S&T Bancorp (STBA) Q2 2026 Earnings Call Transcript

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DATE

Thu, July 23, 2026 at 1:00 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer - Christopher McComish
• President - Dave Antolik
• Chief Financial Officer - Mark Kovacic

TAKEAWAYS

• Net Income -- $36.6 million, an increase of 22.9% from $31.9 million in the second quarter of 2025.
• Diluted EPS -- $1.02, representing a 22.9% increase compared to $0.83 in the second quarter of 2025.
• Net Interest Income -- $90.4 million, reflecting a $2.0 million increase from the first quarter of 2026 due to an additional day and improved asset yields.
• Net Interest Margin -- 3.99% on a fully taxable equivalent basis, expanding seven basis points from 3.92% in the first quarter of 2026.
• Portfolio Loans -- $8.1 billion, increasing $99 million or 5% annualized during the quarter.
• Commercial and Industrial Loans -- $1.6 billion, growing by $79 million as revolving line utilization rates increased from 41% to 44% quarter over quarter.
• Commercial Construction Loans -- $475.5 million, up $71.4 million reflecting an 18.9% increase in total commitments during the quarter.
• Permanent Commercial Real Estate -- $3.5 billion, declining by $46.2 million primarily due to loan payoffs from non-bank lenders.
• Customer Deposits -- $307.7 million in year-to-date growth, representing 8% annualized growth despite total deposits decreasing $99.1 million in the quarter.
• Brokered Deposits -- $1.1 billion, reduced by $100.4 million in the second quarter and $180 million year to date to improve funding mix.
• Non-Interest-Bearing Demand Deposits -- 28% of total deposits, maintaining what management identified as an industry-leading level for relationship-based banking.
• Non-performing Assets -- $40.2 million, decreasing by $9.7 million to 0.5% of total loans plus other real estate owned (OREO).
• Net Charge-offs -- $1.0 million, or 0.05% of average loans, compared to $1.7 million or 0.09% in the first quarter of 2026.
• Allowance for Credit Losses -- 1.16% of total portfolio loans, totaling $93.3 million as of June 30, 2026.
• Non-interest Income -- $14.9 million, including a $1.9 million gain from Visa Class B-2 share conversion offset by a $1.7 million loss on a $34 million bond portfolio repositioning.
• Non-interest Expense -- $58.7 million, increasing $2 million from the first quarter due to merit salary increases and higher medical costs.
• Share Repurchases -- 1.1 million shares, purchased for $47.6 million at an average price of $44.24 during the second quarter.
• Loan Growth Guidance -- Mid-single-digit growth, expected for the remainder of 2026 supported by C&I and commercial real estate pipelines.
• Expense Guidance -- $58 million quarterly run rate, targeting a maximum 3% year-over-year increase for full-year 2026.
• Total Assets -- $9.9 billion, with management projecting the company will cross the $10 billion threshold in the second half of 2026.

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RISKS

• Antolik stated, "That headwind from the permanent market is going to continue to be something that we're going to face throughout the balance of the year," referring to the $46.2 million decline in permanent commercial real estate as borrowers move to non-bank lenders.
• Kovacic stated, "We'll start to see some uptick potentially after Q3 in deposit costs as there's still some repricing and some exception pricing being made," regarding the impact of maturing certificates of deposit and competition.

SUMMARY

Management reported that **S&T Bancorp, Inc.** (NASDAQ:STBA) achieved margin expansion and net income growth driven by a strategic shift toward commercial and industrial lending and improved funding mix. The company is actively reducing its reliance on brokered deposits while maintaining high levels of non-interest-bearing demand accounts. Management expects to cross the $10 billion asset threshold in the second half of 2026, which will eventually trigger regulatory impacts on fee income. Capital allocation remains focused on organic growth and opportunistic share repurchases, supported by a newly authorized $100 million buyback program.

• CEO McComish estimated the Durbin Amendment will result in an annual revenue impact of "a little over $6 million," with the initial effect beginning in the second half of 2027.
• President Antolik noted the commercial banking team grew 20% year to date, with a target to reach 30% growth by year end to support C&I expansion.
• CFO Kovacic indicated that the company may step back from share repurchases at current stock price levels after buying back 8% of outstanding shares over the past three quarters.
• The bond portfolio repositioning involving $34 million in securities has an estimated earn-back period of 1.4 years based on identified net interest income.
• Management reported that total commercial construction commitments increased by $65 million during the quarter despite the headwind of payoffs in the permanent real estate portfolio.
• CEO McComish stated that M&A conversations remain active, noting that "conversation activities haven't slowed down from the standpoint of thinking strategically about partnerships."

