OceanFirst (OCFC) Q3 2026 Earnings Call: Core EPS Rises as Flushing Cost Savings Accelerate

OceanFirst Financial Corp. (NASDAQ: OCFC) reported its first full quarter as a combined company following the acquisition of Flushing Financial Corporation. Core earnings increased sharply, while management said integration was completed on schedule and most remaining cost savings should enter the fourth-quarter run rate.

Key takeaways

• GAAP earnings per share were $0.17, including $0.30 per share, or $29.4 million after tax, of nonrecurring merger-related expenses. Core EPS was $0.48, up 54% quarter over quarter and 131% year over year.
• Net interest income reached $172 million, rising 43% sequentially and 90% year over year. The result included a $5.5 million nonrecurring benefit from the payoff of an acquired nonperforming loan.
• Reported net interest margin increased 13 basis points to 3.18%. Excluding the nonrecurring recovery, NIM was 3.08%, which management identified as the relevant baseline for the fourth quarter.
• Loans grew $216 million to $16.5 billion, while deposits increased $319 million to $18.1 billion. The quarter-end loan-to-deposit ratio was 91%.
• Core operating expenses were $114 million, below management’s previous $120 million to $125 million range, as Flushing-related cost savings arrived earlier than projected.
• Management expects fourth-quarter loan and deposit growth of 1% to 2%, NIM to remain stable or increase modestly from the adjusted 3.08% base, and core operating expenses to decline to $110 million.

Key financial data

Business and operating performance

Commercial lending drove balance-sheet growth. Commercial real estate loans increased $202 million, while commercial and industrial loans rose $123 million. C&I growth was approximately 13% annualized, partly offset by expected residential loan runoff. Commercial originations increased 15% sequentially to $735 million.

OceanFirst recruited 11 C&I bankers during 2026 and said it would remain opportunistic in hiring. Management continues to prioritize C&I growth to diversify the commercial loan portfolio.

Deposits increased by $319 million. Excluding brokered certificates of deposit, growth was $156 million, led by interest-bearing checking and money market balances. Average noninterest-bearing deposits were $2.9 billion, representing 16% of average deposits.

Premier Bank deposits rose $181 million to $674 million, with a deposit cost of 2.49%. The unit managed 490 client relationships and 2,209 accounts and generated $42 million of quarterly loan originations. Approximately 21% of Premier deposits were noninterest-bearing, while nearly 75% were held in checking accounts of some form.

OceanFirst appointed Eric Howell as President of Premier Bank. Management expects his operating role to support recruiting and client acquisition, particularly in New York. The company remains focused on building Premier deposits toward its longer-term $2 billion to $3 billion target, although management acknowledged that timing could extend beyond the end of 2027 by one or two quarters.

The Flushing operational integration and rebranding of 30 branches across New York City and Long Island were completed on September 21. Management highlighted Flushing’s approximately $1.4 billion Asian banking deposit base and its multilingual branch network as longer-term growth opportunities.

Asset quality remained stable outside acquired purchased credit deteriorated loans. Excluding PCD loans, nonperforming loans were 0.37% of total loans. Reported nonperforming loans were 0.85%, with substantially all of the increase attributable to acquired PCD loans. Net charge-offs were approximately four basis points of average loans on an annualized basis, and the allowance for credit losses remained 1.29% of total loans.

Management guidance

Management expects fourth-quarter loans and deposits to grow 1% to 2% sequentially. Adjusted for the nonrecurring interest recovery, NIM is expected to remain stable or rise modestly from the 3.08% baseline. This outlook assumes one additional 25-basis-point increase in short-term rates in December.

The company expects other income of approximately $13 million per quarter. Core operating expenses are projected to decline to $110 million in the fourth quarter, with the full run rate of merger cost savings reflected in the first quarter of 2027. Management indicated that approximately $105 million could serve as the first-quarter expense base and said its goal would be to hold expenses stable from that level, with potential further reductions from automation and efficiency initiatives.

Approximately $1.2 billion of fixed-rate assets are expected to reprice in the fourth quarter, followed by more than $3 billion during 2027. Management expects this repricing to provide a modest NIM tailwind. Deposit costs are currently expected to rise by about 10 basis points over the next quarter and into the first quarter, implying an early estimate of roughly a 40% beta to Federal Reserve rate increases.

The securities portfolio is expected to decline by at least $1 billion over roughly the next 12 to 18 months as cash flows are used to fund loan growth or reduce wholesale funding. Management expects securities to move toward approximately 17% of total assets while maintaining at least about 15% for liquidity.

OceanFirst reiterated that its 2027 profitability targets remain unchanged, including its return-on-assets objective. Management also said capital should build through retained earnings, net of opportunistic share repurchases.

