Good morning. Thank you for attending the OceanFirst Financial First Quarter 2024 Earnings Release. My name is Victoria, and I’ll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Alfred Goon with OceanFirst Financial. Thank you. You may proceed, Alfred.

Thank you very much. Good morning and welcome to the OceanFirst first quarter 2024 earnings call. I am Alfred Goon, SVP of Corporate Development and Investor Relations. Before we kick off the call, we’d like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company website, oceanfirst.com. Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures. All participants should refer to our SEC filings, including those found on our Forms 8-K, 10-Q and 10-K. For a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements. Thank you. And now I will turn the call over to Christopher Maher, Chairman and Chief Executive Officer.

Thank you, Alfred. Good morning and thank you to all who have been able to join our first quarter 2024 earnings conference call. This morning, I’m joined by our President, Joe Lebel, and our Chief Financial Officer, Pat Barrett. We appreciate your interest in our performance and this opportunity to discuss our results with you. This morning we’ll provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business. We may refer to the slides filed in connection with the earnings release throughout the call. After our discussion, we look forward to taking your questions. Our financial results for the first quarter included GAAP diluted earnings per share of $0.47. Our earnings reflect net interest income of $86 million, representing a modest decrease compared to the prior linked quarter of $88 million. Operating expenses decreased to $59 million. First quarter results demonstrated a stable quarter for margins as our core net interest margin was flat at 2.77%, the same level as the prior quarter. Margins were impacted by our continuing efforts to improve the quality of deposit funding. These efforts resulted in another quarter of decline in brokered CDs, our loan to deposit ratio below 100%, and a negligible increase in deposit betas to 40%. We continue to see a gradual shift in the deposit mix towards higher yielding products, but that velocity is slowing and is now largely offset by the ongoing repricing of our loan and securities portfolios. Capital levels continue to build with our common equity Tier 1 capital ratio increasing to 11% and continued growth in tangible book value, which increased by $0.28 or 1.5% to $18.63. These results include nearly 1 million shares repurchased under the company’s repurchase program at a weighted average cost of $15.64. Further on capital management, the Board has approved the quarterly cash dividend of $0.20 per common share. This is the company’s 109th consecutive quarterly cash dividend that represents 43% of GAAP earnings. We continue to remain focused on positioning the company for a variety of economic and industry outlooks through responsible growth, expense discipline, and prudent balance sheet management. At this point, I’ll turn the call over to Joe to provide some more detail regarding our performance during the first quarter.

Thanks, Chris. Non-maturity deposits remain relatively stable, decreasing approximately 1% compared to the prior quarter. Our overall deposit balances declined by approximately 2%, reflecting our planned continued runoff of brokered CDs and a decline in high yield savings balances driven by targeted refinements to both marketing efforts and rates offered. On the loan origination side, we saw a modest decline in loan balances of less than 1%, driven by reduced demand from customers combined with price and credit discipline. Given the slow start to the year, growth in loans and deposits may be modest for the remainder of 2024. Growth is expected to be lower in Q2, but ramp up in the second half of the year. Said another way, we expect our 2024 year-end loan balances to be higher than 2023 by low to mid-single digits, with the majority of the growth coming in the third and fourth quarters. Asset quality metrics remain strong with non-performing loans and criticized and classified assets representing 0.35% and 1.65% of total loans, respectively. We reported 0.01% in net charge-offs to average total loans for the quarter, which marks essentially no net charge-offs in 11 of the last 12 quarters. With that, I’ll turn it over to Pat to review margin and expense outlook.

Thank you, Joe. GAAP net interest income and margin were $86 million and 2.81%, respectively, reflecting the continued repricing of assets offset by the higher interest expense from a continued modest mix shift in funding. As Chris noted, funding costs reflect cycles in the deposit betas of 40%, up modestly from 38% in the prior quarter, while initial signs show relative stabilization in net interest margin. This is subject to unpredictability around loan growth and funding mix trends. So you shouldn’t be surprised to see either stability or possibly some modest compression in the near-term. GAAP non-interest expenses decreased linked quarter to $59 million. We continue to make every effort to hold operating expenses stable in the $58 million to $60 million per quarter range, but modest quarterly volatility may occur. Our effective tax rate for the quarter of 27% included a one-time non-recurring charge of $1.2 million; excluding this charge, the full year effective tax rate is expected to remain at 24% in line with prior periods and guidance. Finally, as Chris mentioned earlier, capital strengthened appreciably with growth in our CET1 ratio to 11%, and we’re pleased to report capital accretion even while repurchasing 958,000 shares for approximately $15 million during the quarter. At this point, we’ll begin the question-and-answer portion of the call.

