Companies: 10,793     total market cap: $138.591 T
โ‚ฌEUR๐Ÿ‡ช๐Ÿ‡บโ‚นINR๐Ÿ‡ฎ๐Ÿ‡ณยฃGBP๐Ÿ‡ฌ๐Ÿ‡ง$CAD๐Ÿ‡จ๐Ÿ‡ฆ$AUD๐Ÿ‡ฆ๐Ÿ‡บ$NZD๐Ÿ‡ณ๐Ÿ‡ฟ$HKD๐Ÿ‡ญ๐Ÿ‡ฐ$SGD๐Ÿ‡ธ๐Ÿ‡ฌ
OceanFirst Financial
OCFC
#5882
Rank
$1.08 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$18.98
Share price
1.71%
Change (1 day)
30.81%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. OceanFirst Financial
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2021 Q3

OceanFirst Financial - 10-Q quarterly report FY2021 Q3


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________________________ 
FORM 10-Q
 ________________________________________________  
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-11713
________________________________________________  
OceanFirst Financial Corp.
(Exact name of registrant as specified in its charter)
 ________________________________________________ 
Delaware22-3412577
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
110 West Front Street, Red Bank,NJ07701
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (732) 240-4500
________________________________________________  
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareOCFCNASDAQ
Depositary Shares (each representing a 1/40th interest in a share of 7.0% Series A Non-Cumulative, perpetual preferred stock)OCFCPNASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒    No   ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒Accelerated Filer ☐
Non-accelerated Filer ☐Smaller Reporting Company ☐
Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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 1, 2021 there were 59,423,626 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.

OceanFirst Financial Corp.
INDEX TO FORM 10-Q
 
  PAGE
PART I.FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements (unaudited)
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Item 2.
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Item 3.
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Item 4.
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PART II.
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Item 1.
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Item 1A.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FINANCIAL SUMMARY(1)
At or for the Quarters Ended
(dollars in thousands, except per share amounts)September 30, 2021June 30, 2021September 30, 2020
SELECTED FINANCIAL CONDITION DATA:
Total assets$11,829,688 $11,483,901 $11,651,297 
Loans receivable, net of allowance for loan credit losses8,139,961 7,774,351 7,943,390 
Deposits9,774,097 9,415,286 9,283,288 
Stockholders’ equity1,513,249 1,508,789 1,461,714 
SELECTED OPERATING DATA:
Net interest income77,132 74,016 76,788 
Credit loss (benefit) expense(3,179)(6,460)35,714 
Other income9,883 11,803 8,179 
Operating expenses58,673 51,670 56,787 
Net income (loss)24,167 30,555 (4,926)
Net income (loss) available to common stockholders23,163 29,551 (6,019)
Diluted earnings (loss) per share0.39 0.49 (0.10)
SELECTED FINANCIAL RATIOS:
Stockholders’ equity per common share at end of period25.47 25.22 24.21 
Cash dividend per share0.17 0.17 0.17 
Dividend payout ratio per common share43.59 %34.69 %(170.00)%
Stockholders’ equity to total assets12.79 13.14 12.55 
Return on average assets (2) (3)
0.78 1.03 (0.21)
Return on average stockholders’ equity (2) (3)
6.05 7.88 (1.61)
Net interest rate spread (4)
2.80 2.75 2.77 
Net interest margin (5)
2.93 2.89 2.97 
Operating expenses to average assets (2) (3)
1.98 1.80 1.94 
Efficiency ratio (3) (6)
67.43 60.21 66.83 
Loans to deposits ratio83.71 83.06 86.19 
ASSET QUALITY:
Non-performing loans held-for-investment (8)
$23,344 $31,680 $29,895 
Non-performing assets (8)
23,450 31,786 97,490 
Allowance for loan credit losses as a percent of total loans held-for-investment (7) (9)
0.61 %0.69 %0.70 %
Allowance for loan credit losses as a percent of total non-performing loans held-for-investment (8) (9)
214.84 170.06 188.49 
Non-performing loans held-for-investment as a percent of total loans held-for-investment (7) (8)
0.29 0.41 0.37 
Non-performing assets as a percent of total assets (8)
0.20 0.28 0.84 
(1) With the exception of end of quarter ratios, all ratios are based on average daily balances.
(2) Ratios are annualized.
(3) Performance ratios include merger related expenses, branch consolidation expenses, and net loss on equity investments of $4.7 million, or $3.6 million, net of tax benefit, for the quarter ended September 30, 2021. Performance ratios include merger related expenses, branch consolidation expenses, and net gain on equity investments of $104,000, or $78,000, net of tax expense, for the quarter ended June 30, 2021. Performance ratios include merger related expenses, branch consolidation expenses, and net loss on equity investments of $7.6 million, or $5.8 million, net of tax benefit, for the quarter ended September 30, 2020.
(4) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of average interest-earning assets.
(6) Efficiency ratio represents the ratio of operating expenses to the aggregate of other income and net interest income.
(7) Total loans receivable excludes loans held-for-sale.
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(8) Non-performing assets consist of non-performing loans held-for-investment and real estate acquired through foreclosure. Non-performing loans held-for-investment 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) 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 $21.3 million, $23.6 million, and $31.6 million at September 30, 2021, June 30, 2021 and September 30, 2020, respectively.

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Summary
OceanFirst Financial Corp. is the holding company for OceanFirst Bank N.A. (the “Bank”), a regional bank serving business and retail customers throughout New Jersey and in the major metropolitan areas of Philadelphia, New York, Baltimore, Washington D.C., and Boston. The term “Company” refers to OceanFirst Financial Corp., the Bank and all of their subsidiaries on a consolidated basis. The Company’s results of operations are primarily dependent on net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and investments, and the interest expense on its interest-bearing liabilities, such as deposits and borrowings. The Company also generates non-interest income such as income from bankcard services, trust and asset management products and services, sales of loans and securities, deposit account services, bank owned life insurance, commercial loan swap income, 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, government policies and actions of regulatory agencies.
The Company has grown significantly through the acquisitions of Two River Bancorp (“Two River”) and Country Bank Holding Company, Inc. (“Country Bank”), each on January 1, 2020. These acquisitions added $2.03 billion in assets, $1.56 billion in loans and $1.59 billion in deposits.
Key developments relating to the Company’s financial results and corporate activities were as follows:

•Loan Growth: Total loan growth for the quarter was $361.0 million. Total loan growth, excluding the impact of Paycheck Protection Program (“PPP”) loans of $30.5 million, was $391.5 million for the quarter, reflecting quarterly loan originations of $771.8 million and the purchase of a residential loan pool of $219.7 million. Along with record loan production during the quarter, the committed loan pipeline remains strong at $651.4 million.
•Deposit Growth: Deposits increased $358.8 million during the third quarter, while cost of deposits decreased 5 basis points to 0.22% from 0.27% in the prior linked quarter, reflecting a trend in improving deposit quality.
•Net Interest Income and Margin: Net interest income increased by $3.1 million to $77.1 million from $74.0 million in the prior linked quarter. Net interest margin increased to 2.93%, compared to 2.89% in the prior linked quarter, largely driven by the Bank’s disciplined deposit pricing practices.
Net income available to common stockholders for the three months ended September 30, 2021 was $23.2 million, or $0.39 per diluted share, as compared to net loss available to common stockholders of $6.0 million, or $0.10 per diluted share, for the corresponding prior year period. Net income available to common stockholders for the nine months ended September 30, 2021 was $84.4 million, or $1.41 per diluted share, as compared to $29.2 million, or $0.49 per diluted share, for the corresponding prior year period. The dividends paid to preferred stockholders were $1.0 million and $3.0 million for the three and nine months ended September 30, 2021, respectively, as compared to $1.1 million for each of the corresponding prior year periods. 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, branch consolidation expenses of $4.0 million and $5.1 million, respectively, and net loss on equity investments of $466,000 and net gain on equity investments of $8.4 million, respectively. Net loss available to common stockholders for the three months ended September 30, 2020, included merger related expenses, branch consolidation expenses and a net loss on equity investments of $3.2 million, $830,000, and $3.6 million, respectively. Net income for the nine months ended September 30, 2020, included merger related expenses, branch consolidation expenses, a net loss on equity investments, the impact of the Two River and Country Bank opening credit loss expense under the Current Expected Credit Loss (“CECL”) model, and Federal Home Loan Bank (“FHLB”) advance prepayment fees of $14.8 million, $4.3 million, $3.6 million, $2.4 million and $924,000, respectively.
The Company remains well-capitalized with a stockholders’ equity to total assets ratio of 12.79% at September 30, 2021.
The Company’s Board of Directors declared a quarterly cash dividend of $0.17 per share. The dividend, related to the quarter ended September 30, 2021, will be paid on November 19, 2021 to common stockholders of record on November 8, 2021. 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, 2021 to preferred stockholders of record on October 29, 2021.
As previously announced on August 4, 2021, the Bank entered into a definitive agreement to sell two New Jersey branch locations to First Bank, including the owned premises and equipment, all deposits associated with the branches, which totaled
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approximately $124 million as of June 30, 2021, as well as selected performing loans totaling approximately $14 million as of June 30, 2021. The Bank has received the required regulatory approval and the closing of the sale and customer conversion is expected to take place in early December.
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Impact of COVID-19

On March 16, 2020, the Company announced a series of actions intended to help mitigate the impact of the COVID-19 pandemic on customers, employees and communities. The Company began offering its Borrower Relief Programs to address the needs of customers who were current on their loan payments as of either December 31, 2019 or the date of the modification. In keeping with regulatory guidance under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, these loan deferrals were not considered troubled debt restructured (“TDR”) loans at September 30, 2021 and will not be reported as past due during the deferral period. As of September 30, 2021, 98.7% of total loans comply with pre-COVID-19 terms.

Further, due to conditions caused by COVID-19, appraisals ordered in the current environment may not be indicative of the underlying loan collateral value. As such, the Company may require multiple valuation approaches (sales comparison approach, income approach, cost approach), as applicable. The Company will assess the individual facts and circumstances of COVID-19 related loan downgrades and, if a new appraisal is not necessary, an additional discount may be applied to an existing appraisal.

The Company also accepted and processed applications for loans under the PPP, which was originally established under the CARES Act. At September 30, 2021, $52.5 million in PPP loans and $2.0 million in deferred fees remained on the consolidated statements of financial condition. There were no PPP loans originated during the quarter ended September 30, 2021.

On December 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations (“CRRSA”) Act of 2021 was signed into law, which contained provisions that directly impacted financial institutions. The CRRSA Act extended the PPP and provided the Company the ability to continue its Borrower Relief Programs and related TDR and past due reporting considerations.

For further discussion, refer to Part I, Item 1A in the December 31, 2020 Form 10-K - Risk Factors - Risks Related to the COVID-19 Pandemic.


































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Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them.

The following tables set forth certain information relating to the Company for the three and nine months ended September 30, 2021 and 2020. 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,
 20212020
(dollars in thousands)Average BalanceInterestAverage
Yield/
Cost		Average BalanceInterestAverage
Yield/
Cost
Assets:
Interest-earning assets:
Interest-earning deposits and short-term investments$1,053,797 $441 0.17 %$805,863 $236 0.12 %
Securities (1)
1,542,630 6,090 1.57 1,112,174 6,793 2.43 
Loans receivable, net (2)
Commercial5,361,472 55,387 4.10 5,554,897 58,639 4.20 
Residential real estate2,260,673 20,076 3.55 2,462,513 23,091 3.75 
Home equity loans and lines and other consumer289,011 3,426 4.70 379,299 4,203 4.41 
Allowance for loan credit losses, net of deferred loan costs and fees(46,436)— — (45,912)— — 
Loans receivable, net7,864,720 78,889 3.98 8,350,797 85,933 4.09 
Total interest-earning assets10,461,147 85,420 3.24 10,268,834 92,962 3.60 
Non-interest-earning assets1,276,890 1,353,135 
Total assets$11,738,037 $11,621,969 
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing checking$3,841,475 2,854 0.29 %$3,289,319 4,627 0.56 %
Money market767,854 245 0.13 675,841 571 0.34 
Savings1,609,197 146 0.04 1,460,232 296 0.08 
Time deposits904,384 2,134 0.94 1,606,632 5,876 1.45 
Total7,122,910 5,379 0.30 7,032,024 11,370 0.64 
FHLB advances— — — 343,412 1,470 1.70 
Securities sold under agreements to repurchase142,494 51 0.14 144,720 174 0.48 
Other borrowings228,695 2,858 4.96 246,903 3,160 5.09 
Total borrowings371,189 2,909 3.11 735,035 4,804 2.60 
Total interest-bearing liabilities7,494,099 8,288 0.44 7,767,059 16,174 0.83 
Non-interest-bearing deposits2,576,123 2,209,241 
Non-interest-bearing liabilities148,327 162,987 
Total liabilities10,218,549 10,139,287 
Stockholders’ equity1,519,488 1,482,682 
Total liabilities and equity$11,738,037 $11,621,969 
Net interest income$77,132 $76,788 
Net interest rate spread (3)
2.80 %2.77 %
Net interest margin (4)
2.93 %2.97 %
Total cost of deposits (including non-interest-bearing deposits)0.22 %0.49 %



