S&T Bancorp (STBA) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 22, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Christopher J. McComish
• President - David G. Antolik
• Chief Financial Officer - Mark Kochvar

TAKEAWAYS

• Record Diluted EPS -- $1.09 for the quarter, an increase of 19.8% year over year driven by higher net income and share repurchases of 8.3% of outstanding shares since 2025.
• Net Interest Margin -- 4.06% on a fully taxable equivalent basis, expanding 7 basis points from the prior quarter due to higher loan yields and an improved funding mix.
• Total Portfolio Loans -- $8.05 billion at Sept. 30, representing a decrease of $4.4 million as the company prioritized profitability and margin over loan volume.
• Commercial Real Estate Growth -- $64.8 million increase during the quarter, reflecting construction projects that were fully funded and moved into the commercial real estate category.
• C&I Loan Contraction -- $51.1 million decrease in commercial and industrial balances, driven by lower line utilization and the strategic exit of several credits due to credit deterioration.
• Average Deposit Growth -- Over $56 million in growth during the quarter, including $24 million of average growth in noninterest-bearing demand deposits.
• Nonperforming Assets -- $36.5 million, a decline of $3.7 million from June 30, 2026, representing 0.45% of total loans plus other real estate owned.
• Net Charge-Offs -- $2.1 million, or 10 basis points of average loans, compared to $1.0 million, or 5 basis points, in the prior quarter.
• Tangible Book Value -- $29.28 per share, an increase of $0.10 despite a $0.66 per share headwind from higher interest rates impacting the bond portfolio.
• Pre-Provision Net Revenue -- 2.01% of average assets, increasing 12 basis points from the prior quarter due to record revenue of nearly $108 million.
• Efficiency Ratio -- 53.23% for the quarter, improving from 55.52% in the second quarter of 2026 as revenue growth outpaced expense growth.
• Noninterest-Bearing Deposits -- $2.22 billion at Sept. 30, representing approximately 28% of the total deposit base.
• Brokered Deposits -- $0 on the balance sheet at quarter-end, following a reduction of over $180 million year to date.
• Noninterest Expense -- $57.6 million, a decrease of $1.1 million from the prior quarter due to higher promotional efforts in the previous period and well-controlled costs.
• Fee Income Guidance -- $14 million to $15 million per quarter expected through 2027 based on current run rates.
• Durbin Amendment Timing -- Management expects the impact to be delayed until mid-2028 at the earliest as total assets did not cross the $10 billion threshold.
• Allowance for Credit Losses -- 1.16% of total portfolio loans, remaining stable compared to the prior quarter.
• Average Loan Balances -- $8.1 billion, an increase of $61.2 million from the second quarter of 2026.
• Return on Average Assets -- 1.55%, representing a strong return profile driven by disciplined financial performance.
• Total Borrowings -- $215.3 million, a decrease of $60.0 million compared to $275.3 million at June 30, 2026.
• AOCI Impact -- $0.66 per share reduction in tangible book value reflecting the impact of higher interest rates on the investment securities portfolio.
• Commercial Construction Loans -- $449.9 million, a decrease of $25.6 million as funded projects transitioned into permanent real estate balances.

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RISKS

• Antolik noted that C&I balances declined in part due to the "decision to exit several credits due to credit deterioration," which impacted overall loan volume.
• Kochvar warned that the ultimate level of net interest margin "depends on the level of price competition on both loans and deposits," which has recently increased.

SUMMARY

S&T Bancorp, Inc. (NASDAQ:STBA) reported record quarterly results, including historically high earnings per share and revenue. Management stated that performance was driven by net interest margin expansion and positive operating leverage, even as period-end loan growth remained flat. The company reported that it prioritized profitability and disciplined underwriting over loan volume while managing a decrease in C&I balances through the exit of specific credits. Management indicated that the company remains well-positioned to capitalize on future growth opportunities, both organic and inorganic, supported by strong regulatory capital levels.