Risks and areas to watch

• The reported 3.18% NIM benefited from a nonrecurring recovery; management expects the next-quarter starting point to be closer to 3.08%.
• The estimated 40% deposit beta is preliminary and could change with the pace of rate increases and the mix of lower-cost versus market-rate deposits.
• Higher rates are increasing refinancing costs for commercial real estate borrowers, although management said demand has not been materially impaired.
• Competition has increased for high-quality C&I and CRE credits, creating some pricing compression.
• Management identified an approximately $5 million quarterly gap that must be closed through lower expenses or higher revenue to meet its 2027 EPS objective.
• The durability and eventual pricing of newly acquired promotional consumer deposits in New York remain uncertain.

Analyst Q&A highlights

Management said balance-sheet repricing should support modest NIM expansion of roughly one to two basis points per quarter, although deposit pricing and the speed of future rate increases remain key variables. Potential revenue upside would most likely come from better asset repricing, stronger relationship pricing and higher origination-related fees.

On expenses, management plans to offset investments in relationship managers and deposit-gathering teams with savings in other categories. Staff costs are expected to provide most remaining merger savings, while the bank is also renegotiating data-processing, Software-as-a-Service and Banking-as-a-Service contracts.

Management said the rent-stabilized multifamily business acquired from Flushing has been reduced and will not be an area of emphasis. Instead, OceanFirst intends to use its expanded New York presence to grow C&I, diversified CRE and multicultural deposit relationships.

The company did not repurchase shares during the quarter, preserving flexibility through the Flushing integration. With integration risks largely behind it, management expects to become more active when repurchases remain accretive to tangible book value and EPS. The existing authorization has 3.2 million shares remaining.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Alfred Goon

Good morning, and welcome to the OceanFirst Third Quarter Earnings Call. I'm 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 for a complete discussion of forward-looking statements and associated risk factors.

Thank you, and I will turn the call over to Christopher Maher, Chief Executive Officer of OceanFirst.

Christopher Maher

Thank you, Alfred. Good morning, and thank you to all been able to join our third quarter 2026 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 will 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.

We reported third quarter results that reflect our first full quarter as a combined company following the acquisition of Flushing Financial Corporation. On a GAAP basis, we reported earnings per share of $0.17, which included $0.30 per share or $29.4 million of nonrecurring merger-related expenses, net of taxes. On a core basis, which excludes nonrecurring items, earnings per share were $0.48 or $46.9 million, up 54% from the prior quarter and up 131% from the prior year.

Compared to the third quarter of 2025, net interest margin has expanded 27 basis points. Core return on average assets has improved 20 basis points to 80 basis points. Our core efficiency ratio has improved more than 8 percentage points to 62%. This reflects both the early benefits of the Flushing combination and the multiyear return on our revenue-generating investments. This week, our Board also approved a quarterly cash dividend of $0.20 per common and common equivalent shares, marking the company's 119th consecutive quarterly cash dividend.

Regarding capital, our priorities are: first, supporting organic growth in our core businesses; second, maintaining our dividend; and third, returning excess capital through share repurchases when the returns are compelling. We did not repurchase shares under the share repurchase program during the third quarter as we prioritized capital flexibility through the Flushing integration, leaving 3.2 million shares available under our existing repurchase authorization. With integration risks behind us and earnings growing, we expect to be more active with share repurchases. Share repurchases at the current valuation are accretive to both tangible book value and earnings per share. If that remains the case, we expect to be opportunistic with repurchases going forward.

Pat will discuss our capital outlook and current capital ratios in his remarks. We completed our acquisition of Flushing Financial Corporation on June 1, and on September 21, completed the operational integration and rebranding of Flushing's 30 branches across New York City and Long Island.

We're pleased that the acquisition closing on June 1, balance sheet restructure on June 26 and operational integration on September 21 have all been completed on schedule and executed in a manner consistent with the original merger announcement. We remain on track to achieve the cost savings and returns outlined at the transaction announcement and note the third quarter core operating expenses came in below the range we guided to in July. We expect the majority of the remaining cost saves to be reflected in our fourth quarter run rate. Even more importantly, we continue to see competitive wins in both talent acquisition and customer acquisition across the Flushing footprint.

With the integration complete, our focus remains fully to executing our organic growth strategy, which is reflected in this quarter's loan and deposit growth. I'm proud of the pace at which our team has moved on both fronts.

At this point, I'll turn the call over to Joe for additional color on these businesses.