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For the Nine Months Ended September 30,
20212020
(dollars in thousands)Average
Balance		InterestAverage
Yield/
Cost		Average
Balance		InterestAverage
Yield/
Cost
Assets:
Interest-earning assets:
Interest-earning deposits and short-term investments$1,061,419 $958 0.12 %$409,321 $693 0.23 %
Securities (1)
1,452,778 18,832 1.73 1,143,049 22,129 2.59 
Loans receivable, net (2)
Commercial5,270,138 163,315 4.14 5,309,275 177,973 4.48 
Residential real estate2,269,066 59,242 3.48 2,480,932 71,590 3.85 
Home equity loans and lines and other consumer306,681 11,288 4.92 403,348 14,661 4.86 
Allowance for loan credit losses, net of deferred loan costs and fees(50,912)— — (27,186)— — 
Loans receivable, net7,794,973 233,845 4.01 8,166,369 264,224 4.32 
Total interest-earning assets10,309,170 253,635 3.29 9,718,739 287,046 3.95 
Non-interest-earning assets1,264,347 1,306,568 
Total assets$11,573,517 $11,025,307 
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing checking$3,753,457 10,549 0.38 %$3,023,093 14,559 0.64 %
Money market761,975 823 0.14 647,566 2,316 0.48 
Savings1,571,345 490 0.04 1,436,594 2,266 0.21 
Time deposits1,041,371 8,338 1.07 1,563,449 18,470 1.58 
Total7,128,148 20,200 0.38 6,670,702 37,611 0.75 
FHLB Advances— — — 483,267 6,239 1.72 
Securities sold under agreements to repurchase135,754 203 0.20 119,495 408 0.46 
Other borrowings228,472 8,480 4.96 195,754 7,688 5.25 
Total borrowings364,226 8,683 3.19 798,516 14,335 2.40 
Total interest-bearing liabilities7,492,374 28,883 0.52 7,469,218 51,946 0.93 
Non-interest-bearing deposits2,416,866 1,971,622 
Non-interest-bearing liabilities157,821 133,928 
Total liabilities10,067,061 9,574,768 
Stockholders’ equity1,506,456 1,450,539 
Total liabilities and equity$11,573,517 $11,025,307 
Net interest income$224,752 $235,100 
Net interest rate spread (3)
2.77 %3.02 %
Net interest margin (4)
2.91 %3.23 %
Total cost of deposits (including non-interest-bearing deposits)0.28 %0.58 %
(1)Amounts represent debt and equity securities, including FHLB and Federal Reserve Bank stock, and are recorded at average amortized cost net of allowance for securities credit losses.
(2)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.
(3)Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(4)Net interest margin represents net interest income divided by average interest-earning assets.
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Comparison of Financial Condition at September 30, 2021 and December 31, 2020
Total assets increased by $381.4 million to $11.83 billion at September 30, 2021, from $11.45 billion at December 31, 2020. Cash and due from banks decreased $291.0 million, to $981.1 million at September 30, 2021, from $1.27 billion at December 31, 2020 as excess liquidity was primarily used to purchase securities and fund loan growth. Total debt securities increased by $319.4 million at September 30, 2021, as compared to December 31, 2020. Total loans, excluding PPP loans of $52.5 million and $95.4 million at September 30, 2021 and December 31, 2020, respectively, increased by $468.6 million, to $8.13 billion at September 30, 2021, from $7.66 billion at December 31, 2020.

Deposits increased by $346.5 million to $9.77 billion at September 30, 2021, from $9.43 billion at December 31, 2020. Excluding time deposits of $855.4 million at September 30, 2021 and $1.37 billion at December 31, 2020, total deposits increased by $863.8 million to $8.92 billion at September 30, 2021 from $8.05 billion at December 31, 2020. The loans-to-deposit ratio at September 30, 2021 was 83.7%, as compared to 82.3% at December 31, 2020.

Stockholders’ equity increased to $1.51 billion at September 30, 2021, as compared to $1.48 billion at December 31, 2020. On June 25, 2021, the Company announced the authorization of the Board of Directors of the 2021 Stock Repurchase Program to repurchase up to an additional 3.0 million shares, which is approximately 5% of the Company’s outstanding common stock. For the nine months ended September 30, 2021, the Company repurchased 1,460,009 shares under its stock repurchase program at a weighted average cost of $20.98, and there were 3,559,136 shares available for repurchase at September 30, 2021 under the existing repurchase programs. Stockholders’ equity per common share increased to $25.47 at September 30, 2021, as compared to $24.57 at December 31, 2020.

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2021 and September 30, 2020
General
Net income available to common stockholders for the three months ended September 30, 2021 was $23.2 million, or $0.39 per diluted share, as compared to net loss available to common stockholders of $6.0 million, or $0.10 per diluted share, for the corresponding prior year period. Net income available to common stockholders for the nine months ended September 30, 2021 was $84.4 million, or $1.41 per diluted share, as compared to $29.2 million, or $0.49 per diluted share, for the corresponding prior year period. 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, branch consolidation expenses of $4.0 million and $5.1 million, respectively, and net loss on equity investments of $466,000 and net gain on equity investments of $8.4 million, respectively. 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. Net loss available to common stockholders for the three months ended September 30, 2020, included merger related expenses, branch consolidation expenses and a net loss on equity investments of $3.2 million, $830,000, and $3.6 million, respectively. Net income for the nine months ended September 30, 2020, included merger related expenses, branch consolidation expenses, a net loss on equity investments, the impact of the Two River and Country Bank opening credit loss expense under the CECL model, and FHLB advance prepayment fees of $14.8 million, $4.3 million, $3.6 million, $2.4 million and $924,000, respectively. These items decreased net loss by $5.8 million and decreased net income by $19.9 million, net of tax, for the three and nine months ended September 30, 2020, respectively.
Interest Income
Interest income for the three and nine months ended September 30, 2021 decreased to $85.4 million and $253.6 million, respectively, as compared to $93.0 million and $287.0 million for the corresponding prior year periods, respectively. Average interest-earning assets increased by $192.3 million and $590.4 million for the three and nine months ended September 30, 2021, respectively, as compared to the same prior year periods, primarily concentrated in excess balance sheet liquidity. Average loans receivable, net of allowance for loan credit losses, decreased by $486.1 million and $371.4 million for the three and nine months ended September 30, 2021, respectively, as compared to the same prior year periods, primarily due to reductions in PPP loans. For the three and nine months ended September 30, 2021, the yield on average interest-earning assets decreased to 3.24% and 3.29%, respectively, from 3.60% and 3.95% for the corresponding prior year periods, respectively.
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Interest Expense
Interest expense for the three and nine months ended September 30, 2021 was $8.3 million and $28.9 million, respectively, as compared to $16.2 million and $51.9 million in the corresponding prior year periods, respectively. Average interest-bearing liabilities decreased $273.0 million and increased $23.2 million for the three and nine months ended September 30, 2021, respectively, as compared to the same prior year periods. For the three and nine months ended September 30, 2021, the cost of average interest-bearing liabilities decreased to 0.44% and 0.52%, respectively, from 0.83% and 0.93%, respectively, for the corresponding prior year periods. The total cost of deposits (including non-interest bearing deposits) was 0.22% and 0.28% for the three and nine months ended September 30, 2021, respectively, as compared to 0.49% and 0.58%, respectively, for the same prior year periods.
Net Interest Income and Margin
Net interest income for the three months ended September 30, 2021, increased to $77.1 million, as compared to $76.8 million for the corresponding prior year period. Net interest income for the nine months ended September 30, 2021 decreased to $224.8 million as compared to $235.1 million for the corresponding prior year period, as a result of the lower interest rate environment. Net interest margin for the three and nine months ended September 30, 2021 decreased to 2.93% and 2.91%, respectively, from 2.97% and 3.23%, respectively, for the same prior year periods. The net interest margin compression was primarily due to the excess balance sheet liquidity and the lower interest rate environment.
Benefit/Provision for Credit Losses
For the three and nine months ended September 30, 2021, the credit loss benefit was $3.2 million and $10.3 million, respectively, as compared to a credit loss expense of $35.7 million and $55.3 million, respectively, for the corresponding prior year periods. The credit loss benefit for the three and nine months ended September 30, 2021 was significantly influenced by positive trends in the Bank’s asset quality combined with stabilizing trends in economic forecasts, including strong employment levels and GDP growth, partly offset by the economic uncertainty related to supply chain and labor market constraints.

