S&T Bancorp (STBA) Q4 2025 Earnings Transcript

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DATE

Thursday, Jan. 22, 2026, at 1 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Chris McComish
• President — David Antolik
• Chief Financial Officer — Mark Kochvar

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TAKEAWAYS

• Net Income -- $34 million for the quarter, or $0.89 per share, with a 1.37% return on assets.
• Net Interest Margin (NIM) -- 3.99%, increasing six basis points sequentially, the highest since 2023.
• Loan Growth -- $100 million in net loans added for the quarter, representing 4.5% annualized growth, driven primarily by commercial banking, with Commercial & Industrial (C&I) loans up $53 million and Commercial Real Estate (CRE) up $34 million.
• Deposit Growth -- Customer deposits grew $60 million, or 2.9%, with demand deposit accounts (DDAs) accounting for 27% of total balances.
• Allowance for Credit Losses (ACL) -- Declined from 1.23% to 1.15% of gross loans sequentially, driven by problem loan resolutions and a $30 million (13%) decrease in criticized and classified (CNC) loans.
• Net Charge-Offs -- $11 million in the quarter, or 54 basis points annualized, due to aggressive resolution of nonperforming assets (NPAs).
• Nonperforming Assets (NPA) -- Increased by $6 million, rising from 62 to 69 basis points of total assets, following new nonperforming loan formations.
• Unused Commercial Construction Commitments -- Increased by $78 million sequentially, indicating future funding capacity.
• Share Repurchase -- New $100 million share repurchase authorization announced; 948,000 shares were bought back in the quarter at an average of $33.82, totaling $36.2 million.
• Net Interest Income -- Rose by $1.8 million, just under 2% sequentially, primarily due to NIM expansion; earning asset yields decreased three basis points, while cost of funds declined 11 basis points.
• Noninterest Income -- Up $500,000, mainly due to timing in letter of credit activity; expected run rate for 2026 is $13 million to $14 million per quarter.
• Expense Growth Guidance -- Noninterest expenses increased $800,000 quarter over quarter, led by higher salaries and medical costs; 2026 expense growth guidance is approximately 3% year over year (about $58 million per quarter).
• Tangible Common Equity (TCE) Ratio -- Fell by 29 basis points due to share repurchases but remains above regulatory minimums, with excess capital available.
• Loan Growth Outlook -- Management guides to mid-single-digit loan growth for 2026, emphasizing C&I and CRE lending, with additional hiring focused on these areas.
• Deposit Funding Strategy -- Internal funding for projected loan growth expected from core deposit expansion, supported by technology and incentives for deposit gathering.
• Durbin Amendment Impact -- CEO McComish stated, "our Durbin hit is relatively small at $6 to $7 million," projecting crossing the $10 billion asset threshold in 2026 without intent to limit growth.
• Efficiency Ratio -- Target efficiency ratio remains in the mid-50% range, with minimal anticipated infrastructure buildout.
• AI Usage -- The company employs artificial intelligence tools for fraud detection, BSA/AML compliance, and back-office process automation, reporting "millions of dollars of savings" in potential fraud losses.

SUMMARY

S&T Bancorp (NASDAQ:STBA) reported sequential improvements in net interest margin and net interest income, attributing margin gain mainly to a decline in the cost of funds. Asset quality actions during the quarter led to sizable charge-offs but further reduced the pipeline of problem loans. Management introduced a $100 million share repurchase authorization and clarified that capital capacity will support both buybacks and acquisition opportunities. The company expects deposit and loan growth to remain aligned, funding asset growth internally by leveraging its core deposit base. Projections for 2026 indicate net interest margin stability in the 3.9% range and continued disciplined expense management.

• Aggressive reduction of criticized and classified loans by 50% over three years may lessen future charge-off volatility.
• Unused commercial construction commitments rose, supporting a continued lending pipeline despite some near-term pipeline burn.
• Expense growth will be concentrated in customer-facing roles, while the company expects to maintain flat back-office staffing through process efficiencies and selective AI adoption.
• Digital and technological initiatives, including AI implementation in compliance and fraud monitoring, may enhance operational efficiency further over time.

