Q1 2026 Northwest Bancshares Inc Earnings Call

Operator: Hello, thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Northwest Bancshares Inc. Q1 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. To withdraw your question, press star 1 again. I would now like to turn the conference over to Michael Perry, Northwest's Managing Director of Corporate Development Strategy and Investor Relations. You may begin.

Speaker #1: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Northwest Bancshares, Inc. Q1, 2026 earnings call.

Speaker #1: All lines having passed unmuted to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad.

Speaker #1: To withdraw your question, press star 1 again. I would now like to turn the conference over to Michael Perry, Northwest Managing Director of Corporate Development Strategy and Investor Relations, UMA.

Speaker #1: Begin.

Speaker #2: Good morning, everyone, and thank you, operator. Welcome to Northwest Bancshares' first quarter 2026 earnings call. Joining me today are Lou Torchio, President and CEO of Northwest Bancshares; Doug Schosser, our Chief Financial Officer; and T.K. Creel, our Chief Credit Officer.

Michael Perry: Good morning, everyone, and thank you, Operator. Welcome to Northwest Bancshares' Q1 2026 earnings call. Joining me today are Lou Torchio, President and CEO of Northwest Bancshares, Doug Schosser, our Chief Financial Officer, and T.K. Creel, our Chief Credit Officer. During this call, we will refer to information included in the supplemental Q1 2026 earnings presentation, which is available on our investor relations website. If you'd like to read our forward-looking and other related disclosures, you can find them on slide 2. Thank you. Now I'll hand it over to Lou.

Speaker #2: During this call, we will refer to information included in the supplemental first quarter 2026 earnings presentation, which is available on our Investor Relations website.

Speaker #2: If you'd like to read our forward-looking and other related disclosures, you can find them on slide 2. Thank you. And now I'll hand it over to Lou.

Speaker #3: Good morning, everyone. Thank you for joining us today to discuss our first quarter 2026 results. I'll let Doug take you through the specifics of our first quarter performance, but first, I want to reflect on the growing momentum and continuing transformation at Northwest.

Louis Torchio: Good morning, everyone. Thank you for joining us today to discuss our Q1 2026 results. I'll let Doug take you through the specifics of our Q1 performance. First, I want to reflect on the growing momentum and continuing transformation at Northwest and how our achievements in Q1 have positioned us for continued growth in 2026. On slide four, you can see some of the financial highlights of Q1 2026. We delivered $51 million in net income for Q1, a record in the company's history, resulting in more than 16% year-over-year net income growth. Momentum in our C&I business continued with $191 million of average C&I loan growth in Q1, representing a 28% year-over-year growth.

Speaker #3: And how our achievements in the first quarter have positioned us for continued growth in 2026. On slide 4, you can see some of the financial highlights of the first quarter 2026.

Speaker #3: We delivered 51 million in net income for the first quarter, a record in the company's history, resulting in more than 16% year-over-year net income growth.

Speaker #3: Momentum in our CNI business continued with 191 million of average CNI loan growth in the first quarter, representing a 28% year-over-year growth. We have continued to grow our nationwide business verticals in a disciplined manner.

Louis Torchio: We have continued to grow our nationwide business verticals in a disciplined manner. The first of these was launched in 2023, and collectively they now represent approximately 23% of our commercial lending portfolio. These verticals are led by experienced and highly networked industry leaders, giving us a strong point of distinction in these specialty finance areas. We continue to focus on growing our SBA lending business both locally and nationally in 2026, building on our momentum from earning a spot among the top 50 originators in the US by volume in 2025. We recorded a net interest margin of 370 basis points in the Q1 of 2026, benefiting from our deposit franchise, which is one of Northwest's core strengths.

Speaker #3: The first of these was launched in 2023, and collectively they now represent approximately 23% of our commercial lending portfolio. These verticals are led by experienced and highly networked industry leaders.

Speaker #3: Giving us a strong point of distinction in these specialty finance areas. We continue to focus on growing our SBA lending business both locally and nationally in 2026.

Speaker #3: Building on our momentum from earning a spot among the top 50 originators in the US by volume in 2025. We recorded a net interest margin of 370 basis points in the first quarter of 2026, benefiting from our deposit franchise, which is one of Northwest's core strengths.

Speaker #3: We achieved our third consecutive quarter of lower deposit costs, one of the best in class among our peers. Our ongoing expense management discipline allowed us to achieve another quarter of improved performance, with our efficiency ratio at 59.4% and our adjusted efficiency ratio at 57.8% for the quarter.

Louis Torchio: We achieved our third consecutive quarter of lower deposit costs, one of the best in class among our peers. Our ongoing expense management discipline allowed us to achieve another quarter of improved performance with our efficiency ratio at 59.4% and our adjusted efficiency ratio of 57.8% for the quarter. We have now fully recognized all the expense benefits from our recent acquisition. Our record net income in Q1 2026 drove strong returns with an ROAA of 1.22% and ROTCE of 14.6%.

Speaker #3: And we have now fully recognized all the expense benefits from our recent acquisition. Our record net income in the first quarter of 2026 drove strong returns with an ROAA of 1.22% and ROTCE of 14.6%.

Speaker #3: In addition, with all the recent headlines surrounding credit, I wanted to highlight that we saw our non-performing assets and overall delinquencies decline this quarter, and we recorded a lower annualized net charge-off ratio of 16 basis points for the quarter, which is below the low end of our full-year guidance.

Louis Torchio: With all the recent headlines surrounding credit, I wanted to highlight that we saw our Non-Performing Assets and overall delinquencies decline this quarter, and we recorded a lower annualized net charge-off ratio of 16 basis points for the quarter, which is below the low end of our full-year guidance. We achieved these results while continuing to invest in talent, technology, and new financial centers to support our future growth. I'm pleased with our results, I'm proud of the team for driving a strong core performance across the bank. As we've highlighted on previous calls, we continue to execute on our plans to transform the consumer bank. With the opening of our first new financial center since 2018 in the Indianapolis MSA last year, we debuted our new financial center design focused on customer hospitality.

Speaker #3: We achieved these results while continuing to invest in talent, technology, and new financial centers to support our future growth. I'm pleased with our results, and I'm proud of the team for driving a strong core performance across the bank.

Speaker #3: As we've highlighted on previous calls, we continue to execute on our plans to transform the consumer bank. With the opening of our first new financial center since 2018 and the Indianapolis MSA last year, we debuted our new financial center design focused on customer hospitality.

Speaker #3: And we're continuing to build out our presence in our Columbus headquarters market with five new financial centers now under development. And due to open later this year in key locations.

Louis Torchio: We're continuing to build out our presence in our Columbus headquarters market with 5 new financial centers now under development and due to open later this year in key locations. We expect to open the first of these by the time we have our next earnings call in July. In Q1 2026, we delivered on our commitment to our shareholders, returning more than half of our profits through a quarterly dividend of $0.20 per share. This is the 126th consecutive quarter in which the company has paid a cash dividend. Looking ahead for the rest of 2026, we continue to focus on delivering organic growth and strong financial performance, expanding our financial center network, serving our core customers and communities, and delivering growth across our consumer and commercial lines of business.

Speaker #3: We expect to open the first of these by the time we have our next earnings call in July. And in the first quarter of 2026, we delivered on our commitment to our shareholders, returning more than half of our profits through a quarterly dividend of $0.20 per share.

Speaker #3: This is the 126th consecutive quarter, in which the company has paid the cash dividend. Looking ahead for the rest of 2026, we continue to focus on delivering organic growth and strong financial performance, expanding our financial center network, serving our core customers and communities, and delivering growth across our consumer and commercial lines of business.

Louis Torchio: With that, I'll turn it over to Doug to review our Q1 results in more detail. Doug?

Speaker #3: With that, I'll turn it over to Doug to review our first quarter results in more detail. Doug?

Michael Perry: Thank you, Lou, good morning, everyone. As Lou indicated, we're pleased with our financial performance in Q1. This is the product of the efforts of our entire team working tirelessly to deliver these results, and I am grateful to the team for their efforts. Now let's continue on slide 5 of the earnings presentation, where I'll walk you through the highlights of Northwest's financial performance for Q1. Our GAAP EPS for Q1 was $0.34 per share, and on an adjusted basis, our EPS was $0.35 per share.

Speaker #2: Thank you, Lou, and good morning, everyone. As Lou indicated, we're pleased with our financial performance in the first quarter. This is the product of the efforts of our entire team working tirelessly to deliver these results and I am grateful to the team for their efforts.

Speaker #2: Now let's continue on slide 5 of the earnings presentation, where I'll walk you through the highlights of Northwest financial performance for the first quarter.