Joseph Lebel

Thanks, Chris. I'll start with loans. Total loans grew $216 million during the quarter to $16.5 billion, approximately 5% annualized growth, which included $202 million of commercial real estate growth and another $123 million of C&I growth, partly offset by the expected residential runoff. Commercial loan originations increased 15% to $735 million from $642 million in the prior quarter. This is our first full quarter of growth as a combined company and reflects our focus on core relationships. Our mission to grow the C&I business across our markets to diversify our commercial loan portfolio continues as C&I grew approximately 13% on an annualized basis. We've recruited 11 C&I bankers so far in 2026 and continue to be opportunistic with hiring.

Moving to deposits. Total deposits grew $319 million or 1.8% during the quarter to $18.1 billion. Excluding brokered CDs, deposits grew $156 million, led by interest-bearing checking and money market balances. Noninterest-bearing checking averaged $2.9 billion or 16% of total average deposits, and our loan-to-deposit ratio ended the quarter at 91%.

The Premier Bank teams had their strongest quarter to date, growing deposits by $181 million during the quarter to $674 million, while the cost of deposits was 2.49%. The group now manages 490 client relationships and 2,209 accounts and contributed $42 million in loan originations for the quarter. The 2 Premier Bank teams we added in Manhattan, Long Island during the summer are ramping up in line with our expectations.

I also wanted to take the opportunity to announce the hiring of Eric Howell as the President of the Premier Bank. As you know, Eric was instrumental in the growth and success of the deposit-focused model at Signature Bank and has been a consultant for us for the past 24 months. We look forward to Eric's leadership and our continued success in the Premier Bank.

In terms of calling activity across the Flushing footprint, including the Asian-American community, we continue to service meaningful C&I and CRE loan and deposit opportunities and client retention through the conversion has been in line or better than our expectations.

Lastly, noninterest income was $13 million during the quarter, up from $10.6 million in the prior quarter, reflecting a full quarter of Flushing's fee and BOLI income, partly offset by lower gains on other real estate and lower commercial loan swap income. This was well within the range of $12 million to $16 million we guided to in July.

With that, I'll turn over the call to Pat to review the remaining areas of the quarter.

Patrick Barrett

Thanks, Joe. Good morning to everyone on the call. We delivered our ninth consecutive quarter of net interest income growth. Net interest income was $172 million, up $51 million or 43% from the prior quarter and 90% from the prior year, driven by a full quarter of Flushing, earning asset growth and a $5.5 million nonrecurring benefit from the payoff of a nonperforming loan acquired from Flushing.

Pretax pre-provision core earnings were $71 million, up 59% from the prior quarter. Third quarter net interest margin expanded 13 basis points to 3.18%. Excluding the impact of the nonrecurring recovery, net interest margin was 3.08%. Loan yields increased 27 basis points to 5.82%, reflecting new originations and a full quarter of the Flushing portfolio, while total deposit costs were 2.17%, up 11 basis points. The increase in deposit costs reflected a full quarter of Flushing, partly offset by the nonrecurring benefit from purchase accounting adjustments.

Our asset quality remains strong. Excluding purchased credit deteriorated, or PCD loans, nonperforming loans were 0.37% of total loans, performing assets were 0.32% of total assets, both consistent with our historically low levels and early-stage delinquencies improved or declined $4 million during the quarter. Reported nonperforming loans increased to 0.85% of total loans, with substantially all of the increase coming from acquired PCD loans, which carry the fair value marks established at the time of acquisition.

Criticized and classified loans were approximately 3.13% of total loans, essentially flat to the second quarter. We have no broad-based concerns in the portfolio. Our allowance for credit losses remained at 1.29% of total loans and the provision for the quarter was $4.3 million, reflecting loan growth, replenishment of net charge-offs and continued macroeconomic uncertainty. Net charge-offs were de minimis at approximately 4 basis points of average loans on an annualized basis.

Turning to expenses. GAAP operating expenses for the quarter were $151 million, which included $37 million of merger-related expenses. Core operating expenses were $114 million, below the $120 million to $125 million range that we guided to back in July. This reflects higher cost saves in the quarter than we originally projected and continued expense discipline.

Capital remains strong with an estimated common equity Tier 1 capital ratio of 10.6%, a modest decrease from June 30 as capital generation was offset by merger-related expenses and loan growth. Tangible book value per share was $18.08, which was down slightly from the prior quarter, reflecting merger-related costs of approximately $0.30 per share and a $14 million after-tax increase in accumulated AOCI. This is actually accumulated other comprehensive loss. This is primarily reflecting the higher interest rate environment adjustment on the securities book. With merger expenses largely behind us, we expect tangible book value and capital ratios to grow from here. On a normalized basis, our effective tax rate was approximately 29%. Going forward, our expected tax rate is 28% to 29%, absent any impact of tax credit benefits.