INDUSTRY GLOSSARY

• ACL (Allowance for Credit Losses): A reserve established by a bank to cover estimated uncollectible loans.
• C&I (Commercial and Industrial): Loans made to businesses for working capital or capital expenditures rather than real estate.
• DDA (Demand Deposit Account): A bank account from which deposited funds can be withdrawn at any time, such as a checking account.
• Durbin Amendment: A regulation that limits the fees banks with over $10 billion in assets can charge retailers for debit card transactions.
• FTE (Fully Taxable Equivalent): A method of adjusting tax-exempt interest income to make it comparable to taxable interest income.
• NIM (Net Interest Margin): The difference between the interest income earned by a bank and the interest paid to its lenders, relative to its interest-earning assets.
• NPA (Non-performing Asset): A debt instrument where the borrower is not making interest or principal payments.
• OREO (Other Real Estate Owned): Real estate property owned by a bank that is not part of its primary business, often acquired through foreclosure.
• ROTE (Return on Average Tangible Shareholders' Equity): A ratio measuring a bank's performance by comparing net income to its tangible equity, excluding goodwill and intangibles.

Full Conference Call Transcript

Operator: Thank you. Welcome to the S&T Bancorp second quarter 2026 earnings conference call. After the management's remarks, there will be a question and answer session. Now, I would like to turn the call over to Chief Financial Officer Mark Kovacic. Please go ahead.

Mark Kovacic: Great. Thank you. And good afternoon, everyone. And thank you for participating in today's earnings call. Before beginning the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors. The statement provides cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation. A copy of the second quarter 2026 earnings release as well as this earnings supplement slide deck can be obtained by clicking on the materials button in the lower right section of your screen. Also open up a panel on the right where you can download these items.

You can also obtain a copy of these materials by visiting our investor relations website at stbankcorp.com. With me today are Chris McCommish, S&T's CEO, and Dave Antolik, S&T's President. I'd now like to turn the call over to Chris. Chris?

Christopher McComish: Mark, thank you. And good afternoon, everyone, and thank you for joining us today. We appreciate the analysts and investors being with us. And as always, we look forward to your questions. Before I get into the quarter, I did want to take a minute to recognize the broader momentum we are seeing across S&T. Our financial performance is one important measure of that momentum, but we also continue to see it reflected in the strength of our customer relationships and the trust customers place in our company. That was reinforced this quarter when S&T was named to the Forbes America's Best in-State Banks 2026 list.

This is a recognition based upon direct customer feedback across areas such as trust, customer service, financial advice, digital experiences, and overall satisfaction. Also during the quarter we celebrated our 124th year, which means we begin celebrating S&T's 125th year legacy this quarter. This recognition is a timely reminder that our long-term success has been built on those same fundamentals. Serving customers well, investing in our communities and delivering value for our shareholders over time. These commitments have helped us navigate change, strengthen our culture, and position the bank to thrive for the next 125 years and beyond. Now, turning to our financial results, I'll start on slide three. Turning to the quarter, we delivered a very strong performance.

Net income was $36.6 million, or $1.20 per diluted share, up 8.5% from the first quarter of '26 and 22.9% from the second quarter of last year. Return metrics were also solid. We reported ROA of 1.49, ROE of 10.375, and a ROTCE of over 14. These results reflected the benefit of higher earnings, continued discipline across the company, and the impact of our share repurchase activity. Our operating performance was also strong. Net interest margin expanded seven basis points from the linked quarter to 3.99, supported by both higher loan yields and a better funding mix. Net interest income increased to $90.4 million compared to $88.4 million in the first quarter and $86.6 million a year ago.

Importantly, we're seeing positive year-to-date operating leverage. Through the first six months of the year, revenue growth has outpaced expense growth meaningfully and our efficiency ratio improved to 55.38% compared to 57% for the first six months of 2025. As is noted, asset quality showed improvement during the quarter with low net charge offs of just a million dollars and non-performing assets decreased by almost $10 million to 0.5% of total loans and OREO. On page four, loan growth was $99 million or 5% annualized. On the deposit side, customer deposits were stable in the second quarter after very strong growth in the first quarter. Year to date deposits are up approximately 8% annualized.

