S&T Bancorp, Inc. Stock

Welcome to the S&T Bancorp Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Now, I would like to turn the call over to Chief Financial Officer, Mark Kochvar.

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.

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 stbancorp.com. With me today are Chris McComish, S&T's CEO, and Dave Antolik, S&T's President.

I'd now like to turn the call over to Chris. Chris?

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 3. Turning to the quarter, we delivered a very strong performance. Net income was $36.6 million, or $1.02 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 7 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 6 months of 2025.

As is noted, asset quality showed improvement during the quarter with low net charge-offs of just $1 million and non-performing assets decreased by almost $10 million to 0.5% of total loans in OREO.

On Page 4, 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 almost -- 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, we -- over the past 3 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, and turn it over to Dave. He can talk about asset growth, pipelines, and asset quality.

Great. Thank you, Chris. And as Chris mentioned in referring to Page 4, total loans increased by $99 million during Q2, representing approximately 5% annualized growth, driving balances to 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 and have 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 commitments 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.

Importantly, we remain committed to supporting 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. Nonperforming 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. Net charge-offs totaled 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.

I'll now turn the program over to Mark.

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 were up 4 basis points with better commercial performance, and the cost of funding, which was down 4 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. Tailwinds from our maturing received-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 noninterest income, we saw an increase of $1.3 million in the second quarter. The 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 B-2 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. It will add $300,000 per quarter to 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 to noninterest 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 and this cost 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 noninterest expense year-over-year to 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 for a total of $47.6 million.

Our 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.

Thanks very much. At this time, I'd like to turn the call back over to the operator to provide instructions for asking questions.

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

I apologize if you gave this already. But the loan growth guide, did we get a, was it mid-single-digit again that we're looking for the rest of the year?

Exactly, Dan, mid-single digits.

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 how are you thinking through the deposit...

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.

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, opportunistic like you know you got the $100 million re-up there and then you know is that 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? You know, 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.

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 moved higher.

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

Probably not to the same degree as we've been. We've been pretty active the last 3 quarters. So we would consider or look more closely at potentially stepping that back somewhat at current levels.

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?

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, you know, the improvements to returns are meaningful. So -- 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.

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

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 in utilizing lines and getting more optimistic on lending.

Dave, it's 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 grow 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 and then it came back some in 2Q, and 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.

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 sort of the puts and takes there as we head into the second half of the year.

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

Your next call comes from the line of Kelly Motta with KBW.

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?

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 repricing at the same cost because that book is fairly short. We're still highly concentrated in that 6-month time frame. So that's why we'll see -- 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.

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 run on an organic basis?

I mean, given the trajectory that, Dave described on the loan side, if we're successful with that, we would anticipate a cross 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 to rightsize the cash balance. So it looked like we were flat. It was 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.

Kelly, it's Chris. As we've talked about before, we're talking about a little over $6 million annualized it 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.

Your next call comes from the line of Daniel Cardenas with Brean Capital.

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?

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 standpoint to have to overcome. So we're going to remain disciplined. We'll continue to look at expense saving opportunities that could make up some of that and generating other forms of fee income.

If you think about an $8 billion balance sheet on either side of the loan and deposit makeup, it's, you're talking about a basis point or 2 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, it's 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 6 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.

And just to clarify that we had a question coming on the timing of the impact. If we cross here in the second half, that would start in the second half of '27.

Okay. Got it. Perfect. And then just returning to loan growth in the quarter, what was the impact from paydowns and payoffs in the quarter?

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, 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 into 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.

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

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.

Yes, if I look at just strictly pipeline 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. We have some pretty decent ABL pipeline activity that's headed our way that could help us with incremental growth.

If I turn to consumer, mortgage is 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, or a guidance of mid-single-digit total loan growth for Q2 -- I'm sorry, for the balance of the year.

And how are yields and spreads holding up?

Yes, 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 and market is 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. The larger -- our larger bank brethren aren't as aggressive when it comes to deposit rates, but there are some smaller bank competition who tend to be a little peskier when it comes to pricing deposits.

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

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

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

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.

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 makes you a more selective buyer than we might normally see.

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. It may be -- we think about what is important to our company, cultural fit, business mix, the makeup of the company. We know our -- one of the things that we've been working on hard 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 that 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 in 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 pursue.

Your next call comes from the line of Justin Crowley with Piper Sandler.

On the loan growth, in particular, C&I, and, you know, I know you folks have been talking about that as a focus for a while and of course, bore fruit 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, are there any specialty groups or certain geographies driving that growth?

So Justin, if you look at where we've hired, if I think about this more geographically then 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 it's pretty well diversified both geographically and again looking at industry and concentration there's nothing meaningfully that's moved and 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.

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

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?

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 have, we still think we have some room to reduce that. So the decision really becomes, how do we manage that better. We did -- it was so large that buybacks, I think were 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 some internal targets, but we still feel like we have space above that to maneuver.

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?

Yes, I mean that's the part of the building blocks. We would start with the regulatory definition and then add a cushion to that and then build upon that with what our stress 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.

Okay, got it. And then one just quick last one, kind of like a modeling question, but just on expenses, if I heard it correctly, 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 kind of, I guess, is going to drive that lower from where you were in the second quarter, just as we kind of think about the next few periods, modeling ahead.

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. Our -- the main drivers are expense, the amount of people that we have and how much we spend. That's been, we anticipate that to be fairly consistent. So, yes. We think, just given the minor lumpiness of expenses, just generally that $58 million-ish level is something we should be able to manage to for at least the rest of this year.

There are no further questions at this time. I would now like to turn the call over to Chief Executive Officer, Chris McComish for closing remarks.

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.

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

Welcome to the S&T Bancorp First Quarter 2026 Earnings Conference Call [Operator Instructions] Now I would like to turn the call over to Chief Financial Officer, Mark Kochvar. Please go ahead.

Thank you, and good afternoon, everyone. 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. This 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 first 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. 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 stbancorp.com. With me today are Chris McComish, S&T's CEO; and Dave Antolik, S&T's President. I'd now like to turn the program over to Chris.

Mark, thank you, and I want to welcome everybody to the call. Good afternoon. We appreciate the analysts being here with us, and we look forward to your questions. I'm going to begin my comments on Page 3. Before I do that, though, I want to just reflect on the busy week that it's been here in Western Pennsylvania and in Pittsburgh, as Pittsburgh is the center of the sporting universe with the NFL draft taking place starting today.

Mark, Dave and I are actually coming to you from the S&T Bank draft headquarters in downtown Pittsburgh, where there's been quite a buzz. We have significant customer engagement events going on, which actually started last -- yesterday evening, and it's very gratifying to see the impact our bank has on the markets we serve and the customer relationships that we've built. A big thank you to our employees and teammates who are leading the charge building our People-Forward Bank. We're seeing it firsthand this week with all of these interactions.

Turning to the quarter. Our $35 million in net income equates to $0.94 per share, up almost 6% from Q4 2025 and 8% from the first quarter a year ago. Return metrics were strong again this quarter, highlighted by a 1.44% ROA, up 7 basis points and an ROTCE of 13.22%, which was up almost 1% over Q4 2025. Almost $50 million in buybacks in the quarter played a key role in this ROTCE improvement. Our NIM and efficiency ratios remained solid at 3.92% and 55.3%, and Mark will provide more color here. Asset quality showed good improvement over the last quarter, and Dave will provide more color on both asset quality and loan growth.

Turning to Page 4. I'd like to focus on our strong deposit growth. For the quarter, our customer deposit growth was up over $300 million. We achieved the highest level of customer deposit growth in the 125-year history of our company, surpassing $8 billion. This growth was broad-based with all lines of business contributing and all product categories showing growth. In fact, we showed growth in more than 80% of our branches in the market, which is a real testament to the great work our employees are doing with customers every day and the disciplined customer engagement processes that we've built. It really is a strong reflection of the customer relationships that we have.

This deposit growth allowed us to reduce wholesale fundings by almost $200 million in the quarter. And the quality of the growth was quite strong as our DDA levels relative to total deposits increased to 28% in the quarter, up 1% from Q4 2025. While I'd love to be able to tell you that I won't be able to repeat another 16% annualized growth in Q2, we do want to make sure that we're realistic as there are always temporary fluctuations in deposit balances. We've done an analysis, and we do see some seasonal or temporary growth in these balances.