INDUSTRY GLOSSARY

• Allowance for Credit Losses (ACL): A reserve reflecting estimated future credit losses on loans and leases, expressed as a percentage of total gross loans.
• Criticized and Classified (CNC) Loans: Loans identified as having elevated credit risk, often serving as an early warning indicator for potential future defaults or losses.
• Net Interest Margin (NIM): The difference between interest income generated and interest paid, divided by average earning assets, presented as a percentage.
• Nonperforming Assets (NPAs): Loans or assets for which the borrower is not making interest payments or repaying principal as scheduled, indicating engagement of the bank’s resolution and recovery processes.
• Durbin Amendment: A U.S. regulation that caps interchange fees for debit cards at banks with assets of $10 billion or more, impacting fee income after crossing the threshold.

Full Conference Call Transcript

Chris McComish: Great. Thank you, Mark, and good afternoon, everybody. Thank you for joining us on the call. I'm gonna begin my comments on page three. We certainly appreciate the analysts being here, and we look forward to your questions. Before we discuss Q4 specifically, I'd like to take a few minutes to discuss and wrap up 2025. Overall, we moved forward through 2025 very well, producing returns, building record levels of capital, with increased momentum while receiving external recognition for both our financial performance as well as our high levels of employee engagement. For the year, we produced $3.49 a share, just under $135 million of net income, with a 3.9% net interest margin.

Loan growth was over 4%, and customer deposit growth was just under 3%, while expenses were well controlled. Asset quality for the full year was well managed at 18 basis points of net charge-offs, while the ACL declined 16 basis points year-over-year, reflecting three straight years of overall improved asset quality. You know, none of these results would have happened without the commitment of almost 1,300 S&T employees or some of the most engaged and talented employees in our company. For those that are listening on the call, we thank you for your hard work and your engagement. We're using these numbers and results of yours. You should be very proud.

Turning to the quarter, our $34 million in net income equates to 89¢ per share, down slightly from Q3. Our return metrics were again strong, highlighted by a 1.37% ROA. Additionally, our NIM rose to 3.99%, up six basis points on a linked quarter basis, which is the best performance we've seen since 2023, as is our 1.95% PPNR up six basis points quarter over quarter. Asset quality for the quarter was mixed due to higher charge-offs associated with some NPA resolutions while the ACL declined eight basis points due to specific reserve releases and an overall reduction in CNC assets. Dave will provide more details here in a few minutes.

Moving to page four, loan growth was just under $100 million for the quarter at 4.5%, led by commercial banking with both growth in our C&I portfolio as well as our CRE line of business. Customer deposit growth was just under $60 million at 2.9%, and the quality of our deposit mix remains very strong with DDAs representing 27% of total balances. Before I turn it over to Dave Antolik to provide more details on the balance sheet and credit, I wanted to bring to your attention the other announcement that we made this morning announcing our new $100 million share repurchase authorization that was approved by our board of directors yesterday.

Given the robust capital levels of the company, we are fortunate to be able to have an authorization of this size available to us. Our capital levels give us the ability to repurchase shares should the market warrant it, while not in any way impeding our ability to consider other opportunities including M&A. With that, I'll turn it over to Dave, and I look forward to your questions.

David Antolik: Well, thank you, Chris. And as Chris mentioned, the loan growth of the quarter was driven primarily by commercial with C&I and CRE balances growing by $53 million and $34 million respectively. C&I growth was a result of an increase in revolving balances and new customer acquisition. Q4 was a particularly active quarter for our asset-based lending group, who onboarded several new names. Categories of C&I growth include retail, utilities, and service. Our CRE growth was entirely driven by construction funding in the quarter. We continue to see demand for construction facilities for multifamily, warehouse, storage, and industrial asset classes.

These loans typically fund over twelve to eighteen months, move to our permanent CRE portfolio, and frequently move on to nonrecourse funding sources. Supporting growth in the coming quarters, our unused commercial construction commitments increased by $78 million quarter over quarter. As a result of the strong funding in Q4, our pipelines reduced slightly heading into Q1, and our focus is on rebuilding. This activity is consistent with our historical experiences. Regarding loan growth guidance for 2026, we believe that mid-single-digit growth is achievable while maintaining our asset quality profile. We expect loan growth to primarily come from C&I, where we've seen improved activity from investments we've made in team leadership and banker talent, along with CRE.

