# OCEANFIRST FINANCIAL CORP (OCFC) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from OCEANFIRST FINANCIAL CORP's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1004702/000100470225000012/ocfc-20241231.htm
Accession: 0001004702-25-000012
Filing date: 2025-02-28
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/OCFC/
All MD&A years: /company/OCFC/mda/
Previous year: /company/OCFC/mda/fy2023/ (FY 2023)
Next year: /company/OCFC/mda/fy2025/ (FY 2025)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company conducts business primarily through its ownership of the Bank, which, at December 31, 2024, primarily operated out of its headquarters located in Toms River, New Jersey and its administrative office located in Red Bank, New Jersey. The Bank also conducts its business at 39 branch offices and various deposit production facilities located throughout central and southern New Jersey and major metropolitan areas of New York City and Philadelphia. The Bank also operates commercial loan production offices in New Jersey, New York City, the greater Philadelphia area, Pittsburgh, Washington D.C., Baltimore, and Boston.

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 fiduciary services, deposit account services, and commercial loan swap income. 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 significantly affected by competition, general economic conditions, including levels of unemployment and real estate values, as well as changes in market interest rates, inflation, government policies and actions of regulatory agencies.

Strategy

The Company operates as a full-service regional community bank delivering comprehensive financial products and services, which includes commercial and consumer financing, deposit services, and wealth management products and services, throughout New Jersey and in the major metropolitan areas between Massachusetts and Virginia. The Company competes with larger, out-of-market financial service providers through its local and digital focus and the delivery of superior service. The Company also competes with smaller in-market financial service providers by offering a broad array of products and services as well as the ability to extend larger credits.

The Company’s strategy has been to grow profitability while limiting exposure to credit, interest rate, and operational risks. To accomplish these objectives, the Company has sought to: (1) diversify and strengthen its deposit base through product offerings appealing to a broadened customer base; (2) grow the commercial banking business, with a particular focus on strengthening commercial and industrial banking; (3) expand the residential lending business, focusing on the secondary market and saleable loan business; and (4) improve operating efficiency through the ongoing investment in information technology.

The Company focuses on prudent growth to create value for stockholders, which may include opportunistic acquisitions. The Company will also continue to build additional operational infrastructure and invest in key personnel in response to growth and changing business conditions.

The Company has continued to maintain and strengthen its liquidity and capital position, while servicing its customers and communities. Refer to ‘Liquidity and Capital Resources’ for further discussion.

Diversify and Strengthen Deposit Base

The Company continues to focus on deposit growth through a series of initiatives intended to both grow deposits and diversify sources of liquidity. The Company seeks to increase deposits in its primary market area by improving market penetration and expanding deposit gathering initiatives and hires. The Company has benefited from and remains focused on efforts to attract business deposits in conjunction with its commercial lending operations and from an expanded mix of retail products and services. Ongoing product development and design to deepen market penetration will allow the Company to rely on competencies in commercial lending and the retail branch network to drive growth and diversification of deposits. The Company continues to invest in the overall customer experience with the Company’s customer satisfaction performance and digital capabilities on par with national banks and fintech companies.

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Commercial Banking

The Company continues to distinguish itself from the mega-bank competition with access to responsive, local decision-makers and from the smaller bank competition that are unable to deliver the same depth of products, services, and technology. The Company supports commercial business clients of varying sizes and complexity through the extension of credit and cash management services through its advisory relationship management model. The Company has had success in developing new client relationships in the Company’s focused expansion markets, which include Philadelphia, New York, Boston and Baltimore. Expanding the Company’s geographies and diversifying the loan book provides a hedge on risks deriving from a concentration in a single market.

While these growth markets are important to the Company’s strategy, the Company has continued efforts to keep the community bank feel for customers, employees, and stakeholders, which has been a focal point for longstanding stable funding, brand reputation, and community development efforts in the Company’s legacy markets.

The Company’s early expansion efforts were dependent on commercial real estate (“CRE”) lending; however, its path forward as a regional bank includes a transition away from CRE dependence and a focus on future growth predominately around the C&I portfolio. The Company has continued to make significant efforts to recruit new relationship managers that specialize in clients operating in deposit heavy industries. The Company anticipates that the acquisition of these customers will help to drive quality funding through deeper deposit relationships. Additionally, the Company continues to improve its treasury management capabilities by enhancing services through expanded product offerings and thoughtfully evaluating opportunities to further bolster talent and technology to better serve the Company’s customers.

At December 31, 2024, commercial loans (which includes multi-family and commercial real estate loans, commercial construction loans, and commercial and industrial loans) represented 67.4% of the Company’s total loans, as compared to 68.5% at December 31, 2022, of which commercial and industrial loans represented 6.4% of total loans as compared to 6.3% at December 31, 2022.

Commercial loan products entail a higher degree of credit risk than residential real estate lending activity. As a result, management continues to employ a well-defined credit policy focusing on quality underwriting and close oversight and Board monitoring. See Risk Factors – Risks Related to Lending Activities – The Company’s emphasis on commercial lending may expose the Company to increased lending risks.

Investments in Residential Lending

The Company continued its expansion of the residential lending business into new and adjacent geographies, which included the recruitment of leadership roles and sales personnel in expanded geographies and a focus on secondary marketing and saleable loans. While the economic environment in 2024, with continued higher rates, was a headwind, the Company remains committed to this segment and has deepened its focus on the longstanding commitment to its communities with enhanced products and pricing in the NeighborFirst and special credit programs, expansion of product offerings, and the recruitment of Community Reinvestment Act (“CRA”) residential loan officers for the Company’s footprint. The Company has a long history as a residential lender and continues to expand this portfolio with a continued focus on customer relationships. At December 31, 2024, residential loans represented 30.3% of the Company’s total loans as compared to 28.9% at December 31, 2022.