Of course. We’ll now begin the question-and-answer session. Our first question comes from the line of Frank Schiraldi with Piper Sandler. Your line is now open.

Good morning.

Good morning, Frank.

I wanted to ask about the CET1 ratio, which you mentioned in the slide deck remains above 10% and is currently at 11%. Considering some modest growth in the second half of 2024, it seems you could potentially return more than 100% of earnings through buybacks if you chose to. I'm trying to understand how aggressive you might be with capital returns as you approach that 10% threshold, especially with the stock at its current levels. What are your thoughts on capital management in the medium term?

Hey, Frank, it’s Chris. Look, we’re very comfortable with where we are in the capital ratios today. I think we have a little bit of room, but we also anticipate returning to growth. So we don’t want to use up any of that excess capital that we might want later in the year for growth. I think like you saw in the first quarter, if you just think about it this way, we’re not using repurchases to increase our leverage. We’re using all the free cash flow that we’re not using for growth to fund repurchases, and if the pricing remains around this level, I would expect that to continue.

Got you. Okay. Appreciate that. And then as you think about growth in the back half of this year, and maybe beyond, just curious any targets in terms of as we think about commercial real estate concentration, if you could just remind us where that is currently as a percentage of total capital and any sort of thoughts about trend there going forward?

So Frank, I think the way to think about it is that we’re comfortable with our CRE exposure today, but we will not be increasing it. So what we’re doing is as loans mature, in some cases, we’re allowing those depending on the credit structure to move off the balance sheet and replacing them with other borrowers. But that’s kind of a treading water position. So, most of the growth you’re going to see is in classes outside of CRE. So that’s kind of the right way to think about it.

Okay. Lastly, I know that office properties have been a concern for investors, and while your presence in central business districts is limited, could you elaborate on your larger loans? I understand that on average, your loans are less than $1 million to $2 million in size. Could you provide some insight into how these larger loans are performing and the locations involved? Thank you.

Yeah, Frank I’ll give you a couple of thoughts and then I’ll have Joe walk you through some of the numbers. First as we’ve talked before, our exposure in central business district is quite low and all credits that we feel very comfortable with. So we’ve been through that book. One important note, I’ve shared this with a number of folks, our exposure in Central Business District in Manhattan for example, totals just $16 million in the balance sheet. We’re talking about very low numbers. The vast majority of the portfolio is suburban office and in smaller size, loans. But Joe maybe walk through some of the stats you have that might be helpful.

Sure. We have around 87% of our loans under $10 million, with a weighted average loan size of about $1.8 million. There are only 9 loans exceeding $25 million in our portfolio. This includes a loan to a well-known national pharmaceutical company and another to a famous confectionery company that serves as their U.S. headquarters. We're quite confident about these loans. Additionally, one of the larger loans is to the regional headquarters of one of the big four banks in the country. So, that accounts for three of the nine larger loans over $25 million.

Okay. And I guess if we’re thinking about central business district, forgive me, I forget exactly what you have totaled, but is that kind of the book you look at the stuff over $25 million is kind of the CBD stuff?

There’s a correlation there. Certainly, the largest stuff tends to be in CBDs, where you’d see bigger buildings, but the entirety of the CBD book is about $125 million. And each of the loans that Joe mentioned is part of that. They all happen to be in CBDs.

Sure. Okay. Appreciate it. Thanks.

Thanks, Frank.

Thank you for your question. Our next question comes from the line of Tim Switzer with KBW. Your line is now open.

Hey. Good morning. Thanks for taking my question.

Good morning, Tim.

