Q3 2026 CNB Financial Corp Earnings Call

October 29, 2026

Operator: Good afternoon, and welcome to the CNB Financial Corporation Q3 2026 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Michael Peduzzi, President and Chief Executive Officer. Please go ahead.

Speaker #1: Good afternoon, and welcome to the CNB Financial Corporation third quarter 2026 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1, on your touch-tone phone.

Speaker #1: To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Michael Paduzi.

Speaker #1: President and Chief Executive Officer, please go ahead.

Michael Peduzzi: Hello, and welcome to the Q3 2026 earnings call for CNB Financial Corporation. I am Michael Peduzzi, the President and CEO of CNB Financial Corporation and its main operating entity, CNB Bank. Joining me today is our Chief Financial Officer, Tito Lima, our Chief Operating Officer, Michael Noah, and our Chief Credit Officer, Greg Dixon. Following the overview and presentation of our financial highlights, we will have time available for questions from those calling in to today's presentation. Mike, Tito, Greg, thank you for joining me for today's discussion. We will start with some key highlights regarding our performance through the Q3 of 2026. Tito, as some of our comments may include discussions comparing our 2026 performance to that of similar periods in 2025, would you briefly discuss the financial statement recast we disclosed in our earnings release regarding our prior year results?

Speaker #2: Hello, and welcome to the third quarter 2026 earnings call for CNB Financial Corporation. I am Michael Paduzi, the President and CEO of CNB Financial Corporation and its main operating entity, CNB Bank.

Speaker #2: And joining me today are our Chief Financial Officer, Tito Lima; our Chief Operating Officer, Michael Noah; and our Chief Credit Officer, Greg Dixon. Following the overview and presentation of our financial highlights, we will have time available for questions from those calling into today's presentation.

Speaker #2: Mike, Tito, Greg, thank you for joining me for today's discussion. We will start with some key highlights regarding our performance through the third quarter of 2026.

Speaker #2: Tito, some of our comments may include discussions comparing our 2026 performance to that of similar periods in 2025. Would you briefly discuss the financial statement recaps we disclosed in our earnings release regarding our prior year results?

Tito Lima: Sure, Mike. Good afternoon, everyone. In regards to the prior year recast, after we acquired ESSA in July of 2025, we adopted a GAAP standard numbered ASU 2025-08, entitled Financial Instruments—Credit Losses Purchased Financial Assets. My apologies for the formality, but we want to be very clear in disclosing the applicable GAAP. The resulting recast from our adoption of this standard means that for our prior year or Q3 2025 and 9 months of 2025 results, we eliminated the recognition of the day one allowance for loan loss provision expense that had been previously reported after the July 2025 acquisition date. The adoption of this GAAP standard had no impact on the economics or cash flows of the acquired assets, but affected the timing of credit loss expense recognition.

Speaker #3: Sure, Mike. Good afternoon, everyone. In regards to the prior year recaps, after we acquired the SSA in July of 2025, we adopted a GAAP standard numbered ASU 2025-08, entitled Financial Services Credit Losses.

Speaker #3: Purchased financial assets. My apologies for the formality, but we want to be very clear in disclosing the applicable GAAP. The resulting recaps from our adoption of this standard mean that, for our prior year or third quarter 2025—our nine-month 2025 result—we eliminated the recognition of the day-one allowance for loan loss provision expense that had been previously reported after the July 2025 acquisition date.

Speaker #3: The adoption of this GAAP standard had no impact on the economics or cash flows of the acquired assets, but it affected the timing of credit loss expense recognition.

Tito Lima: This change is not the result of an error, correction, or restatement of previously issued financial statements, but rather it ensures GAAP compliance comparability between current year periods and prior year periods. Accordingly, certain comparative amounts for 2025 presented in our earnings release, all which may be discussed here, may differ from those previously reported for these prior year periods. Thank you for giving me time to explain this, Mike.