At the same time, we reduced broker deposits $100 million during the quarter and $180 million year-to-date, which again improved the quality of our funding mix. DDA levels remain at an industry-leading 28% of total deposits, highlighting the value of our relationship-based model and the quality of our core deposit base. We continue to actively manage capital also. As you know, over the past three quarters, we repurchased almost 3.2 million shares, representing 8% of outstanding shares for a total of $133 million. We also got board approval yesterday for reauthorization of another $100 million opportunity.

Our strong capital position gives us the flexibility to continue to support organic growth, remain disciplined around capital returns and evaluating strategic opportunities as they arise. In summary, this was a very good quarter for our bank. We delivered meaningful EPS growth, solid returns, favorable asset quality, positive year-to-date operating leverage and continued capital management through share repurchases. I'm going to stop right there, turn it over to Dave. He can talk about asset growth, pipelines, and asset quality.

Dave Antolik: Great. Thank you, Chris. And as Chris mentioned in referring to page four, total loans increased by $99 million during Q2, representing approximately 5% annualized growth, driving balances over $8 billion. We're encouraged by both the composition and the quality of this growth. As discussed on previous calls, we are strategically focused on building our C&I capabilities and our investment in talent is beginning to pay off. During the quarter, we increased our C&I banker count. They've increased our total commercial banking team by approximately 20% year to date, with a goal of reaching 30% by year end.

These hires strengthen our ability to deepen customer relationships, expand our presence in attractive markets, and support long term loan and deposit growth. The results can be seen in our C&I portfolio. During the quarter, C&I balances increased by $79 million. We saw encouraging signs from our C&I customer base with revolving line utilization increasing from 41 to 44% quarter over quarter. And at the same time, total C&I revolving commitment grew at 6% annualized, demonstrating continued demand from our customers along with increased banker productivity. Permanent commercial real estate balances declined by $46 million, primarily driven by loans that were paid off by non-bank lenders.

While this created a headwind to the portfolio growth, it also reflects the continued quality of our borrower base and the attractiveness of these projects to the permanent market to support well-capitalized developers within our footprint. As a result, commercial construction balances increased by $71 million during the quarter. Additionally, total construction commitments increased by $65 million, and the total number of commitments increased by nearly 19% in Q2, providing further evidence of solid customer activity. Looking ahead, our CRE and C&I pipeline activities remain solid and support our expectation for annualized mid-single-digit loan growth for the balance of 2026.

Turning to asset quality on page 5, our portfolio continues to perform in line with our expectations, demonstrating our disciplined underwriting approach and ongoing portfolio management efforts. Non-performing assets declined by $9.7 million during the quarter to $40.2 million or 0.5% of total loans plus OREO. Criticized and classified assets remained stable during the quarter while losses were very low, totaling just $1 million during Q2, resulting in a modest provision expense of $1.1 million. Given the continued stability of the loan portfolio, the allowance for credit losses remained essentially unchanged at 1.16% of total loans compared to 1.17% at the end of Q1. And I'll turn the program over to Mark.

Mark Kovacic: Hey, thanks Dave. Second quarter net interest income increased by $2 million due to an additional day, combined with improvements on both the yield on earning assets, which dropped four basis points with better commercial performance, and the cost of funding, which was down four basis points due to lower interest bearing deposit rates, and also a better funding mix. We expect relative net interest margin stability around the current high 3.90s level to continue for the next several quarters, and believe we are well positioned should interest rate conditions change.

A tailwind from our maturing receive-fixed swaps along with some remaining security fixed rate loan and CD repricing all contribute to stability in the face of heightened loan and deposit pricing competition. Net interest income growth will be supported by improved loan growth. Average loan balances were actually down in the second quarter due to the timing of the growth in the first half, but we expect average loan balance growth going forward. Customer deposit growth momentum remains good even in the face of this increased competition, which should contribute to maintaining spreads and net interest margin rates. Next, on non-interest income, we saw an increase of $1.3 million in the second quarter.

Increases were broad-based with improvements in really every category. Debit and credit card activity was higher after a seasonally slower first quarter. Investment services is up with better customer activity and market improvements. The gain on sale is the net of a $1.9 million gain on the conversion of Visa Class B2 shares. We offset that for the most part with a $1.7 million loss on a small $34 million bond portfolio repositioning. The bond repositioning has an earn back of about 1.4 years to identify net interest income for the next several quarters. The other category variance is due to one-time items. We had some partnership income and an unrealized gain on some equities that we own.