However, our analysis would tell you that $150 million to $200 million of this growth is what we define as solid core growth in our customer deposit base. Again, even at this level would be one of the best quarters we've had in our history. So I'll stop right there and turn it over to Dave, and he can touch on asset quality and loan growth.

Great. Thank you, Chris, and good afternoon, everyone. Continuing on Page 4 of the presentation, loan balances declined in Q1 by $113 million. Several factors impacted this outcome. First, we entered the new year with a reduced commercial pipeline as a result of solid activity in Q4 of last year. This, along with increased competition for new commercial deals, especially related to pricing, contributed to lower-than-anticipated new fundings in the first quarter.

Second, Commercial real estate payouts were higher than anticipated, primarily as a result of permanent market offerings from insurance companies and other nonbank lenders who offer more aggressive pricing and structure. Third, we did see a slight reduction in utilization rates on our revolving credit commitments. Q1 construction fundings were negatively impacted by poor weather, particularly in February, but we anticipate increased draw activity in Q2 as projects move forward.

Our unfunded commitments -- construction commitments remained at similar levels to year-end. In our consumer loan categories, we saw reductions in our residential mortgage balances, including construction. We anticipate this level of reduced activity in Q2. Based on current pipeline and activity, we expect increased growth in our home equity balances for Q2, and we continue to focus on mortgage and home equity products as key components to enhancing customer engagement.

Looking forward, we're adjusting our loan growth guidance to low single digits for the second quarter. In response to growth pressures, we're focused on adding talent and building for the long term with the goal of increasing our commercial banking team in 2026, primarily focused on C&I additions and some geographic expansion in the CRE space. During the first quarter, we hired 4 new commercial bankers and saw a modest increase in our pipelines.

Turning to Page 5. Credit results for the quarter were in line with expectations. Nonperforming assets were down $5.7 million and remain at a manageable level of $50 million or 63 basis points. This reduction was a result of our ability to execute on well-defined asset resolution strategies, primarily related to one C&I credit that was mentioned last quarter. Loan charge-offs were low at $1.7 million or 9 basis points. We saw criticized and classified assets increased during the quarter as compared to year-end 2025 when we were at historically low levels. C&C loans remain at a very manageable level. And when factored into our reserve methodology, our allowance for credit losses remained stable at 1.17%. Now I'll turn the call over to Mark. Mark?

Great. Thanks, Dave. First quarter net interest income declined by $2.6 million due primarily to 2 fewer days, which accounts for $1.4 million. And we also had an interest recovery in the fourth quarter of '25 that was for $900,000. In addition, strong deposit growth and loan declines led to a higher cash balance as we adjusted our wholesale borrowing levels. The interest recovery in the fourth quarter of '25 and higher cash levels in the first quarter were the main reasons behind the net interest margin rate decline in the first quarter of 7 basis points to still a very strong 3.92%.

With muted expectations for Fed moves in 2026, we expect relative NIM stability to continue and believe we are well positioned for the remainder of this year should interest rate conditions change. Tailwinds from our maturing receive-fixed swaps, along with security, fixed rate loan and CD repricing all contribute to stability in the face of somewhat heightened loan and deposit pricing competition. As we look into 2026, again, we expect relative stability in the net interest margin around the current level with net interest income growth coming from a return of loan growth.

Next, noninterest income. It decreased by $0.7 million in the first quarter. Debit and credit card activity was seasonally slower and other includes timing related to some letter of credit fees and distributions from some SBIC investments that happened in the fourth quarter. Our expectations for fees in 2026 remains at approximately $13 million to $14 million per quarter. On the expense side, they were in line in the first quarter, down about $500,000 compared to the fourth quarter. Largest variance was in salaries and benefits.

And within that, medical costs were lower with the reset of deductibles and salaries were lower due to a number of days. Occupancy was impacted by higher seasonal snow removal costs and utilities. Other taxes, also a little bit higher due to the Pennsylvania shares tax, which is based on equity levels. We expect to manage our 2026 noninterest expense year-over-year increase to around 3%, which implies a quarterly run rate of right around $58 million. With capital, the TCE ratio decreased by 43 basis points this quarter, primarily due to the share repurchases that we completed in the first quarter, over 1,146,000 shares, average price was $43.30, totaled just under $50 million.

That brings our total repurchases over the last 2 quarters to $85.8 million, over 2 million shares to approximately 5.5% of outstanding shares. Our regulatory ratios continue to be very strong with significant excess capital. We have just over $50 million remaining in our authorized repurchase program. We're comfortable with these levels, even considering additional repurchases. We have more than sufficient capital -- current capital and generation capability to position us well for the environment and enable us to take advantage of organic or organic or inorganic growth opportunities.

Thanks very much. At this time, I'd like to turn the call back over to the operator to provide instructions for asking questions.

[Operator Instructions] We'll go first to Justin Crowley at Piper Sandler.

Just wanted to start out on the loan growth. I think you touched on it, Dave, but can you give a little more detail just on how origination versus payoff activity fared in the quarter? And then just a sense of where the pipeline ended in the period at?

Yes, sure. So relative to origination activity in Q1, as I mentioned, we entered the quarter with a little lower pipeline. We built pipeline, but the fallout from the early-stage pipeline was a little higher than what we anticipated, and that was primarily a result of increased competition relative to pricing in the space. We had some lower utilization that impacted balance growth.

And as I mentioned, some construction draws were delayed due to weather. So we know those will happen. We anticipate utilization to improve as we move throughout Q2 because it was lower than what we had expected. And there's no specific reason for that other than some specific paydowns that were the result of large draws that happened in Q4 and then repaid in Q1. Overall, the pipeline is up modestly. And when I say modestly, 10% to 15% over year-end. So as we onboard new bankers, continue to be disciplined around pricing, that all kind of boils down to a little lighter loan growth than what we had expected in Q4.

Okay. And then you mentioned some of the hires and adding bankers. Is that coming across the board? Or is it more weighted towards C&I? I know that's been an area you've talked a lot about in terms of just the investments that you've made there.

Yes. The hiring in Q1 was more C&I focused, but we're hiring both C&I and CRE bankers. We still feel really good about our ability to grow CRE. We're good at it. We have historically been able to build a brand in that space. So we're adding to that staff as well. They're just based on our geographies, there are significant opportunities in the C&I space for us. The CRE space, as I mentioned in the prepared comments, might include some geographic expansion, particularly in Ohio. So it's a combination of the 2. We're also adding business bankers, treasury management officers, really growth-focused positions to the organization.

Okay. Great. And then just one last one, pivoting a little. Just on the margin guide calling for stability here, I think this higher for longer environment that I suppose we're in is beneficial. So just trying to square some of the puts and takes as far as loan repricing. I'm not sure if there's anything that offsets that as far as funding costs, perhaps maybe moving in the other direction and starting to see upward pressure. What are some of the underlying assumptions there?

Yes. I think I mean we're kind of back to thinking that there's not going to be a lot of rate increase. And given that, we would have some natural improvement in margin. But as Dave mentioned, we have seen some higher competitive pressures, particularly on the loan side. So factoring that in, that kind of gets us to more a flatter NIM as we move throughout the year. So we still have those tailwinds, but the thinking is that a lot of that might get absorbed by the more competitive loan environment.

Okay. And what does that -- I guess, with spreads tightening, I mean, where is new production coming on the books side, and how does that compare to what's repricing or rolling off, if you have that detail?

On the spread side, I think we're kind of in the mid like a 2.25% range, and we've seen that slip probably 5 or 10 basis points over the last quarter or 2.

Yes. In the bank competition, we saw 2 deals that I'm thinking of right now that were sub 2 that we decided not to move forward with and we lost to the competition. So for us, it's about getting more looks, which leads to adding more bankers, and that will allow us to accelerate growth. But we also want to be cognizant of the impact that, that growth has on the NIM and net interest income.

We'll move next to Daniel Tamayo at Raymond James.

Maybe starting first on the capital and the buyback side. So you've got -- you did about $50 million in the first quarter. You've got a similar amount remaining in the authorization. I think you just said capital is still really strong. CET1 over 14%, really by any measure you look at. Do you think that it's in the cards to re-up that authorization and continue the repurchase further out than just the second quarter? Or how are you guys thinking about the trajectory of buybacks given the level of capital you have and the growth expected?

