $ | 441 | | | 0.17 | % | Interest-earning deposits and short-term investments | $ | 470,825 | | | $ | 6,440 | | | 5.43 | % | | $ | 65,648 | | | $ | 336 | | | 2.03 | % |
Securities (2) | Securities (2) | 1,748,687 | | | 10,022 | | | 2.27 | | | 1,542,630 | | | 6,090 | | | 1.57 | | Securities (2) | 1,873,450 | | | 18,039 | | | 3.82 | | | 1,748,687 | | | 10,022 | | | 2.27 | |
Loans receivable, net (3) | Loans receivable, net (3) | | Loans receivable, net (3) | |
Commercial | Commercial | 6,509,515 | | | 74,309 | | | 4.53 | | | 5,361,472 | | | 55,387 | | | 4.10 | | Commercial | 6,923,743 | | | 103,069 | | | 5.91 | | | 6,509,515 | | | 74,309 | | | 4.53 | |
Residential real estate | Residential real estate | 2,791,067 | | | 22,818 | | | 3.27 | | | 2,260,673 | | | 20,076 | | | 3.55 | | Residential real estate | 2,918,612 | | | 26,765 | | | 3.67 | | | 2,791,067 | | | 22,818 | | | 3.27 | |
Home equity loans and lines and other consumer (“other consumer”) | Home equity loans and lines and other consumer (“other consumer”) | 256,638 | | | 3,014 | | | 4.66 | | | 289,011 | | | 3,426 | | | 4.70 | | 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 | Allowance for loan credit losses, net of deferred loan costs and fees | (44,773) | | | — | | | — | | | (46,436) | | | — | | | — | | Allowance for loan credit losses, net of deferred loan costs and fees | (53,959) | | | — | | | — | | | (44,773) | | | — | | | — | |
Loans receivable, net | Loans receivable, net | 9,512,447 | | | 100,141 | | | 4.18 | | | 7,864,720 | | | 78,889 | | | 3.98 | | Loans receivable, net | 10,040,522 | | | 133,931 | | | 5.30 | | | 9,512,447 | | | 100,141 | | | 4.18 | |
Total interest-earning assets | Total interest-earning assets | 11,326,782 | | | 110,499 | | | 3.88 | | | 10,461,147 | | | 85,420 | | | 3.24 | | Total interest-earning assets | 12,384,797 | | | 158,410 | | | 5.08 | | | 11,326,782 | | | 110,499 | | | 3.88 | |
Non-interest-earning assets | Non-interest-earning assets | 1,191,173 | | | | | | | 1,276,890 | | | | | | Non-interest-earning assets | 1,252,416 | | | | | | | 1,191,173 | | | | | |
Total assets | Total assets | $ | 12,517,955 | | | $ | 11,738,037 | | | Total assets | $ | 13,637,213 | | | $ | 12,517,955 | | |
Liabilities and Stockholders’ Equity: | Liabilities and Stockholders’ Equity: | | | | | Liabilities and Stockholders’ Equity: | | | | |
Interest-bearing liabilities: | Interest-bearing liabilities: | | Interest-bearing liabilities: | |
Interest-bearing checking | Interest-bearing checking | $ | 3,873,968 | | | 2,671 | | | 0.27 | % | | $ | 3,841,475 | | | 2,854 | | | 0.29 | % | Interest-bearing checking | $ | 3,692,500 | | | 14,938 | | | 1.61 | % | | $ | 3,873,968 | | | 2,671 | | | 0.27 | % |
Money market | Money market | 793,230 | | | 721 | | | 0.36 | | | 767,854 | | | 245 | | | 0.13 | | Money market | 832,729 | | | 5,698 | | | 2.71 | | | 793,230 | | | 721 | | | 0.36 | |
Savings | Savings | 1,603,147 | | | 187 | | | 0.05 | | | 1,609,197 | | | 146 | | | 0.04 | | Savings | 1,391,811 | | | 3,311 | | | 0.94 | | | 1,603,147 | | | 187 | | | 0.05 | |
Time deposits | Time deposits | 1,467,297 | | | 5,659 | | | 1.53 | | | 904,384 | | | 2,134 | | | 0.94 | | Time deposits | 2,867,921 | | | 29,340 | | | 4.06 | | | 1,467,297 | | | 5,659 | | | 1.53 | |
Total | Total | 7,737,642 | | | 9,238 | | | 0.47 | | | 7,122,910 | | | 5,379 | | | 0.30 | | Total | 8,784,961 | | | 53,287 | | | 2.41 | | | 7,737,642 | | | 9,238 | | | 0.47 | |
Federal Home Loan Bank (“FHLB”) advances | Federal Home Loan Bank (“FHLB”) advances | 352,392 | | | 2,208 | | | 2.49 | | | — | | | — | | | — | | Federal Home Loan Bank (“FHLB”) advances | 701,343 | | | 8,707 | | | 4.93 | | | 352,392 | | | 2,208 | | | 2.49 | |
Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | 96,147 | | | 35 | | | 0.14 | | | 142,494 | | | 51 | | | 0.14 | | Securities sold under agreements to repurchase | 76,620 | | | 261 | | | 1.35 | | | 96,147 | | | 35 | | | 0.14 | |
Other borrowings(4) | Other borrowings(4) | 194,755 | | | 3,053 | | | 6.22 | | | 228,695 | | | 2,858 | | | 4.96 | | Other borrowings(4) | 317,210 | | | 5,159 | | | 6.45 | | | 194,755 | | | 3,053 | | | 6.22 | |
Total borrowings | Total borrowings | 643,294 | | | 5,296 | | | 3.27 | | | 371,189 | | | 2,909 | | | 3.11 | | Total borrowings | 1,095,173 | | | 14,127 | | | 5.12 | | | 643,294 | | | 5,296 | | | 3.27 | |
Total interest-bearing liabilities | Total interest-bearing liabilities | 8,380,936 | | | 14,534 | | | 0.69 | | | 7,494,099 | | | 8,288 | | | 0.44 | | Total interest-bearing liabilities | 9,880,134 | | | 67,414 | | | 2.71 | | | 8,380,936 | | | 14,534 | | | 0.69 | |
Non-interest-bearing deposits | Non-interest-bearing deposits | 2,328,700 | | | | | | | 2,576,123 | | | | | | Non-interest-bearing deposits | 1,841,198 | | | | | | | 2,328,700 | | | | | |
Non-interest-bearing liabilities(4) | Non-interest-bearing liabilities(4) | 266,564 | | | 148,327 | | | Non-interest-bearing liabilities(4) | 272,982 | | | 266,564 | | |
Total liabilities | Total liabilities | 10,976,200 | | | 10,218,549 | | | Total liabilities | 11,994,314 | | | 10,976,200 | | |
Stockholders’ equity | Stockholders’ equity | 1,541,755 | | | 1,519,488 | | | Stockholders’ equity | 1,642,899 | | | 1,541,755 | | |
Total liabilities and equity | Total liabilities and equity | $ | 12,517,955 | | | $ | 11,738,037 | | | Total liabilities and equity | $ | 13,637,213 | | | $ | 12,517,955 | | |
Net interest income | Net interest income | | | $ | 95,965 | | | | | $ | 77,132 | | | Net interest income | | | $ | 90,996 | | | | | $ | 95,965 | | |
Net interest rate spread (4)(5) | Net interest rate spread (4)(5) | | | | 3.19 | % | | | | 2.80 | % | Net interest rate spread (4)(5) | | | | 2.37 | % | | | | 3.19 | % |
Net interest margin (5)(6) | Net interest margin (5)(6) | | 3.36 | % | | 2.93 | % | Net interest margin (5)(6) | | 2.91 | % | | 3.36 | % |
Total cost of deposits (including non-interest-bearing deposits) | Total cost of deposits (including non-interest-bearing deposits) | | 0.36 | % | | 0.22 | % | Total cost of deposits (including non-interest-bearing deposits) | | 1.99 | % | | 0.36 | % |
| | | | For the Nine Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
(dollars in thousands) | (dollars in thousands) | Average Balance | | Interest | | Average Yield/ Cost (1) | | Average Balance | | Interest | | Average Yield/ Cost (1) | (dollars in thousands) | Average Balance | | Interest | | Average Yield/ Cost (1) | | Average Balance | | Interest | | Average Yield/ Cost (1) |
Assets: | Assets: | | | | | | | | | | | | Assets: | | | | | | | | | | | |
Interest-earning assets: | Interest-earning assets: | | Interest-earning assets: | |
Interest-earning deposits and short-term investments | Interest-earning deposits and short-term investments | $ | 73,886 | | | $ | 472 | | | 0.85 | % | | $ | 1,061,419 | | | $ | 958 | | | 0.12 | % | Interest-earning deposits and short-term investments | $ | 304,184 | | | $ | 11,661 | | | 5.13 | % | | $ | 73,886 | | | $ | 472 | | | 0.85 | % |
Securities (2) | Securities (2) | 1,801,978 | | | 27,086 | | | 2.01 | | | 1,452,778 | | | 18,832 | | | 1.73 | | Securities (2) | 1,919,660 | | | 51,124 | | | 3.56 | | | 1,801,978 | | | 27,086 | | | 2.01 | |
Loans receivable, net (3) | Loans receivable, net (3) | | Loans receivable, net (3) | |
Commercial | Commercial | 6,275,836 | | | 198,054 | | | 4.22 | | | 5,270,138 | | | 163,315 | | | 4.14 | | Commercial | 6,892,456 | | | 295,199 | | | 5.73 | | | 6,275,836 | | | 198,054 | | | 4.22 | |
Residential real estate | Residential real estate | 2,685,080 | | | 66,899 | | | 3.32 | | | 2,269,066 | | | 59,242 | | | 3.48 | | Residential real estate | 2,895,601 | | | 77,862 | | | 3.59 | | | 2,685,080 | | | 66,899 | | | 3.32 | |
Other consumer | Other consumer | 254,891 | | | 8,387 | | | 4.40 | | | 306,681 | | | 11,288 | | | 4.92 | | Other consumer | 257,063 | | | 11,694 | | | 6.08 | | | 254,891 | | | 8,387 | | | 4.40 | |
| Allowance for loan credit losses, net of deferred loan costs and fees | Allowance for loan credit losses, net of deferred loan costs and fees | (42,987) | | | — | | | — | | | (50,912) | | | — | | | — | | Allowance for loan credit losses, net of deferred loan costs and fees | (52,626) | | | — | | | — | | | (42,987) | | | — | | | — | |
Loans receivable, net | Loans receivable, net | 9,172,820 | | | 273,340 | | | 3.98 | | | 7,794,973 | | | 233,845 | | | 4.01 | | Loans receivable, net | 9,992,494 | | | 384,755 | | | 5.15 | | | 9,172,820 | | | 273,340 | | | 3.98 | |
Total interest-earning assets | Total interest-earning assets | 11,048,684 | | | 300,898 | | | 3.64 | | | 10,309,170 | | | 253,635 | | | 3.29 | | Total interest-earning assets | 12,216,338 | | | 447,540 | | | 4.90 | | | 11,048,684 | | | 300,898 | | | 3.64 | |
Non-interest-earning assets | Non-interest-earning assets | 1,191,358 | | | | | | | 1,264,347 | | | | | | Non-interest-earning assets | 1,234,942 | | | | | | | 1,191,358 | | | | | |
Total assets | Total assets | $ | 12,240,042 | | | $ | 11,573,517 | | | Total assets | $ | 13,451,280 | | | $ | 12,240,042 | | |
Liabilities and Stockholders’ Equity: | Liabilities and Stockholders’ Equity: | | | | | Liabilities and Stockholders’ Equity: | | | | |
Interest-bearing liabilities: | Interest-bearing liabilities: | | Interest-bearing liabilities: | |
Interest-bearing checking | Interest-bearing checking | $ | 4,088,759 | | | 6,433 | | | 0.21 | % | | $ | 3,753,457 | | | 10,549 | | | 0.38 | % | Interest-bearing checking | $ | 3,757,417 | | | 33,171 | | | 1.18 | % | | $ | 4,088,759 | | | 6,433 | | | 0.21 | % |
Money market | Money market | 773,666 | | | 1,317 | | | 0.23 | | | 761,975 | | | 823 | | | 0.14 | | Money market | 744,689 | | | 11,136 | | | 2.00 | | | 773,666 | | | 1,317 | | | 0.23 | |
Savings | Savings | 1,617,354 | | | 473 | | | 0.04 | | | 1,571,345 | | | 490 | | | 0.04 | | Savings | 1,336,497 | | | 4,034 | | | 0.40 | | | 1,617,354 | | | 473 | | | 0.04 | |
Time deposits | Time deposits | 1,060,027 | | | 9,373 | | | 1.18 | | | 1,041,371 | | | 8,338 | | | 1.07 | | Time deposits | 2,388,299 | | | 64,210 | | | 3.59 | | | 1,060,027 | | | 9,373 | | | 1.18 | |
Total | Total | 7,539,806 | | | 17,596 | | | 0.31 | | | 7,128,148 | | | 20,200 | | | 0.38 | | Total | 8,226,902 | | | 112,551 | | | 1.83 | | | 7,539,806 | | | 17,596 | | | 0.31 | |
FHLB Advances | FHLB Advances | 308,043 | | | 3,890 | | | 1.69 | | | — | | | — | | | — | | FHLB Advances | 1,055,106 | | | 38,530 | | | 4.88 | | | 308,043 | | | 3,890 | | | 1.69 | |
Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | 105,821 | | | 117 | | | 0.15 | | | 135,754 | | | 203 | | | 0.20 | | Securities sold under agreements to repurchase | 73,441 | | | 544 | | | 0.99 | | | 105,821 | | | 117 | | | 0.15 | |
Other borrowings(4) | Other borrowings(4) | 205,796 | | | 8,306 | | | 5.40 | | | 228,472 | | | 8,480 | | | 4.96 | | Other borrowings(4) | 302,649 | | | 14,008 | | | 6.19 | | | 205,796 | | | 8,306 | | | 5.40 | |
Total borrowings | Total borrowings | 619,660 | | | 12,313 | | | 2.66 | | | 364,226 | | | 8,683 | | | 3.19 | | Total borrowings | 1,431,196 | | | 53,082 | | | 4.96 | | | 619,660 | | | 12,313 | | | 2.66 | |
Total interest-bearing liabilities | Total interest-bearing liabilities | 8,159,466 | | | 29,909 | | | 0.49 | | | 7,492,374 | | | 28,883 | | | 0.52 | | Total interest-bearing liabilities | 9,658,098 | | | 165,633 | | | 2.29 | | | 8,159,466 | | | 29,909 | | | 0.49 | |
Non-interest-bearing deposits | Non-interest-bearing deposits | 2,352,606 | | | | | | | 2,416,866 | | | | | | Non-interest-bearing deposits | 1,913,624 | | | | | | | 2,352,606 | | | | | |
Non-interest-bearing liabilities(4) | Non-interest-bearing liabilities(4) | 193,147 | | | 157,821 | | | Non-interest-bearing liabilities(4) | 253,014 | | | 193,147 | | |
Total liabilities | Total liabilities | 10,705,219 | | | 10,067,061 | | | Total liabilities | 11,824,736 | | | 10,705,219 | | |
Stockholders’ equity | Stockholders’ equity | 1,534,823 | | | 1,506,456 | | | Stockholders’ equity | 1,626,544 | | | 1,534,823 | | |
Total liabilities and equity | Total liabilities and equity | $ | 12,240,042 | | | $ | 11,573,517 | | | Total liabilities and equity | $ | 13,451,280 | | | $ | 12,240,042 | | |
Net interest income | Net interest income | | | $ | 270,989 | | | | | $ | 224,752 | | | Net interest income | | | $ | 281,907 | | | | | $ | 270,989 | | |
Net interest rate spread (4)(5) | Net interest rate spread (4)(5) | | | | 3.15 | % | | | | 2.77 | % | Net interest rate spread (4)(5) | | | | 2.61 | % | | | | 3.15 | % |
Net interest margin (5)(6) | Net interest margin (5)(6) | | 3.28 | % | | 2.91 | % | Net interest margin (5)(6) | | 3.09 | % | | 3.28 | % |
Total cost of deposits (including non-interest-bearing deposits) | Total cost of deposits (including non-interest-bearing deposits) | | 0.24 | % | | 0.28 | % | 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.
(5)(6)Net interest margin represents net interest income divided by average interest-earning assets.
Comparison of Financial Condition at September 30, 20222023 and December 31, 20212022
Total assets increased by $943.8$394.3 million to $12.68$13.50 billion, at September 30, 2022, from $11.74$13.10 billion, at December 31, 2021.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 $1.10$205.5 million to $10.12 billion, to $9.72from $9.92 billion, at September 30, 2022, from $8.62 billion at December 31, 2021, due to strong loan originations. Total debt securities decreased by $209.4 million at September 30, 2022, as compared to December 31, 2021, primarily due to principal repayments and maturities, and to a lesser extent, an increase in unrealized losses driven by the rising rate environment. Other assets increased by $81.1 million to $228.1 million at September 30, 2022 from $147.0 million at December 31, 2021, primarily due to an increase in market values associated with customer interest rate swap programs.
Total liabilities increased by $920.2$342.1 million to $11.14$11.86 billion, at September 30, 2022, from $10.22 billion at December 31, 2021.$11.52 billion. Deposits increased by $226.7$858.7 million to $9.96$10.53 billion, at September 30, 2022, from $9.73 billion at December 31, 2021. Total deposits, excluding time deposits, decreased by $402.7 million to $8.56 billion at September 30, 2022, from $8.96 billion at December 31, 2021, primarily due to the net runoff of interest-bearing checking balances.$9.68 billion. Time deposits increased to $1.40$2.65 billion, at September 30, 2022, from $775.0 million at December 31, 2021, primarily due to an increase in brokered$1.54 billion, or 25.2% and 15.9% of total deposits, respectively. Brokered time deposits which increased to $828.7$122.1 million at September 30, 2022 from $25.0 million at December 31, 2021.and retail time deposits increased $988.0 million. The loans-to-depositloan-to-deposit ratio at September 30, 2022 was 97.6%96.10%, as compared to 88.6% at December 31, 2021.
102.50%. FHLB advances increased to $514.2 million at September 30, 2022 from $0 at December 31, 2021 to fund liquidity needs. Other borrowings decreased by $34.2$605.1 million to $194.9$606.1 million, at September 30, 2022, from $229.1 million at December 31, 2021, primarily$1.21 billion due to the extinguishment of $35.0 million of subordinated debta change in March 2022. funding mix.
Other liabilities increased by $230.9$65.6 million to $352.9$411.7 million, at September 30, 2022, from $122.0$346.2 million, at December 31, 2021, primarily due to an increase in the market values associated with customer interest rate swap programsswaps and related collateral received from counterparties.
Stockholders’Total stockholders’ equity increased to $1.54$1.64 billion, at September 30, 2022, as compared to $1.52$1.59 billion, at December 31, 2021. Accumulatedprimarily reflecting net income net of dividends for the nine months ended September 30, 2023. Additionally, accumulated other comprehensive loss increaseddecreased by $35.7$7.2 million to $38.5 million at September 30, 2022 from $2.8 million at December 31, 2021, primarily due to unrealized losses onincreases in fair market value of available-for-sale debt securities, available-for-sale which were adversely impacted by the rising interest rate environment. net of tax.
For the nine months ended September 30, 2022,2023, the Company repurchased 373,223did not repurchase shares totaling $7.4 million under its stock repurchase program at a weighted average cost of $19.82.program. There were 2,934,438 shares available for repurchase at September 30, 20222023 under the existing repurchase program. Stockholders’ equityprogram. Book value per common share increased to $26.04 at September 30, 2022,$27.56, as compared to $25.63 at December 31, 2021.$26.81.
Comparison of Operating Results for the Three and Nine Months Ended September 30, 20222023 and September 30, 20212022
General
Net income available to common stockholders for the three and nine months ended September 30, 2022 was $37.62023 decreased to $19.7 million and $90.3$73.3 million, respectively, or $0.64$0.33 and $1.53$1.24 per diluted share, as compared to $23.2$37.6 million and $84.4$90.3 million, or $0.39$0.64 and $1.41$1.53 per diluted share, for the corresponding prior year periods. Net income available to common stockholdersfor 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. Net income available to common stockholders for the three and nine months ended September 30, 2021 included merger related expenses of $225,000 and $1.1 million, respectively, net branch consolidation expenses of $4.0 million and $5.1 million, and a net loss on equity investments of $466,000 and net gain on equity investments of $8.4 million. These items decreased net income by $3.6 million and increased net income by $1.7 million, net of tax, for the three and nine months ended September 30, 2021, respectively.
Interest Income
Interest income for the three and nine months ended September 30, 20222023 increased to $158.4 million and $447.5 million, respectively, from $110.5 million and $300.9 million respectively, as compared to $85.4 million and $253.6 million for the corresponding prior year periods. Average interest-earning assets increased by $865.6 million and $739.5 million for the three and nine months ended September 30, 2022, respectively, as compared to the same prior year periods, primarily due to loan and securities growth funded by the redeployment of excess cash. Average loans receivable, net of allowance for loan credit losses, increased by $1.65 billion and $1.38 billion for the three and nine months ended September 30, 2022, respectively, as compared to the same prior year periods. For the three and nine months ended September 30, 2022,2023, 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.
3.64%, respectively, from 3.24% and 3.29%, for the corresponding prior year periods due to interest earning asset growth funded by the redeployment of excess cash and the rising rate environment.
Interest Expense
Interest expense for the three and nine months ended September 30, 2022 was2023 increased to $67.4 million and $165.6 million, respectively, from $14.5 million and $29.9 million, respectively, as compared to $8.3 million and $28.9 million in the corresponding prior year periods.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, 2022,2023, the cost of average interest-bearing liabilities increased to 2.71% and 2.29%, respectively, from 0.69% from 0.44% for corresponding prior year period, as a result of higher costs associated with FHLB advances and time deposits issued in an elevated rate environment in 2022. For the nine months ended September 30, 2022, the cost of average interest-bearing liabilities decreased to 0.49% from 0.52% for the corresponding prior year period, as a result of downward repricingperiods, due to mix shift to higher cost of deposits that began in the prior year and continued through the current year, partly offset by the recent pacehigher costs of the rising rate environment in the current quarter and increased funding costs on FHLB advances. The total cost of deposits (including non-interest bearingnon-interest-bearing deposits) was 0.36%increased to 1.99% and 0.24%1.48% for the three and nine months ended September 30, 2022,2023, respectively, as compared to 0.22%from 0.36% and 0.28%,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, 20222023 decreased to $91.0 million and increased to $281.9 million, respectively, from $96.0 million and $271.0 million respectively, as compared to $77.1 million and $224.8 million forin the corresponding prior year periods, primarily reflecting an increase in average interest-earning assets andthe net impact of the higher interest margin.rate environment. Net interest margin for the three and nine months ended September 30, 2022 increased2023 decreased to 2.91% and 3.09%, respectively, from 3.36% and 3.28%, respectively, from 2.93% and 2.91% from for the same prior year periods. The netNet interest margin expansiondecreased 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 positively impacted by$10.3 million and $14.5 million, respectively, as compared to $1.0 million and $4.1 million for the redeployment of excess cash into loans andcorresponding prior year periods. The current quarter provision included the net impact of the rising rate environment on interest earning assets, partly offset by an increased cost$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 funds$252,000 and the growth in interest-bearing liabilities balances.