Net loan recoveries were $386,000 and $442,000 for the three and nine months ended September 30, 2021, respectively, as compared to net loan charge-offs of $15.0 million and $15.9 million for the corresponding prior year periods, respectively. The three months ended September 30, 2020 included $14.2 million in charge-offs related to the transfer of higher-risk commercial loans to held-for-sale, which were ultimately sold in the fourth quarter of 2020. Non-performing loans held-for-investment totaled $23.3 million at September 30, 2021, as compared to $29.9 million at September 30, 2020.
Non-interest Income
For the three and nine months ended September 30, 2021, other income increased to $9.9 million and $42.5 million, respectively, as compared to $8.2 million and $33.3 million, respectively, for the corresponding prior year periods. Other income for the three and nine months ended September 30, 2021 included a net loss on equity investments of $466,000 and a net gain on equity investments of $8.4 million, respectively. Other income for both the three and nine months ended September 30, 2020 included $3.6 million of net losses on equity investments. The remaining decrease of $1.4 million in other income for the three months ended September 30, 2021, as compared to the corresponding prior year period, was primarily due to decreases in gain on sale of loans of $1.0 million and fees and service charges of $759,000. The remaining decrease of $2.8 million in other income for the nine months ended September 30, 2021, as compared to the corresponding prior year period, was primarily due to a decrease in commercial loan swap income of $5.2 million, as a result of lower activity, and lower fees and service charges of $1.3 million, partially offset by increases in bankcard services of $1.7 million, due to lower card activity in the prior year period as a result of the pandemic, gain on sale of loans of $1.3 million, and PPP loan referral fees of $800,000.
Non-interest Expense
Operating expenses increased to $58.7 million and decreased to $162.0 million for the three and nine months ended September 30, 2021, respectively, as compared to $56.8 million and $175.5 million, respectively, in the same prior year periods. Operating expenses for the three and nine months ended September 30, 2021 included $4.2 million and $6.1 million, respectively, of merger related and branch consolidation expenses. Operating expenses for the three months ended September 30, 2020 included $4.0 million of merger related and branch consolidation expenses. Operating expenses for the nine months ended September 30, 2020 included $20.0 million of merger related expenses, branch consolidation expenses and FHLB advance prepayment fees. The remaining increase of $1.6 million in operating expenses for the three months ended September 30, 2021, as compared to the corresponding prior year period, was primarily due to increases in compensation and benefits expense of $1.7 million and data processing expense of $846,000, partly offset by a decrease in equipment expense of $782,000. The remaining increase of $372,000 in operating expenses for the nine months ended September 30, 2021, as compared to the corresponding prior year
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period, was primarily due to increases in compensation and benefits expense of $2.2 million, primarily related to higher benefit costs, federal deposit insurance and regulatory assessments of $1.4 million, and data processing expense of $953,000, partly offset by decreases in equipment expense of $1.8 million, marketing expense of $930,000, other operating expense of $469,000, and occupancy expense of $434,000.
Income Tax Expense/Benefit
The provision for income taxes was $7.4 million and $28.1 million for the three and nine months ended September 30, 2021, respectively, as compared to a benefit for income taxes of $2.6 million and provision for income taxes of $7.3 million for the same prior year periods, respectively. The effective tax rate was 23.3% and 24.3% for the three and nine months ended September 30, 2021, respectively, as compared to 34.6% and 19.5% for the same prior year periods, respectively. The higher effective tax rate for the three months ended September 30, 2020 was primarily attributable to the net loss recognized during the quarter. The higher effective tax rate for the nine months ended September 30, 2021, as compared to the prior year period, was primarily due to the impact of a New Jersey tax code change and a higher allocation of taxable income to New York.
12
Liquidity and Capital Resources
The Company’s primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, FHLB advances, access to the Federal Reserve discount window, other borrowings, including subordinated debt, and to a lesser extent, investment maturities and proceeds from the sale of loans and equity investments. While scheduled amortization of loans and mortgage-backed securities are predictable sources of funds, deposit flows, loan prepayments, and loan and equity sales are greatly influenced by interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including various lines of credit at multiple financial institutions.
At September 30, 2021 and December 31, 2020, the Bank had no outstanding overnight borrowings from the FHLB. The Bank utilizes overnight borrowings from time-to-time to fund short-term liquidity needs. There were also no FHLB term advances at September 30, 2021 and December 31, 2020.
The Company’s cash needs for the nine months ended September 30, 2021 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. The cash was principally utilized for purchases of debt and equity securities, a purchase of a residential loan pool, and loan originations. The Company’s cash needs for the nine months ended September 30, 2020 were primarily satisfied by the increase in deposits, net proceeds from the issuance of subordinated notes and preferred stock, principal payments on mortgage-backed securities, proceeds from maturities and calls of debt securities, proceeds from sale of loans, and acquired cash from acquisitions. The cash was principally utilized for loan originations, the repayment of short-term borrowings, and investment purchases.
In the normal course of business, the Bank routinely enters into various off-balance-sheet commitments, primarily relating to the origination and sale of loans. At September 30, 2021, outstanding commitments to originate loans totaled $651.4 million and outstanding undrawn lines of credit totaled $1.22 billion, of which $870.7 million were commitments to commercial borrowers and $353.0 million were commitments to consumer borrowers and residential construction borrowers. 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 $586.7 million at September 30, 2021. Management is optimistic about its ability to retain funds from maturing time deposits and placing them in market comparable deposit products.
The Company has a detailed contingency funding plan and obtains comprehensive reporting of funding trends on a monthly and quarterly basis, which are reviewed by management. Management also monitors cash on a daily basis to determine the liquidity needs of the Bank. Additionally, management performs multiple liquidity stress test scenarios on a quarterly basis. The Bank continues to maintain significant liquidity under all stress scenarios. In response to COVID-19, management identified additional sources of contingent liquidity, including expanded borrowing capacity with the FHLB, the Federal Reserve and existing correspondent bank relationships. The Company also strengthened balance sheet liquidity entering the economic downturn.
Under the Company’s stock repurchase program, shares of OceanFirst Financial Corp. common stock may be purchased in the open market and through other privately-negotiated transactions, from time-to-time, depending on market conditions. The repurchased shares are held as treasury stock for general corporate purposes. The Company repurchased 460,009 shares of common stock for the three months ended September 30, 2021, bringing the total shares repurchased to 1,460,009 for the nine months ended September 30, 2021. At September 30, 2021, there were 3,559,136 shares available to be repurchased under the stock repurchase programs authorized.
Cash dividends on common stock declared and paid during the first nine months of September 30, 2021 were $30.4 million, as compared to $30.6 million for the same prior year period. On October 28, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.17 per common share. The dividend is payable on November 19, 2021 to common stockholders of record at the close of business on November 8, 2021.
Cash dividends on preferred stock declared and paid during the first nine months of September 30, 2021 were $3.0 million, as compared to $1.1 million for the same prior year period. 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, 2021 to preferred stockholders of record on October 29, 2021.
The primary sources of liquidity specifically available to OceanFirst Financial Corp., the holding company of the Bank, are capital distributions from the Bank, the issuance of preferred and common stock, and debt. For the nine months ended September 30, 2021, the Company received a dividend payment of $30.0 million from the Bank. The Company’s ability to continue to pay dividends will be largely dependent upon capital distributions from the Bank, which may be adversely affected
13
by capital restraints imposed by applicable regulations. The Company cannot predict whether the Bank will be permitted under applicable regulations to pay a dividend to the Company. If applicable regulations or regulatory bodies prevent the Bank from paying a dividend to the Company, the Company may not have the liquidity necessary to pay a dividend in the future or pay a dividend at the same rate as historically paid or be able to meet current debt obligations. Additionally, regulations of the Federal Reserve may prevent the Company from either paying or increasing the cash dividend to common stockholders. At September 30, 2021, OceanFirst Financial Corp. held $83.9 million in cash.
As of September 30, 2021 and December 31, 2020, the Company and the Bank satisfy all regulatory capital requirements currently applicable as follows (dollars in thousands):
ActualFor capital adequacy
purposes		To be well-capitalized
under prompt
corrective action
As of September 30, 2021AmountRatioAmountRatioAmountRatio
Bank:
Tier 1 capital (to average assets)$1,012,471 9.12 %$444,076 4.00 %$555,096 5.00 %
Common equity Tier 1 (to risk-weighted assets)
1,012,471 12.19 581,498 7.00 
(1)
539,963 6.50 
Tier 1 capital (to risk-weighted assets)1,012,471 12.19 706,105 8.50 
(1)
664,570 8.00 
Total capital (to risk-weighted assets)1,065,583 12.83 872,248 10.50 
(1)
830,712 10.00 
Company:
Tier 1 capital (to average assets)$1,037,940 9.34 %$444,531 4.00 %N/AN/A
Common equity Tier 1 (to risk-weighted assets)
910,679 10.84 588,214 7.00 
(1)
N/AN/A
Tier 1 capital (to risk-weighted assets)1,037,940 12.35 714,260 8.50 
(1)
N/AN/A
Total capital (to risk-weighted assets)1,252,349 14.90 882,321 10.50 
(1)
N/AN/A
ActualFor capital adequacy
purposes		To be well-capitalized
under prompt
corrective action
As of December 31, 2020AmountRatioAmountRatioAmountRatio
Bank:
Tier 1 capital (to average assets)$942,122 8.48 %$444,648 4.00 %$555,810 5.00 %
Common equity Tier 1 (to risk-weighted assets)
942,122 12.11 544,625 7.00 
(1)
505,724 6.50 
Tier 1 capital (to risk-weighted assets)942,122 12.11 661,331 8.50 
(1)
622,429 8.00 
Total capital (to risk-weighted assets)1,004,480 12.91 816,938 10.50 
(1)
778,036 10.00 
Company:
Tier 1 capital (to average assets)$998,273 9.44 %$423,028 4.00 %N/AN/A
Common equity Tier 1 (to risk-weighted assets)
871,385 11.05 552,075 7.00 
(1)
N/AN/A
Tier 1 capital (to risk-weighted assets)998,273 12.66 670,377 8.50 
(1)
N/AN/A
Total capital (to risk-weighted assets)1,230,370 15.60 828,113 10.50 
(1)
N/AN/A
(1)Includes the Capital Conservation Buffer of 2.50%.
The Bank satisfies the criteria to be “well-capitalized” under the Prompt Corrective Action Regulations.
At September 30, 2021 and December 31, 2020, the Company maintained a stockholders’ equity to total assets ratio of 12.79% and 12.96%, respectively.
14
Off-Balance-Sheet Arrangements and Contractual Obligations
In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in the financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used for general corporate purposes or for customer needs. Corporate purpose transactions are used to help manage credit, interest rate and liquidity risk or to optimize capital. Customer transactions are used to manage customers’ requests for funding. These financial instruments and commitments include undrawn lines of credit and commitments to extend credit. 
The Company enters into loan sale agreements with investors in the normal course of business. The loan sale agreements generally require the Company to repurchase loans previously sold in the event of a violation of various representations and warranties customary to the mortgage banking industry. The Company is also obligated to repurchase loans previously sold under certain circumstances under a loss sharing arrangement with the FHLB relating to loans sold into the Mortgage Partnership Finance program. As a result of the COVID-19 pandemic, some of these loans were placed on forbearance and the Company may be required to repurchase them in future periods. In the opinion of management, the potential exposure related to the loan sale agreements and loans sold to the FHLB is adequately provided for in the reserve for repurchased loans and loss sharing obligations included in other liabilities. At each of September 30, 2021 and December 31, 2020, the reserve for repurchased loans and loss sharing obligations was $1.2 million.
The following table shows the contractual obligations of the Company by expected payment period as of September 30, 2021 (in thousands). Refer to Note 9 Leases, to the Consolidated Financial Statements for lease obligations.
Contractual ObligationsTotal
One year
 or less		More than 1 year to 3 yearsMore than 3 years to 5 yearsMore than
5 years
Debt obligations$372,179 $143,496 $444 $35,496 $192,743 
Commitments to fund undrawn lines of credit
Commercial870,672 870,672 — — — 
Consumer and residential construction352,986 352,986 — — — 
Commitments to originate loans651,432 651,432 — — — 
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 contract. 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.

15
Non-Performing Assets
The following table sets forth information regarding the Company’s non-performing assets, consisting of non-performing loans and other real estate owned. It is the policy of the Company to cease accruing interest on loans 90 days or more past due or in the process of foreclosure.
September 30,December 31,
20212020
 (dollars in thousands)
Non-performing loans:
Commercial and industrial$354 $1,551 
Commercial real estate – owner occupied8,997 13,054 
Commercial real estate – investor6,904 10,660 
Residential real estate5,484 8,642 
Home equity loans and lines and other consumer1,605 2,503 
Total non-performing loans23,344 36,410 
Other real estate owned106 106 
Total non-performing assets$23,450 $36,516 
PCD loans (1)
$41,372 $48,488 
Delinquent loans 30-89 days$6,647 $34,683 
Allowance for loan credit losses as a percent of total loans0.61 %0.78 %
Allowance for loan credit losses as a percent of total non-performing loans
214.84 166.81 
Non-performing loans as a percent of total loans0.29 0.47 
Non-performing assets as a percent of total assets0.20 0.32 
(1)     PCD loans are not included in non-performing loans or delinquent loans totals.

The Company’s non-performing loans totaled $23.3 million at September 30, 2021, as compared to $36.4 million at December 31, 2020. Included in the non-performing loans total was $9.6 million and $5.2 million of TDR loans at September 30, 2021 and December 31, 2020, respectively. Non-performing loans do not include $41.4 million and $48.5 million of acquired PCD loans at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021, the allowance for loan credit losses totaled $50.2 million, or 0.61% of total loans, as compared to $60.7 million, or 0.78% of total loans, at December 31, 2020. These ratios exclude existing net unamortized credit and PCD marks on acquired loans of $21.3 million and $28.0 million at September 30, 2021 and December 31, 2020, respectively. 

In response to the COVID-19 pandemic and its economic impact on customers, short-term modification programs that comply with the CARES Act, extended by the CRRSA Act, were implemented to provide temporary payment relief to those borrowers directly impacted by COVID-19. The Commercial Borrower Relief Program allowed for the deferral of principal and interest or principal only. All payments received will first be applied to all accrued and unpaid interest and the balance, if any, on account of unpaid principal, then to fees, expenses and other amounts due to the Bank. Monthly payments will continue until the maturity date when all then unpaid principal, interest, fees, and all other charges are due and payable to the Bank. The Consumer Borrower Relief Program allowed for the deferral of principal and interest. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date. Provided these loans were current as of either year end or the date of the modification, these loans are not considered TDR loans at September 30, 2021 and will not be reported as past due during the deferral period.

The Company classifies loans and other assets in accordance with regulatory guidelines. The table below excludes any loans held-for-sale (in thousands):
September 30,December 31,
20212020
Special Mention$98,687 $165,843 
Substandard158,575 194,477 
The decrease in special mention and substandard loans was primarily due to the improvement in the Bank’s borrowers’ ability to service their loans.
16
Critical Accounting Policies

Note 1 to the Company’s Audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 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 inherently subject to estimation techniques, valuation assumptions and other subjective assessments. These judgments and policies involve a higher degree of complexity and require 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. Certain assets are carried in the consolidated statements of financial condition at 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 the most critical accounting policy because it is important to the presentation of the Company’s financial condition and results of operations. These critical accounting policies and their application are reviewed periodically, and at least annually, with the Audit Committee of the Board of Directors.
Private Securities Litigation Reform Act Safe Harbor Statement
In addition to historical information, this quarterly report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which are based on certain assumptions and describe future plans, strategies and expectations of OceanFirst Financial Corp. (the “Company”). These forward-looking statements are generally identified by use of the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project”, “will”, “should”, “may”, “view”, “opportunity”, “potential”, or similar expressions or expressions of confidence.
The Company’s ability to predict results or the actual effect of plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, those items discussed in the Company’s 2020 Form 10-K under Item 1A - Risk Factors, as supplemented by the Company’s subsequent filings with the Securities and Exchange Commission (the “SEC”) and elsewhere therein and the following: changes in interest rates, general economic conditions, public health crises (such as the governmental, social and economic effects of the novel coronavirus), levels of unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, future natural disasters and increases to flood insurance premiums, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory changes (particularly with respect to the novel coronavirus), monetary and fiscal policies of the U.S. Government including policies of the U.S. Treasury and Board of Governors of the Federal Reserve System (the “FRB”), the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, changes in accounting principles and guidelines and the Bank’s ability to successfully integrate acquired operations.
Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on the Company’s business. The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be controlled and abated, the timing of inoculation against the virus and whether the gradual reopening of businesses will result in a meaningful increase in economic activity. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, the Company could be subject to any of the following risks, any of which could have a material, adverse effect on its business, financial condition, liquidity, and results of operations: the demand for the Bank’s products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen, and higher levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; the Company’s allowance for credit losses may increase if borrowers experience financial difficulties, which will adversely affect the Company’s net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to the Bank; if legislation or governmental or regulatory action is enacted limiting the amount of ATM fees or surcharges the Bank may receive or on its ability to charge overdraft or other fees, it could adversely impact the Company’s financial results; the Company’s cyber security risks would be increased as the result of an increased use of the Bank’s online banking platform or an increase in the number of employees working remotely; and Federal Deposit Insurance Corporation (“FDIC”) premiums may increase if the agency experiences additional resolution costs.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
17
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
The Company’s interest rate sensitivity is monitored through the use of interest rate risk (“IRR”) modeling. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at September 30, 2021, which were anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown.