We've demonstrated a long-standing ability to develop deep customer relationships in support of growth. We are also forecasting continued consumer home equity growth, which is focused on complementing our deposit franchise customers. If I can now direct your attention to slide six of the presentation, which provides additional details on our asset quality performance in Q4. Starting with the allowance for credit losses, we recognized a reduction relative to gross loans from 1.23% to 1.15% quarter over quarter, primarily the result of two factors. First, a reduction in specific reserves related to problem loan resolution. Second, a reduction in criticized and classified loans of $30 million or 13% in Q4.

This reduction in criticized and classified loans at year-end 2025 represents our third consecutive year of successfully reducing loans in these categories. Over that period, the three-year period, we have reduced total CNC loans by 50%. It is also a reflection of our focus on asset quality as a key driver of financial performance, robust portfolio management, and an aggressive approach to problem loan resolution. As a result of aggressively addressing problem loans, we were able to fully resolve loans totaling $29 million during the quarter. These resolutions contributed to increased charges of $11 million or 54 basis points annualized in the quarter.

In addition, we recognized new NPL formations that caused overall NPAs to increase by $6 million from 62 to 69 basis points. We have appropriately reserved for these loans and have resolution strategies in place. Although an increase relative to Q3 and 2025, this level of NPLs remains at a very manageable level. Looking forward, we anticipate full-year 2026 asset quality results to perform similarly to what we saw in 2025, with a focus on reducing NPLs and maintaining the lower level of CNC loans that I discussed earlier in my comments. I'll now turn the call over to Mark. Mark?

Mark Kochvar: Thanks, Dave. Fourth quarter net interest income improved by $1.8 million or just under 2% compared to the third quarter. That was mostly driven by the margin expansion of six basis points. The margin improvement came from an 11 basis point decrease in the cost of funds, and that was offset by a modest decrease in earning asset yields of about three basis points. We have been able to successfully reduce exception rates and regular rates on non-maturity deposits as the Fed has reduced short-term rates. CD rates have been somewhat more sticky but are still coming down.

We continue to expect that our more neutral interest rate risk management position and pricing discipline will mitigate any rate down impact, both what has happened and what is expected in 2026. Tailwinds from our maturing received fixed swap portfolio, security, and fixed loan repricing, some limited CD repricing all contribute to these tailwinds. If we look into 2026, we expect relative stability in the net interest margin, in the mid to high 3.9% range, with net interest income growth coming from earning asset growth. Next slide. Noninterest income increased by $500,000 in the fourth quarter with small improvements in our major customer fee categories. The increase in other is timing-related, primarily to the letter of credit activity.

Our expectations for fees in 2026 remain at approximately $13 to $14 million per quarter. Expenses were in line in Q4, up by $800,000 compared to the third quarter. The largest variance was in salaries and benefits. Within that, medical costs were higher and also salaries due to some hiring. Marketing was impacted by the timing of some promotions. We expect to manage our 2026 noninterest expense year over year to around 3%, which implies a quarterly run rate of approximately $58 million. Lastly, on capital, the TCE ratio decreased by 29 basis points this quarter due to the share repurchases completed in the fourth quarter.

We repurchased just over 948,000 shares at an average price of $33.82, a total of $36.2 million. Our regulatory ratios continue to be very strong with significant excess capital. Even if we complete the $100 million repurchase program announced today, we are comfortable that we will have more than sufficient capital to position us well both for the environment and to enable us to take advantage of inorganic or organic growth opportunities. Thanks very much. At this time, I'd like to turn the call back over to the operator to provide instructions for questions.

Operator: Thank you. The floor is now open for questions. If you like to withdraw your question at any time, please press 1 again. Please hold while we poll for questions. Your first question comes from the line of Justin Crowley with Piper Sandler. Your line is open.

Justin Crowley: Hey. Good afternoon, everyone. Hi, Hi. Just want to start on loan growth for the quarter. You know, it didn't really deviate from how you folks framed expectations previously, but bigger picture, curious, is there anything specific that you'd point to that's maybe holding you back from that ramping to say you know, a mid to high single digit pace, something more along those lines? Maybe once discussed. You know, is that a function of the demand side of the equation or is there a desired pricing component to that? What, if anything, would you speak to there?

David Antolik: Yeah. Justin, it's Dave Antolik. I think that it is not necessarily on the demand side. It's, you know, making sure that the asset quality of the onboarded new customers meet our criteria to maintain the lower levels of CNCs. Some of it is, you know, we're adding to staff. We're adding bankers. We plan on doing that throughout the year. So making sure that we have adequate coverage in all of our markets and all of our segments. I think about the C&I growth and, as I mentioned, the ABL activity. There were certainly bright spots in Q4. That's relatively new.