Credit Loss Expense (Benefit)
Credit loss expense$335,000 for the three and nine months ended September 30, 2022, was $1.0 million and $4.1 million, respectively, as compared to a credit loss benefit of $3.2 million and $10.3 million, for the corresponding prior year periods. The credit loss expense for the three and ninerespectively.
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 influencedfavorably impacted by loan growth, slowing prepayment rates,net gains on equity investments of $1.5 million and increasingly uncertain macro-economic forecasts due to rising interest rates, inflation, and global economic headwinds, partly offset by positive trends in the Company’s criticized and classified assets. Net loan recoveries were $252,000 and $386,000$3.4 million, for the threerespective 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, 2022 and 2021, respectively. Net loan recoveries were $335,000 and $442,000 for the nine months ended2023 vs. September 30, 2022 and 2021, respectively. Non-performing loans totaled $21.5
Other income decreased to $21.8 million, at September 30, 2022, as compared to $30.3 million at September 30, 2021, primarily due to loans that were paid off and partly due to loans that returned to accrual status.
Non-interest Income
$31.5 million. Other income increased to $15.2 million for the three months ended September 30, 2022, as compared to $9.9 million for the corresponding prior year period. The increase was drivenadversely impacted by a gainnet losses on equity investments of $3.4$6.6 million, as comparedwhich included $5.3 million of losses related to a net lossthe 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 equity investmentslower volume of $466,000$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 period, along with the acquisition of a majority interest in Trident Abstract Title Agency, LLC (“Trident”), which added $3.3 million of title-related fees and service charges. These increases were partially offset by lower income fromyear. Additionally, bankcard services of $1.9revenue decreased $3.4 million, primarily as a result of the impact ofdue to the Durbin amendment,Amendment which became effective for the Company on July 1, 2022.
Other income decreased to $31.5 million for the nineNon-interest Expense
Three months ended September 30, 2023 vs. September 30, 2022 as compared to $42.5 million for the corresponding prior year period. The decrease was driven by a net loss on equity investments of $7.5 million as compared to a net gain on equity investments of $8.4 million in the prior year period, along with decreases in net gain on sale of loans of $2.8 million, income from bankcard services of $2.3 million primarily as a result of the impact of the Durbin amendment, fees and service charges of $849,000, and Paycheck Protection Program (“PPP”) loan origination referral fees of $800,000. These decreases were partially offset by the impact of Trident, which added $7.8 million of title-related fees and service charges and an increase in commercial loan swap income of $3.8 million.
Non-interest Expense
Operating expenses increased to $59.0$64.5 million, for the three months ended September 30, 2022, as compared to $58.7$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 the same prior year period. Operatingcompensation and employee benefits expenses for the three months ended September 30, 2022 and 2021 included $48,000 and $4.2 million, respectively, of merger related expenses and net branch consolidation benefit/expense. The remaining increase of $4.6 million in operating expenses for the three months ended September 30, 2022, as compared to the corresponding prior yearCompany’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.
period, was partly due to the acquisition of a majority interest in Trident, which added $2.8 million of expenses, compensation and benefits expense of $1.8 million primarily related to increased employee medical benefit claims, and data processing expense of $1.2 million, as a result of the migration to a new core banking system. These increases were partly offset by a decrease in professional fees of $615,000.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 nine months ended September 30, 2022, as comparedrespective periods, related to $162.0 million in the same prior year period. Operating expenses for the nine months ended September 30, 2022 and 2021 included $3.1 million and $6.1 million, respectively, of merger related expenses and net branch consolidation expenses.expense. The remaining increase of $16.2$16.5 million in operating expenses for the nine months ended September 30, 2022, as compared to the corresponding prior year period, was partly due to the impact of Trident, which added $6.0 million of expenses, and increases in compensation and benefits expenseprofessional fees of $5.3$7.1 million partly relating to the commercial banking strategy and commercial banking hires in expansion markets of Boston and Baltimore, data processing expense of $4.6 million as a result of the migration to a new core banking system, and federal deposit insurance and regulatory assessments of $1.0$1.3 million as a resultthat were driven by the same factors for the three months ended. The increase in compensation and benefits expense of a higher assessment base$5.7 million was due to the $2.4 million increase noted above and multiplier. These increases were partly offset by a decrease in amortization of core deposit intangible of $551,000.merit-related increases.
Income Tax Expense
The provision for income taxes was $12.3$6.5 million and $29.2$24.1 million for the three and nine months ended September 30, 2022,2023, respectively, as compared to $7.4$12.3 million and $28.1$29.2 million for the same prior year periods. The effective tax rate was 24.1%23.9% and 23.7%24.0% for the three and nine months ended September 30, 2022,2023, respectively, as compared to 23.3%24.1% and 24.3%23.7% for the same prior year periods.
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 OceanFirst Financial Corp.the Parent Company are dividends from the Bank, proceeds from the sale of investments, and the issuance of debt, preferred and common stock, and debt.stock. For the nine months ended September 30, 2022,2023, the holding companyParent Company received dividend payments of $50.0$73.5 million from the Bank. At September 30, 2022, OceanFirst Financial Corp.2023, the Parent Company held $38.2$70.2 million in cash.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, and access to the Federal ReserveFRB discount window, and the Bank discount window.Term Funding Program (“BTFP”).
AtAs of September 30, 2022,2023, the BankCompany 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 $500.0$606.1 million of short-termterm advances and $14.2 millionfrom 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 as compared to $0 at December 31, 2021. The Bank regularly utilizes overnight and short-termno outstanding borrowings to fund short-term liquidity needs.from the FRB discount window or the BTFP.
The Company’s cash needs for the nine months ended September 30, 2022 were primarily satisfied by the net proceeds from FHLB advances, deposits, which included the issuance of brokered time deposits, principal repayments on debt securities and loans, and proceeds from maturities and calls of debt maturities. The cash was principally utilized for loan originations, purchases of residential loan pools, purchases of debt and equity securities, redemption of subordinated debt, and dividend payments. The Company’s cash needs for the nine months ended September 30, 20212023 were primarily satisfied by the increase in deposits, proceeds from sales of loans and equity investments, principal repayments on debt securities held-to-maturity, and proceeds from maturities and calls of debt securities.deposits. The cash was principallyprimarily kept on the balance sheet to maintain liquidity on hand, and utilized for purchasesloan originations and the reduction of debtFHLB advances.
Off-Balance Sheet Commitments and equity securities, a purchase of a residential loan pool, and loan originations.Contractual Obligations
In the normal course of business, the Bank routinely enters into various off-balance-sheetoff-balance sheet commitments, primarily relating to the origination and salefunding of loans. At September 30, 2022,2023, outstanding commitments to originate loans totaled $439.5$131.2 million and outstanding undrawn lines of credit totaled $1.72$1.56 billion, of which $1.34$1.21 billion were commitments to commercial and commercial construction borrowers and $382.3$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
fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company’s exposure to credit risk is represented by the contractual amount of the instruments.
Time deposits scheduled to mature in one year or less totaled $866.3 million at September 30, 2022.
At September 30, 2022,2023, the Company also had various contractual obligations, which included debt obligations of $805.4$885.2 million, including finance lease obligations of $1.8$1.7 million, and an additional $20.4$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.
The Company has a detailed contingency funding planLiquidity Used in Stock Repurchases and obtains comprehensive reporting of funding trends on a monthly and quarterly basis, which are reviewed by management. Management also monitors cash on a daily basis to determine the liquidity needs of the Company and the Bank. Additionally, management performs multiple liquidity stress test scenarios on a quarterly basis. The Company and Bank continue to maintain adequate liquidity under all stress scenarios.Cash Dividends
Under the Company’s stock repurchase program, shares of OceanFirst Financial Corp. common stock may be purchased in the open market andor 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, 2022,2023, the Company did not repurchase any shares of its common stock. For the nine months ended September 30, 2022, the Company repurchased 373,223 shares of its common stock, at a total cost of $7.4 million. For the three and nine months ended September 30, 2021, the Company repurchased 460,009 and 1.5 million shares of its common stock, respectively, at a total cost of $9.7 million and $30.6 million, respectively. At September 30, 2022,2023, 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, 2022 were $31.8 million, as compared to $30.4 million for the same prior year period. The increase in dividends2023 was a result of an increase in the dividend rate from $0.17 to $0.20 per common share. On October 24, 2022, the Company’s Board of Directors declared a quarterly cash
dividend of $0.20 per common share. The dividend is payable on November 18, 2022 to common stockholders of record at the close of business on November 7, 2022.
$35.4 million. Cash dividends on preferred stock declared and paid during the first nine months of September 30, 2022 and 2021 were2023 was $3.0 million for both periods. The Company’s Board of Directors also declared a quarterly cash dividend of $0.4375 per depositary share, representing 1/40th interest in the Series A Preferred Stock, payable on November 15, 2022 to preferred stockholders of record on October 31, 2022.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, 20222023, the Bank and Parent Company continued to maintain adequate capital under all stress scenarios, including a scenario where all losses related to the investment securities portfolio are realized. The Bank and the Parent Company also have detailed contingency capital plans and obtain comprehensive reporting of capital trends on a regular basis, which are reviewed by management and the Board.
Regulatory Capital Requirements
As of September 30, 2023 and December 31, 2021,2022, the Company and the Bank satisfysatisfied all regulatory capital requirements currently applicable as follows (dollars in thousands):
| | | Actual | | For capital adequacy purposes | | To be well-capitalized under prompt corrective action | | Actual | | For capital adequacy purposes | | To be well-capitalized under prompt corrective action |
As of September 30, 2022 | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | |
As of September 30, 2023 | | As of September 30, 2023 | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
Company: | | Company: | | | | | | | | | | | | |
Tier 1 capital (to average assets) | | Tier 1 capital (to average assets) | | $ | 1,200,832 | | | 9.14 | % | | $ | 525,331 | | | 4.00 | % | | N/A | | N/A |
Common equity Tier 1 (to risk-weighted assets) | | Common equity Tier 1 (to risk-weighted assets) | | 1,071,480 | | | 10.36 | | | 723,689 | | | 7.00 | | (1) | N/A | | N/A |
Tier 1 capital (to risk-weighted assets) | | Tier 1 capital (to risk-weighted assets) | | 1,200,832 | | | 11.62 | | | 878,766 | | | 8.50 | | (1) | N/A | | N/A |
Total capital (to risk-weighted assets) | | Total capital (to risk-weighted assets) | | 1,392,971 | | | 13.47 | | | 1,085,534 | | | 10.50 | | (1) | N/A | | N/A |
Bank: | Bank: | | | | | | | | | | | | | Bank: | |
Tier 1 capital (to average assets) | Tier 1 capital (to average assets) | | $ | 1,097,654 | | | 9.23 | % | | $ | 475,574 | | | 4.00 | % | | $ | 594,467 | | | 5.00 | % | 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) | Common equity Tier 1 (to risk-weighted assets) | | 1,097,654 | | | 10.98 | | | 699,932 | | | 7.00 | | (1) | 649,937 | | | 6.50 | | 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) | Tier 1 capital (to risk-weighted assets) | | 1,097,654 | | | 10.98 | | | 849,918 | | | 8.50 | | (1) | 799,923 | | | 8.00 | | 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) | Total capital (to risk-weighted assets) | | 1,154,421 | | | 11.55 | | | 1,049,899 | | | 10.50 | | (1) | 999,903 | | | 10.00 | | 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 | | As of December 31, 2022 | |
Company: | Company: | | Company: | |
Tier 1 capital (to average assets) | Tier 1 capital (to average assets) | | $ | 1,106,915 | | | 9.30 | % | | $ | 475,873 | | | 4.00 | % | | N/A | | N/A | Tier 1 capital (to average assets) | | $ | 1,150,690 | | | 9.43 | % | | $ | 488,297 | | | 4.00 | % | | N/A | | N/A |
Common equity Tier 1 (to risk-weighted assets) | Common equity Tier 1 (to risk-weighted assets) | | 978,012 | | | 9.69 | | | 706,355 | | | 7.00 | | (1) | N/A | | N/A | Common equity Tier 1 (to risk-weighted assets) | | 1,021,774 | | | 9.93 | | | 720,641 | | | 7.00 | | (1) | N/A | | N/A |
Tier 1 capital (to risk-weighted assets) | Tier 1 capital (to risk-weighted assets) | | 1,106,915 | | | 10.97 | | | 857,717 | | | 8.50 | | (1) | N/A | | N/A | Tier 1 capital (to risk-weighted assets) | | 1,150,690 | | | 11.18 | | | 875,064 | | | 8.50 | | (1) | N/A | | N/A |
Total capital (to risk-weighted assets) | Total capital (to risk-weighted assets) | | 1,289,224 | | | 12.78 | | | 1,059,533 | | | 10.50 | | (1) | N/A | | N/A | Total capital (to risk-weighted assets) | | 1,336,652 | | | 12.98 | | | 1,080,961 | | | 10.50 | | (1) | N/A | | N/A |
As of December 31, 2021 | | |
Bank: | Bank: | | Bank: | |
Tier 1 capital (to average assets) | Tier 1 capital (to average assets) | | $ | 1,027,660 | | | 9.08 | % | | $ | 452,669 | | | 4.00 | % | | $ | 565,836 | | | 5.00 | % | 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) | Common equity Tier 1 (to risk-weighted assets) | | 1,027,660 | | | 11.62 | | | 619,178 | | | 7.00 | | (1) | 574,951 | | | 6.50 | | 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) | Tier 1 capital (to risk-weighted assets) | | 1,027,660 | | | 11.62 | | | 751,860 | | | 8.50 | | (1) | 707,633 | | | 8.00 | | 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) | Total capital (to risk-weighted assets) | | 1,079,766 | | | 12.21 | | | 928,768 | | | 10.50 | | (1) | 884,541 | | | 10.00 | | Total capital (to risk-weighted assets) | | 1,183,705 | | | 11.62 | | | 1,069,791 | | | 10.50 | | (1) | 1,018,848 | | | 10.00 | |
Company: | | |
Tier 1 capital (to average assets) | | $ | 1,044,518 | | | 9.22 | % | | $ | 453,087 | | | 4.00 | % | | N/A | | N/A | |
Common equity Tier 1 (to risk-weighted assets) | | 917,088 | | | 10.26 | | | 625,801 | | | 7.00 | | (1) | N/A | | N/A | |
Tier 1 capital (to risk-weighted assets) | | 1,044,518 | | | 11.68 | | | 759,902 | | | 8.50 | | (1) | N/A | | N/A | |
Total capital (to risk-weighted assets) | | 1,257,372 | | | 14.06 | | | 938,702 | | | 10.50 | | (1) | N/A | | N/A | |
(1)Includes the Capital Conservation Buffer of 2.50%.
The Company and the Bank satisfied the criteria to be “well-capitalized” under the Prompt Corrective Action Regulations.regulations.
At September 30, 20222023 and December 31, 2021,2022, the Company maintained a stockholders’ equity to total assets ratio of 12.14%12.13% and 12.92%12.10%, respectively.
Non-Performing Assets
The following table sets forth information regarding the Company’s non-performing assets, consisting of non-performing loans and other real estate owned.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, | | September 30, | | December 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| | (dollars in thousands) | | (dollars in thousands) |
Non-performing loans: | Non-performing loans: | | Non-performing loans: | |
Commercial real estate – investor | Commercial real estate – investor | $ | 9,866 | | | $ | 3,614 | | Commercial real estate – investor | $ | 20,723 | | | $ | 10,483 | |
Commercial real estate – owner occupied | Commercial real estate – owner occupied | 1,976 | | | 11,904 | | Commercial real estate – owner occupied | 240 | | | 4,025 | |
Commercial and industrial | Commercial and industrial | 321 | | | 277 | | Commercial and industrial | 1,120 | | | 331 | |
Residential real estate | Residential real estate | 5,958 | | | 6,114 | | Residential real estate | 5,624 | | | 5,969 | |
Other consumer | Other consumer | 3,377 | | | 3,585 | | Other consumer | 2,391 | | | 2,457 | |
| Total non-performing loans | 21,498 | | | 25,494 | | |
| Other real estate owned | — | | | 106 | | |
Total non-performing assets | $ | 21,498 | | | $ | 25,600 | | |
| Total non-performing loans and assets | | Total non-performing loans and assets | $ | 30,098 | | | $ | 23,265 | |
PCD loans, net of allowance for loan credit losses | PCD loans, net of allowance for loan credit losses | $ | 29,249 | | | $ | 41,817 | | PCD loans, net of allowance for loan credit losses | $ | 18,640 | | | $ | 27,129 | |
Delinquent loans 30-89 days | Delinquent loans 30-89 days | $ | 11,846 | | | $ | 14,546 | | Delinquent loans 30-89 days | $ | 20,591 | | | $ | 14,148 | |
Allowance for loan credit losses as a percent of total loans | Allowance for loan credit losses as a percent of total loans | 0.55 | % | | 0.57 | % | Allowance for loan credit losses as a percent of total loans | 0.63 | % | | 0.57 | % |
Allowance for loan credit losses as a percent of total non-performing loans | Allowance for loan credit losses as a percent of total non-performing loans | 248.96 | | | 191.61 | 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 receivable | Non-performing loans as a percent of total loans receivable | 0.22 | | | 0.30 | Non-performing loans as a percent of total loans receivable | 0.30 | | | 0.23 | |
Non-performing assets as a percent of total assets | Non-performing assets as a percent of total assets | 0.17 | | | 0.22 | Non-performing assets as a percent of total assets | 0.22 | | | 0.18 | |
The Company’s non-performing loans totaled $21.5$30.1 million at September 30, 2022,2023, as compared to $25.5$23.3 million at December 31, 2021, primarily due to loans that were paid off and partly due to loans that returned to accrual status. Included in the2022. 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 was $10.0 millionnon-performing loans included $869,000 of modified loans to borrowers experiencing financial difficulty and $11.3$5.8 million of troubled debt restructuring (“TDR”) loans at September 30, 2022 andthat existed prior to adoption of Accounting Standards Update (“ASU”) 2022-02 on January 1, 2023. At December 31, 2021, respectively.2022, total non-performing loans included $6.4 million of TDR loans. Included in the non-performing loans total was $3.0$3.2 million and $6.5$3.9 million of PCD loans at September 30, 20222023 and December 31, 2021,2022, respectively. At September 30, 2022,2023, the allowance for loan credit losses totaled $53.5$63.9 million, or 0.55%0.63% of total loans, as compared to $48.9$56.8 million, or 0.57% of total loans, at December 31, 2021.2022. These ratios exclude existing net unamortized credit and PCD marks on acquired loans of $13.6$8.8 million and $18.9$11.4 million at September 30, 20222023 and December 31, 2021,2022, 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, | | September 30, | | December 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Special Mention | Special Mention | $ | 54,330 | | | $ | 91,607 | | Special Mention | $ | 44,940 | | | $ | 48,214 | |
Substandard | Substandard | 97,353 | | | 148,557 | | Substandard | 86,597 | | | 50,776 | |
The decreaseschange in special mention and substandard loans werewas primarily due to improved profitabilitya migration of borrowers and their ability to service their loans. The decrease incertain loans from special mention also included oneto 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 loan of $14.1relationships for $13.7 million, which was repaid in fullwere downgraded to substandard during the nine months ended September 30, 2022.2023. 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.
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, 20212022 (the “2021“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.
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 20222023
In December 2019,March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income TaxesASU 2022-01 “Derivatives and Hedging (Topic 740) - Simplifying815): Fair Value Hedging – Portfolio Layer Method”, which made targeted improvements to the Accounting for Income Taxes” as partoptional hedge accounting model with the objective of improving hedge accounting to better portray the economic results of an initiative to reduce complexityentity’s risk management activities in accounting standards for income taxes. The amendments also improve consistent application of and simplify generally accepted accounting principles for other areas of Topic 740 by clarifying and amending existing guidance. This update was effective forits financial statements issued for fiscal years and interim periods beginning after December 15, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
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, 2023.2022. Early adoption is permitted.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 expect this standard to have a material impact to the consolidated financial statements.
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 plans to adoptadopted this standard on January 1, 2023guidance prospectively, and is currently evaluating the impactadoption of this standard todid not have an impact on the Company’s consolidated financial statements.
In MarchDecember 2022, FASB issued ASU 2022-01 “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method”2022-06, “Deferral of the Sunset Date of Topic 848”, which made targeted improvementswas 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 optional hedge accounting modelcessation 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.
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 objective of improving hedge accounting to better portray the economic resultssale of an entity’s risk management activitiesequity security is not considered part of the unit of account of the equity security and, therefore, is not considered in its financial statements.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, 2022.2023. Early adoption is permitted for any entity that has adopted the amendments in ASU 2017-12 for the corresponding period. permitted. The Company does not expect this standard to have a material impact to the consolidated financial statements.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”,“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: implications arising from the termination of the proposed merger with Partners Bancorp; the impact of the COVID-19 or any other pandemic on our operations and financial results and those of our customers, 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, andpotential 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, volatility and deterioration in the credit and equity markets, our ability to access low-cost funding, 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;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.operations.
These risks and uncertainties are further discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,2022, 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.
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 interest rate risk (“IRR”) modeling. The following table sets forthan IRR model, which measures the amounts of interest-earning assets and interest-bearing liabilities outstanding at September 30, 2022, which were estimated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown. At September 30, 2022, the Company’s one-year gap was positive 7.90% as compared to positive 14.15% at December 31, 2021.
The table is intended to provide an approximation of the projected repricing of assets and liabilities at September 30, 2022 on the basis of contractual maturities, anticipated prepayments, scheduled rate adjustments, and the rate sensitivity of non-maturity deposits within a three month period and subsequent selected time intervals.