At September 30, 2021, the Company’s one-year gap was positive 22.35% as compared to positive 18.05% at December 31, 2020.
 
At September 30, 20213 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: (1)
Interest-earning deposits and short-term investments$793,303$1,431$1,975$—$—$796,709
Debt securities266,574239,314348,929227,782360,6951,443,294
Equity investments——30,39928,31642,599101,314
Restricted equity investments————53,01753,017
Loans receivable (2)
2,343,9761,561,1032,291,2821,151,399847,5008,195,260
Total interest-earning assets3,403,8531,801,8482,672,5851,407,4971,303,81110,589,594
Interest-bearing liabilities:
Interest-bearing checking accounts1,444,263195,213451,077365,3721,557,6404,013,565
Money market deposit accounts72,13254,037125,669102,774462,079816,691
Savings accounts86,173138,286302,615237,016856,3571,620,447
Time deposits169,818430,971211,38127,96215,310855,442
Securities sold under agreements to repurchase and other borrowings247,421154444123,350810372,179
Total interest-bearing liabilities2,019,807818,6611,091,186856,4742,892,1967,678,324
Interest sensitivity gap (3)
$1,384,046$983,187$1,581,399$551,023$(1,588,385)$2,911,270
Cumulative interest sensitivity gap$1,384,046$2,367,233$3,948,632$4,499,655$2,911,270$2,911,270
Cumulative interest sensitivity gap as a percent of total interest-earning assets13.07 %22.35 %37.29 %42.49 %27.49 %27.49 %
(1)Interest-earning assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments, and contractual maturities.
(2)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.
(3)Interest sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities.
18
Additionally, the table below sets forth the Company’s exposure to IRR as measured by the change in economic value of equity (“EVE”) and net interest income under varying rate shocks as of September 30, 2021 and December 31, 2020. All methods used to measure interest rate sensitivity involve the use of assumptions, which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. The Company’s interest rate sensitivity should be reviewed in conjunction with the financial statements and notes thereto contained in the 2020 Form 10-K.
 
 September 30, 2021December 31, 2020
Change in Interest Rates in Basis Points (Rate Shock)Economic Value of EquityNet Interest IncomeEconomic Value of EquityNet Interest Income
Amount% ChangeEVE RatioAmount% ChangeAmount% ChangeEVE RatioAmount% Change
(dollars in thousands)          
300$1,900,559 33.8 %17.1 %$389,436 31.9 %$1,890,335 38.5 %17.3 %$340,098 16.2 %
2001,770,701 24.6 15.6 354,181 19.9 1,752,255 28.4 15.7 325,436 11.2 
1001,611,072 13.4 13.9 318,183 7.7 1,578,917 15.7 13.9 309,644 5.8 
Static1,420,933 — 12.0 295,335 — 1,365,119 — 11.8 292,572 — 
(100)1,160,332 (18.3)9.6 268,236 (9.2)1,074,346 (21.3)9.2 284,763 (2.7)
The interest rate sensitivity at September 30, 2021 and December 31, 2020, continue to be impacted by the cash liquidity position that remains elevated.

Item 4.    Controls and Procedures
(a) Disclosure Controls and Procedures
The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective. Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

19
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
September 30,December 31,
20212020
 (Unaudited) 
Assets
Cash and due from banks$981,126 $1,272,134 
Debt securities available-for-sale, at estimated fair value 314,620 183,302 
Debt securities held-to-maturity, net of allowance for securities credit losses of $1,503 at September 30, 2021 and $1,715 at December 31, 2020 (estimated fair value of $1,143,381 at September 30, 2021 and $968,466 at December 31, 2020)
1,125,382 937,253 
Equity investments101,314 107,079 
Restricted equity investments, at cost53,017 51,705 
Loans receivable, net of allowance for loan credit losses of $50,153 at September 30, 2021 and $60,735 at December 31, 2020
8,139,961 7,704,857 
Loans held-for-sale13,428 45,524 
Interest and dividends receivable32,512 35,269 
Other real estate owned106 106 
Premises and equipment, net123,669 107,094 
Bank owned life insurance260,072 265,253 
Assets held for sale4,613 5,782 
Goodwill500,319 500,319 
Core deposit intangible19,558 23,668 
Other assets159,991 208,968 
Total assets$11,829,688 $11,448,313 
Liabilities and Stockholders’ Equity
Deposits$9,774,097 $9,427,616 
Securities sold under agreements to repurchase with retail customers143,292 128,454 
Other borrowings228,887 235,471 
Advances by borrowers for taxes and insurance22,214 17,296 
Other liabilities147,949 155,346 
Total liabilities10,316,439 9,964,183 
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, 2021 and December 31, 2020
1 1 
Common stock, $0.01 par value, 150,000,000 shares authorized, 61,526,126 and 61,040,894 shares issued at September 30, 2021 and December 31, 2020, respectively; and 59,417,266 and 60,392,043 shares outstanding at September 30, 2021 and December 31, 2020, respectively
611 609 
Additional paid-in capital1,145,448 1,137,715 
Retained earnings430,721 378,268 
Accumulated other comprehensive (loss) income (734)621 
Less: Unallocated common stock held by Employee Stock Ownership Plan ("ESOP")(6,519)(7,433)
Treasury stock, 2,108,860 and 648,851 shares at September 30, 2021 and December 31, 2020, respectively
(56,279)(25,651)
Total stockholders’ equity1,513,249 1,484,130 
Total liabilities and stockholders’ equity$11,829,688 $11,448,313 

See accompanying Notes to Unaudited Consolidated Financial Statements.
20
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share amounts)
 For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2021202020212020
 (Unaudited)(Unaudited)
Interest income:
Loans$78,889 $85,933 $233,845 $264,224 
Debt securities5,040 5,596 16,379 18,577 
Equity investments and other1,491 1,433 3,411 4,245 
Total interest income85,420 92,962 253,635 287,046 
Interest expense:
Deposits5,379 11,370 20,200 37,611 
Borrowed funds2,909 4,804 8,683 14,335 
Total interest expense8,288 16,174 28,883 51,946 
Net interest income77,132 76,788 224,752 235,100 
Credit loss (benefit) expense (3,179)35,714 (10,259)55,332 
Net interest income after credit loss (benefit) expense 80,311 41,074 235,011 179,768 
Other income:
Bankcard services revenue3,409 3,097 10,052 8,319 
Trust and asset management revenue584 490 1,774 1,560 
Fees and service charges2,973 3,732 10,519 11,858 
Net (loss) gain on sales of loans(15)1,001 3,180 1,930 
Net (loss) gain on equity investments(466)(3,576)8,397 (3,273)
Net (loss) gain from other real estate operations(3)214 (12)12 
Income from bank owned life insurance1,640 1,530 4,771 4,626 
Commercial loan swap income1,588 1,425 2,772 7,964 
Other173 266 1,068 310 
Total other income9,883 8,179 42,521 33,306 
Operating expenses:
Compensation and employee benefits30,730 29,012 89,008 86,832 
Occupancy5,005 5,270 15,380 15,814 
Equipment1,124 1,906 4,008 5,831 
Marketing496 963 1,555 2,485 
Federal deposit insurance and regulatory assessments1,459 1,212 4,422 3,012 
Data processing5,363 4,517 13,796 12,843 
Check card processing1,337 1,385 4,012 3,951 
Professional fees3,089 3,354 8,317 8,339 
Other operating expense4,477 3,644 11,315 11,784 
Federal Home Loan Bank (“FHLB”) prepayment fees— — — 924 
Amortization of core deposit intangible1,354 1,538 4,110 4,660 
Branch consolidation expense4,014 830 5,051 4,287 
Merger related expenses225 3,156 1,052 14,753 
Total operating expenses58,673 56,787 162,026 175,515 
Income (loss) before provision (benefit) for income taxes31,521 (7,534)115,506 37,559 
Provision (benefit) for income taxes7,354 (2,608)28,087 7,314 
Net income (loss)24,167 (4,926)87,419 30,245 
Dividends on preferred shares1,004 1,093 3,012 1,093 
Net income (loss) available to common stockholders$23,163 $(6,019)$84,407 $29,152 
Basic earnings (loss) per share$0.40 $(0.10)$1.42 $0.49 
Diluted earnings (loss) per share$0.39 $(0.10)$1.41 $0.49 
Average basic shares outstanding59,311 59,935 59,619 59,901 
Average diluted shares outstanding59,515 59,935 59,862 60,076 
See accompanying Notes to Unaudited Consolidated Financial Statements.
21
OceanFirst Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
 
 For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2021202020212020
 (Unaudited)(Unaudited)
Net income (loss)$24,167 $(4,926)$87,419 $30,245 
Other comprehensive (loss) income:
Unrealized (loss) gain on debt securities (net of tax benefit of $232 and $446 in 2021 and net of tax benefit of $105 and net of tax expense of $604 in 2020, respectively)
(855)(461)(1,658)1,644 
Accretion of unrealized loss on debt securities reclassified to held-to-maturity (net of tax expense of $66 and $209 in 2021 and $75 and $235 in 2020, respectively)
95 108 303 336 
Reclassification adjustment for gains included in net income (net of tax expense of $45 and $45 in 2020)
— 168 — 168 
Total other comprehensive (loss) income(760)(185)(1,355)2,148 
Total comprehensive income (loss)23,407 (5,111)86,064 32,393 
Less: Dividends on preferred shares1,004 1,093 3,012 1,093 
Comprehensive income (loss) available to common stockholders$22,403 $(6,204)$83,052 $31,300 
See accompanying Notes to Unaudited Consolidated Financial Statements.
22

OceanFirst Financial Corp.
Consolidated Statements of Changes in Stockholders’ Equity
(dollars in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended September 30, 2021 and 2020
Preferred
Stock		Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Employee
Stock
Ownership
Plan		Treasury
Stock		Total
Balance at June 30, 2020$1 $609 $1,135,839 $372,552 $1,125 $(8,041)$(25,651)$1,476,434 
Net loss— — — (4,926)— — — (4,926)
Other comprehensive income, net of tax— — — — (185)— — (185)
Stock compensation— — 1,250 — — — — 1,250 
Allocation of ESOP stock— — (46)— — 304 — 258 
Cash dividend $0.17 per share
— — — (10,136)— — — (10,136)
Exercise of stock options— — 296 — — — — 296 
Issuance of preferred equity, net of costs— — (184)— — — — (184)
Preferred stock dividend— — — (1,093)— — — (1,093)
Balance at September 30, 2020$1 $609 $1,137,155 $356,397 $940 $(7,737)$(25,651)$1,461,714 
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 
See accompanying Notes to Unaudited Consolidated Financial Statements.


















23


OceanFirst Financial Corp.
Consolidated Statements of Changes in Stockholders’ Equity
(dollars in thousands, except per share amounts)
(Unaudited)
For the Nine Months Ended September 30, 2021 and 2020
Preferred
Stock		Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Employee
Stock
Ownership
Plan		Treasury
Stock		Total
Balance at December 31, 2019$— $519 $840,691 $358,668 $(1,208)$(8,648)$(36,903)$1,153,119 
Net income— — — 30,245 — — — 30,245 
Other comprehensive income, net of tax— — — — 2,148 — — 2,148 
Stock compensation— 2 3,727 — — — — 3,729 
Effect of adopting Accounting Standards Update(“ASU”) No. 2016-13— — — (4)— — — (4)
Allocation of ESOP stock— — (45)— — 911 — 866 
Cash dividend $0.51 per share
— — — (30,630)— — — (30,630)
Exercise of stock options— 2 1,961 (789)— — — 1,174 
Repurchase 648,851 shares of common stock
— — — — — — (14,814)(14,814)
Issuance of preferred equity, net of costs1 — 55,528 — — — — 55,529 
Preferred stock dividend— — — (1,093)— — — (1,093)
Acquisition of Two River Bancorp— 42 122,501 — — — 26,066 148,609 
Acquisition of Country Bank Holding Company, Inc.— 44 112,792 — — — — 112,836 
Balance at September 30, 2020$1 $609 $1,137,155 $356,397 $940 $(7,737)$(25,651)$1,461,714 
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 
See accompanying Notes to Unaudited Consolidated Financial Statements.