Speaker #3: This change is not the result of an error, correction, or restatement of previously issued financial statements, but rather it ensures GAAP compliance comparability between current year periods and prior year periods.

Speaker #3: Accordingly, certain comparative amounts for 2025 presented in our earnings release, all of which may be discussed here, may differ from those previously reported for these prior year periods.

Speaker #3: Thank you for giving me time to explain this, Mike.

Michael Peduzzi: Thanks for that, Tito. What is interesting is that our ESSA acquisition closed shortly before this GAAP standard became applicable in 2025, or we would not have had to deal with it. The good news is it did not change our full year 2025 results, as it mostly affects the timing of loan loss provision transactions reported in the Q3 and Q4 of last year that effectively fully offset each other to a net $0 impact by year end. Importantly, none of this recast requires any changes to our reported results for any of the 2026 quarters or year to date. Let's get to the year to date and Q3 2026 highlights.

Speaker #2: Thanks for that, Tito. What is interesting is that our ESSA acquisition closed shortly before this GAAP standard became applicable in 2025, where we would not have had to deal with it.

Speaker #2: But the good news is, it did not change our four-year 2025 results, as it mostly affects the timing of loan loss provision transactions reported in the third and fourth quarters of last year, that effectively fully offset each other to a net $0 impact by year-end.

Speaker #2: And importantly, none of these recaps require any changes to our reported results for any of the 2026 quarters or year-to-date. So let's get to the year-to-date and third quarter 2026 highlights.

Michael Peduzzi: Adding our Q3 diluted earnings per share of $0.91 to our results for H1 2026, our year-to-date earnings of $2.69 per diluted share for the first nine months of 2026 were a record for the corporation versus comparable first nine-month periods in any prior year. This record performance is anchored in several key elements: a sustained favorable net interest margin, sound levels of year-to-date loan growth, with reasonable production across C&I loans, commercial real estate loans, and consumer credits, primarily home equities. We experienced continued growth in our organic deposit base, particularly with our continued trend of new and expanded treasury management relationships, which have increased our non-interest-bearing deposit balances and have contributed to increased account activity fee income.

Speaker #2: Adding our third quarter diluted earnings per share of $0.91 to our results for the first half of 2026, our year-to-date earnings of $2.69 per diluted share for the first nine months of 2026 were a record for the corporation versus comparable first nine-month periods in any prior year.

Speaker #2: This record performance is anchored in several key elements: a sustained favorable net interest margin, sound levels of year-to-date loan growth, with reasonable production across commercial and industrial loans, commercial real estate loans, and consumer credits—primarily home equities.

Speaker #2: We experienced continued growth in our organic deposit base, particularly with our ongoing trend of new and expanded treasury management relationships, which have increased our non-interest-bearing deposit balances and have contributed to increased account activity fee income.

Michael Peduzzi: We increased wealth management income as we continue to transition to a new retail investment platform and continue to expand our private banking structure and outreach in our newer markets. Before I turn the conversation over to Michael Noah and Tito Lima for additional commentary and metrics, I want to note that despite the headwinds of yield curve changes contributing to an increased level of temporary after-tax unrealized losses on our available-for-sale investment portfolio, the results for this quarter and all the quarters since our ESSA acquisition reflect sustained earnings even after the payment of dividends to favorably accrete tangible book value. We strive to achieve an acceleration of the post-acquisition earn back period when compared to our pre-merger model projections.

Speaker #2: We increased wealth management income as we continue to transition to a new retail investment platform, and continue to expand our private banking structure and outreach in our newer markets.

Speaker #2: Before I turn the conversation over to Michael Noah and Tito Lima for additional commentary and metrics, I want to note that despite the headwinds of yield curve changes contributing to an increased level of temporary after-tax unrealized losses on our available-for-sale investment portfolio, the results for this quarter and all the quarters since our ESSA acquisition reflect sustained earnings, even after the payment of dividends, to favorably accrete tangible book value.