So there are some tailwinds to help us grow and hopefully get to a higher rate of growth in terms of our loan.

Chris McComish: Justin, it's Chris. The other thing I would add is we do think, you know, about the overall state of the economy. And things are picking up in positive, but we don't want to be out there predicting something that's dramatically higher than what you see from a GDP growth rate standpoint or what we believe organically is available in the markets that we serve. Dave touched on it too. You know, our desire is to continue to grow teams and bankers in the field. Our leadership in the field knows that there are no constraints around adding more folks to the team, and that we'll continue to do that.

But we're trying to give you our best estimate based upon all of those factors.

Justin Crowley: Okay. And you mentioned in terms of or both of you mentioned sort of the hiring efforts and, you know, maybe it's a mix, but you know, how focused is that on the C&I side of things? Is that kind of the top priority in terms of looking to add new talent?

David Antolik: Yes. I would call that our number one priority in terms of moving ourselves forward and accelerating growth in the commercial space. And it's not just C&I, Justin. It's both CRE and C&I. You know, we're doing an awful lot of work in our business banking space as well. So focus those teams on deposit gathering and developing new relationships. So it's across the board, you know, in the fight for talent, we think we have a really good story to tell. We'll be able to acquire and add to the teams in order to support growth.

Justin Crowley: Okay. That's helpful. And I guess pivoting, you know, just one on the margin. You know, was pleasantly surprised with the expansion you saw this quarter, and it looked like some nice moves lower in deposit costs. You know, I think the last update you gave, you're referring to some of the competitive pressures on the funding side. That had been maybe a little stronger than initially expected. So curious how that has been trending as we now move through the first quarter. And, you know, I guess, how that sort of informs the mid to high three nine, guide on margin here looking forward?

David Antolik: Yeah. I think with the as the Fed moved lower, you know, we've seen the competitors a little bit slower than we anticipated, but bring rates down. So we're working within that framework and are pretty confident that we can hold these levels on the NIM.

Chris McComish: Justin, if you think about the quarter itself and when rates dropped, I would say the competitive intensity around rates was higher early in Q4, than as we moved through Q4. And, you know, subsequent drop in rates. The market rates kind of went with it a little bit faster. I think it's a bit harder for people to cross, for example, four on CDs. You know, that dip below four on CD, that short six CD rate took a little bit longer than we had thought would happen. But we're through that, things seem to be moving a little bit better.

Justin Crowley: Okay. And then maybe just M&A. You know, I know we've talked a lot about it, but just curious for Chris, maybe an update there, you know, where things stand, just sort of the pace of conversations you're having, if there's any or has been any shift in preference or bias as to what geography or geographies you know, you might be leaning toward or where you're seeing the most active discussions.

Chris McComish: No. Nothing significant. Just that we've talked about over the past couple of months. We are in active dialogue across the geographies. And we continue to make it a priority for us. But we also want to do, you know, do the things that we have most direct control over, and those are the things that we're doing every day. So still lots of interest, lots of conversations. You know, reiterating something I said earlier. This stock repurchase authorization that we have, and we're very fortunate to be able to, you know, kind of walk and chew gum at the same time. That we can potentially, if the market avails itself, to the repurchase authorization, that's great.

At the same time, it doesn't inhibit us at all from an M&A standpoint.

Justin Crowley: Okay. Perfect. Great. I appreciate everything.

Chris McComish: Okay. Thank you. Thanks.

Operator: Your next question comes from the line of Daniel Tamayo with Raymond James. Your line is open.

Daniel Tamayo: Thank you. Hey, Danny. Good afternoon.

Chris McComish: Yeah. Hey, guys. Maybe we start on the loan growth side, but as it relates to the funding, mid-single digits not guiding to better than that, but sounds like it could be a good year for loan growth. Loan deposit ratio now over 100%, I believe. So just curious if you expect to be able to kind of fully fund that loan growth with deposits or if you're going to be using alternative sources, just outlook on the deposit growth, if you will.

David Antolik: Yeah. Sure. What we're forecasting is our ability to fund that internally through deposit growth. We saw a really strong Q4 in terms of customer deposit growth, particularly in the consumer space. Was offset a little bit by some activity with some large commercial depositors that we consider more anomalous than anything. So I think that with the focus and the investments that we've made in technology, people, campaigning, we're really focused on driving core deposit growth, and we think we can achieve balanced loan and deposit growth trajectory.