Operating Efficiency

The Company relies on technology and the resources that support its operations to provide a broad suite of financial services and experience to its customers and employees, to differentiate the Company in its diverse markets, and to drive operational efficiencies that yield performance with strong customer services. The Company’s investment in technology lays a foundation for future growth, scale, and operational efficiency while maintaining a secure and robust cybersecurity framework. Focus areas include digital-direct customer engagement, efficient customer servicing, supporting safe banking operations and strategic technology change, and competitively delivering new lending and customer self-service capabilities in the post-pandemic influenced environment.

Capital Management

The Company actively manages its capital position to ensure adequate coverage and improve return on stockholders’ equity. The Company conducts capital stress testing, which includes evaluating the effects of various scenarios on capital, as one means of evaluating capital adequacy. The results of stress testing are considered in the capital planning process and strategy development. The Company also analyzes the need to raise additional capital in the future, through issuance of debt or equity, to meet its commitments and business needs. Over the past five years, the Company has implemented or announced two stock

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repurchase programs. On June 25, 2021, the Company announced the authorization to repurchase up to an additional 5% of the Company’s outstanding common stock, or 3.0 million shares. For the year ended December 31, 2024, the Company repurchased 1,383,238 shares of its common stock under this repurchase program to strategically build capital. At December 31, 2024, the Company remains authorized to repurchase 1,551,200 shares and will prudently evaluate repurchase opportunities while maintaining existing capital levels.

Selected Financial Data

The selected consolidated financial and other data of the Company set forth below is derived in part from, and should be read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto presented elsewhere in this Annual Report.

[[GREPCENT_TABLE]]
[["","","At December 31,"],["","","2024","","2023","","2022"],["","","(dollars in thousands)"],["Selected Financial Condition Data:"],["Total assets","","$","13,421,247","","","$","13,538,253","","","$","13,103,896"],["Debt securities available-for-sale, at estimated fair value","","827,500","","","753,892","","","457,648"],["Debt securities held-to-maturity, net of allowance for securities credit losses","","1,045,875","","","1,159,735","","","1,221,138"],["Equity investments","","84,104","","","100,163","","","102,037"],["Restricted equity investments, at cost","","108,634","","","93,766","","","109,278"],["Loans receivable, net of allowance for loan credit losses","","10,055,429","","","10,136,721","","","9,868,718"],["Deposits","","10,066,342","","","10,434,949","","","9,675,206"],["Federal Home Loan Bank (\"FHLB\") advances","","1,072,611","","","848,636","","","1,211,166"],["Securities sold under agreements to repurchase and other borrowings","","258,113","","","269,604","","","264,500"],["Total stockholders\u2019 equity","","1,702,757","","","1,661,945","","","1,585,464"],["","","For the Year Ended December 31,"],["","","2024","","2023","","2022"],["","","(dollars in thousands, except per share amounts)"],["Selected Operating Data:"],["Interest income","","$","642,173","","","$","607,974","","","$","431,175"],["Interest expense","","308,138","","","238,243","","","53,698"],["Net interest income","","334,035","","","369,731","","","377,477"],["Provision for credit losses","","6,263","","","17,678","","","7,768"],["Spring Garden opening provision for credit losses","","1,426","","","\u2014","","","\u2014"],["Net interest income after provision for credit losses","","326,346","","","352,053","","","369,709"],["Other income (excluding activity related to debt and equity investments and sale of trust business)","","43,362","","","38,053","","","49,409"],["Net gain on equity investments","","4,225","","","876","","","9,685"],["Net gain on sale of trust business","","2,600","","","\u2014","","","\u2014"],["Net loss on sale of investments","","\u2014","","","(5,305)","","","\u2014"],["Operating expenses (excluding Federal Deposit Insurance Corporation (\u201cFDIC\u201d) special assessment, merger related and net branch consolidation expense)","","243,680","","","247,157","","","231,433"],["FDIC special assessment","","418","","","1,663","","","\u2014"],["Branch consolidation expense, net","","\u2014","","","70","","","713"],["Merger related expenses","","1,779","","","22","","","2,735"],["Income before provision for income taxes","","130,656","","","136,765","","","193,922"],["Provision for income taxes","","30,266","","","32,700","","","46,565"],["Net income","","$","100,390","","","$","104,065","","","$","147,357"],["Net income attributable to non-controlling interest","","325","","","36","","","754"],["Net income attributable to OceanFirst Financial Corp.","","$","100,065","","","$","104,029","","","$","146,603"],["Net income available to common stockholders","","$","96,049","","","$","100,013","","","$","142,587"],["Basic earnings per share","","$","1.65","","","$","1.70","","","$","2.43"],["Diluted earnings per share","","$","1.65","","","$","1.70","","","$","2.42"]]
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(continued)

[[GREPCENT_TABLE]]
[["","","At or for the Year Ended December 31,"],["","","2024","","2023","","2022"],["Selected Financial Ratios and Other Data (1):"],["Performance Ratios:"],["Return on average assets (2)(3)","","0.71","%","","0.74","%","","1.15","%"],["Return on average stockholders\u2019 equity (2)(3)","","5.70","","","6.13","","","9.24"],["Stockholders\u2019 equity to total assets","","12.69","","","12.28","","","12.10"],["Net interest rate spread (4)","","2.13","","","2.51","","","3.20"],["Net interest margin (5)","","2.72","","","3.02","","","3.37"],["Operating expenses to average assets (2)","","1.82","","","1.85","","","1.90"],["Efficiency ratio (2)(6)","","63.99","","","61.71","","","53.80"],["Loans-to-deposits ratio (7)","","100.50","","","97.70","","","102.50"],["Asset Quality Ratios (8):"],["Non-performing loans as a percent of total loans receivable (7)(9)","","0.35","","","0.29","","","0.23"],["Non-performing assets as a percent of total assets (9)","","0.28","","","0.22","","","0.18"],["Allowance for loan credit losses as a percent of total loans receivable (7)(10)","","0.73","","","0.66","","","0.57"],["Allowance for loan credit losses as a percent of total non-performing loans (9)(10)","","207.19","","","227.21","","","244.25"],["Wealth Management (dollars in thousands):"],["Wealth assets under administration and management (\u201cAUA/M\u201d) (11)","","$","147,956","","","$","335,769","","","$","324,066"],["Nest Egg AUA/M","","431,434","","","401,420","","","403,538"],["Per Share Data:"],["Cash dividends per common share","","$","0.80","","","$","0.80","","","$","0.74"],["Dividend payout ratio per common share","","48.48","%","","47.06","%","","30.58","%"],["Stockholders\u2019 equity per common share at end of period","","$","29.08","","","$","27.96","","","$","26.81"],["Number of full-service customer facilities:","","39","","","39","","","38"]]
[[/GREPCENT_TABLE]]