Speaker #2: Our GAAP EPS for the quarter was 34 cents per share, and on an adjusted basis, our EPS was 35 cents per share. An improvement on the prior quarter of 31 cents per share and 33 cents per share, respectively, primarily driven by expense management discipline, and a decrease in our overall provision for credit losses.

Douglas Schosser: An improvement on the prior quarter of $0.31 per share and $0.33 per share respectively, primarily driven by expense management discipline and a decrease in our overall provision for credit losses. Net interest income grew $300,000 or 0.2% quarter over quarter, with net interest margin improving to 370 basis points, benefiting from an increased securities portfolio yield and a decrease in our cost of deposits. On a year-over-year basis, net interest income improved 11.5%. Non-interest income decreased by $5.2 million quarter over quarter, driven by a higher BOLI benefit recorded in Q4 2025. On a year-over-year basis, non-interest income improved 14.9%.

Speaker #2: Net interest income grew 300,000 dollars or 0.2% quarter over quarter, with net interest margin improving to 370 basis points benefiting from an increased securities portfolio yield and a decrease in our cost of deposits.

Speaker #2: On a year-over-year basis, net interest income improved 11.5%. Non-interest income decreased by 5.2 million quarter over quarter, driven by a higher BOLI benefit recorded in the fourth quarter of 2025.

Speaker #2: On a year-over-year basis, non-interest income improved 14.9%. Total revenue was 175.1 million dollars for the first quarter, which represented a slight decline quarter over quarter due to a higher BOLI benefit recognized in the fourth quarter of 2025, but represented a 12.1% increase year over year.

Douglas Schosser: Total revenue was $175.1 million for Q1, which represented a slight decline quarter-over-quarter due to a higher BOLI benefit recognized in Q4 2025, but represented a 12.1% increase year-over-year. I would also point out that we achieved significant positive operating leverage of 560 basis points quarter-over-quarter in Q1 2026 as we maintained our focus on exercising tight expense discipline and saw the last of our Penns Woods acquisition expense savings materialize. This also translated into an improvement in our adjusted efficiency ratio to 57.8%, which was a 170 basis point improvement quarter-over-quarter.

Speaker #2: However, I would also point out that we achieved significant positive operating leverage of 560 basis points quarter over quarter in the first quarter of 2026 as we maintained our focus on exercising tight expense discipline and saw the last of our Penn's Woods acquisition expense savings materialize.

Speaker #2: This also translated into an improvement in our adjusted efficiency ratio, 57.8%, which was 170 basis point improvement quarter over quarter. All of which created an improvement in our pre-tax pre-provision net revenue in the first quarter of 2026, which increased to 71.7 million dollars and 1.5% increase from fourth quarter 2025 and a 9.3% increase year over year on an adjusted basis.

Douglas Schosser: All of which created an improvement in our pre-tax, pre-provision net revenue in Q1 2026, which increased to $71.7 million, a 1.5% increase from Q4 2025 and a 9.3% increase year over year on an adjusted basis. Turning to slide six, I'll spend a moment covering our loan balances. Average loans grew $102 million quarter over quarter, benefiting from organic loan growth in both our commercial and consumer businesses as we continue to experience runoff in our residential mortgage and legacy CRE portfolios. We achieved our second consecutive quarter of period-end loan growth in Q1, with period-end loans increasing by $49 million to $13.1 billion, laying a strong foundation for continued growth in 2026.

Speaker #2: Turning to slide 6, I'll spend a moment covering our loan balances. Average loans grew 102 million dollars quarter over quarter, benefiting from organic loan growth in both our commercial and consumer businesses as we continue to experience runoff in our residential mortgage and legacy CRE portfolios.

Speaker #2: We achieved our second consecutive quarter of period-end loan growth in the first quarter, with period-end loans increasing by 49 million dollars to 13.1 billion dollars laying a strong foundation for continued growth in 2026.

Douglas Schosser: Our loan yield decreased to 5.62% or 3 basis points in the first quarter as we saw the impact of the December 2025 rate cut become fully priced into our loan portfolio. Our C&I loan growth continued with strong performance in several of our new verticals and in our other commercial loan portfolios. Average C&I loans increased $191 million or 7.8% quarter over quarter and $579 million, 28.2% year over year. Our overall interest rate sensitivity position remains slightly asset sensitive with continued growth in floating rate commercial loans. However, we feel we are appropriately positioned for the current and expected interest rate environment in 2026 based on what we know now.

Speaker #2: Our loan yield decreased to 5.62% or 3 basis points in the first quarter, as we saw the impact of the December 2025 rate cut become fully priced into our loan portfolio.

Speaker #2: Our CNI loan growth continued with strong performance in several of our new verticals, and in our other commercial loan portfolios, average CNI loans increased 191 million or 7.8% quarter over quarter and 579 million or 28.2% year over year.

Speaker #2: Our overall interest rate sensitivity position remained slightly asset sensitive, with continued growth in floating rate commercial loans. However, we feel we are appropriately positioned for the current and expected interest rate environment in 2026 based on what we know now.

Douglas Schosser: Moving to slide 7 and our deposit balances, which continue to be a source of strength and stability, our average total deposits grew by $276 million quarter-over-quarter, partially benefiting from continued focus on commercial growth and deepening consumer relationships. Our granular diversified deposit book has an average balance of more than $19,500, with customer deposits consisting of over 719,000 accounts with an average tenure of more than 12 years. Our cost of deposits decreased 5 basis points to 1.48%, a product of our proactive management of the overall portfolio. As an example, 43% of our CD portfolio matured in Q1 2026 at a weighted average rate of 3.60%.

Speaker #2: Moving to slide 7 and our deposit balances, which continue to be a source of strength and stability, our average total deposits grew by 276 million quarter over quarter, partially benefiting from continued focus on commercial growth and deepening consumer relationships.

Speaker #2: Our granular, diversified deposit book has an average balance of more than $19,500, with customer deposits consisting of over 719,000 accounts and an average tenure of more than 12 years.

Speaker #2: Our cost of deposits decreased 5 basis points to 1.48%, a product of our proactive management of the overall portfolio. As an example, 43% of our CD portfolio matured in the first quarter of 2026 at a weighted average rate of 3.60%.

Douglas Schosser: New volumes came on at a weighted average rate of 3.12%, supporting an overall decline in deposit costs. On slide 8, we show net interest margin increased 1 basis point to 370 basis points in Q1 2026, with purchase accounting accretions net impact equating to 7 basis points. Turning to our securities portfolio on slide 9. New security purchases in the quarter were consistent with the current composition of the portfolio and continue to strengthen an already strong source of liquidity. Our portfolio yield continues to increase as new securities purchased came on at a higher yield than the runoff portfolio, resulting in a yield increase of 4 basis points to 3.15% in the quarter. 26% of this portfolio is in held to maturity to protect tangible common equity.

Speaker #2: New volumes came on at a weighted average rate of 3.12%, supporting an overall decline in deposit costs. On slide 8, we show net interest margin increased 1 basis point to 370 basis points in the first quarter of 2026, with purchase accounting accretion's net impact equating to 7 basis points.

Speaker #2: Turning to our securities portfolio on slide 9, new security purchases in the quarter were consistent with the current composition of the portfolio and continue to strengthen an already strong source of liquidity.

Speaker #2: Our portfolio yield continues to increase as new securities purchased came on at a higher yield than the runoff portfolio, resulting in a yield increase of 4 basis points to 3.15% in the quarter.

Speaker #2: 26% of this portfolio is in held-to-maturity to protect tangible common equity. Turning to slide 10, our non-interest income decreased $5.2 million quarter over quarter, driven by a decrease in bank-owned life insurance income due to a higher BOLI benefit in the fourth quarter of 2025.

Douglas Schosser: Turning to slide 10, our non-interest income decreased $5.2 million quarter-over-quarter, driven by a decrease in bank-owned life insurance income due to a higher BOLI benefit in Q4 2025. Non-interest income increased $4.2 million year-over-year, benefiting from an increase in service charges and fees and a gain on equity method investments. Regarding non-interest expense, as detailed on slide 11, as previously referenced, the adjusted efficiency ratio was 57.8% in Q1 2026, representing our third consecutive quarter of improvement, continuing the expense management focus over the last year.

Speaker #2: Non-interest income increased $4.2 million year over year, benefiting from an increase in service charges and fees and a gain on equity method investments.

Speaker #2: Regarding non-interest expense as detailed on slide 11, as previously referenced, the adjusted efficiency ratio was 57.8% in the first quarter of 2026. Representing our third consecutive quarter of improvement, continuing the expense management focus over the last year.