• The company completed a significant upgrade to its online banking platform in the third quarter and plans to roll out a mobile banking upgrade in the fourth quarter to enhance customer experience.
• Antolik noted that the company continues to hire bankers in the C&I space to build the pipeline, although it takes time for new personnel to produce results.
• McComish reported that the company remains open to inorganic growth opportunities, stating, "Inorganic growth opportunities are things that represent a priority for us with the right structure, with the right partner, at the right time."
• Mark Kochvar noted that the delay in crossing the $10 billion asset threshold would likely push the impact of the Durbin Amendment to mid-2028.
• Management expects to manage the 2027 noninterest expense year-over-year increase to approximately 3%, implying a quarterly run rate moving toward $59 million to $60 million.
• The company has a $100 million share repurchase authorization in place and is evaluating resuming activity in the fourth quarter of 2026.

INDUSTRY GLOSSARY

• AOCI: Accumulated Other Comprehensive Income, which includes unrealized gains and losses on certain investments like available-for-sale securities.
• C&I: Commercial and Industrial loans, typically made to businesses for working capital or capital expenditures.
• CRE: Commercial Real Estate loans, which are secured by income-producing properties.
• DDA: Demand Deposit Account, a noninterest-bearing account that allows for immediate withdrawal of funds.
• Durbin Amendment: A regulation that limits the fees banks can charge retailers for debit card transactions, typically applying to banks with over $10 billion in assets.
• NIM: Net Interest Margin, the difference between the interest income earned by a bank and the interest paid to its lenders, relative to the amount of its interest-earning assets.
• OREO: Other Real Estate Owned, property that a bank has acquired through foreclosure or deed in lieu of foreclosure.
• PPNR: Pre-provision net revenue, which is total revenue minus noninterest expense before the provision for credit losses is deducted.

Full Conference Call Transcript

Mark Kochvar: 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 the cautionary language required by the Securities and Exchange Commission for forward looking statements that may be included in this presentation. A copy of the third quarter 26 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. This will 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 Christopher McComish, S and T's CEO and David Antolik, S and T's President. I would now like to turn the call over to Christopher.

Christopher J. McComish: Great. Mark, thank you, and good afternoon, everyone, and thank you for joining us today. We certainly appreciate the analysts and investors being with us And as always, we look forward to your questions. Before we get into the numbers, I would like to take a moment and talk a little bit about our company and reflect on who we are as an organization. While we are obviously here to deliver results for shareholders, and we are very proud of those results, Banks like ours also exist to make broader impact. We focus our company on the values. Our values the values drive our culture, and our culture drives our financial performance.

And not only is our financial performance strong, but once again, we were honored with an award most recently by the American Bankers Association for supporting military families. This marks the second year in a row we received this recognition. Our People Forward Purpose is about making positive impact in the lives of those we serve, and this award is a powerful example of that purpose and action. We are proud to support military families and grateful to our employees for helping create stronger communities through the commitment and service and service. So to everyone who has contributed to our efforts to support military families, thank you.

Your work continues to make a meaningful difference and is helping us build on our shared future together. Now talking about the third quarter, our results reflect another strong quarter of disciplined financial performance. We delivered record earnings per share of $1.9 up nearly 20% from a year ago and almost 7% from last quarter. And record revenue of nearly $108 million for the quarter. Return metrics were also strong, with ROA of 1.55%, ROE of just under 11% and a return on average tangible shareholders' equity of 14.81%. Further, PPNR increased 12 basis points to 2.01% for the quarter. Our results demonstrated the strength and consistency of our core earnings engine producing higher profitability and stronger returns.

Our operating performance was also strong. Net interest margin expanded 7 basis points from the linked quarter to 4.06% supported by higher loan yields and an improved funding mix. Importantly, we are seeing positive year to date operating leverage as well. Through the first 9 months of the year, revenue growth has outpaced expense growth, and our efficiency ratio has improved to 54.65% compared to 56.35 for the first 9 months of 2025. Asset quality trends remain favorable for the quarter with net charge offs of $2.1 million or 10 basis points of total loans and nonperforming assets declined again this quarter by $3.7 million to just over $36 million or 0.45% of total loans plus OREO.