Our expectations for fees in the second half of 2026 is approximately $14 million per quarter. On non-interest expenses, which increased by $2 million in Q2, the largest variance was in salaries and benefits. And within that, salaries were up due to merit increases going into effect in April. And we also had some higher medical costs as deductibles were met during the first part of the year. Occupancy improvement was impacted by higher seasonal snow removal and utility costs in the first quarter. Marketing reflects just the timing of various promotional efforts. Other variances include tax-related contributions, which are offset by a favorable variance in other taxes.

We had some higher T&E and employee recognition along with some recruiting fees. We expect to manage our 2026 non-interest expense year over year to a maximum around 3% increase, which implies a quarterly run rate of around $58 million. For capital, the TCE ratio decreased by 28 basis points this quarter, primarily due to the share repurchases we completed in the second quarter. Again, for the quarter, we repurchased about 1.1 million shares, average price of $44.24, with a total of $47.6 million. Regulatory ratios continue to be very strong with significant excess capital. We are evaluating next steps with respect to our capital management strategy and further buybacks.

We're comfortable that even considering additional repurchases that were recently authorized by the Board, we have more than sufficient capital currently and the generation capabilities that will position us well for the environment and enable us to take advantage of organic or inorganic growth opportunities should they arise. At this time, I'd like to turn the call back over to the operator to provide instructions for asking questions.

Operator: The floor is now open for questions. If you have a question, please press star 1 on your device. We ask that while asking your question, please pick up your phone and turn off speakerphone for enhanced audio quality. Please remember to unmute your device. Please hold while we poll for questions. Your first question comes from the line of Daniel Cardenas with Raymond James. Your line is now open. Please go ahead.

Daniel Cardenas: Thank you. Good afternoon, everybody. How's it going? I apologize if you gave this already. But the loan growth guidance, did we get a, was it mid single digit again?

Dave Antolik: Looking for the rest of the year, exactly, Dan, mid single digits.

Daniel Cardenas: Okay, all right, great. And in terms of the deposits, I know you called out it's been strong year to date. Still thinking that kind of full year will fund the loan growth? Or are you thinking through the deposit? Yes.

Dave Antolik: Yes, we fully anticipate, yes, based on pipelines activity we've seen year to date, we'll be able to self-fund through deposit growth.

Daniel Cardenas: Okay, great. And then I appreciate the commentary on the buybacks, but maybe just if you could just put a little more clarity around kind of how you're thinking about that other than, you know, opportunistic like you know you got the 100 million re-up there and then is that so assuming kind of a stable stock price or stable growth in the stock price, you think that's something that you expect to use on a somewhat regular basis over the next several quarters? Obviously, it's dependent in part on the loan growth that comes through. I get that. But just your thoughts on your intention to use that over the next year, I guess, is the authorization.

Mark Kovacic: Yes, I mean, it does last for a while. I mean, with the stock price moving higher, I mean, the calculus does change. So we are taking a closer look at that. I think it is something that we'll have opportunity to use over the next year. But again, the dynamics have changed as the prices move higher.

Daniel Cardenas: So based on like today's price, I mean, do you think that's something you're still interested in utilizing?

Mark Kovacic: Probably not to the same degree as we've been. We've been pretty active the last three quarters. So we would consider or look more closely at potentially stepping that back somewhat at current levels.

Daniel Cardenas: Okay. And if that happens and maybe the stock goes higher and it becomes less attractive, what do you think you would do with the capital at that point, absent kind of looking for other M&A opportunities?

Christopher McComish: Yes, I think we haven't stopped looking for M&A opportunities and other things to do both organically. So we would continue on that as you know, with the buybacks that we've made, the improvements to returns are meaningful. But again, the kind of incremental improvement that we get from the buybacks begins to get a little bit more constrained. So I think that's one of the things as we go into our planning process for the year, that's something that we'll have to look a lot closer at over the next quarter or so.

Daniel Cardenas: All right, understood. Well, thanks for the call, guys. Appreciate it. Nice quarter.

Christopher McComish: Okay, thank you.

Operator: Your next call comes from the line of David Bishop with Hovde Group. Your line is now open. Please go ahead.