Chris McComish: Danny, it's Chris. If you'd be able to show you the Teams incentive plan, you would see very clearly where the importance of deposit growth and funding our asset growth through continued expansion of customer relationships. So we know in order to match profitable growth, the funding needs to come from the continued growth in our already strong core deposit franchise, and that's a key focus for all of us in all lines of business.

Daniel Tamayo: Okay. And on the cost side, I suppose, I mean, this is kind of related to that as well as your commentary earlier about repricing the current deposits. What do you have in terms of implied or assumed deposit betas in margin guide?

David Antolik: Well, I mean, we have maybe in our plan, we have a couple more cuts sort of built in. I mean, it's complicated because there's, you know, on the asset side, things are moving the other way. But on the deposit side, the betas are probably in the 30 range overall.

Daniel Tamayo: Okay. Alright. Great. And then, I guess, one last one for you, Chris. You talked about the M&A, and you obviously have this buyback announcement. From a capital perspective, but you know, you're obviously just under $10 billion. You've been able to kind of flatten out the asset growth over the last few quarters. You know, I'm modeling in. I think you talked about last quarter likely crossing $10 billion next year. But is there a way or a desire to potentially keep that under $10 billion through next year and push the Durbin hit out a year?

Chris McComish: Yeah. At this point, Danny, we're not thinking that way. We believe that we'll know, our Durbin hit is relatively small at $6 to $7 million. There's certainly some things that you could do, you know, Mark and the team do. But our focus right now is to continue to grow and show some reasonable growth. You know, if we end up with, you know, 5% loan growth for the year, 6%, you know, in that range, you're talking about $500 million worth of loan growth, and that would put us kind of meaningfully over the $10 billion. And then we have, you know, the good part of 2027 to work through that.

So our focus is to continue to and recognize that, you know, that's a potential headwind, but it's also something that we're gonna we can also celebrate because it's been talked about for too long to stay around that level.

Daniel Tamayo: Understood and agreed. We're all looking forward to not talking about that anymore.

Chris McComish: Think about it, Danny. The call would be ten minutes shorter.

Daniel Tamayo: I'll scratch that off my question for next time. Alright, guys. That's all I have. Thanks a lot.

David Antolik: Thank you.

Operator: Next question comes from the line of Kelly Motta with KBW. Line is open.

Charlie: This is Charlie on for Kelly. Thanks for taking my questions, guys.

Chris McComish: Sure.

Charlie: Just to hit on asset quality quickly, can you provide more color on the specific resolution of the NPAs that drove kind of the $11 million in charge-offs? And whether that relates to the two CRE and one C&I credit you guys identified last quarter?

David Antolik: Yep. Yep. Just got that. And you directly related to those previously identified and talked about credits. We were able to bring those to resolution, recognize the charge, reduce specific reserves as a result. We also had, as I mentioned, formation in the quarter. That were both C&I and CRE. And we appropriately reserved for those. And we have resolution strategies in place for those credits as well. And, yeah, I want to reemphasize the importance of the progress we've made in terms of the criticizing classified reductions over the last three years. So if you think about, you know, we talk a lot about loan pipeline and where's growth going.

You know, that CNC bucket is the pipeline for future charges and NPLs. So having reduced that by 50% over the last three years, reduces the amount of problem loans coming into the funnel, that could potentially lead to further deterioration or charges within our book. So that's why we feel good about being able to say, hey. Look. Asset quality in 2026 is not going to perform any worse than 2025. And our focus on reducing NPAs and the feeder pipeline of CNCs has taken hold and it's really our focus.

Charlie: That's helpful. Thank you. And then turning to expenses, it seems like growth is gonna be expected to be strong, and you guys saw 4% expense growth this year. Is that kind of a fair run rate in the years ahead? I know you mentioned adding talent in the C&I and CRE verticals and made investments already. Just if you could speak to initiatives ahead and maybe secondly, if there's room on the efficiency ratio or it's, like, mid-fifties a good sustainable place to operate from? Thank you.