Yes. I think we -- I mean we've definitely taken a very hard look at the remaining authorization. I think we'll see how that goes before we look at the next leg of that. I mean our internal target ratios, the next 50 will put us quite a bit closer to that. So we may enter more of a maintenance phase in terms of target capital ratios at that point. And so then going forward, it might be more dependent on that growth trajectory from there and how much capital that uses up.

Okay. And remind me what the target capital ratio is, if you don't mind?

Well, the -- we're looking to be approximate -- I mean, across the different ratios, above kind of median peer levels between median and 75th percentile. So they vary for the different ratios. But we want to make sure that we have enough to grow and enough to take advantage of a merger that might arise or that might present itself.

Yes. Danny, this is Chris. That's what I want to reemphasize, given us the financial flexibility that we have is a real benefit for us. So as Mark described, being able to think about this in inorganic and organic growth while at the same time, having the financial flexibility should an inorganic opportunity present itself is important to us. But by the same token, we knew as we were getting north of 14%. And so we -- it made sense to dial that back. And as Mark said, those ratios closer from 50% to 75th percentile make a lot more sense to us long term.

Understood. And then maybe just diving in a little bit on the hiring. The last question talked about it a little bit, but you said that the new geographic expansion, I think you mentioned Ohio. Just curious if you could provide a little more detail on the markets where you're hiring.

Sure, sure. Well, we've got a group of bankers in Columbus, and we're looking westward, like Cincinnati market perhaps. And then in Northeast Ohio, expanding more towards Cleveland. So there are opportunities in those 2 markets that we think we can take advantage of as we grow. We've also, in our Eastern Pennsylvania franchise, we've done a lot of work into Maryland and Delaware, particularly around in the CRE space. So we think there's more opportunity there for us to grow as well.

We'll take our next question from Kelly Motta at KBW.

I would love to follow up on that capital question since you mentioned M&A. I'll bite on -- if you could, maybe Chris, give us an update on the pace of conversations. Clearly, there's an M&A window open at this time and how those are going.

Yes what I would describe them, we're consistently having discussions, and we look at opportunities. We're disciplined, as you could tell, and we're going to remain so. But I think you're right, Kelly, there's a window here that seems to make sense, and we would like to capitalizing on the right opportunity should it present itself.

So we have not -- haven't slowed down at all in the number of conversations that we've had. And quite honestly, the financial performance, the returns that we're able to deliver that opens up windows for conversations for us. So that's what we want to be able to capitalize on those things.

Great. That's great color. I would like to switch back to the deposit growth because clearly, that was a major highlight of the quarter and something you guys have been working really diligently on. Just wondering if there was one or a couple of things that really drove that outsized growth. It was just things moving in the right direction and kind of just all clicking here, any sort of market dynamics? I'm just trying to get a sense of -- it clearly was a remarkable quarter for you. So...

Thanks for that recognition, Kelly, and it's a real point of pride for our employees. I'm going to -- I'm coming up on my fifth year here at the company in another couple of months, and we've been pretty unrelenting on our focus on the importance of building on a high-quality core deposit franchise. And we've seen positive momentum over the -- I would really call it over the last 18-plus months in our -- the consumer side of our business.

We've talked a lot about our -- the rigor and discipline of the process that we -- our customer engagement process that we define as care. And if you think, well, how do you know it's working? And I'll go back to the anecdote that I provided to you. When we saw broad-based growth in 80% of our branches in the quarter, that tells me that the right customer interactions are taking place. We've also talked a lot about the way that we manage exception pricing and the need to be dynamic with that, at the same time, responsive.

And that's a process that was built over the past couple of years, and it continues to work in this environment or a rising or declining rate environment. On the commercial side of the business, we -- and business banking side, we've spent the past few years working on enhancing our treasury management capabilities, the number of teammates, both in commercial banking as well as business banking. We're seeing good momentum there. And we know that a portion of this on the commercial space was true new customer acquisition that added to it.

As I did say, we wanted to analyze it one of the other things that we looked at, I don't know if you've seen this in other calls that you had was, well, what was the impact of -- you talk about the tax law changes. And what we saw with tax receipt -- so deposits -- tax receipt deposits into our accounts, a year-over-year growth was about $30 million. So higher tax return receipts coming in tax refunds did contribute to some of this. And so that's why we were guiding toward all $300 million probably isn't going to stick forever. There's some fluctuation in it. But what we can tell, we feel really good about that $150 million to $200 million, which by itself would have been a really, really strong quarter.

We'll move next to Tyler Cacciatori at Stephens Inc.

This is Tyler on for Matt Breese. Maybe just a follow-up on the M&A commentary. Can you just update us on what the ideal target would look like? And if there's any ideal size or whether you want to dive into new markets or maybe complement existing ones?

Yes. I'll be consistent, Tyler, with what we've talked about in the past. We look geographically at the core markets that we're in, in adjacent markets. So -- and we're active in building relationships throughout that geography. We're -- if you think about a pure acquisition, given our size, you're talking about banks probably in the $1 billion to $6 billion, $7 billion range makes sense from a size standpoint. And that's been our focus, very focused on quality of the core deposit franchise, cultural fit, ability to accelerate growth in the company are kind of the criteria that we look through.

Understood. And then just moving to credit. Nice to see the charge-offs move much lower, led to quite a bit of a lower provision than what I was expecting. Maybe just talk about what you're seeing from a credit perspective going forward and what levels of charge-offs you're comfortable running the bank at? Just trying to get a sense of how to model the provision from here.

Yes. I think in total, for 2026, we would expect similar total results relative to 2025, level of charge-offs, kind of NPLs we're targeting to reduce from where we are now modestly. As I mentioned in the comments, that we did see a slight uptick in our criticized and classified assets, but didn't have a significant impact on provisioning or a large increase in the ACL. There's nothing outsized that we anticipate, just normal movement. We're a commercial-focused bank.

So when something happens negatively from a credit perspective, it tends to be a little larger than a bank that might have a larger consumer base. So we acknowledge that, but we have really fine-tuned our methodology and spend a lot of time, obviously, internally as a management team talking about the impact of asset quality and how we can get ahead of things and forecast better.

Obviously, in addition to that is just the external environment, right? I mean see the run-up in gas prices and oil prices and things like that. And we believe that, that has not really impacted the economy dramatically right now in the short term, but it continues this way, you could see things impacting it for all of us down the road. And we're not outsized one way or another, but there's a lot that we also don't control that we have to pay attention to.

Understood. And then just a real quick one on deposit costs, if you have the detail. Do you have the spot cost of deposits at quarter end or in the month of March?

I have -- the margin was -- for the March was at where we did for the -- we ended for the quarter on the deposit -- on the overall deposit number for the month, that would have been right around -- I have total deposits right around -- this is costing only 2.47%.

[Operator Instructions] We'll go next to David Bishop at Hovde Group.

A lot of my questions have been asked and answered, but I'd be curious, you had the good growth in deposits and maybe some cash flows from the loan portfolio sitting in cash at the end of the quarter. Is that sort of earmarked for funding expected loan growth? I don't know if you see any line of sight to maybe temporary deposits outflowing. Just curious how we should think about cash levels moving into the back half of the year.

We do expect those to decrease. We still have some wholesale borrowings that we have an opportunity to reduce. So that would be the first priority. And then as Chris mentioned, we do expect some of that to potentially roll off during the -- at least temporarily in the second quarter. So we'll keep some cash powder dry for that and then to return some loan growth in the second quarter, but then perhaps more in the back half of the year. So we think that cash will not stay at those levels for a combination of all those things, reducing wholesale and then the natural deposit fluctuation and then return to loan growth.

Got it. And then I guess final question. As you look across your fee income segments and categories, any areas with all the changes you've implemented here, you're most bulled up about for augmentation as you look out into the rest of the year?

We have seen some -- it's sometimes hard to see in the numbers, but we have seen some encouraging pickup on the treasury management side that we talked about. There's a group within that kind of the non-account analysis group that we've done -- that we've seen some improvement on, especially in the last couple of quarters, and there's a renewed emphasis on that in the bank and -- especially in our business banking group.