Turning now to slide 4 in our balance sheet. Loan balances were essentially flat during the quarter, Growth was impacted by our decisions to balance overall profitability and net interest margin against loan volume. We also experienced lower line utilization during the quarter. While period ended loan balances were down slightly, average loan balances for the quarter were actually up $61 million Deposits declined modestly during the quarter, largely reflecting quarter seasonal trends Similar to loans, period ending deposit balances were down, but average deposit balances up over $56 million including $24 million of average DDA growth compared to 6/30/2026. Importantly, our funding profile remains a source of strength and has improved significantly this year.

The demand deposits continue to represent a significant component of our deposit base at 28% of total deposits. As a reminder, we reduced broker deposits by over $180 million year to date and currently have no broker deposits on the balance sheet. Tangible book value increased $0.10 per share to $29.28 despite a significant increase in AOCI related to the impact of higher interest rates on our bond portfolio. Which reduced tangible book value by $0.66 a share. In summary, our third quarter performance demonstrates record results. We produced record earnings per share in revenue, expanded margins, achieved higher returns, delivered positive operating leverage, and maintained favorable credit quality.

These results reflect the disciplined execution of our strategy and most importantly, the dedication of our employees across the organization. As we move forward into the final quarter of the year, we remain focused on driving profitable growth, maintaining strong credit discipline, enhancing our operating efficiency, and continue to create long term value for our shareholders. I am going to turn it over to David to provide more details on the balance sheet and customer activity as well as asset quality. And I look forward to your questions. David?

David G. Antolik: Great. Thank you, Christopher. And continuing on page 4 with the overview of the balance sheet. I will start by emphasizing something that Christopher just reflected on, which was our deliberate decisions to balance volume and margin. This is being done in support of our continued strong earnings performance. At the same time, we recognize that the competitive environment for both loans and deposits continues to evolve in response to changes in both the economic landscape and the interest rate environment. We remain committed to investing in our deposit franchise as the primary driver both profitability and growth here at S and T.

As an example of that commitment, we completed a significant upgrade to our online banking platform for all customers in Q3, and we will roll out a similar significant upgrade for our mobile banking platform in Q4. As depicted on the slide, loans were relatively flat during the quarter, reflecting reduced origination activity, particularly in the C&I banking space. Within commercial real estate, we saw balanced growth $65 million driven primarily by construction projects that were fully funded and moved from commercial construction into the commercial real estate category. Construction loan funding remains an important contributor to total loan growth, and we forecast funding levels and overall CRE growth to remain relatively consistent in Q4 and into Q1.

Balances in our C&I book declined by approximately $50 million in Q3 Impacting this result were a number of factors, including a slight reduction in revolving commercial utilization rates, the decision to exit several credits due to credit deterioration, and lower than anticipated originations. Based on current pipeline activity, we anticipate flat to low single-digit loan growth in Q4. Turning to Page 5, asset quality metrics remained solid during the quarter. Our allowance for credit losses was stable at 1.16% of gross loans, reflecting the overall quality of the loan portfolio and our focus on maintaining improvements we have made over the past several years.

Nonperforming loans declined by $3.7 million representing a very manageable 45 basis points of total loans plus OREO. Net charge offs are modest at $2.1 million. Criticized and classified assets did increase during the quarter by approximately 7%. However, it is important to note that the increase was primarily driven by growth in criticized loans while classified loans remained stable. We view this distinction as important because it reflects proactive risk identification and monitoring rather than deterioration in our most severely rated credits. Overall asset quality remained sound. As we actively monitor the portfolio and adjust underwriting practices to reflect changes in the economic and interest rate environments. I will turn the program over to Mark.