I wanted to follow-up on your comments about the loan demand you’ve seen recently and a little bit less demand from customers. Do you think part of that is driven by an expectation for rates to be lower by the end of the year and so they’re maybe waiting for that? Or is it macro related peers? Could you maybe just provide some color around the lower demand?

Yeah. Tim, it’s Joe. I would tell you that was absolutely the case early in the year, January, February. I think people were looking for some relief before taking on either an M&A transaction, a new business line, maybe some capital expenditure purchases. But we’re seeing that moderate. I think people are coming to the realization that that may not necessarily be the case. The other thing that we’re seeing is that we’re seeing a little bit more renewed confidence. People have been able to pass along increases in some of the product costs. We’re seeing that obviously in inflation. So we’ve seen subsequent to quarter end, a little bit of an increase in pipelines. So we’re seeing those green shoots start which is a positive for us. And I think as Chris mentioned earlier, the vast majority of the increase in the pipe is coming from the C&I book, which is really where we’ve been focused.

Okay, got it. And could you remind us or update us on what you guys believe the impact of rate cuts would be in the back half of the year to the NII and particularly if we only get, say, one or two rate cuts, how would that be different than if we got, say, a series of five to six?

First, it's Chris and Pat will likely contribute as well. I want to give you a sense that whether we see an incremental cut up or down, we're considering both scenarios right now. It doesn't make a significant difference. Therefore, our outlook remains relatively stable regardless of whether there are two cuts or even one raise. This won't have a major impact. We do have a substantial amount of loans maturing in the last three quarters of the year. One way we are thinking about "higher for longer" includes some elements we know for sure, and some we will need to observe as they unfold. On the certain side, we are aware of what's rolling, with about $700 million in fixed-rate loans reaching maturity in Q2, Q3, and Q4, resulting in a reset. Accordingly, that $700 million will come due, presenting a significant opportunity. However, there will be continued pressure on deposits. Although it is easing, it's challenging to predict exactly how that will evolve as the year progresses. Therefore, "higher for longer" does not particularly concern us, and one or two cuts or one raise does not significantly alter our outlook either. Overall, our outlook remains relatively stable. Pat, do you have anything to add?

No, I guess I would just emphasize that the main uncertainty is related to the funding from non-maturity deposits. On the term side, including loans, securities, CDs, and other term funding, we have a high level of confidence. The challenge lies in predicting depositor behavior in both interest-bearing and non-interest-bearing accounts, which has been quite difficult. It's hard to see that confidence level improving in the near term. We need to observe some trends develop before we can have better confidence. That's why we're being cautious about our outlook for net interest margin. It may remain stable or even compress a little. I could suggest that it might expand slightly, but I'm just naturally cautious.

Okay, got it. That was all really helpful. And one last question. Could you remind us what percent of your loans are repriced immediately or floating rate?

Up 30%.

Great. Thank you.

You bet.

Thank you for your question. The next question comes from the line of Daniel Tamayo with Raymond James.

Hey, good morning, guys. Appreciate the guidance on the range for expenses in the $58 million to $60 million per quarter. I was hoping if we can get a finer point on maybe the cadence of expense growth. Does it just kind of imply volatility each quarter through that $58 million to $60 million range? Or should we kind of expect a little bit of a ramp-up as we go through the year here?

No, I think you should expect it to remain flat throughout the year, although there may be some fluctuations. There is a bit of volatility, but we will make a strong effort to keep it below $59 million. We provided the range so you can calculate and arrive at $59 million, which is a reasonable average estimate. However, you should keep in mind that this is the one aspect we can manage consistently, regardless of customer behavior.

Appreciate that color. And then maybe additionally there, are there any timing of any additional initiatives that you guys are working through that are implemented through the year?

I would just say that the only thing we expect to do this year is to continue hiring good talent when we find it in the market. If we come across strong candidates, especially in commercial banking, we are going to bring them on board. We have some budget flexibility to accommodate this, and as other expenses decline, we can maintain our current expense levels while hiring a few people each quarter. If we identify an opportunity that allows us to improve beyond this plan, we will adjust our expense guidance accordingly and inform you. We consider this a very positive outcome. Therefore, any significant fluctuations in expenses would likely be associated with positive developments.