So that's something that we have higher expectations for. And then on the -- just on the basic treasury management side on the account analysis, we did some price adjustments that helped in the first quarter, and that group is making some headway in the market as well. So I think the deposit fee on the treasury management AA side probably offers some potential. And then in financial services has been solid for us as well.

Dave, the non-analyzed treasury management services, that's really the result of work that we started a couple of years ago, we built a product for the small business, business banking space that provided a combination of, call it, 6 to 8 important treasury management products, anything from information reporting to collection and disbursement services, fraud protection, those kinds of things, package them into basically one price.

And so what we've seen, and then we rolled that out a couple of years ago, trained our teams, put it in the market. We believed at the time, it was a differentiating factor. And we're seeing balanced growth come from it as well as some treasury management fee income, and you know the annuity nature of that. So it's nice to see something going from concept to reality and starting to see some results.

And that concludes the question-and-answer session. I would like to turn the call back over to Chief Executive Officer, Chris McComish for closing remarks.

Well, as we always say, thank you for your interest in our company and your good questions and the relationships that you've built with us. It's really, really important to us. We're, again, really proud of the performance that we're showing, looking for continued growth and impact in the marketplace. And spring is here. So the weather has turned, and there's a lot of optimism in there. So thanks all for your time, and have a great rest of the day.

And that concludes today's conference. Thank you for your participation. You may now disconnect.

Ladies and gentlemen, welcome to the S&T Bancorp Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions].

Now I'd like to turn the call over to Chief Financial Officer, Mark Kochvar. Please go ahead.

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. This 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 fourth quarter and full year 2025 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 stbancorp.com. With me today are Chris McComish, S&T's CEO; and David Antolik, S&T's President. I would now like to turn the program over to Chris. Chris?

Great. Thank you, Mark, and good afternoon, everybody. Thank you for joining us on the call. I'm going to begin my comments on Page 3. We certainly appreciate the analysts being here, and we look forward to your questions. Before we discuss Q4 specifically, I'd like to take a few minutes to discuss and wrap up 2025.

Overall, we move forward through 2025 very well, producing strong returns, building record levels of capital with increased momentum, while receiving external recognition from both -- for both our financial performance as well as our high levels of employee engagement.

For the year, we produced $3.49 a share, just under $135 million of net income with a 3.9% net interest margin. Loan growth was over 4%, and customer deposit growth was just under 3%, while expenses were well controlled. Asset quality for the full year was well managed at 18 basis points of net charge-offs, while the ACL declined 16 basis points year-over-year, reflecting 3 straight years of overall improved asset quality.

None of these results would have happened without the commitment of almost 1,300 S&T employees, who are some of the most engaged and talented employees in our industry. For those that are on the -- listening on the call, we thank you for your hard work and your engagement. These numbers and results for yours, you to be very proud.

Turning to the quarter. Our $34 billion in net income equates to $0.89 per share, down slightly from Q3. Our return metrics were again strong, highlighted by a 1.37% ROA additionally, our NIM rose to 3.99%, up 6 basis points on a linked quarter basis, which is the best performance we've seen since Q2 of 2023, as our 1.95% PPNR, up 6 basis points quarter-over-quarter.

Asset quality for the quarter was mixed due to higher charge-offs associated with some NPA resolutions, while the ACL declined 8 basis points due to specific reserve releases and an overall reduction in C&C assets. Dave will provide more details here in a few minutes.

Moving to Page 4. Loan growth was just under $100 million for the quarter at 4.5%, led by Commercial Banking with both growth in our C&I portfolio as well as our CRE line of business. Customer deposit growth was just under $60 million at 2.9% and the quality of our deposit mix remains very strong with DDAs representing 27% of total balances.

Before I turn it over to David to talk to provide more details on the balance sheet and credit, I wanted to bring to your attention to the other announcement that we made this morning. Announcing our new $100 million share repurchase authorization that was approved by our Board of Directors yesterday. Given the robust capital levels of the company, we are fortunate to be able to have an authorization of this size available to us.

Our capital levels give us the ability to repurchase shares should the market warrant it, while not in any way impeding our ability to consider other opportunities, including M&A. With that, I'll turn it over to Dave and I look forward to your questions.

Well, thank you, Chris. And as Chris mentioned, the loan growth for the quarter was driven primarily by commercial with C&I and CRE balances growing by $53 million and $34 million, respectively. C&I growth was a result of an increase in revolving balances and new customer acquisition. Q4 was a particularly active quarter for our asset-based lending group, who onboarded several new names. Categories of C&I growth include retail, utilities and service.

Our CRE growth was entirely driven by construction funding in the quarter, and we continue to see demand for construction facilities for multifamily, warehouse, storage and industrial asset classes. These loans typically fund over 12 to 18 months move to our permanent CRE portfolio and frequently move on to nonrecourse funding sources. Supporting growth in the coming quarters our unused commercial construction commitments increased by $78 million quarter-over-quarter.

As a result of the strong funding in Q4, our pipelines reduced slightly heading into Q1, and our focus is on rebuilding. This activity is consistent with our historical experiences. Regarding loan growth guidance for 2026, we believe that mid-single-digit growth is achievable while maintaining our asset quality profile. We expect loan growth to primarily come from C&I, where we've seen improved activity from investments we've made in team leadership and banker talent along with CRE, where we've demonstrated a long-standing ability to develop deep customer relationships in support of growth.

We are also forecasting continued consumer home equity growth that is focused on complementing our deposit franchise customers. If I could now direct your attention to Slide 6 of the presentation, which provides additional details on our asset quality performance in Q4. Starting with the allowance for credit losses, we recognized a reduction relative to gross loans from 1.23% to 1.15% quarter-over-quarter, primarily as a result of 2 factors.

First, a reduction in specific reserves related to problem loan resolution. Second, a reduction in criticized and classified loans of $30 million or 13% in Q4. This reduction in criticized and classified loans at year-end 2025 represents our third consecutive year of successfully reducing loans in these categories.

And over that period, the 3-year period, we have reduced total C&C loans by 50%. It is also a reflection of our focus on asset quality is a key driver of financial performance, robust portfolio management and an aggressive approach to problem loan resolution. As a result of aggressively addressing problem loans, we were able to fully resolve loans totaling $29 million during the quarter. These resolutions contributed to increased charges of $11 million or 54 basis points annualized in the quarter.

In addition, we recognized new NPL formations that cause overall NPAs to increase by $6 million from 62 to 69 basis points. We have appropriately reserved for these loans and have resolution strategies in place. Although an increase relative to Q3 and the first half of 2025, this NPL or this level of NPLs remains at a very manageable level.

Looking forward, we anticipate full year 2026 asset quality results to perform similarly to what we saw in 2025 with a focus on reducing NPLs and maintaining the lower level of C&C loans that I discussed earlier in my comments.

I'll now turn the call over to Mark. Mark?

Thanks, Dave. Fourth quarter net interest income improved by $1.8 million or just under 2% compared to the third quarter. That was mostly driven by the margin expansion of 6 basis points. The margin improvement came from an 11 basis point decrease in the cost of funds, and that was offset by a modest decrease in earning asset yields of about 3 basis points. We have been able to successfully reduce exception rates and regular rates on non-maturing deposits as the Fed has reduced short-term rates.

CD rates have been somewhat more sticky, but are still coming down. We continue to expect that our more neutral interest rate risk position and pricing discipline will mitigate any rates down impact, both what has happened and what is expected in 2026. Tailwinds from our maturing received fixed swap portfolio, security and fixed loan repricing and some limited CD repricing all contribute to these tailwinds. As we look into 2026, we expect relative stability in the net interest margin in the mid- to high 3.9% range, with net interest income growth coming from earning asset growth.

Next slide, noninterest income increased by $0.5 million in the fourth quarter with small improvements in our major customer fee categories. The increase in other is timing related primarily to some letter of credit activity. Our expectations for fees in 2026 remains at approximately $13 million to $14 million per quarter. Expenses were in line in Q4 up by about $800,000 compared to the third quarter. Largest variance was in salaries and benefits. Within that, medical costs were higher and also salaries due to some hirings.