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

(2)Performance ratios for 2024 included a net benefit related to Spring Garden Capital Group, LLC (“Spring Garden”) opening provision for credit losses, a net gain on equity investments, a net gain on sale of trust business, FDIC special assessment and merger related expenses of $3.2 million, or $2.5 million, net of tax expense. Performance ratios for 2023 included a net expense related to merger related expenses, net branch consolidation expense, FDIC special assessment, net loss on sale of investments and net gain on equity investments of $6.2 million, or $4.7 million, net of tax benefit. Performance ratios for 2022 included a net benefit related to merger related expenses, net branch consolidation expense, and gain on equity investments of $6.2 million, or $4.6 million, net of tax expense.

(3)Ratios for each period are based on net income available to common stockholders.

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

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

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

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

(8)The years ended December 31, 2023 and 2024 include the addition and subsequent resolution of a single commercial relationship exposure of $7.2 million, which had life-to-date charge-offs of $10.0 million.

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

(10)Loans acquired from 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 $6.0 million, $7.5 million, and $11.4 million at December 31, 2024, 2023, and 2022, respectively.

(11)During 2024, the Company sold a portion of its trust business resulting in gain on sale of $2.6 million.

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Summary

Highlights of the Company’s financial results for the year ended December 31, 2024 as compared to December 31, 2023 were as follows:

Total assets decreased by $117.0 million to $13.42 billion, from $13.54 billion, primarily due to decreases in loans and securities. Total loans decreased by $76.5 million to $10.12 billion, from $10.19 billion, primarily due to a decrease in the total commercial portfolio of $126.6 million driven by loan payoffs, partly offset by an increase in residential loans of $70.2 million. Debt securities held-to-maturity decreased by $113.9 million to $1.05 billion, from $1.16 billion, primarily due to principal repayments. Debt securities available-for-sale increased by $73.6 million to $827.5 million, from $753.9 million, primarily due to new purchases.

Total liabilities decreased by $157.8 million to $11.72 billion, from $11.88 billion, primarily related to lower deposits and a funding mix shift. Total deposits decreased by $368.6 million to $10.07 billion from $10.43 billion, partially offset by an increase in FHLB advances of $224.0 million to $1.07 billion from $848.6 million, as a result of lower-cost funding availability.

Net income available to common stockholders was $96.0 million, or $1.65 per diluted share, as compared to $100.0 million, or $1.70 per diluted share. Net income available to common stockholders for the year ended December 31, 2024 included an opening provision for credit losses related to the acquisition of Spring Garden of $1.4 million, net gain on equity investments of $4.2 million, net gain on sale of trust business of $2.6 million, merger related expenses of $1.8 million, and a special assessment charge of $418,000 related to the FDIC’s final rule to recover the loss on the Deposit Insurance Fund (“DIF”). These items increased net income in the current year by $2.5 million, net of tax, and diluted earnings per share by $0.05.

Net income available to common stockholders for the year ended December 31, 2023 included net loss on sale of investments of $5.3 million, net gain on equity investments of $876,000, a special assessment charge of $1.7 million related to the FDIC’s final rule to recover the loss on the DIF, net branch consolidation expenses of $70,000, and merger related expenses of $22,000. These items decreased net income in the current year by $4.7 million, net of tax, and diluted earnings per share by $0.08.

The Company's common equity tier 1 capital ratio increased to 11.17%. Additionally, the Company remains well-capitalized with a stockholders’ equity to total assets ratio of 12.69% at December 31, 2024.

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Analysis of Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them. For the years ended December 31, 2024, 2023, and 2022, interest income included net loan fees of $3.3 million, $2.9 million, and $3.0 million, respectively.

The following table sets forth certain information relating to the Company for each of the years ended December 31, 2024, 2023 and 2022. The yields and costs are derived by dividing the income or expense by the average balance of 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.

