Northwest Bancshares, Inc. (NWBI) Q3 2026 Earnings Report, Transcript and Summary

Good morning. Thank you for joining us, and welcome to Northwest Bancshares Third Quarter 2026 Earnings Call. This session is being recorded, and a playback will be available on Northwest Investor Relations website. All participants are currently in listen only mode. Following prepared remarks, we will host a Q&A session. Now I would like to introduce Michael Perry, Northwest's managing director of corporate development and strategy and investor relations.

Good morning, everyone, and thank you, operator. Welcome to Northwest Bancshares' Third Quarter 2026 Earnings Call. Joining me today are Louis J. Torchio, President and CEO of Northwest Bancshares Douglas Schosser, our chief financial officer and T.K. Creal, our chief credit officer. During this call, we will refer to information included in the supplemental Third Quarter 2026 earnings presentation which is available on our investor relations website. If you would like to read our forward looking and other related disclosures, you can find them on slide 2. Thank you. And now I will hand it over to Louis.

Good morning, everyone. Thank you for joining us today to discuss our Third Quarter 2026 results. I will let Douglas take you through the details of our third quarter performance in a moment. But first, I would like to reflect on several important milestones, including record revenue, and record net interest income. How they have contributed to our achievements and momentum in the third quarter positioning us well for continued growth for the remainder of 2026 and into next year. We recently held the official grand opening of our second financial center in Columbus, and we expect our third and fourth financial centers to open by the end of the year. We also plan to add a fifth in this market by the first quarter of 2027. Our new financial centers bring to life the hospitality and personal advice led approach that Jurek and his team have embedded across the consumer bank. The most recent opening is next to the Ohio State University's Columbus campus and the design incorporated feedback from students on what is most important to them in a bank relationship. In addition, we recently announced a multiyear sponsorship agreement with the Columbus Crew MLS team. We appreciate our relationship with the crew that we have developed through our sports vertical and our Ohio based middle market teams. We continue to be excited about the growth opportunities that this relationship will bring to our headquarters market. Now turning to slide 4, you can see some of the financial highlights of the Third Quarter 2026. We delivered $185 million in revenue, and $149 million in net interest income for the third quarter both records in the company's history. Each resulting in more than 9% year over year growth. Also, we delivered another strong quarter with diluted earnings per share of $0.34 on a GAAP basis, and $0.35 on an adjusted basis. We continue to drive strong momentum in our C&I business with $201 million of average C&I loan growth in the third quarter representing 31% year over year growth. As we have highlighted previously, we continue to grow our nationwide business verticals in a disciplined manner, and are pleased with the performance of these verticals. Which are led by experienced and highly networked industry leaders. Collectively, they now represent approximately 30% of our commercial lending portfolio. In addition, we continue to focus on investing in and growing our in-market regional and middle market commercial banking business We achieved these results while continuing to invest in talent, technology, and new financial centers to support our future growth. None of these results would be possible without the hard work and dedication of our 2.2 thousand associates. I am very pleased with our results, and I am proud of the team for their continued commitment to driving strong core performance across the bank. And in the third quarter of 2026, we delivered on commitment to our shareholders returning more than half of our profits through a quarterly dividend of $0.20 per share. This is the 128th consecutive quarter in which the company has paid a cash dividend. As we look ahead for the rest of 2026, we continue to focus on organic growth initiatives, further optimizing our operations and driving improved financial performance, expanding our financial center network, and serving our core customers and communities. With that, I will turn it over to Douglas to review our third quarter results in more detail. Douglas?