Mark Kochvar: Thanks, David. Third quarter net interest income increased by $2.7 million or about 3% due to an additional day in the quarter and growth in average loan balances. That combined with improvement in the yield on earning assets, up 9 basis points with both better loan and securities yields. Also, a stable cost of funds, up just 1 basis point over in the quarter. Net interest income and net interest margin improvement came with very little impact from the September Fed increase, which we expect will add a couple of basis points to margin in the fourth quarter. As our floating loan rate book will reprice within a month and deposit pricing. Repricing will lag some.

Expect net interest margin to strengthen if rates continue to move higher. And based on expectations, for 2 to 3 additional rate increases over the year, the net interest margin rate should stay north of 4% into 2027. How much depends on the level of price competition on both loans and deposits, which we have seen increase over the past month or so. Noninterest income was essentially unchanged this quarter. Down about $200 thousand Declines were mostly due to onetime items last quarter. Our expectations for fees as we close out the year and move into 2027 is approximately $14 million to $15 million per quarter.

Given the slower loan growth this quarter, we do not expect to cross the $10 billion threshold before year end. Which would delay the Durbin impact to mid 2 thousand 28 at the earliest. Expenses were well controlled this quarter. Decreasing by $1.1 million compared to second quarter. The mark decreased due to higher promotional efforts in the second quarter. And the favorable variance in other includes tax related contributions which were partially offset by an unfavorable variance in the other taxes line. We expect to manage our 2027 noninterest expense year over year increase to approximately 3%, which implies a quarterly run rate moving towards $59 million up to $60 million over the course of next year.

The TCE ratio increased by 10 basis points this quarter as strong earnings and a slightly smaller balance sheet more than offset higher AOCI. We applied share repurchases in the third quarter after the strong stock performance in late June and July and into July. But we do have $100 million authorization in place and are evaluating a resumption of activity here in the fourth quarter. With an eye towards at least maintaining current capital levels. Our regulatory ratios continue to be very strong with significant excess capital.

We are comfortable that given even considering additional repurchases and further AOCI impact, have more than sufficient current capital and generation capabilities to position us well for the environment and to enable us to take advantage of organic or inorganic growth opportunities that may arise. Thanks very much. At this time, I would 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 1 on your phone. 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 Justin Crowley with Piper Sandler. Your line is now open. Please go ahead.

Justin Crowley: Hey. Good afternoon, everyone. Hey, Justin. Just want to start out on loan growth. Know, I know line utilization can certainly swing around. But as far as the lower origination activity that you called out, you know, what we should point to as the driver of that? Or are you seeing more caution on the part of borrowers just given the level of rates? And how does that kind of get you thinking about growth? I know you gave some Q4 guide, but more medium you know, especially if we get another couple of hikes out of the Fed.

David G. Antolik: Yeah. Justin, it is David. I think there are a couple of factors particularly as. From our side, as we manage to this balance between volume and rate. So if I look at spreads on commercial loans, a newly originated commercial loans in Q3, they are very similar to Q4. We plan on maintaining that you know, that focus on maintaining spread in order to defend the net interest margin. So that will have an impact on growth. At the same time, we continue to hire bankers in the C&I space. They are building their pipeline. So know, you saw C&I declines in Q3.

We would expect a more active Q4 and Q1 and Q2 as we move into the new year with the bankers on board. You know, the other dynamic being a CRE concentrated bank is as interest rates rise, cap rates do as well. So appraisal outcomes are being impacted by rising cap rates. So that leaves us with a decision to reduce a spread in order to make a deal work from both a cash flow and loan to value perspective. Or to require additional capital from our borrowers. We have chosen to require the additional capital from our borrowers to make them fit. And we have adjusted our underwriting as well to include increased rates.

Or elevated rates in our stress testing. Scenarios. So staying disciplined around our underwriting and our and our desire to, you know, maintain the progress that we made relative to asset quality, along with this volume rate trade off. Is gonna impact us, and that is why we are we are guiding to lower loan growth in Q4 and into the new year.