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At September 30, 2022 | | 3 Months or Less | | More than 3 Months to 1 Year | | More than 1 Year to 3 Years | | More than 3 Years to 5 Years | | More than 5 Years | | Total |
(dollars in thousands) | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | |
Interest-earning deposits and short-term investments | | $ | 24,618 | | $ | 2,877 | | $ | 1,637 | | $ | — | | $ | — | | $ | 29,132 |
Debt securities | | 428,968 | | 116,384 | | 257,157 | | 246,065 | | 502,106 | | 1,550,680 |
| | | | | | | | | | | | |
Equity investments | | — | | 1,976 | | — | | — | | 79,746 | | 81,722 |
Restricted equity investments | | — | | — | | — | | — | | 77,556 | | 77,556 |
Loans receivable (1) | | 2,867,647 | | 906,276 | | 2,012,915 | | 1,708,759 | | 2,226,712 | | 9,722,309 |
Total interest-earning assets | | 3,321,233 | | 1,027,513 | | 2,271,709 | | 1,954,824 | | 2,886,120 | | 11,461,399 |
Interest-bearing liabilities: | | | | | | | | | | | | |
Interest-bearing checking accounts | | 1,363,083 | | 193,502 | | 447,123 | | 362,170 | | 1,543,986 | | 3,909,864 |
Money market deposit accounts | | 49,750 | | 51,889 | | 120,292 | | 331,950 | | 195,348 | | 749,229 |
Savings accounts | | 110,277 | | 127,553 | | 288,159 | | 225,694 | | 818,789 | | 1,570,472 |
Time deposits | | 319,431 | | 547,092 | | 497,972 | | 29,314 | | 10,548 | | 1,404,357 |
FHLB advances | | 514,200 | | — | | — | | — | | — | | 514,200 |
Securities sold under agreements to repurchase and other borrowings | | 166,100 | | 145 | | 123,875 | | 525 | | 558 | | 291,203 |
Total interest-bearing liabilities | | 2,522,841 | | 920,181 | | 1,477,421 | | 949,653 | | 2,569,229 | | 8,439,325 |
Interest sensitivity gap (2) | | $ | 798,392 | | $ | 107,332 | | $ | 794,288 | | $ | 1,005,171 | | $ | 316,891 | | $ | 3,022,074 |
Cumulative interest sensitivity gap | | $ | 798,392 | | $ | 905,724 | | $ | 1,700,012 | | $ | 2,705,183 | | $ | 3,022,074 | | $ | 3,022,074 |
Cumulative interest sensitivity gap as a percent of total interest-earning assets | | 6.97 | % | | 7.90 | % | | 14.83 | % | | 23.60 | % | | 26.37 | % | | 26.37 | % |
(1)For purposes of the gap analysis, loans receivable includes loans held for sale and non-performing loans gross of the allowance for loan credit losses, unamortized discounts and deferred loan costs and fees.
(2)Interest sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities.
Certain shortcomings are inherent in gap analysis. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further,change in the event of a change in interest rates, loan prepayment rates and average lives of deposits would likely deviate significantly from those assumed in the calculation. Finally, the ability of many borrowers to service their adjustable-rate loans may be impaired in the event of an interest rate increase.
Additionally, the table below sets forth the Company’s exposure to IRR as measured by the change ininstitution’s economic value of equity (“EVE”) and net interest income under varying rate shocks as of September 30, 2022 and December 31, 2021. All methods used to measurevarious 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 involveis 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 which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates.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 20212022 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.
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| September 30, 2022 | | December 31, 2021 |
Change in Interest Rates in Basis Points (Rate Shock) | Economic Value of Equity | | Net Interest Income | | Economic Value of Equity | | Net Interest Income |
Amount | | % Change | | EVE Ratio | | Amount | | % Change | | Amount | | % Change | | EVE Ratio | | Amount | | % Change |
(dollars in thousands) | | | | | | | | | | | | | | | | | | | |
300 | $ | 1,543,173 | | | (12.7) | % | | 14.3 | % | | $ | 449,321 | | | 5.4 | % | | $ | 1,817,134 | | | 24.5 | % | | 16.7 | % | | $ | 346,723 | | | 10.3 | % |
200 | 1,611,932 | | | (8.8) | | | 14.5 | | | 441,660 | | | 3.6 | | | 1,738,602 | | | 19.1 | | | 15.6 | | | 336,816 | | | 7.1 | |
100 | 1,650,035 | | | (6.7) | | | 14.4 | | | 432,993 | | | 1.6 | | | 1,621,984 | | | 11.1 | | | 14.2 | | | 325,960 | | | 3.7 | |
Static | 1,768,413 | | | — | | | 14.9 | | | 426,313 | | | — | | | 1,459,706 | | | — | | | 12.5 | | | 314,395 | | | — | |
(100) | 1,682,967 | | | (4.8) | | | 13.9 | | | 405,872 | | | (4.8) | | | 1,230,947 | | | (15.7) | | | 10.3 | | | 299,994 | | | (4.6) | |
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.
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).
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| September 30, 2023 | | December 31, 2022 |
Change in Interest Rates in Basis Points (Rate Shock) | Economic Value of Equity | | Net Interest Income | | Economic Value of Equity | | Net Interest Income |
Amount | | % Change | | EVE Ratio | | Amount | | % Change | | Amount | | % Change | | EVE Ratio | | Amount | | % Change |
(dollars in thousands) | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
200 | $ | 1,259,131 | | | (5.8) | % | | 10.7 | % | | $ | 366,350 | | | 2.3 | % | | $ | 1,574,239 | | | (8.5) | % | | 13.7 | % | | $ | 440,916 | | | 1.2 | % |
100 | 1,292,658 | | | (3.3) | | | 10.8 | | | 362,079 | | | 1.1 | | | 1,646,301 | | | (4.3) | | | 13.9 | | | 438,280 | | | 0.6 | |
Static | 1,337,280 | | | — | | | 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 interest rate sensitivity between these periods was impacted by growth in floating rate loan and an increase in cash on hand, offset by the deploymentdeposit mix shift into short-term time deposits and higher-yield savings deposits.
Overall, the measure of cash into loans,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 out of overnight borrowings intofrom lower cost, long-term non-maturity deposits to short-term borrowings, a slowdown in loanhigher cost time deposits and securities prepayment speeds, and a significant increase in market interest rates.higher-yield savings deposits.
As is the case with the gap calculation, certainCertain 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 SECSecurities 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, 20222023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
| | | September 30, | | December 31, | | September 30, | | December 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| | (Unaudited) | | | | (Unaudited) | | |
Assets | Assets | | Assets | |
Cash and due from banks | Cash and due from banks | $ | 170,668 | | | $ | 204,949 | | Cash and due from banks | $ | 408,882 | | | $ | 167,946 | |
| Debt securities available-for-sale, at estimated fair value | Debt securities available-for-sale, at estimated fair value | 470,300 | | | 568,255 | | Debt securities available-for-sale, at estimated fair value | 453,208 | | | 457,648 | |
Debt securities held-to-maturity, net of allowance for securities credit losses of $1,234 at September 30, 2022 and $1,467 at December 31, 2021 (estimated fair value of $905,426 at September 30, 2022 and $1,152,744 at December 31, 2021) | 1,027,712 | | | 1,139,193 | | |
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) | | 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 investments | Equity investments | 81,722 | | | 101,155 | | Equity investments | 97,908 | | | 102,037 | |
Restricted equity investments, at cost | Restricted equity investments, at cost | 77,556 | | | 53,195 | | Restricted equity investments, at cost | 82,484 | | | 109,278 | |
Loans receivable, net of allowance for loan credit losses of $53,521 at September 30, 2022 and $48,850 at December 31, 2021 | 9,672,488 | | | 8,583,352 | | |
Loans receivable, net of allowance for loan credit losses of $63,877 at September 30, 2023 and $56,824 at December 31, 2022 | | 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 | Loans held-for-sale | 3,549 | | | — | | Loans held-for-sale | — | | | 690 | |
Interest and dividends receivable | Interest and dividends receivable | 38,388 | | | 32,606 | | Interest and dividends receivable | 50,030 | | | 44,704 | |
Other real estate owned | — | | | 106 | | |
| Premises and equipment, net | Premises and equipment, net | 127,868 | | | 125,828 | | Premises and equipment, net | 122,646 | | | 126,705 | |
| Bank owned life insurance | Bank owned life insurance | 261,118 | | | 259,207 | | Bank owned life insurance | 265,071 | | | 261,603 | |
| Assets held for sale | Assets held for sale | 3,216 | | | 6,229 | | Assets held for sale | 3,004 | | | 2,719 | |
Goodwill | Goodwill | 506,146 | | | 500,319 | | Goodwill | 506,146 | | | 506,146 | |
Core deposit intangible | Core deposit intangible | 14,656 | | | 18,215 | | Core deposit intangible | 10,489 | | | 13,497 | |
Other assets | Other assets | 228,066 | | | 147,007 | | Other assets | 240,820 | | | 221,067 | |
Total assets | Total assets | $ | 12,683,453 | | | $ | 11,739,616 | | Total assets | $ | 13,498,183 | | | $ | 13,103,896 | |
Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | | | Liabilities and Stockholders’ Equity | | | |
Deposits | Deposits | $ | 9,959,469 | | | $ | 9,732,816 | | Deposits | $ | 10,533,929 | | | $ | 9,675,206 | |
Federal Home Loan Bank (“FHLB”) advances | Federal Home Loan Bank (“FHLB”) advances | 514,200 | | | — | | Federal Home Loan Bank (“FHLB”) advances | 606,056 | | | 1,211,166 | |
Securities sold under agreements to repurchase with customers | Securities sold under agreements to repurchase with customers | 96,289 | | | 118,769 | | Securities sold under agreements to repurchase with customers | 82,981 | | | 69,097 | |
Other borrowings | Other borrowings | 194,914 | | | 229,141 | | Other borrowings | 196,183 | | | 195,403 | |
Advances by borrowers for taxes and insurance | Advances by borrowers for taxes and insurance | 25,457 | | | 20,305 | | Advances by borrowers for taxes and insurance | 29,696 | | | 21,405 | |
Other liabilities | Other liabilities | 352,908 | | | 122,032 | | Other liabilities | 411,734 | | | 346,155 | |
Total liabilities | Total liabilities | 11,143,237 | | | 10,223,063 | | Total liabilities | 11,860,579 | | | 11,518,432 | |
Stockholders’ equity: | Stockholders’ equity: | | | | 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, 2022 and December 31, 2021 | 1 | | | 1 | | |
Common stock, $0.01 par value, 150,000,000 shares authorized, 61,872,065 and 61,535,381 shares issued at September 30, 2022 and December 31, 2021, respectively; and 59,138,507 and 59,175,046 shares outstanding at September 30, 2022 and December 31, 2021, respectively | 612 | | | 611 | | |
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 | | 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 | | 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 capital | Additional paid-in capital | 1,153,072 | | | 1,146,781 | | Additional paid-in capital | 1,160,869 | | | 1,154,821 | |
Retained earnings | Retained earnings | 499,967 | | | 442,306 | | Retained earnings | 577,708 | | | 540,507 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (38,496) | | | (2,821) | | Accumulated other comprehensive loss | (28,811) | | | (35,982) | |
Less: Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") | Less: Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") | (6,797) | | | (8,615) | | Less: Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") | (4,383) | | | (6,191) | |
Treasury stock, 2,733,558 and 2,360,335 shares at September 30, 2022 and December 31, 2021, respectively | (69,106) | | | (61,710) | | |
Treasury stock, 2,735,083 and 2,733,558 shares at September 30, 2023 and December 31, 2022 | | 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’ equity | OceanFirst Financial Corp. stockholders’ equity | 1,539,253 | | | 1,516,553 | | OceanFirst Financial Corp. stockholders’ equity | 1,636,891 | | | 1,584,662 | |
Non-controlling interest | Non-controlling interest | 963 | | | — | | Non-controlling interest | 713 | | | 802 | |
Total stockholders’ equity | Total stockholders’ equity | 1,540,216 | | | 1,516,553 | | Total stockholders’ equity | 1,637,604 | | | 1,585,464 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 12,683,453 | | | $ | 11,739,616 | | Total liabilities and stockholders’ equity | $ | 13,498,183 | | | $ | 13,103,896 | |
See accompanying Notes to Unaudited Consolidated Financial Statements.
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, | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) |
Interest income: | Interest income: | | Interest income: | |
Loans | Loans | $ | 100,141 | | | $ | 78,889 | | | $ | 273,340 | | | $ | 233,845 | | Loans | $ | 133,931 | | | $ | 100,141 | | | $ | 384,755 | | | $ | 273,340 | |
Debt securities | Debt securities | 8,479 | | | 5,040 | | | 23,456 | | | 16,379 | | Debt securities | 15,223 | | | 8,479 | | | 43,829 | | | 23,456 | |
Equity investments and other | Equity investments and other | 1,879 | | | 1,491 | | | 4,102 | | | 3,411 | | Equity investments and other | 9,256 | | | 1,879 | | | 18,956 | | | 4,102 | |
Total interest income | Total interest income | 110,499 | | | 85,420 | | | 300,898 | | | 253,635 | | Total interest income | 158,410 | | | 110,499 | | | 447,540 | | | 300,898 | |
Interest expense: | Interest expense: | | | | | | | | Interest expense: | | | | | | | |
Deposits | Deposits | 9,238 | | | 5,379 | | | 17,596 | | | 20,200 | | Deposits | 53,287 | | | 9,238 | | | 112,551 | | | 17,596 | |
Borrowed funds | Borrowed funds | 5,296 | | | 2,909 | | | 12,313 | | | 8,683 | | Borrowed funds | 14,127 | | | 5,296 | | | 53,082 | | | 12,313 | |
Total interest expense | Total interest expense | 14,534 | | | 8,288 | | | 29,909 | | | 28,883 | | Total interest expense | 67,414 | | | 14,534 | | | 165,633 | | | 29,909 | |
Net interest income | Net interest income | 95,965 | | | 77,132 | | | 270,989 | | | 224,752 | | Net interest income | 90,996 | | | 95,965 | | | 281,907 | | | 270,989 | |
Credit loss expense (benefit) | 1,016 | | | (3,179) | | | 4,121 | | | (10,259) | | |
Net interest income after credit loss expense (benefit) | 94,949 | | | 80,311 | | | 266,868 | | | 235,011 | | |
Provision for credit losses | | Provision for credit losses | 10,283 | | | 1,016 | | | 14,525 | | | 4,121 | |
Net interest income after provision for credit losses | | Net interest income after provision for credit losses | 80,713 | | | 94,949 | | | 267,382 | | | 266,868 | |
Other income: | Other income: | | | | | | | | Other income: | | | | | | | |
Bankcard services revenue | Bankcard services revenue | 1,509 | | | 3,409 | | | 7,782 | | | 10,052 | | Bankcard services revenue | 1,507 | | | 1,509 | | | 4,381 | | | 7,782 | |
Trust and asset management revenue | Trust and asset management revenue | 568 | | | 584 | | | 1,835 | | | 1,774 | | Trust and asset management revenue | 662 | | | 568 | | | 1,919 | | | 1,835 | |
Fees and service charges | Fees and service charges | 6,320 | | | 2,973 | | | 17,026 | | | 10,519 | | Fees and service charges | 5,178 | | | 6,320 | | | 15,939 | | | 17,026 | |
| Net gain (loss) on sales of loans | 168 | | | (15) | | | 348 | | | 3,180 | | |
Net gain on sales of loans | | Net gain on sales of loans | 66 | | | 168 | | | 119 | | | 348 | |
Net gain (loss) on equity investments | Net gain (loss) on equity investments | 3,362 | | | (466) | | | (7,502) | | | 8,397 | | Net gain (loss) on equity investments | 1,452 | | | 3,362 | | | (5,908) | | | (7,502) | |
Net gain (loss) from other real estate operations | — | | | (3) | | | 48 | | | (12) | | |
Net gain from other real estate operations | | Net gain from other real estate operations | — | | | — | | | — | | | 48 | |
Income from bank owned life insurance | Income from bank owned life insurance | 1,356 | | | 1,640 | | | 4,881 | | | 4,771 | | Income from bank owned life insurance | 1,390 | | | 1,356 | | | 3,853 | | | 4,881 | |
Commercial loan swap income | Commercial loan swap income | 1,471 | | | 1,588 | | | 6,546 | | | 2,772 | | Commercial loan swap income | 11 | | | 1,471 | | | 712 | | | 6,546 | |
Other | Other | 396 | | | 173 | | | 579 | | | 1,068 | | Other | 496 | | | 396 | | | 748 | | | 579 | |
Total other income | Total other income | 15,150 | | | 9,883 | | | 31,543 | | | 42,521 | | Total other income | 10,762 | | | 15,150 | | | 21,763 | | | 31,543 | |
Operating expenses: | Operating expenses: | | | | | | | | Operating expenses: | | | | | | | |
Compensation and employee benefits | Compensation and employee benefits | 34,124 | | | 30,730 | | | 97,972 | | | 89,008 | | Compensation and employee benefits | 35,534 | | | 34,124 | | | 103,676 | | | 97,972 | |
Occupancy | Occupancy | 5,288 | | | 5,005 | | | 15,790 | | | 15,380 | | Occupancy | 5,466 | | | 5,288 | | | 15,970 | | | 15,790 | |
Equipment | Equipment | 1,150 | | | 1,124 | | | 3,856 | | | 4,008 | | Equipment | 1,172 | | | 1,150 | | | 3,478 | | | 3,856 | |
Marketing | Marketing | 655 | | | 496 | | | 2,242 | | | 1,555 | | Marketing | 1,183 | | | 655 | | | 3,126 | | | 2,242 | |
Federal deposit insurance and regulatory assessments | Federal deposit insurance and regulatory assessments | 1,757 | | | 1,459 | | | 5,435 | | | 4,422 | | Federal deposit insurance and regulatory assessments | 2,557 | | | 1,757 | | | 6,771 | | | 5,435 | |
Data processing | Data processing | 6,560 | | | 5,363 | | | 18,466 | | | 13,796 | | Data processing | 6,086 | | | 6,560 | | | 18,405 | | | 18,466 | |
Check card processing | Check card processing | 1,231 | | | 1,337 | | | 3,728 | | | 4,012 | | Check card processing | 1,154 | | | 1,231 | | | 3,649 | | | 3,728 | |
Professional fees | Professional fees | 2,502 | | | 3,089 | | | 8,296 | | | 8,317 | | Professional fees | 5,258 | | | 2,502 | | | 15,439 | | | 8,296 | |
| Amortization of core deposit intangible | Amortization of core deposit intangible | 1,171 | | | 1,354 | | | 3,559 | | | 4,110 | | Amortization of core deposit intangible | 987 | | | 1,171 | | | 3,008 | | | 3,559 | |
Branch consolidation (benefit) expense, net | Branch consolidation (benefit) expense, net | (346) | | | 4,014 | | | 602 | | | 5,051 | | Branch consolidation (benefit) expense, net | — | | | (346) | | | 70 | | | 602 | |
Merger related expenses | Merger related expenses | 298 | | | 225 | | | 2,459 | | | 1,052 | | Merger related expenses | — | | | 298 | | | 22 | | | 2,459 | |
Other operating expense | Other operating expense | 4,607 | | | 4,477 | | | 12,748 | | | 11,315 | | Other operating expense | 5,087 | | | 4,607 | | | 15,109 | | | 12,748 | |
Total operating expenses | Total operating expenses | 58,997 | | | 58,673 | | | 175,153 | | | 162,026 | | Total operating expenses | 64,484 | | | 58,997 | | | 188,723 | | | 175,153 | |
Income before provision for income taxes | Income before provision for income taxes | 51,102 | | | 31,521 | | | 123,258 | | | 115,506 | | Income before provision for income taxes | 26,991 | | | 51,102 | | | 100,422 | | | 123,258 | |
Provision for income taxes | Provision for income taxes | 12,298 | | | 7,354�� | | | 29,212 | | | 28,087 | | Provision for income taxes | 6,459 | | | 12,298 | | | 24,109 | | | 29,212 | |
Net income | Net income | 38,804 | | | 24,167 | | | 94,046 | | | 87,419 | | Net income | 20,532 | | | 38,804 | | | 76,313 | | | 94,046 | |
Net income attributable to non-controlling interest | 193 | | | — | | | 715 | | | — | | |
Net (loss) income attributable to non-controlling interest | | Net (loss) income attributable to non-controlling interest | (135) | | | 193 | | | (34) | | | 715 | |
Net income attributable to OceanFirst Financial Corp. | Net income attributable to OceanFirst Financial Corp. | 38,611 | | | 24,167 | | | 93,331 | | | 87,419 | | Net income attributable to OceanFirst Financial Corp. | 20,667 | | | 38,611 | | | 76,347 | | | 93,331 | |
Dividends on preferred shares | Dividends on preferred shares | 1,004 | | | 1,004 | | | 3,012 | | | 3,012 | | Dividends on preferred shares | 1,004 | | | 1,004 | | | 3,012 | | | 3,012 | |
Net income available to common stockholders | Net income available to common stockholders | $ | 37,607 | | | $ | 23,163 | | | $ | 90,319 | | | $ | 84,407 | | Net income available to common stockholders | $ | 19,663 | | | $ | 37,607 | | | $ | 73,335 | | | $ | 90,319 | |
Basic earnings per share | Basic earnings per share | $ | 0.64 | | | $ | 0.40 | | | $ | 1.54 | | | $ | 1.42 | | Basic earnings per share | $ | 0.33 | | | $ | 0.64 | | | $ | 1.24 | | | $ | 1.54 | |
Diluted earnings per share | Diluted earnings per share | $ | 0.64 | | | $ | 0.39 | | | $ | 1.53 | | | $ | 1.41 | | Diluted earnings per share | $ | 0.33 | | | $ | 0.64 | | | $ | 1.24 | | | $ | 1.53 | |
Average basic shares outstanding | Average basic shares outstanding | 58,681 | | | 59,311 | | | 58,777 | | | 59,619 | | Average basic shares outstanding | 59,104 | | | 58,681 | | | 59,037 | | | 58,777 | |
Average diluted shares outstanding | Average diluted shares outstanding | 58,801 | | | 59,515 | | | 58,918 | | | 59,862 | | Average diluted shares outstanding | 59,111 | | | 58,801 | | | 59,068 | | | 58,918 | |
See accompanying Notes to Unaudited Consolidated Financial Statements.