Appreciate the thought there, Chris. And then maybe lastly, just looking kind of at the fee lines here, kind of looking stripping out the noise of some of the equity gains in the trust sale and taking out maybe the fully gained during the quarter were kind of just imply a run rate a little bit under $9 million there. And kind of with the main variance being a little bit lighter service charges that we were looking for. Is that kind of $9 million level kind of fair to look at run rate going forward? Or was there kind of maybe some seasonality or one-time things service charges that may boost that going forward?

The seasonality is not expected to have a major impact, but I remain cautious regarding this aspect due to our public policy on fees. As we continue discussions about which fees are deemed more or less acceptable, there is a possibility of adjustments to ensure we align with current regulatory perspectives. Nonetheless, seasonality is not a factor. This really involves listening to our regulators and their insights on different fee categories, which may lead us to reassess fees in the upcoming quarters.

Okay, that’s all I had. Thanks for the color guys.

All right. Thank you.

Thank you for your question. The next question comes from the line of David Bishop with Hovde Group. Your line is now open.

Hey. Good morning, gentlemen.

Good morning, Dave.

Hey, Joe, quick question in terms of maybe the outlook for low-to-mid-single-digit growth mostly in the back half. Is it obviously the pipeline numbers have come under pressure here. Do you have sort of line of sight in terms of maybe what’s beyond the published numbers in terms of the greater than 90-day pipeline that gives you confidence that you may hit those bogeys in the second half of the year?

Yeah, Dave, I think the easier answer is this. We’ve added eight C&I lenders last year. It takes them some time to ramp up. We’ve added two more in the first quarter. We have a couple more scheduled to start pretty much any day here in Q2. So we’re absolutely seeing an increase in pipe subsequent to the end of Q1. I think you’re going to see that start to filter through closings in Q2 into Q3. And I expect the folks that have finally gotten to that point where they’re ramping up to continue to bring that kind of business to us. So, I think that’s the measure of what we’re seeing so far and what our expectations are.

Got it. And then I saw in the slide deck some narratives regarding the high-yield savings products, it sounds like you moved down pricing, it looks like the spot rate was down 30 basis points from the quarterly average. Am I reading it right that overall balances have remained stable? And is there more opportunity to move those rates down, maybe either there or even money market or interest-bearing checking?

I believe we are currently refining our approach in this rate cycle. This means we are determining which funds we want to retain at specific prices while considering pulling back on those that are not cost-effective. This stability is a positive development. We observed this trend beginning in the fourth quarter and extending into the first quarter. It's important to note that when we lowered those rates, we did experience some deposit losses, which is reflected in the deposit contraction in Q1. However, this was anticipated, and we achieved nearly the expected level of attrition in our high-yield portfolio. I anticipate that we will continue to adjust deposit pricing throughout the year. A common question we receive relates to the Federal Reserve's rate policy and expectations for future cuts. While we closely monitor the Fed's actions, it would be incorrect to assume a direct relationship between their rate policy and depositors' rate expectations. Depositors will seek what they desire and choose where to go. This makes it challenging at this stage to accurately predict developments. We do perceive that the pressure is diminishing, but it's premature to make any definitive long-term conclusions.

Got it. Is there any kind of outlook regarding brokered deposits that might be maturing this quarter?

Over time, we generally want to just continue to reduce that brokered segment. Traditionally, we have not relied on brokered funding. We saw it as a really good option to kind of bolster liquidity at a time when it made a lot of sense to do so. And it is a great option to manage interest rate risk. So what we did with our brokered book is, we went out right after rates first started to rise, and we immediately kind of pulled down funding that we knew we would have a very certain interest rate characteristic to it for a duration. Now that we’re somewhere near the top end of the cycle, extending the duration through brokered CDs doesn’t make sense. So rolling them off also takes not just volatility out but allows us to maybe become a little bit more liability sensitive over time.

Got it. And one final question, looks like maybe a modest pickup in the special mention loan category maybe looks to be off the theory. Just curious, but maybe some commentary on what drove the change in risk rating? Thanks.