Justin Crowley: Okay. I got it. that is all super helpful. And I guess kinda along those lines, do you have any detail that you can sort of share on the pipeline just kind of what that activity looks like through the quarter, where it ended the period? And then you know, you made the comment about hiring C&I bankers, and you have done plenty of that already. Just kinda curious what that mix, looks like.

David G. Antolik: Yes. So the pipeline in total is very similar to where it was entering, Q2. So end of Q2, beginning of Q2, and into Q3, very similar levels and here in early Q4. The. Again, we would expect the same momentum relative to CRE. Construction funding converting to permanent CRE balances. And then more emphasis on C&I. We just have not seen significant pipeline growth in the C&I space. Just takes time for these new bankers to get up and running. And start producing results.

Justin Crowley: Okay. Got it. Then maybe just 1 last 1. Know, you called out, you know, likely not crossing 10 by the end of this year. And I know you guys have been you know, pretty clear in the past that, know, you have would be comfortable crossing organically. But I guess just maybe an update on, you know, the state of M&A, how you guys are thinking about that, and maybe just frame up for us just you know, the opportunities out there and, you know, the sorts of things that you are looking at.

Christopher J. McComish: Yeah. Just. it is Christopher. We still. Our posture has not changed at all. We inorganic growth opportunities are things that represent a priority for us with the right structure, with the right partner, at the right time. And so our job is to continue to build relationships with I think we have done an excellent job of. And then and be prepared, which we are, for the opportunity as they as they present themselves. So as I. I think I have been pretty consistent every quarter is, you know, we kinda bifurcate this $10 billion asset threshold in M&A into, you we are gonna grow the bank or.

Organically for the right reasons in the right way, which I think we proven that we are doing. At the same time, we are gonna rip continue to build relationships with partners that represent opportunities But those 2 things, we do not think about in the same way. And so the market is not changed dramatically. When you think about kind of the parts of the Midwest and the Mid. Mid Atlantic that we are focused on. There have been a couple of transactions that have been announced. And our job is to is to continue to build relationships with the right opportunities.

Justin Crowley: Okay. And not that you guys are rushing to do a deal. I think you have made that very clear. But what would you say are some of the things that are that are maybe a hang up in getting something in? And, again, I realize that is not the top priority, but just curious for little color there. What are what are some of the things that are a hang up in what? In terms of, like, you know, in your conversations with sellers, getting to the same place and being able to announce the transaction.

Christopher J. McComish: Yeah. I mean, you know, it is the typical things that would be hang up in any situation. there is. there is price, there is timing, there is qualitative factors. there is cultural fit. All of those things, you know, play into the into the disc. Discussion. So I cannot say that there is anything any 1 thing. Obviously, you know, the bank stock prices have run up and bank stock values have run up and you know, people feel good about, you know, what they are doing and the way that they are they are running the company. So you know, there is of external factors that could play into it as well.

You know, you have got the election coming up in a in a couple of weeks. That could change things in Washington or give the perceptions things are gonna change in Washington. That could cause somebody to think differently tomorrow than they do about things. The interest rate impact. Right? You have got AOCI impacts today that you did not have 6 months ago, and they may get they may get more pronounced in the coming quarters. That could be an impact for a seller. So there is lots of factors that go into it. You know, succession planning issues for a leadership team.

All of those things factor into the timing The most important thing that we can do is run our company really well. Prove to others that we, we know how to run a good bank. It would be a great partner. And by delivering results that gives, you know, the people on the other side of the table confidence. Great. All very helpful. Thanks. I will leave it there. Thank you. Thanks, Justin.

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

David Bishop: Yeah. Thank you. Good afternoon, gentlemen. Hey, David. Just curious. If you have a line of sight and to maybe expected cash flows, you know, off the fixed rate loan portfolio maybe over the next year in securities and maybe what sort of spreads you might be looking at sort of roll off yields versus roll on yield? Thanks.

Mark Kochvar: Over the past quarter or so, we have seen them be fairly even. there is a little bit of a pickup on the on the commercial side still, probably in the 10 to 15 basis points. The best turnover we are getting others, volume is not heavy, is on the mortgage book. Where that is a good percent higher You know, cash flow in the securities book over the next year, I mean, we have a fairly laddered portfolio, so it runs maybe a $100 million to $150 million or so. A year on the on the securities book.