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (Unaudited) | | (Unaudited) |
Net income | $ | 38,804 | | | $ | 24,167 | | | $ | 94,046 | | | $ | 87,419 | |
Other comprehensive loss: | | | | | | | |
Net unrealized loss on debt securities (net of tax benefit of $3,023 and $11,411 in 2022 and tax benefit of $232 and $446 in 2021) | (9,490) | | | (855) | | | (35,858) | | | (1,658) | |
Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $60 and $186 in 2022 and tax expense of $66 and $209 in 2021) | 87 | | | 95 | | | 265 | | | 303 | |
Reclassification adjustment for gains included in net income (net of tax benefit of $26 in 2022) | — | | | — | | | (82) | | | — | |
| | | | | | | |
Total other comprehensive loss, net of tax | (9,403) | | | (760) | | | (35,675) | | | (1,355) | |
Total comprehensive income | 29,401 | | | 23,407 | | | 58,371 | | | 86,064 | |
Less: comprehensive income attributable to non-controlling interest | 193 | | | — | | | 715 | | | — | |
Comprehensive income attributable to OceanFirst Financial Corp. | 29,208 | | | 23,407 | | | 57,656 | | | 86,064 | |
Less: Dividends on preferred shares | 1,004 | | | 1,004 | | | 3,012 | | | 3,012 | |
Comprehensive income available to common stockholders | $ | 28,204 | | | $ | 22,403 | | | $ | 54,644 | | | $ | 83,052 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (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 tax | 1,537 | | | (9,403) | | | 7,171 | | | (35,675) | |
Total comprehensive income | 22,069 | | | 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 shares | 1,004 | | | 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.
OceanFirst Financial Corp.
Consolidated Statements of Changes in Stockholders’ EquityCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(dollars in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended September 30, 20222023 and 20212022
| | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Employee Stock Ownership Plan | | Treasury Stock | | Non-Controlling Interest | | | Total | |
Balance at June 30, 2021 | $ | 1 | | | $ | 611 | | | $ | 1,143,907 | | | $ | 417,658 | | | $ | 26 | | | $ | (6,824) | | | $ | (46,590) | | | $ | — | | | | $ | 1,508,789 | | |
Net income | — | | | — | | | — | | | 24,167 | | | — | | | — | | | — | | | — | | | | 24,167 | | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (760) | | | — | | | — | | | — | | | | (760) | | |
Stock compensation | — | | | — | | | 1,505 | | | — | | | — | | | — | | | — | | | — | | | | 1,505 | | |
| Allocation of ESOP stock | — | | | — | | | 31 | | | — | | | — | | | 305 | | | — | | | — | | | | 336 | | |
Cash dividend $0.17 per share | — | | | — | | | — | | | (10,100) | | | — | | | — | | | — | | | — | | | | (10,100) | | |
Exercise of stock options | — | | | — | | | 5 | | | — | | | — | | | — | | | — | | | — | | | | 5 | | |
| Repurchase 460,009 shares of common stock | — | | | — | | | — | | | — | | | — | | | — | | | (9,689) | | | — | | | | (9,689) | | |
| Preferred stock dividend | — | | | — | | | — | | | (1,004) | | | — | | | — | | | — | | | — | | | | (1,004) | | |
Balance at September 30, 2021 | $ | 1 | | | $ | 611 | | | $ | 1,145,448 | | | $ | 430,721 | | | $ | (734) | | | $ | (6,519) | | | $ | (56,279) | | | $ | — | | | | $ | 1,513,249 | | |
| | | | | | | | | | | | | | | | | | | | | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Employee Stock Ownership Plan | | Treasury Stock | | Non-Controlling Interest | | | Total |
Balance at June 30, 2022 | Balance at June 30, 2022 | $ | 1 | | | $ | 612 | | | $ | 1,151,363 | | | $ | 474,114 | | | $ | (29,093) | | | $ | (7,403) | | | $ | (69,106) | | | $ | 944 | | | | $ | 1,521,432 | | Balance at June 30, 2022 | $ | 1 | | | $ | 612 | | | $ | 1,151,363 | | | $ | 474,114 | | | $ | (29,093) | | | $ | (7,403) | | | $ | (69,106) | | | $ | 944 | | | | $ | 1,521,432 | |
Net income | Net income | — | | | — | | | — | | | 38,611 | | | — | | | — | | | — | | | 193 | | | | 38,804 | | Net income | — | | | — | | | — | | | 38,611 | | | — | | | — | | | — | | | 193 | | | | 38,804 | |
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (9,403) | | | — | | | — | | | — | | | | (9,403) | | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (9,403) | | | — | | | — | | | — | | | | (9,403) | |
Stock compensation | Stock compensation | — | | | — | | | 1,619 | | | — | | | — | | | — | | | — | | | — | | | | 1,619 | | Stock compensation | — | | | — | | | 1,619 | | | — | | | — | | | — | | | — | | | — | | | | 1,619 | |
| | Allocation of ESOP stock | Allocation of ESOP stock | — | | | — | | | (5) | | | — | | | — | | | 606 | | | — | | | — | | | | 601 | | Allocation of ESOP stock | — | | | — | | | (5) | | | — | | | — | | | 606 | | | — | | | — | | | | 601 | |
Cash dividend $0.20 per share | Cash dividend $0.20 per share | — | | | — | | | — | | | (11,752) | | | — | | | — | | | — | | | — | | | | (11,752) | | Cash dividend $0.20 per share | — | | | — | | | — | | | (11,752) | | | — | | | — | | | — | | | — | | | | (11,752) | |
Exercise of stock options | Exercise of stock options | — | | | — | | | 95 | | | — | | | — | | | — | | | — | | | — | | | | 95 | | Exercise of stock options | — | | | — | | | 95 | | | — | | | — | | | — | | | — | | | — | | | | 95 | |
| | Preferred stock dividend | Preferred stock dividend | — | | | — | | | — | | | (1,004) | | | — | | | — | | | — | | | — | | | | (1,004) | | Preferred stock dividend | — | | | — | | | — | | | (1,004) | | | — | | | — | | | — | | | — | | | | (1,004) | |
| Distributions to non-controlling interest | Distributions to non-controlling interest | — | | | — | | | — | | | (2) | | | — | | | — | | | — | | | (174) | | | | (176) | | Distributions to non-controlling interest | — | | | — | | | — | | | (2) | | | — | | | — | | | — | | | (174) | | | | (176) | |
Balance at September 30, 2022 | | 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 | | 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) | | Net income (loss) | — | | | — | | | — | | | 20,667 | | | — | | | — | | | — | | | (135) | | | | 20,532 | |
Other comprehensive income, net of tax | | Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | 1,537 | | | — | | | — | | | — | | | | 1,537 | |
Stock compensation | | Stock compensation | — | | | — | | | 1,574 | | | — | | | — | | | — | | | — | | | — | | | | 1,574 | |
| Balance at September 30, 2022 | $ | 1 | | | $ | 612 | | | $ | 1,153,072 | | | $ | 499,967 | | | $ | (38,496) | | | $ | (6,797) | | | $ | (69,106) | | | $ | 963 | | | | $ | 1,540,216 | | |
| Allocation of ESOP stock | | Allocation of ESOP stock | — | | | — | | | (99) | | | — | | | — | | | 603 | | | — | | | — | | | | 504 | |
Cash dividend $0.20 per share | | Cash dividend $0.20 per share | — | | | — | | | — | | | (11,822) | | | — | | | — | | | — | | | — | | | | (11,822) | |
| Preferred stock dividend | | Preferred stock dividend | — | | | — | | | — | | | (1,004) | | | — | | | — | | | — | | | — | | | | (1,004) | |
| Balance at September 30, 2023 | | 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.
OceanFirst Financial Corp.
Consolidated Statements of Changes in Stockholders’ EquityCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(dollars in thousands, except per share amounts)
(Unaudited)
For the Nine Months Ended September 30, 20222023 and 20212022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Employee Stock Ownership Plan | | Treasury Stock | | Non-Controlling Interest | | | | | | | Total |
Balance at December 31, 2020 | $ | 1 | | | $ | 609 | | | $ | 1,137,715 | | | $ | 378,268 | | | $ | 621 | | | $ | (7,433) | | | $ | (25,651) | | | $ | — | | | | | | | | $ | 1,484,130 | |
Net income | — | | | — | | | — | | | 87,419 | | | — | | | — | | | — | | | — | | | | | | | | 87,419 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (1,355) | | | — | | | — | | | — | | | | | | | | (1,355) | |
Stock compensation | — | | | — | | | 4,231 | | | — | | | — | | | — | | | — | | | — | | | | | | | | 4,231 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Allocation of ESOP stock | — | | | — | | | 142 | | | — | | | — | | | 914 | | | — | | | — | | | | | | | | 1,056 | |
Cash dividend $0.51 per share | — | | | — | | | — | | | (30,425) | | | — | | | — | | | — | | | — | | | | | | | | (30,425) | |
Exercise of stock options | — | | | 2 | | | 3,360 | | | (1,529) | | | — | | | — | | | — | | | — | | | | | | | | 1,833 | |
Repurchase 1,460,009 shares of common stock | — | | | — | | | — | | | — | | | — | | | — | | | (30,628) | | | — | | | | | | | | (30,628) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Preferred stock dividend | — | | | — | | | — | | | (3,012) | | | — | | | — | | | — | | | — | | | | | | | | (3,012) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2021 | $ | 1 | | | $ | 611 | | | $ | 1,145,448 | | | $ | 430,721 | | | $ | (734) | | | $ | (6,519) | | | $ | (56,279) | | | $ | — | | | | | | | | $ | 1,513,249 | |
| | | | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Employee Stock Ownership Plan | | Treasury Stock | | Non-Controlling Interest | | | | | | | Total |
Balance at December 31, 2021 | $ | 1 | | | $ | 611 | | | $ | 1,146,781 | | | $ | 442,306 | | | $ | (2,821) | | | $ | (8,615) | | | $ | (61,710) | | | $ | — | | | | | | | | $ | 1,516,553 | |
Net income | — | | | — | | | — | | | 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 | |
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| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
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.
OceanFirst Financial Corp.
Consolidated Statements of Cash FlowsCONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
| | | For the Nine Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| | (Unaudited) | | (Unaudited) |
Cash flows from operating activities: | Cash flows from operating activities: | | Cash flows from operating activities: | |
Net income | Net income | $ | 94,046 | | | $ | 87,419 | | Net income | $ | 76,313 | | | $ | 94,046 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization of premises and equipment | Depreciation and amortization of premises and equipment | 8,526 | | | 6,150 | | Depreciation and amortization of premises and equipment | 9,164 | | | 8,526 | |
Allocation of ESOP stock | Allocation of ESOP stock | 1,848 | | | 1,056 | | Allocation of ESOP stock | 1,634 | | | 1,848 | |
Stock compensation | Stock compensation | 5,019 | | | 4,231 | | Stock compensation | 4,910 | | | 5,019 | |
| Net excess tax expense on stock compensation | Net excess tax expense on stock compensation | 215 | | | 93 | | Net excess tax expense on stock compensation | 243 | | | 215 | |
Amortization of servicing asset | Amortization of servicing asset | 77 | | | 60 | | Amortization of servicing asset | 54 | | | 77 | |
Net premium amortization in excess of discount accretion on securities | Net premium amortization in excess of discount accretion on securities | 5,522 | | | 5,719 | | Net premium amortization in excess of discount accretion on securities | 3,818 | | | 5,522 | |
Net amortization of deferred costs on borrowings | Net amortization of deferred costs on borrowings | 416 | | | 688 | | Net amortization of deferred costs on borrowings | 445 | | | 416 | |
Amortization of core deposit intangible | Amortization of core deposit intangible | 3,559 | | | 4,110 | | Amortization of core deposit intangible | 3,008 | | | 3,559 | |
Net accretion of purchase accounting adjustments | Net accretion of purchase accounting adjustments | (7,433) | | | (10,720) | | Net accretion of purchase accounting adjustments | (4,219) | | | (7,433) | |
Net amortization of deferred costs and discounts on loans | 349 | | | 606 | | |
Provision (benefit) for credit losses | 4,121 | | | (10,259) | | |
Net amortization of deferred fees/costs and premiums/discounts on loans | | Net amortization of deferred fees/costs and premiums/discounts on loans | (940) | | | 349 | |
Provision for credit losses | | Provision for credit losses | 14,525 | | | 4,121 | |
Net gain on sale of other real estate owned | Net gain on sale of other real estate owned | (54) | | | — | | Net gain on sale of other real estate owned | — | | | (54) | |
Net write down of fixed assets held-for-sale to net realizable value | Net write down of fixed assets held-for-sale to net realizable value | 1,427 | | | 3,114 | | Net write down of fixed assets held-for-sale to net realizable value | 459 | | | 1,427 | |
Net (gain) loss on sale of fixed assets | (52) | | | 11 | | |
| Net loss (gain) on equity securities | 7,502 | | | (8,397) | | |
Net gain on sale of fixed assets | | Net gain on sale of fixed assets | (26) | | | (52) | |
Net loss on sales of available-for-sale securities | | Net loss on sales of available-for-sale securities | 697 | | | — | |
Net loss on equity investments | | Net loss on equity investments | 5,908 | | | 7,502 | |
Net gain on sales of loans | Net gain on sales of loans | (348) | | | (3,180) | | Net gain on sales of loans | (119) | | | (348) | |
Proceeds from sales of residential loans held for sale | Proceeds from sales of residential loans held for sale | 10,266 | | | 101,992 | | Proceeds from sales of residential loans held for sale | 38,048 | | | 10,266 | |
Mortgage loans originated for sale | (13,677) | | | (53,935) | | |
Residential loans originated for sale | | Residential loans originated for sale | (37,239) | | | (13,677) | |
Increase in value of bank owned life insurance | Increase in value of bank owned life insurance | (4,881) | | | (4,771) | | Increase in value of bank owned life insurance | (3,853) | | | (4,881) | |
Net gain on sale of assets held for sale | (1,947) | | | (318) | | |
(Increase) decrease in interest and dividends receivable | (5,782) | | | 2,757 | | |
Deferred tax (benefit) expense | (66) | | | 570 | | |
Net loss (gain) on sale of assets held for sale | | Net loss (gain) on sale of assets held for sale | 7 | | | (1,947) | |
Increase in interest and dividends receivable | | Increase in interest and dividends receivable | (5,326) | | | (5,782) | |
Deferred tax benefit | | Deferred tax benefit | (93) | | | (66) | |
| (Increase) decrease in other assets | (84,582) | | | 29,366 | | |
Increase (decrease) in other liabilities | 185,927 | | | (37,311) | | |
Increase in other assets | | Increase in other assets | (22,350) | | | (84,582) | |
Increase in other liabilities | | Increase in other liabilities | 66,016 | | | 185,927 | |
Total adjustments | Total adjustments | 115,952 | | | 31,632 | | Total adjustments | 74,771 | | | 115,952 | |
Net cash provided by operating activities | Net cash provided by operating activities | 209,998 | | | 119,051 | | Net cash provided by operating activities | 151,084 | | | 209,998 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Net increase in loans receivable | Net increase in loans receivable | (938,915) | | | (203,104) | | Net increase in loans receivable | (210,412) | | | (938,915) | |
Proceeds from sale of loans | Proceeds from sale of loans | 13,388 | | | 825 | | Proceeds from sale of loans | — | | | 13,388 | |
Purchase of residential loan pool | Purchase of residential loan pool | (161,701) | | | (219,745) | | Purchase of residential loan pool | — | | | (161,701) | |
Premiums paid on purchased loan pool | Premiums paid on purchased loan pool | (495) | | | (6,318) | | Premiums paid on purchased loan pool | — | | | (495) | |
Purchase of debt securities available-for-sale | Purchase of debt securities available-for-sale | (64,862) | | | (200,034) | | Purchase of debt securities available-for-sale | (4,287) | | | (64,862) | |
Purchase of debt securities held-to-maturity | Purchase of debt securities held-to-maturity | (26,666) | | | (381,032) | | Purchase of debt securities held-to-maturity | (65,567) | | | (26,666) | |
Purchase of equity investments | Purchase of equity investments | (5,935) | | | (85,077) | | Purchase of equity investments | (7,383) | | | (5,935) | |
Proceeds from maturities and calls of debt securities available-for-sale | Proceeds from maturities and calls of debt securities available-for-sale | 84,200 | | | 93,835 | | Proceeds from maturities and calls of debt securities available-for-sale | 16,950 | | | 84,200 | |
Proceeds from maturities and calls of debt securities held-to-maturity | Proceeds from maturities and calls of debt securities held-to-maturity | 25,126 | | | 22,125 | | Proceeds from maturities and calls of debt securities held-to-maturity | 13,940 | | | 25,126 | |
Proceeds from sales of debt securities available-for-sale | Proceeds from sales of debt securities available-for-sale | 30,257 | | | — | | Proceeds from sales of debt securities available-for-sale | 1,300 | | | 30,257 | |
| Proceeds from sale of equity investments | Proceeds from sale of equity investments | 19,235 | | | 98,776 | | Proceeds from sale of equity investments | 4,822 | | | 19,235 | |
Principal repayments on debt securities available-for-sale | — | | | 114 | | |
| Principal repayments on debt securities held-to-maturity | Principal repayments on debt securities held-to-maturity | 111,283 | | | 168,059 | | Principal repayments on debt securities held-to-maturity | 82,661 | | | 111,283 | |
Proceeds from bank owned life insurance | Proceeds from bank owned life insurance | 2,970 | | | 9,952 | | Proceeds from bank owned life insurance | 385 | | | 2,970 | |
Proceeds from the redemption of restricted equity investments | Proceeds from the redemption of restricted equity investments | 164,939 | | | 1,110 | | Proceeds from the redemption of restricted equity investments | 128,544 | | | 164,939 | |
Purchases of restricted equity investments | Purchases of restricted equity investments | (189,300) | | | (2,069) | | Purchases of restricted equity investments | (101,745) | | | (189,300) | |
Proceeds from sale of other real estate owned | Proceeds from sale of other real estate owned | 160 | | | — | | Proceeds from sale of other real estate owned | — | | | 160 | |
Proceeds from sales of assets held-for-sale | Proceeds from sales of assets held-for-sale | 7,676 | | | 2,601 | | Proceeds from sales of assets held-for-sale | 969 | | | 7,676 | |
Purchases of premises and equipment | Purchases of premises and equipment | (14,358) | | | (26,493) | | Purchases of premises and equipment | (6,062) | | | (14,358) | |
Purchases of operating lease equipment | Purchases of operating lease equipment | (4,789) | | | — | | Purchases of operating lease equipment | — | | | (4,789) | |
Net cash consideration received for acquisition | Net cash consideration received for acquisition | 38,609 | | | — | | Net cash consideration received for acquisition | — | | | 38,609 | |
| Net cash used in investing activities | Net cash used in investing activities | (909,178) | | | (726,475) | | Net cash used in investing activities | (145,885) | | | (909,178) | |
OceanFirst Financial Corp.
Consolidated Statements of Cash FlowsCONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(dollars in thousands)
| | | For the Nine Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| | (Unaudited) | | (Unaudited) |
Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
Increase in deposits | Increase in deposits | $ | 227,192 | | | $ | 347,672 | | Increase in deposits | $ | 858,947 | | | $ | 227,192 | |
(Decrease) increase in short-term borrowings | (22,480) | | | 14,838 | | |
Net proceeds from FHLB advances | 514,200 | | | — | | |
Increase (decrease) in short-term borrowings | | Increase (decrease) in short-term borrowings | 13,807 | | | (22,480) | |
Net (repayment) proceeds from FHLB advances | | Net (repayment) proceeds from FHLB advances | (605,110) | | | 514,200 | |
| Repayments of other borrowings | Repayments of other borrowings | (35,076) | | | (7,585) | | Repayments of other borrowings | — | | | (35,076) | |
Increase in advances by borrowers for taxes and insurance | Increase in advances by borrowers for taxes and insurance | 5,152 | | | 4,918 | | Increase in advances by borrowers for taxes and insurance | 8,291 | | | 5,152 | |
Exercise of stock options | Exercise of stock options | 346 | | | 1,833 | | Exercise of stock options | 593 | | | 346 | |
Payment of employee taxes withheld from stock awards | (1,473) | | | (1,176) | | |
Payment of employee taxes withheld from stock awards and phantom stock units | | Payment of employee taxes withheld from stock awards and phantom stock units | (2,350) | | | (1,473) | |
Purchase of treasury stock | Purchase of treasury stock | (7,396) | | | (30,628) | | Purchase of treasury stock | — | | | (7,396) | |
| Dividends paid | Dividends paid | (34,779) | | | (33,437) | | Dividends paid | (38,426) | | | (34,779) | |
Distributions to non-controlling interest | Distributions to non-controlling interest | (582) | | | — | | Distributions to non-controlling interest | (55) | | | (582) | |
Net cash provided by financing activities | Net cash provided by financing activities | 645,104 | | | 296,435 | | Net cash provided by financing activities | 235,697 | | | 645,104 | |
Net decrease in cash and due from banks and restricted cash | (54,076) | | | (310,989) | | |
Net increase (decrease) in cash and due from banks and restricted cash | | Net increase (decrease) in cash and due from banks and restricted cash | 240,896 | | | (54,076) | |
Cash and due from banks and restricted cash at beginning of period | Cash and due from banks and restricted cash at beginning of period | 224,784 | | | 1,318,661 | | Cash and due from banks and restricted cash at beginning of period | 167,986 | | | 224,784 | |
Cash and due from banks and restricted cash at end of period | Cash and due from banks and restricted cash at end of period | $ | 170,708 | | | $ | 1,007,672 | | Cash and due from banks and restricted cash at end of period | $ | 408,882 | | | $ | 170,708 | |
Supplemental Disclosure of Cash Flow Information: | Supplemental Disclosure of Cash Flow Information: | | | | Supplemental Disclosure of Cash Flow Information: | | | |
Cash and due from banks at beginning of period | Cash and due from banks at beginning of period | $ | 204,949 | | | $ | 1,272,134 | | Cash and due from banks at beginning of period | $ | 167,946 | | | $ | 204,949 | |
Restricted cash at beginning of period | Restricted cash at beginning of period | 19,835 | | | 46,527 | | Restricted cash at beginning of period | 40 | | | 19,835 | |
| Cash and due from banks and restricted cash at beginning of period | Cash and due from banks and restricted cash at beginning of period | $ | 224,784 | | | $ | 1,318,661 | | Cash and due from banks and restricted cash at beginning of period | $ | 167,986 | | | $ | 224,784 | |
Cash and due from banks at end of period | Cash and due from banks at end of period | $ | 170,668 | | | $ | 981,126 | | Cash and due from banks at end of period | $ | 408,882 | | | $ | 170,668 | |
Restricted cash at end of period | Restricted cash at end of period | 40 | | | 26,546 | | Restricted cash at end of period | — | | | 40 | |
| Cash and due from banks and restricted cash at end of period | Cash and due from banks and restricted cash at end of period | $ | 170,708 | | | $ | 1,007,672 | | Cash and due from banks and restricted cash at end of period | $ | 408,882 | | | $ | 170,708 | |
Cash paid during the period for: | Cash paid during the period for: | | | | Cash paid during the period for: | | | |
Interest | Interest | $ | 27,953 | | | $ | 28,009 | | Interest | $ | 148,950 | | | $ | 27,953 | |
Income taxes | Income taxes | 12,633 | | | 38,707 | | Income taxes | 28,151 | | | 12,633 | |
Non-cash activities: | Non-cash activities: | | Non-cash activities: | |
Accretion of unrealized loss on securities reclassified to held-to-maturity | Accretion of unrealized loss on securities reclassified to held-to-maturity | 451 | | | 512 | | Accretion of unrealized loss on securities reclassified to held-to-maturity | 453 | | | 451 | |
Net loan recoveries | (335) | | | (442) | | |
Net loan charge-offs (recoveries) | | Net loan charge-offs (recoveries) | 8,271 | | | (335) | |
Transfer of loans receivable to loans held-for-sale | Transfer of loans receivable to loans held-for-sale | 13,178 | | | 12,781 | | Transfer of loans receivable to loans held-for-sale | — | | | 13,178 | |
Transfer of premises and equipment to assets held-for-sale | Transfer of premises and equipment to assets held-for-sale | 2,776 | | | 1,476 | | Transfer of premises and equipment to assets held-for-sale | 1,302 | | | 2,776 | |
| Acquisition: | Acquisition: | | Acquisition: | |
Non-cash assets acquired: | Non-cash assets acquired: | | Non-cash assets acquired: | |
| Other current assets | Other current assets | $ | 238 | | | $ | — | | Other current assets | $ | — | | | $ | 238 | |
Premises and equipment | Premises and equipment | 18 | | | — | | Premises and equipment | — | | | 18 | |
| Right of use (“ROU”) asset | Right of use (“ROU”) asset | 779 | | | — | | Right of use (“ROU”) asset | — | | | 779 | |
Other assets | Other assets | 81 | | | — | | Other assets | — | | | 81 | |
| Total non-cash assets acquired | Total non-cash assets acquired | $ | 1,116 | | | $ | — | | Total non-cash assets acquired | $ | — | | | $ | 1,116 | |
Liabilities assumed: | Liabilities assumed: | | | | Liabilities assumed: | | | |
| Lease liability | Lease liability | $ | 779 | | | $ | — | | Lease liability | $ | — | | | $ | 779 | |
Other liabilities | Other liabilities | 43,937 | | | — | | Other liabilities | — | | | 43,937 | |
Total liabilities assumed | Total liabilities assumed | $ | 44,716 | | | $ | — | | Total liabilities assumed | $ | — | | | $ | 44,716 | |
See accompanying Notes to Unaudited Consolidated Financial Statements.