David Antolik: Sure. I'll start at the last one. I think mid-50s is the place to look for the efficiency ratio to be. On the expense side, we don't think we have a lot of infrastructure build. We've invested a lot over the last few years on the staffing side for a lot of our support areas. So the FTE growth that we expect in this year and really for a couple of years after that will be mostly production-related. So that limits the overall increase on the salary benefit side. So we're working with about a 3% year-over-year expense increase. So, you know, we're pretty confident that we could hold to that going into this year.

Charlie: That's great. Thank you. I'll step back. Thanks for taking my questions.

Chris McComish: Thank you, Charlie.

Operator: Your next question comes from the line of Matthew Breese with Stephens. Your line is open.

Matthew Breese: Hey, good afternoon.

Chris McComish: Hi, Matt.

David Antolik: Hey, Matt.

Matthew Breese: Few more questions for me. You know, first, loans this quarter held up a bit better than what I was expecting. And so I'm curious what the roll-on yields are versus roll-off today and maybe what are your expectations for back book repricing in 2026?

David Antolik: We're still getting a little bit of positive on the fixed side. You know, we're also getting benefit from this received swap book that we have. So that's been helping a lot to support the lack of declines on the asset side. Although that tailwind, if you will, starts to diminish as we get farther into the year. You know, so by the end of the fourth quarter, a lot of that will be gone. The replacement yields are not all that different on the floating side. I mean, they're just kind of coming off and going on, but we are still picking up, you know, maybe 25 basis points on other more fixed products net.

Matthew Breese: And do you have the maturities for fixed asset repricing or fixed loan repricing in '26?

David Antolik: Say tower bets? Yeah. But we have about a billion or so that we have to replace every year. Some of that will be our prepayments and not and also amortize it. Loans. So kind of a mix of that is that the It's a mix of fix and flow. Yeah.

Matthew Breese: Got it. Okay. And then do you have the updated cost of funds either at or cost deposits either at year-end or more recently? One of the things I was looking at, you know, CD costs, just look a little elevated here at $3.86. I'm assuming there's quite a bit of downside as we think about, you know, rate cuts, additional rate cuts, and the maturity schedule there. What CD cost could be a year from now?

David Antolik: Yep. So they have, like, a monthly margin, you know, from December that gets us a little bit closer. And for that period, our CDs were about at a $3.82. And overall deposits were about a $2.50.

Matthew Breese: $2.50 for interest-bearing.

David Antolik: Yes. Yeah. That doesn't include DDA. It's just Yeah.

Matthew Breese: Okay. Okay. Thank you. I guess the last one for me, a lot of the questions have been exhausted, you know, for Community Bank, what are you doing, or what are you using for AI tools at this point? How are you using them and as we look ahead, whether it's a year or five years, you know, how do you think those tools might impact your P&L?

Chris McComish: Yeah. Obviously, you know, in some of these areas, things are early days, but in other areas, it's, you know, it's work that is really important to our company. I think about in the area of BSA, AML compliance, and some of the fraud protection that occurs in our company every day relative to primarily to our deposit book and, you know, anomalies that are happening within commercial and consumer deposit relationships. So all of that information that's coming to our financial intelligence group is AI-driven. And alerts are created. And it has been a big factor in our ability to, you know, find potential fraud and make sure that we're stopping things before they actually happen.

And it's, you know, it's millions of dollars of savings that we see on a quarterly and annual basis. Around potential things, all coming from you would consider some sort of AI alert. We're also thinking about, you know, generally, you know, compliance consumer compliance, and the ability to use AI there. Within our commercial bank, the underwriting and portfolio management infrastructure that we have has increasing levels of AI support to do things like auto spreading of financial statements. You know, support for it will continue to mature. Will be support around underwriting for originations as well as portfolio management. We're also using it to enhance our communication.

You know, just this month, some of the work that we're doing in communicating to our board, we're running through some AI tools to help us communicate more effectively. So it's a lot of kind of some experimentation. Obviously, there's a big level of risk management associated with it. This is our information that we have to protect. And we have to make sure that it's not, you know, not available elsewhere. So we're working on that. You know, we've got a working group that thinks about these things, but you know, it'll continue to evolve, and it is a priority for us.

You know, we talked about expense growth in the year and, you know, the commitment that we have is, you know, all FTE growth people expense growth will come in customer-facing and revenue-producing roles. We believe that, you know, back-office support and those sorts of things should be able to be held flat. And that's kind of a forcing mechanism to make sure that we're looking at opportunities that, you know, from a technology standpoint.