On the on the personal loan side, I do not think we do not have any large concentrations that are coming off. We have some amount. I think it is in the $100 million range of kind of 3 and 5 year resets. That will happen in 27. Pickup there is actually more significant probably in the 100 or more basis-point range. But on the on the fixed side, do not think we have any walls coming at least. We look at that for the credit perspective. there is nothing significant there.

David Bishop: Okay. Got it. And then I think you mentioned the recent C&I banker adds Just curious if you were active this quarter in adding to the bench strength, and just curious if some of the recent hires are still sort of operating under, you know, not compete or non-solicits they have to work through.

David G. Antolik: Yeah. Yeah. The majority of the hires have some kind of a non solicit. it is takes time to work through those. We have also built within our business banking space. We have made several hires there to upgrade talent and to focus on, you know, the relationship strategy that we have taken in order to help emphasize the growth and strength of our deposit franchise.

Christopher J. McComish: Yeah. So, David, mean, the activity has been both in commercial bank as well as on the business banking side. Yep. Got it. Then maybe if you look at Your other question about the non competes and non-solicit, typically, banker would have would have something that comes with them for a period of time. Got it.

David Bishop: And then maybe looking at the I do not know if you guys track this, but the deposit pipeline, just curious how that maybe looks in terms of maybe near term treasury management, account wins, operating account wins? Thanks.

David G. Antolik: Yeah. We monitor that activity continues to be steady in that space. We are spending a lot of time focused in on capabilities order to attract and retain deposit balances. So everything relative to payments we have got some leaders within the organization that are looking at additional capabilities. As I mentioned, know, the online banking update the mobile rollout next quarter, you are doing things that build a competitive advantage on top of just table stakes. But doing things that we can get in front of our customers that can help them protect their cash move money more quickly, sit more safely.

Those are the things that we are focused on from a fundamental perspective in order to help strengthen the deposit franchise. Got it. Thank you.

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

Kelly Motta: Hi. Thank you for the question. Maybe sticking along the lines of deposits, costs were really well controlled this quarter, granted growth is minimal, but interest bearing deposit costs were only up 3 basis points with CPE rates down. I am just wondering what the incremental cost of new funding is at. And given the rate move later in the quarter, it is there is how you are thinking through the incremental beta here on this next rate hiking cycle. Thank you.

Mark Kochvar: Yep. So, Kelly, we. I mean, we do have. We have seen an increase in the competitive environment here. Both on the CD side and on the money market side. there is a lot of specials and back pocket specials out there. So we are defending our turf as much as we can there. So we are seeing at the at the increment kind of in the low 4s is as a place where we can we can put a stake in the ground, but we are seeing we are seeing some leaking higher than that, so we will continue to evaluate that.

But it is it is kind of in that low. it is low fours where we have to where we have to spend to say. Save up relationships in a lot of cases.

Kelly Motta: Got it. And I apologize if I missed it, but you were not active on the buyback this quarter, which was telegraphed at the last quarter's call. I am wondering given that capital is building with the balance sheet flat and your profitability, it is a high class problem to have, but any incremental thoughts here on returning to market? Thanks.

Mark Kochvar: Yeah. Well, I mean, we are look. Looking at it again. And the, you know, the AOCI this quarter helped to keep the capital levels down, but, you know, we are certainly sensitive to keeping those in line and not letting those get too far ahead of us. So looking much more seriously at resuming the buyback. Here in the fourth quarter. We will see how the price and the market environment plays out. But it is under more consideration than it was in Q3. Great. Thank you. I will check back.

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

Matthew Breese: Hey. Good afternoon. Hey, Matthew. Couple for me. First, just I am really interested in the whole you know, NIM dynamics versus volume conversation. Could you talk a little bit about what on the spread front you are seeing? How much compression I would have to imagine it is more than 50 bps for things to really, you know, kind of turn off. And then you had also mentioned kind of higher cap rates. I am curious if you are seeing that already. Or if you are anticipating that, and what kind of moving cap rates do you expect?