Marketing was impacted by the timing of some promotions. We expect to manage our 2026 noninterest expense year-over-year to around 3%, which implies a quarterly run rate of approximately $58 million. Lastly, on capital, the TCE ratio decreased by 29 basis points this quarter due to the share repurchases completed in the fourth quarter. We repurchased just over 948,000 shares at an average price of $38.20 for a total of $36.2 million.

Our regulatory ratios continue to be very strong with significant excess capital. Even if we complete the $100 million repurchase program announced today, we are comfortable that we will have more than sufficient capital to position us well both for the environment and to enable us to take advantage of inorganic or organic growth opportunities.

Thanks very much. At this time, I'd like to turn the call back over to the operator to provide instructions for asking questions.

[Operator Instructions] Your first question comes from the line of Justin Crowley with Piper Sandler.

Good afternoon, everyone. Just want to start on loan growth for the quarter. It didn't really deviate from how you folks framed expectations previously. But kind of bigger picture. Curious, is there anything specific that you'd point to that's maybe holding you back from that ramping to say mid- to high single-digit pace, something more along those lines, maybe once discussed. Is that a function of the demand side of the equation? Or is there a desired pricing component to that? What, if anything, would you speak to there?

Justin, it's David. I think -- not necessarily on the demand side. It's making sure that the asset quality of the onboarded new customers meet our criteria to maintain the lower levels of CNCs, some of it is we're adding to the staff. We're adding bankers. We plan on doing that throughout the year. So making sure that we have adequate coverage in all of our markets and all of our segments.

There were certainly bright spots in Q4 as I think about the C&I growth, and as I mentioned, the ABL activity. That's relatively new. So there are some tailwinds to help us grow and hopefully get to a higher rate of growth in terms of our loan.

Justin, it's Chris. The other thing that I would add is we do think about the overall state of the economy and things are picking up and positive, but we don't want to be out there predicting something that's dramatically higher than what you see from a GDP growth rate standpoint on what we believe organically is available in the markets that we serve. Dave touched on it, too. Our desire is to continue to grow teams and bankers in the field.

Our leadership in the field knows is that -- there are no constraints around adding more folks to the team and that we'll continue to do that. But we're trying to give you our best guess based upon -- best estimate based upon all of those factors.

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

Yes. I would call that our #1 priority in terms of moving our sales forward and accelerating growth in the commercial space. And it's not just C&I Justin, it's both CRE and C&I. We're doing an awful lot of work in our business banking space as well to focus those teams on deposit gathering and developing new relationships. So it's across the board. And the fight for talent, we think we have a really good story to tell, and we'll be able to acquire and add to the teams in order to support growth.

Okay. That's helpful. And I guess, pivoting, just 1 on the margin. I was pleasantly surprised with the expansion you saw this quarter and looked like some nice moves lower in deposit costs. I think the last update you gave, you were referring to some of the competitive pressures on the funding side that had been maybe a little stronger than initially expected. So curious how that has been trending as we now move through the first quarter? And I guess, how that sort of informs the mid- to high 3.9% guide on margin here looking forward?

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

Justin, if you think about the quarter itself and when rates dropped early in Q4, I would say the competitive intensity around rates was higher than as we moved through Q4 and subsequent drop in rates the market rates kind of went with it a little bit faster?

I think, it's a little bit harder for people to cross, for example, 4 on CDs that dip below 4 on CD, that short CD rate took a little bit longer than we had thought would happen. But now that through that things seem to be moving a little bit better.

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

No, there's nothing significant. Just to note that we've talked about over the past couple of months. We are in active dialogue across the geographies, and we continue to make it a priority for us. But we also want to do the things that we have most direct control over, and those are the things that we're doing to execute every day.

So still lots of interest, a lot of conversations, the reiterating is something I said earlier this stock repurchase authorization that we have. We're very fortunate to be able to kind of walk and chew gum at the same time that we can -- potentially, if the market avails itself to the repurchase authorization, that's great. At the same time, it doesn't inhibit us at all from an M&A standpoint.

Your next question comes from the line of Daniel Tamayo with Raymond James.

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

Yes, sure. The -- what we're forecasting is our ability to fund that internally through deposit growth. We saw a really strong Q4 -- in terms of customer deposit growth, particularly in the consumer space, was offset a little bit by some activity with some large commercial depositors that we consider more anomalous than anything.

So I think that with the focus and the investments that we've made in technology, people, campaigning, we're really focused in on driving core deposit growth, and we think we can achieve a balanced loan and deposit growth trajectory.

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

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

Okay. Well, I mean we have, maybe in our plans, we have a couple more cuts sort of built in. I mean, it's complicated because there's -- on the -- on the asset side, things are moving the other way. But on the deposit side, the betas are probably in the 30% range overall.

Okay. All right. Great. And then, I guess, 1 last 1 for you, Chris. You talked about the M&A and you obviously have this buyback announcement. From a capital perspective, but you're obviously just under $10 billion, but you've been able to kind of flatten out the asset growth over the last few quarters. I'm modeling in. I think you talked about last quarter likely crossing $10 billion next year. But is there a way or a desire to potentially keep that under $10 billion through next year and push the Durbin hit out here?

Yes. At this point, Dan, we're not thinking that way. We believe that our Durbin hit is relatively small at $6 million to $7 million. There's certainly some things that you could do, Mark and the team could do. But our focus right now is to continue to grow and show some reasonable growth. We end up with 5% loan growth for the year, 6% in that range.

You're talking about $500 million worth of loan growth, and that would put us kind of meaningfully over the $10 billion, and then we have good part of 2027 to work through that. So our focus is to continue to execute and recognize that that's a potential headwind but it's also something that we're going to -- we can also celebrate because it's been talked about too long to stay around that level.

Understood and agreed we -- we're all looking forward to not talking about that anymore.

Think about it, Danny, the call would be 10 minutes shorter.

I'll scratch that off my question for you. That's all I have. That's a lot.

Your next question comes from the line of Kelly Motta with KBW.

This is Charlie on for Kelly. Sure. Just to hit on asset quality quickly. Can you provide more color on the specific resolution of the NPAs that drove kind of the $11 million in charge-offs and whether that relates to the 2 CRE and 1 C&I credit you guys identified last quarter?

Directly related to those previously identified and talked about credit. We were able to bring those to resolution, recognize the charge reduced specific reserves as a result. We also had, as I mentioned, formation in the quarter that were both C&I and CRE, and we appropriately reserved for those, and we have resolution strategies in place for those credits as well.

And I want to reemphasize the importance of the progress we've made in terms of the criticized and classified reductions over the last 3 years. So if you think about -- we talk a lot about loan pipeline and where is growth going that C&C bucket is the pipeline for future charges and NPLs. So having reduced that by 50% over the last 3 years, reduces the amount of problem loans coming into the funnel that could potentially lead to further deterioration or charges within our book.

So that's why we feel good about being able to say, hey, look, asset quality in 2026 is not going to perform any worse than 2025 and our focus on reducing NPAs and the feeder pipeline of C&C has taken hold and is really our focus.

That's helpful. And then turning to expenses. It seems like growth is going to be is expected to be strong, and you guys saw 4% expense growth this year. Is that kind of a fair run rate in the years ahead? I know you mentioned adding talent in the C&I and CRE verticals and made investments already. Just so you could speak to initiatives ahead? And maybe secondly, if there's room on the efficiency ratio? Or is like the mid-50s a good sustainable place to operate from?

Sure. I'll start with the last one. I think Mid is a look for the efficiency ratio to be -- on the expense side, we don't think we have a lot of infrastructure build. We've invested a lot over the last few years on the staffing side for a lot of our support areas. So the FTE growth that we expect in this year and really for a couple of years after that will be mostly production related. So that limits the overall increase on the salary and benefit side.

So we're working with about a 3% year-over-year expense increase. So we were pretty confident that we could hold to that going into this year.

That's great I'll step back. Thank you, Charlie.

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

A few more questions from me. First, long wells this quarter held up a bit better than what I was expecting. And so I'm curious what the roll-on yields are versus roll-off today? And maybe what are your -- what are expectations for back book repricing in 2026?

We're still getting a little bit of positive on the fixed side. And we're also getting benefit from this received swap book that we have. So that's been helping a lot to support the lack of declines on the asset side. Although that tailwind, if you will, starts to diminish as we get further into the into the year.