Thank you, Louis, and good morning, everyone. As Louis indicated, we are very pleased with our strong financial performance in the third quarter. Now let's continue on Slide 5 of the earnings presentation, where I will walk you through the highlights of Northwest's financial results for the third quarter. Our GAAP EPS for the quarter was $0.34 per share and on an adjusted basis, our EPS was $0.35 per share. A slight decline from the prior quarter of $0.02 per share, on both a GAAP basis and an adjusted basis. Total revenues were $185 million the third quarter, which represented a 2% increase quarter over quarter and a 9.9% increase year over year. While our GAAP efficiency ratio was 58.9%, our adjusted efficiency ratio was 57.8% for the third quarter and although higher than last quarter, did represent 184 basis point improvement year over year. Our record revenue in the third quarter of 26 drove solid returns with a return on average assets of 1.18% and an ROTCE of 13.9% on both a GAAP and adjusted basis. Our pretax pre-provision net revenue in the Third Quarter of 2026 was $76 million down 1.5% quarter over quarter but represented a 15.5% increase year over year on an adjusted basis. Turning to slide 6. We achieved our fourth consecutive quarter of period end loan growth. With period end loans increasing by $164 million to $13.3 billion representing a 5% annualized growth rate. While our average loans grew $208 million quarter over quarter. Our C&I loan growth continued with strong performance in many of our national verticals and in our other commercial loan portfolios. Average C&I loans increased 201 million or 7.2% quarter over quarter and $702 million or 30.8% year over year. Our recent CRE loan production levels have been strong. But continue to be offset by elevated levels of runoff in the CRE portfolio. Our loan yield was relatively stable, decreasing by 2 basis points to 5.59% in the third quarter. Our overall interest rate sensitivity position continues to remain slightly asset sensitive with continued growth in floating rate commercial loans. We expect to see a fourth quarter benefit from the latest rate hike and our outlook is for at least 1 more rate hike later in this year or early in 2027. Moving to slide 7 and our deposit balances. Our period end deposit balances grew by $113 million in the third quarter representing an annualized growth rate of 3.2%. And our average total deposits grew by $6 million quarter over quarter. Partially benefiting from growth in money market and demand accounts. We grew primary deposit relationships on a net basis in the third quarter, resulting from improved digital marketing and account opening, employee enablement programs, and our Columbus expansion. For the third quarter, our cost of deposits remained relatively stable, up 1 basis point to 1.44%, a product of our proactive management of the overall portfolio. 37% of the CD portfolio matured in the Third Quarter 2026, with a weighted average rate of 10 basis points with new volume coming on at a weighted average rate of 297 basis points. Our granular diversified deposit book has an average balance of $19.9 thousand with customer deposits consisting of over 715 thousand accounts with an average tenure of more than 12.5 years. On slide 8, we show our net interest margin performance. With NIM decreasing 5 basis points to 3.70% in the Third Quarter of 2026, resulting from an increase in borrowings with a 4 basis point negative impact and a 2 basis point negative impact from a decline in purchase accounting accretion. Although we redeemed our sub debt in the third quarter, which has a positive net impact on borrowing costs, This action occurred late in the third quarter. So our results do not reflect a full quarter impact of that benefit which we estimate to be 2 basis points. Turning to our securities portfolio on slide 9, our portfolio yield continues to increase as new security purchases came on at higher yields than the runoff portfolio resulting in a yield increase of 7 basis points to 3.34% in the quarter. Turning to slide 10. Our non interest income increased $1.7 million quarter over quarter and $3.7 million or 11.6% year over year. Driven by growth in service charges and fees, and growth in our wealth management business, resulting in an increase in trust and other financial services income. Our investment in building out the wealth management business has resulted in a 25.7% growth in trust and other financial services income over the last year. Regarding non interest expense, as detailed on slide 11, we continue to focus on expense management, our adjusted efficiency ratio of 57.8%, in the Third Quarter 2026, representing a 184 basis point improvement year over year. Overall expenses, excluding merger and restructuring expenses, increased quarter over quarter. Impacted by an increase in non personnel expenses of $4 million due to an increase of $3 million in FDIC insurance premiums as the Second Quarter of 2026 included a benefit related to the prior period assessment rate changes. We have maintained our focus on managing personnel expenses with compensation and benefits increasing 72 basis points quarter over quarter and only 1.5% over the last year. On Slide 12, you will see our overall ACL was stable at $150 million, and our coverage ratio declined 1 basis point to 1.12% in the Third Quarter of 2026. Our quarterly annualized net charge offs of 15 basis points were below the low end of our full year guidance again this quarter. Turning to credit quality on Slide 13. Our credit risk metrics remain within internal expectations. Our total delinquency remained relatively stable. Increasing 1 basis point from 86 to 87 basis points quarter over quarter. Our 90 day plus delinquency declined from 49 basis points to 36 basis points quarter over quarter, while NPAs increased to 76 basis points of average loans in the third quarter. Taking a deeper dive into the breakdown of our credit quality on Slide 14, In the Third Quarter of 2026, we experienced a decrease in classified loans as a percentage of total loans and on an absolute basis, which was attributable partially to payoffs and upgrades in the portfolio. As we have discussed on previous calls, our strategy with respect to classified loans is to continue to work them down over time. And finally, on slide 15, we would like to provide an update to our outlook for 2026. Specifically, for loan and deposit growth, our outlook remains unchanged. For revenue, we would expect to be at the high end of our stated range. For net interest margin, we expect to be at 73 basis points for the fourth quarter 26 and expect to be at 3.71% for the full year of 2026. For noninterest income, we expect to exceed the high end of our range. For non interest expense, we expect to be at the high end of our range. For net charge offs, based on current economic conditions, we expect to be at the low end of our range. Finally, we expect the tax rate to drift up to 24% based on stronger earnings. We remain very confident about Northwest's business, and we are excited about our prospects for the remainder of the year. Now I will turn the call over to the operator who will open the lines for a live Q&A session.