24
OceanFirst Financial Corp.
Consolidated Statements of Cash Flows
(dollars in thousands)
 For the Nine Months Ended September 30,
 20212020
 (Unaudited)
Cash flows from operating activities:
Net income$87,419 $30,245 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment6,150 6,291 
Allocation of ESOP stock1,056 866 
Stock compensation4,231 3,729 
Net excess tax expense on stock compensation93 123 
Amortization of servicing asset60 65 
Net premium amortization in excess of discount accretion on securities5,719 2,126 
Net amortization of deferred costs on borrowings688 355 
Amortization of core deposit intangible4,110 4,660 
Net accretion of purchase accounting adjustments(10,720)(15,802)
Net amortization of deferred costs and discounts on loans606 1,135 
(Benefit) provision for credit losses(10,259)55,332 
Net gain on sale and write-down of other real estate owned— (101)
Net write down of fixed assets held-for-sale to net realizable value3,114 4,193 
Net loss on sale of fixed assets11 6 
Net (gain) loss on equity securities(8,397)3,220 
Net gain on sales of loans(3,180)(1,930)
Proceeds from sales of residential loans held for sale101,992 113,708 
Mortgage loans originated for sale(53,935)(134,907)
Increase in value of bank owned life insurance(4,771)(4,626)
Net gain on sale of assets held for sale(318)— 
Decrease (increase) in interest and dividends receivable2,757 (14,836)
Deferred tax provision570 99 
Decrease in other assets29,366 2,301 
(Decrease) increase in other liabilities(37,311)71,285 
Total adjustments31,632 97,292 
Net cash provided by operating activities119,051 127,537 
Cash flows from investing activities:
Net increase in loans receivable(203,104)(654,461)
Proceeds from sale of loans825 71,604 
Purchase of residential loan pool(219,745)— 
Premiums paid on purchased loan pool(6,318)— 
Purchase of debt securities available-for-sale(200,034)(57,487)
Purchase of debt securities held-to-maturity(381,032)(79,115)
Purchase of equity investments(85,077)(53,726)
Proceeds from sale of equity investments98,776 891 
Proceeds from maturities and calls of debt securities available-for-sale93,835 41,101 
Proceeds from maturities and calls of debt securities held-to-maturity22,125 41,583 
Proceeds from sales of debt securities available-for-sale— 5,869 
Principal repayments on debt securities available-for-sale114 256 
Principal repayments on debt securities held-to-maturity168,059 128,683 
Proceeds from bank owned life insurance9,952 310 
Proceeds from the redemption of restricted equity investments1,110 62,354 
Purchases of restricted equity investments(2,069)(59,489)
Proceeds from sales of other real estate owned— 713 
Proceeds from sales of assets held-for-sale2,601 — 
Purchases of premises and equipment(26,493)(9,014)
Net cash consideration received for acquisition— 23,460 
Net cash used in investing activities(726,475)(536,468)
25
Continued
OceanFirst Financial Corp.
Consolidated Statements of Cash Flows (Continued)
(dollars in thousands)
 For the Nine Months Ended September 30,
 20212020
 (Unaudited)
Cash flows from financing activities:
Increase in deposits$347,672 $1,362,996 
Increase (decrease) in short-term borrowings14,838 (211,649)
Proceeds from FHLB advances— 525,000 
Repayments of FHLB advances— (496,200)
Proceeds from Federal Reserve Bank advances— 3,778 
Net proceeds from issuance of subordinated notes— 122,180 
Repayments of other borrowings(7,585)(80)
Increase in advances by borrowers for taxes and insurance4,918 5 
Exercise of stock options1,833 1,174 
Payment of employee taxes withheld from stock awards(1,176)(2,084)
Purchase of treasury stock(30,628)(14,814)
Net proceeds from the issuance of preferred stock— 55,529 
Dividends paid(33,437)(31,723)
Net cash provided by financing activities296,435 1,314,112 
Net (decrease) increase in cash and due from banks and restricted cash(310,989)905,181 
Cash and due from banks and restricted cash at beginning of period1,318,661 133,226 
Cash and due from banks and restricted cash at end of period$1,007,672 $1,038,407 
Supplemental Disclosure of Cash Flow Information:
Cash and due from banks at beginning of period$1,272,134 $120,544 
Restricted cash at beginning of period46,527 12,682 
Cash and due from banks and restricted cash at beginning of period$1,318,661 $133,226 
Cash and due from banks at end of period$981,126 $980,870 
Restricted cash at end of period26,546 57,537 
Cash and due from banks and restricted cash at end of period$1,007,672 $1,038,407 
Cash paid during the period for:
Interest$28,009 $51,494 
Income taxes38,707 5,232 
Non-cash activities:
Accretion of unrealized loss on securities reclassified to held-to-maturity512 570 
Net loan (recoveries) charge-offs(442)15,917 
Transfer of loans receivable to loans held-for-sale12,781 365,634 
Transfer of premises and equipment to assets held-for-sale1,476 4,043 
Transfer of loans receivable to other real estate owned— 106 
Acquisition:
Non-cash assets acquired:
Securities$— $208,880 
Restricted equity investments— 5,334 
Loans— 1,558,480 
Premises and equipment— 9,744 
Accrued interest receivable— 4,161 
Bank owned life insurance— 22,440 
Deferred tax assets, net— (509)
Other assets— 10,073 
Goodwill and other intangible assets, net— 140,031 
Total non-cash assets acquired$— $1,958,634 
Liabilities assumed:
Deposits$— $1,594,403 
Borrowings— 92,618 
Other liabilities— 33,628 
Total liabilities assumed$— $1,720,649 
See accompanying Notes to Unaudited Consolidated Financial Statements.
26
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements


Note 1. Basis of Presentation
The consolidated financial statements include the accounts of OceanFirst Financial Corp. (the “Company”) and its wholly-owned subsidiaries, OceanFirst Bank N.A. (the “Bank”) and OceanFirst Risk Management, Inc., and the Bank’s direct and indirect wholly-owned subsidiaries, OceanFirst REIT Holdings, Inc., OceanFirst Management Corp., OceanFirst Realty Corp. Casaba Real Estate Holdings Corporation, CBNJ Investments Corp., Country Property Holdings, Inc., and TRCB Investment Corp. Certain other subsidiaries were dissolved in 2020 and are included in the consolidated financial statements for previous periods. All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain amounts previously reported have been reclassified to conform to the current year’s presentation.
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, 2021 are not necessarily indicative of the results of operations that may be expected for the full year 2021 or any other period. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and the results of operations for the period. Actual results could differ from these estimates.
Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

27
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Note 2. Business Combinations
Two River Bancorp Acquisition
On January 1, 2020, the Company completed its acquisition of Two River Bancorp (“Two River”), which after purchase accounting adjustments added $1.11 billion of assets, $940.1 million of loans, and $941.8 million of deposits. Total consideration paid for Two River was $197.1 million, including cash consideration of $48.4 million. Two River was merged with and into the Company on the date of acquisition.
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, net of tax. The excess of consideration paid over the estimated fair value of the net assets acquired has been recorded as goodwill.
The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the acquisition for Two River, net of total consideration paid (in thousands):
At January 1, 2020
Estimated
Fair Value
Total purchase price:$197,050 
Assets acquired:
Cash and cash equivalents$51,102 
Securities64,381 
Loans940,072 
Accrued interest receivable2,382 
Bank owned life insurance22,440 
Deferred tax assets, net3,158 
Other assets15,956 
Core deposit intangible12,130 
Total assets acquired1,111,621 
Liabilities assumed:
Deposits(941,750)
Other liabilities(59,026)
Total liabilities assumed(1,000,776)
Net assets acquired$110,845 
Goodwill recorded in the merger$86,205 
The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative to the estimates and uncertainties used to determine fair value as of the closing date become available. As of January 1, 2021, the Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value.
28
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Country Bank Holding Company, Inc. Acquisition
On January 1, 2020, the Company completed its acquisition of Country Bank Holding Company, Inc. (“Country Bank”), which after purchase accounting adjustments added $793.7 million of assets, $618.4 million of loans, and $652.7 million of deposits. Total consideration paid for Country Bank was $112.8 million. Country Bank was merged with and into the Company on the date of acquisition.
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, net of tax. The excess of consideration paid over the estimated fair value of the net assets acquired has been recorded as goodwill.
The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the acquisition for Country Bank, net of total consideration paid (in thousands):
At January 1, 2020
Estimated
Fair Value
Total purchase price:$112,836 
Assets acquired:
Cash and cash equivalents$20,799 
Securities144,499 
Loans618,408 
Accrued interest receivable1,779 
Deferred tax assets, net(3,117)
Other assets9,195 
Core deposit intangible2,117 
Total assets acquired793,680 
Liabilities assumed:
Deposits(652,653)
Other liabilities(67,240)
Total liabilities assumed(719,893)
Net assets acquired$73,787 
Goodwill recorded in the merger$39,049 
The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative to the estimates and uncertainties used to determine fair value as of the closing date become available. As of January 1, 2021, the Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value.
Fair Value Measurement of Assets Assumed and Liabilities Assumed
The methods used to determine the fair value of the assets acquired and liabilities assumed in the Two River and Country Bank acquisitions were as follows. Refer to Note 7, Fair Value Measurements, for a discussion of the fair value hierarchy.
Securities
The estimated fair values of the securities were calculated utilizing Level 2 inputs. The securities acquired are bought and sold in active markets. Prices for these instruments were obtained through security industry sources that actively participate in the buying and selling of securities.
Loans
The acquired loan portfolio was valued utilizing Level 3 inputs and included the use of present value techniques employing cash flow estimates and incorporated assumptions that marketplace participants would use in estimating fair values. In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine reasonable fair value. Specifically, the Company utilized three separate fair value analyses which a market participant would employ in estimating the total fair value adjustment. The three separate fair valuation methodologies used were: 1) interest rate loan fair value analysis; 2) general credit fair value adjustment; and 3) specific credit fair value adjustment.
29
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

To prepare the interest rate fair value analysis, loans were grouped by characteristics such as loan type, term, collateral and rate. Market rates for similar loans were obtained from various external data sources and reviewed by Company management for reasonableness. The average of these rates was used as the fair value interest rate a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value adjustment.
The general credit fair value adjustment was calculated using a two part general credit fair value analysis: 1) expected lifetime losses and 2) estimated fair value adjustment for qualitative factors. The expected lifetime losses were calculated using an average of historical losses of the acquired bank or historical loss experiences of peer groups where deemed appropriate. The adjustment related to qualitative factors was impacted by general economic conditions and the risk related to lack of experience with the originator’s underwriting process. 
To calculate the specific credit fair value adjustment, subsequent to January 1, 2020, the Company identified loans that have experienced more-than-insignificant deterioration in credit quality since origination. Loans meeting this criteria were reviewed by comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition date fair value resulted in an accretable yield amount which will be recognized over the life of the loans on a level yield basis as an adjustment to yield.
Premises and Equipment
Fair values are based upon appraisals from independent third parties. In addition to owned properties, Two River operated 14 properties and Country Bank operated five properties, subject to lease agreements.
Deposits and Core Deposit Premium
Core deposit premium represents the value assigned to non-interest-bearing demand deposits, interest-bearing checking, money market and saving accounts acquired as part of an acquisition. The core deposit premium value represents the future economic benefit, including the present value of future tax benefits, of the potential cost savings from acquiring the core deposits as part of an acquisition compared to the cost of alternative funding sources and is valued utilizing Level 2 inputs. The core deposit premium totaled $12.1 million and $2.1 million, for the acquisitions of Two River and Country Bank, respectively, and is being amortized over its estimated useful life of approximately 10 years using an accelerated method.
Time deposits are not considered to be core deposits as they are assumed to have a low expected average life upon acquisition. The fair value of time deposits represents the present value of the expected contractual payments discounted by market rates for similar time deposits and is valued utilizing Level 2 inputs.
Borrowings
Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.
30
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Note 3. Earnings (Loss) per Share
The following reconciles shares outstanding for basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
 2021202020212020
Weighted average shares outstanding59,722 60,363 60,050 60,349 
Less: Unallocated ESOP shares(353)(418)(369)(435)
 Unallocated incentive award shares(58)(10)(62)(13)
Average basic shares outstanding59,311 59,935 59,619 59,901 
Add: Effect of dilutive securities:
Incentive awards204 — 243 175 
Average diluted shares outstanding59,515 59,935 59,862 60,076 
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 (loss) per share calculations. For the three and nine months ended September 30, 2020, antidilutive stock options of 2,251,000 and 2,067,000, respectively, were excluded from the earnings (loss) per share calculations. For the three months ended September 30, 2020, 87,000 shares related to incentive awards were excluded from the diluted earnings (loss) per share calculation as they were antidilutive.
31
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Note 4. Securities
The amortized cost, estimated fair value, and allowance for securities credit losses of debt securities available-for-sale and held-to-maturity at September 30, 2021 and December 31, 2020 are as follows (in thousands):
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value		Allowance for Credit Losses
At September 30, 2021
Debt securities available-for-sale:
U.S. government and agency obligations$133,088 $1,653 $(136)$134,605 $— 
Corporate debt securities5,000 52 (3)5,049 — 
Collateralized loan obligations (“CLOs”)145,792 8 (380)145,420 — 
Mortgage-backed securities - FNMA12,648 1 — 12,649 — 
Mortgage-backed securities - agency commercial17,047 — (150)16,897 — 
Total debt securities available-for-sale$313,575 $1,714 $(669)$314,620 $— 
Debt securities held-to-maturity:
State, municipal and sovereign debt obligations$292,226 $8,379 $(630)$299,975 $(86)
Corporate debt securities70,343 1,828 (1,273)70,898 (1,309)
Mortgage-backed securities:
FHLMC359,449 3,568 (2,881)360,136 — 
FNMA326,877 4,887 (1,964)329,800 — 
GNMA44,010 1,056 (34)45,032 — 
SBA4,654 12 (43)4,623 — 
Other32,160 760 (3)32,917 (108)
Total mortgage-backed securities767,150 10,283 (4,925)772,508 (108)
Total debt securities held-to-maturity$1,129,719 $20,490 $(6,828)$1,143,381 $(1,503)
Total debt securities$1,443,294 $22,204 $(7,497)$1,458,001 $(1,503)
At December 31, 2020
Debt securities available-for-sale:
U.S. government and agency obligations$173,790 $3,152 $(2)$176,940 $— 
CLOs6,174 — (4)6,170 — 
Mortgage-backed securities - FNMA190 2 — 192 — 
Total debt securities available-for-sale$180,154 $3,154 $(6)$183,302 $— 
Debt securities held-to-maturity:
State and municipal obligations$238,405 $11,500 $(231)$249,674 $(48)
Corporate debt securities72,305 1,615 (2,652)71,268 (1,550)
Mortgage-backed securities:
FHLMC232,942 5,383 (124)238,201 — 
FNMA293,615 7,640 (147)301,108 — 
GNMA67,334 2,014 (12)69,336 — 
SBA5,392 — (60)5,332 — 
Other32,321 1,226 — 33,547 (117)
Total mortgage-backed securities631,604 16,263 (343)647,524 (117)
Total debt securities held-to-maturity$942,314 $29,378 $(3,226)$968,466 $(1,715)
Total debt securities$1,122,468 $32,532 $(3,232)$1,151,768 $(1,715)