Sure, David, I’d like to provide some insights. We’re mainly dealing with three loans. One of them is a construction build-to-suit that experienced a minor delay in getting the tenant settled. However, the tenant is now in and making payments. The second loan is an office loan in Philadelphia, which is fully occupied but has encountered a slight issue with the principal. I believe that two, if not all three, of these loans will be resolved by the end of Q2. Nonetheless, it’s wise to categorize them appropriately, especially if there are concerns.

Got it. Appreciate the color.

Thank you for your question. The next question comes from the line of Christopher Marinac with JMS. Your line is now open.

Hey, thanks. Good morning. I’m just going to continue where Dave left off on his last question. So if we look at the level of criticized loans, did you see that driving at all your reserve levels going forward? Or is the reserve still build on kind of across the cycle and the low charge-offs that continue to kind of speak for itself?

I don’t believe there is any connection there. We do not anticipate any changes going forward unless there is a shift in the outlook, which we currently do not foresee. To consider the allowance this quarter, if we had strictly followed external observable factors, including the economic forecast and our history of charge-offs, one might argue in favor of releasing reserves. However, we felt that releasing reserves at this point in the cycle was not a prudent decision. Our qualitative factors have slightly increased, which reflects the situation. Quantitatively, this would have been a quarter where you could have thought about releasing reserves. While some banks have chosen to do so, we opted to take a more conservative approach.

Great. And then just a follow-up about overall commercial growth. Where do you think customers are now? I mean, we know there’s a lot of pencils down with the large regionals, but given that you may not want to do commercial real estate, as you mentioned, so just specifically in C&I, where is the customer attitude is? Are you dependent on them kind of being more optimistic in the second half of the year?

I think we're all noticing that customers are becoming a bit more optimistic based on our conversations. We have also been successful in attracting lenders primarily from national firms. What we're hearing from many of our new hires is that there's a limited interest in high-level lending, which could work to our advantage over time. It remains a relationship-driven business, and I believe that will continue. Regarding commercial real estate, while banks seem hesitant about it, there are many alternative lenders available. One notable example is government entities, as we witnessed in Q1 with one of our top borrowers refinancing a $26 million deal with a government-sponsored enterprise at a fixed rate of 6% with an extended interest-only period. We aren’t pricing or structuring our loans in that way, which presents a challenge. However, I don’t think this is a significant issue in the current environment, but it’s worth noting.

I’d like to add one more point, Chris. An interesting trend we’ve observed among our long-term, generational commercial and industrial clients is that they have very little debt. They have paid down all their lines and loans. This does impact our earnings somewhat, as we are not reporting those outstanding amounts. However, these families have indicated that they are prepared and ready. Joe, you might want to elaborate on that. At some point, they will likely return to being net borrowers, and we are hopeful that will happen in the next few quarters.

We have been following the story of one of our better commercial and industrial clients who has been pursuing two other acquisitions for several years without success. We now believe he will finally be successful. With his strong balance sheet and our lending capability, he has the opportunity to move forward. However, there is still some caution in the market.

Great. Thank you, again for the background here. Appreciate it.

Thanks, Chris.

Thanks, Chris.

Thank you for your question. The next question comes from the line of Matthew Breese with Stephens, Inc. Your line is now open.

Hey, good morning, everyone.

Hey, Matt.

Hey, Matt.

The obvious question is, how much more should we expect in terms of buybacks? I believe there is a remaining authorization for 2 million shares. Is it reasonable to assume that this will be fully utilized by the end of the year? Additionally, I can't recall the last time OceanFirst conducted such significant share buybacks. I would be interested in hearing about your capital strategy, considering the current valuation and market environment, as well as the other options available to you.