We will now begin the Q&A session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jeff Rulis with D. A. Davidson. Your line is open, Jeff. Please go ahead.

Thanks. Good morning.

Good morning.

Maybe I could just hop off the slide that you just went over, Douglas. Appreciate it. Really good detail. But on the margin, just understanding the puts and takes, it sounds as if--you know, the timing of the sub debt, that benefit, you are asset-sensitive, maybe a little benefit there. So just to the lift in the margin, I guess as we kind of ease into the next year, would you expect the borrowing side to lighten up in Q4 with core deposit growth? And then if you would not mind kind of walking through kind of the margin puts and takes as you kind of enter into the next year? Thanks.

Yeah. Thanks for the question, Jeff. So yeah, I think we talked a little bit about it in the prepared comments. So on the positive side for the margin, we have the next. The rate hike that just happened in late September will translate through. And because we are slightly asset sensitive, that should be a net benefit. Additionally, we will get the benefit of the sub debt payoff. Which, again, we are thinking is about 2 basis points. So that gets you from the 3.70% to around the 3.73%. Obviously, purchase accounting is 1 of those things with the way the loan portfolio transitions over the quarter. That could be a little bit of benefit, could be no more than it was this quarter. that is a little bit of the wild card. And then I think you could assume that as we indicated, if there is another rate hike, maybe you get another benefit from that. Do not know as to timing, but I think right now, the market is thinking there might be 1 late in the fourth quarter. So that would probably be the setup for next year. Okay. And then it sounds fairly stable. Question. Yep. Yeah. Deposits. So I do think that we would have some potentially incremental deposit growth as we head into the fourth quarter to lighten up on some of the other borrowings as you had asked in your question. Okay. Great.

And maybe I will just do 1 other 1. Just from a strategic standpoint and maybe for Louis J. Torchio, just a year removed from the Penns Woods closing and, obviously, the Columbus focus on opening those locations. You have got a few more coming. I just taking a step back and thinking about acquisition versus de novo and kind of where you see, as again, peering into 2027, the focus is? Or is it sort of balanced on acquisition versus de novo?