So by the end of the fourth quarter, a lot of that will be gone. The replacement yields are not all that different on the floating side. I mean they're just kind of coming off and going on, but we are still picking up maybe 25 basis points on other more fixed products debt.

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

Base dollar amounts.

Yes.

But we have more about $1 billion or so that we have to replace every year. Some of that will be our prepayments and that and also amortizing loans. So kind of a mix of that.

It's a mix of fixed and flow. Yes.

Got it. Okay. And then do you have the updated cost of funds either across deposits either at year-end or more recently. One of the things I was looking at CD costs just look a little elevated here at $386 million. I'm assuming there's quite a bit of downside as we think about rate cuts, additional rate cuts and the maturity schedule there, what CD cost could be a year from now?

Yes. So I have like a monthly margin from December, and that gets us a little bit closer for that. For that period, our CDs were about at 3.82%. And overall deposits -- we're about 2.50%.

254 interest bearing.

Yes. Yes, that doesn't include DDA.

Yes. Okay. I guess the last one for me, a lot of the questions have been exhausted. But for community Bank, what are you doing or what are you using for AI tools at this point? How are you using them? And as we look ahead, whether it's a year or 5 years, how do you think those tools might impact your P&L?

Yes. Obviously, in some of these areas, things are early days. But in other areas, it's work that is really important to our company. I think about in the area of BSA, AML compliance and some of the fraud protection that occurs in our company every day relative to -- primarily to our deposit book and anomalies that are happening within commercial and consumer deposit relationships.

So all of that information that's coming to our Financial Intelligence group is AI-driven and alerts are created, and it has been a big factor in our ability to find potential fraud and make sure that we're stopping things before they actually happen. And it's worth millions of dollars of savings that we see on a quarterly and annual basis. Around potential things, all coming from what you would consider some sort of AI alert.

We're also thinking about generally regulatory compliance, consumer compliance and the ability to use AI there. Within our commercial bank, the underwriting and portfolio management infrastructure that we have has increasing levels of AI support to do things like auto spreading of financial statements, support for -- will continue to mature will be support around underwriting for originations as well as portfolio management. We're also using it to enhance our communication.

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

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

How far away are we from the -- you said millions of savings. How far away are we from that actually impacting guidance and your outlook?

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

[Operator Instructions] Your next question comes from the line of Dave Bishop with Hovde Group.

Yes. Thank you. A quick question for most of my questions have been asked and answered. But -- in terms of origination, loan production this quarter versus payoffs. Just curious maybe how those compared to the fourth quarter to the back end of the third quarters?

Yes. Fourth quarter was robust. Originations were strong in Q4. We did have elevated payoffs in Q4 to talk about the kind of the construction cycle, a lot of those loans were refinanced out of the bank in Q4. And it led to some pipeline burn that we're actively rebuilding now and would hope to regain our momentum.

And as we add additional bankers incrementally add to what our experience has been over the past year or 2. So we, in total, need to originate somewhere around $1.5 billion to $1.6 billion in total new loans each year to drive a 5% to 7% net loan growth number.

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

We're kind of agnostic relative to the geography and we know we need to add to the C&I teams, CRE, we're pretty well healed in terms of the legacy markets. But if we can find an additional banker who can help us grow, we're going to hire them.

As Chris mentioned, the focus of the leads of both the commercial real estate and C&I groups, our ABL group is to add additional bankers in order to further enhance customer acquisition. And that -- hopefully that translates into additional loan and more specifically deposit growth.

So it might be treasury management officers. It could be CRE bankers. It could be C&I bankers. We're looking to grow all facets of our commercial teams and the products that they offer.

Your next question comes from the line of Daniel Cardenas with Janney Montgomery Scott.

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

We talked a little bit about that earlier. I would say that early in Q4 as rates started coming down and that 4% number was out there when you're talking about the CD book, there was some pressure from competitors to what I would call hold on what I have and offer an elevated rate. We were a little surprised that folks kind of reacted as slowly as they did.

And I think particularly in the month of October, maybe even into early November. But second half of the quarter, things became more rational. We don't aggressively post and advertise aggressive rate in the market, generally speaking. -- we operate with what I would call a very responsive exception pricing process that kind of combines the ability for our team leaders in the field to make decisions with the proper level of oversight between Mark's teams and Dave's teams.

And that has worked really well for us, both in the ability to attract new deposits as well as to retain things from a competitive standpoint. So we feel optimistic about our ability to respond the information that we're getting to make decisions around. And that's a big reason why we believe we should be growing deposits at least at the rates that we're projecting our loan growth.

Thank you, Dan.

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

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

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

Welcome to the S&T Bancorp Third Quarter 2025 Conference Call. [Operator Instructions] Now I would like to turn the call over to Chief Financial Officer, Mark Kochvar. Please go ahead.

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. This 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 2025 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 the 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 stbancorp.com.

With me today are Chris McComish, S&T's CEO; and David Antolik, S&T's President. I'd now like to turn the call over to Chris.

Mark, thank you, and good afternoon, everybody. I'm going to begin my comments on Page 3, and I welcome all of you to our call, especially our analysts, and we appreciate you being here with us and look forward to your questions. I also want to thank our employees, shareholders and others listening to the call. To our leadership team and employees, I want to thank you for all you do. These results are yours and you should be very proud.

Before my remarks on our performance, I want to take a moment to congratulate and thank Christine Toretti, our former Board Chair, for her years of service at S&T. As you may be aware, Christine is our new U.S. ambassador to Sweden, a well-deserved appointment in recognition of her years of service to our country. I also want to welcome and congratulate Jeff Grube, another long-standing S&T Board member as he takes on the role of Lead Independent Director of our Board. We all look forward to working even more closely with Jeff as we move the company forward.

Overall, we feel very good about the quarter as it reflects a lot of the work and strategic focus of our team over the past few years, positioning S&T for long-term success. You will see that focus in the numbers we discuss today, including, first, by strategically repositioning our balance sheet over the past couple of years to reduce asset sensitivity, we've enhanced our ability to drive consistent net interest income growth through the interest rate cycle. Second, while total deposits ended basically flat at quarter end, our continued investment in our deposit franchise delivered a solid deposit mix with noninterest-bearing deposits representing 28% of total deposits. Additionally, average DDA growth in the quarter was over $50 million versus Q2, helping to drive our net interest margin expansion, which was already at a very healthy level. Last, while we did see an increase in NPAs in the quarter, this was over a very low base, and the final numbers remain in a very manageable range. Together, these strategic initiatives have created a solid platform for current strong performance and confidence in our future.

Additionally, from a capital standpoint, our earnings drove further tangible book value growth of more than 3% again this quarter, above our already robust capital levels. This capital level gives us a lot of flexibility around acquisitions as well as share buyback opportunities. I will remind everyone again, we have a very clear path to $10 billion and above through organic growth in the coming quarters.

In summary, I'm very excited about how we are executing, delivering for our customers and building our company for the future.

Looking at the quarter, Q3 was another quarter of strong earnings and returns. EPS of $0.91, net income of $35 million, while ROA came in at 1.42%, up 10 basis points from Q2, and PPNR at a very solid 1.89% was up 16 basis points. PPNR was aided by both NIM expansion increasing to a robust 3.93%, up 5 basis points linked quarter, while net interest income rose more than 3%.

Asset growth was a little lighter than Q2 due to some higher payoffs while NPAs did increase over a very low base. Charges remained low and the ACL decreased by 1 basis point linked quarter. Dave Antolik is here with us, and he will add more color in a few minutes on asset growth and asset quality.

Again, while customer deposit growth was somewhat muted, DDA balances remained an impressive 28%, while total deposits -- while contributing meaningfully to our net interest income and net interest margin improvement. Expenses were well managed, combined with our revenue growth, the efficiency ratio dropped to 54.4%, another strong number.

I'm going to stop there. I don't want to take any more of Dave or Mark's thunder, but -- and I'll turn it over to them for more details, and I look forward to your questions.

Great. Thank you, Chris, and good afternoon, everyone. Continuing on Slide 4. Total loan balances grew by $47 million or 2.3% annually during the quarter. This growth was largely driven by CRE activities, resulting in $133 million of increased balances in that category. Much of this growth was the result of construction loans converting to permanent commercial real estate loans as projects were completed during the quarter. As a result, commercial construction balances declined by $78 million.