Turning to our outlook for the fourth quarter. We expect modest growth in both loans and deposits in the near term, 1% to 2% quarterly. Subject to growth and adjusted for the nonrecurring interest recovery, we expect net interest margin to be stable to modestly higher in the fourth quarter. This assumes one additional 25 basis point increase in short-term rates in December. We continue to expect other income of $13 million per quarter and core operating expenses declined to $110 million with the full run rate of cost saves reflected in the first quarter of 2027.

As we complete the integration of Flushing and move into 2027, we continue to focus on generating positive operating leverage. Capital is continued -- expected to continue to build with earnings net of any opportunistic share repurchases. We plan to provide detailed guidance for the full year of 2027 during next quarter's call, so in January. But I want to reiterate that our 2027 profitability targets remain unchanged from when we announced the Flushing acquisition.

At this point, we'll begin the question-and-answer portion of the call.

Operator

[Operator Instructions] Your first question from the line of Daniel Tamayo with Raymond James.

Question-and-Answer Session

Daniel Tamayo

Yes, maybe just if we could just start on the margin, Pat. Maybe you could just talk about some of the puts and takes that are impacting the margin. Obviously, a lot happening with the integration of Flushing's balance sheet. But I appreciate the guidance out a couple of quarters. But maybe give us a sense for deposit beta expectations within that? And then how you think -- I know you just said you're going to give full '27 guidance in January, but maybe give us an early sense of how you think the margin could trend next year, given the volatility we've seen and the integration of the balance sheet.

Patrick Barrett

Sure, sure. It's not actually a lot to unpack there, but you articulated all the different elements of it well. So thanks for the detailed question. So yes, it was noisy. And I think the kind of high-level view of where we think we're heading as we move into the next -- fourth quarter and into the first quarter is one of relative stability with a little bit of positive tailwind from floating rate assets and from fixed rate asset repricings.

We have a lot of deposits, time deposits that will reprice relatively short term. FHLB borrowings will reprice short term. But these should be offset by the repricing of the fixed rate book, which we'd expect to be close to $1 billion a quarter. It's $1.2 billion in Q4. And then about -- over $3 billion across 2027 split evenly per quarter. And so these are all going to be moving up as they reprice. And we think that, that gives us a modest tailwind as we move forward.

Then you add in any incremental growth that we have and assuming that we're -- whatever we're originating at that margin, will be either accretive or dilutive to the balance sheet repricing trends. Right now, it's pretty early, but we're expecting about a 10 basis point increase in cost of deposits next quarter and into Q1. So given our rate hike expectations, that would translate to about a 40 basis -- 40% or 40 basis point beta on the Fed rate hikes. But it's such an early time in that cycle that we're actually going to have to kind of wait and see how that happens. And of course, deposit mix can have a big impact on that. So the more lower cost deposits we're able to generate organically, the better the improvement might be and the more fixed rate at market deposits, obviously, we wouldn't get that benefit. Does that help?

Daniel Tamayo

Very helpful, Pat. And then I guess on the expense side, so again, I appreciate that you're going out to 1Q with the guide. Does that feel like -- and I think you said in the presentation that $105 million is now a number to build off of as we think of the progression of expenses next year?

Patrick Barrett

Yes. But our goal would be to not grow expenses from that level and continue to work on -- we have a variety -- we didn't want to say AI too many times on the call, but we have a lot of automation and efficiency efforts that are underway. And so we're hopeful that we would be able to offset any investments, primarily producer investments, RMs, deposit gathering teams with reductions in other expense categories. So I think stability would be for us an expectation from Q1 going forward. And if we're successful in some of these efforts, possibly a little bit lower.

Operator

Your next question from the line of Tim Switzer with KBW.

Timothy Switzer

My first one here is on loan competition in your markets. Has that evolved at all over the last, I don't know, maybe 6 months or so? And what is happening to lending spreads right now?

Joseph Lebel

Tim, it's Joe. I'd tell you, it really just depends. We've seen competitors come in and come out, I think, really driven by what their appetite is at certain times of the market. So I'd like to -- in a normal environment, it tends to be pretty consistent. It hasn't been that consistent.

We've been -- we've seen people come in the C&I space, come out of the space, come in the CRE space, come out of the space. I think if I had to put it in any perspective in the rate environment, there's been some rate compression competitively for the best credits. It's not unexpected. And there's been a little bit more CRE competition than we've seen historically. I think people have largely gotten over the qualms, concerns about CRE. But look, I also think that for the most part, you're seeing fairly stable rates. You're seeing rates with 7 handles now. There are the oddities that people want to win something, but we're smart enough to realize that you don't need to win everything. I wouldn't term it as crazy out there. I think people are realistic in terms of pricing.