Yeah. So thanks, Jeff. I think that as we move forward, as we--you know, sort of stated in the past, to the extent that we have opportunities around acquisitions that fit our geography, fit our strategic direction, and are highly accretive, we certainly are in a position to act on those. Notwithstanding, and I would just comment that I think the market is pretty soft right now, and it is pretty quiet out there. We, you know, we will have just a few boulders going into next year to drive financial performance, and we will be inwardly focused on evaluating our launch here in the retail space in Columbus. Which is so far exceeding our expectations and going well, but we will measure that as those branches roll out. And then we will be ultra focused on optimizing our core and organic performance, through 27. And then just for clarity, we expect to have 2 branches opened I am sorry, 2 additional branches opened in the fourth quarter, but 1 that will be opening in February of 2027. So we will have all 5 branches fully opened by the end of the first quarter next year.

Okay. Thanks, Douglas and Louis. Appreciate it.

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

Thank you. Good morning, everybody.

Welcome, Daniel.

Maybe. Yeah.

Maybe just starting on the on the fee income guidance. So you know, obviously, nice progression this year. You guys are well above your initial guidance. But I guess so far above that I am asking for a little clarity, if you will, on where that could land. Maybe if we just zero in on the fourth quarter, last quarter's run rate relatively stable? I mean, you can walk us through if there is anything that you think is kind of unusual that would drive a decline in the fourth quarter number and maybe as we think about going forward how we should think about what would be a decent run rate in terms of annual growth rate. For the fee income as a whole. Thanks.

Yeah. Thanks for the question. So I think we tried to point it out. So if you look on slide 10, kind of broke those bars down into the components of the income. So I would say the service charges and fees, right, that is all dependent on customer behavior. So I think that is a fairly stable source of revenue. As we add customers, obviously, we would say that is a potential there to grow it. But again, it all kind of depends on customer behavior and I think. And then going into the fourth quarter, generally, tends to be where you get a decent amount of the opportunities from your customers. So you know, assume that is pretty stable. We broke out the trust and other financial services. You can see that was $8 million up to 10. A lot of that is annuitized business. So, again, assuming markets hold up, asset values hold up, you could expect that to be pretty recurring The other noninterest income you can see has a bit more volatility, and that has everything in it from you know, gains on BOLI and other things. So that is a little bit harder to predict. But, again, if you look at our trend, you would definitely be in the, $7 million to $8 million range as sort of quarterly expectation. Hopefully, that gives you the color. So, again, we feel really good about the fee performance, and we feel like it is a positive, and that was why we were indicating if you start looking at the performance and kind of thinking about that being stable that would be an exceeds the range that we provided. Last year.

And I would just say, Daniel, strategically, we--and we may have signaled this in the past that we have we have invested in that wealth business. And we think there is opportunity there. I would also point out in those fee numbers, you know, mortgage banking is somewhat nonexistent at this point. Right? So you know, we really like the momentum, the trajectory that we have established, and, it is certainly part of the strategy going forward. I think also, we would also highlight SBA business. that is a national business. that is 1 of our national verticals and continues to contribute nicely to that line item. So, again, that is another driver of fee income. And then finally, Daniel, with just 1 more point I would like to make around that is we are you know, that product, that wealth offering, we are layering in and have had success post Penns Woods acquisition to the new marketplace. So, again, we. We are really happy with the way we what we have achieved on cost saves, the accretion of that deal. In addition to that, we are now starting to layer in various products and services to the marketplace that otherwise were not offered through the smaller franchise. And so, we think that is a positive trend as well.

Great. And then, I guess, maybe on the on the expense side, So, you know, assuming that the fourth quarter kind of takes us into the middle of your range and you are kind of settling in the 4.25% range. Just thoughts on that number being a decent run rate going forward and just a little bit higher than maybe we were looking for coming into the quarter. Around. it is around a $109 million number. Yeah.