Looking forward, unfunded construction commitments grew by $37 million during the quarter, pointing towards continued growth in CRE for the balance of the year and beyond.

Asset classes experiencing the most growth during the quarter included multifamily, flex mixed use, manufacturing and retail. Offsetting our CRE growth were declines in our C&I balances of $46 million. These declines were driven by a combination of modest seasonal utilization reductions coupled with higher-than-anticipated payoffs as Chris mentioned, and credits that we chose to exit.

During Q3, total commercial loan payouts were higher than the previous 2 quarters and higher than Q3 of 2024.

Turning to consumer loan activity. We saw overall growth in line with our expectations at $37 million or approximately 6% annualized. Consumer pipelines were down slightly from Q2 to Q3, but still in line with our forecast and in support of continued growth at the pace that we've seen in recent quarters.

Commercial pipelines continue to grow and sit at the highest point in 5 quarters. Given our experience in Q3, and anticipated new loan and payoff activity in Q4, we are guiding to mid-single-digit loan growth in Q4.

Turning to asset quality on Page 5. Our allowance for credit losses decreased by 1 basis point and remains appropriate for the level of credit risk in our loan book. Overall, criticized and classified assets were up moderately quarter-over-quarter and are in a range where we expect them to remain for the foreseeable future.

During the quarter, NPAs increased to 62 basis points of total loans. It's important to note that this level of NPL follows a period of exceptionally low levels and is well within an acceptable range. I'll also note that we do not have concern with any particular asset class, geography or industry. The increase was primarily a result of 2 CRE credits and 1 C&I credit that migrated during the quarter. We have asset resolution strategies in place for several NPLs and in support of those strategies, recognized charges of $2.4 million in the quarter and established additional specific reserve of $2.7 million. Looking forward, we expect NPLs to stabilize and potentially reduce over the balance of 2025 and into the first quarter of 2026.

Taking a broader look at leading credit risk indicators, we see nothing in our credit risk rating stack, credit scoring or delinquency that points to additional downward pressure on our credit results.

I'll now turn it over to Mark.

Thanks, Dave. Third quarter net interest income improved by $2.6 million or 3% compared to the second quarter, and net interest margin expanded by 5 basis points, and combined with loan growth, that's a pretty good quarterly revenue growth. The net interest margin improvement came from a 1 basis point earning asset increase, combined with a 3 basis point decrease in cost of funds. That was mostly due to CD repricing than the higher average DDA balances of $50 million that Chris mentioned.

Fed rate change came very late in the quarter, and we did not see any meaningful impact from that in these results. We continue to expect that our more neutral interest rate risk position and pricing discipline will mitigate any rates down impact, both what has happened so far and what is expected over the next several quarters.

Next, on noninterest income. We saw a slight increase of $0.3 million during -- for Q3, with small improvements in our major customer fee categories. Our expectations for fees going forward remains at about $13 million to $14 million per quarter.

On the expense side, expenses were more in line in the third quarter, declining by $1.7 million compared to the second quarter. Favorable variances were concentrated in salaries and benefits, primarily in incentives and medical. Additionally, professional services decreased by about $0.5 million, mostly due to the timing of some projects. Our quarterly expense run rate is still expected to be approximately $57 million to $58 million for the next several quarters.

Capital to TCE ratio increased by 31 basis points this quarter with AOCI improvement contributing about 7 basis points. Our regulatory ratios increased by about 15 basis points due to strong retained earnings growth. Our TCE and regulatory capital ratios position us well for the environment and will enable us to take advantage of both organic or inorganic growth opportunities. We also have a share repurchase authorization in place for $50 million. Thank you.

At this time, I'd like to turn the call back over to the operator to provide instructions for asking questions.

[Operator Instructions] Your first question comes from the line of Justin Crowley with Piper Sandler.

Wanted to start out on loan growth in the quarter and kind of looking forward. I know you went through some of this, but could you give more of a sense for the puts and takes here between origination activity? And then maybe how impactful paydowns were, which I think you called out?

Yes. So paydowns were up quarter-over-quarter, and again, higher than what we experienced in Q3 of last year. So the end result was a little lighter than what we had expected. CRE activity remains strong. As I mentioned, the construction commitments grew during the quarter, pointing towards better growth in Q4 and into Q1. Consumer, we believe, will remain at somewhere in the mid-single digit, similar to the 6% that we experienced in Q3. And we're working hard to drive better C&I growth. And we talked in earlier quarters about recruiting teams, they're getting up to speed and bringing opportunities to fruition.

So we feel like that mid-single-digit number is appropriate for us especially given the growth of the deposit franchise. We don't want to get too far ahead of our funding sources, but -- and we think that's an appropriate level of growth for our bank.

Okay. And like taking that mid-single digit versus maybe the mid- to high that's been discussed before, is that a function of the paydowns? Is that primarily what that is? Or is it also what you're seeing on the deposit side, maybe the combination of the 2?

It's a combination of all those factors, plus demand in the market. There's still a fair amount of uncertainty. If you think about the budget impasse in Washington, we have the double whammy here in Pennsylvania because we've got a state budget impasse as well. So until some of those things get settled out I think the interest rate environment is helping us, and we're hoping to tell that story to our customers around fixed rate borrowings, but there's still enough uncertainty out there that mid-single-digit growth feels more appropriate for us from both a credit and funding perspective.

Okay. Got it. That's helpful. And then shifting a little bit on the margin. And I hear you on the NIM being able to hold relatively stable. But as we get into next year with more Fed cuts on the way, how do you see that playing out over more the intermediate term in terms of the effect on NIM? Maybe also just any color on flexibility with things like swaps continuing to roll off or anything else?

Yes. I mean, I think for the next several quarters, probably into -- through the first half of next year, I feel like we're pretty well positioned to handle any of the potential rate cuts just because of the funding mix that we have, our ability to reduce deposit rates, still CD repricings in the offing and then also the receive fixed swap book that we have that will continue to mature its latter over the next several quarters. Assuming the Fed kind of finishes up by mid-summer, I think that will be a little bit of a reset, and we'll need to look more closely at how customer behavior on the -- especially on the deposit side evens out, what the shape of the curve is. And those things could put some pressure on the margin just on a go-forward basis in a more stable rate environment, but I think a lot of things have to shake out before then. But for the next 3 quarters or so, we think we're in a pretty good spot to handle the rates down should it come.

Okay. And then on the deposit side, as we get the -- continue to get these cuts, do you have any funding that's -- or any deposits that are indexed directly to Fed funds and would reprice right away?

Not on the deposit side. We're pretty -- we've been pretty proactive and have a decent discipline with respect to the exception pricing that we have with our customers. So we act fairly quickly on those, but we don't have any contractually indexed deposits.

Okay. Helpful.

We have a small amount tied to the like a 3-month T-bill, but that's maybe $150 million, very small.

Okay. And then I know we talk about it a lot, but on M&A and the higher levels of activity we're seeing, Chris, could you give us an update just on that side of things for you folks? Are a lot more conversations taking place? Or how has that all been trending from your side?

Yes. The conversations in the market is still active. Pennsylvania and Ohio maybe not as much as other geographies, but there's still a good number of conversations that are going on, and it's a key part of the ongoing outreach and engagement that we have.

Okay. And you hit on the geographies. And I know you've cast somewhat of a wide net in terms of what could make sense. But does that leave areas like in the Mid-Atlantic or D.C., Maryland, is that...

Exactly. I would think about Mid-Atlantic, West through Ohio. Our marketplace today is Pennsylvania and Ohio, but we certainly are interested in places further south and east.

Your next question comes from the line of Daniel Tamayo with Raymond James.

Maybe first just on the deposit side. You touched on it, Mark, with your expectation for your ability to maintain the margins in the next several quarters. But just curious what you're seeing on the competition side kind of recently last few months, and what you're thinking in terms of betas for these cuts that -- the September cut and any future cuts that we have coming?

We did -- after the first cut here in September, we -- or last September, we did see a little bit more competitive pressure than we had expected particularly on the CD side. There seem to be a little bit of reluctance on the part of many competitors to reduce some of those short-term rates as much as we had expected. So we made some adjustments in how we handle some of the exception pricing there. We think that with several cuts will actually -- we'll catch up. I think there's a little bit of psychology going through the 4-handle and customers being attached to getting that 4-handle rate. And so I think that will improve assuming that Fed keeps on going with multiple cuts.