Douglas Schosser: Overall expense, excluding merger and restructuring expenses, was lower quarter-over-quarter due to the lower compensation and benefits expenses driven by the completion of and recognition of all the costs and benefits of the Penns Woods acquisition, combined with more normalized performance-based incentive compensation expenses. On a year-over-year basis, expenses in Q1 2026 were higher, but the year ago quarter did not include the acquired Penns Woods operations. On slide 12, you'll see our overall ACL coverage remained flat at 1.15% in Q1 2026, driven by lower net charge-offs in the current period. Our quarterly annualized net charge-offs of 16 basis points were below the low end of our full year guidance. Our NPAs declined this quarter. While our classified loans did increase this quarter, we have no expectation that the increase would result in higher overall charge-offs.

Speaker #2: Overall expense excluding merger and restructuring expenses was lower quarter over quarter, due to the lower compensation and benefits expenses driven by the completion of and recognition of all the costs and benefits of the Penn's Woods acquisition, combined with more normalized performance-based incentive compensation expenses.

Speaker #2: On a year-over-year basis, expenses in the first quarter of 2026 were higher but the year-ago quarter did not include the acquired Penn's Woods operations.

Speaker #2: On slide 12, you'll see our overall ACL coverage remained flat at 1.15% in the first quarter of 2026, driven by lower net charge-offs in the current period.

Speaker #2: Our quarterly annualized net charge-offs of 16 basis points were below the low end of our full-year guidance. Our NPAs declined this quarter, while our classified loans did increase this quarter, we have no expectation that the increase would result in higher overall charge-offs.

Douglas Schosser: Turning to credit quality on Slide 13, our credit risk metrics remain within internal expectations given the impacts of loans that we acquired. Our total delinquency declined from 1.50% to 1.30% quarter over quarter, primarily as a result of a planned runoff in the CRE criticized portfolio. Our 90-day plus delinquency declined from 51 basis points to 34 basis points quarter over quarter. NPAs decreased by $16.5 million quarter over quarter to 70 basis points of average loans and is only slightly above the levels of Q1 2025, mostly due to the payoff of a long-term healthcare facility.

Speaker #2: Turning to credit quality on slide 13, our credit risk metrics remain within internal expectations, given the impacts of loans that we acquired. Our total delinquency declined from 1.50% to 1.30% quarter over quarter, primarily as a result of the planned runoff in the CRE criticized portfolio.

Speaker #2: Our 90-day plus delinquency declined from 51 basis points to 34 basis points quarter over quarter, and NPAs decreased by 16.5 million quarter over quarter, to 70 basis points of average loans, and is only slightly above the levels of Q1 2025, mostly due to the payoff of a long-term healthcare facility.

Douglas Schosser: Taking a deeper dive in the breakdown of our credit quality on slide 14, in the first quarter of 2026, we did experience an increase in classified loans as a percentage of total loans and on an absolute basis, which was attributed partially to 2 C&I borrowers. As we've discussed on earlier calls, our strategy with respect to classified loans is to continue to work with our borrowers and preserve our market relationships. In addition, as we highlighted in the earnings release, the board of directors reviewed our share repurchase program, and we now operate with a buyback authorization of up to $50 million. This action, when combined with the renewal of our shelf registration, is simply some additional and appropriate capital management. Our capital priorities remain unchanged. On slide 15, we are maintaining our previous outlook for the full year 2026.

Speaker #2: Taking a deeper dive in the breakdown of our credit quality on slide 14, in the first quarter of 2026, we did experience an increase in classified loans as a percentage of total loans and on an absolute basis.

Speaker #2: Which was attributed partially to two CNI borrowers. As we've discussed on earlier calls, our strategy with respect to classified loans is to continue to work with our borrowers and preserve our market relationships.

Speaker #2: In addition, as we highlighted in the earnings release, the board of directors reviewed our share repurchase program, and we now operate with a buyback authorization of up to $50 million.

Speaker #2: This action, when combined with the renewal of our shelf registration, is simply some additional and appropriate capital management. Our capital priorities remain unchanged. And finally, on slide 15, we are maintaining our previous outlook for the full year 2026.

Douglas Schosser: We continue to be confident about Northwest business. We're excited about the prospects for the year ahead. Now I'll turn the call over to the operator who will open up the lines for a live Q&A session.

Speaker #2: We continue to be confident about Northwest Business, and we're excited about the prospects for the year ahead. Now I'll turn the call over to the operator, who will open up the lines for a live Q&A session.

Operator: At this time, I would like to remind everyone in order to ask a question, press star then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Daniel Tamayo with Raymond James. Please go ahead.

Speaker #1: At this time, I would like to remind everyone in order to ask a question, press hard at the number one on your telephone keypad.

Speaker #1: We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Daniel Tamayo with Raymond James.

Speaker #1: Please go ahead.

Daniel Tamayo: Thank you. Good morning, everyone.

Speaker #3: Thank you. Good morning, everyone. I'm going to be starting yeah, morning. Maybe starting on a balance sheet growth on the loan side. Just kind of walk us through the expectation, I guess, for the pay down side.

Douglas Schosser: Morning, Danny.

Daniel Tamayo: Maybe starting. Yeah, morning. Maybe starting on the balance sheet growth, on the loan side. Just kind of walk us through the expectation, I guess, for the pay down side. Maybe if you can talk a little bit about what was driving those in Q1 and thoughts on kind of the pace of slowing of the pay downs going forward and how that balances against origination activity in the commercial book.

Speaker #3: Maybe if you can talk a little bit about what was driving those in the first quarter, and thoughts on the pace of slowing of the paydowns going forward, and how that balances against origination activity in the commercial book.

Douglas Schosser: Yeah, Danny, thanks for the question. Again, Q1, we're continuing to, as you know, as we talked about in prior calls, work through our criticized classified asset book. There is always gonna be a little bit of downward pressure as a result of payoffs there. Additionally, there was some additional payoffs in CRE. I would just point back to a few years ago, we stopped originating a lot of construction, commercial construction loans. Those are now slowly moving into the permanent market. We continue to have a little bit there, and we're not necessarily back into that space in a significant way. Some of those dynamics are gonna continue in the book.

Speaker #4: Yeah, Danny, thanks for the question. So again, first quarter, we're continuing to, as you know—as we've talked about in prior calls—work through our criticized and classified asset book.

Speaker #4: So there's always going to be a little bit of downward pressure as a result of payoffs there. Additionally, there was some additional payoffs in CRE, I would just point back to a few years ago we stopped originating a lot of construction commercial construction loans.

Speaker #4: Those are now slowly moving into the permanent market, so we continue to have a little bit there, and we're not necessarily back into that space in a significant way.

Speaker #4: So some of those dynamics are going to continue in the book. One of the reasons we are reiterating and keeping our guidance consistent is we do believe there's some opportunity around a slowing mortgage residential mortgage loan payoffs that can help.

Douglas Schosser: One of the reasons we are reiterating and keeping our guidance consistent is we do believe there's some opportunity around a slowing mortgage, residential mortgage loan payoffs that can help. We continue to see good pipelines in all of the commercial verticals and commercial businesses. Generally speaking, we're pretty comfortable with the forward look on low to mid-single-digit loan growth for the year.

Speaker #4: And we continue to see good pipelines in all of the commercial verticals and commercial businesses. So generally speaking, we're pretty comfortable with the forward look on low to mid-single digit loan growth for the year.

Daniel Tamayo: Great. That's helpful. Thank you. Maybe kinda related, you talked about and it was a good quarter from a credit perspective in terms of NPAs coming down and the net charge-off activity was lower. You touched on the increase in the criticized and classified. Then you made a comment that you're not expecting any higher net charge-offs from that. Maybe just comment on why that would be, if there's anything specific about that the inflows that gives you confidence they won't come through. Thanks.

Speaker #3: Great. That's helpful. Thank you. And maybe kind of related, you talked about and it was a good quarter from a credit perspective in terms of NPAs coming down and the net charge-off activity was lower.

Speaker #3: You touched on the increase in the criticized and classified and you made a comment that you're not expecting any higher net charge-offs than that.

Speaker #3: Maybe just comment on why that would be—if there's anything specific about the inflows that gives you confidence they won't come through. Thanks.

Douglas Schosser: I mean, again, you know, we're constantly reevaluating the internal ratings on our loan portfolio. In addition to that, obviously, if we thought that there was, you know, lost content, they would have to migrate into the lower levels of charge-offs. We just, as we sit here today, don't see that as a high probability, and we continue to work with our borrowers kind of through the cycle so that we try to make sure we can preserve those market relationships and also help them work their credits out in a positive way, both for the borrower and for the bank. There was nothing in that, in that increase that gave us a lot of pause.