So, again, I think as continue to invest in the franchise, right, you are gonna see that slowly drift upwards. that is just pretty natural. We obviously spend quite a bit of time trying to manage that down. We wanted to highlight the fact that the personnel cost within that, we have managed pretty effectively and keep that from showing a lot of growth. There are gonna be some incremental expenses when you have incremental business, particularly on the wealth side. You tend to have commissions and incentives that get paid to those folks as well. So there is some volatility in it, but, again, the core personnel has been pretty good. And I think, yeah, given the way we laid out our guidance and things, you can start to think about that as a as a decent sort of quarterly expectation.

And 1 thing to point out there as well is that, you know, we are launching these de novo branches in Columbus, and there is a certain cost investment associated with that. As you, I think everyone knows about 5 months ago, we hired a new CIO. And we are looking at, the entire spectrum of how we run the company from investments and efficiencies, and saves. So, again, I think Daniel, this is. This kind of goes back to my earlier comments about we are focused on optimizing internal. We have plenty of things to do, and we are hyper focused on it. To the extent, you know, there are no near term opportunities on the acquisition side.

Okay. Great. And, you know, this obviously depends on the on the rate environment next year, but know, just curious if you think you are going to be able to produce positive operating leverage next year.

We would always target to produce positive operating leverage again. I think we have been pretty clear on that, and we know that our efficiency ratio is a little bit high still relatively speaking. So, yes, we would look to do that again next year. And we will obviously provide much more clarity on that when we get fourth quarter results. released sometime in late January.

And just to clarify, we target 200 basis points of positive operating leverage on an annual basis. So again, you are not gonna necessarily see it every quarter, of course, but you will if you look back, look at the full year performance, and you should expect to see that Alright.

Well, thanks for all the color, guys. Appreciate it.

Thank you.

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

Morning, David.

As a reminder, please remember to unmute your device locally. We will move on to the next question from Brian Foran with Truist. Your line is open, Brian. Please go ahead.

Hey. Can you hear me?

Yes. We can hear you, Brian. Good morning.

Perfect. Good morning. I guess 2 separate questions. 1 on credit and just going back to the game we all have to do with backing out the fourth quarter from the full year I mean, I appreciate losses are so low. You are probably getting down to forecasting individual loans. But is there anything line of sight that I guess, what I am asking is you were tracking this year-to-date to get to 20 basis points year for the full year, you would have to be, like, over 30 basis points in the fourth quarter. So is there anything line of sight that you are seeing that would push you into that low end of that range? Or is it just kind of, look, you know, we are being a little conservative. If we end up beating, we. We are beating.

Yes. I would say that is a good characteristic. So we wanted to suggest that we are gonna be at the low end of the range. Obviously, things happen in the fourth quarter and we look to see where we need to position various items. But, yeah, I think right now, you could safely say that, yeah, low end of the range, and that is a estimate on that.

Got it. And then just thematically on deposit competition, you know, I feel like there is so much fear that you and other banks are gonna have margins roll over in 2027 because everyone's going to be, you know, a knife fight for funding. I wonder if you could just kind of speak to what you are seeing in the markets. Is that a valid concern? Or that maybe a little bit overblown? In terms of the risk of deposit costs kind of breaking the nice margin story you have had?

I mean, again, the deposits are always hypercompetitive. And I think we are fortunate in the way we have a very loyal, very granular deposit base wherein a lot of markets that do not have a significant amount of competition. So that plays to our advantage. And we tend to service our clients well, and we feel that they are happy with, the offering that we have at the company. But as we continue to look for opportunities to grow deposits as we move into new markets, you are obviously gonna have some upward push on that. We will we will break out the branch performance in the Columbus markets probably at the middle of next year after at least 1 of them has been open for a full year. And, again, we have to be reactive to the market and where it goes. But I think in general, we would say deposits continue to be pretty competitive out there, and we look to find opportunities in order to maintain our deposit cost and grow our deposits at the same time, which I think we have done pretty well. But you know, if you are gonna see a basis point or 2 of increase in that deposit rate on our behalf, I think we have it to give in order to get the right deposit growth so that we can support the lending franchise.

Thank you so much.