That's a great question, Matt. The answer is quite straightforward. When we assess the value of our shares, we see a significant opportunity. Our balance sheet looks strong, our credit situation is solid, and we have confidence in our long-term prospects. The market, including our sector, is currently trading at reasonably low cyclical levels. As long as we're below tangible book value, this creates a very attractive investment choice. However, as you mentioned earlier, we are a growth company eager to return to a growth phase. In the latter half of the year, as we increase our loan portfolio, we have the potential for margin stabilization and modest growth, which could lead to improved earnings. If we do return to growth, it's likely you will see an increase in earnings as well, generating additional growth capital. We aim to keep our capital levels from rising unnecessarily, as we have certain thresholds we want to maintain. Trading significantly below tangible book value presents a unique opportunity for us. Regarding your outlook question, the first quarter might set a limit on how much we can do, as we want to ensure we're preserving capital for growth. Should we continue at this level until year-end, we would fulfill our current plan and would then need to consider launching another one. Ultimately, this will heavily depend on factors like margins, structure, and growth opportunities. We can onboard new clients, but we want to ensure we're doing so at optimal margins. This is not the right phase in the cycle for us to compromise on our margin discipline in pursuit of short-term EPS amidst what might become a multi-year expansion. While a soft landing is still a possibility, it's also plausible that by 2025 we could face a recession, especially given uncertainty about the Federal Reserve's actions later this year. Therefore, we won't be reducing our capital levels, but at these prices, we plan to utilize any excess capital we may have.

I appreciate that. And then turning to credit. I just was curious about the actual process for getting LTVs and getting debt service coverage ratios. Is the LTV at origination or is it more recent? If you have kind of an average age of LTV, that would be great. And then on the debt service coverage ratio, are those updated annually? So are those fairly fresh?

Yeah. So there are a couple of things, Matt. So the debt service coverage ratio is updated annually. If we detect an issue in a loan where we have a concern, we would go out and update the appraisal. Based on what we see in the portfolio, most of our appraisals are origination-based appraisals. We do not have a vintage chart, but we’ll think through that. Maybe we’ll add a vintage chart for our next investor presentation, just to give people a sense. But there’s not really a big cluster of loans in any one vintage. The other thing I’d mention is that, one of the reasons we feel comfortable about our office book is that, a lot of that book was originated after COVID. We were very careful to focus on like medical use and things that we thought for long-term durable kinds of office products. So, we’ll work on a vintage for you. I’d also point you in the investor deck to the variety of stress tests that we do. So we kind of take these loans and stress test them and then look at the NOIs and the debt service coverage ratios post-stress and those hold up really well. So we feel pretty good that whole income side of the equation, we are on top of, and it’s very current. The appraisal side would be subject to vintage, but we’ll think about getting on a table on that.

Okay. And then, Joe, I think you had mentioned that there’s nine and you can correct me if I’m wrong, there’s nine office loans over $25 million, you referred to three of them. I was curious in the other pool of what else is over $25 million. Is your any of those loans that have not passed? And I would love to hear thoughts on why, concern and any potential for loss content in your view?

The good news is that all the loans have passed. I can confidently say that we are very pleased with at least the top three or four. I would need to check on the others, but the historical performance indicates a positive trend. Aside from one exception in Q3, we have seen strong performance in this portfolio, which consists mostly of loans in suburban markets with very few in central business districts or urban areas. This concentration has benefited the portfolio. As Chris pointed out, there is significant diversity in geography, medical, credit, and tenants. Overall, our investments are yielding positive results, and we are actively managing them.

And then switching to deposits. How much more in high cost savings with brokered is there kind of targeted to run off? And is the deposit growth guide all-in? Or is it just off of kind of the core deposits?

Well, the deposit growth guide is all-in. And I think that for the most part, we don’t have much in brokered. Pat can give you the number. But we’re not trying to drive that down quickly or in any material amount. So it shouldn’t be much of a headwind. The high-yield savings, I think there will be a little bit more of that running off in Q2, but nothing significant. And then, brokered is just going to wind down over the next several quarters.

Okay. And then last one for me. Look, a lot of your peers are waving in talent from some recently disrupted institutions, if you will. Are you seeing any of that come your way? Or is there opportunity to bring in some deposit gathering folks or commercial lending talent down in your neck of the woods?

I think there’s a great opportunity. And this is something we’ve done over the years, and we’ll continue to do it. And there are a lot of reasons that people kind of reevaluate where they are. But when you go through periods like this, really high-quality bankers sometimes have challenges wherever they are for whatever reason. And we have a lot of conversations and a lot of talk. And we’ve said over the years, and we mean it, when we find good people we hire them. And we don’t say, gee, we only have a budget for two people this year. But we don’t do the opposite either. We don’t just hire people because we think we’ve got to hire three bankers this month or something. So, I would expect you’ll see us continue to add talent from a variety of places.