Speaker #4: No, I mean, again, we're constantly reevaluating the internal ratings on our loan portfolio. In addition to that, obviously, if we thought that there was lost content, they would have to migrate into the lower levels of charge-offs.

Speaker #4: So we just, as we sit here today, don't see that as a high probability. And we continue to work with our borrowers kind of through the cycle so that we try to make sure we can preserve those market relationships and also help them work their credits out in a positive way, both for the borrower and for the bank.

Speaker #4: So there was nothing in that increase that gave us a lot of pause.

Daniel Tamayo: Terrific. All right. Well, thanks for the color, Doug. I'll step back.

Speaker #3: Terrific. All right. Well, thanks for the color, Doug. I'll step back.

Douglas Schosser: All right. Thank you.

Speaker #4: All right. Thank you.

Operator: Your next question comes from the line of Jeff Rulis with the D.A. Davidson. Please go ahead.

Speaker #1: Your next question comes from the line of Jeff Ruiz with a DA, Davidson. Please go ahead.

Jeff Rulis: Thanks. Good morning.

Speaker #5: Thanks. Good morning.

Douglas Schosser: Good morning.

Speaker #4: Good morning.

Jeff Rulis: Wanted to check in on the, appreciate the outlook on the loan growth side. I think you covered that well, kind of the low to mid-single digit sounds optimistic to be on the high side of that. I guess the, on the securities purchases in the quarter, you know, added quite a bit there. I guess checking in on more of an earning asset sort of growth pace. Do you feel like you've still got appetite to where maybe earning asset growth outpaces loan growth? Are you still interested in building that side of the balance sheet?

Speaker #5: I wanted to check in on appreciate the outlook on the loan growth side. I think you covered that well. Kind of a low to mid-single digit sounds optimistic.

Speaker #5: To be on the high side of that. I guess the on the securities purchases in the quarter, added quite a bit there. And I guess checking in on more of a earning asset sort of growth pace, do you feel like you've still got appetite to where maybe earning asset growth outpaces loan growth?

Speaker #5: Do you still interested in building that side of the balance sheet?

Douglas Schosser: No, you're seeing a couple dynamics that are rolling through that book. One of them is we did talk about last quarter growing the overall size of the book because we were a little bit low relative to peers, but that wasn't meaningful growth. We also are taking advantage of sort of what we think the rate market's gonna do. In the beginning of the quarter when we thought rates were likely to go through a couple of cuts, we thought that we would go out and make some opportunistic purchases for pay downs that were known to be occurring in Q2 and later in Q1. You'd see the book grow a little bit from that, but then we just aren't going to reinvest new cash flows. When they come off, they've already been sort of reinvested.

Speaker #4: No, you're seeing a couple of dynamics that are rolling through that book. So, one of them is, we did talk about last quarter growing the overall size of the book.

Speaker #4: Because we were a little bit low relative to peers, but that wasn't meaningful growth. We also are taking advantage of what we think the rate market's going to do.

Speaker #4: So, in the beginning of the quarter, when we thought rates were likely to go through a couple of cuts, we thought that we would go out and make some opportunistic purchases for paydowns that were known to be occurring in the second quarter.

Speaker #4: And later in the first quarter. So you'd see the book grow a little bit from that, but then we just aren't going to reinvest new cash flows when they come off.

Speaker #4: They've already been sort of reinvested. So it's just more of a little bit more precise tactical position that we're taking in treasury as opposed to anything more where we are materially changing the composition of the balance sheet.

Douglas Schosser: It's just more of a little bit more precise tactical position that we're taking in treasury as opposed to anything, where we are materially changing the composition of the balance sheet.

Jeff Rulis: Got it. Maybe a little lumpier this quarter, but if you smooth out for the year, pretty balanced percentages.

Speaker #5: Got it. So maybe a little lumpier this quarter, but if you smooth out for the year, pretty balanced percentages?

Douglas Schosser: Correct. Again, we'll probably continue to, you know, take advantage of some free funding if we see those cash flows and we see opportunities to get out in the market. We're not anticipating growth in the overall percent of that portfolio as a percent of earning assets.

Speaker #4: Correct. Now, again, we'll probably continue to take advantage of some free funding if we see those cash flows and we see opportunities to get out in the market.

Speaker #4: But we're not anticipating growth in the overall percent of that portfolio as a percent of earning assets.

Jeff Rulis: Okay, thanks. Staying on the line of kind of consistent loan growth where you're at and given the charge-off outlook that you've outlined, is, you know, all things being equal, the reserve level at 115? Is that kind of a, you know, the provision came in this quarter, but trying to think about, you think you've managed reserves look roughly near that level? Is that the expectation?

Speaker #5: Okay. Thanks. And staying on the line of kind of consistent loan growth where you're at and given the charge-off outlook that you've outlined, all things being equal, the reserve level at 115, is that kind of a the provision came in this quarter, but trying to think about you think you manage reserves roughly near that level?

Speaker #5: Is that the expectation?

Douglas Schosser: Yeah. I mean, they came in $200,000. I mean, they weren't a material change. At the moment we're pretty comfortable at the 1.15% coverage. Again, it's all about, you know, CECL models and economics that come out in the future. Assuming all of that is stable, you would see our reserves be a component both obviously of charge-offs and then loan growth. To the extent that we have some loan growth, we would have some more reserving to do. Again, keeping that overall kind of 1.15%-ish is probably pretty likely.

Speaker #4: Yeah. I mean, they came in a couple hundred thousand. I mean, they weren't a material change. And at the moment, we're pretty comfortable at the 1.15% coverage.

Speaker #4: So again, it's all about CISO models, economics that come out in the future. But assuming all of that is stable, you would see our reserves be a component, both obviously of charge-offs and then loan growth.

Speaker #4: So to the extent that we have some loan growth, we would have some more reserving to do. But again, keeping that overall kind of 1.15 percent-ish is probably pretty likely.

Jeff Rulis: Great. Thanks. One quick last one. You kind of touched on this with the capital discussion towards the end of the prepared remarks. With the buyback, I assume that's just a widening of tools to use. That's not an indication that the M&A outlook is any more dour or disappointed in opportunities there. I guess the question being if you wanted to touch on M&A opportunities, if that's any indication there. Thanks.

Speaker #5: Great. Thanks. And one quick last one. You kind of touched on this with the capital discussion towards the end of the prepared remarks. With the buyback, I assume that's just a widening of tools to use.

Speaker #5: It didn't. That's not an indication that the M&A outlook is any more dour or that we're disappointed in opportunities there. I guess the question being, if you wanted to touch on M&A opportunities, is there any indication there?

Douglas Schosser: Yeah. I'll answer the buyback and then Lou will take the M&A piece. We had an authorization before. It was 2012. It was pretty stale. We thought it was good corporate practice and good governance to get out and ask the board to reauthorize and then to share that with the street. It really should be looked at just as another tool in the capital management toolbox, much like the shelf registration one. I'll turn it to Lou on the M&A side.

Speaker #5: Thanks.

Speaker #4: Yeah. I'll answer the buyback and then we'll take the M&A piece. So we had an authorization before. It was 2012. It was pretty stale.

Speaker #4: We thought it was good corporate practice and good governance to get out and ask the board to reauthorize, and then to share that with the street.

Speaker #4: It really should be looked at just as another tool in the capital management toolbox, much like the shelf registration one. So, no changing capital priorities as a result of that move.

Speaker #4: But for the blue on the M&A side.

Louis Torchio: Sure. Yeah. As we sort of messaged in our commentary earlier on the call, what we're most pleased with is the core growth really clean quarter. Our focus throughout 2026 is going to be just that, continuing to execute post acquisition, continuing to scale our businesses, continuing to improve our financial returns, ROA, ROTCE. As you might imagine, I would just say anecdotally, given all the uncertainty in the marketplace, macro, oil, war, interest rates, Fed share, you know, it just seems that certainly the whisper around M&A has slowed. That would be my sort of anecdotal answer around that. Notwithstanding, we are laser-focused on core organic back-to-back quarter results. That's sort of where we'll be focused through throughout 2026.

Speaker #5: Sure. Yeah. So, as we sort of messaged in our commentary earlier on the call, what we're most pleased with is the core growth—really clean quarter.

Speaker #5: And our focus throughout '26 is going to be just that, continuing to execute post-acquisition, continuing to scale our businesses, continuing to improve our financial returns, ROA, ROTCE, and as you might imagine, I would just say anecdotally, given all the uncertainty in the marketplace, macro oil war, interest rates, Fed chair, it just seems that the certainly the whisper around M&A has slowed.

Speaker #5: That would be my sort of anecdotal answer around that. Notwithstanding, we are laser-focused on core organic back-to-back quarter results. And so that's sort of where we'll be focused through out '26.