We will now take a question from David Bishop with Hovde Group. Your line is open, David. Please go ahead.

Hey. Can you hear me now?

Sure can. Morning, David.

Yeah. Perils of AI, I guess. Hey. Question was regarding the average origination yield on the loans this quarter. Just curious what you are seeing on that side of the ledger. Relative to the last quarter?

Yeah. I think the deposit or the loan originations are pretty similar quarter over quarter. Again, it does tend to be a bit of a mix issue for us at times. I mean, you will have some very highly rated credits that will come in at relatively lower cost than you will have some other credits that will be more normalized. And in any given quarter, you might have a little bit of a dynamic where you get a little bit more of those more competitive loans that come on the book. Are seeing a lot of loan competition for growth out there as well. So, again, we tend to. You know, we keep structures in place and other things, and price is the thing that we are. Is more apt to go rather than structural components of these loans. So we are gonna see a little bit of pressure there, but again, with our margin guidance, we are kind of suggesting another quarter of sort of similar performance.

And I would just add that 1 of our strengths there is really our diversity across the national lines of business, the regional small business that is in market, and a pretty distributed consumer book. So it gives us a lot of flexibility, and, you know, our view around the risk environment, especially currently, is that we will be very disciplined on structure and so we will continue to be very conscious of the macroeconomic environment that we are going to be going through perhaps.

Got it. If we were trying to put a hard number on it. You think new origination yields coming in the low to mid-6s. Is that sort of a good range to use?

I mean, again, depending on mix. Yeah, we are obviously targeting a bit of a higher level overall, but I think if you go with low- to mid-6s, that is reasonable.

Got it.

And then you mentioned the, payoffs still remaining pretty high on commercial real estate portfolio.

Are you seeing any signs on the loan pipeline, any fallouts being impacted by the rise in interest rates and just inflation impacting some of the enthusiasm from some of your borrowers to launch new projects?

Not yet. I think our pipelines have held up really well. We have had conversations with our commercial business heads, and they have kind of concurred that right now. It is pretty. it is pretty good market out there. Also, on the commercial real estate portfolio, I do feel like we are getting very close to an inflection point. So we have had a lot of run on that portfolio historically. The originations have been pretty good, and I am hopeful to see that overall net decline shrink and maybe turn slightly positive within the next quarter, certainly within the next 2 quarters. So I think we are feeling good that business has reached a point of stabilization.

I would also just point out there just again from a perspective, we are not outsized in our construction loan pipeline. So you know, we are finding different opportunities inside the market.

Great. Appreciate the color.

Your next question comes from the line of Emily Noelle Lee with KBW. Your line is open, Emily. Please go ahead.

Hey, everyone. This is Emily stepping in for Tim Switzer. Thanks for taking my question.

Good morning. You are welcome.

So just on the loan growth side, can you maybe dig into which loan categories or geographies are seeing the most strength or greatest demand And specifically, on the national specialty vertical side, which areas are you most excited about?

Yeah. I think we have seen really nice broad based growth across the national verticals. So those, I would not necessarily highlight anyone in particular. If you were looking at growth, you would see a lot of growth in say, franchise, but that is just because it had such a small base. But I think all of the verticals are doing well. there is opportunities in all of them. And we are starting to see some of the regional commercial businesses in CRE. As I had said earlier, those are starting to stabilize as well. So I think we feel pretty good about where we are at on lending, and we feel pretty good about the markets that are out there. So it is just, again, know, it is competitive on price. And it is competitive on structure. And in some of those cases, we lose because we are not willing to take the structural components that are required to win the deals.

that is helpful. Thank you. And then just to touch on the NIM, given the assets on the balance sheet, can you quantify the impact of 1 additional 25 basis point hike what that means for NII or NIM?