Speaker #2: We strive to achieve an acceleration of the post-acquisition earn-back period when compared to our pre-merger model projections. Additionally, we remain well-positioned from an interest rate risk management perspective to support our net interest income and net interest margin in the current, changing interest rate environment.

Tito Lima: Additionally, we remain well-positioned from an interest rate risk management position to support our net interest income and net interest margin in the current changing interest rate environment. With that, I'd like to turn it over to our Chief Operating Officer, Michael Noah, to provide some insights into our core banking growth and competitive dynamics we are seeing across our six banking divisions. Mike?

Speaker #2: With that, I'd like to turn it over to our Chief Operating Officer, Mike Noah, to provide some insights into our core banking growth and the competitive dynamics we are seeing across our six banking divisions.

Speaker #2: Mike?

Michael Noah: Thank you, Mike. The Q3 reflected some solid loan growth momentum as we were able to both achieve pull-through from our loan pipelines and see some slowdown in the volume of loan prepayments compared to earlier in the year. Our originated loans, which exclude purchased syndicated credits, grew for the Q3 by over $76 million, or an annualized rate of 4.7%, compared to our Q2 ending levels. In H1 2026, C&I loan growth led the way. While in this Q3, we saw more closings in the commercial real estate, consumer residential mortgage, and home equity loans.

Speaker #4: Thank you, Mike. The third quarter reflected some solid loan growth and momentum as we were able to both achieve pull-through from our loan pipelines and see some slowdown in the volume of loan prepayments compared to earlier in the year.

Speaker #4: Our originated loans, which exclude purchased syndicated credits, grew for the third quarter by over $76 million, or at an annualized rate of 4.7%, compared to our second quarter ending levels.

Speaker #4: In the first half of 2026, commercial and industrial loan growth led the way. While in this third quarter, we saw more closings in commercial real estate, consumer residential mortgage, and home equity loans.

Michael Noah: Though we have generally experienced loan growth across our four-state franchise, activity for this quarter was primarily driven by growth in the Ridge View Bank market in Virginia, our ERIEBANK division, which covers Erie, Pennsylvania, across to the Greater Cleveland, Ohio area, and our BankOnBuffalo market, which covers Western New York. Very notably, our Ridge View Bank division celebrates its five-year anniversary this year. It has grown over $500 million in earning assets. We continue to maintain a healthy pipeline as we enter Q4 with the continued challenges of both strong competition and pricing dynamics given the recent Federal Reserve rate actions. Though the total deposits declined by $32.6 million compared to 30 June 2026, Q3 2026 included a strategic exit of higher cost corporate deposits totaling approximately $76.1 million with an average interest cost of 3.69%.

Speaker #4: Though we have generally experienced loan growth across our four-state franchise, activity for this quarter was primarily driven by growth in the Ridgeview Bank market in Virginia, our Erie Bank division—which covers Erie, Pennsylvania, across the greater Cleveland, Ohio area—and our Bank on Buffalo market, which covers western New York.

Speaker #4: Very notably, our Ridgeview Bank division celebrates its five-year anniversary this year and has grown to over $500 million in earning assets. We continue to maintain a healthy pipeline as we enter the fourth quarter, with the continued challenges of both strong competition and pricing dynamics, given the recent Federal Reserve rate actions.

Speaker #4: Though total deposits declined by $32.6 million compared to June 30, 2026, the third quarter of 2026 included the strategic exit of higher-cost corporate deposits totaling approximately $76.1 million, with an average interest cost of 3.69%.

Michael Noah: Excluding the impact of the corporate deposits exit, total deposits increased approximately $43.5 million or 2.4% annualized compared to Q2 2026. We continue to experience both the benefits of expanded treasury management customer relationships, including an increase in non-interest-bearing deposits for the quarter of $13.5 million or 4.7% annualized, and continue to pursue retail deposit growth and pricing strategies that seek to optimize the corporation's branch and market footprint following the ESSA acquisition. Michael, I think that provides a quick summary of some of our key loan and deposit growth measures. I will turn it over to you to share more details and insights in other critical financial measures.