David G. Antolik: Yeah. I will take the cap rate question. Yeah. We are we are we are already seeing it impacting appraisal values. But more importantly, when we do our cash flow underwriting for commercial real estate deals, that we stress test to the current rate environment. So you have seen this increase in term rates. So we apply a stressed rate at you know, 200 to 300 basis points above that. And that has had an impact on cash flows. So again, we have decisions to make. We can say, well, we can live with a 1.21 cash flow coverage ratio where you know, we might have a policy that says it needs to be 25. So that.

You know, we have an exception process if we need to do that. But we. At this point, we have stayed disciplined because 1. The easiest way to make it work is to lower the rate on the loan. And that just hurts them That hurts profitability. And you know, giving the pressures that we have from a NIM perspective and pressures that we have to make sure that we are able to maintain this strong profitability that we have that we have experienced you know, that is kind of outweighed the desire for growth for the sake of growth. So, you know, in the long run, we know we need to grow loans and deposits.

That. that is key for us. It starts with that deposit franchise and making sure that we are able to fund things efficiently. And effectively. But. Yeah. And in the long term, we know we need to grow this place. We need to grow loans and deposits.

Christopher J. McComish: Matthew, I think if you look over. it is Christopher. Over the past 12 to 15 months, you have seen more spread compression over that time in the commercial lending space, particularly within commercial real estate. The c and I business is more kind of event driven customer by customer basis, but that is been fairly consistent you know, contraction of margins from an origination standpoint. And then in this rising rate environment on the deposit side, you are. you are seeing, you know, some more really more competitive intensity on the deposit side. So I would say where a year ago, it was you know, contraction on the loan side.

Here, it is you are you are seeing it on both sides of the balance sheet more so. Than what you. What we may have experienced in the past. So as David said, our job is to balance those 2 things out. First of all, we are gonna do everything we can to satisfy our customer relationship, retain a customer relationship, and grow. Grow a customer relationship. But we also do not wanna do things that stretch too far certainly from a profitability standpoint and as well as, you know, from a credit quality. Perspective. So it is a balance that we have to achieve. We clearly feel really good about the income statement and the returns and everything.

We are gonna. We need to continue to do work to balance the growth on the balance sheet.

Matthew Breese: Okay. And then maybe tying a couple thoughts together. You know? Think you answered mister Bishop's question with, you know, incremental cost of deposits is you know, leaking into the 4% range. Is that to say that, you know, we are trying to push loan yields kinda into the 8% range, but competition spread compression is keeping it in kinda the 6%, 7% range, and that does not work. Is that the right way to think about it incremental margins or tighter? What is the incremental margin today?

Mark Kochvar: Well, I guess that. I mean, incremental margin, like, on a commercial real estate deal, I mean, it is not you know, it is. We are not really matching, you know, match maturing that. I mean, we are taking some interest rate risk. But on a nominal perspective, it is certainly way less than that. You are prob. Probably doing a commercial real estate loan at In and around 200 basis points. Yeah. Yeah. I mean, it is 2. For the quarter, it was 32. Yeah. So 32 over, like, a 5-year, so you are looking at mid to high 6s.

If you think about it as funding off the front end of the curve, then you are looking at it maybe a 2.50 incremental spread. there is there is a lot more that goes that goes into that for example, on the. Probably the biggest thing to impact us here as we move into the fourth quarter is just the Fed move at 25 basis points. Because there, we have 36% of our loans that are gonna reprice within a month. And so there is a lot of activity there, you know, we might only pass on 30% to 40% of that from a beta perspective to only a portion of our customers.