I would tell you that generally speaking, I think the asset sensitivity is gonna add a couple of base points to NIM, but it is delayed, and it also tends to be driven a lot by, deposit pricing as well. So we get, pretty much the first 30 days, we get the benefit to the loan side, and then takes a little bit of time for the deposit costs to kind of translate through. So there is a little bit of a lag in there. So if we get 1 late in the fourth quarter, it is not gonna it is not really gonna add to margin at all. So pretty much we are looking at the raise that we had in September To carry over and influence the fourth quarter, but the 1 that, you know, we sort of see as likely in late December is not gonna have a meaningful influence on it.

Understood. Very helpful. Thank you so much.

Your next question comes from the line of Matthew Breese with Stephens Incorporated. Your line is open, Matthew. Please go ahead.

Hey. Good morning, everybody.

Morning.

C&I growth has been impressive. It looks like it is on track to be up another 25-ish percent year on year. I am just curious I think that the pipelines, how sustainable is that into 2027? And, Douglas, just kind of tying this together, with your commercial real estate commentary, if we do start to see stability in that portfolio, perhaps maybe even a little bit of growth, How does that change the loan growth dynamics here? I mean, low to mid single digits for 2026. Does that dynamic push you into, like, mid to high single digits for next year? Curious there.

No. So the way. Well, I will kinda go through your question. Right? So I think you know, are we gonna get another 30% growth in commercial? That is a--that is a lot of growth. And I think what we like to do is have a very balanced firm overall and see the growth become a bit more balanced. Although, we are continuing to focus on reformulating the balance sheet The big lever that we have is our indirect businesses. And we would we would reduce the growth in the indirect markets to offset the opportunity that we have to grow in the commercial space. So we talk a lot about our overall mix. it is about 45% commercial, 55% consumer. We would be happy if that were to drift up. I mean, it can stay where it is at or it can move a little bit. We would obviously keep the overall asset growth sort of more in line with the deposit growth over time. So in the near term, if we had nice opportunities, and we think we will because our pipelines continue to be strong on the commercial side, we would slow down the indirect verticals a little bit. And even when I say that, we do not just look at indirect auto. it is some of the other indirect commercial businesses as well where we are not we do not have the opportunity to gain more of a full relationship. So in that case, perhaps think of an equipment finance deal or perhaps a participation in a larger syndication where the only opportunity is the lending side. Got it.

Okay. Very helpful. And then do you have spot deposit costs at period end or into October? And then I would be curious how you are thinking about deposit betas through cycle.

Yeah. I do not. We have not provided that level of detail on deposit pricing. I do not think we have seen it go up materially. But, again, I think I do not think we get into that level of detail. And then on deposit betas, I do not think we have also gotten to a lot of detail there as well. And, again, a lot of it gets a little bit harder for us to see sometimes as we are growing some of the higher rate markets like Columbus. Understood.

Okay. I will leave it there. Thank you.

Your next question comes from the line of Manuel Navas with Piper Sandler. Your line is open, Daniel. Please go ahead.

Hey.

Just to kind of circle back up on the NIM. The sub debt helps with 2 basis points. You have a little bit of benefit from the September hike. Were you kind of going into this fourth quarter little bit below the average for the full quarter of 3.70%? Is that kind of why it is not a kind of a bigger lift here in the fourth quarter? Well, I mean, again, I think we are also trying to account for what the purchase accounting impact gonna be on the margin. So that was almost 2 basis points quarter over quarter. And, again, as you know, it is all in sort of which loans pay off early on the Penns Woods book, which is pretty difficult for us to know in advance. So I think we feel really good about the $3.73. Based on the points that we made and you just rearticulated on the sub debt benefit as well as the impact of the rate rise. The piece that we do not know and do not tend to estimate is what the purchase accounting benefit could do. So could that be another little bit of upside? Yes. Could it be exactly where it was last quarter and provide no upside. Yes. So I think we are always trying to give guidance that is pretty appropriate and pretty conservative, and then we will explain sort of the puts and takes for as the quarter goes. But I think that 3.73% is a pretty good expectation for the fourth quarter given everything we know.