David Bishop: Yes, good afternoon. Hey, Chris, you mentioned the ability to attract new commercial bankers, and you called out the C&I growth. Just maybe some color on the increase there, how much represented maybe new client penetration versus existing customers getting more aggressive and utilizing lines and getting more optimistic on lending. Thanks.

Dave Antolik: Hey, Dave. Dave Antolik. So the majority of the growth was related to utilization rates increasing. But as I mentioned, we've seen the total revolving commitment growth as well, which would represent additional credit extended to existing clients as well as new customers. So it's a good mix. But the growth in C&I was outsized and a little more than what we'd expected from the quarter because of the increased utilization rates. Which was interesting because utilization had dropped a little bit in Q1, came back some in Q2, pushed a little bit higher.

So the math becomes keep the utilization rate, because it's now at a level where it was prior to Q1, keep that consistent, grow the overall customer base, which is the purpose behind hiring these new C&I bankers.

David Bishop: Got it. Then I'm not sure if I missed it during the preamble, but positioning for potential rate hikes here in terms of the margin. Just curious thoughts on the puts and takes there as we head into the second half of the year. Thanks.

Mark Kovacic: Yes, I think with respect to our rate sensitivity, we feel like within 25, 50 basis points either way that we're fairly neutrally positioned right now. You know, we still have some tailwinds that I mentioned with the swaps and some of the back book repricing that just support us over the next several quarters. So it's hard to know what the Fed's going to do, but we think that we can hold on the margin for the next several quarters at least, in spite of any rate changes that might happen.

David Bishop: Great. Thank you.

Operator: Your next call comes from the line of Kelly Motta with KBW. Your line is now open. Please go ahead.

Kelly Motta: Hi, good afternoon. Maybe sticking on the point of the margin, it was really nice to see deposit costs come down in the quarter, including the rate on CDs. I'm wondering, as you look out from here, is that tailwind kind of leveling off with the upcoming maturities coming up and can you provide any spot color on deposit costs or what the incremental cost of new funding is coming in at? Thank you.

Mark Kovacic: Yes, so I mean you're right, we still got some repricing benefit on the CD book that has, you know, maybe a couple more months to run. So we might see a little bit more benefit in Q3, but after that we're pretty much leveled off and replacing at the same cost because that book is fairly short. We're still highly concentrated in that six-month timeframe. So that's why we'll start to see some uptick potentially after Q3 in deposit costs as there's still some repricing and some exception pricing being made. So to the extent we can hold on to the good mix that we have, we shouldn't see it move too much going forward.

Kelly Motta: Got it. That's helpful. Maybe one last question from me, just refreshing Durbin. It looks like you're $9.94 billion in assets, very flat quarter over quarter. It seems like given your kind of mid single digit growth outlook on loans, you will potentially run through that. Is that still a good assumption or do you have some levers here that if you don't get a deal, you can plan to navigate on to a run on an organic basis? Thank you.

Mark Kovacic: I mean, given the trajectory that Dave described on loan side, you know, if we're successful with that, you know, we would anticipate crossing here in the second half. So as long as that comes through, we will go. In the first half of the year, we saw a decrease in loan balances in the first quarter. That sat in cash for the most part at the end of the first quarter. So in the second quarter, even though we had loan growth, we got a right side of the cash balance. So it looked like we were flat.

It's really back to the balance sheet actually being probably down under the hood in the first quarter, and it's just kind of bounced back here in the second quarter. But our trajectory should take us over $10 billion in the second half.

Christopher McComish: Kelly, it's Chris. As we've talked about before, we're talking about a little over $6 million doesn't impact us for, assuming we went over at 12/31, it wouldn't impact, half of that would hit in '27, the other full amount of that would hit in '28, and our job is to lead the company through that, and we feel very confident that we can.

Operator: Your next call comes from the line of Daniel Cardenas with Brean Capital. Your line is now open. Please go ahead.

Daniel Cardenas: So just kind of following up on Kelly's question with the crossing of the $10 billion threshold and the $6 million gap that would be created there. How long do you think it would take your new hires to kind of fill that gap? Do you think that can kind of happen in '28 or is that going to take a little bit longer for that to really occur?

Christopher McComish: Well, yes, I mean, the new hires and the growth of the balance sheet is just, you know, just one lever that we would pull. You know, we're not going to take on additional risk from an asset growth to have that overcome. So we're going to remain disciplined. We'll continue to look at, you know, expense saving opportunities that could make up some of that and generating other forms of fee income. You know, if you think about an $8 billion balance sheet on either side of the loan and deposit makeup, you're talking about a base to make up $6 million annualized in net interest income.

