What changed in OCEANFIRST FINANCIAL CORP's 10-K — 2022 vs 2023

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 changes in market interest rates, competition, general economic conditions, including levels of unemployment and real estate values, and inflation. The Company’s website address is www.oceanfirst.com .

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

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, changes in capital management and balance sheet strategies and the ability to successfully implement such strategies, competition, demand for financial services in the Company’s market area, changes in consumer spending, borrowing and saving habits, changes in accounting principles, a failure in or breach of the Company’s operational or security systems or infrastructure, including cyberattacks, the failure to maintain current technologies, failure to retain or attract employees, the effect of the Company’s rating under the Community Reinvestment Act, the impact of pandemics on our operations and financial results and those of our customers and the Bank’s ability to successfully integrate acquired operations. 3 These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Market Area and Competition The Bank is a regional community bank offering a wide variety of financial accounts and services to meet the needs of customers in the communities it serves. At December 31, 2023, the Bank primarily operated its business through its headquarters located in Toms River, New Jersey, and its administrative office located in Red Bank, New Jersey.

The Bank also conducts its business at 39 branch offices and various deposit production facilities located throughout central and southern New Jersey and the greater metropolitan areas of New York City and Philadelphia. The Bank also operates commercial loan production offices in New Jersey, New York City, the greater Philadelphia area, Baltimore, and Boston.

One of the largest and oldest financial institutions in New Jersey, the Bank’s headquarters are approximately midway between New York City and Philadelphia.

The economy in the Bank’s primary market area, which represents central and southern New Jersey, is based on a mixture of service and retail trade, with other empl oyment provided by a variety of wholesale trade, manufacturing, federal, state and local government, hospitals and utilities.

The area is home to commuters working in and around New York City and Philadelphia and also includes a significant number of vacation and second homes in the communities along the New Jersey shore. In addition, the Bank provides banking services through teams located in the major metropolitan markets of Philadelphia, New York, Baltimore, and Boston.

The Bank’s future growth opportunities will be influenced by the growth and stability of its geographic marketplace and the competitive environment. The Bank faces significant competition in making loans and attracting deposits.

In addition, rapid technological changes and consumer preferences will continue to result in increased competition for the Bank’s digital services as a number of well-funded technology-focused companies are innovating in the payments, distributed ledger, and cryptocurrency networks to disintermediate portions of the traditional banking model.

The state of New Jersey, New York City, Philadelphia, Baltimore, and Boston are also attractive markets to many financial institu tions. Many of the Bank’s competitors are significantly larger institutions that have greater financial resources than the Bank.

The Bank’s competition for loans comes principally from commercial banks, savings banks, savings and loan associations, credit unions, mortgage banking companies, internet-based providers, insurance companies, private lenders, and government sponsored enterprises. Its most direct competition for deposits has historically come from commercial banks, savings banks, savings and loan associations, and credit unions.

The Bank also faces competition for deposits from short-term money market funds, other corporate and government securities funds, internet-only providers, and from other financial service institutions such as brokerage firms and insurance companies. The Bank distinguishes itself from large bank competitors with teams of local financial experts in each market providing personalized accounts, extraordinary customer service and local decision-making.

Community Involvement The Bank promotes efforts to enhance the quality of life in the communities it serves through employee volunteer efforts and the work of OceanFirst Foundation (the “Foundation”). Employees are encouraged to help their neighbors in many ways and receive up to eight hours of Bank-paid volunteer time each year.

The Company’s employees, known as the WaveMakers when helping in the community, collectively spend thousands of hours volunteering and serving in leadership roles with local nonprofit organizations, along with participating in other activities that contribute to improving the quality of life for others.

In 2023, the WaveMakers spent nearly 7,000 hours volunteering their time and talents to help neighbors in need and the second annual Bank-wide volunteering event was held in September 2023 with more than 730 employees completing 95 projects for non-profit organization partners in the five states served by the Bank.

The Foundation, established in 1996 during the Company’s initial public offering, has granted over $48.1 million to enrich the lives of local citizens by supporting initiatives in health and human services, education, affordab le housing, youth development, and the arts. 4 Lending Activities Loan Portfolio Composition .

At December 31, 2023, the Bank had total loans outstanding of $10.20 billion, of which $6.30 billion, or 61.8% of total loans, were commercial real estate, multi-family, and land loans (collectively, “commercial real estate”).