Speaker #4: Excluding the impact of the corporate deposits exit, total deposits increased approximately $43.5 million, or 2.4% annualized, compared to the second quarter of 2026. We continue to experience both the benefits of expanded treasury management customer relationships, including an increase in non-interest-bearing deposits for the quarter of $13.5 million, or 4.7% annualized, and continue to pursue retail deposit growth and pricing strategies that seek to optimize the corporation's branch and market footprint following the ESSA acquisition.

Speaker #4: Tito, I think that provides a quick summary of some of our key loan and deposit growth measures. So I'll turn it over to you to share more details and insights on other critical financial measures.

Tito Lima: Thank you, Michael. I would like to direct your attention to slide 4 of our earnings supplement to begin my remarks. Our earnings per common share of $0.91 for Q3 this year was consistent with our earnings level for Q2 2026, and as Michael Peduzzi noted, resulted in a record level for the first nine months earnings of $2.69 per share. In addition to GAAP earnings of $1.81 per share for the first nine months of 2025, we reported adjusted year-to-date earnings of $2.05 per share for the same period. With adjusted earnings being a non-GAAP measure, which excludes merger transaction-related expenses related to the corporation's acquisition of the ESSA in 2025. Our year-to-date earnings for the nine months ended 30 September 2026, increased 64 cents per diluted share or 31.2% compared to the adjusted year-to-date earnings of $2.05 for 2025.

Speaker #2: Thank you, Michael. I'd like to direct your attention to slide 4 of our earnings supplement to begin my remarks. Our earnings per common share of $0.91 for the third quarter of this year was consistent with our earnings level for the 2026 second quarter, and, as Mike Producer noted, resulted in a record level for the first nine months' earnings of $2.69 per share.

Speaker #2: In addition to GAAP earnings of $1.81 per share, for the first nine months of 2025, we reported adjusted year-to-date earnings of $2.05 per share for the same period.

Speaker #2: Adjusted earnings, being a non-GAAP measure, exclude merger transaction-related expenses related to the corporation's acquisition of ESSA in 2025. Our year-to-date earnings for the nine-month period ended September 30, 2026, increased $0.64 per share, or 31.2%, compared to the adjusted year-to-date earnings of $2.05 per share for 2025.

Tito Lima: This accretion generally aligns with the post-merger earnings accretion we expected from our modeling. Our return on tangible common equity for Q2 this year remained favorable at 14.4%, while our return on average assets was a sound 1.33%. These solid returns were primarily driven by our fully tax equivalent net interest margin, which was 3.89% for Q3 2026, compared to the same level of 3.89% for Q2 and above 3.84% for Q1 this year. We appreciate the continued pricing discipline on both loans and deposits demonstrated by Michael Noah and presidents of all the banking divisions in this continued highly competitive environment.

Speaker #2: This accretion generally aligns with the post-merger earnings accretion we expected from our modeling. I will note our tangible common equity for the second quarter this year remained favorable at 14.4%, while our return on average assets was a sound 1.33%.

Speaker #2: These solid returns were primarily driven by a fully taxed equivalent net interest margin, which was 3.89% for the third quarter of 2026, compared to the same level of 3.89% for the second quarter, and above 3.84% for the first quarter of this year.

Speaker #2: We appreciate the continued pricing discipline of both loans and deposits, demonstrated by Michael Noah and presidents of all the banking divisions, in this continued highly competitive environment.

Tito Lima: As it relates to capital, as a result of our continued sustained level of earnings and profitability, the ratio of CNB's tangible common equity to tangible assets was 8.91% at the end of Q3 2026, compared to 8.81% at the end of Q2 2026. Slide number 5, please. As Michael Noah noted, we experienced favorable loan growth for the quarter. Even more impressively, in this price-competitive lending environment, we sustained a loan yield over 6.3% for Q3 2026, while supporting our favorable net interest margin by funding our loans with deposits and not borrowings as reflected by our 93.9% loan to deposit ratio.