And so we just feel confident that we're going to be able to pull any number of levers in order to overcome that kind of number. We've made $36 million this quarter, quite consistent with the growth that we're seeing. And so we don't want to do anything that is overly aggressive to make up that number. We believe we can do it through what we've shown over time and that's the effective running of the company. You look at the operating leverage that we have right now. We grew revenue, net interest income, around 5% first six months of the year. Expenses were closer to 1%.

That operating leverage is pretty significant, and that can translate to making up those kinds of savings.

Mark Kovacic: Just to clarify, we had a question come in on the timing of the impact. If we crossed here in the second half, that would start in the second half of '27.

Daniel Cardenas: Okay. Got it. Perfect. And then just returning to loan growth in the quarter, what was the impact from pay downs and pay offs in the quarter?

Dave Antolik: Well, we did see that commercial real estate permanent loan bucket decline, as you may know, the CMBS market is relatively active in the permanent insurance market, but we continue to fund through on our construction loans in support of those same borrowers. So based on what we see from existing commitments and demand in the market, we believe that kind of pace can be continued but that pressure that headwind from the permanent market is going to continue to be something that we're going to face throughout the balance of the year and certainly in the next year. The paydowns were a little bit lighter than typical in the quarter.

So we did get a little bit of a benefit there in terms of the net growth by having slightly lighter, but looking ahead, we don't see that as being a trend.

Daniel Cardenas: Okay, got it. Perfect. All right. All my other questions have been asked and answered. Thank you, guys.

Dave Antolik: Thanks, Dan.

Operator: Your next question comes from the line of Matthew Breese with Stephens Inc. Your line is now open. Please go ahead.

Matthew Breese: Hey, good afternoon guys. Maybe we could just touch on pipeline, pipeline yields, spreads between C&I and commercial real estate and curious how competitive dynamics are playing out in your markets. It just sounds like elsewhere in kind of the mid-Atlantic things are heating up competition wise. I'm curious what you're experiencing.

Dave Antolik: Yes, if I look at just strictly approved pipeline from first quarter versus second quarter, we're up modestly in both CRE and C&I, more so in the CRE space as a recognition of those hirings that we've made. ABL pipeline activity that's headed our way that could help us with incremental growth. Turn to consumer, you know, mortgages, similar to where it was Q1. And I would expect mortgage activity to look in Q2 similar to how it did in Q1. And then looking at consumer home equity, I would expect Q3 based on pipelines today to show similar growth, maybe a little higher in Q3 than we saw in Q2.

So kind of all those things combined give us that outlook to a guidance of mid single digit total loan growth for the balance of the year.

Matthew Breese: And how are yields and spreads holding up?

Dave Antolik: Yields, they're holding up. I mean, there's still competitive pressure, but so far so good. We're disciplined relative to how we price and the market, particularly in the areas where we see the most activity, construction, there's still a reasonable return based on the risk that we take in that book. The market's willing to accept that pricing. We haven't seen any significant pressure there. We've seen some additional pressure in the deposit book. I mean, you're seeing CD pricing and money market pricing competition become more aggressive, particularly from smaller banks.

Our larger bank brethren aren't as aggressive when it comes to deposit rates, but the smaller bank competition tend to be a little pesky when it comes to pricing deposits.

Matthew Breese: Yes, maybe to put a finer point on it, I mean, educated guess, are your pipeline yields still better than 6.50%?

Dave Antolik: No. Overall, the new loan rate over the quarter was just over 6%. I anticipate that the pipeline probably reflects a very similar sort of rate.

Matthew Breese: Got it, okay. Chris, I know this comes up every quarter now especially as you kind of push towards 10 billion, but how are M&A discussions coming along? Are conversation activities mimicking overall deal volumes that we're seeing in the space, which is pretty slow?

Christopher McComish: Yes, I would say conversation activities haven't slowed down from the standpoint of thinking strategically about partnerships. I think those activities continue to be at an acceptable pace and I haven't seen any significant decline in those sorts of things. And so we continue to remain in the market and proactive with potential partners as we do believe it's an opportunity for us down the road.

Matthew Breese: Are there a number of deals that since you stepped into the seat that you've passed on and maybe elaborate on whether or not that kind of makes you a more selective buyer than we might normally see?