Jeff Rulis: That's great. Thank you.

Speaker #5: That's great. Thank you.

Operator: Your next question comes from the line of Timothy Switzer with KBW. Please go ahead.

Speaker #6: Your next question comes from the line of Tim. So it's there with KBW. Please go ahead.

Douglas Schosser: Morning, Tim.

Speaker #4: Good morning, Tim.

Operator: Mr. Switzer, your line might be on mute.

Speaker #6: Mr. Switzer, your line might be on mute.

Timothy Switzer: Hey, good morning. Sorry about that.

Speaker #7: Hey, good morning. Sorry about that. It's okay.

Douglas Schosser: Hey, Tim.

Louis Torchio: It's okay.

Timothy Switzer: My first question's on deposit competition. There's been some reports that certain markets have been a little bit more competitive than others recently, particularly as it now looks like the Fed isn't lowering rates till later this year, if at all. Could you guys maybe talk about what you're seeing in your markets, if any are more competitive than others, or like if different deposit categories are a little bit more intense?

Speaker #4: My first question's on deposit competition. There's been some reports that certain markets have been a little bit more competitive than others recently. Particularly as it now looks like the Fed isn't lowering rates.

Speaker #4: So, later this year, if at all. Could you guys maybe talk about what you're seeing in your markets—if any are more competitive than others, or if different deposit categories are a little bit more intense?

Douglas Schosser: We continue to see a very strong competitive set for deposits. It's been that way for a while. We don't necessarily see that changing. We have some other things that are happening around branch openings and other things for our deposits where, you know, certain markets will be priced differently than other markets when you're in a heavy acquisition campaign versus maintenance. Again, we're not seeing a lot of letup in deposit competition, and we continue to operate sort of with that as our mindset.

Speaker #4: We continue to see a very strong competitive set for deposits. It's been that way for a while. We don't necessarily see that changing. And we have some other things that are happening around branch openings and other things for our deposits where certain markets will be different priced differently than other markets when you're in a heavy acquisition campaign versus maintenance.

Speaker #4: But again, we're not seeing a lot of letup in deposit competition. And we continue to operate sort of with that as our mindset.

Timothy Switzer: Gotcha. Okay. Can you help us think about the expense trajectory over the course of the year? Seems like pretty good progress on the expense save this quarter. Like where do you think we'd be sitting kind of at the end of this year heading into 2027?

Speaker #5: Gotcha. Okay. And then can you help us think about the expense trajectory over the course of the year? It seems like pretty good progress on the expense, say, this quarter.

Speaker #5: Where do you think we'd be sitting kind of at the end of this year heading into 2027?

Douglas Schosser: Again, as we said on the comments, we're really happy that we got all the expense saves pretty much behind us now on the Penns Woods acquisition. Wouldn't expect there to be sort of any opportunities to reduce expenses as a result of that activity any longer. Now it will just be sort of a consistent path of managing the expense growth. Obviously, with stronger levels of performance, there's going to be some stronger potential costs around incentives and other things for our producers, et cetera. You know, again, we haven't changed our guide. We're slightly below an annualized level on the low end of that guidance, but we've given ourselves some room on the expense side. Again, we're going to continue to manage the positive operating leverage.

Speaker #4: Again, as we said in the comments, we're really happy that we've got all the expense saves pretty much behind us now on the Pennsylvania acquisition.

Speaker #4: So, I wouldn’t expect there to be any opportunities to reduce expenses as a result of that activity any longer. Now, it will just be a consistent path of managing the expense growth.

Speaker #4: Obviously, with stronger levels of performance, there's going to be some stronger potential costs around incentives and other things for our producers, etc. But again, we haven't changed our guide.

Speaker #4: So we're slightly below an annualized level on the low end of that guidance. But we've given ourselves some room on the expense side. And again, we're going to continue to manage deposit of operating leverage.

Douglas Schosser: We'll continue to keep the expense growth in line with the revenue growth. Those would be sort of the expense trajectory comments.

Speaker #4: So, we won't. We'll continue to keep the expense growth in line with the revenue growth. So those would be sort of the expense trajectory comments.

Timothy Switzer: Gotcha. Very helpful. Thank you, guys.

Speaker #5: Gotcha. Very helpful. Thank you, guys.

Operator: Your next question comes from the line of Brian Foran with Truist. Please go ahead.

Speaker #6: Your next question comes from the line of Brian Ferran with Truist. Please go ahead.

Brian Foran: Hey, good morning.

Speaker #5: Hey, good morning. I think you mentioned the. Morning. I think you mentioned the National Commercial Verticals are now 23% of loans. And you had a helpful slide in your mid-quarter deck giving some breakdown on balances growth and people.

Douglas Schosser: Good morning, Brian.

Brian Foran: Morning. I think you mentioned the national commercial verticals are now 23% of loans, you had a helpful slide in your mid-quarter deck, you know, giving some breakdown on balances, growths and people. Maybe two related questions. One, what's the appetite? Is there an upper limit or a range where you're comfortable letting that get to, in terms of a percentage of the total loan book? Two, as you look in the year ahead, is there anywhere you'd flag, either adding to the existing teams or any appetite to add additional verticals?

Speaker #5: Maybe two related questions. One, what's the appetite? Is there an upper limit or a range where you're comfortable letting that get to in terms of a percentage of the total loan book?

Speaker #5: And then, two, as you look in the year ahead, is there anywhere you'd flag either adding to the existing teams or any appetite to add additional verticals?

Douglas Schosser: Yeah, I'll start. I'll turn it over to Lou as well. First question is there an upper limit? No, not necessarily. There's not an upper limit. I think we continue to take very prudent credit, a very prudent credit stance across all of those verticals. They are newer. They have not gone through cycles, so we're mindful of that. You wouldn't necessarily see us in any, you know, specific, like the growth is capped now for X, Y, or Z. We're also looking at, in general, a balanced kind of commercial opportunity. We would like to see, you know, some of the CRE pay downs clearly slow a bit. We have a new leader in that group. We're optimistic that that is a business. You know, we're still at like 130% tier one capital on CRE, so there's room there.

Speaker #4: Yeah. I'll start. I'll turn it over to Lou as well. So first question is, is there an upper limit? No, not necessarily. There's not an upper limit.

Speaker #4: I think we continue to take very prudent credit, very prudent credit stance across all of those verticals. They are newer. They have not gone through cycle.

Speaker #4: So we're mindful of that. But you wouldn't necessarily see us in any specific like the growth is capped now for X, Y, or Z.

Speaker #4: We're also looking at, in general, a balanced kind of commercial opportunity. So we would like to see some of the CRE paydowns clearly slow a bit.

Speaker #4: We've have a new leader in that group. We're optimistic that that is a business. We're still at like 130% tier one capital on CRE.

Douglas Schosser: Again, I think there's opportunities across the commercial spectrum. We don't have to rely so heavily on any one, but when there's opportunities for us in those verticals to make smart strategic adds, we're willing to do so. Lou, I don't know if you have anything to add.

Speaker #4: So there's room there. So again, I think there's opportunities across the commercial spectrum. We don't have to rely so heavily on any one. But when there's opportunity, for us in those verticals to make smart strategic ads, we're willing to do so.

Louis Torchio: I would just add, from my perspective, those national verticals give us some differentiation amongst our peers. It allows diversification of risks. We've gone out and we've been able to procure industry experts. We're scaling them prudently, and we're watching the vintages, as you might imagine. To Doug's point, I think that we'd like more complementary growth in our core, which is the markets in the four states that we operate in and lower middle market and even business banking. We are focused there. We would like to mitigate some of the CRE runoff with a focus there as well, mostly on light industrial as away from construction multifamily. We really like our position right now.

Speaker #4: Lou, I don't know if you have any other questions.

Speaker #8: Yeah. I would just add, I mean, from my perspective, those national verticals give us some differentiation amongst our peers. It allows diversification of risk.

Speaker #8: We've gone out and we've been able to procure industry experts. We're scaling them prudently. And we're watching the vintages as you might imagine. To Doug's point, I think that we'd like more complementary growth in our core which is the markets in the four states that we operate in and lower middle market and even business banking.

Speaker #8: And so we are focused there. We would like to mitigate some of the CRE runoff with a focus there as well. Mostly on light industrial as a way from construction, multifamily, and so we really like our position right now.

Louis Torchio: We're seeing good growth. We, you know, given the uncertainty in the economy, we certainly are maintaining hurdle rates from a yield perspective and certainly prudent underwriting. We're, we think those are complementary businesses. I don't think that we would ever be in a position where those were the primary drivers and overtake portfolio balances. Really couldn't be more pleased with what we've been able to do with those. I know we've been messaging to you guys over the last few years. We're now from a pipeline standpoint, if you look at a year ago pipeline, we're in much better position. It's a large part as a result of scaling those verticals.