On the beta side, our loan beta overall is kind of around 40%. So we're targeting right around there or a little bit better over time with the CD repricing included to be able to match that. That's an important part of getting us to have that more stable NIM.

Great. Appreciate that. And on the $10 billion threshold, with the slower growth in the quarter, it seems like you should be able to stay under $10 billion next quarter and then, organically, if that's the way you pass, it would be sometime next year?

That's correct. Yes.

Okay. And then maybe 1 for you, Chris, on profitability. You guys have been above [ 1.40 ] were in the quarter kind of pretty regularly now for the last few quarters. It seems like that should be relatively sustainable with credit being certainly in a good place. But is that something you think you can stay above that [ 1.40 ] bogey?

Yes. I think in that range is certainly the way we're targeting things. To your point, Danny, as credit continues to behave, and we stay focused on that. And then as Mark talked about, if margins hold up as we expected in this down rate environment, that's certainly a reasonable number and is something that we are staying focused on.

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

I appreciate the color regarding the operating expense forecast. I'm curious as you budget out into next year, any prospects or plans to recruit or add additional bankers? I'm just curious how much is baked into the numbers and how much of a lift that may influence that on an inflationary basis, if you are successful?

Well, we certainly expect to add bankers and the expectation is that those bankers pay for themselves. So there's a real focus internally on improving productivity, so things like leveraging artificial intelligence, making sure that we have processes streamlined, become really important to managing operating expenses, but we certainly do expect to add in the customer-facing roles.

Got it. And then I think you mentioned capacity for the share buyback. Just curious appetite for share repurchases at the current valuation?

Yes. I mean we think there might be some better opportunities. We've seen a downdraft in bank stocks overall, and us in particular, over the past months. So we certainly think that, that's something that we're going to look a lot closer at here as we get into the rest of the quarter.

Got it. And 1 final sort of housekeeping question. I know there's been a lot of chatter about loans to the NDFI sector. Just curious if there's any exposure you wanted to call out?

No.

Yes, nothing material. We do have some exposure to some REITs that are technically NDFIs, but nothing that looks like where the problems have surfaced in some of the larger regional banks. That's a space we don't play in.

Your next question comes from the line of Kelly Motta with KBW.

Most of mine have been asked and answered at this point, but I guess piggybacking on the credit question, you did have the migration, although it sounds like you feel levels are low and you feel overall good. Is there any specific areas understanding you guys don't really have exposure to NDFIs that you would direct analysts to watch more carefully either at S&T or just in the bank space more broadly?

No. I think, in fact, Kelly, beyond what I mentioned relative to kind of budget crisis, credit is performing as we would have expected. And here in Western Pennsylvania, there are things like a big data center that's being built outside of Indiana here in Homer City, Pennsylvania, that should add additional opportunity for growth and improving credit health in the region as some very large investments are made. And we obviously look through our concentrations relative to commercial real estate. We're very comfortable with where we stand from a diversification perspective, both construction versus permanent, and all the asset classes. And then we are closely managing our C&I book to make sure that we're not getting too far out on our risk scale. So that's some of what led to the decline in C&I balances in Q3 where decisions that we made relative to exiting credit. So I don't know that there's any 1 thing that I would point you towards other than kind of general economic and political environment, specifically the budget impasses in Pennsylvania and at the national level.

Got it. That's helpful. I guess last question for me would be on the funding side. Your loan-to-deposit ratio sits right just a touch above 100%. As you -- appreciate the color on the loan outlook. As you look ahead, where are you seeing opportunities to raise core funding and the drivers of that?

Yes. Kelly, it's Chris. As we've talked about, building the growth of our deposit franchise is a key driver of our performance and the area of focus and that entails everything from incentive plans to product mix to adding staff. Dave earlier asked about bankers that includes treasury management professionals and teams. And so it's a critical part of who we are. And we feel really good about our deposit mix, and we feel very good about the process that we use around being proactive relative to exception pricing in ensuring that our bankers are able to be responsive, both in the branches with consumers as well as our commercial and business bankers.

So it's a core part of what we think about and focus on every day. And we know improving that loan-to-deposit ratio is really important to us as we move forward to capitalize on our growth opportunities.

As Mark talked about, we did see, with the most recent rate cut, some increase in competitive intensity, and we'll have to be able to respond to those things as well.

Your next question comes from Matthew Breese with Stephens.

The first 1 for me, is it fair to think that the $10 billion crossing will happen either in the first quarter of '26 or second quarter '26 without having to manage the balance sheet below that too strenuously, or is there room to kind of push even further out?

No, I don't think so. I think it will be certainly first half of next year. And I don't think there's any -- we're going to be pretty close here at the end of the year, but shouldn't -- I don't think we'll have to try very hard to stay under at the end of the year, but we're not of a mind to do that long term. So I think we just -- we go ahead after we get past '25.

The other thing, Matt, that we are watching is some of the changes or the proposed changes in Washington relative to regulatory relief for changes and thresholds and that kind of thing. That won't impact the Durbin cost, which we've talked about, which is in that $6 million to $7 million range, but it certainly -- it makes us feel good about the fact that regardless, we're prepared and -- but it might give us some additional flexibility to run the company.

Got it. Okay. And then I'm sorry to harp on the NIM, but it does seem like, on the back of recent cuts, we could get another 2 to 3 '25 cuts in relatively short order. I think at last count, you have something like 39% or 40% floating rate loans. How do you see the margin -- or I guess, my gut is that the margin has near-term downside before deposits start to catch up and you get some of that back. But I was curious on the timing difference between floating rate loans and your ability to act on deposits, if you could help me on the NIM?

Yes. I mean our floating has decreased some, especially when you figure in the swap exposure we have, so it's closer to 30% net. So I think that gives us a little bit of relief. So -- and we run in the models -- I mean, there is some risk if that competitive piece of the deposit side that we've talked about expands beyond CDs and really starts to bore into kind of money market and the interest-bearing demand sector. But the modeling we've done so far doesn't have that sort of air pocket that you alluded to. We think we can still maintain that fairly quickly with the Fed changes.

Okay. The credits that went nonperforming, could you just give us some insight as to what business lines were behind the C&I credit and what sectors the commercial real estate credits were attached to? And any kind of underlying factor? Was it higher rates and just kind of a strain that way? Or was it more idiosyncratic?

Matt, I don't want to get into specific details on these credits because they are active workouts. The C&I credit was a manufacturer. The 2 CRE credits were really a function of kind of construction-related risk. But as I mentioned, we've got asset resolution plans in place that we hope to execute on over the next couple of quarters. And again, we don't see anything generally or specifically tied to any industry, geography or asset class that gives us kind of additional heartburn in terms of more downside risk.

Okay. I appreciate that. Chris, maybe last 1 for you. On M&A, you had mentioned kind of geographic preferences. I guess beyond that, what, to you, makes an attractive target? What business lines or deposit composition are you looking for? I guess I'm looking for some color on the strategy component to M&A beyond geography.

Yes. So strategically, we obviously -- I mean, I'm a big believer that acquisitions are focused primarily on the deposit franchise. And that type of opportunity would help with the funding mix that we have today as well as give us a core group of customers to expand relationships around. So we think about it in a couple of ways. One, there's geographic expansion that could be into faster-growing areas than where we are today. Then you've got geographic overlaps that would create some potential efficiencies for us. Both of those things could be important to us. But kind of the key driver really is thinking about that deposit franchise.

There may be a line of business that may help us expand our C&I capabilities for example, or our focus on small business. Some of that is unique to the -- to a specific transaction. So we think about the balance sheet makeup of the company first and foremost, a heavy emphasis on the deposit side of the balance sheet, understanding credit risk, and then does it represent an ability to grow the company faster.

I would like to turn the call over to Chief Executive Officer, Chris McComish, for closing remarks.

Okay. Well, listen, thanks, everybody, for your good questions and your engagement. We really appreciate it and your interest in our company and all you're doing to support what we're trying to do. We look forward to being with you again next quarter. In the meantime, we're going to go back to work and see what we can do to grow the bank. Have a great day.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.