The remainder of the portfolio consisted of $666.5 million of commercial and industrial loans, or 6.5% of total loans; $2.98 billion of residential real estate loans, or 29.3% of total loans; and $250.7 million of consumer loans, primarily home equity loans and lines of credit, or 2.5% of total loans.

At December 31, 2023, the Bank had $5.2 million of loans held-for-sale. Additionally, at December 31, 2023, 44.2% of the Bank’s total loans had adjustable interest rates. The types of loans that the Bank may originate are subject to federal and state laws and regulations.

Interest rates charged by the Bank on loans are affected by the demand for such loans and the supply of money available for lending purposes and the rates offered by competitors. These factors are, in turn, affected by, among other things, economic conditions, monetary policies of the federal government, including the FRB, and legislative and tax policies.

The following table sets forth the composition of the Bank’s loan portfolio in dollar amounts and as a percentage of the portfolio at the dates indicated: At December 31, 2023 2022 2021 Amount Percent of Total Amount Percent of Total Amount Percent of Total (dollars in thousands) Commercial real estate $ 6,297,865 61.75 % $ 6,169,319 62.20 % $ 5,433,126 63.01 % Commercial and industrial 666,532 6.53 622,372 6.27 449,224 5.21 Residential real estate 2,984,700 29.26 2,862,681 28.86 2,479,701 28.76 Consumer (1) 250,664 2.46 264,372 2.67 260,819 3.02 Total loans 10,199,761 100.00 % 9,918,744 100.00 % 8,622,870 100.00 % Deferred origination costs (fees), net 9,263 7,488 9,332 Allowance for loan credit losses (67,137) (56,824) (48,850) Loans receivable, net 10,141,887 9,869,408 8,583,352 Less: Loans held for sale 5,166 690 — Total loans receivable, net $ 10,136,721 $ 9,868,718 $ 8,583,352 Total loans: Fixed rate $ 5,696,173 55.85 % $ 5,760,562 58.08 % $ 5,459,920 63.32 % Adjustable rate 4,503,588 44.15 4,158,182 41.92 3,162,950 36.68 $ 10,199,761 100.00 % $ 9,918,744 100.00 % $ 8,622,870 100.00 % (1) Consists primarily of home equity loans, home equity lines of credit, student loans, and, to a lesser extent, loans on savings accounts and overdraft lines of credit. 5 Loan Maturity .

The following table shows the contractual maturity of the Bank’s total loans at December 31, 2023.

The table does not include principal prepayments: At December 31, 2023 Commercial Real Estate Commercial and Industrial Residential Real Estate Consumer Total Loans Receivable (in thousands) One year or less $ 697,407 $ 190,233 $ 6,014 $ 2,565 $ 896,219 After one year: More than one year to five years 2,956,038 344,282 26,257 69,309 3,395,886 More than five years to fifteen years 2,579,185 108,722 286,828 110,606 3,085,341 More than fifteen years 65,235 23,295 2,665,601 68,184 2,822,315 Total due after December 31, 2024 5,600,458 476,299 2,978,686 248,099 9,303,542 Total amount due $ 6,297,865 $ 666,532 $ 2,984,700 $ 250,664 10,199,761 Deferred origination costs (fees), net 9,263 Allowance for loan credit losses (67,137) Loans receivable, net $ 10,141,887 Less: loans held-for-sale 5,166 Total loans receivable, net $ 10,136,721 The following table sets forth at December 31, 2023, the dollar amount of total loans receivable, contractually due after December 31, 2024, and whether such loans have fixed or adjustable interest rates: Due After December 31, 2024 Fixed Adjustable Total (in thousands) Commercial real estate $ 2,409,071 $ 3,191,387 $ 5,600,458 Commercial and industrial 156,875 319,424 476,299 Residential real estate 2,668,544 310,142 2,978,686 Consumer 135,533 112,566 248,099 Total loans receivable $ 5,370,023 $ 3,933,519 $ 9,303,542 Commercial Real Estate .

At December 31, 2023, the Bank’s total commercial real estate loans outstanding were $6.30 billion, or 62% of total loans, as compared to $6.17 billion, or 62% of total loans at December 31, 2022.