Speaker #8: We're seeing good growth. But we given the uncertainty in the economy, we certainly are maintaining hurdle rates from a yield perspective and certainly prudent underwriting.

Speaker #8: So we're we think it's a we think those are complementary businesses. I don't think that we would ever be in a position where those were the primary drivers and overtake portfolio balances.

Speaker #8: So really couldn't be more pleased with what we've been able to do with those. And I know we've been messaging to you guys over the last few years.

Speaker #8: And so we're now from a pipeline standpoint, if you look at a year ago pipeline, we're in much better position. And it's a large part as a result of scaling those verticals.

Brian Foran: That's really helpful. On the commercial real estate, appreciate the color. I think you mentioned things like construction lending slowing a few years ago, so that's now refinancing away. I guess, is competition getting to a point where there's any just kind of pricing or structures you're seeing in the market where you're having to pass on deals? How big a factor is just kind of feeling like everyone's back in commercial real estate.

Speaker #5: That's really helpful. On the commercial real estate, appreciate the color. I think you mentioned things like construction, lightening, slowing a few years ago. So that's now refinancing away.

Speaker #5: I guess is competition getting to a point where there's any just kind of pricing or structures you're seeing in the market where you're having to pass on deals, how big a factor is just kind of feeling like everyone's back in commercial real estate?

Douglas Schosser: I mean, there's certainly competition out there. I think we've been able to still find spaces where we can be relevant to our customers and still maintain good pricing and good structures. If we ever got to the point where we felt that was differently, we would probably have to kind of reevaluate whether we were doing the deals. Right now, we haven't had that be a binding constraint for us. That is not to suggest it is not extremely competitive out there. Everybody's, you know, got out there loan growth that's not dissimilar from ours, and I think you didn't see a lot of loan growth come in Q1. No, we're not seeing structure give right now.

Speaker #4: I mean, there's certainly competition out there. I think we've been able to still find spaces where we can be relevant to our customers and still maintain good pricing and good structures.

Speaker #4: If we ever got to the point where we felt that was differently, we would probably have to kind of reevaluate whether we were doing the deals.

Speaker #4: But right now, we haven't had that. That has been the binding constraint for us. But that is not to suggest it is not extremely competitive out there.

Speaker #4: Everybody's got out there loan growth that's not dissimilar from ours. And I think you didn't see a lot of loan growth come in the first quarter.

Speaker #4: But no, we're not—we're not seeing structure give right now. There might be a little bit of give on pricing here and there.

Douglas Schosser: You know, there might be a little bit of give on pricing here and there, but again, for well-structured deals for the right customers where we can build relationships, that's just part of the game.

Speaker #4: But again, for well-structured deals for the right customers, we can pull relationships. That's just part of the game.

Brian Foran: Thank you so much.

Speaker #5: Thank you so much.

Operator: Your next question comes from the line of Manuel Navas. Please go ahead.

Speaker #6: Your next question comes from the line of Navis Manuel. Please go ahead.

Manuel Navas: Hey, thanks for the commentary today. The net charge-off performance was really strong. Is there potential for a lower guidance eventually? The guidance was already below your long-term net charge-off rate. Could you kind of be looking at a maybe lower long-term rate?

Speaker #5: Hey, thanks for the commentary today. The net startup performance was really strong. Is there potential for lower guidance eventually? And the guidance was already below your long-term net charge-off rate.

Speaker #5: Could you kind of be looking at a maybe lower long-term rate?

Douglas Schosser: The long-term rates were kind of through the cycle to accommodate economic, you know, transitions and all of that. No, I don't think we're changing the long-term projections because those were always designed to be through the cycle. We are really happy with the 16 basis points we had this quarter. It's way too early, I think, to pull back on the guide that we gave, which is why we didn't change it. You know, we'll be checking in a couple more times this year every quarter. If we get to that point, you know, we'll certainly talk about it. But there's still a lot of things that can, as you know, go wrong with a loan portfolio. I think keeping that guidance out there makes sense. Again, we had a pretty wide range.

Speaker #4: So the long-term rates were kind of through the cycle to accommodate economic transitions and all of that. So, no, I don't think we're changing the long-term projections, because those were always designed to be through the cycle.

Speaker #4: We are really happy with the 16 basis points we had this quarter. It's way too early, I think, to pull back on the guide that we gave, which is why we didn't change it.

Speaker #4: We'll be checking in a couple more times this year—every quarter. So if we get to that point, we'll certainly talk about it. But there's still a lot of things that can, as you know, go wrong with the loan portfolio.

Speaker #4: So I think keeping that guidance out there makes sense. Again, we had a pretty wide range. So right now, we're definitely thinking it's probably towards the lower side of the range.

Douglas Schosser: Right now, you know, we're definitely thinking is probably towards the lower side of the range, but we're not pulling out the range just yet.

Speaker #4: But we're not pulling out the range just yet.

Manuel Navas: Okay. Shifting over to the NIM near term, can you talk about kind of the moving parts to it? Where do you kind of see loan yields from here? What's kind of new pricing coming at? Can deposit costs decline more? I know you're, you're bringing down CDs at maturity, but you had some nice declines in other account pricing. Just kind of wondering, without a Fed rate cut, can funding costs keep coming down and kind of where could you see that push down? If you could help out with those couple of questions in there.

Speaker #5: Okay. Shifting over to the NIM near term. Can you talk about kind of the moving parts to it? Where do you kind of see loan yields from here?

Speaker #5: What kind of new pricing is coming at? And then, can deposit costs decline more? I know you're bringing down CDs at maturity, but you had some nice declines in other account pricing.

Speaker #5: So just kind of wondering, without a Fed rate cut, can funding costs keep coming down and kind of where could you see that push down?

Speaker #5: So if you could help out with those couple of questions, in there.

Douglas Schosser: Yeah. First on the asset yield side, right? Without a rate cut, we feel pretty good that we can kind of maintain that. There's always a push and pull, right? We had loans that were originated now that are coming to be paid off at higher rate environment than we have today. That's going to be a, that's going to be a pressure. What we're seeing right now is the loans that are coming on are still priced a few basis points better than the loans that are coming off on average. There's a little bit of opportunity there, especially with rates being unchanged. Similarly, on the deposits, we've been originating deposits now in a lower rate environment, and, you know, shorter term CDs at that. You are going to have less opportunity as it relates to as that book rolls.

Speaker #4: Yeah. So first, on the asset yield side, right, without a rate cut, we feel pretty good that we can kind of maintain that. There's always a there's a push and pull, right?

Speaker #4: So we had loans that were originated now that are coming to be paid off at higher rate environment than we have today. So that's going to be a that's going to be a pressure.

Speaker #4: But what we're seeing right now is the loans that are coming on are still priced a few basis points better than the loans that are coming off on average.

Speaker #4: So there's a little bit of opportunity there, especially with rates being unchanged. Similarly, on the deposits, we've been originating deposits now in a lower rate environment.

Speaker #4: So you and shorter-term CDs at that. So you are going to have less opportunity as it relates to as that book rolls. There's still opportunity, but it's not going to be as big as it's been.

Douglas Schosser: There's still opportunity, but it's not gonna be as big as it's been. Again, that's kind of why we said that we would expect to have pretty stable margin performance in the low 370s, because you've got all those dynamics and then you have competition as well. There's not a lot that's going to drive the margin different from this point forward. We're working, you know, very hard to maintain that margin that we have right now, and it's just going to become sort of a more of a grind, I would say. You're not going to see big pops in it one way or the other. Does that answer your question? I think it addresses what you were looking for.

Speaker #4: So again, that's kind of why we said that we would expect to have pretty stable margin performance in the low 370s, because you've got all those dynamics, and then you have competition as well.

Speaker #4: So there's not a lot that's going to drive the margin different from this point forward. We're working very hard to maintain that margin that we have right now.

Speaker #4: And it's just going to become sort of a more of a grind, I would say. So you're not going to see big pops in it one way or the other.

Speaker #4: Does that answer your question? I think it addresses what you were looking for.

Manuel Navas: I think it does. I just want to kind of follow up. You do have some new branches opening. You talked about maybe pricing being a little different in different geographies. Do you have planned room in your NIM guide to kind of win market share in those new branches?

Speaker #5: I think it does. I just want to kind of follow up. You do have some new branches opening and talked about maybe pricing being a little different in different geographies.

Speaker #5: Do you have room you have planned room in your NIM guide to kind of win market share in those new branches?