The pickup there on the margin side a dollar perspective is much more significant than the amount of volume which is just a fraction of that is happened out the curve we have this tighter incremental spread. So from a margin management perspective, we will make a lot more margin and net interest income dollars by that repricing on the front of curve because we have got you know, $2.3 billion that reprice versus you know, maybe $100 million or $150 million during the quarter on that. Fixed or arm side that has that tighter incremental spread. So sorry if that is okay. No. that is really great answer.

If this continues, you know That if you followed all of that, you. You are getting question of the day award. Yeah. You know, if this if this dynamic continues for, let's call, the next 6 months, into 27, I never really considered it, but is there the possibility that you stay under 10 for 2027 as well?

Christopher J. McComish: Oh, we do not. We are not thinking that way. We know we have gotta be able to run this company in the low to mid single digit asset growth. that is that is the markets that we are in. that is the opportunity. that is $500 million of loan growth over a year, and that gets meaningfully over $10 billion. So, you know, certainly, in the short term between now and the end of the year, we are so close. We would be. You know, it would not make sense for us to go over right now. So we are. You know, regardless of it, it is. We will continue to manage the company appropriately where it stands today.

But our job is to is to appropriately grow the company it is an interesting time. You are rising rate environment. You know, the economy is what it is. there is certainly a lot of positives there, but we are just trying to. We are working really hard to stay balanced. And we feel. Again, we feel really good about our performance. And, we wanna continue that and not, meaningfully sacrifice it for. In the sake of volume. Yep. Okay. Leave it there. Thanks for taking my questions. Appreciate it. Thanks, Matthew. Thanks.

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

Daniel Tamayo: Hey. Good afternoon. Thanks for taking my questions. Hey. Most of them have been answered so far. I have been given all the color, so thanks for that. But maybe just a couple follow ups. You know, and it does not sound like there is any kind of credit concerns on the horizon, but just as you observe the trends within criticized and classified, is there anything that you would call out as something worth paying attention to as you are thinking about the impacts of higher rates at this point? And I guess, as a side, how you are thinking about the direction of charge offs from here obviously, at a very low level year to date.

But any color there would be great. Thank you.

David G. Antolik: Yeah, sure. This is David. We do not see anything in the credit rating stack that would lead us to believe that credit results would deteriorate We are closely monitoring the impact of inflation and interest rate movements on the portfolio. So we actively stress test at underwriting through the annual review process and through our diligent credit review process. So not. Nothing that would lead us to believe that there would be some kind of a surprise relative to credit moving forward. I did mention there was a slight uptick in c and c assets. In Q3.

We believe we have, you know, resolution or rehabilitation plans that will drive those levels back down to a to a more moderate level or closer to what they were in Q2. Through the results of our activities in Q4. So nothing that stands out.

Daniel Tamayo: Perfect. Thank you. And maybe as a follow-up, I think we have gone through most of the key line items, but any thoughts on where fee income kind of trends from here and into next year? Especially now that we should not be anticipating the Durbin impact until 2028?

Mark Kochvar: Yeah. So, I mean, just from a run rate basis, you know, we would expect to stay pretty similar to where we are at. We are kind of in that mid 14 to pushing on 15. So over the course of the year, we would expect to you know, see us kinda move forward through to that to that level. Again, you know, the. To the extent we were thinking that the cross would happen in 2026 and the Durbin would roll off kinda halfway through 27, you know, we do not think that is gonna happen. So, you know, that supports you know, a better, more consistent run rate at least in 2027 for the full year.

But other than that, we do not have any significant plus or minus on the fee side. Perfect. Thanks for taking my question. Thank you.

Operator: There are no further questions at this time. I would now like to turn the call over to chief executive officer Christopher McComish for closing remarks.

Christopher J. McComish: Great. Well, listen. Thanks, everybody, for being on the call with us in your interest in our company and the really good and thoughtful questions. Again, as I said, we are really proud of the performance we delivered in Q3. And we are gonna continue to run this company in a way that is as I started out with and aligned with the values that we have that builds our culture, delivers the results. And we look forward to closing out the year strong, and, connecting with you over the coming weeks. So have a great rest of the day.

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

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