Matthew Breese: How far away are we from, you know, you said millions of savings. You know? How far away are we from that actually impacting guidance and your outlook?

Chris McComish: Well, a long way. You know, again, it's still early days. When I'm talking about millions of savings, these are, you know, fraud alerts that are protecting, you know, protecting our customers from potential losses that could have occurred otherwise. So as it relates to significant increases in operating expenses, I've, you know, we got a ways to go, I think.

Matthew Breese: Yes. I'll leave it there. Thank you very much for all that. Appreciate it.

David Antolik: Sure.

Operator: Your next question comes from the line of Dave Bishop with Hoste Group. Your line is open.

David Bishop: Yes, thank you. Good afternoon.

Chris McComish: Hey.

David Bishop: Quick question for you. Most of my questions have been asked and answered, but in terms of origination, loan production this quarter versus payoffs, just curious, maybe how those compare to fourth quarter to the back in the third quarters? Thanks.

David Antolik: Yeah. Fourth quarter was robust. Originations were strong in Q4. We did have elevated payoffs in Q4 that talked about the, you know, the kind of the construction cycle. A lot of those loans were refinanced out of the bank in Q4. You know, it had led to some pipeline burn that we're actively rebuilding now and would hope to, you know, regain our momentum. And as we add additional bankers incrementally add to what our experience has been over the past year or two. So we, in total, need to originate somewhere around a billion and a half to a billion 7.

And in total new loans each year to drive a, you know, five to 7% net loan growth number.

David Bishop: Got it. And in terms of the targeted banker assets here, any geographies burning a hole in your pocket more than others as you budget out this year?

David Antolik: Yeah. We're, you know, we're agnostic relative to the geography. You know, we want we know we need to add to the C&I teams. CRE, we're pretty well heeled in terms of the legacy market. But if we can find an additional banker who can help us grow, we're gonna hire them. As Chris mentioned, the focus of the leads of both the commercial real estate and C&I groups, our ABL group, is to add additional bankers in order to further enhance customer acquisition and that, hopefully, that translates into additional loan and more specific deposit growth. So it might be treasury management officers. It could be CRE bankers. It could be C&I bankers.

You know, we're looking to grow all facets of our commercial teams and the products that they offer.

David Bishop: Great. Thank you for that color.

Operator: Your next question comes from the line of Daniel Karthaus with Janney Montgomery Scott. Your line is open.

Daniel Karthaus: Hey. Good afternoon, guys.

Chris McComish: Hey, Dan.

David Antolik: Hey, Dan.

Daniel Karthaus: Just, most of my questions have been asked and answered, but maybe could you provide a little bit of color as to competitive factors on the deposit side, given your goal to fund loan growth with deposits. Are the markets that you operate, are they behaving rationally right now, or how would you kind of describe those?

Chris McComish: Yeah. We talked a little bit about that earlier. I would say that, you know, early in Q4 as rates started coming down in that 4% number was out there when you're talking about the CD book. There was some pressure from competitors to what I would call key, you know, hold on what I have. And offer, you know, an elevated rate. We were a little surprised that folks kind of reacted as slowly as they did. And I think particularly in the month of October, maybe even into early November. But second half of the quarter, things became more rational. You know, we don't aggressively post and advertise aggressive rates in the market, generally speaking.

We operate with what I would call a very responsive exception pricing process that kind of combines the ability for our team leaders in the field to make decisions with the proper level of oversight between Mark's teams and Dave's teams. And that has worked really well for us, both in the ability to attract new deposits as well as to retain things from a competitive standpoint. So we feel, you know, optimistic about our ability to respond to the information that we're getting, to make decisions around and that's a big reason why we believe we should be growing deposits at least at the rate that we're projecting our loan growth.

Daniel Karthaus: Excellent. Got it. Great. So I have for right now. I'll step back. Thanks.

David Antolik: Thank you, Dan.

Operator: And with no further questions in queue, I'd like to turn the call over to Chief Executive Officer, Chris McComish, for closing remarks.

Chris McComish: Well, listen. Thanks all for being on the call with us. And we appreciate your engagement and your guidance. Be safe out there. There's a lot of nasty weather coming in various parts of the Midwest in particular. But we look forward to a successful 2026. We're certainly very proud of 2025. Look forward to moving forward. So have a great rest of the day.

Operator: This concludes today's conference call. You may now disconnect.

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