[[GREPCENT_TABLE]]
[["","For the Year Ended December 31,"],["","2024","","2023","","2022"],["(dollars in thousands)","Average Balance","","Interest","","AverageYield/Cost","","Average Balance","","Interest","","AverageYield/Cost","","Average Balance","","Interest","","AverageYield/Cost"],["Assets:"],["Interest-earning assets:"],["Interest-earning deposits and short-term investments","$","175,611","","$","9,381","","","5.34","%","","$","327,539","","$","17,084","","","5.22","%","","$","72,913","","$","1,106","","","1.52","%"],["Securities (1)","2,084,451","","87,549","","","4.20","","","1,905,413","","69,025","","","3.62","","","1,792,598","","39,683","","","2.21"],["Loans receivable, net (2)"],["Commercial","6,836,728","","410,978","","","6.01","","","6,903,731","","400,459","","","5.80","","","6,386,755","","287,044","","","4.49"],["Residential real estate","2,998,732","","117,747","","","3.93","","","2,911,246","","105,796","","","3.63","","","2,724,398","","91,432","","","3.36"],["Home equity loans and line and other consumer (\u201cother consumer\u201d)","243,360","","16,518","","","6.79","","","255,359","","15,610","","","6.11","","","256,912","","11,910","","","4.64"],["Allowance for loan credit losses, net of deferred loan costs and fees","(59,289)","","\u2014","","","\u2014","","","(53,477)","","\u2014","","","\u2014","","","(44,446)","","\u2014","","","\u2014"],["Loans receivable, net","10,019,531","","545,243","","","5.44","","","10,016,859","","521,865","","","5.21","","","9,323,619","","390,386","","","4.19"],["Total interest-earning assets","12,279,593","","642,173","","","5.23","","","12,249,811","","607,974","","","4.96","","","11,189,130","","431,175","","","3.85"],["Non-interest-earning assets","1,215,809","","","","","","1,237,218","","","","","","1,200,725"],["Total assets","$","13,495,402","","","","","","$","13,487,029","","","","","","","$","12,389,855"],["Liabilities and Stockholders\u2019 Equity:"],["Interest-bearing liabilities:"],["Interest-bearing checking","$","3,923,846","","86,320","","","2.20","%","","$","3,795,502","","52,898","","","1.39","%","","$","4,063,716","","11,344","","","0.28","%"],["Money market","1,214,690","","41,948","","","3.45","","","794,387","","18,656","","","2.35","","","764,837","","2,234","","","0.29"],["Savings","1,169,424","","11,422","","","0.98","","","1,364,333","","9,227","","","0.68","","","1,597,648","","758","","","0.05"],["Time deposits","2,325,638","","102,443","","","4.40","","","2,440,829","","91,237","","","3.74","","","1,167,499","","16,685","","","1.43"],["Total","8,633,598","","242,133","","","2.80","","","8,395,051","","172,018","","","2.05","","","7,593,700","","31,021","","","0.41"],["FHLB advances","742,575","","35,686","","","4.81","","","944,219","","46,000","","","4.87","","","389,750","","10,365","","","2.66"],["Securities sold under agreements to repurchase with customers","73,399","","1,893","","","2.58","","","75,140","","931","","","1.24","","","101,377","","159","","","0.16"],["Other borrowings","484,406","","28,426","","","5.87","","","307,368","","19,294","","","6.28","","","203,117","","12,153","","","5.98"],["Total borrowings","1,300,380","","66,005","","","5.08","","","1,326,727","","66,225","","","4.99","","","694,244","","22,677","","","3.27"],["Total interest-bearing liabilities","9,933,978","","308,138","","","3.10","","","9,721,778","","238,243","","","2.45","","","8,287,944","","53,698","","","0.65"],["Non-interest-bearing deposits","1,630,719","","","","","","1,869,735","","","","","","2,319,657"],["Non-interest-bearing liabilities","245,680","","","","","","262,883","","","","","","239,861"],["Total liabilities","11,810,377","","","","","","11,854,396","","","","","","10,847,462"],["Stockholders\u2019 equity","1,685,025","","","","","","1,632,633","","","","","","1,542,393"],["Total liabilities and equity","$","13,495,402","","","","","","","$","13,487,029","","","","","","$","12,389,855"],["Net interest income","","","$","334,035","","","","","","","$","369,731","","","","","","","$","377,477"],["Net interest rate spread (3)","","","","","2.13","%","","","","","","2.51","%","","","","","","3.20","%"],["Net interest margin (4)","","","","","2.72","%","","","","","","3.02","%","","","","","","3.37","%"],["Total cost of deposits (including non-interest-bearing deposits)","","","","","2.36","%","","","","","","1.68","%","","","","","","0.31","%"],["Ratio of interest-earning assets to interest-bearing liabilities","123.61","%","","","","","","126.00","%","","","","","","135.00","%"]]
[[/GREPCENT_TABLE]]

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

(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.

Rate Volume Analysis

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2024","","Year Ended December 31, 2023"],["","","Compared to","","Compared to"],["","","Year Ended December 31, 2023","","Year Ended December 31, 2022"],["","","Increase (Decrease) Due to","","Increase (Decrease) Due to"],["(in thousands)","","Volume","","Rate","","Net","","Volume","","Rate","","Net"],["Interest-earning assets:"],["Interest-earning deposits and short-term investments","","$","(8,106)","","","$","403","","","$","(7,703)","","","$","9,408","","","$","6,570","","","$","15,978"],["Securities (1)","","6,869","","","11,655","","","18,524","","","2,640","","","26,702","","","29,342"],["Loans receivable, net (2)"],["Commercial","","(3,916)","","","14,435","","","10,519","","","24,706","","","88,709","","","113,415"],["Residential real estate","","3,249","","","8,702","","","11,951","","","6,506","","","7,858","","","14,364"],["Other consumer","","(758)","","","1,666","","","908","","","(72)","","","3,772","","","3,700"],["Loans receivable, net (2)","","(1,425)","","","24,803","","","23,378","","","31,140","","","100,339","","","131,479"],["Total interest-earning assets","","(2,662)","","","36,861","","","34,199","","","43,188","","","133,611","","","176,799"],["Interest-bearing liabilities:"],["Interest-bearing checking","","1,846","","","31,576","","","33,422","","","(797)","","","42,351","","","41,554"],["Money market","","12,329","","","10,963","","","23,292","","","90","","","16,332","","","16,422"],["Savings","","(1,461)","","","3,656","","","2,195","","","(127)","","","8,596","","","8,469"],["Time deposits","","(4,466)","","","15,672","","","11,206","","","30,045","","","44,507","","","74,552"],["Total","","8,248","","","61,867","","","70,115","","","29,211","","","111,786","","","140,997"],["FHLB advances","","(9,698)","","","(616)","","","(10,314)","","","22,486","","","13,149","","","35,635"],["Securities sold under agreements to repurchase with customers","","(22)","","","984","","","962","","","(51)","","","823","","","772"],["Other borrowings","","10,462","","","(1,330)","","","9,132","","","6,517","","","624","","","7,141"],["Total borrowings","","742","","","(962)","","","(220)","","","28,952","","","14,596","","","43,548"],["Total interest-bearing liabilities","","8,990","","","60,905","","","69,895","","","58,163","","","126,382","","","184,545"],["Net change in net interest income","","$","(11,652)","","","$","(24,044)","","","$","(35,696)","","","$","(14,975)","","","$","7,229","","","$","(7,746)"]]
[[/GREPCENT_TABLE]]

(1)Amounts represent debt and equity securities, including FHLB and FRB 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.