Douglas Schosser: Yes, we do. Again, they're all gonna be opening throughout the course of the year. The good thing is what happens in them is still gonna be a relatively small percentage of the total, and there is room in there to make that work. We'll continue to focus on it. You definitely see different pricing by market. Certainly when you're opening 5 branches in one market, you're gonna expect to see marketing that goes along with that as well as acquisition pricing on that portfolio.

Speaker #4: Yes. We do. Again, they're all going to be opening throughout the course of the year. So the good thing is what happens in them is still going to be a relatively small percentage of the total.

Speaker #4: And there is room in there to make that work. So we'll continue to focus on it. But you definitely see different pricing by market, and certainly when you're opening five branches in one market, you're going to expect to see marketing that goes along with that, as well as acquisition pricing on that portfolio.

Manuel Navas: I appreciate that. Can you speak to a little bit on where you could have eventual fee synergies from the Penns Woods acquisition, kind of places where perhaps as you get the C&I loan growth, you can shift to generating more fees from that customer base? Can you speak to that trajectory on the fee side?

Speaker #5: I appreciate that. Can you speak a little bit to where you could have eventual fee synergies from Penswood's acquisition? Kind of places where, perhaps as you get the C&I loan growth, you can shift to generating more fees from that customer base?

Speaker #5: Can you just speak to that trajectory on the fee side?

Douglas Schosser: Yeah, I'll have some comments and Lou might come in also on that, but we're certainly excited about the prospect for growing our wealth business. We've made some investments there. We've added a new head of wealth, and we still have opportunities around there, particularly when we make acquisitions like Penns Woods, you'd be going into markets that didn't have that kind of opportunity, that weren't leveraging that opportunity. As commercial continues to grow and we get the opportunity to make connections with our wealth team and our commercial lending teams as there are liquidity events that occur in the life of those business owners, we'd like to be there to provide the opportunity to manage those. That's an opportunity for us.

Speaker #4: Yeah. I'll have some comments and Lou might come in also on that. But we're certainly excited about the prospect for growing our wealth business.

Speaker #4: We've made some investments there. We've added a new head of wealth. And we still have opportunities around there, particularly when we make acquisitions like Penswood's. You'd be going into markets that didn't have that kind of opportunity.

Speaker #4: Or that wasn't—that weren't leveraging that opportunity. And as commercial continues to grow and we get the opportunity to make connections with our wealth team and our commercial lending teams, as there are liquidity events that occur in the life of those business owners, we'd like to be there to provide the opportunity to manage those.

Speaker #4: So that's an opportunity for us. And when I say wealth too, let's not confuse that with—we know we're not going to compete against the big wealth jobs.

Douglas Schosser: When I say wealth too, let's not confuse that with, you know, we know we're not gonna compete against the big wealth shops. We have a nice spectrum of opportunities from brokerage platforms all the way up to and including trust. We've got the full gamut. We're excited about sort of those opportunities going forward. The last thing I would comment on the fee trajectory side is we have done a nice job with SBA. SBA continues to be an opportunity as well. You have some fee generation capacity over there that I think we still have some room to run. Luke, do you have anything?

Speaker #4: But we have a nice spectrum of opportunities from brokerage platforms all the way up to, and including, trusts. So we've got the full gamut.

Speaker #4: We're excited about sort of those opportunities going forward. And then the last thing I would comment on the fee trajectory side is we have done a nice job with SBA.

Speaker #4: And SBA continues to be an opportunity as well. You have some fee generation capacity over there that I think we still have some room to run.

Speaker #4: But if you have anything.

Louis Torchio: Yeah, I would concur with both those. Those were on my list. In addition to that, we're able to offer a more robust commercial offering in the market, obviously just from a size standpoint and products and services around the commercial bank. You know, layering those offerings into the marketplace also will be advantageous for us. Reminding everyone that, you know, the Penns Woods acquisition, you know, was a little lower risk for us. That's a marketplace we're in, we understand, we know and fit nicely into our footprint. Just reiterating our focus there on transition, execution. We spent a lot of time in the market, and we think that we can even do better.

Speaker #5: Yeah. I would concur with both of those. Those were on my list. In addition to that, we're able to offer a more robust commercial offering in the market, obviously, just from a size standpoint.

Speaker #5: And products and services around the commercial bank. And so layering those offerings into the marketplace also will be advantageous for us. Reminding everyone that the Penswood's acquisition was a little lower risk for us.

Speaker #5: That's a marketplace we're in. We understand. We know and fit nicely into our footprint. So, just reiterating our focus there on transition and execution. We spent a lot of time in the market.

Speaker #5: And we think that we can even do better. And so we'll continue to spend time in the market with all of our products and services.

Louis Torchio: We'll continue to spend time in the market with all of our products and services. I think wealth, I think SBA, and I think the commercial offering. Obviously, from a more commodity-like product, we feel like our mortgage banking and home equity offerings are pretty robust as well. We really like the forward-looking opportunities from the lending side and the marketplace. Notwithstanding they aren't, they aren't Columbus. To your earlier point, we think there is significant opportunity and scale in market here where we are headquartered, where all of our executives can also go to market in conjunction with the retail branch offering.

Speaker #5: When I think wealth, I think SBA, and I think the commercial offering. And then, obviously, from a more commodity-like product, we feel like our mortgage banking and home equity offerings are pretty robust as well.

Speaker #5: And so we really like the forward-looking opportunities from the lending side and the marketplace. Notwithstanding, they aren't Columbus. To your earlier point, we think there is significant opportunity and scale in market here.

Speaker #5: Where we are headquartered, where all of our executives can also go to market in conjunction with the retail branch offering. And we've kind of been out in front of the branch openings with hiring personnel across the commercial bank, small business, wealth, mortgage.

Louis Torchio: We've kind of been out in front of the branch openings with hiring personnel across the commercial bank, small business, wealth, mortgage. We're well into, you know, we don't have the branches open, but we're well into the market to support the branches in the coming months.

Speaker #5: So we're well into we don't have the branches open, but we're well into the market to support the branches in the coming months. I appreciate that.

Manuel Navas: I appreciate that. A quick small modeling question. The BOLI run rate has been kind of jumping around. Is this quarter the right run rate, or should it kind of reset even lower? What's kind of the right fee run rate there?

Speaker #5: Quick small modeling question. The Boli run rate has been kind of jumping around. Is this quarter the right run rate, or is it should it kind of reset even lower?

Speaker #5: What's kind of the right run rate there?

Douglas Schosser: It's a little tricky question to answer given what drives BOLI. I think you're closer to the normal run rate for now, but even within that number, you know what, we have $400,000 of benefit. Not materially different from where you're at on the core level, but it does pop around a little bit.

Speaker #4: It's a little tricky question to answer, given what drives BOLI. I think you're closer to the normal run rate for now. But even within that number, what we have is $400,000 of benefit.

Speaker #4: So not materially different from where you're at on the core level. But it does pop around a little bit.

Manuel Navas: Thanks. I appreciate that. Thank you. I'll step back and take care.

Speaker #5: Thank you. I appreciate that. Thank you. I'll step back and take care.

Operator: Your next question comes from the line of Daniel Cardenas with Green Capital. Please go ahead.

Speaker #1: Your next question comes from the line of Daniel Cardenas with Green Capital. Please go ahead.

Daniel Cardenas: Good morning, gentlemen.

Speaker #6: Good morning, gentlemen. Good quarter. Most of my questions have been asked and answered. Just maybe, if you could give me a little bit of additional color on the increase in the classifieds, if I wrote it down correctly.

Douglas Schosser: Morning.

Daniel Cardenas: Good quarter. Just most of my questions have been asked and answered. Just, maybe if you could give me a little bit of additional color on the increase in the classifieds. If I wrote it down correctly, I think you said two C&I credits accounted for that jump. Maybe some color as to, you know, what industries were they in? It's, you know, that indicative of maybe some bigger trends.

Speaker #6: I think you said two CNI credits, accounting for that jump. Maybe some color as to what industries were they in, and is that indicative of maybe some bigger trends?

Douglas Schosser: Yeah. I think if you go to slide 14, we offered a little bit of color on that. Again, nothing, no one vertical, no one area, no one concentration that would give us concern about a portfolio or a book still somewhat isolated in their incidences. You know, again, from a rating standpoint, as new financials come in and other things, there's gonna be migrations in and out. Again, there was nothing that gave us a significant level of concern around emerging losses in future periods as a result of some of those changes.

Speaker #4: Yeah. I think if you go to slide 14, we offered a little bit of color on that. Again, nothing no one vertical, no one area, no one concentration that would give us concern about a portfolio or a book.

Speaker #4: Still somewhat isolated in their incidences. But again, from a rating standpoint, as new financials come in and other things, there's going to be migrations in and out.