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 Abstract Title Agency, LLC.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, 20222023 are not necessarily indicative of the results of operations that may be expected for the full year 20222023 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, 2021.2022.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements
Note 2. Business Combinations
Trident Acquisition
On April 1, 2022, the Company completed its acquisition of a majority controlling interest of 60% in Trident. Trident provides commercial and residential title services throughout New Jersey, and through strategic alliances can also service clients’ title insurance needs outside of New Jersey. The acquisition is complimentary to the Company’s existing consumer and commercial lending business. Total consideration paid was $7.1 million and goodwill from the transaction amounted to $5.8 million.
The acquisition was accounted for under the acquisition method of accounting. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values. The excess of consideration paid over the estimated fair value of the net assets acquired, excluding the net assets attributable to the non-controlling interest, has been recorded as goodwill.
The Company consolidated Trident’s assets, liabilities and components of comprehensive income within its consolidated results. Thus, the consolidated results include amounts attributable to the Company and the non-controlling interest. Amounts attributable to the non-controlling interest are presented separately as a single line on the Consolidated Statements of Income (net income attributable to non-controlling interest) and the Consolidated Statements of Financial Condition (non-controlling interest in stockholders’ equity). Amounts attributed to the non-controlling interest are based upon the ownership interest in Trident that the Company does not own. For further discussion on the accounting for this arrangement refer to Note 11 Variable Interest Entity, of this Form 10-Q.
The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed by the Company at the date of the acquisition for Trident, net of total consideration paid (in thousands):
| | | | | |
| At April 1, 2022 |
| Estimated Fair Value |
Total purchase price: | $ | 7,084 | |
Assets acquired: | |
Cash and cash equivalents | $ | 45,693 | |
Other current assets | 238 | |
Premises and equipment | 18 | |
ROU asset | 779 | |
Other assets | 81 | |
Total assets acquired | 46,809 | |
Liabilities assumed: | |
Lease liability | 779 | |
Other liabilities | 43,937 | |
Total liabilities assumed | 44,716 | |
Net assets acquired | $ | 2,093 | |
Net assets attributable to non-controlling interest | $ | 836 | |
Goodwill recorded | $ | 5,827 | |
The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available. As the Company finalizes its review of the acquired assets and liabilities, certain adjustments to the recorded carrying values may be required.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 3.2. Earnings per Share
The following reconciles shares outstanding for basic and diluted earnings per share for the three and nine months ended September 30, 20222023 and 20212022 (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Weighted average shares outstanding | Weighted average shares outstanding | 59,134 | | | 59,722 | | | 59,245 | | | 60,050 | | Weighted average shares outstanding | 59,422 | | | 59,134 | | | 59,388 | | | 59,245 | |
Less: Unallocated ESOP shares | Less: Unallocated ESOP shares | (363) | | | (353) | | | (393) | | | (369) | | Less: Unallocated ESOP shares | (243) | | | (363) | | | (272) | | | (393) | |
Unallocated incentive award shares | Unallocated incentive award shares | (90) | | | (58) | | | (75) | | | (62) | | Unallocated incentive award shares | (75) | | | (90) | | | (79) | | | (75) | |
Average basic shares outstanding | Average basic shares outstanding | 58,681 | | | 59,311 | | | 58,777 | | | 59,619 | | Average basic shares outstanding | 59,104 | | | 58,681 | | | 59,037 | | | 58,777 | |
Add: Effect of dilutive securities: | Add: Effect of dilutive securities: | | Add: Effect of dilutive securities: | |
Incentive awards | Incentive awards | 120 | | | 204 | | | 141 | | | 243 | | Incentive awards | 7 | | | 120 | | | 31 | | | 141 | |
| Average diluted shares outstanding | Average diluted shares outstanding | 58,801 | | | 59,515 | | | 58,918 | | | 59,862 | | Average diluted shares outstanding | 59,111 | | | 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. For the three and nine months ended September 30, 2021, antidilutive stock options of 1,573,000 and 1,566,000, respectively, were excluded from the earnings per share calculation.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 4.3. 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, 20222023 and December 31, 20212022 are as follows (in thousands):
| | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Allowance for Credit Losses | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Allowance for Credit Losses |
At September 30, 2022 | | | | | | | | | | |
At September 30, 2023 | | At September 30, 2023 | | | | | | | | | |
Debt securities available-for-sale: | Debt securities available-for-sale: | | Debt securities available-for-sale: | |
U.S. government and agency obligations | U.S. government and agency obligations | $ | 107,198 | | | $ | (8,099) | | | $ | 99,099 | | | $ | — | | U.S. government and agency obligations | $ | 71,895 | | | $ | — | | | $ | (7,815) | | | $ | 64,080 | | | $ | — | |
Corporate debt securities | Corporate debt securities | 5,000 | | | — | | | (628) | | | 4,372 | | | — | | Corporate debt securities | 10,084 | | | — | | | (1,132) | | | 8,952 | | | — | |
Asset-backed securities | Asset-backed securities | 296,228 | | | — | | | (21,355) | | | 274,873 | | | — | | Asset-backed securities | 296,212 | | | — | | | (5,768) | | | 290,444 | | | — | |
| Agency commercial mortgage-backed securities (“MBS”) | Agency commercial mortgage-backed securities (“MBS”) | 110,871 | | | — | | | (18,915) | | | 91,956 | | | — | | Agency commercial mortgage-backed securities (“MBS”) | 109,827 | | | — | | | (20,095) | | | 89,732 | | | — | |
Total debt securities available-for-sale | Total debt securities available-for-sale | $ | 519,297 | | | $ | — | | | $ | (48,997) | | | $ | 470,300 | | | $ | — | | Total debt securities available-for-sale | $ | 488,018 | | | $ | — | | | $ | (34,810) | | | $ | 453,208 | | | $ | — | |
Debt securities held-to-maturity: | Debt securities held-to-maturity: | | | | | | | | | | Debt securities held-to-maturity: | | | | | | | | | |
State, municipal and sovereign debt obligations | $ | 263,614 | | | $ | — | | | $ | (31,052) | | | $ | 232,562 | | | $ | (63) | | |
State and municipal debt obligations | | State and municipal debt obligations | $ | 228,779 | | | $ | 30 | | | $ | (26,705) | | | $ | 202,104 | | | $ | (41) | |
Corporate debt securities | Corporate debt securities | 59,000 | | | 403 | | | (3,135) | | | 56,268 | | | (1,135) | | Corporate debt securities | 71,430 | | | 373 | | | (6,106) | | | 65,697 | | | (868) | |
Mortgage-backed securities: | Mortgage-backed securities: | | Mortgage-backed securities: | |
Agency residential | Agency residential | 674,356 | | | 103 | | | (89,696) | | | 584,763 | | | — | | Agency residential | 787,875 | | | 3 | | | (103,865) | | | 684,013 | | | — | |
Agency commercial | Agency commercial | 7,440 | | | 6 | | | (279) | | | 7,167 | | | — | | Agency commercial | 83,322 | | | 16 | | | (6,392) | | | 76,946 | | | (16) | |
Non-agency commercial | Non-agency commercial | 26,973 | | | — | | | (2,307) | | | 24,666 | | | (36) | | Non-agency commercial | 20,760 | | | — | | | (2,178) | | | 18,582 | | | (7) | |
Total mortgage-backed securities | Total mortgage-backed securities | 708,769 | | | 109 | | | (92,282) | | | 616,596 | | | (36) | | Total mortgage-backed securities | 891,957 | | | 19 | | | (112,435) | | | 779,541 | | | (23) | |
Total debt securities held-to-maturity | Total debt securities held-to-maturity | $ | 1,031,383 | | | $ | 512 | | | $ | (126,469) | | | $ | 905,426 | | | $ | (1,234) | | Total debt securities held-to-maturity | $ | 1,192,166 | | | $ | 422 | | | $ | (145,246) | | | $ | 1,047,342 | | | $ | (932) | |
Total debt securities | Total debt securities | $ | 1,550,680 | | | $ | 512 | | | $ | (175,466) | | | $ | 1,375,726 | | | $ | (1,234) | | Total debt securities | $ | 1,680,184 | | | $ | 422 | | | $ | (180,056) | | | $ | 1,500,550 | | | $ | (932) | |
At December 31, 2021 | | | | | | | | | | |
At December 31, 2022 | | At December 31, 2022 | | | | | | | | | |
Debt securities available-for-sale: | Debt securities available-for-sale: | | Debt securities available-for-sale: | |
U.S. government and agency obligations | U.S. government and agency obligations | $ | 164,756 | | | $ | 1,135 | | | $ | (471) | | | $ | 165,420 | | | $ | — | | U.S. government and agency obligations | $ | 87,648 | | | $ | 1 | | | $ | (7,635) | | | $ | 80,014 | | | $ | — | |
Corporate debt securities | Corporate debt securities | 5,000 | | | 42 | | | (11) | | | 5,031 | | | — | | Corporate debt securities | 8,928 | | | — | | | (756) | | | 8,172 | | | — | |
Asset-backed securities | Asset-backed securities | 298,976 | | | 41 | | | (1,489) | | | 297,528 | | | — | | Asset-backed securities | 296,222 | | | — | | | (19,349) | | | 276,873 | | | — | |
Agency commercial MBS | Agency commercial MBS | 101,142 | | | 57 | | | (923) | | | 100,276 | | | — | | Agency commercial MBS | 110,606 | | | — | | | (18,017) | | | 92,589 | | | — | |
Total debt securities available-for-sale | Total debt securities available-for-sale | $ | 569,874 | | | $ | 1,275 | | | $ | (2,894) | | | $ | 568,255 | | | $ | — | | Total debt securities available-for-sale | $ | 503,404 | | | $ | 1 | | | $ | (45,757) | | | $ | 457,648 | | | $ | — | |
Debt securities held-to-maturity: | Debt securities held-to-maturity: | | | | | | | | | | Debt securities held-to-maturity: | | | | | | | | | |
State, municipal, and sovereign debt obligations | State, municipal, and sovereign debt obligations | $ | 281,389 | | | $ | 10,185 | | | $ | (1,164) | | | $ | 290,410 | | | $ | (85) | | State, municipal, and sovereign debt obligations | $ | 260,249 | | | $ | 46 | | | $ | (24,940) | | | $ | 235,355 | | | $ | (60) | |
Corporate debt securities | Corporate debt securities | 68,823 | | | 1,628 | | | (1,279) | | | 69,172 | | | (1,343) | | Corporate debt securities | 56,893 | | | 380 | | | (3,778) | | | 53,495 | | | (1,059) | |
Mortgage-backed securities: | Mortgage-backed securities: | | Mortgage-backed securities: | |
Agency residential | Agency residential | 756,844 | | | 6,785 | | | (7,180) | | | 756,449 | | | — | | Agency residential | 849,985 | | | 795 | | | (83,586) | | | 767,194 | | | — | |
Agency commercial | Agency commercial | 4,385 | | | 7 | | | (44) | | | 4,348 | | | — | | Agency commercial | 32,127 | | | 23 | | | (1,189) | | | 30,961 | | | — | |
Non-agency commercial | Non-agency commercial | 32,107 | | | 362 | | | (104) | | | 32,365 | | | (39) | | Non-agency commercial | 25,310 | | | — | | | (2,274) | | | 23,036 | | | (9) | |
Total mortgage-backed securities | Total mortgage-backed securities | 793,336 | | | 7,154 | | | (7,328) | | | 793,162 | | | (39) | | Total mortgage-backed securities | 907,422 | | | 818 | | | (87,049) | | | 821,191 | | | (9) | |
Total debt securities held-to-maturity | Total debt securities held-to-maturity | $ | 1,143,548 | | | $ | 18,967 | | | $ | (9,771) | | | $ | 1,152,744 | | | $ | (1,467) | | Total debt securities held-to-maturity | $ | 1,224,564 | | | $ | 1,244 | | | $ | (115,767) | | | $ | 1,110,041 | | | $ | (1,128) | |
Total debt securities | Total debt securities | $ | 1,713,422 | | | $ | 20,242 | | | $ | (12,665) | | | $ | 1,720,999 | | | $ | (1,467) | | 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, 20222023 or December 31, 2021. The unrealized losses across security classes were due to interest rate movements. In addition, the asset-backed securities, which are largely comprised of collateralized-loan obligations, and the corporate debt securities were also impacted by credit spread widening across the fixed income markets. All of these securities are rated investment grade.2022.
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, 20222023 and 20212022 (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Allowance for securities credit losses | Allowance for securities credit losses | | | | | | | | Allowance for securities credit losses | | | | | | | |
Beginning balance | Beginning balance | $ | (1,293) | | | $ | (1,609) | | | $ | (1,467) | | | $ | (1,715) | | Beginning balance | $ | (964) | | | $ | (1,293) | | | $ | (1,128) | | | $ | (1,467) | |
| Credit loss benefit | 59 | | | 106 | | | 233 | | | 212 | | |
Provision for credit loss benefit | | Provision for credit loss benefit | 32 | | | 59 | | | 196 | | | 233 | |
| Total ending allowance balance | Total ending allowance balance | $ | (1,234) | | | $ | (1,503) | | | $ | (1,234) | | | $ | (1,503) | | 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, 2022,2023, aggregated by credit quality indicator, are as follows (in thousands):
| | | | Investment Grade | | Non-Investment Grade/Non-rated | | Total | | Investment Grade | | Non-Investment Grade/Non-rated | | Total |
As of September 30, 2022 | | | | | | |
As of September 30, 2023 | | As of September 30, 2023 | | | | | |
| State, municipal and sovereign debt obligations | $ | 263,614 | | | $ | — | | | $ | 263,614 | | |
State and municipal debt obligations | | State and municipal debt obligations | $ | 228,779 | | | $ | — | | | $ | 228,779 | |
Corporate debt securities | Corporate debt securities | 43,635 | | | 15,365 | | | 59,000 | | Corporate debt securities | 57,050 | | | 14,380 | | | 71,430 | |
| Agency commercial MBS | | Agency commercial MBS | 83,323 | | | — | | | 83,323 | |
Non-agency commercial MBS | Non-agency commercial MBS | 26,973 | | | — | | | 26,973 | | Non-agency commercial MBS | 20,760 | | | — | | | 20,760 | |
| Total debt securities held-to-maturity | Total debt securities held-to-maturity | $ | 334,222 | | | $ | 15,365 | | | $ | 349,587 | | 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 the debt securities held-to-maturity at September 30, 20222023 and December 31, 2021 is2022 was as follows (in thousands):
| | | September 30, | | December 31, | | September 30, | | December 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Amortized cost | Amortized cost | $ | 1,031,383 | | | $ | 1,143,548 | | Amortized cost | $ | 1,192,166 | | | $ | 1,224,564 | |
Allowance for securities credit losses | | Allowance for securities credit losses | (932) | | | (1,128) | |
Net loss on date of transfer from available-for-sale | Net loss on date of transfer from available-for-sale | (13,556) | | | (13,556) | | Net loss on date of transfer from available-for-sale | (13,556) | | | (13,556) | |
Allowance for securities credit losses | (1,234) | | | (1,467) | | |
Accretion of net unrealized loss on securities reclassified as held-to-maturity | Accretion of net unrealized loss on securities reclassified as held-to-maturity | 11,119 | | | 10,668 | | Accretion of net unrealized loss on securities reclassified as held-to-maturity | 11,661 | | | 11,258 | |
Carrying value | Carrying value | $ | 1,027,712 | | | $ | 1,139,193 | | Carrying value | $ | 1,189,339 | | | $ | 1,221,138 | |
There were$131,000 $0 realized gains/losses and $23,000$697,000 of realized gainslosses on sale of debt securities available-for-sale for the three and nine months ended September 30, 2022. There were no2023, respectively, as compared to realized gains or of $131,000 and $23,000 for the corresponding prior year periods, respectively. These realized gains/losses on debt securities forare presented within Other under Total other income of the three and nine months ended September 30, 2021.
The amortized cost and estimated fair valueConsolidated Statements of debt securities at September 30, 2022 by contractual maturity are shown below (in thousands).
| | | | | | | | | | | |
September 30, 2022 | Amortized Cost | | Estimated Fair Value |
Less than one year | $ | 55,326 | | | $ | 54,972 | |
Due after one year through five years | 166,980 | | | 154,459 | |
Due after five years through ten years | 225,771 | | | 205,348 | |
Due after ten years | 282,963 | | | 252,395 | |
| $ | 731,040 | | | $ | 667,174 | |
Income.
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, 2023 | Amortized Cost | | Estimated Fair Value |
Less than one year | $ | 39,412 | | | $ | 38,958 | |
Due after one year through five years | 183,574 | | | 166,592 | |
Due after five years through ten years | 205,459 | | | 192,786 | |
Due after ten years | 249,955 | | | 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, 2022,2023, corporate debt securities, state and municipal obligations, and asset-backed securities with an amortized cost of $56.0$80.4 million, $75.0$63.9 million, and $296.2 million,, respectively, and an estimated fair valuevalue of $52.7$73.6 million, $68.7$59.6 million, and $274.9$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.
The estimated fair value of securities pledged for the ability to draw on FHLB advances, access to the Federal Reserve discount window, and other borrowings and for other purposes required by law amounted to $866.5 million and $1.14 billion at September 30, 2022 and December 31, 2021, respectively, which included $105.5 million and $142.9 million at September 30, 2022 and December 31, 2021, respectively, pledged as collateral for securities sold under agreements to repurchase.