32
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

There was no allowance for securities credit losses on debt securities available-for-sale at September 30, 2021 or December 31, 2020.
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, 2021 and 2020 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Allowance for credit losses
Beginning balance$(1,609)$(2,446)$(1,715)$— 
Impact of current expected credit loss (“CECL”) adoption— — — (1,268)
Provision for credit loss expense106 53 212 (1,125)
Total ending allowance balance$(1,503)$(2,393)$(1,503)$(2,393)

During 2013, the Bank transferred $536.0 million 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 $13.3 million at the time of transfer, which continues to be reflected in accumulated other comprehensive income 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, 2021 and December 31, 2020 is as follows (in thousands): 
September 30,December 31,
20212020
Amortized cost$1,129,719 $942,314 
Net loss on date of transfer from available-for-sale(13,347)(13,347)
Allowance for securities credit loss(1,503)(1,715)
Accretion of net unrealized loss on securities reclassified as held-to-maturity10,513 10,001 
Carrying value$1,125,382 $937,253 
There were no realized gains or losses on debt securities for the three and nine months ended September 30, 2021, as compared to $244,000 of realized gains on debt securities for the corresponding prior year periods.
The amortized cost and estimated fair value of debt securities at September 30, 2021 by contractual maturity are shown below (in thousands). 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, 2021, corporate debt securities with an amortized cost of $29.4 million, and estimated fair value of $31.0 million, and CLOs with an amortized cost of $145.8 million and estimated fair value of $145.4 million were callable prior to the maturity date.
 
September 30, 2021Amortized
Cost		Estimated
Fair Value
Less than one year$90,596 $91,346 
Due after one year through five years154,228 157,403 
Due after five years through ten years222,930 222,072 
Due after ten years178,695 185,126 
$646,449 $655,947 
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 as required security for deposits and for other purposes required by law amounted to $993.0 million and $435.9 million at September 30, 2021 and December 31, 2020, respectively, which includes $150.7 million and $152.7 million at September 30, 2021 and December 31, 2020, respectively, pledged as collateral for securities sold under agreements to repurchase.
At September 30, 2021, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies and government-sponsored enterprises, in an amount greater than 10% of stockholders’ equity.
33
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, 2021 and December 31, 2020, segregated by the duration of the unrealized losses, are as follows (in thousands):
 Less than 12 months12 months or longerTotal
 Estimated
Fair
Value		Unrealized
Losses		Estimated
Fair
Value		Unrealized
Losses		Estimated
Fair
Value		Unrealized
Losses
At September 30, 2021
Debt securities available-for-sale:
U.S. government and agency obligations$25,911 $(136)$— $— $25,911 $(136)
Corporate debt securities997 (3)— — 997 (3)
Mortgage-backed securities11,555 (150)— — 11,555 (150)
CLOs117,477 (380)— — 117,477 (380)
Total debt securities available-for-sale155,940 (669)— — 155,940 (669)
Debt securities held-to-maturity:
State, municipal and sovereign debt obligations64,303 (608)911 (22)65,214 (630)
Corporate debt securities39,573 (1,273)— — 39,573 (1,273)
Mortgage-backed securities:
FHLMC242,215 (2,823)4,102 (58)246,317 (2,881)
FNMA171,450 (1,776)8,647 (188)180,097 (1,964)
GNMA458 (3)4,867 (31)5,325 (34)
SBA1,602 (41)969 (2)2,571 (43)
Other4,484 (3)— — 4,484 (3)
Total mortgage-backed securities420,209 (4,646)18,585 (279)438,794 (4,925)
Total debt securities held-to-maturity524,085 (6,527)19,496 (301)543,581 (6,828)
Total debt securities$680,025 $(7,196)$19,496 $(301)$699,521 $(7,497)
At December 31, 2020
Debt securities available-for-sale:
U.S. government and agency obligations$17,029 $(2)$— $— $17,029 $(2)
CLOs4,766 (4)— — 4,766 (4)
Total debt securities available-for-sale21,795 (6)— — 21,795 (6)
Debt securities held-to-maturity:
State and municipal obligations2,823 (23)7,509 (208)10,332 (231)
Corporate debt securities10,192 (255)35,935 (2,397)46,127 (2,652)
Mortgage-backed securities:
FHLMC24,661 (117)669 (7)25,330 (124)
FNMA39,365 (128)939 (19)40,304 (147)
GNMA5,856 (11)207 (1)6,063 (12)
SBA3,626 (12)1,706 (48)5,332 (60)
Total mortgage-backed securities73,508 (268)3,521 (75)77,029 (343)
Total debt securities held-to-maturity86,523 (546)46,965 (2,680)133,488 (3,226)
Total debt securities$108,318 $(552)$46,965 $(2,680)$155,283 $(3,232)


The Company concluded that the corporate debt securities were not impaired at September 30, 2021 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 Company does not intend to sell these corporate debt securities and it is more likely than not that the Company will not be required to sell the securities. Historically, the Company has not utilized securities sales as a source of liquidity and the Company’s long range liquidity plans indicate adequate sources of liquidity outside the securities portfolio.
The mortgage-backed securities are issued and guaranteed by either FHLMC, FNMA, GNMA or the SBA, corporations which are chartered by the United States Government and whose debt obligations are rated AA+/Aaa by S&P and Moody’s,
34
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

respectively. Additionally, there are private label commercial mortgage-backed securities with credit ratings ranging between Aaa and Aa3. The Company considers the unrealized losses to be the result of changes in interest rates, and not credit quality, which over time can have both a positive and negative impact on the estimated fair value of the mortgage-backed securities. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost. As a result, the Company concluded that these securities were not impaired at September 30, 2021.
State, municipal, and sovereign debt obligations are securities issued by state, local and national governments for various purposes. The Company is not aware of any information subsequent to the purchase of any state, municipal, and sovereign debt obligations that indicates an inability on the part of an issuer to meet all of its financial commitments. The credit rating of these securities is between Aaa/AAA and Baa2/BBB. The Company has the ability and stated intention to hold these securities to maturity at which time the Company expects to receive full repayment. Current unrealized losses are considered to be the result of changes in interest rates which over time can have both a positive and negative impact on the estimated fair value of the securities. As a result, the Company concluded that these securities were not impaired as of September 30, 2021.
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. The following table summarized the amortized cost of debt securities held-to-maturity at September 30, 2021, aggregated by credit quality indicator (in thousands):
AAAAAABBBBBTotal
As of September 30, 2021
State, municipal and sovereign debt obligations$31,053 $145,704 $85,435 $30,034 $— $292,226 
Corporate debt securities— 7,534 4,748 47,538 10,523 70,343 
Mortgage-backed securities - other11,093 21,067 — — — 32,160 
Total debt securities held-to-maturity$42,146 $174,305 $90,183 $77,572 $10,523 $394,729 
Equity Investments
At September 30, 2021 and December 31, 2020, the Company held equity investments of $101.3 million and $107.1 million, respectively. The equity investments primarily comprised of select financial services institutions’ common and preferred stocks paying attractive dividends.
The realized and unrealized gains or losses on equity securities for the three and nine months ended September 30, 2021 and September 30, 2020 are shown in the table below (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net (loss) gain on equity investments$(466)$(3,576)$8,397 $(3,273)
Less: Net gains (losses) recognized on equity securities sold— — 8,123 (53)
Unrealized (loss) gain recognized on equity securities still held$(466)$(3,576)$274 $(3,220)
35
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Note 5. Loans Receivable, Net
Loans receivable, net at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):
September 30,December 31,
20212020
Commercial:
Commercial and industrial (1)
$457,674 $470,656 
Commercial real estate – owner occupied1,123,973 1,145,065 
Commercial real estate – investor3,922,983 3,491,464 
Total commercial5,504,630 5,107,185 
Consumer:
Residential real estate2,401,240 2,309,459 
Home equity loans and lines and other consumer275,962 339,462 
Total consumer2,677,202 2,648,921 
Total loans receivable8,181,832 7,756,106 
Deferred origination costs, net8,282 9,486 
Allowance for loan credit losses(50,153)(60,735)
Total loans receivable, net$8,139,961 $7,704,857 
(1) The commercial and industrial loans balance at September 30, 2021 and December 31, 2020 includes Paycheck Protection Program (“PPP”) loans of $52.5 million and $95.4 million, respectively.
The Company categorizes all loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, and current economic trends, among other factors. Generally, risk ratings for loans on forbearance pursuant to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, extended by the Coronavirus Response and Relief Supplemental Appropriations (“CRRSA”) Act of 2021, are not re-evaluated until the initial 90-day forbearance period ends. At that time, risk ratings are updated with an emphasis on industries that were heavily impacted by the pandemic, as well as individual borrower liquidity, and other measures of resiliency as described below. The Company evaluates risk ratings on an ongoing basis and as such, adversely rated loans will be re-evaluated as government restrictions end and businesses resume normal operations. The Company uses the following definitions for risk ratings:
    Pass: Loans classified as Pass are well protected by the paying capacity and net worth of the borrower.
    Special Mention: Loans classified as Special Mention have a potential weakness that deserves management’s close attention. This includes borrowers that have been negatively affected by the pandemic but demonstrate some degree of liquidity. This liquidity may or may not be adequate to resume operations. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date.
    Substandard: Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. This includes borrowers whose operations were negatively affected by the pandemic and whom, in the assessment, do not have adequate liquidity available to resume operations at levels sufficient to service their current debt levels. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
    Doubtful: Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

36
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):
202120202019201820172016 and priorRevolving lines of creditTotal
September 30, 2021
Commercial and industrial
Pass$67,130 $25,950 $27,728 $17,799 $10,361 $74,014 $220,570 $443,552 
Special Mention— 72 240 438 96 601 2,797 4,244 
Substandard— 603 2,542 838 52 978 4,865 9,878 
Total commercial and industrial67,130 26,625 30,510 19,075 10,509 75,593 228,232 457,674 
Commercial real estate - owner occupied
Pass84,621 74,192 126,131 124,268 112,848 496,831 13,056 1,031,947 
Special Mention— — 2,958 4,010 696 15,761 203 23,628 
Substandard— 3,446 12,600 8,416 5,707 37,174 1,055 68,398 
Total commercial real estate - owner occupied84,621 77,638 141,689 136,694 119,251 549,766 14,314 1,123,973 
Commercial real estate - investor
Pass878,697 624,794 535,828 274,668 382,965 844,970 237,610 3,779,532 
Special Mention— — 23,822 9,409 5,223 29,565 — 68,019 
Substandard— 4,289 29,124 685 8,656 29,510 3,168 75,432 
Total commercial real estate - investor878,697 629,083 588,774 284,762 396,844 904,045 240,778 3,922,983 
Residential real estate (1)
Pass648,364 509,408 317,460 145,652 119,991 655,803 — 2,396,678 
Special Mention— 801 145 — — 1,481 — 2,427 
Substandard— — — — 221 1,914 — 2,135 
Total residential real estate648,364 510,209 317,605 145,652 120,212 659,198 — 2,401,240 
Consumer (1)
Pass20,208 21,016 18,985 58,392 18,930 135,436 — 272,967 
Special Mention— — — — — 369 — 369 
Substandard— — — 18 — 2,608 — 2,626 
Total consumer20,208 21,016 18,985 58,410 18,930 138,413 — 275,962 
Total loans$1,699,020 $1,264,571 $1,097,563 $644,593 $665,746 $2,327,015 $483,324 $8,181,832 
(1)For residential real estate and consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity.