Timothy Switzer

Okay. That's good to hear. And I was looking for an update on the Premier Bank as well. Great to see the strong growth this quarter. Has there been any change to the target for $2 billion to $3 billion of deposits by the end of '27? And have your thoughts on kind of the ultimate deposit cost of that program changed at all?

Christopher Maher

Tim, it's Chris. Look, we're still heading in that direction. Whether we get there exactly by year-end will be kind of a question or could it come a quarter or 2 late, that's possible. What we were pretty pleased with this quarter is that we're able to grow and reduce the cost of the deposits at the same time. And I think having Eric here full time is going to make a real difference. Obviously, we're recruiting the class of bankers we'd like to put on for the spring, and we're having a lot of very healthy conversations. So I think you're going to see it continue to grow, and we're feeling pretty bullish on it.

Operator

Your next question from the line of Peter Winter with D.A. Davidson.

Peter Winter

Just Pat, if I could go back to the margin. When you talk about stable to modest in the fourth quarter and first quarter, is that the reported 3.18% or off the core NIM of 3.08%?

Patrick Barrett

So you can look at it either way, quite frankly, because the impact of accretion is pretty stable throughout the period. So we would expect a basis point or 2 basis points of expansion on either.

Joseph Lebel

Let's just make sure we're real clear on that. So the 3.18% is going to come down to, say, the 3.08-ish, somewhere around there. That's kind of the baseline as we go forward. The GAAP and the core will be closer together next quarter, but we're not going to be coming off the 3.18%. We're going to be coming off closer to like a 3.08%.

Peter Winter

Got it.

Joseph Lebel

We're talking about margin before. Some of the complexity is we're applying traditional OceanFirst pricing against the new customer base. And so far, that's gone well. But we're just going to have to watch it and kind of move through things because we've got a different pricing methodology and different product set and all that. So it's a big deposit base that is adjusted. So, so far, we're feeling pretty good about it, but we need a little more time.

Peter Winter

Okay. That's helpful. And then just that you've got very strong loan pipeline. So it doesn't seem like demand is being impacted from this macro uncertainty, higher rates. But is higher rates impacting commercial real estate as you move forward?

Patrick Barrett

Look, I think that there's absolutely an effect on a commercial real estate investor, especially someone has an existing loan who's going to reprice higher, right? And I'm sure we've had a bunch of those conversations already. Some of it is shocking to get the best rate that you can. I do think that rates aren't so far out of the marketplace where people are dissuaded from making the proper investments and they require a little bit more equity. But it hasn't really adversely affected demand. And I think the density that we have in New York is just going to be monumental shift for us. We were in the space before. But with the addition of Flushing, that just gives us a wider brand recognition as well as geography to cover. So I'm pretty bullish that we're going to have opportunity. We're smart enough to realize that the diversification of the loan book still remains the best strategy for us.

Peter Winter

Got it. If I could just slip in one more. As you spent more time with Flushing, are there any loan portfolios that you'd look to deemphasize or any positive surprises as you kind of dig deeper into the balance sheet, get to know the business better?

Christopher Maher

Just to make sure that we're kind of -- this should be obvious, but in case it's not, the rent-stabilized multifamily business was never important to us. And we obviously rightsized that and don't expect to see us in that market. In terms of positive surprises, I think lots of great people. One of the really fascinating things that Flushing has built over the years is a multicultural and multilingual distribution base. So when you go out and visit the folks in these branches, they've been terrific. You've got us right through the conversion. We're wonderful advocates of their customers. We have so many employees in front of the customer that speak 2, 3, 4 languages.

Flushing had about a $1.4 billion Asian banking deposit base. We think we can grow that from here. So I would say the one real positive surprise, and it is we were impressed with the branch people to begin with, but the more we get to know them, the better we feel about them. And the opportunity, we're the most diverse country in the world. New York is the most diverse city in the world, and Queens is the most diverse borough in the world. So to have those quality bankers who can converse with clients in their own languages, I think, is going to be a real long-term opportunity for us.

Operator

Your next question from the line of David Bishop with Hovde Group.

David Bishop

Question, Chris, Pat. On Slide 17, you break out nicely the mix between consumer and commercial deposits. As you look ahead, do you have any sort of targets or expectations for how that perhaps may look, say, at the end of next year or 2028?

Christopher Maher

It's hard to put a number to that right now, Dave. I'll tell you what we're experiencing, which is interesting. So obviously, historically, our growth has really been on the commercial side. So I think treasury management services, especially as C&I grew, the opportunity to self-fund that. And we're seeing in our C&I book, we're self-funding about 40% of those credit extensions, which is terrific.