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, 20222023 and December 31, 2021,2022, segregated by the duration of the unrealized losses, are as follows (in thousands):
| | | Less than 12 months | | 12 months or longer | | Total | | Less than 12 months | | 12 months or longer | | Total |
| | Estimated Fair Value | | Unrealized Losses | | Estimated Fair Value | | Unrealized Losses | | Estimated Fair Value | | Unrealized Losses | | Estimated Fair Value | | Unrealized Losses | | Estimated Fair Value | | Unrealized Losses | | Estimated Fair Value | | Unrealized Losses |
At September 30, 2022 | | | | | | | | | | | | |
At September 30, 2023 | | At September 30, 2023 | | | | | | | | | | | |
Debt securities available-for-sale: | Debt securities available-for-sale: | | Debt securities available-for-sale: | |
U.S. government and agency obligations | U.S. government and agency obligations | $ | 75,464 | | | $ | (5,924) | | | $ | 23,635 | | | $ | (2,175) | | | $ | 99,099 | | | $ | (8,099) | | U.S. government and agency obligations | $ | 1,060 | | | $ | (11) | | | $ | 63,020 | | | $ | (7,804) | | | $ | 64,080 | | | $ | (7,815) | |
Corporate debt securities | Corporate debt securities | 3,496 | | | (504) | | | 877 | | | (124) | | | 4,373 | | | (628) | | Corporate debt securities | 6,519 | | | (565) | | | 2,433 | | | (567) | | | 8,952 | | | (1,132) | |
Asset-backed securities | Asset-backed securities | 216,926 | | | (16,650) | | | 57,947 | | | (4,705) | | | 274,873 | | | (21,355) | | Asset-backed securities | — | | | — | | | 290,444 | | | (5,768) | | | 290,444 | | | (5,768) | |
Agency commercial MBS | Agency commercial MBS | 77,878 | | | (16,233) | | | 14,078 | | | (2,682) | | | 91,956 | | | (18,915) | | Agency commercial MBS | — | | | — | | | 89,732 | | | (20,095) | | | 89,732 | | | (20,095) | |
Total debt securities available-for-sale | Total debt securities available-for-sale | 373,764 | | | (39,311) | | | 96,537 | | | (9,686) | | | 470,301 | | | (48,997) | | Total debt securities available-for-sale | 7,579 | | | (576) | | | 445,629 | | | (34,234) | | | 453,208 | | | (34,810) | |
Debt securities held-to-maturity: | Debt securities held-to-maturity: | | | | | | | | | | | | Debt securities held-to-maturity: | | | | | | | | | | | |
| State, municipal and sovereign debt obligations | 172,090 | | | (22,460) | | | 58,649 | | | (8,592) | | | 230,739 | | | (31,052) | | |
State and municipal debt obligations | | State and municipal debt obligations | 9,266 | | | (397) | | | 187,876 | | | (26,308) | | | 197,142 | | | (26,705) | |
Corporate debt securities | Corporate debt securities | 14,142 | | | (319) | | | 36,516 | | | (2,816) | | | 50,658 | | | (3,135) | | Corporate debt securities | 38,247 | | | (3,634) | | | 22,687 | | | (2,472) | | | 60,934 | | | (6,106) | |
| MBS: | MBS: | | MBS: | |
Agency residential | Agency residential | 252,724 | | | (26,933) | | | 318,925 | | | (62,763) | | | 571,649 | | | (89,696) | | Agency residential | 222,066 | | | (13,368) | | | 461,630 | | | (90,497) | | | 683,696 | | | (103,865) | |
Agency commercial | Agency commercial | 3,609 | | | (242) | | | 2,092 | | | (37) | | | 5,701 | | | (279) | | Agency commercial | 52,836 | | | (5,460) | | | 16,431 | | | (932) | | | 69,267 | | | (6,392) | |
Non-agency commercial | Non-agency commercial | 20,512 | | | (1,981) | | | 4,154 | | | (326) | | | 24,666 | | | (2,307) | | Non-agency commercial | — | | | — | | | 18,582 | | | (2,178) | | | 18,582 | | | (2,178) | |
Total MBS | Total MBS | 276,845 | | | (29,156) | | | 325,171 | | | (63,126) | | | 602,016 | | | (92,282) | | Total MBS | 274,902 | | | (18,828) | | | 496,643 | | | (93,607) | | | 771,545 | | | (112,435) | |
Total debt securities held-to-maturity | Total debt securities held-to-maturity | 463,077 | | | (51,935) | | | 420,336 | | | (74,534) | | | 883,413 | | | (126,469) | | Total debt securities held-to-maturity | 322,415 | | | (22,859) | | | 707,206 | | | (122,387) | | | 1,029,621 | | | (145,246) | |
Total debt securities | Total debt securities | $ | 836,841 | | | $ | (91,246) | | | $ | 516,873 | | | $ | (84,220) | | | $ | 1,353,714 | | | $ | (175,466) | | Total debt securities | $ | 329,994 | | | $ | (23,435) | | | $ | 1,152,835 | | | $ | (156,621) | | | $ | 1,482,829 | | | $ | (180,056) | |
At December 31, 2021 | | | | | | | | | | | | |
At December 31, 2022 | | At December 31, 2022 | | | | | | | | | | | |
Debt securities available-for-sale: | Debt securities available-for-sale: | | Debt securities available-for-sale: | |
U.S. government and agency obligations | U.S. government and agency obligations | $ | 82,395 | | | $ | (471) | | | $ | — | | | $ | — | | | $ | 82,395 | | | $ | (471) | | U.S. government and agency obligations | $ | 27,232 | | | $ | (450) | | | $ | 52,782 | | | $ | (7,185) | | | $ | 80,014 | | | $ | (7,635) | |
Corporate debt securities | Corporate debt securities | 1,989 | | | (11) | | | — | | | — | | | 1,989 | | | (11) | | Corporate debt securities | 4,735 | | | (193) | | | 3,437 | | | (563) | | | 8,172 | | | (756) | |
Asset-backed securities | Asset-backed securities | 279,486 | | | (1,489) | | | — | | | — | | | 279,486 | | | (1,489) | | Asset-backed securities | 143,392 | | | (9,179) | | | 133,481 | | | (10,170) | | | 276,873 | | | (19,349) | |
Agency commercial MBS | Agency commercial MBS | 80,726 | | | (923) | | | — | | | — | | | 80,726 | | | (923) | | Agency commercial MBS | 8,782 | | | (1,675) | | | 83,807 | | | (16,342) | | | 92,589 | | | (18,017) | |
Total debt securities available-for-sale | Total debt securities available-for-sale | 444,596 | | | (2,894) | | | — | | | — | | | 444,596 | | | (2,894) | | Total debt securities available-for-sale | 184,141 | | | (11,497) | | | 273,507 | | | (34,260) | | | 457,648 | | | (45,757) | |
Debt securities held-to-maturity: | Debt securities held-to-maturity: | | | | | | | | | | | | Debt securities held-to-maturity: | | | | | | | | | | | |
| State, municipal, and sovereign debt obligations | State, municipal, and sovereign debt obligations | 75,329 | | | (1,063) | | | 4,383 | | | (101) | | | 79,712 | | | (1,164) | | State, municipal, and sovereign debt obligations | 133,492 | | | (11,952) | | | 97,135 | | | (12,988) | | | 230,627 | | | (24,940) | |
Corporate debt securities | Corporate debt securities | 38,304 | | | (1,279) | | | — | | | — | | | 38,304 | | | (1,279) | | Corporate debt securities | 11,783 | | | (598) | | | 36,152 | | | (3,180) | | | 47,935 | | | (3,778) | |
| MBS: | MBS: | | MBS: | |
Agency residential | Agency residential | 445,399 | | | (5,822) | | | 50,133 | | | (1,358) | | | 495,532 | | | (7,180) | | Agency residential | 297,296 | | | (12,404) | | | 397,036 | | | (71,182) | | | 694,332 | | | (83,586) | |
Agency commercial | Agency commercial | 2,255 | | | (41) | | | 886 | | | (3) | | | 3,141 | | | (44) | | Agency commercial | 25,936 | | | (1,150) | | | 2,062 | | | (39) | | | 27,998 | | | (1,189) | |
Non-agency commercial | Non-agency commercial | 10,722 | | | (104) | | | — | | | — | | | 10,722 | | | (104) | | Non-agency commercial | 16,839 | | | (1,621) | | | 6,198 | | | (653) | | | 23,037 | | | (2,274) | |
Total MBS | Total MBS | 458,376 | | | (5,967) | | | 51,019 | | | (1,361) | | | 509,395 | | | (7,328) | | Total MBS | 340,071 | | | (15,175) | | | 405,296 | | | (71,874) | | | 745,367 | | | (87,049) | |
Total debt securities held-to-maturity | Total debt securities held-to-maturity | 572,009 | | | (8,309) | | | 55,402 | | | (1,462) | | | 627,411 | | | (9,771) | | Total debt securities held-to-maturity | 485,346 | | | (27,725) | | | 538,583 | | | (88,042) | | | 1,023,929 | | | (115,767) | |
Total debt securities | Total debt securities | $ | 1,016,605 | | | $ | (11,203) | | | $ | 55,402 | | | $ | (1,462) | | | $ | 1,072,007 | | | $ | (12,665) | | 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, 20222023 based on a consideration of several factors. The Company noted that each issuer made all the contractually due payments when required. There were no defaults on principal or interest payments, and no interest payments were deferred. Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements over the life of the security. Furthermore, the change in net unrealized losses were primarily due to changes in the general 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 the securities portfolio.sales.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Equity Investments
At September 30, 20222023 and December 31, 2021,2022, the Company held equity investments of $81.7$97.9 million and $101.2$102.0 million, respectively. The equity investments are primarily comprised of select financial services institutions’ preferred and common stocks, and, to a lesser extent, other equity investments in funds and other financial institutions.
The realized and unrealized gains or losses on equity securities for the three and nine months ended September 30, 20222023 and 20212022 are shown in the table below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net gain (loss) on equity investments | $ | 3,362 | | | $ | (466) | | | $ | (7,502) | | | $ | 8,397 | |
Less: Net gains recognized on equity securities sold | — | | | — | | | 1,351 | | | 8,123 | |
Unrealized gain (loss) recognized on equity securities still held | $ | 3,362 | | | $ | (466) | | | $ | (8,853) | | | $ | 274 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
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) | |
| | | | | | | |
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 5.4. Loans Receivable, Net
Loans receivable, net at September 30, 20222023 and December 31, 20212022 consisted of the following (in thousands):
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2022 | | 2021 |
Commercial: | | | |
Commercial real estate – investor | $ | 5,007,637 | | | $ | 4,378,061 | |
Commercial real estate – owner occupied | 983,784 | | | 1,055,065 | |
Commercial and industrial (1) | 652,620 | | | 449,224 | |
Total commercial | 6,644,041 | | | 5,882,350 | |
Consumer: | | | |
Residential real estate | 2,813,209 | | | 2,479,701 | |
| | | |
Home equity loans and lines and other consumer (“other consumer”) | 261,510 | | | 260,819 | |
| | | |
Total consumer | 3,074,719 | | | 2,740,520 | |
Total loans receivable | 9,718,760 | | | 8,622,870 | |
Deferred origination costs, net of fees | 7,249 | | | 9,332 | |
Allowance for loan credit losses | (53,521) | | | (48,850) | |
Total loans receivable, net | $ | 9,672,488 | | | $ | 8,583,352 | |
(1) The commercial and industrial loans balance at September 30, 2022 and December 31, 2021 includes Paycheck Protection Program (“PPP”) loans of $3.0 million and $22.9 million, respectively. | | | | | | | | | | | |
| September 30, | | December 31, |
| 2023 | | 2022 |
Commercial: | | | |
Commercial real estate – investor | $ | 5,334,279 | | | $ | 5,171,952 | |
Commercial real estate – owner occupied | 957,216 | | | 997,367 | |
Commercial and industrial | 652,119 | | | 622,372 | |
Total commercial | 6,943,614 | | | 6,791,691 | |
Consumer: | | | |
Residential real estate | 2,928,259 | | | 2,861,991 | |
| | | |
Home equity loans and lines and other consumer (“other consumer”) | 251,698 | | | 264,372 | |
| | | |
Total consumer | 3,179,957 | | | 3,126,363 | |
Total loans receivable | 10,123,571 | | | 9,918,054 | |
Deferred origination costs, net of fees | 8,462 | | | 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.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
The following tables summarize total loans by year of origination, internally assigned credit grades and risk characteristics (in thousands):
| | | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 and prior | | Revolving lines of credit | | | Total | | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 and prior | | Revolving lines of credit | | | Total |
September 30, 2022 | | | | | | | | | | | | | | | | | | |
September 30, 2023 | | September 30, 2023 | | | | | | | | | | | | | | | | | |
| Commercial real estate - investor | Commercial real estate - investor | | | | Commercial real estate - investor | | | |
Pass | Pass | | $ | 936,746 | | | $ | 1,354,997 | | | $ | 574,752 | | | $ | 507,749 | | | $ | 214,473 | | | $ | 948,538 | | | $ | 374,043 | | | | $ | 4,911,298 | | Pass | | $ | 126,967 | | | $ | 1,165,509 | | | $ | 1,314,561 | | | $ | 527,205 | | | $ | 497,540 | | | $ | 972,537 | | | $ | 658,558 | | | | $ | 5,262,877 | |
Special Mention | Special Mention | | — | | | — | | | 193 | | | 19,021 | | | 9,303 | | | 8,628 | | | 2,188 | | | | 39,333 | | Special Mention | | — | | | — | | | 2,437 | | | 187 | | | 60 | | | 17,893 | | | 1,388 | | | | 21,965 | |
Substandard | Substandard | | — | | | — | | | — | | | 20,759 | | | — | | | 35,703 | | | 544 | | | | 57,006 | | Substandard | | — | | | — | | | — | | | 3,750 | | | 11,907 | | | 32,980 | | | 800 | | | | 49,437 | |
Total commercial real estate - investor | Total commercial real estate - investor | | 936,746 | | | 1,354,997 | | | 574,945 | | | 547,529 | | | 223,776 | | | 992,869 | | | 376,775 | | | | 5,007,637 | | Total commercial real estate - investor | | 126,967 | | | 1,165,509 | | | 1,316,998 | | | 531,142 | | | 509,507 | | | 1,023,410 | | | 660,746 | | | | 5,334,279 | |
Commercial real estate - owner occupied | Commercial real estate - owner occupied | | | | | | | | | | | | | | | | | | Commercial real estate - owner occupied | | | | | | | | | | | | | | | | | |
Pass | Pass | | 67,572 | | | 118,428 | | | 61,004 | | | 115,273 | | | 90,050 | | | 479,174 | | | 9,837 | | | | 941,338 | | Pass | | 54,658 | | | 115,573 | | | 109,260 | | | 65,866 | | | 106,434 | | | 461,324 | | | 13,543 | | | | 926,658 | |
Special Mention | Special Mention | | — | | | — | | | — | | | — | | | 757 | | | 10,018 | | | — | | | | 10,775 | | Special Mention | | — | | | — | | | — | | | — | | | — | | | 4,542 | | | 457 | | | | 4,999 | |
Substandard | Substandard | | — | | | — | | | 3,750 | | | 5,730 | | | 4,860 | | | 16,231 | | | 1,100 | | | | 31,671 | | Substandard | | — | | | 3,278 | | | — | | | — | | | 1,986 | | | 20,205 | | | 90 | | | | 25,559 | |
Total commercial real estate - owner occupied | Total commercial real estate - owner occupied | | 67,572 | | | 118,428 | | | 64,754 | | | 121,003 | | | 95,667 | | | 505,423 | | | 10,937 | | | | 983,784 | | Total commercial real estate - owner occupied | | 54,658 | | | 118,851 | | | 109,260 | | | 65,866 | | | 108,420 | | | 486,071 | | | 14,090 | | | | 957,216 | |
Commercial and industrial | Commercial and industrial | | | | | | | | | | | | | | | | | | Commercial and industrial | | | | | | | | | | | | | | | | | |
Pass | Pass | | 45,285 | | | 25,101 | | | 15,232 | | | 17,468 | | | 11,921 | | | 49,371 | | | 481,519 | | | | 645,897 | | Pass | | 98,193 | | | 58,728 | | | 20,374 | | | 10,087 | | | 9,193 | | | 53,478 | | | 379,799 | | | | 629,852 | |
Special Mention | Special Mention | | — | | | — | | | — | | | — | | | — | | | 262 | | | 1,722 | | | | 1,984 | | Special Mention | | — | | | 654 | | | 197 | | | — | | | — | | | 197 | | | 14,625 | | | | 15,673 | |
Substandard | Substandard | | — | | | — | | | 106 | | | 1,586 | | | 316 | | | 2,606 | | | 125 | | | | 4,739 | | Substandard | | — | | | — | | | — | | | — | | | 902 | | | 1,438 | | | 4,254 | | | | 6,594 | |
Total commercial and industrial | Total commercial and industrial | | 45,285 | | | 25,101 | | | 15,338 | | | 19,054 | | | 12,237 | | | 52,239 | | | 483,366 | | | | 652,620 | | Total commercial and industrial | | 98,193 | | | 59,382 | | | 20,571 | | | 10,087 | | | 10,095 | | | 55,113 | | | 398,678 | | | | 652,119 | |
| Residential real estate (1) | Residential real estate (1) | | | | | | | | | | | | | | | | | | Residential real estate (1) | | | | | | | | | | | | | | | | | |
Pass | Pass | | 829,041 | | | 595,233 | | | 431,072 | | | 253,353 | | | 103,330 | | | 597,224 | | | — | | | | 2,809,253 | | Pass | | 182,209 | | | 926,600 | | | 571,434 | | | 397,584 | | | 225,997 | | | 618,805 | | | — | | | | 2,922,629 | |
Special Mention | Special Mention | | — | | | — | | | — | | | 131 | | | — | | | 1,690 | | | — | | | | 1,821 | | Special Mention | | — | | | 1,332 | | | 187 | | | 205 | | | 123 | | | 456 | | | — | | | | 2,303 | |
Substandard | Substandard | | — | | | — | | | — | | | — | | | 287 | | | 1,848 | | | — | | | | 2,135 | | Substandard | | 62 | | | — | | | — | | | 258 | | | 487 | | | 2,520 | | | — | | | | 3,327 | |
Total residential real estate | Total residential real estate | | 829,041 | | | 595,233 | | | 431,072 | | | 253,484 | | | 103,617 | | | 600,762 | | | — | | | | 2,813,209 | | Total residential real estate | | 182,271 | | | 927,932 | | | 571,621 | | | 398,047 | | | 226,607 | | | 621,781 | | | — | | | | 2,928,259 | |
Other consumer (1) | Other consumer (1) | | | | | | | | | | | | | | | | | | Other consumer (1) | | | | | | | | | | | | | | | | | |
Pass | Pass | | 19,582 | | | 25,869 | | | 16,332 | | | 15,940 | | | 42,026 | | | 117,718 | | | 21,824 | | | | 259,291 | | Pass | | 26,676 | | | 20,640 | | | 21,656 | | | 13,339 | | | 13,142 | | | 124,084 | | | 30,481 | | | | 250,018 | |
Special Mention | | — | | | — | | | — | | | 164 | | | 22 | | | 231 | | | — | | | | 417 | | |
| Substandard | Substandard | | — | | | — | | | — | | | — | | | 18 | | | 1,784 | | | — | | | | 1,802 | | Substandard | | — | | | — | | | — | | | 1 | | | 6 | | | 1,673 | | | — | | | | 1,680 | |
Total other consumer | Total other consumer | | 19,582 | | | 25,869 | | | 16,332 | | | 16,104 | | | 42,066 | | | 119,733 | | | 21,824 | | | | 261,510 | | Total other consumer | | 26,676 | | | 20,640 | | | 21,656 | | | 13,340 | | | 13,148 | | | 125,757 | | | 30,481 | | | | 251,698 | |
| Total loans | Total loans | | $ | 1,898,226 | | | $ | 2,119,628 | | | $ | 1,102,441 | | | $ | 957,174 | | | $ | 477,363 | | | $ | 2,271,026 | | | $ | 892,902 | | | | $ | 9,718,760 | | 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.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
| | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 and prior | | Revolving lines of credit | | Total | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 and prior | | Revolving lines of credit | | Total |
December 31, 2021 | | | | | | | | | | | | | | | | | |
December 31, 2022 | | December 31, 2022 | | | | | | | | | | | | | | | | |
Commercial real estate - investor | Commercial real estate - investor | | Commercial real estate - investor | |
Pass | Pass | | $ | 1,387,753 | | | $ | 609,916 | | | $ | 535,551 | | | $ | 274,662 | | | $ | 375,646 | | | $ | 800,089 | | | $ | 255,613 | | | $ | 4,239,230 | | Pass | | $ | 1,144,763 | | | $ | 1,339,289 | | | $ | 555,937 | | | $ | 524,428 | | | $ | 220,999 | | | $ | 881,344 | | | $ | 450,787 | | | $ | 5,117,547 | |
Special Mention | Special Mention | | — | | | — | | | 23,794 | | | 9,400 | | | 2,731 | | | 28,663 | | | 582 | | | 65,170 | | Special Mention | | — | | | 2,508 | | | 192 | | | 17,094 | | | — | | | 12,818 | | | 2,188 | | | 34,800 | |
Substandard | Substandard | | — | | | 4,267 | | | 28,802 | | | 468 | | | 8,495 | | | 28,228 | | | 3,401 | | | 73,661 | | Substandard | | — | | | — | | | — | | | 893 | | | — | | | 18,180 | | | 532 | | | 19,605 | |
Total commercial real estate - investor | Total commercial real estate - investor | | 1,387,753 | | | 614,183 | | | 588,147 | | | 284,530 | | | 386,872 | | | 856,980 | | | 259,596 | | | 4,378,061 | | Total commercial real estate - investor | | 1,144,763 | | | 1,341,797 | | | 556,129 | | | 542,415 | | | 220,999 | | | 912,342 | | | 453,507 | | | 5,171,952 | |
Commercial real estate - owner occupied | Commercial real estate - owner occupied | | | | | | | | | | | | | | | | | Commercial real estate - owner occupied | | | | | | | | | | | | | | | | |
Pass | Pass | | 116,355 | | | 71,196 | | | 125,212 | | | 91,531 | | | 109,232 | | | 449,966 | | | 10,913 | | | 974,405 | | Pass | | 119,912 | | | 110,440 | | | 59,952 | | | 115,385 | | | 88,204 | | | 458,708 | | | 14,932 | | | 967,533 | |
Special Mention | Special Mention | | — | | | — | | | 1,365 | | | 3,829 | | | 479 | | | 14,371 | | | 2 | | | 20,046 | | Special Mention | | — | | | — | | | — | | | — | | | 748 | | | 5,679 | | | — | | | 6,427 | |
Substandard | Substandard | | — | | | — | | | 14,166 | | | 8,549 | | | 5,606 | | | 31,576 | | | 717 | | | 60,614 | | Substandard | | — | | | — | | | 3,750 | | | 2,037 | | | 4,817 | | | 12,803 | | | — | | | 23,407 | |
Total commercial real estate - owner occupied | Total commercial real estate - owner occupied | | 116,355 | | | 71,196 | | | 140,743 | | | 103,909 | | | 115,317 | | | 495,913 | | | 11,632 | | | 1,055,065 | | Total commercial real estate - owner occupied | | 119,912 | | | 110,440 | | | 63,702 | | | 117,422 | | | 93,769 | | | 477,190 | | | 14,932 | | | 997,367 | |
Commercial and industrial | Commercial and industrial | | | | | | | | | | | | | | | | | Commercial and industrial | | | | | | | | | | | | | | | | |
Pass | Pass | | 42,955 | | | 22,573 | | | 22,878 | | | 16,404 | | | 8,671 | | | 50,887 | | | 271,818 | | | 436,186 | | Pass | | 60,078 | | | 23,724 | | | 14,072 | | | 17,175 | | | 10,992 | | | 47,370 | | | 443,211 | | | 616,622 | |
Special Mention | Special Mention | | — | | | — | | | 231 | | | 350 | | | 85 | | | 172 | | | 3,645 | | | 4,483 | | Special Mention | | — | | | 7 | | | — | | | — | | | — | | | 250 | | | 1,680 | | | 1,937 | |
Substandard | Substandard | | — | | | 457 | | | 2,281 | | | 813 | | | 198 | | | 2,029 | | | 2,777 | | | 8,555 | | Substandard | | — | | | 21 | | | 76 | | | 1,083 | | | 301 | | | 2,212 | | | 120 | | | 3,813 | |
Total commercial and industrial | Total commercial and industrial | | 42,955 | | | 23,030 | | | 25,390 | | | 17,567 | | | 8,954 | | | 53,088 | | | 278,240 | | | 449,224 | | Total commercial and industrial | | 60,078 | | | 23,752 | | | 14,148 | | | 18,258 | | | 11,293 | | | 49,832 | | | 445,011 | | | 622,372 | |
Residential real estate (1) | Residential real estate (1) | | | | | | | | | | | | | | | | | Residential real estate (1) | | | | | | | | | | | | | | | | |
Pass | Pass | | 876,135 | | | 475,134 | | | 288,699 | | | 127,756 | | | 105,385 | | | 602,331 | | | — | | | 2,475,440 | | Pass | | 919,364 | | | 591,745 | | | 419,712 | | | 247,387 | | | 99,945 | | | 577,392 | | | — | | | 2,855,545 | |
Special Mention | Special Mention | | — | | | 212 | | | — | | | 61 | | | — | | | 1,313 | | | — | | | 1,586 | | Special Mention | | — | | | 193 | | | 1,514 | | | 204 | | | 59 | | | 2,407 | | | — | | | 4,377 | |
Substandard | Substandard | | — | | | — | | | — | | | — | | | 351 | | | 2,324 | | | — | | | 2,675 | | Substandard | | — | | | — | | | — | | | 656 | | | 286 | | | 1,127 | | | — | | | 2,069 | |
Total residential real estate | Total residential real estate | | 876,135 | | | 475,346 | | | 288,699 | | | 127,817 | | | 105,736 | | | 605,968 | | | — | | | 2,479,701 | | Total residential real estate | | 919,364 | | | 591,938 | | | 421,226 | | | 248,247 | | | 100,290 | | | 580,926 | | | — | | | 2,861,991 | |
Other consumer (1) | Other consumer (1) | | | | | | | | | | | | | | | | | Other consumer (1) | | | | | | | | | | | | | | | | |
Pass | Pass | | 26,512 | | | 19,168 | | | 18,179 | | | 51,954 | | | 17,955 | | | 123,783 | | | — | | | 257,551 | | Pass | | 24,069 | | | 24,111 | | | 15,440 | | | 15,471 | | | 39,057 | | | 108,818 | | | 34,851 | | | 261,817 | |
Special Mention | Special Mention | | — | | | — | | | — | | | — | | | — | | | 322 | | | — | | | 322 | | Special Mention | | — | | | — | | | — | | | 75 | | | — | | | 598 | | | — | | | 673 | |
Substandard | Substandard | | — | | | — | | | — | | | 18 | | | — | | | 2,928 | | | — | | | 2,946 | | Substandard | | — | | | — | | | — | | | 157 | | | 18 | | | 1,707 | | | — | | | 1,882 | |
Total other consumer | Total other consumer | | 26,512 | | | 19,168 | | | 18,179 | | | 51,972 | | | 17,955 | | | 127,033 | | | — | | | 260,819 | | Total other consumer | | 24,069 | | | 24,111 | | | 15,440 | | | 15,703 | | | 39,075 | | | 111,123 | | | 34,851 | | | 264,372 | |
Total loans | Total loans | | $ | 2,449,710 | | | $ | 1,202,923 | | | $ | 1,061,158 | | | $ | 585,795 | | | $ | 634,834 | | | $ | 2,138,982 | | | $ | 549,468 | | | $ | 8,622,870 | | 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.