37
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

202020192018201720162015 and priorRevolving lines of creditTotal
December 31, 2020
Commercial and industrial
Pass$137,262 $40,737 $27,967 $18,845 $33,568 $59,339 $134,140 $451,858 
Special Mention150 583 826 1,422 907 118 1,429 5,435 
Substandard581 1,284 1,243 809 439 1,706 7,301 13,363 
Total commercial and industrial137,993 42,604 30,036 21,076 34,914 61,163 142,870 470,656 
Commercial real estate - owner occupied
Pass96,888 114,506 122,962 124,050 104,264 428,423 18,932 1,010,025 
Special Mention— 3,512 8,240 1,023 17,115 17,811 439 48,140 
Substandard— 34,670 9,001 3,404 3,677 35,509 639 86,900 
Total commercial real estate - owner occupied96,888 152,688 140,203 128,477 125,056 481,743 20,010 1,145,065 
Commercial real estate - investor
Pass635,930 628,435 317,104 426,268 281,876 812,062 194,913 3,296,588 
Special Mention— 15,979 17,113 15,225 4,234 55,872 149 108,572 
Substandard4,311 9,217 1,931 17,222 11,474 36,326 5,823 86,304 
Total commercial real estate - investor640,241 653,631 336,148 458,715 297,584 904,260 200,885 3,491,464 
Residential real estate (1)
Pass595,982 437,593 226,435 166,773 146,237 729,037 — 2,302,057 
Special Mention— 532 — — 446 2,186 — 3,164 
Substandard570 — 1,489 221 — 1,958 — 4,238 
Total residential real estate596,552 438,125 227,924 166,994 146,683 733,181 — 2,309,459 
Consumer (1)
Pass24,954 26,659 83,296 25,469 16,565 156,276 2,145 335,364 
Special Mention— — — — 150 382 — 532 
Substandard— — — — — 3,566 — 3,566 
Total consumer24,954 26,659 83,296 25,469 16,715 160,224 2,145 339,462 
Total loans$1,496,628 $1,313,707 $817,607 $800,731 $620,952 $2,340,571 $365,910 $7,756,106 
(1) For residential real estate and consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity.
38
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, 2021 and 2020 is as follows (in thousands):
 Commercial
and 
Industrial		Commercial
Real Estate –
Owner
Occupied		Commercial
Real Estate –
Investor		Residential
Real Estate		ConsumerUnallocatedTotal
For the three months ended
September 30, 2021
Allowance for credit losses on loans
Balance at beginning of period$4,404 $6,350 $33,037 $8,818 $1,267 $— $53,876 
Credit loss expense (benefit)1,962 515 (9,902)3,081 235 — (4,109)
Charge-offs(50)(64)— (12)(37)— (163)
Recoveries50 26 5 292 176 — 549 
Balance at end of period$6,366 $6,827 $23,140 $12,179 $1,641 $— $50,153 
For the three months ended
September 30, 2020
Allowance for credit losses on loans
Balance at beginning of period$4,979 $2,765 $8,860 $17,685 $4,220 $— $38,509 
Credit loss (benefit) expense(106)5,166 30,131 (1,891)(464)— 32,836 
Charge-offs(575)(2,252)(12,037)(6)(541)— (15,411)
Recoveries29 2 32 320 33 — 416 
Balance at end of period$4,327 $5,681 $26,986 $16,108 $3,248 $— $56,350 
For the nine months ended
September 30, 2021
Allowance for credit losses on loans
Balance at beginning of period$5,390 $15,054 $26,703 $11,818 $1,770 $— $60,735 
Credit loss expense (benefit)958 (8,225)(3,336)284 (705)— (11,024)
Charge-offs(83)(64)(345)(254)(193)— (939)
Recoveries101 62 118 331 769 — 1,381 
Balance at end of period$6,366 $6,827 $23,140 $12,179 $1,641 $— $50,153 
For the nine months ended
September 30, 2020
Allowance for credit losses on loans
Balance at beginning of period$1,458 $2,893 $9,883 $2,002 $591 $25 $16,852 
Impact of CECL adoption2,416 (1,109)(5,395)3,833 2,981 (25)2,701 
Credit loss (benefit) expense(275)6,120 34,208 10,749 (727)— 50,075 
Initial allowance for credit losses on purchased with credit deterioration (“PCD”) loans1,221 26 260 109 1,023 — 2,639 
Charge-offs(575)(2,253)(12,062)(1,351)(723)— (16,964)
Recoveries82 4 92 766 103 — 1,047 
Balance at end of period$4,327 $5,681 $26,986 $16,108 $3,248 $— $56,350 
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. At September 30, 2021 and December 31, 2020, the Company had collateral dependent loans with an amortized cost balance as follows: commercial and industrial of $416,000 and $1.9 million, respectively, commercial real estate - owner occupied of $12.5 million and $13.8 million, respectively, and commercial real estate - investor of $8.5 million and $18.3 million, 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 $669,000 and $1.4 million at September 30, 2021 and December 31, 2020, respectively. At both September 30, 2021 and December 31, 2020, the amount of foreclosed residential real estate property held by the Company was $106,000.
39
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, 2021 and December 31, 2020 (in thousands):
September 30,December 31,
20212020
Commercial and industrial$418 $1,908 
Commercial real estate – owner occupied12,524 13,751 
Commercial real estate – investor8,506 18,287 
Residential real estate5,505 8,671 
Consumer3,351 4,246 
$30,304 $46,863 
 
At September 30, 2021, the non-accrual loans were included in the allowance for credit loss calculation and the Company did not recognize or accrue interest income on these loans. At September 30, 2021 and December 31, 2020, there were no loans that were 90 days or greater past due and still accruing interest.
The following table presents the aging of the recorded investment in past due loans as of September 30, 2021 and December 31, 2020 by loan portfolio segment (in thousands):
30-59
Days
Past Due		60-89
Days
Past Due		90 Days or Greater Past DueTotal
Past Due		Loans Not
Past Due		Total
September 30, 2021
Commercial and industrial$1,797 $— $354 $2,151 $455,523 $457,674 
Commercial real estate – owner occupied515 — 6,992 7,507 1,116,466 1,123,973 
Commercial real estate – investor1,074 95 1,663 2,832 3,920,151 3,922,983 
Residential real estate308 2,427 2,136 4,871 2,396,369 2,401,240 
Consumer1,255 369 2,626 4,250 271,712 275,962 
$4,949 $2,891 $13,771 $21,611 $8,160,221 $8,181,832 
December 31, 2020
Commercial and industrial$3,050 $628 $327 $4,005 $466,651 $470,656 
Commercial real estate – owner occupied1,015 — 7,871 8,886 1,136,179 1,145,065 
Commercial real estate – investor8,897 3,233 11,122 23,252 3,468,212 3,491,464 
Residential real estate15,156 3,164 4,238 22,558 2,286,901 2,309,459 
Consumer978 533 3,568 5,079 334,383 339,462 
$29,096 $7,558 $27,126 $63,780 $7,692,326 $7,756,106 
The Company classifies certain loans as troubled debt restructured (“TDR”) loans when credit terms to a borrower in financial difficulty are modified. The modifications may include a reduction in rate, an extension in term, the capitalization of past due amounts and/or the restructuring of scheduled principal payments. Residential real estate and consumer loans where the borrower’s debt is discharged in a bankruptcy filing are also considered TDR loans. For these loans, the Bank retains its security interest in the real estate collateral. At September 30, 2021 and December 31, 2020, TDR loans totaled $19.6 million and $17.5 million, respectively. Included in the non-accrual loan total at September 30, 2021 and December 31, 2020 were $10.0 million and $5.5 million, respectively, of TDR loans. At September 30, 2021 and December 31, 2020, the Company had no specific reserves allocated to loans that are 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 loans classified as accruing loans which totaled $9.6 million and $12.0 million at September 30, 2021 and December 31, 2020, respectively. 
40
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, 2021 and 2020 (dollars in thousands):
Number of LoansPre-modification
Recorded Investment		Post-modification
Recorded Investment
Three months ended September 30, 2021
Troubled debt restructurings:
Commercial real estate - owner occupied1 $93 $110 
Three months ended September 30, 2020
Troubled debt restructurings:
Commercial real estate – investor1 $928 $993 
Residential real estate1 418 418 
Consumer1 16 16 
Nine months ended September 30, 2021
Troubled debt restructurings:
Commercial real estate - owner occupied1 $93 $110 
Commercial real estate – investor1 4,903 4,903 
Residential real estate3 244 336 
Consumer2 26 33 
Nine months ended September 30, 2020
Troubled debt restructurings:
Commercial real estate - owner occupied1$1,112 $1,143 
Commercial real estate – investor1928993
Residential real estate5849865
Consumer 5175193
There were no TDR loans that defaulted during the three months ended September 30, 2021 which were modified within the preceding year. There was one TDR commercial real estate - investor loan for $923,000 that defaulted during the nine months ended September 30, 2021 which was modified within the preceding year and the loan is now current. There were no TDR loans that defaulted during the three and nine months ended September 30, 2020 which were modified within the preceding year.
In response to the COVID-19 pandemic and its economic impact on customers, short-term modification programs that comply with the CARES Act, extended by the CRRSA Act, were implemented to provide temporary payment relief to those borrowers directly impacted by COVID-19. The Commercial Borrower Relief Program allowed for the deferral of principal and interest or principal only. All payments received will first be applied to all accrued and unpaid interest and the balance, if any, on account of unpaid principal, then to fees, expenses and other amounts due to the Bank. Monthly payments will continue until the maturity date when all then unpaid principal, interest, fees, and all other charges are due and payable to the Bank. The Consumer Borrower Relief Program allowed for the deferral of principal and interest. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date. Provided these loans were current as of either December 31, 2019 or the date of the modification, these loans are not considered TDR loans at September 30, 2021 and will not be reported as past due during the deferral period.
41
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Note 6. Deposits
The major types of deposits at September 30, 2021 and December 31, 2020 were as follows (in thousands):
Type of AccountSeptember 30,December 31,
20212020
Non-interest-bearing$2,467,952 $2,133,195 
Interest-bearing checking4,013,565 3,646,866 
Money market deposit816,691 783,521 
Savings1,620,447 1,491,251 
Time deposits855,442 1,372,783 
Total deposits$9,774,097 $9,427,616 
Included in time deposits at September 30, 2021 and December 31, 2020 was $137.7 million and $409.5 million, respectively, in deposits of $250,000 or more.
42
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Note 7. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
The Company uses valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability and developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability and developed based on the best information available in the circumstances. In that regard, a fair value hierarchy has been established for valuation inputs that gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlations or other means.
Level 3 Inputs – Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.
Assets and Liabilities Measured at Fair Value
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
Debt Securities Available-for-Sale
Debt securities classified as available-for-sale are reported at fair value. Fair value for these debt securities is determined using inputs other than quoted prices that are based on market observable information (Level 2). Level 2 debt securities are priced through third-party pricing services or security industry sources that actively participate in the buying and selling of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain debt securities without relying exclusively on quoted prices for the specific securities, but comparing the debt securities to benchmark or comparable debt securities.
Equity Investments
Equity investments with readily determinable fair value are reported at fair value. Fair value for these investments is primarily determined using a quoted price in an active market or exchange (Level 1) or using inputs other than quoted prices that are based on market observable information (Level 2). Fair value for certain securities, including convertible preferred stock, was determined using broker or dealer quotes with limited levels of activity and price transparency (Level 3). Equity securities 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.
43
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Interest Rate Derivatives
The Company’s interest rate swaps and cap contracts are reported at fair value utilizing discounted cash flow models provided by an independent, third-party and observable market data (Level 2). When entering into an interest rate swap or cap contract, the Company is exposed to fair value changes due to interest rate movements, and also the potential nonperformance of the contract counterparty.
Other Real Estate Owned and Loans Individually Measured for Impairment
Other real estate owned and loans measured for impairment based on the fair value of the underlying collateral are recorded at estimated fair value, less estimated selling costs. Fair value is based on independent appraisals (Level 3).
The following table summarizes financial assets and financial liabilities measured at fair value as of September 30, 2021 and December 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):
  Fair Value Measurements at Reporting Date Using:
Total Fair
Value		Level 1
Inputs		Level 2
Inputs		Level 3
Inputs
September 30, 2021
Items measured on a recurring basis:
Debt securities available-for-sale
$314,620 $— $314,620 $— 
Equity investments
91,191 13,658 75,177 2,356 
Interest rate derivative asset27,503 — 27,503 — 
Interest rate derivative liability(27,589)— (27,589)— 
Items measured on a non-recurring basis:
Equity investments
10,123 — — 10,123 
Other real estate owned
106 — — 106 
Loans measured for impairment based on the fair value of the underlying collateral
22,114 — — 22,114 
December 31, 2020
Items measured on a recurring basis:
Debt securities available-for-sale
$183,302 $— $183,302 $— 
Equity investments
107,079 104,539 — 2,540 
Interest rate derivative asset45,289 — 45,289 — 
Interest rate derivative liability(45,429)— (45,429)— 
Items measured on a non-recurring basis:
Other real estate owned
106 — — 106 
Loans measured for impairment based on the fair value of the underlying collateral
35,366 — — 35,366 

44
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

The following table reconciles, for the three and nine months ended September 30, 2021 and 2020, the beginning and ending balances for equity investments and debt securities available-for-sale that are recognized at fair value on a recurring basis, in the consolidated statements of financial condition, using significant unobservable inputs (in thousands):
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2021202020212020
Equity InvestmentsDebt SecuritiesEquity InvestmentsDebt Securities
Beginning balance$2,978 $2,402 $2,540 $25 
Total losses included in earnings(622)— (184)— 
Purchases— — — 2,377 
Ending balance$2,356 $2,402 $2,356 $2,402 
There were no debt securities in Level 3 for the three and nine months ended September 30, 2021. There were no equity securities in Level 3 for the three and nine months ended September 30, 2020. The Company recognizes transfers between levels of the valuation hierarchy at the end of the applicable reporting periods. There were no transfers into or out of Level 3 assets or liabilities in the fair value hierarchy for the three and nine months ended September 30, 2021 and 2020.