What will be really interesting to assess over time is whether the consumer markets in New York are markets where we think we can kind of make some inroads. We only started advertising in New York under the unified brand in the beginning of October. So it's very early days. Response has been nice. We have a promotional campaign going on now that just in the first few weeks has accumulated over $60 million of accounts. And the blended -- it's promotional money, but the blended rate on those is 3.9%, which to get customers and to be getting that growth is not a bad number. I don't know yet how durable that will be, what the pricing will be on that. But my baseline would be to expect the stability in the split between commercial and consumer, with maybe some opportunity for us to replace broker deposits with consumer deposits, especially given the New York franchise. We're working on that now.

David Bishop

Got it. Appreciate that color. And then Pat, looking ahead to the expected cost saves the coming quarter, first quarter. Just curious from a line item segment, are you expecting most of those to come from personnel, data processing, other? Just curious, some expectations where you see the low-hanging fruit coming from.

Patrick Barrett

Yes. It's mainly going to be in staff costs, compensation expense. And I think we continue to attack all of our vendors, not just from a Flushing cost save perspective, but renegotiating all of our data processing contracts. We're finding that this is a pretty favorable environment to be renegotiating Software as a Service and Banking as a Service type provision. So we'll continue to work on that.

And look, if you look at our outlook for next quarter and think about it in terms of our run rate for next year and the EPS goal that we have, we've got a gap to close. We know that. And it's probably $5 million a quarter type gap, and that's got to come from either lower expenses or higher revenues for us to hit that gap. So we're cognizant of every dollar that we spend and looking to continue to find opportunities to reduce.

Operator

Your next question from the line of Christopher Marinac with Brean Capital.

Christopher Marinac

Chris and Joe, you have a full quarter now of the funding cost of around [ 250 ]. And obviously, we have some headwinds with higher interest rates. Where do you see the relative funding costs going like out 18, 24 months? And I'm kind of saying relative to your competitors. Do you think you can push that down? And maybe just give us some mile markers for how that can play out?

Christopher Maher

Chris, I'd hesitate to get too precise because that's kind of a long time frame, and we're not quite sure exactly how many Fed hikes we might see and what the shape of the curve will be because the although we focus a lot on Fed hikes, the shape of the curve makes a big difference here, too.

I'd make a couple of general comments. I think over time, we will probably bring the Flushing deposit base to look more like the OceanFirst deposit base. So that's going to be a tailwind in terms of helping us hold down the rate of cost increases on funding. The second thing is I think that we'll hope to rotate portions of the funding out of wholesale or brokered and into more traditional client relationships. That should also have a little bit of a tailwind. But the headwind about how many rate hikes and how quickly would be -- we have to wait and see. So on balance, I think we make progress versus where we stand against peers, that would be positive.

But I think Pat's guidance was very good. I think about overall NIM, the best we can tell now would have a tailwind of a couple of basis points a quarter going forward. And I think we're going to be able to hold that regardless of rate increases. When the rate increases come in, it depends on the speed with which they come in. So if you have one every 6 months or so, I think you can generally adjust to that, which is a very different environment than the one we saw a few years ago. And I think that's kind of what's spooking the market a little bit. It wasn't the amount of rate increases, it was the speed with which they hit. And I don't anticipate that in this cycle.

Christopher Marinac

That's great, Chris. That's very helpful. And then just a quick follow-up on the number of hires, is that number going -- is it accelerating? Or is the pace going to be the same? I just missed that point earlier.

Christopher Maher

So, Pat gave good guidance on our baseline expense ratio or baseline expenses quarter-by-quarter. Every spring, we have a hiring season, and we have a yield of bankers. We don't want to hire a banker just to hit a number. And if we have an extraordinary banker that's slightly above our budget, we're going to hire that extraordinary banker as well. So right now, we have budgeted for and expect to be able to self-fund a fair degree of hiring, and we're out recruiting in the market. I think we can do that. If we don't find the talent, then we might outperform on the expense side. If we find phenomenal talent, then we may come back to you with the revenue outperformance and maybe slightly higher expenses. But I think the guide Pat gave was a good best guess as of right now based on the recruiting pipeline we have and the conversations we're having with bankers.

Operator

Your next question from the line of Manuel Navas with Piper Sandler.

Manuel Navas

Could you speak a little bit more to the Eric Howell addition to the Premier team? What does that potentially do to longer-term deposit targets? Maybe add some color to the hiring pipeline in that division in Premier Bank. And any kind of contemplation of a shift to strategy in terms of where you're adding the teams?