Th e Bank originates commercial real estate loans that are secured by properties, or properties under construction, that are generally used for busin ess purposes such as office, industrial, multi-family or retail facilities. Commercial real estate loans are provided on owner-occupied properties and on investor-owned properties.

Of the total commercial real estate portfolio, $5.35 billion or 85.0% is considered investor-owned and $943.9 million or 15.0% is considered owner-occupied.

A substantial majority of the Bank’s commercial real estate loans are located in its primary market area. 6 The following tables present total commercial real estate loans by industry and geography (generally based on location of collateral) as of December 31, 2023: Investor Owned Owner Occupied Total (dollars in thousands) Amount Percent of Total Amount Percent of Total Amount Percent of Total Office $ 1,105,988 24 % $ 156,068 17 % $ 1,262,056 22 % Retail 1,082,486 23 127,189 13 1,209,675 21 Multi-family 903,258 19 5,843 1 909,101 16 Industrial/warehouse 703,590 15 162,285 17 865,875 15 Hospitality 138,809 3 62,044 7 200,853 4 Other (1) 758,617 16 430,462 46 1,189,079 21 Total $ 4,692,748 100 % $ 943,891 100 % $ 5,636,639 100 % Construction 661,226 661,226 Total commercial real estate $ 5,353,974 $ 6,297,865 (1) Includes co-operatives, single purpose, stores and some living units / mixed use, investor owned 1-4 family, land / development, and other.

Investor Owned Owner Occupied Total (dollars in thousands) Amount Percent of Total Amount Percent of Total Amount Percent of Total New Jersey $ 1,180,150 25 % $ 464,610 49 % $ 1,644,760 29 % New York 1,556,007 33 121,373 13 1,677,380 30 Pennsylvania and Delaware 1,244,283 27 239,606 25 1,483,889 26 Maryland and District of Columbia 150,094 3 26,423 3 176,517 3 Massachusetts 123,789 3 — — 123,789 2 Other 438,425 9 91,879 10 530,304 9 Total $ 4,692,748 100 % $ 943,891 100 % $ 5,636,639 100 % Construction 661,226 661,226 Total commercial real estate $ 5,353,974 $ 6,297,865 The Bank originates commercial real estate loans with adjustable rates and with fixed interest rates for a period that generally does not exceed ten years, and generally have an amortization schedule up to 25 years and up to 30 years for multi-family properties.

As a result, the typical amortization schedule will result in a substantial principal payment upon maturity.

The Bank generally underwrites investor commercial real estate loans to a maximum of 65% to 80% advance, and owner occupied real estate loans to a maximum of 70% to 80% advance, depending on the asset class, against either the appraised value of the property or its purchase price (for loans to fund the acquisition of real estate), whichever is less.

The Bank generally requires minimum debt service coverage of 1.20x to 1.50x for investor real estate and 1.25x to 1.40x for owner occupied real estate, depending on the asset class. There is a potential risk that the borrower may be unable to pay off or refinance the outstanding balance at the loan maturity date.

The Bank typically lends in its primary markets to experienced owners or developers who have knowledge and expertise in the commercial real estate market. The Bank performs extensive due diligence in underwriting commercial real estate loans due to the larger loan amounts and the riskier nature of such loans.

The Bank assesses and mitigates the risk in several ways, including inspection of all such properties and the review of the overall financial condition of the borrower and guarantors, which include, for example, the review of the rent rolls and applicable leases/lease terms and conditions and the verification of income.

A tenant analysis and market analysis are part of the underwriting. Financial statements are also required annually for review. With respect to investor commercial real estate loans, rent rolls are also required annually in addition to financial statements.

Generally, commercial real estate loans are supported by full or partial personal guarantees by the principals. 7 Generally, for commercial real estate loans secured in excess of $750,000 and for all other commercial real estate loans where it is deemed appropriate, the Bank requires environmental professionals to inspect the property and ascertain any potential environmental risks.

In accordance with regulatory guidelines, the Bank requires a full independent appraisal for commercial real estate properties for loans in excess of $500,000. The appraiser must be selected from the Bank’s approved appraiser list. The Bank uses an independent third party to review all applicable property appraisals to ensure compliance with regulations.