48

Comparison of Financial Condition at December 31, 2024 and December 31, 2023

Total assets decreased by $117.0 million to $13.42 billion, from $13.54 billion, primarily due to decreases in loans and securities. Total loans decreased by $76.5 million to $10.12 billion, from $10.19 billion, primarily due to a decrease in the total commercial portfolio of $126.6 million driven by loan payoffs, partly offset by an increase in residential loans of $70.2 million. The loan pipeline increased by $123.6 million to $306.7 million, from $183.0 million. Loan originations increased $290.7 million to $515.2 million, from $224.5 million, primarily in commercial and residential loans. For more information on the composition of the loan portfolio, see “Lending Activities.” Debt securities held-to-maturity decreased by $113.9 million to $1.05 billion, from $1.16 billion, primarily due to principal repayments. Debt securities available-for-sale increased by $73.6 million to $827.5 million, from $753.9 million, primarily due to new purchases. Goodwill increased by $17.2 million to $523.3 million, from $506.1 million due to the acquisition of Spring Garden.

Total liabilities decreased by $157.8 million to $11.72 billion, from $11.88 billion primarily related to lower deposits and a funding mix shift. Deposits decreased by $368.6 million to $10.07 billion, from $10.43 billion, primarily due to decreases in time deposits of $364.5 million and high-yield savings accounts of $332.4 million, offset by increases in money market accounts of $279.4 million. Time deposits decreased by $364.5 million to $2.08 billion, from $2.45 billion, representing 20.7% and 23.4% of total deposits, respectively, primarily related to planned runoff of brokered time deposits, which decreased by $556.8 million, offset by increases in retail time deposits of $203.5 million. The loans-to-deposit ratio was 100.5%, as compared to 97.7%. FHLB advances increased by $224.0 million to $1.07 billion, from $848.6 million as a result of lower-cost funding availability.

Capital levels remain strong and in excess of “well-capitalized” regulatory levels at December 31, 2024, including the Company’s common equity tier one capital ratio, which increased to 11.17%, up approximately 30 basis points from December 31, 2023.

Total stockholders’ equity increased to $1.70 billion, as compared to $1.66 billion, primarily reflecting net income, partially offset by capital returns comprising of dividends and share repurchases. For the year ended December 31, 2024, the Company repurchased 1,383,238 shares totaling $21.5 million at a weighted average cost of $15.38. The Company had 1,551,200 shares available for repurchase under the authorized repurchase program at December 31, 2024. Additionally, accumulated other comprehensive loss decreased by $5.0 million primarily due to increases in fair market value of available-for-sale debt securities, net of tax. The Company’s stockholders’ equity to assets ratio was 12.69%, as compared to 12.28% and book value per common share increased to $29.08, as compared to $27.96.

Comparison of Operating Results for the Years Ended December 31, 2024 and December 31, 2023

General

Net income available to common stockholders decreased to $96.0 million, or $1.65 per diluted share, as compared to $100.0 million, or $1.70 per diluted share. Net income available to common stockholders for the year ended December 31, 2024 included the Spring Garden opening provision for credit losses of $1.4 million, net gain on equity investments of $4.2 million, a net gain on sale of a portion of its trust business of $2.6 million, a special FDIC assessment of $418,000 and merger related expenses of $1.8 million. These items increased net income in the current year by $2.5 million, net of tax. Net income for the year ended December 31, 2023 included a net gain on equity investments of $876,000, net loss on sale of investments of $5.3 million, a special FDIC assessment of $1.7 million, net branch consolidation expenses of $70,000, and merger related expenses of $22,000. These items decreased net income for the prior year by $4.7 million, net of tax.

Interest Income

Interest income increased to $642.2 million, from $608.0 million. The yield on average interest-earning assets increased to 5.23%, from 4.96%, due to the impact of the rate environment. The average balance of interest-earning assets increased by $29.8 million, primarily driven by redeployment of cash into securities, which grew by $179.0 million.

Interest Expense

Interest expense increased to $308.1 million, from $238.2 million, reflecting an increase in the cost of deposits. The cost of average interest-bearing liabilities increased to 3.10%, from 2.45%, primarily due to higher cost of deposits. The total cost of deposits (including non-interest bearing deposits) increased to 2.36%, from 1.68%.

49

Net Interest Income and Margin

Net interest income decreased to $334.0 million, from $369.7 million, reflecting the net impact of the interest rate environment. The net interest margin decreased to 2.72%, from 3.02%, primarily due to the increase in cost of funds outpacing the increase in yield on average interest-earning assets.

Provision for Credit Losses

Provision for credit losses was $7.7 million, as compared to $17.7 million. Current year included a $1.4 million initial provision for credit losses related to the acquisition of Spring Garden. The remaining provision was driven by net change in downside macro-economic forecasts utilized in the estimate, partly offset by a decrease in criticized and classified assets. Prior year included the impact of a single commercial relationship that had a $8.4 million partial charge-off, and to a lesser extent, the net effect of credit rating migrations.

Net loan charge-offs were $1.6 million for the current year, as compared to $8.4 million in the prior year. The current year and prior year included partial charge-offs of $1.6 million and $8.4 million, respectively, for a single commercial real estate relationship noted above, which was resolved through the sale of the underlying collateral in the current year.