Speaker #4: But again, there was nothing that gave us a significant level of concern around emerging losses in future periods as a result of some of those changes.

Daniel Cardenas: Okay, great. All right. That's it for me. Thank you, guys.

Speaker #5: Okay. Great. All right. That's it for me. Thank you, guys.

Operator: Next question comes from the line of Kyle Gierman with Hovde Group. Please go ahead.

Speaker #1: Next question comes from the line of Kyle Geerman with Hobby Group. Please go ahead.

Kyle Gierman: Hi, this is Kyle. I'm for David Bishop. Saw you guys had a nice uptick in C&I loans this quarter. Was wondering what verticals contributed to the most for that, and then the outlook for new segments into 2026.

Speaker #7: Hi. This is Kyle. I'm for Dave Bishop. Saw you guys had a nice uptick in CNI loans this quarter. I was wondering what verticals contributed to the most for that.

Speaker #7: And then the outlook for new segments into 2026.

Douglas Schosser: Yeah. We don't really get that granular on what drives our loan growth. We'll kind of take a pass on a specific answer there, although you do continue to see good momentum across our national verticals, which we're really happy about. You know, I would say that we haven't talked about right now, nor do we have any intentions that we'd be adding new verticals in at the moment. Nothing, nothing new sort of on that front on how we'd go to market.

Speaker #4: Yeah. We don't really get that granular on what drives our loan growth. So we'll kind of take a pass on a specific answer there.

Speaker #4: Although you do continue to see good momentum across our national verticals, which we're really happy about. And I would say that we haven't talked about right now, nor do we have any intentions that we'd be adding new verticals in at the moment.

Speaker #4: So nothing new sort of on that front on how we'd go to market.

Kyle Gierman: Thank you.

Speaker #5: Thank you.

Operator: Last question comes from the line of Matthew Breese with Stephens Inc. Please go ahead.

Speaker #1: Last question comes from the line of Matthew Breeze with Stevens, Inc. Please go ahead.

Matthew Breese: Hey, good morning.

Speaker #8: Hey, good morning.

Douglas Schosser: Morning.

Matthew Breese: I'm sorry if this is a repeat or I'm forcing you to repeat yourselves, but the message on commercial real estate growth for the remainder of the year. You know, I heard you on prepays and pay downs. Is the expectation that we start to see some stabilization in that portfolio or even growth or should we expect, you know, continued, albeit more moderate declines from here?

Speaker #4: Good morning.

Speaker #8: I'm sorry if this is a repeat or I'm forcing you to repeat yourselves. But the message on commercial real estate growth for the remainder of the year I heard you on prepays and paydowns.

Speaker #8: Is the expectation that we start to see some stabilization in that portfolio, or even growth, or should we expect continued albeit more moderate declines from here?

Douglas Schosser: Yeah. I don't know that we lean into growth necessarily. I think we are definitely focused on stabilization. Again, we've got some new leadership in that space. Definitely, working through a lot of the prior pressure from construction loans that are refinancing to perm, et cetera, that are coming off the book. We are really focused on getting that to be more stable. Then, you know, we'll look to, you know, future periods, and we might offer guidance when it would turn around. Again, we have room in that space. We are relatively low on an overall concentration from a CRE perspective, and we know that that's certainly a product in our markets that makes sense. It's focused on stabilization for now.

Speaker #4: Yeah, I don't know that we'd lean into growth necessarily. I think we are definitely focused on stabilization. And again, we've got some new leadership in that space.

Speaker #4: Definitely working through a lot of the prior pressure from construction loans that are refinancing to perm, etc., that are coming off the book. So we are really focused on getting that to be more stable.

Speaker #4: And then we'll look to future periods when we might offer guidance when it would turn around. But again, we have room in that space.

Speaker #4: We are relatively low on an overall concentration from CRE perspective. And we know that that's certainly a product. In our markets, that makes sense.

Speaker #4: So let's focus on stabilization for now.

Matthew Breese: Got it. Okay. I was hoping you could tell us a little bit about the pipeline on C&I loans. What is the yield on that? How are spreads holding up? I'd love to hear a little bit more about whether there are notable differences C&I-wise between kind of local in-market C&I lending spread-wise versus the national verticals.

Speaker #8: Got it. Okay. And then I was hoping you could tell us a little bit about the pipeline on CNI loans. What is the yield on that?

Speaker #8: How are spreads holding up? And I'd love to hear a little bit more about whether there are notable differences CNI-wise between kind of local in-market CNI lending spread-wise versus the national verticals.

Douglas Schosser: Yeah. Again, without getting into tons of detail that we don't normally discuss, I would say that the overall sort of composition of the pipeline from a spread perspective would be consistent with that which has been going on the book. Not seeing notably massive levels of change. Obviously, within one of our verticals, you have SBA. Clearly, the spreads there are going to be higher with the risk profile of those accounts. We're pretty comfortable with the overall sort of opportunity to continue to drive a similar level of loan spreads and/or yields on the book with what's in the pipeline versus where we've been. Again, it is going to vary. I would say the in-market deals, generally speaking, can get competitive because you've got different players.

Speaker #4: Yeah. So again, without getting into tons of detail that we don't normally discuss, I would say that the overall sort of composition of the pipeline from a spread perspective would be consistent with that, which has been going on the book.

Speaker #4: So not seeing notably massive levels of change. Obviously, within one of our verticals, you have SBA. Clearly, the spreads there are going to be higher with the risk profile of those accounts.

Speaker #4: But we're pretty comfortable with the overall sort of opportunity to continue to drive a similar level of loan spreads and/or yields on the book.

Speaker #4: What's in the pipeline versus where we've been. But again, it is going to vary. I would say the in-market deals, generally speaking, can get competitive because you've got different players.

Douglas Schosser: By different players, you know, you've got lots of, you know, smaller in-market banks that might know those customers or have relationships that would create some pricing pressure on them. Those are always gonna be a little bit more tricky. Those national verticals, particularly with some of those credits, you're getting a much more market kind of perspective on rates and spreads.

Speaker #4: And by different players, you've got lots of smaller in-market banks that might know those customers or have relationships that would create some pricing pressure on them.

Speaker #4: So those are always going to be a little bit more tricky. But those national verticals, particularly with some of those credits you're getting a much more market kind of perspective on rates and spreads.

Louis Torchio: I would just add that, you know, not all verticals created equal. Some of them have a broader opportunity for relationship, for deposits, for fees, and some are more transactional asset-based. Certainly, while the yields in market, as Doug alluded to, it's competitive in the four states that we're in. A lot of large banks, a lot of small banks. While those yields might be a little skinnier, keep in mind just for the intrinsic value of the firm, the cross-sell opportunities, you know, we're focused on growing that book because of, you know, we understand the market, the relationship, the customers. We really think that it's important to integrate multiple products per customer. We'll continue to focus on that.

Speaker #8: And I would just add that not all verticals created equal. Some of them have a broader opportunity for relationship, for deposits, for fees. And some are more transactional asset-based.

Speaker #8: And certainly, while the yields in market, as Doug alluded to, it's competitive in the four states that we're in, a lot of large banks, a lot of small banks, while those yields might be a little skinnier, keep in mind just for the intrinsic value of the firm across sell opportunities, we're focused on growing that book because of we understand the market, the relationship, the customers, and we really think that it's important to integrate multiple products per customer.

Speaker #8: And so we'll continue to focus on that. So both important to our strategy, but we certainly are highly focused in market right now to make sure that we're capturing at least our share.

Louis Torchio: You know, both important to our strategy, but we certainly are highly focused in market right now to make sure that we're capturing at least our share.

Matthew Breese: Got it. I appreciate all the detail, Louis Torchio, Douglas Schosser. Thank you.

Speaker #8: Got it. I appreciate all the detail you shared. Thank you.

Douglas Schosser: Yeah.

Operator: That concludes our Q&A session. I will now turn the call back over to Louis Torchio, CEO, for closing remarks.

Speaker #1: That concludes our Q&A session. I will now turn the call back over to Lou Torchio, CEO for Closing

Louis Torchio: Thank you. On behalf of the entire leadership team and the board of directors, thank you for joining our call this morning. I'm excited about our momentum in 2026 as we are well-positioned to capitalize on opportunities to drive profitable core growth. I look forward to speaking to you on our Q2 earnings call in the summer.

Speaker #4: Thank you. On behalf of the entire leadership team and the board of directors, thank you for joining our call this morning. I'm excited about our momentum in 2026 as we are well positioned to capitalize on opportunities to drive profitable core growth.

Speaker #4: I look forward to speaking to you on our second quarter earnings call in the summer.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Everyone, have a great day.