Christopher Maher

Okay. So I'll unpack a few things there. So first, Eric has been helping us for the last 2 years with the strategy and with recruiting, but he's functioned as a consultant. He was not an operating officer of the bank. And this opportunity to bring him on as an operating officer, I think, will help him be even more effective for us, both in recruiting talent and in bringing client relationships. So we're bullish on that. We feel very comfortable that the pace at which that business is growing, that it should be a long-term part of our portfolio. And that although 2.5% is not the best funding around in this environment, 2.5% funding that you can grow is something you can make money off and we can expand our margin on. So we feel very good about that.

In terms of kind of direction, no different direction. We would be hopeful that we might be able to hire teams in a little bit of a faster fashion. And we think that the productivity of the existing teams has the potential to improve for 2 reasons. Obviously, Eric coming, I think a great leader, a lot of folks know them. But in addition to that, we only rebranded the Flushing branches on September 20. We started advertising the OceanFirst brand in New York in October. And we tried to have a pervasive campaign. It's a subway, Long Island Railroad, print, social media, all sorts of stuff. I think that as our brand becomes more recognizable in New York, that's going to help us attract more talent. It's also going to help us attract clients. It's going to make the client experience a little bit easier. So we're just weeks into having one brand, but we think with that brand in New York and Eric's addition, we have an opportunity.

You also asked about geography. The strongest geography for the Premier teams has been and will continue to be New York. That's where Eric had his focus for the last 20-plus years. And the strength of that franchise is in Long Island, the Boroughs and Manhattan. And that's exactly where these 30 Flushing branches help us out. So we think there's a potential to grow a little faster next year. But obviously, when Eric's got himself settled here and all that, we'll refresh our targets.

Manuel Navas

I appreciate that. Can you speak a little bit more on where the deposit growth this quarter came from? Maybe touch on Flushing trends, any success on fighting off any attrition? It seemed like Premier was most of the core deposit growth and then you added some wholesale as well. So just kind of speak to where the deposit growth came from in the different channels.

Christopher Maher

It was really the deposit growth was all commercial. So it was Premier, and we consider Premier largely commercial. I mean some of its high net worth people, but they function more like commercial folks than consumers. So most of it was Premier, C&I, CRE, those verticals. The retail base across both the OceanFirst and the new Flushing franchise was stable. And we feel comfortable with that. We were in that awkward period where we didn't want to advertise the Flushing brand, and we couldn't advertise the OceanFirst brand. So we'll have a better update on that as we get through the fourth quarter.

But consumer is within kind of a range, it's kind of range bound right now. We hope to be able to grow that and retire some of the brokered and wholesale I talked about earlier, but we'll give you an update on that next quarter. But so far, we're feeling very good about the stability in the franchise. And thus far, I think Pat used a 40% beta on Fed increases. That's the best we can guess now, but that seems to be what's holding.

Manuel Navas

That's great. And my last question is, you talked a little bit -- Pat talked a little bit about the EPS gap for next year and the wildcards on OpEx. The guidance is really strong on the OpEx side. But what are some of the wild cards on better revenue? Is it really loan growth acceleration, all NIM? Just kind of your thoughts on where the revenue has upside -- potential upside next year.

Christopher Maher

I think the upside -- and we're going to have to be very thoughtful as we kind of go through the next year. Pat mentioned we've got more than $1 billion of assets repricing in the next quarter, and we average about that going forward in '27, a little more than $3 billion in '27. The upside would be where those rates go to which is, to some degree, a factor of competitive pressure, but it's also a factor of building good relationships and having the ability to get paid for the relationship that you bring to the table. So I think in terms of margin, any incremental progress over where we've guided is more likely to come on the asset side. And then potentially, we could see a little bit of movement in fees over time, too. If the origination volumes continue to grow, that may bring more spot fees for us.

Manuel Navas

Did you say what those buckets of fixed loans were going to reprice from? Do you have like an average? I don't think I caught that before. I apologize if you said it.

Patrick Barrett

Sure. So the -- well, I don't know, this could get very detailed. But at a high level, we've got the $1.1 billion that's repricing next quarter. Those are coming off of a high 5s, so 590s range. The fixed loans are at 480. So we've got adjustables that are in there as well. And then it's coming off an even lower rate in Q1, so 460s.

Operator

Your next question from the line of Matthew Breese with Stephens Inc.

Matthew Breese

Can you help me out with Flushing all integrated and some of the repositioning, what percentage of loan securities today are floating rate based off of SOFR or prime? And then what is kind of the go-forward strategy around securities? Today -- it was down a little bit this quarter. You're at about 21% of total assets, and I'm curious if that holds or grows.