Non-interest Income

Other income increased to $50.2 million, from $33.6 million. Other income for the year ended December 31, 2024 was favorably impacted by net gains on equity investments of $4.2 million and a net gain on sale of a portion of its trust business of $2.6 million. The prior year was adversely impacted by net losses on investments of $4.4 million, which included $5.3 million of losses related to the sale of investments. The remaining increase of $5.3 million, was primarily driven by increases in the cash surrender value of bank owned life insurance of $2.6 million, which included one-time death benefits of $1.3 million in the current year, net gain on sale of loans of $1.9 million, and a non-recurring gain on sale of assets held for sale of $855,000. This was partially offset by a decrease in trust and asset management revenue of $784,000, related to the sale of a portion of the Company’s trust business.

Non-interest Expense

Operating expenses decreased to $245.9 million, from $248.9 million. Operating expenses for the year ended December 31, 2024 were adversely impacted by $1.8 million for merger related expenses and $418,000 for FDIC special assessment in the current year. The prior year was adversely impacted by an FDIC special assessment of $1.7 million, and $92,000 for merger related and net branch consolidation expenses in the prior year. The remaining decrease of $3.5 million, was due to decrease in professional fees of $8.8 million as the Company realized benefits from the performance improvement initiatives and investments made in the prior the year. This was partially offset by increases in other operating expense of $3.0 million, which was partly due to additional loan servicing expenses, and compensation and benefits of $2.5 million, primarily due to the acquisitions during the year.

Income Tax Expense

The provision for income taxes was $30.3 million, as compared to $32.7 million. The effective tax rate was 23.2%, as compared to 23.9%. The current year’s effective tax rate was adversely impacted by a non-recurring write-off of a deferred tax asset of $1.2 million net of other state effects and credits as compared to the prior year period.

Comparison of Operating Results for the Years Ended December 31, 2023 and December 31, 2022

Refer to the Company’s 2023 Form 10-K on pages 50-51.

Liquidity and Capital Resources

Liquidity Management

The Company manages its liquidity and funding needs through its Treasury function and the Asset Liability Committee. The Company has an internal policy that addresses liquidity, and management monitors the adherence to policy limits to satisfy current and future cash flow needs. The policy includes internal limits, monitoring of key indicators, deposit concentrations, liquidity sources and availability, stress testing, collateral management, and other qualitative and quantitative metrics.

50

Management monitors cash daily to determine the liquidity needs of the Bank and OceanFirst Financial Corp. (the “Parent Company”), a separate legal entity from the Bank. Additionally, management performs multiple liquidity stress test scenarios on a periodic basis. As of December 31, 2024, the Bank and the Parent Company continued to maintain adequate liquidity under all stress scenarios. The Company also has a detailed contingency funding plan and obtains comprehensive reporting of funding trends on a monthly and quarterly basis, which are reviewed by management.

The Company continually evaluates its on-balance sheet liquidity, including cash and unpledged securities and funding capacity at the FHLB and FRB Discount Window, and periodically tests each of its lines of credit. As of December 31, 2024, total on-balance sheet liquidity and funding capacity was $3.8 billion.

The Company has a highly operational and granular deposit base, with long-standing client relationships across multiple customer segments providing stable funding. The vast majority of the government deposits are protected by the FDIC insurance as well as the State of New Jersey under the Government Unit Deposit Protection Act, which requires uninsured government deposits to be further collateralized by the Bank. At December 31, 2024, the Bank reported in its Call Report $5.75 billion of total uninsured deposits. This total included $2.48 billion of collateralized government deposits and $1.58 billion of intercompany deposits of fully consolidated subsidiaries, leaving estimated adjusted uninsured deposits of $1.69 billion, or 16.5% of total deposits. On balance-sheet liquidity and funding capacity represented 223% of the estimated adjusted uninsured deposits.

The primary sources of liquidity specifically available to the Parent Company are dividends from the Bank, proceeds from sale of investments, and the issuance of debt, preferred and common stock. For the year ended December 31, 2024, the Parent Company received dividend payments of $86.4 million from the Bank. At December 31, 2024, the Parent Company held $111.5 million in cash and cash equivalents.

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

As of December 31, 2024, the Company pledged $7.43 billion of loans with the FHLB and FRB to enhance the Company’s borrowing capacity, which included collateral pledged to the FHLB to obtain a municipal letter of credit to collateralize certain municipal deposits. The Company also pledged $1.07 billion of securities to secure borrowings, enhance borrowing capacity, collateralize its repurchase agreements, and for other purposes required by law. The Company had $1.07 billion of FHLB advances as compared to $848.6 million at December 31, 2023. The Company had no outstanding overnight borrowings from the FHLB as of December 31, 2024 and 2023.

The Company’s cash needs for the year ended December 31, 2024 were primarily satisfied by FHLB advances and principal and interest payments on loans and securities and primarily utilized for the reduction of deposits. The Company’s cash needs for the year ended December 31, 2023 were primarily satisfied by the increase in deposits. The cash was invested in debt securities, and utilized for the reduction of FHLB advances and loan originations.

Off-Balance Sheet Commitments and Contractual Obligations

In the normal course of business, the Bank routinely enters into various off-balance-sheet commitments, primarily relating to the origination and funding of loans. At December 31, 2024, outstanding commitments to originate loans totaled $306.7 million and outstanding undrawn lines of credit totaled $1.37 billion, of which $1.06 billion were commitments to commercial and commercial construction borrowers and $310.8 million were commitments to consumer and residential construction borrowers. Commitments to fund undrawn lines of credit and commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the existing contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company’s exposure to credit risk is represented by the contractual amount of the instruments. These commitments are further discussed in Note 13 Commitments, Contingencies and Concentrations of Credit Risk, to the Consolidated Financial Statements.

51

At December 31, 2024, the Company also had various contractual obligations, which included debt obligations of $1.33 billion, including finance lease obligations of $1.4 million and an additional $17.1 million in operating lease obligations included in other liabilities, and purchase obligations of $97.2 million Refer to Note 9 Borrowed Funds and Note 17 Leases to the Consolidated Financial Statements for further discussion of debt obligations and lease obligations, respectively. Purchase obligations represent legally binding and enforceable agreements to purchase goods and services from third parties and consist primarily of contractual obligations under data processing servicing agreements. Actual amounts expended vary based on transaction volumes, number of users, and other factors. The Company expects to have sufficient funds available to meet current commitments in the normal course of business.