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 and 2021 iswas as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial Real Estate – Investor | | Commercial Real Estate – Owner Occupied | | Commercial and Industrial | | Residential Real Estate | | Other Consumer | | | | Total |
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 losses | | 9,602 | | | 119 | | | 604 | | | 95 | | | (63) | | | | | 10,357 | |
Charge-offs (1) | | (8,350) | | | — | | | — | | | — | | | (29) | | | | | (8,379) | |
Recoveries | | 2 | | | 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 losses | | 82 | | | (1,047) | | | 554 | | | 1,618 | | | 1 | | | | | 1,208 | |
Charge-offs | | (3) | | | — | | | — | | | — | | | (2) | | | | | (5) | |
Recoveries | | 3 | | | 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 losses | | 13,010 | | | 38 | | | 974 | | | 1,700 | | | (322) | | | | | 15,400 | |
Charge-offs (1) | | (8,350) | | | (6) | | | (128) | | | — | | | (111) | | | | | (8,595) | |
Recoveries | | 5 | | | 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) | |
Recoveries | | 54 | | | 159 | | | 104 | | | 147 | | | 306 | | | | | 770 | |
Balance at end of period | | $ | 22,690 | | | $ | 4,022 | | | $ | 5,863 | | | $ | 19,858 | | | $ | 1,088 | | | | | $ | 53,521 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial Real Estate – Investor | | Commercial Real Estate – Owner Occupied | | Commercial and Industrial | | Residential Real Estate | | Other Consumer | | | | Total |
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 | |
Credit loss expense (benefit) | | 82 | | | (1,047) | | | 554 | | | 1,618 | | | 1 | | | | | 1,208 | |
Charge-offs | | (3) | | | — | | | — | | | — | | | (2) | | | | | (5) | |
Recoveries | | 3 | | | 48 | | | 69 | | | 44 | | | 93 | | | | | 257 | |
Balance at end of period | | $ | 22,690 | | | $ | 4,022 | | | $ | 5,863 | | | $ | 19,858 | | | $ | 1,088 | | | | | $ | 53,521 | |
For the three months ended September 30, 2021 | | | | | | | | | | | | | | |
Allowance for credit losses on loans | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 33,037 | | | $ | 6,350 | | | $ | 4,404 | | | $ | 8,818 | | | $ | 1,267 | | | | | $ | 53,876 | |
Credit loss (benefit) expense | | (9,902) | | | 515 | | | 1,962 | | | 3,081 | | | 235 | | | | | (4,109) | |
Charge-offs | | — | | | (64) | | | (50) | | | (12) | | | (37) | | | | | (163) | |
Recoveries | | 5 | | | 26 | | | 50 | | | 292 | | | 176 | | | | | 549 | |
Balance at end of period | | $ | 23,140 | | | $ | 6,827 | | | $ | 6,366 | | | $ | 12,179 | | | $ | 1,641 | | | | | $ | 50,153 | |
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 | |
Credit loss (benefit) expense | | (2,865) | | | (2,003) | | | 720 | | | 8,612 | | | (128) | | | | | 4,336 | |
Charge-offs | | (3) | | | (18) | | | — | | | (56) | | | (358) | | | | | (435) | |
Recoveries | | 54 | | | 159 | | | 104 | | | 147 | | | 306 | | | | | 770 | |
Balance at end of period | | $ | 22,690 | | | $ | 4,022 | | | $ | 5,863 | | | $ | 19,858 | | | $ | 1,088 | | | | | $ | 53,521 | |
For the nine months ended September 30, 2021 | | | | | | | | | | | | | | |
Allowance for credit losses on loans | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 26,703 | | | $ | 15,054 | | | $ | 5,390 | | | $ | 11,818 | | | $ | 1,770 | | | | | $ | 60,735 | |
Credit loss (benefit) expense | | (3,336) | | | (8,225) | | | 958 | | | 284 | | | (705) | | | | | (11,024) | |
Charge-offs | | (345) | | | (64) | | | (83) | | | (254) | | | (193) | | | | | (939) | |
Recoveries | | 118 | | | 62 | | | 101 | | | 331 | | | 769 | | | | | 1,381 | |
Balance at end of period | | $ | 23,140 | | | $ | 6,827 | | | $ | 6,366 | | | $ | 12,179 | | | $ | 1,641 | | | | | $ | 50,153 | |
(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, 20222023 and December 31, 2021,2022, the Company had collateral dependent loans with an amortized cost balance as follows: commercial real estate - investor of $3.9$15.1 million and $3.6$4.6 million, respectively, commercial real estate - owner occupied of $2.0 million$240,000 and $11.9$4.0 million, respectively, and commercial and industrial of $321,000$1.1 million and $277,000,$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 $1.1$2.7 million and $438,000$858,000 at September 30, 20222023 and December 31, 2021,2022, respectively. At September 30, 2022 and December 31, 2021, the amount of foreclosed residential real estate property held by the Company was $0 and $106,000, respectively.
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, 20222023 and December 31, 20212022 (in thousands):
| | | September 30, | | December 31, | | September 30, | | December 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Commercial real estate – investor(1) | Commercial real estate – investor(1) | $ | 9,866 | | | $ | 3,614 | | Commercial real estate – investor(1) | $ | 20,723 | | | $ | 10,483 | |
Commercial real estate – owner occupied | Commercial real estate – owner occupied | 1,976 | | | 11,904 | | Commercial real estate – owner occupied | 240 | | | 4,025 | |
Commercial and industrial | Commercial and industrial | 321 | | | 277 | | Commercial and industrial | 1,120 | | | 331 | |
Residential real estate | Residential real estate | 5,958 | | | 6,114 | | Residential real estate | 5,624 | | | 5,969 | |
Other consumer | Other consumer | 3,377 | | | 3,585 | | Other consumer | 2,391 | | | 2,457 | |
| | $ | 21,498 | | | $ | 25,494 | | | $ | 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, 20222023 and December 31, 2021, the2022, 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 PPPPaycheck Protection Program (“PPP”) loan for $21,000$14,000 that was past due greater than 90 days or greater and still accruing interest.accrued interest, which subsequently became current. Per Small Business AssociationAdministration (“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 to120to 120 days past due will be reported as accruing loans. At December 31, 2021, there was one loan for $46,000 that was 90 days or greater past due and still accruing interest that was fully paid on January 14, 2022.
The following table presents the aging of the recorded investment in past due loans as of September 30, 20222023 and December 31, 20212022 by loan portfolio segment (in thousands):
| | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Loans Not Past Due | | Total | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Loans Not Past Due | | Total |
September 30, 2022 | | | | | | | | | | | | |
September 30, 2023 | | September 30, 2023 | | | | | | | | | | | |
Commercial real estate – investor(1) | Commercial real estate – investor(1) | $ | — | | | $ | 968 | | | $ | 2,025 | | | $ | 2,993 | | | $ | 5,004,644 | | | $ | 5,007,637 | | Commercial real estate – investor(1) | $ | 999 | | | $ | 11,266 | | | $ | 3,791 | | | $ | 16,056 | | | $ | 5,318,223 | | | $ | 5,334,279 | |
Commercial real estate – owner occupied | Commercial real estate – owner occupied | 428 | | | 5,613 | | | 85 | | | 6,126 | | | 977,658 | | | 983,784 | | Commercial real estate – owner occupied | 799 | | | 1,529 | | | 35 | | | 2,363 | | | 954,853 | | | 957,216 | |
Commercial and industrial | Commercial and industrial | 1,472 | | | 450 | | | — | | | 1,922 | | | 650,698 | | | 652,620 | | Commercial and industrial | 1,773 | | | 803 | | | 145 | | | 2,721 | | | 649,398 | | | 652,119 | |
Residential real estate | Residential real estate | 6 | | | 1,821 | | | 2,136 | | | 3,963 | | | 2,809,246 | | | 2,813,209 | | Residential real estate | — | | | 2,303 | | | 3,327 | | | 5,630 | | | 2,922,629 | | | 2,928,259 | |
Other consumer | Other consumer | 671 | | | 417 | | | 1,801 | | | 2,889 | | | 258,621 | | | 261,510 | | Other consumer | 1,119 | | | — | | | 1,680 | | | 2,799 | | | 248,899 | | | 251,698 | |
| | $ | 2,577 | | | $ | 9,269 | | | $ | 6,047 | | | $ | 17,893 | | | $ | 9,700,867 | | | $ | 9,718,760 | | | $ | 4,690 | | | $ | 15,901 | | | $ | 8,978 | | | $ | 29,569 | | | $ | 10,094,002 | | | $ | 10,123,571 | |
December 31, 2021 | | | | | | | | | | | | |
December 31, 2022 | | December 31, 2022 | | | | | | | | | | | |
Commercial real estate – investor | Commercial real estate – investor | $ | 1,717 | | | $ | 102 | | | $ | 1,709 | | | $ | 3,528 | | | $ | 4,374,533 | | | $ | 4,378,061 | | Commercial real estate – investor | $ | 217 | | | $ | 875 | | | $ | 3,700 | | | $ | 4,792 | | | $ | 5,167,160 | | | $ | 5,171,952 | |
Commercial real estate – owner occupied | Commercial real estate – owner occupied | 599 | | | — | | | 575 | | | 1,174 | | | 1,053,891 | | | 1,055,065 | | Commercial real estate – owner occupied | 143 | | | 80 | | | 3,750 | | | 3,973 | | | 993,394 | | | 997,367 | |
Commercial and industrial | Commercial and industrial | 25 | | | 151 | | | 277 | | | 453 | | | 448,771 | | | 449,224 | | Commercial and industrial | 159 | | | 47 | | | 180 | | | 386 | | | 621,986 | | | 622,372 | |
Residential real estate | Residential real estate | 9,705 | | | 1,586 | | | 2,675 | | | 13,966 | | | 2,465,735 | | | 2,479,701 | | Residential real estate | 7,003 | | | 4,377 | | | 2,069 | | | 13,449 | | | 2,848,542 | | | 2,861,991 | |
Other consumer | Other consumer | 339 | | | 322 | | | 2,946 | | | 3,607 | | | 257,212 | | | 260,819 | | Other consumer | 573 | | | 673 | | | 1,882 | | | 3,128 | | | 261,244 | | | 264,372 | |
| | $ | 12,385 | | | $ | 2,161 | | | $ | 8,182 | | | $ | 22,728 | | | $ | 8,600,142 | | | $ | 8,622,870 | | | $ | 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 classifiesadopted 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.
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 are modified. The modifications may include a reductionwere modified in rate, an extension in term,accordance with ASC 310-40. Since adoption of this ASU, the capitalization of past due amounts and/Company has ceased to recognize or the restructuring of scheduled principal payments. Residential real estate and consumer loans where the borrower’s debt is discharged in a bankruptcy filing are also considered TDR loans. For these loans, the Bank retains its security interest in the real estate collateral. measure for new TDRs but those existing at December 31, 2022 remain until settled.
At September 30, 20222023 and December 31, 2021,2022, TDR loans totaled $16.1$13.2 million and $23.6$13.9 million, respectively. At September 30, 20222023 and December 31, 2021,2022, there were $10.0$5.8 million and $11.3$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 a $667,000$354,000 and $590,000, respectively, of specific reserve allocated to aone loan that was classified as a TDR loan. At December 31, 2021, the Company had no specific reserves allocated to loans that were classified as TDR loans. Non-accrual loans which become TDR loans are generally returned to accrual status after six months of performance. In addition to the TDR loans included in non-accrual loans, the Company also has TDR loans classified as accruing loans, which totaled $6.1$7.4 million and $12.3$7.5 million at September 30, 20222023 and December 31, 2021,2022, respectively.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
The following table presents information about TDR loans which occurred during the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):
| | | Number of Loans | | Pre-modification Recorded Investment | | Post-modification Recorded Investment | | Number of Loans | | Pre-modification Recorded Investment | | Post-modification Recorded Investment |
Three months ended September 30, 2022 | Three months ended September 30, 2022 | | | | | | Three months ended September 30, 2022 | | | | | |
Troubled debt restructurings: | Troubled debt restructurings: | | Troubled debt restructurings: | |
| Other consumer | Other consumer | 3 | | | $ | 114 | | | $ | 124 | | Other consumer | 3 | | $ | 114 | | | $ | 124 | |
| Three months ended September 30, 2021 | | |
Troubled debt restructurings: | | |
Commercial real estate - owner occupied | 1 | | | $ | 93 | | | $ | 110 | | |
| Nine months ended September 30, 2022 | Nine months ended September 30, 2022 | | Nine months ended September 30, 2022 | |
Troubled debt restructurings: | Troubled debt restructurings: | | Troubled debt restructurings: | |
| Commercial and industrial | | Commercial and industrial | 1 | | 65 | | | 65 | |
| Commercial and industrial | 1 | | | $ | 65 | | | $ | 65 | | |
Other consumer | Other consumer | 6 | | | 1,105 | | | 1,233 | | Other consumer | 6 | | 1,105 | | | 1,233 | |
Nine months ended September 30, 2021 | | |
Troubled debt restructurings: | | |
Commercial real estate – investor | 1 | | $ | 4,903 | | | $ | 4,903 | | |
Commercial real estate - owner occupied | 1 | | 93 | | | 110 | | |
Residential real estate | 3 | | 244 | | 336 | |
Other consumer | 2 | | 26 | | 33 | |
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. There was one TDR commercial real estate - investor loan for $923,000 that defaulted during the three and nine months ended September 30, 2021, which was modified within the preceding year and the loan was subsequently paid in full as of June 30, 2022.
Note 6. Deposits
The major types of deposits at September 30, 2022 and December 31, 2021 were as follows (in thousands):
| | | | | | | | | | | |
Type of Account | September 30, | | December 31, |
2022 | | 2021 |
Non-interest-bearing | $ | 2,325,547 | | | $ | 2,412,056 | |
Interest-bearing checking | 3,909,864 | | | 4,201,736 | |
Money market deposit | 749,229 | | | 736,090 | |
Savings | 1,570,472 | | | 1,607,933 | |
Time deposits | 1,404,357 | | | 775,001 | |
Total deposits | $ | 9,959,469 | | | $ | 9,732,816 | |
Included in time deposits at September 30, 2022 and December 31, 2021 was $94.1 million and $145.4 million, respectively, in deposits of $250,000 or more. Time deposits also include brokered deposits of $828.7 million and $25.0 million at September 30, 2022 and December 31, 2021, respectively.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 7.5. Deposits
The major types of deposits at September 30, 2023 and December 31, 2022 were as follows (in thousands):
| | | | | | | | | | | |
Type of Account | September 30, | | December 31, |
2023 | | 2022 |
Non-interest-bearing | $ | 1,827,381 | | | $ | 2,101,308 | |
Interest-bearing checking | 3,708,874 | | | 3,829,683 | |
Money market deposit | 860,025 | | | 714,386 | |
Savings | 1,484,000 | | | 1,487,809 | |
Time deposits | 2,653,649 | | | 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, 20222023 and December 31, 20212022 were as follows (in thousands):
| | | September 30, | | December 31, | | September 30, | | December 31, |
2022 | | 2021 | 2023 | | 2022 |
FHLB advances | FHLB advances | $ | 514,200 | | | $ | — | | FHLB advances | $ | 606,056 | | | $ | 1,211,166 | |
Securities sold under agreements to repurchase with customers | Securities sold under agreements to repurchase with customers | 96,289 | | | 118,769 | | Securities sold under agreements to repurchase with customers | 82,981 | | | 69,097 | |
Other borrowings | Other borrowings | 194,914 | | | 229,141 | | Other borrowings | 196,183 | | | 195,403 | |
Total borrowed funds | Total borrowed funds | $ | 805,403 | | | $ | 347,910 | | Total borrowed funds | $ | 885,220 | | | $ | 1,475,666 | |
At September 30, 2022, there were $500.0 million of short-termThe Company had no FHLB overnight advances and $14.2 million of overnightno borrowings from the FHLB, as compared to $0Federal Reserve Bank (“FRB”) Discount Window or Bank Term Funding Program at September 30, 2023 and December 31, 2021.2022.
In March 2022,Pledged assets
The following table presents the Company redeemed $35.0 millionassets pledged to secure borrowings, borrowing capacity, repurchase agreements, letters of subordinated debt due September 30, 2026. The debt carried an interest rate of 4.14% based on a floating rate of three months LIBOR plus 392 basis points.credit, and for other purposes required by law at carrying value (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Loans | | Debt securities | | Total |
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.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 8.7. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
The Company uses valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability and developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability and developed based on the best information available in the circumstances. In that regard, a fair value hierarchy has been established for valuation inputs that gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlations or other means.
Level 3 Inputs – Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.
Assets and Liabilities Measured at Fair Value
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
Debt Securities Available-for-Sale
Debt securities classified as available-for-sale are reported at fair value. Fair value for theseof U.S. Treasuries are determined using quoted prices in active markets (Level 1). The majority of the other debt securities isare determined using inputs other than quoted prices that are based on market observable information (Level 2). Level 2 debt securities are priced through third-party pricing services or security industry sources that actively participate in the buying and selling of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain debt securities without relying exclusively on quoted prices for the specific securities, but comparing the debt securities to benchmark or comparable debt securities.
Equity Investments
Equity investments with readily determinable fair value are reported at fair value. Fair value for these investments is primarily determined using a quoted price in an active market or exchange (Level 1) or using inputs other than quoted prices that are based on market observable information (Level 2). Fair value for certain securities, including convertible preferred stock, was determined using broker or dealer quotes with limited levels of activity and price transparency (Level 3). Equity investments without readily determinable fair values are carried at cost less impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer (measurement alternative). Certain equity investments without readily
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
observable price changesdeterminable 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 orderly transactions for the identical or similar investment of the same issuer (measurement alternative).table below.
Interest Rate Derivatives
The Company’s interest rate swaps and cap contracts are reported at fair value utilizing discounted cash flow models provided by an independent, third-party and observable market data (Level 2). When entering into an interest rate swap or cap contract, the Company is exposed to fair value changes due to interest rate movements, and also the potential nonperformance of the contract counterparty.