The Bank also originates multi-family family mortgage loans and, to a lesser extent, land loans The underwriting standards and procedures that are used to underwrite commercial real estate loans are used to underwrite multi-family loans, except the loan-to-value ratio generally do not exceed 75% of the appraised value of the property, the debt-service coverage is generally a minimum of 1.20x and has an amortization period of up to 30 years may be used.

Additionally, the Bank offers an interest rate swap program that allows commercial loan customers to effectively convert an adjustable-rate commercial loan agreement to a fixed-rate commercial loan agreement. The Bank simultaneously sells an offsetting back-to-back swap to an investment grade national bank so that it does not retain this fixed-rate risk.

As of December 31, 2023, these back-to-back swaps had a notional amount of $1.42 billion The commercial real estate portfolio also includes loans for the construction of commercial properties. The Bank generally underwrites construction loans for a term of three years or less.

The majority of the Bank’s construction loans are floating-rate loans with a maximum 75% loan-to-value ratio for the completed project and a minimum debt-service coverage of 1.0x during the construction period to ensure there is sufficient interest reserve to cover interest payments.

The Bank requires a higher projected debt-service coverage on construction loans (for projects that end up being income producing) and underwrites accordingly. The expectation is that the underlying project when complete will produce a debt service coverage ratio that is consistent with policy for completed income producing projects.

The Bank may commit to provide permanent mortgage financing on its construction loans on income-producing property. Construction loans may have greater credit risk due to the dependence on completion of construction and other real estate improvements, as well as the sale or rental of the improved property.

The Bank generally mitigates these risks with (i) requiring an independent appraisal, which includes information on market rents and/or comparable sales for competing projects; (ii) advances on construction loans are made in accordance with a schedule reflecting the cost of the improvements and performing site inspections to determine if the work has been completed prior to the advance of funds for the project; and (iii) pre-sale or pre-leasing requirements and phasing of construction.

Commercial real estate loans are among the largest of the Bank’s loans, and may have higher credit risk and lending spreads.

For investor-owned properties, because repayment is often dependent on the successful management of the properties, repayment of commercial real estate loans may be affected by adverse conditions in the real estate market or the economy, the Bank is particularly vigilant of this portfolio.

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

Commercial real estate - investor-owned portfolio composition as of December 31, 2023 is as follows: At December 31, 2023 (dollars in thousands) Amount Percent of total Weighted Average LTV (1) Weighted Average Debt Service Coverage Ratio (2) Office $ 532,697 11 % 52 % 1.8x Medical 345,730 7 58 1.9 Credit Tenant 227,561 5 65 1.6 Total Office (3) 1,105,988 24 56 1.8 Retail 1,082,486 23 57 1.6 Multi-family (4) 903,258 19 58 1.6 Industrial/warehouse 703,590 15 51 2.1 Hospitality 138,809 3 50 1.3 Other (5) 758,617 16 47 1.7 Total investor owned 4,692,748 100 % 54 1.7 Construction 661,226 Total CRE investor owned and construction $ 5,353,974 8 (1) Represents the weighted average of loan balances as of December 31, 2023 divided by their most recent appraisal value, which is generally obtained at the time of origination.

(2) Represents the weighted average of net operating income on the property before debt service divided by the loan’s respective annual debt service based on the most recent credit review of the borrower. (3) Central business district (“CBD”) exposure represents $123 million, or 11.3%, of the total office loan balanc e.

Office CBD loans had a weighted average LTV of 66% and weighted average debt service coverage ratio of 1.7x. $82 million, or 75%, of the total office CBD exposure are to credit tenants, life sciences and medical borrowers. New York City office CBD loans represent 0.12% of the Company’s total assets.

(4) New York City rent-regulated multi-family loans, where the property has more than 50% of its units rent-regulated, represent 0.27% of the Company’s total assets. (5) Other includes co-operatives, single purpose, stores and some living units / mixed use, investor owned 1-4 family, land / development, and other.

During 2023 a repricing analysis was performed on the vast majority of the commercial real estate – investor owned and construction portfolio, stressing interest rates at 7% while keeping underwritten rents constant, and the results indicated the portfolio continues to service debt without unusual stress at a weighted average of 1.21x. Commercial and Industrial .

At December 31, 2023, commercial and industrial (“C&I”) loans totale d $666.5 million, or 6.5% of the Bank’s total loans outstanding. The Bank originates C&I loans and lines of credit (including for working capital, fixed asset purchases, and acquisition, receivable, and inventory financing) primarily in the Bank’s market are a.