Time deposits scheduled to mature in one year or less totaled $2.02 billion at December 31, 2024. If these deposits do not remain with the Company, it may need to seek other sources of funds, including other deposit products, advances from the Federal Home Loan Bank of New York and other borrowing sources. Depending on market conditions, the Company may pay higher rates on such deposits or other borrowings than it currently pays on the certificates of deposit due on or after December 31, 2024. The Company believes, however, based on past experience that a significant portion of such deposits will remain with us. The Company has the ability to attract and retain deposits by adjusting the interest rates offered.

Liquidity Used in Stock Repurchases and Cash Dividends

Under the Company’s stock repurchase program, shares of OceanFirst Financial Corp. common stock may be purchased in the open market and through other privately negotiated transactions, from time-to-time, depending on market conditions. The repurchased shares are held as treasury stock for general corporate purposes. For the year ended December 31, 2024, the Company repurchased 1,383,238 shares of its common stock totaling $21.5 million. At December 31, 2024, there were 1,551,200 shares available to be repurchased under the authorized stock repurchase program.

Cash dividends on common stock declared and paid during the year ended December 31, 2024 were $46.9 million, as compared to $47.3 million for the prior year. Cash dividends on preferred stock declared and paid during the years ended December 31, 2024 and 2023 were $4.0 million for both periods.

The Company’s ability to continue to repurchase shares of common stock and pay dividends remains dependent upon capital distributions from the Bank, which may be adversely affected by capital restraints imposed by applicable regulations. 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 repurchase shares of common stock or 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. These regulatory policies may affect the ability of the Parent Company to pay dividends, repurchase shares of common stock, or otherwise engage in capital distributions.

Capital Management

The Company manages its capital sources, uses, and expected future needs through its Treasury function and the Asset Liability Committee. The Company has an internal policy that addresses capital and management monitors the adherence to policy limits to satisfy current and future capital needs. The policy includes internal limits, monitoring of key indicators, sources and availability, intercompany transactions, forecasts and stress testing, and other qualitative and quantitative metrics.

Additionally, management performs multiple capital stress test scenarios on a quarterly basis, varying loan growth, earnings, access to the capital markets, credit losses, and mark-to-market losses in the investment portfolio, including both available-for-sale and held-to-maturity. As of December 31, 2024, the Bank and Parent Company continued to maintain adequate capital under all stress scenarios, including a scenario where all losses related to the investment securities portfolio are realized. The Bank and the Parent Company also have detailed contingency capital plans and obtain comprehensive reporting of capital trends on a regular basis, which are reviewed by management and the Board.

The Company and the Bank satisfied the criteria to be “well-capitalized” under the Prompt Corrective Action Regulations. See Regulation and Supervision—Bank Regulation – Capital Requirements.

At December 31, 2024 and 2023, the Company maintained stockholders’ equity to total assets ratio of 12.69% and 12.28%, respectively.

52

Critical Accounting Policies and Estimates

Note 1 Summary of Significant Accounting Policies to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2024 contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried on the consolidated statements of financial condition at estimated fair value or the lower of cost or estimated fair value. Policies with respect to the methodology used to determine the allowance for credit losses is a critical accounting policy and estimate because of its importance to the presentation of the Company’s financial condition and results of operations. The critical accounting policy involves a higher degree of complexity and requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition. The critical accounting policy and its application is reviewed periodically, and at least annually, with the Audit Committee of the Board of Directors.

Allowance for credit losses in accordance with Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), was a critical accounting policy in the preparation of the consolidated financial statements as of and for the period ended December 31, 2024.

Goodwill in accordance with ASC 350, Intangibles - Goodwill and Other, was a critical accounting estimate in the preparation of the consolidated financial statements as of and for the period ended December 31, 2024.

Allowance for Credit Losses (“ACL”)

The Company’s methodology to measure the ACL incorporates both quantitative and qualitative information to assess lifetime

expected credit losses at the portfolio segment level.

The quantitative component of the ACL involves assumptions that require a significant level of estimation; these include historical losses as a predictor of future performance, and the accuracy of macro-economic forecasts over a reasonable and supportable forecast period. The Company has elected to use an open pool method and extends its look back period each quarter to capture as many data points as possible in its historical loss rate calculation. A historical data set is expected to provide the best indication of future credit performance. Alternative loss calculation methods, such as vintage and migration methodologies, limit observable data to closed pools of loans, which excludes performance data from the historical loss rate calculation.

Macro-economic forecasts used in the quantitative analysis are provided by a third-party leader in global forecasting. The Company uses the base case macro-economic forecast to reflect the consensus view of future economic conditions. Electing scenarios that are stronger or weaker than the base case would reduce or increase, respectively, the ACL measurement. The Company measures the accuracy of the macro-economic forecasts quarterly to identify any material deviations that would be considered for a qualitative adjustment. The Company assumes a reasonable and supportable forecast period of eight quarters and a reversion period of four quarters based on the analysis of historical U.S. business cycles.

Prepayment and forward interest rate projections are also assumptions used in the quantitative model subject to estimation. These assumptions are consistent with the assumptions evaluated in the Company’s Interest Rate Risk (“IRR”) model. Changes in these assumptions have varying implications to the ACL measurement. For example, faster prepayment rates would shorten the life of loans and reduce the lifetime expected credit loss, whereas slower prepayment rates would have the inverse effect.