Okay. You talked a little bit about being inwardly focused on and a little bit on your new chief information officer. Can you just speak a little bit more of what you are doing to kind of optimize operations Could you just add a little bit more on that piece?

Yeah. So you know, bringing in new leadership with a broad acumen and deep experience while working at the large super regionals, etcetera. Gives us a perspective to come in, evaluate some of the legacy systems, and products that we have had. So we are going through a pretty thorough evaluation of you know, how we wanna execute that strategy. And so over time, we will roll that out. We hope that we are going to realize both cost saves and, through different use of technology and workflows. And in addition to that, we are going to continue to increase the customer experience, reduce friction in the process, which will also drive future revenues and gains. So, you know, we are sort of hunkered down on a, you know, week to week meeting, if you will, evaluating all those opportunities. Then figuring out, you know, which ones we can invest in, in 2027. And, you know, what that is gonna bring to our overall operating efficiency. I appreciate that.

On the service charge side, that growth has been nice. Is does that also include treasury management fees? And what is the latest on your commercial deposit gathering efforts? Average noninterest bearing balances were up linked-quarter. I think that speaks a little better than maybe the movements on an end-of-period basis. But just kind of an update on the commercial deposit gathering pipeline.

So, yes, the treasury management fee income would be part of that overall service charges, and we have seen some nice growth in there. Again, off a relatively small base, but I think we continue to find opportunities to grow commercial deposits with commercial relationships as the new verticals come in. And there does tend to be a little bit of a lag time, right? You bring the loan in, and then it takes time to move operating accounts and other things over. So we do expect that. Transition to occur from when we end up with some of these relationships and then the time it takes to build it in. But it does look like there is some opportunities in that space going into next year. And then we also have some we are excited about the fact that we added the new member to the commercial team who is got a debt capital market specialty, and we think there is some opportunities there going into next year as well for better overall fees on the commercial side.

Appreciate the commentary. Thank you.

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

Yes, this is a quick follow-up here. So I guess you have got the sub debt behind you now, the redemption. Have buybacks been part of the story for you guys? But, you have a lot of capital. Recognize you are you are obviously still making investments on the growth side, but you know, are you closer now to where you would consider using buybacks as a capital deployment tool?

Yeah. I think we are closer That does not mean we are going to do it in the fourth quarter, but I think now that we have our capital pretty well established, again, I really like to understand where capital rules are going to go before we start making big commitments there. We are still returning well over 50% of our earnings to our shareholders in the form of that dividend. that is pretty high dividend payout ratio or high overall capital return. You know, I think we are getting to the point now where, as capital rules become a little bit firmer, and we can kind of look out at what we are gonna need and how much internal capital generation we have. Might wanna think about sort of that buyback entering into the mix in 2027.

Is there a is there a total return number that you are. I mean, there is a lot of moving parts I recognize. But given what you said about the dividend and obviously, that is always been, you know, pretty strong for you guys. Is there a total return percentage that kinda makes sense for you guys, or do you wanna see that still come down a bit, kind of longer-term?

I definitely like to see that come down. I would like to earn our way to the dividend overall payout going down. That would be ideal. You know, that is the way we will do it; is we will do it through growing the firm. And then we are always working with the board and others on sort of setting those targets. So as we have more capital planning done and we have more insights into next year, we have better visibility to capital rules, and other things I think that is the time that we will start talking more seriously about it. And I think, you know, we have a $50 million authorization so it is not a huge amount. But I would like to see us start making some progress against that against that lever.

Okay. Great. Thanks for that color, Douglas. Yep.

That concludes the question and answer portion of the call. I will hand it over to Mr. Torchio for closing comments.

Thank you. On behalf of the entire leadership team and the board of directors, thank you for joining our call this morning. I am excited about our momentum for the rest of 2026. As we are well positioned to continue to optimize our financial performance and to capitalize on opportunities to drive profitable core growth. I look forward to speaking to you on our fourth quarter earnings call in January.

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