In underwriting C&I loans and credit lines, the Bank reviews and analyzes the financial history and capacity of the borrower, collateral value, financial strength and character of the principal borrowers, and general payment history of the principal borrowers in coming to a credit decision.

The Bank generally originates C&I loans secured by the assets of the business including accounts receivable, inventory, and fixtures. The Bank generally requires the personal guarantee of the principal borrowers for all C&I loans.

Risk of loss on a C&I business loan is dependent largely on the borrower’s ability to remain financially able to repay the loan from the ongoing operations of the business. In addition, any collateral securing such loans may depreciate over time, may be difficult to appraise, and may fluctuate in value. Consumer: Residential Real Estate .

The Bank offers both fixed-rate and adjustable-rate mortgage (“ARM”) loans secured by one-to-four family residences with maturities up to 30 years. The majority of such loans are secured by property located in the Bank’s primary market area.

Loan originations are typically generated by the Bank’s commissioned loan representatives and are largely derived from contacts within the local real estate industry, members of the local communities, and the Bank’s existing or past customers.

Additionally, for the year ended December 31, 2023, the Bank purchased $31.9 million of residential real estate loan pools originated by others, related to Community Reinvestment Act (“CRA”) initiatives. At December 31, 2023, $2.98 billion, or 29.3% of total loans, were residential real estate loans, primarily single family and owner occupied.

To a lesser extent, and included in this activity, are residential mortgage loans secured by seasonal second homes, non-owner occupied investment properties and construction loans. The average size of the Bank’s residential real estate loans, excluding purchased loan pools, was approximately $324,000 at December 31, 2023.

The Bank currently offers several ARM loan programs with interest rates that adjust between annually to ten years, as well as loans that operate as fixed-rate loans at their onset and later convert to an ARM for the remainder of the term.

These loans have periodic and overall caps on the increase or decrease at any adjustment date and over the life of the loan. These loans are indexed to an applicable Secured Overnight Financing Rate (“SOFR”) rate or U.S Treasury plus a margin. The majority of the ARM portfolio is tied to the one-year U.S. Treasury bill.

Adjustments are generally based on a margin between 2.75% and 3.25%. Generally, the maximum interest rate on these loans is 6% above the initial interest rate. Generally, ARM loans pose credit risks different than the risks inherent in fixed-rate loans, primarily because as interest rates rise, the payments of the borrower rise, thereby increasing the potential for delinquency and default.

At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. In order to minimize risks, borrowers of ARM loans with an initial fixed period of five years or less must qualify based on the greater of the note rate plus 2% or the fully-indexed rate.

Seven- to ten-year ARM loans must qualify based on the note rate. The Bank does not originate ARM loans that can result in negative amortization. The Bank’s fixed-rate mortgage loans are currently made for terms from ten to 30 years.

The Bank either holds its residential loans for its portfolio or sells a portion of its fixed-rate and SOFR ARM loans to either government sponsored enterprises, FHLB, Freddie Mac or Fannie Mae, or to a third party aggregator. During 2023, the Company sold $58.1 million of loans.

In certain instances, servicing rights are required to be retained, otherwise servicing rights may be sold as part of the loan sale.

The retention of fixed-rate mortgage loans may increase the level of interest rate risk exposure of the Bank, as the rates on these 9 loans will not adjust during periods of rising interest rates and the loans can be subject to substantial increases in prepayments during periods of falling interest rates.

The Bank’s policy is to originate residential real estate loans in amounts up to 80% of the lower of the appraised value or the selling price of the property securing the loan, up to 95% of the appraised value or selling price if private mortgage insurance is obtained, and up to 97% of the lower of the appraised value or selling price if the borrower qualifies for the NeighborFirst or special purpose credit program available to certain census tracts.

Appraisals are obtained for loans secured by real estate properties. The weighted average loan-to-value ratio of the Bank’s residential real estate loans, excluding purchased loan pools, was 59% at December 31, 2023 based on appraisal values at the time of origination. Title insurance is typically required for first mortgage loans.

Residential mortgage loans originated by the Bank include due-on-sale clauses which provide the Bank with the contractual right to declare the loan immediately due and payable in the event the borrower transfers ownership of the property without the Bank’s consent.