The Company considers qualitative adjustments to expected credit loss estimates for information not already captured in the loss estimation process. Qualitative loss factors are grounded in the Company’s long-term credit losses and reflect an assumption that past behavior is a reasonable predictor of future performance. The Company considers the peak two-year net charge off rate to capture maximum potential volatility over the reasonable and supportable forecast period. Historical losses that inform the guardrails for the qualitative adjustments are anchored to 2005 and extended annually. This period is intended to represent the credit profile of the current portfolio and capture prior performance in a severe economic recession. These guardrails are updated annually to capture recent behavior that is indicative of the credit profile of the current portfolio.

53

Management considers subjective, objective, and unique qualitative factors at each estimation date. Subjective factors incorporate external factors, personnel, and controls, as well as portfolio composition and performances. Subjective factors also include: local competition; portfolio nature, volume and concentration; credit trends; lending policy, procedure and loan review; lending management and staff; regulatory changes and forecast uncertainty. Objective factors address gaps in the quantitative model, such as the limited loss history and the inherent risk of Special Mention commercial real estate loans. Unique factors will capture one-time events, such as environmental threats and model updates that are expected to impact performance over the forecast period. Unique factors are identified, assessed, and documented in the quarter they are applied. Since 2022, the Company incorporated unique factors to address macro-economic uncertainty and alternative economic forecast projections.

Although management believes that it uses the best information available to establish the ACL in conformity with generally accepted accounting principles (“GAAP”), future adjustments to the ACL may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. For example, at December 31, 2024, if the Company had elected a scenario using more favorable credit trends in the qualitative input in its commercial portfolio, the ACL measurement would have been approximately $1.9 million lower. Alternatively, if the Company had elected a more adverse scenario for its macro-economic forecasts, the ACL measurement would have been approximately $4.9 million higher. These sensitivity scenarios do not represent a change in the Company’s expectations of credit performance or the economic environment but provide hypothetical results to assess the sensitivity of the ACL to changes in key inputs.

Given the level of uncertainty and the material impact on the ACL measurement, all assumptions are reviewed and updated as necessary at each estimation date. Other than discussed above, there were no changes in the estimation methodology for these assumptions in 2024.

Goodwill

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

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

As of the annual impairment testing date of August 31, 2024, the Company bypassed the qualitative assessment and proceeded directly to the quantitative impairment test based on the stock price of the Company on the measurement date and economic uncertainty. To perform the quantitative assessment, the Company engaged a third-party service provider to assist management with the determination of the fair value of the Company. The Company estimated fair value of equity using the market capitalization method of the market approach, consideration of initiatives unknown by the market and evaluation of any implied control premium. Management further supported the conclusions by assessing a combination of an income valuation methodology, comprising a discounted cash flow analysis and market valuation methodologies, comprising the guideline public company and guideline merged and acquired company methods.

The market capitalization method calculated the aggregate market value of the Company based on the total number of outstanding shares of common and preferred stock and the market prices of the shares as of the assessment date. The Company evaluated conditions that were unknown by the market as of the assessment date and how a market participant would evaluate an implied control premium for the Company. The implied control premium was supported using a discounted cash flow analysis that contemplated the present value of assumed market participant cost savings and synergies.

54

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

The market approach for guideline public company method utilizes observable market data from comparable public companies, including price-to-tangible book value ratios, to estimate the Company’s fair value. This approach also incorporates a control premium to represent the Company’s expectation of a hypothetical acquisition. The market approach for guideline merged and acquired company method utilizes observable transactions of actual prices paid for target companies that operated in comparable industries or markets facing similar risks. Both methods of the market approach require judgment in the selection of comparable companies or comparable transactions and includes those with similar business activities, and related operating environments.

The results of the quantitative assessment indicated that the fair value of the Company’s reporting unit exceeded its carrying amount, which resulted in no impairment loss at August 31, 2024.

Management continued to carefully assess and evaluate all available information for potential triggering events after the August 31 annual testing date and through December 31, 2024. Management concluded no triggering events were identified subsequent to the August 31, 2024 annual test date.

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

Impact of New Accounting Pronouncements

Accounting Pronouncements Adopted in 2024

In June 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-03, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. In addition, this update introduces new disclosure requirements to provide information about the contractual sales restriction including the nature and remaining duration of the restriction. This update is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2023. The Company adopted this standard in 2024. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In March 2023, FASB issued ASU 2023-02, “Investments - Equity Method and Joint Venture (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method”. The amendments in this ASU permit reporting entities to account for the tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method. This update is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2023. The Company adopted this standard in 2024. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In November 2023, FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”. The amendments in this ASU require improved reportable segment information on an annual and interim basis, primarily through enhanced disclosures about significant segment expenses. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2023, and interim periods for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company adopted this standard in 2024. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

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Recent Accounting Pronouncements Not Yet Adopted

In August 2023, FASB issued ASU 2023-05, “Business Combinations - Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement”. The amendments in this ASU require that a joint venture, upon formation, apply a new basis of accounting and initially measure assets and liabilities at fair value, with exceptions to fair value measurement that are consistent with the business combinations guidance. This update will be effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. Early adoption is permitted. The Company does not expect this standard to have a material impact on the consolidated financial statements.

In December 2023, FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. The amendments in this ASU require improved annual income tax disclosures surrounding rate reconciliation, income taxes paid, and other disclosures. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

In November 2024, FASB issued ASU 2024-03 “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40)”. The amendments in this ASU require expanded disclosure and disaggregation of certain costs and expenses including, but not limited to, purchases of inventory, employee compensation, depreciation, depletion, and amortization. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2026, and interim periods for fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

In November 2024, FASB issued ASU 2024-04, “Debt - Debt with Conversion and Other Options (Subtopic 470-20)”. The amendments in this ASU clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2025, and interim periods for fiscal years beginning after December 15, 2026. Early adoption is permitted. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

Impact of Inflation and Changing Prices

The consolidated financial statements and notes thereto presented herein have been prepared in accordance with U.S. GAAP, which require the measurement of financial position and operating results in terms of historical dollar amounts without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike industrial companies, nearly all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.