Christopher McComish: Yes, I'm not going to go there comparing myself with others or ourselves with others, but yes there are a number of deals that we've chosen not to move forward with. We think about what is important to our company: cultural fit, business mix, the makeup of the company. One of the things that we've been working on art over the past few years is continuing to grow and enhance and build that deposit franchise. So some of the targets that we look at may be more of an asset play than a customer deposit play, and something like that may not be as appealing to us as it would be to somebody else.

And then we also, as we've talked about in other quarters, Matt, we think about geographic expansion and those contiguous markets south and east of us and through the state of Ohio are all very attractive to us. So we're not slowing down in the number of conversations and that remains active. But yes, we've looked at a number of things that we've chosen not to do.

Matthew Breese: Great. I really appreciate that. I'll leave it there. Thank you.

Christopher McComish: Sure thing.

Operator: Your next call comes from the line of Justin Crowley with Piper Sandler. Your line is now open. Please go ahead.

Justin Crowley: Hey, good afternoon, guys. On the loan growth, in particular C&I, I know you folks have been talking about that as a focus for a while, and of course for this quarter, and I know it can be a lumpy area, but can you talk about expectations there going forward, and perhaps just any comments on if there are any specialty groups or certain geographies driving that growth?

Dave Antolik: So Justin, if you look at where we've hired, think about this more geographically, because we're pretty well diversified when it comes to industry, but geographically the majority of the hires were in western Pennsylvania. So that's where we're seeing activity. We've also made a number of hires in northeast Ohio where we're seeing some increase to pipeline. We also added one C&I banker in Eastern PA. So pretty well diversified both geographically and again looking at industry and concentration, there's nothing meaningfully that's moved nor do we anticipate that. So we're relatively opportunistic making sure that we have the right people in place, disciplined underwriters, and portfolio managers.

Christopher McComish: One area that Dave touched on earlier was our asset based lending group that is seeing nice activity and pipeline looks solid there as part of the growth equation as we move.

Justin Crowley: Okay, got it. And then I guess just pivoting a little, just sort of related to the conversation on buybacks, what are sort of your broader thoughts on capital levels where they are? Certainly still very strong, but of course down from the peak, is there a certain ratio or ratios where you look at targeting a certain threshold? What does that thought process look like?

Mark Kovacic: Yes, and we take a combined sort of bottoms-up approach to try to build at least some levels that, above which we're comfortable at, based on regulatory environment plus our internal capital stress testing that we do to see how much capital we need as a cushion, and then making sure that we have that plus. And we still think we have some room to reduce that. So the decision really becomes, how do we manage that better. It was so large that buybacks I think made sense for that first round of it. But as we're starting to utilize that more, some other avenues like different types of asset growth and certainly the M&A piece comes into play.

So we have in terms of some internal targets, but we still feel like we have space above that to maneuver.

Justin Crowley: Okay, and I don't know if you're really able to quantify that much further, but do you look at regulatory ratios in terms of staying above a certain level?

Mark Kovacic: Yes, I mean that's the part of the building blocks. We would start with the regulatory definitions and then add a cushion to that and then build upon that with what our testing is telling us that we would need to cover an extreme event in the market. And that becomes kind of the floor of the target range for us.

Justin Crowley: Okay, got it. And then one just quick last one, kind of like a modeling question, but just on expenses, I think you threw out the $58 million number in terms of kind of the right way to think about the base going forward. And so just kind of curious what is going to drive that lower base from where you were in the second quarter, just as we kind of think about the next few periods, modeling ahead.

Mark Kovacic: Yes, I mean, quarter to quarter, there's always a little bit of lumpiness on the margin. So this particular quarter, there were a couple of things that don't necessarily repeat that were slightly higher. The main drivers of expense are the amount of people that we have and how much we spend. We anticipate that to be fairly consistent. So we think, just given the minor lumpiness of expenses, just generally that $58 million level is something we should be able to manage to for at least the rest of this year.

Justin Crowley: Okay, got it. Great. I will leave it there. Thank you guys so much.

Operator: Thank you. There are no further questions at this time. I would now like to turn the call over to Chief Executive Officer Chris McCommish for closing remarks.

Christopher McComish: Well, thanks everybody for being on the call. I know these are busy days for all of you with the number of earnings announcements, but we certainly appreciate your engagement with our company and your very good questions. Have a great rest of the day and we look forward to talking to you soon. Thanks.

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

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