Speaker #2: As it relates to capital, as a result of our continued sustained level of earnings and profitability, the ratio of CNB's tangible common equity to tangible assets was 8.91% at the end of the third quarter of 2026, compared to 8.81% at the end of the second quarter of 2026.

Speaker #2: Slide number 5, please. As Michael Noah noted, we experienced favorable loan growth for the quarter. Even more impressively, in this price-competitive lending environment, we sustained our loan yield over 6.3% for the third quarter of 2026, while supporting our favorable net interest margin by funding our loans through deposits and not borrowings, as reflected by our 93.9% loan-to-deposit ratio.

Tito Lima: Regarding deposit funding, our cost of interest-bearing deposits of 2.4% for Q3 2026 reflected a decrease of 2 basis points compared to Q2 2026, and a very favorable decrease of 35 basis points from the 2.75% cost of interest-bearing deposits for Q3 2025. Support of our effective funding management activities, our available liquidity continues to be strong at 4.7 times the level of our adjusted insured deposits. As another key metric, our overall credit quality profile remains stable and strong, with non-performing assets to total assets of 0.68% as of 30 September 2026. And net charge-offs for the year-to-date being 0.10% annualized. Mike, I am pleased to share these favorable results and wish to thank you and our shareholders for the privilege of being your CFO.

Speaker #2: Regarding deposit funding, our cost of interest-bearing deposits of 2.4% for the third quarter of 2026 reflected a decrease of 2 basis points compared to the second quarter of 2026.

Speaker #2: And a very favorable decrease of 35 basis points from the 2.75% cost of interest-bearing deposits for the third quarter of 2025. Supporting our effective funding management activities, our available liquidity continues to be strong at 4.7 times the level of adjusted and insured deposits.

Speaker #2: As another key metric, our overall credit quality profile remains stable and strong, with non-performing assets to total assets at 0.68% as of September 30, 2026, and net charge-offs for the year to date being 0.10% annualized.

Speaker #2: Mike, I am pleased to share these favorable results, and I want to thank you and our shareholders for the privilege of being your CFO.

Michael Peduzzi: Michael and Tito, thank you so much for this relevant commentary and detail. We appreciate the qualitative operating and financial management the two of you, Greg Dixon, and your executive management colleagues continue to deliver for the investors of CNB. At this time, we are happy to answer questions that may come in from our investors and listeners on this call.

Speaker #3: Michael and Tito, thank you so much for this relevant commentary and detail. We appreciate the qualitative operating and financial management that the two of you—Greg Dixon and your executive management colleagues—continue to deliver for the investors of CNB.

Speaker #3: At this time, we are happy to answer questions that may come in from our investors and listeners on this call.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. As a reminder, please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble our roster. The first question comes from Adam Kroll with Piper Sandler. Please go ahead.

Speaker #1: Thank you. We will now begin the question-and-answer session. To ask a question, you may press * then 1 on your touchtone phone.

Speaker #1: If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press * then 2. As a reminder, please limit yourself to one question and one follow-up.

Speaker #1: If you have further questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble our roster. The first question comes from Adam Kroll with Piper Sandler.

Speaker #1: Please go ahead.

Adam Kroll: Hey, guys. Hope you are doing well, and thanks for taking my questions.

Speaker #5: Hey, guys. Hope you're doing well, and thanks for taking my questions.

Michael Peduzzi: Hey, Adam. How are you?

Speaker #3: Hey, Adam. How are you?

Adam Kroll: Yeah, doing good. Maybe starting out on the loan growth. You had some nice organic growth during the quarter. I was just curious how pipelines are shaping up today, overall growth expectations for Q4 and heading into 2027, and maybe which divisions you see as the primary drivers of that growth.