Okay. Any comments on how much talent? I know, Joe, you mentioned a handful. Thank you.

Yeah. I think the easy way to describe that, we’ve had a few already. We have an inside joke in the company that says that we don’t have a budget for talent and as Chris mentioned, all that means is that whenever we find talent, we’re going to try to hire them. So, if we can find good talent, we’ll add as many as we can add.

And Matt, for today, it’s still going into kind of the pace where you’ve seen over the last couple of years, a couple of bankers a quarter. If that pace changes, we’ll be communicating about it.

Thank you for your questions. The next question comes from the line of Manuel Navas with D.A. Davidson. Your line is now open.

Hi. Good morning. So on the core deposit engine, are you seeing the C&I lenders that you’ve brought on actually bring in deposits so far? Or do you have like a visible pipeline to this point?

So we are seeing them bring in deposits. If anything, they’re bringing in deposits before they bringing in loans because, as you all know, sometimes there’s limitations or maturities or pre-payments that prohibit loans coming over as fast as some deposits early on. But I think, Manuel, we’ll see more and more of that in Q3 and Q4.

And also we need to understand exactly what those dynamics are. So until you start moving rates, you really don’t know what that kind of run off tolerance will be. So, we’re beginning that process, moving rates around a little bit. So we know what that marginal pricing should be. We’ve always been big fans of you can do every deposit survey you want, but the actual experience of pricing and watching deposit flows will tell you exactly what your market is. And we’re just trying to make sure we’re on top of that.

Yeah I’d also add that those levers, we have a high confidence level in our ability to ramp those back up quickly if we want to, whether it’s high interest savings, brokered CDs, certainly or even time deposit specials, retail and/or other customer segments. So with that confidence level, we’re feeling a lot better about letting some things mature and roll off, not replacing rolling them and start to dial back some of the highest rates that we’ve had on offer, and we’ll learn from that and be prepared, hopefully, to see growth to pick up in core deposits.

I appreciate that color. Can we have a bit of a general update on the operating leverage strategies and where we sold the trust business and just kind of how that fits in?

Yeah. I’d make a couple of comments. First, the trust business sale is a strategic partnership where we think that with a partner, we can do more in that business than we do today. It’s relatively neutral to the P&L. So you’re not going to see much change in the P&L. In terms of the operating leverage strategy, I think the way we’re thinking about the company is that we have now, for the most part, fully absorbed all the expenses attended with coming over $10 billion. Obviously, if you add a banker here there, you’ve got some expense, but the marginal cost to support growth is quite low. So our view here is hold that non-interest expense line, allow non-interest expense to assets to decrease as we grow and that’s where you’re going to see the leverage come in. And then I think there’s a second story from that, which is at some point and I offer no calendar for this. we might have a yield curve that’s not inverted, right? And at that point, you’re going to have the revenue side kind of kick in as well. So that’s this guidance about flat expenses. It doesn’t mean that we’re going to need to add dollars to grow. We can grow off this expense base. And then this kind of second cylinder that would hit would be at some point down the road if rates normalize.

I appreciate the comments. All right, thank you.

Thank you. Before we close the call, I want to remind everyone that our Annual Meeting of Stockholders will be held virtually on May 21st at 8:00 a.m. Eastern Time. For the 2024 annual materials, we have transitioned to a notice and access model for all meeting materials. Notice and access grants stockholders access to the full set of materials electronically. By reducing paper waste and mailings, we're able to decrease operating costs and further our environmental goals as a company. If you have received the notice and would like to receive a printed version of our proxy materials, please follow the instructions provided on your notice and submit your request prior to May 7th, 2024. If you have any questions or need any assistance with requesting these materials, please don’t hesitate to contact us. We encourage stockholders of record on March 25th, 2024, to review the proxy materials and vote your shares. We appreciate your time today and your continued support of OceanFirst Financial Corp. We look forward to speaking with you during our Annual Stockholders Meeting on May 21st. Thank you.

That concludes today’s call. Thank you for your participation and enjoy the rest of your day.