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 investment and mortgage-backed 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 (“BANs”), 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 and Federal Reserve Bank stock is its carrying value since this is the amount for which it could be redeemed. There is no active market for this stock and the Company is required to maintain a minimum investment as stipulated by the respective agencies.
Loans Receivable and Loans Held-for-Sale
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential real estate, consumer and commercial. Each loan category is further segmented into fixed and adjustable rate interest terms.
Fair value of performing and non-performing loans was estimated by discounting the future cash flows, net of estimated prepayments, at a rate for which similar loans would be originated to new borrowers with similar terms. The fair value of loans was measured using the exit price notion.
45
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Deposits Other than Time Deposits
The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, and interest-bearing checking accounts and money market accounts is, by definition, equal to the amount payable on demand. The related insensitivity of the majority of these deposits to interest rate changes creates a significant inherent value which is not reflected in the fair value reported.
Time Deposits
The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.
Securities Sold Under Agreements to Repurchase with Retail Customers
Fair value approximates the carrying amount as these borrowings are payable on demand and the interest rate adjusts monthly.
Borrowed Funds
Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.
The book value and estimated fair value of the Company’s significant financial instruments not recorded at fair value as of September 30, 2021 and December 31, 2020 are presented in the following tables (in thousands):
  Fair Value Measurements at Reporting Date Using:
Book
Value		Level 1
Inputs		Level 2
Inputs		Level 3
Inputs
September 30, 2021
Financial Assets:
Cash and due from banks$981,126 $981,126 $— $— 
Debt securities held-to-maturity1,125,382 — 1,125,486 17,895 
Restricted equity investments53,017 — — 53,017 
Loans receivable, net and loans held-for-sale8,153,389 — — 8,140,267 
Financial Liabilities:
Deposits other than time deposits8,918,655 — 8,918,655 — 
Time deposits855,442 — 857,767 — 
Other borrowings228,887 — 256,577 — 
Securities sold under agreements to repurchase with retail customers143,292 143,292 — — 
December 31, 2020
Financial Assets:
Cash and due from banks$1,272,134 $1,272,134 $— $— 
Debt securities held-to-maturity937,253 — 952,365 16,101 
Restricted equity investments51,705 — — 51,705 
Loans receivable, net and loans held-for-sale7,750,381 — — 7,806,743 
Financial Liabilities:
Deposits other than time deposits8,054,833 — 8,054,833 — 
Time deposits1,372,783 — 1,383,173 — 
FHLB advances and other borrowings235,471 — 251,798 — 
Securities sold under agreements to repurchase with retail customers128,454 128,454 — — 
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,
46
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.

47
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Note 8. Derivatives, Hedging Activities and Other Financial Instruments
The Company enters into derivative financial instruments which involve, to varying degrees, interest rate, market and credit risk. The Company manages these risks as part of its asset and liability management process and through credit policies and procedures, seeking to minimize counterparty credit risk by establishing credit limits and collateral agreements. The Company utilizes certain derivative financial instruments to enhance its ability to manage interest rate risk that exists as part of its ongoing business operations. The derivative financial instruments entered into by the Company are an economic hedge of a derivative offering to Bank customers. The Company does not use derivative financial instruments for trading purposes.
Customer Derivatives – Interest Rate Swaps and Cap Contracts
The Company enters into interest rate swaps that allow commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s variable-rate loan into a fixed-rate loan. The Company then enters into a corresponding swap agreement with a third party in order to economically hedge its exposure through the customer agreement. The Company also enters into interest rate cap contracts that enable commercial loan customers to lock in a cap on a variable-rate commercial loan agreement. This feature prevents the loan from repricing to a level that exceeds the cap contract’s specified interest rate, which serves to hedge the risk from rising interest rates. The Company then enters into an offsetting interest rate cap contract with a third party in order to economically hedge its exposure through the customer agreement.
The interest rate swaps and cap contracts with both the customers and third parties are not designated as hedges under FASB Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging, and are marked to market through earnings. As the interest rate swaps and cap contracts are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC Topic 820, Fair Value Measurements. The Company recognized gains of $14,000 and $55,000 in other income resulting from fair value adjustments for the three and nine months ended September 30, 2021, respectively, as compared to gains of $15,000 and $364,000 in other income resulting from fair value adjustments for the three and nine months ended September 30, 2020, respectively. The notional amount of derivatives not designated as hedging instruments was $925.4 million and $725.9 million at September 30, 2021 and December 31, 2020, respectively.

The table below presents the fair value of derivatives not designated as hedging instruments as well as their location on the consolidated statements of financial condition (in thousands):
Fair Value
Balance Sheet LocationSeptember 30,December 31,
20212020
Other assets$27,503 $45,289 
Other liabilities27,589 45,429 
Credit Risk-Related Contingent Features
The Company is a party to International Swaps and Derivatives Association agreements with third party broker-dealers that require a minimum dollar transfer amount upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted with third parties was $26.5 million and $46.5 million at September 30, 2021 and December 31, 2020, respectively. The amount of collateral posted with third parties is deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures. The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with third parties was $27.6 million and $45.4 million at September 30, 2021 and December 31, 2020, respectively.
48
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)

Note 9. Leases
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company’s leases are comprised of real estate property for branches, automated teller machine locations and office space with terms extending through 2050. The Company has one existing finance lease, which has a lease term through 2029.
The following table represents the classification of the Company’s right-of-use (“ROU”) assets and lease liabilities on the consolidated statements of financial condition (in thousands):
September 30,December 31,
20212020
Lease ROU AssetsClassification
Operating lease ROU assetsOther assets$21,117 $22,555 
Finance lease ROU assetPremises and equipment, net1,545 1,694 
Total lease ROU assets$22,662 $24,249 
Lease Liabilities
Operating lease liabilities (1)
Other liabilities$21,713 $22,990 
Finance lease liabilityOther borrowings1,954 2,100 
Total lease liabilities$23,667 $25,090 
(1) Operating lease liabilities excludes liabilities for future rent and lease termination payments related to closed branches of $5.3 million and $7.4 million as of September 30, 2021 and December 31, 2020, respectively.
The calculated amount of the ROU assets and lease liabilities are impacted by the lease term and the discount rate used to calculate the present value of the minimum lease payments. Lease agreements often include one or more options to renew the lease at the Company’s discretion. If the exercise of a renewal option is considered to be reasonably certain, the Company includes the extended term in the calculation of the ROU asset and lease liability. For the discount rate, Leases (Topic 842) requires the Company to use the rate implicit in the lease, provided the rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate, at lease inception, over a similar term. For operating leases existing prior to January 1, 2019, the Company used the incremental borrowing rate for the remaining lease term as of January 1, 2019. For the finance lease, the Company utilized its incremental borrowing rate at lease inception.
September 30,December 31,
20212020
Weighted-Average Remaining Lease Term
Operating leases7.98 years7.77 years
Finance lease7.85 years8.59 years
Weighted-Average Discount Rate
Operating leases2.94 %3.01 %
Finance lease5.63 5.63 






49
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,
2021202020212020
Lease Expense
Operating lease expense$1,498 $1,585 $4,459 $4,898 
Finance lease expense:
Amortization of ROU assets50 43 149 124 
Interest on lease liabilities(1)
28 27 85 80 
Total$1,576 $1,655 $4,693 $5,102 
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$1,322 $1,756 $4,119 $4,808 
Operating cash flows from finance leases28 27 85 80 
Financing cash flows from finance leases50 47 146 141 
(1)Included in borrowed funds interest expense on the consolidated statements of income. All other costs are included in occupancy expense.
The Company previously announced plans to sell two branches, including owned premises and equipment, all deposits associated with the branches and selected performing loans to First Bank which is expected to take place in early December 2021. The Company also announced plans to consolidate 20 deposit gathering locations in late 2021 and early 2022. These plans have resulted in a shortened estimated useful life for premises and equipment and accelerated recognition of lease expenses associated with these branches. The effect on income for the three and nine months ended September 30, 2021 is included in branch consolidation expenses and totaled $3.8 million, which are excluded above.
Future minimum payments for the finance lease and operating leases with initial or remaining terms of one year or more as of September 30, 2021 were as follows (in thousands):
Finance LeaseOperating Leases
For the Twelve Months Ending September 30,
2022$307 $5,382 
2023307 3,782 
2024307 3,231 
2025307 2,927 
2026307 2,162 
Thereafter875 7,423 
Total2,410 24,907 
Less: Imputed interest(456)(3,194)
Total lease liabilities$1,954 $21,713 


50
OceanFirst Financial Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)


Note 10. Subsequent Event

On November 4, 2021, the Company announced the execution of a definitive agreement and plan of merger (the merger agreement) with Partners Bancorp. (“Partners”), a multi-bank holding company operating under the brands of Virginia Partners Bank, Maryland Partners Bank, The Bank of Delmarva, and Liberty Bell Bank. The transaction is subject to receipt of the approval of Partners’ stockholders and required regulatory approval. Subject to receipt of those approvals and fulfillment of other customary closing conditions, the Company expects to close the transaction in the first half of 2022.


51

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 2020 Form 10-K. There have been no material changes to risk factors relevant to the Company’s operations since December 31, 2020. Additional risks not presently known to the Company, or that the Company currently deemed immaterial, may also adversely affect the business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On December 18, 2019, the Company announced the authorization by the Board of Directors to repurchase up to 5% of the Company’s outstanding common stock, or 2.5 million shares. The repurchase plan has no expiration date. On June 25, 2021, the Company announced the authorization by the Board of Directors to repurchase up to an additional 5% of the Company’s outstanding common stock, or 3.0 million shares. The Company repurchased 460,009 shares of its common stock during the three month period ended September 30, 2021. At September 30, 2021, there were 3,559,136 shares available for repurchase under the Company’s stock repurchase program.
PeriodTotal Number of
Shares Purchased		Average Price Paid per ShareTotal Number of
Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
July 1, 2021 through July 31, 2021— — — 4,019,145 
August 1, 2021 through August 31, 2021206,288 $21.17 206,288 3,812,857 
September 1, 2021 through September 30, 2021253,721 20.98 253,721 3,559,136 
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information

(a) On November 2, 2021, the Company and Grace Vallacchi, its Chief Risk Officer, amended and restated the terms of the Executive Employment Agreement and the Executive Change in Control Agreement between them, each dated October 23, 2017. The amendments to the Employment Agreement extended its term by one year, to July 31, 2024, with annual automatic renewals thereafter. The Amendments to the Executive Change in Control Agreement amended the amount payable to her in the event of a change in control to:

an amount equal to the sum of (i) Executive’s Salary and (ii) the greater of the cash incentive payment paid to the Executive for the prior fiscal year or the Target Cash Compensation for the current fiscal year (“Change in Control Payment”). In the event that the Company’s Board in good faith determines that the Change in Control occurred during such time as the Company is at least “adequately capitalized” (within the meaning of 12 U.S.C. § 1831o(b)) then the Change in Control Payment shall be multiplied by a factor of three (3), provided, however, that the total value of the Change in Control Payment (including any insurance benefits provided) shall not exceed three times the sum of the Executive’s Salary and the greater of the cash incentive payment paid to the Executive for the prior fiscal year or the Target Cash Compensation for the current fiscal year.
52
Other than the above amendments (and certain nonsubstantive updates and technical corrections), the Employment Agreements and Change in Control Agreement remain unchanged. The revised agreements are attached as Exhibits 10.1 and 10.2 to this Quarterly Report, respectively, and are incorporated by reference herein.

(b) Not Applicable.

53
Table of Contents
Item 6. Exhibits
 
Exhibit No:Exhibit DescriptionReference
Employment Agreement between OceanFirst Financial Corp. and Grace M. VallacchiFiled here within this document
Change in Control Agreement between OceanFirst Financial Corp. and Grace M. VallacchiFiled here within this document
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed here within this document
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed here within this document
Certification pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002Filed here within this document
101.0
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements
104.0Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)



54
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 4, 2021/s/ Christopher D. Maher
Christopher D. Maher
Chairman and Chief Executive Officer
DATE:November 4, 2021/s/ Michael J. Fitzpatrick
Michael J. Fitzpatrick
Executive Vice President and Chief Financial Officer

55

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