Patrick Barrett

Right. So the loan portfolio is about 1/3 floating, so 32% 45% fixed, half of that is the residential back book, which is all fixed and is just in runoff mode. And then 1/4 is adjustable and has the periodic repricing at about a 100, call it, $100 million a quarter, $400 million a year, pretty steady. So that's on the loan side.

On the security side, because the duration is relatively short on those, those are about 80% fixed, but less than 4-year duration for the most part and 20% floating. And we're kicking off pretty substantial cash flows, about $75 million per month. So I think just under $200 million from next quarter will either be cash flow earnings or normal maturities of that. And so we've got options on what to do with those, and we can use it for liquidity to provide for loan growth. But then, of course, it would impact our loan-to-deposit ratio if we do that. So we have to think that through. We also pay down wholesale funding with that, whether that's brokered CDs or FHLB, we think of those as pretty interchangeable, and do that. We are unlikely to reinvest any of the cash flows for the securities book.

So over time, you would see that coming down by a steady reduction in the securities book, probably at least down by $1 billion over the next year or so, 1.5 years. And we'll have to reevaluate then based on where we are because we don't like -- we like the liquidity of that, and we need to keep it as at least about 15% of total assets. So it's a higher concentration of securities in the balance sheet today than what's normal for us. By the 4 quarters out, it will be probably about right from a concentration perspective, subject to where loan growth comes in.

Matthew Breese

Okay. So that lands you kind of in the 17% of assets range. Is that fair?

Patrick Barrett

Yes. Yes.

Matthew Breese

Okay. Okay. And then Premier Banking deposits, could you talk a little bit about the composition? I think one of the big selling points has always been you get, call it, 25% or 30% DDAs. So I'm curious if that's playing out for you if you're getting, in fact, a high bogey of DDAs. And I'm also trying to figure out the cost on the interest-bearing portion. If I'm in that kind of 25% DDA range, it sounds like the interest-bearing portion is close to Fed funds, and I wanted to see if that's passed the smell test.

Christopher Maher

So it's about the 21% noninterest today. Interestingly, there's another big slug of it that is interest-bearing checking. So almost 75% of the deposits are checking of some sort or another. you're not far off that when we pay rate, we pay like everybody else and the relationships that we have to manage. We have seen the noninterest portion building, and we think that, that's the tailwind where the costs are coming down a little bit. The market rate stuff is market rate stuff. I mean we're a little better than Fed funds, but Fed funds dictates kind of the benchmark for folks that have a lot of excess liquidity. So -- but we're comfortable that we're in that 2.5% range. I think we can -- in this environment, you can grow that at that cost, and that's not a bad bargain for us.

Matthew Breese

I guess the follow-up and maybe uncomfortable question is, why do you think there's such a difference in performance between the banks that have hired away from Signature? We've seen maybe 3 or 4 banks of those billions in deposits being brought in already. Why not the same for you?

Christopher Maher

It just a matter of scale. So if you look at the number of people that they hired, they hired vastly larger numbers of people. So it's a people business, and it's going to be based on how many folks you have producing. So folks have performed really well. I think our performance will gravitate towards the mean over time. But we didn't -- we made a much smaller bet in terms of the number of folks that we brought on board, and it was a little different. We waited a little longer. We didn't have market brand awareness in New York. So we came in a little bit slower, but that's what I attribute to, Matt, just fewer resources dedicated to it, less brand awareness in the market. But both of those things are changing over time.

Matthew Breese

Okay. And then last one. I know longer term, we've kind of set bogeys of 1% ROA, perhaps even a 3.25% type NIM. Obviously, the rate environment has changed, but I'm curious if those bogeys still kind of hold by year-end 2027. And do you feel like there's pressure to maximize shareholder value if those targets are not hit by that time frame?

Christopher Maher

Yes. We -- well, I'll answer the second question is easier. We feel the pressure to maximize shareholder value every day. But our targets have not changed. Look, I'm -- I feel a little bit more comfortable that this quarter, we did achieve a double-digit return on tangible common equity. That's progress, but it's not where we need to be. So we need to do better than that. And our targets for the ROA in '27 remain in place. And if we can't get there exactly on the NIM, we're looking really hard at the operating expense base and opportunities for us to improve the expenses as a percent of assets. Our target next year is somewhere in the range of 1.75%. That's big progress for us. But if we can do something better than that, that helps as well, especially in a world where NIM may take a little bit longer. But our targets have not shifted, and we have a lot of focus on getting there swiftly.

Operator

There are no further questions at this time. I will now turn the call back to Christopher Maher for closing remarks.

Christopher Maher

All right. Thank you. We appreciate your time today and your continued support of OceanFirst Financial Corp. We look forward to speaking with you in January about our fourth quarter and full year results. Thank you.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.