Other Real Estate Owned and Loans Individually Measured for Impairment
Other real estate owned and loansLoans 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, 20222023 and December 31, 2021,2022, 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: | | | | Fair Value Measurements at Reporting Date Using: |
| | Total Fair Value | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs | | Total Fair Value | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs |
September 30, 2022 | | | | | | | | |
September 30, 2023 | | September 30, 2023 | | | | | | | |
Items measured on a recurring basis: | Items measured on a recurring basis: | | Items measured on a recurring basis: | |
Debt securities available-for-sale | Debt securities available-for-sale | $ | 470,300 | | | $ | — | | | $ | 470,300 | | | $ | — | | Debt securities available-for-sale | $ | 453,208 | | | $ | 42,054 | | | $ | 411,154 | | | $ | — | |
Equity investments | Equity investments | 62,343 | | | 566 | | | 61,777 | | | — | | Equity investments | 50,945 | | | — | | | 50,945 | | | — | |
Interest rate derivative asset | Interest rate derivative asset | 122,605 | | | — | | | 122,605 | | | — | | Interest rate derivative asset | 137,090 | | | — | | | 137,090 | | | — | |
Interest rate derivative liability | Interest rate derivative liability | (122,618) | | | — | | | (122,618) | | | — | | Interest rate derivative liability | (138,806) | | | — | | | (138,806) | | | — | |
| Items measured on a non-recurring basis: | Items measured on a non-recurring basis: | | Items measured on a non-recurring basis: | |
Equity investments (1) | 19,379 | | | — | | | — | | | 19,379 | | |
Equity investments (1) (2) | | Equity investments (1) (2) | 46,963 | | | — | | | — | | | 43,576 | |
| Loans measured for impairment based on the fair value of the underlying collateral (2) | 7,268 | | | — | | | — | | | 7,268 | | |
December 31, 2021 | | |
Loans measured for impairment based on the fair value of the underlying collateral (3) | | Loans measured for impairment based on the fair value of the underlying collateral (3) | 19,080 | | | — | | | — | | | 19,080 | |
December 31, 2022 | | December 31, 2022 | |
Items measured on a recurring basis: | Items measured on a recurring basis: | | Items measured on a recurring basis: | |
Debt securities available-for-sale | Debt securities available-for-sale | $ | 568,255 | | | $ | — | | | $ | 568,255 | | | $ | — | | Debt securities available-for-sale | $ | 457,648 | | | $ | — | | | $ | 457,648 | | | $ | — | |
Equity investments | Equity investments | 90,726 | | | 14,608 | | | 73,400 | | | 2,718 | | Equity investments | 61,942 | | | 430 | | | 61,511 | | | — | |
Interest rate derivative asset | Interest rate derivative asset | 22,787 | | | — | | | 22,787 | | | — | | Interest rate derivative asset | 113,420 | | | — | | | 113,420 | | | — | |
Interest rate derivative liability | Interest rate derivative liability | (22,855) | | | — | | | (22,855) | | | — | | Interest rate derivative liability | (113,473) | | | — | | | (113,473) | | | — | |
Items measured on a non-recurring basis: | Items measured on a non-recurring basis: | | Items measured on a non-recurring basis: | |
Equity investments | 10,429 | | | — | | | — | | | 10,429 | | |
Other real estate owned | 106 | | | — | | | — | | | 106 | | |
Loans measured for impairment based on the fair value of the underlying collateral (2) | 16,233 | | | — | | | — | | | 16,233 | | |
Equity investments (1) (2) | | Equity investments (1) (2) | 40,095 | | | — | | | — | | | 37,076 | |
| Loans measured for impairment based on the fair value of the underlying collateral (3) | | Loans measured for impairment based on the fair value of the underlying collateral (3) | 9,635 | | | — | | | — | | | 9,635 | |
(1) PrimarilyAs of September 30, 2023 and December 31, 2022, primarily consists of $16.8$43.6 million and $37.1 million, respectively, of equity investments measured under the measurement alternative, whichalternative. This included a $2.5 millionno unrealized gaingains or losses for the threenine 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 amounts are based on independent appraisals, which may be adjusted by management for qualitative factors, such as economic factors and estimated liquidation expenses. The range may vary but is generally 0% to 8% on the discount for costs to sell and 0% to 10% on appraisal adjustments.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
The following table reconciles for the three and nine months ended September 30, 2022 and 2021, 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 Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Beginning balance | | $ | — | | | $ | 2,978 | | | $ | 2,718 | | | $ | 2,540 | |
Total losses included in earnings | | — | | | (622) | | | — | | | (184) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Transfers out of Level 3 | | — | | | — | | | (2,718) | | | — | |
Ending balance | | $ | — | | | $ | 2,356 | | | $ | — | | | $ | 2,356 | |
| | | | | | | | | | | | | | |
| | | | | 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, 2022.2023. 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. There were no transfers into or out of Level 3 assets and liabilities in the fair value hierarchy for the three and nine months ended September 30, 2021.
Assets and Liabilities Disclosed at Fair Value
A description of the valuation methodologies used for assets and liabilities disclosed at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy is set forth below.
Cash and Due from Banks
For cash and due from banks, the carrying amount approximates fair value.
Debt Securities Held-to-Maturity
Debt securities classified as held-to-maturity are carried at amortized cost, as the Company has the positive intent and ability to hold these debt securities to maturity. The Company determines the fair value of the debt securities utilizing Level 2 and, infrequently, Level 3 inputs. Most of the Company’s debt securities are fixed income instruments that are not quoted on an exchange, but are bought and sold in active markets. Prices for these instruments are obtained through third-party pricing vendors or security industry sources that actively participate in the buying and selling of debt securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain debt securities without relying exclusively on quoted prices for the specific debt securities, but comparing the debt securities to benchmark or comparable debt securities.
Management’s policy is to obtain and review all available documentation from the third-party pricing service relating to their fair value determinations, including their methodology and summary of inputs. Management reviews this documentation, makes inquiries of the third-party pricing service and decides as to the level of the valuation inputs. Based on the Company’s review of the available documentation from the third-party pricing service, management concluded that Level 2 inputs were utilized for all securities except for certain state and municipal obligations, known as bond anticipation notes, as well as certain debt securities where management utilized Level 3 inputs, such as broker or dealer quotes with limited levels of activity and price transparency.
Restricted Equity Investments
The fair value for Federal Home Loan Bank of New York, Federal Reserve Bank stock, and Atlantic Community Bankers Bank is its carrying value since this is the amount for which it could be redeemed. There is no active market for this stock and the Company is required to maintain a minimum investment as stipulated by the respective entities.
Loans Receivable and Loans Held-for-Sale
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential real estate, consumer and commercial. Each loan category is further segmented into fixed and adjustable rate interest terms.
Fair value of performing and non-performing loans, which is based on an exit price notion, was estimated by discounting the future cash flows, net of estimated prepayments, at amarket discount rates that reflect the credit and interest rate for which similar loans would be originated to new borrowers with similar terms.
The fair value of loans was measured usingrisk inherent in the exit price notion.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
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
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.
Borrowed FundsFHLB 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, 20222023 and December 31, 20212022 are presented in the following tables (in thousands):
| | | | | Fair Value Measurements at Reporting Date Using: | | | | Fair Value Measurements at Reporting Date Using: |
| | Book Value | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs | | Book Value | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs |
September 30, 2022 | | | | | | | | |
September 30, 2023 | | September 30, 2023 | | | | | | | |
Financial Assets: | Financial Assets: | | Financial Assets: | |
Cash and due from banks | Cash and due from banks | $ | 170,668 | | | $ | 170,668 | | | $ | — | | | $ | — | | Cash and due from banks | $ | 408,882 | | | $ | 408,882 | | | $ | — | | | $ | — | |
Debt securities held-to-maturity | Debt securities held-to-maturity | 1,027,712 | | | — | | | 893,044 | | | 12,382 | | Debt securities held-to-maturity | 1,189,339 | | | — | | | 1,047,342 | | | — | |
Restricted equity investments | Restricted equity investments | 77,556 | | | — | | | — | | | 77,556 | | Restricted equity investments | 82,484 | | | — | | | — | | | 82,484 | |
Loans receivable, net and loans held-for-sale | Loans receivable, net and loans held-for-sale | 9,676,037 | | | — | | | — | | | 8,992,317 | | Loans receivable, net and loans held-for-sale | 10,068,156 | | | — | | | — | | | 9,035,358 | |
Financial Liabilities: | Financial Liabilities: | | Financial Liabilities: | |
Deposits other than time deposits(1) | Deposits other than time deposits(1) | 8,555,112 | | | — | | | 8,555,112 | | | — | | Deposits other than time deposits(1) | 7,880,280 | | | — | | | 7,880,280 | | | — | |
Time deposits | Time deposits | 1,404,357 | | | — | | | 1,365,574 | | | — | | Time deposits | 2,653,649 | | | — | | | 2,626,602 | | | — | |
FHLB advances and other borrowings | FHLB advances and other borrowings | 709,114 | | | — | | | 722,430 | | | — | | FHLB advances and other borrowings | 802,239 | | | — | | | 770,544 | | | — | |
Securities sold under agreements to repurchase with customers | Securities sold under agreements to repurchase with customers | 96,289 | | | 96,289 | | | — | | | — | | Securities sold under agreements to repurchase with customers | 82,981 | | | 82,981 | | | — | | | — | |
December 31, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
Financial Assets: | Financial Assets: | | Financial Assets: | |
Cash and due from banks | Cash and due from banks | $ | 204,949 | | | $ | 204,949 | | | $ | — | | | $ | — | | Cash and due from banks | $ | 167,946 | | | $ | 167,946 | | | $ | — | | | $ | — | |
Debt securities held-to-maturity | Debt securities held-to-maturity | 1,139,193 | | | — | | | 1,138,529 | | | 14,215 | | Debt securities held-to-maturity | 1,221,138 | | | — | | | 1,097,984 | | | 12,057 | |
Restricted equity investments | Restricted equity investments | 53,195 | | | — | | | — | | | 53,195 | | Restricted equity investments | 109,278 | | | — | | | — | | | 109,278 | |
Loans receivable, net and loans held-for-sale | Loans receivable, net and loans held-for-sale | 8,583,352 | | | — | | | — | | | 8,533,506 | | Loans receivable, net and loans held-for-sale | 9,869,408 | | | — | | | — | | | 9,103,137 | |
Financial Liabilities: | Financial Liabilities: | | Financial Liabilities: | |
Deposits other than time deposits(1) | Deposits other than time deposits(1) | 8,957,815 | | | — | | | 8,957,815 | | | — | | Deposits other than time deposits(1) | 8,133,186 | | | — | | | 8,133,186 | | | — | |
Time deposits | Time deposits | 775,001 | | | — | | | 773,766 | | | — | | Time deposits | 1,542,020 | | | — | | | 1,504,601 | | | — | |
Other borrowings | 229,141 | | | — | | | 251,491 | | | — | | |
FHLB advances and other borrowings | | FHLB advances and other borrowings | 1,406,569 | | | — | | | 1,416,384 | | | — | |
Securities sold under agreements to repurchase with customers | Securities sold under agreements to repurchase with customers | 118,769 | | | 118,769 | | | — | | | — | | Securities sold under agreements to repurchase with customers | 69,097 | | | 69,097 | | | — | | | — | |
(1) The estimated fair value of non-maturity deposits does not consider any inherent value and represents the amount payable on demand. However, non-maturity deposits do contain significant inherent value to the Company, particularly when overnight funding costs are greater than the deposit costs.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time 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,
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.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 9.8. Derivatives and Hedging Activities and Other Financial Instruments
The Company enters into derivative financial instruments which involve, to varying degrees, interest rate market and credit risk. The Company manages these risks as part of its asset and liability management process and through credit policies and procedures, seeking to minimize counterparty credit risk by establishing credit limits and collateral agreements. The Company utilizes 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 derivative financial instruments entered into by the Company are an economic hedge of a derivative offering to its customers. 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.
TheThese interest rate swaps and cap contracts with both the customers and third parties are not designated as hedges under FASB Accounting Standards Codification (“ASC”)ASC Topic 815, Derivatives and Hedging, andtherefore changes in fair value are marked to market throughreported 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 FASB ASC Topic 820, Fair Value Measurements. The Company recognized a gainlosses of $19,000$2,000 and $56,000$2,000 in commercial loan swap income resulting from the fair value adjustment for the three and nine months ended September 30, 2022,2023, respectively, as compared to gains of $14,000$19,000 and $55,000$56,000 for the threecorresponding 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 nine months ended September 30, 2021, respectively.to manage its exposure to future interest rate movements associated with a pool of floating rate commercial loans. The notional amountswap 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 not designatedwill be reclassified to interest income as hedging instruments was $1.30 billion and $938.7 million at September 30, 2022 and December 31, 2021, respectively.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, |
| | 2023 | | 2023 |
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 income | | 246 | | | 538 | |
AOCL balance at end of period, net of tax | | $ | (1,285) | | | $ | (1,285) | |
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 statementsConsolidated Statements of financial conditionFinancial Condition (in thousands):
| | | | | | | | | | | | | | |
| | Fair Value |
Balance Sheet Location | | September 30, | | December 31, |
| 2022 | | 2021 |
Other assets | | $ | 122,605 | | | $ | 22,787 | |
Other liabilities | | 122,618 | | | 22,855 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional | | Fair Value | | | | |
| | | Other assets | | Other 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 contract | | 100,000 | | | — | | | 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 contract | | 100,000 | | | — | | | 33 | | | | | |
Total Derivatives | | $ | 1,468,245 | | | $ | 113,420 | | | $ | 113,473 | | | | | |
Credit Risk-Related Contingent Features
The Company is exposed to credit risk in the event of nonperformance by the interest rate derivative counterparty. The Company minimizes this risk by being a party to International Swaps and Derivatives Association agreements with third party broker-dealers that require a minimum dollar transfer amount upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted with third parties was $40,000$0 and $19.8 million$40,000 at September 30, 20222023 and December 31, 2021,2022, respectively. The amount of collateral received from third parties was $112.1$142.3 million and $0$104.5 million at September 30, 20222023 and December 31, 2021,2022, 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 $122.6$138.8 million and $22.9$113.5 million at September 30, 20222023 and December 31, 2021,2022, 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.
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
Note 10.9. Leases
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company’s leases are comprised of real estate property for branches, automated teller machine locations and office space with terms extending through 2038. The Company has one existing finance lease, which has a lease term through 2029.
The following table represents the classification of the Company’s right-of-useROU assets and lease liabilities on the consolidated statementsConsolidated Statements of financial conditionFinancial Condition (in thousands):
| | | September 30, | | December 31, | | September 30, | | December 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Lease ROU Assets | Lease ROU Assets | | Classification | | | | | Lease ROU Assets | | Classification | | | | |
Operating lease ROU assets | Operating lease ROU assets | | Other assets | | $ | 19,474 | | | $ | 17,442 | | Operating lease ROU assets | | Other assets | | $ | 19,610 | | | $ | 19,055 | |
Finance lease ROU asset | Finance lease ROU asset | | Premises and equipment, net | | 1,347 | | | 1,495 | | Finance lease ROU asset | | Premises and equipment, net | | 1,362 | | | 1,532 | |
Total lease ROU assets | Total lease ROU assets | | $ | 20,821 | | | $ | 18,937 | | Total lease ROU assets | | $ | 20,972 | | | $ | 20,587 | |
| Lease Liabilities | Lease Liabilities | | Lease Liabilities | |
Operating lease liabilities (1) | Operating lease liabilities (1) | | Other liabilities | | $ | 20,430 | | | $ | 17,982 | | Operating lease liabilities (1) | | Other liabilities | | $ | 20,645 | | | $ | 20,053 | |
Finance lease liability | Finance lease liability | | Other borrowings | | 1,750 | | | 1,904 | | Finance lease liability | | Other borrowings | | 1,748 | | | 1,934 | |
Total lease liabilities | Total lease liabilities | | $ | 22,180 | | | $ | 19,886 | | 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 $8.2$6.3 million and $7.7 million at both September 30, 20222023 and December 31, 2021.2022, 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 (Topic 842) requires the Company to use the rate implicit in the lease, provided the rate is readily determinable. As this rate is rarelynot 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, | | September 30, | | December 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Weighted-Average Remaining Lease Term | Weighted-Average Remaining Lease Term | | | | | Weighted-Average Remaining Lease Term | | | | |
Operating leases | Operating leases | | 7.04 years | | 8.22 years | Operating leases | | 6.59 years | | 6.87 years |
Finance lease | Finance lease | | 6.85 years | | 7.59 years | Finance lease | | 5.85 years | | 6.60 years |
Weighted-Average Discount Rate | Weighted-Average Discount Rate | | Weighted-Average Discount Rate | |
Operating leases | Operating leases | | 2.84 | % | | 2.97 | % | Operating leases | | 2.95 | % | | 2.86 | % |
Finance lease | Finance lease | | 5.63 | | | 5.63 | | Finance lease | | 5.63 | | | 5.63 | |
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, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Lease Expense | Lease Expense | | | | | | | | | Lease Expense | | | | | | | | |
Operating lease expense | Operating lease expense | | $ | 1,159 | | | $ | 1,498 | | | $ | 3,857 | | | $ | 4,459 | | Operating lease expense | | $ | 1,153 | | | $ | 1,159 | | | $ | 3,472 | | | $ | 3,857 | |
Finance lease expense: | Finance lease expense: | | Finance lease expense: | |
Amortization of ROU assets | Amortization of ROU assets | | 49 | | | 50 | | | 149 | | | 149 | | Amortization of ROU assets | | 58 | | | 49 | | | 170 | | | 149 | |
Interest on lease liabilities(1) | Interest on lease liabilities(1) | | 24 | | | 28 | | | 76 | | | 85 | | Interest on lease liabilities (1) | | 25 | | | 24 | | | 77 | | | 76 | |
Total | Total | | $ | 1,232 | | | $ | 1,576 | | | $ | 4,082 | | | $ | 4,693 | | Total | | $ | 1,236 | | | $ | 1,232 | | | $ | 3,719 | | | $ | 4,082 | |
| Other Information | Other Information | | Other Information | |
Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash flows from operating leases | Operating cash flows from operating leases | | $ | 955 | | | $ | 1,322 | | | $ | 3,366 | | | $ | 4,119 | | Operating cash flows from operating leases | | $ | 1,154 | | | $ | 955 | | | $ | 3,414 | | | $ | 3,366 | |
Operating cash flows from finance leases | Operating cash flows from finance leases | | 24 | | | 28 | | | 76 | | | 85 | | Operating cash flows from finance leases | | 25 | | | 24 | | | 77 | | | 76 | |
Financing cash flows from finance leases | Financing cash flows from finance leases | | 52 | | | 50 | | | 154 | | | 146 | | Financing cash flows from finance leases | | 63 | | | 52 | | | 186 | | | 154 | |
(1)Included in borrowed funds interest expense on the consolidated statementsConsolidated Statements of income.Income. All other costs are included in occupancy expense.expense on the Consolidated Statements of Income.
Future minimum payments for the finance lease and operating leases with initial or remaining terms of one year or more as of September 30, 2022 were as follows (in thousands):
| | | | | | | | | | | | | | |
| | Finance Lease | | Operating Leases |
For the Twelve Months Ending September 30, | | | | |
2023 | | $ | 307 | | | $ | 4,268 | |
2024 | | 307 | | | 3,790 | |
2025 | | 307 | | | 3,841 | |
2026 | | 307 | | | 3,075 | |
2027 | | 307 | | | 2,198 | |
Thereafter | | 568 | | | 5,721 | |
Total | | 2,103 | | | 22,893 | |
Less: Imputed interest | | (353) | | | (2,463) | |
Total lease liabilities | | $ | 1,750 | | | $ | 20,430 | |
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | |
| | Finance Lease | | Operating Leases |
For the Year Ending December 31, | | | | |
2023 | | $ | 88 | | | $ | 1,157 | |
2024 | | 350 | | | 4,334 | |
2025 | | 350 | | | 4,351 | |
2026 | | 350 | | | 3,784 | |
2027 | | 350 | | | 2,628 | |
Thereafter | | 559 | | | 6,754 | |
Total | | 2,047 | | | 23,008 | |
Less: Imputed interest | | (299) | | | (2,363) | |
Total lease liabilities | | $ | 1,748 | | | $ | 20,645 | |
Note 11.10. Variable Interest Entity
On April 1, 2022, theThe Company acquired a 60% ownership inaccounts for Trident and held a variable interest in the entity. Trident meets the definition ofas a variable interest entity (“VIE”) under ASC 810, Consolidation, for which the Company is considered the primary beneficiary (i.e. the party that has a controlling financial interest). In accordance with ASC 810, Consolidation, the Company has consolidated Trident’s assets and liabilities. For further discussion on the acquisition of Trident refer to Note 2 Business Combinations, to this Form 10-Q.
The summarized financial information for the Company’s consolidated VIE at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
| | | | | | | | | | |
| | As of September 30, 2022 |
Cash and cash equivalents | | $ | 33,234 | | | |
Other assets | | 1,079 | | | |
Total assets | | 34,313 | | | |
Other liabilities | | 31,906 | | | |
Net assets | | $ | 2,407 | | | |
| | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
Cash and cash equivalents | | $ | 26,082 | | | $ | 30,062 | |
Other assets | | 937 | | | 941 | |
Total assets | | 27,019 | | | 31,003 | |
Other liabilities | | 25,237 | | | 28,998 | |
Net assets | | $ | 1,782 | | | $ | 2,005 | |
Note 12. Subsequent Events
As previously disclosed, on November 4, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Partners Bancorp (“Partners”) and Coastal Merger Sub Corp. (“Merger Sub”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, (i) Merger Sub would merge with and into Partners, with Partners as the surviving entity, and (ii) immediately thereafter, Partners would merge with and into the Company, with the Company as the surviving entity.
On November 9, 2022, the Company and Partners entered into a Mutual Termination Agreement (the “Termination Agreement”) pursuant to which, among other things, the Company and Partners mutually agreed to terminate the Merger Agreement and transactions contemplated thereby, which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 9, 2022. Each party will bear its own costs and expenses in connection with the terminated transaction, and neither party will pay a termination fee in connection with the termination of the Merger Agreement. The Termination Agreement also mutually releases the parties from any claims of liability to one another relating to the Merger Agreement and the terminated transaction.
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 20212022 Form 10-K. There10-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, 2021.2022. 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, and 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, 2022.2023. At September 30, 2022,2023, 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
Not Applicable.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.”
Item 6. Exhibits
| | | | | | | | | | | | | | |
Exhibit No: | | Exhibit Description | | Reference |
| | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed here withinwith this document |
| | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed here withinwith this document |
| | Certification pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002 | | Filed here withinwith this document |
101.0 | | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022,2023, 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 | | |
104.0 | | Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101) | | |
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 9, 20227, 2023 | /s/ Christopher D. Maher |
| | Christopher D. Maher |
| | Chairman and Chief Executive Officer |
| | | | | | | | |
DATE: | November 9, 20227, 2023 | /s/ Patrick S. Barrett |
| | Patrick S. Barrett |
| | Executive Vice President and Chief Financial Officer |