Speaker #5: Yeah, doing good. Maybe starting out on the loan growth—you had some nice organic growth during the quarter. So I was just curious, you know, how pipelines are shaping up today.

Speaker #5: Overall growth expectations for the fourth quarter and heading into '27, and maybe which divisions you see as the primary drivers of that growth.

Michael Noah: Sure. Thanks for the question. This is Michael Noah. Pipelines have been steady throughout the last, I would say, two quarters. We have seen about a billion-dollar pipeline that has remained and held steady for us. Earlier part of the year, we saw more C&I lead the way on our loan growth. In the last quarter, we saw commercial real estate step up and be a larger part of our growth during the quarter. At this time, with the visibility we have, we feel pretty good about going into Q4 and where we stand with the pipelines. Obviously, the goal will be to maintain those throughout the course of this year and the next. We are feeling pretty good about where we stand right now.

Speaker #4: Sure, thanks for the question. This is Mike Noah. We've got pipelines that have been steady throughout the last, I'd say, two quarters. We've seen about a $1 billion pipeline that's remained and held steady for us.

Speaker #4: Earlier in the year, we saw more C&I lead the way in our loan growth. In the last quarter, commercial real estate stepped up and became a larger part of our growth during the quarter.

Speaker #4: So, at this time, with the visibility we have, we feel pretty good about going into the fourth quarter and where we stand with the pipelines.

Speaker #4: Obviously, the goal will be to maintain those throughout the course of this year and the next. But we're feeling pretty good about where we stand right now.

Michael Peduzzi: Mike, I would suggest that we are seeing momentum really in the H2 of the year in the Western New York region and BankOnBuffalo, but really on all our divisions, we have seen pretty steady growth. It was a little accelerated in Ridge View in the H2 of the year and in the early H1 of the year, our legacy divisions in CNB and ERIEBANK, but we are not seeing really any slowdown anywhere.

Speaker #3: Mike, I would suggest that we're seeing momentum, really, in the second half of the year in the Western New York region and Bank of Buffalo.

Speaker #3: But really, on our divisions, we've seen pretty steady growth. It was a little accelerated in Ridgeview in the second half of the year, and in the early half of the year, our legacy divisions in CNB and Erie Bank.

Speaker #3: But we're not seeing any slowdown anywhere, right?

Michael Noah: No, and I think that is the nice part you point out, Mike, that it has come from different divisions throughout the course of the year. Different quarters, we have had different divisions step up and provide that growth. It has been pretty broad-based across the four states and the six divisions, so looking forward to that continuing as well.

Speaker #4: No. And I think that's the nice part you point out, Mike—that it has come from different divisions throughout the course of the year.

Speaker #4: Different quarters, we've had different divisions step up and provide that growth, so it's been pretty broad-based across the four states and the six divisions.

Speaker #4: So, looking forward to that continuing as well.

Adam Kroll: Got it. Some great color there. Maybe for Tito on the margin. What is reported being stable, but you have some really nice core NIM expansion when stripping out accretion during the quarter. So would just love to get your updated expectations for the trajectory of the margin into Q4 and into 2027, and maybe just unpack some of the potential drivers there.

Speaker #5: Got it. Some great color there. Maybe for Tito, on the margin, with reported being stable, but you had some really nice core NIM expansion.

Speaker #5: When stripping out accretion during the quarter, we would just love to get your updated expectations for the trajectory, the margin, into the fourth quarter, and into 2027.

Speaker #5: And maybe just unpack some of the potential drivers there.

Tito Lima: Sure. First of all, thank you again for joining the call. We appreciate it. You are right. I think on a fully tax equivalent basis, 389 was stable. But what was nice to see was on a core basis, excluding purchase accounting, we accreted our margin to 375, which was really nice to see. Our expectation, honestly is, I think for us to maintain a stable margin in Q4 and into next year, I think it is a success for us. Of course, we might see some increase in deposit rates into the near future here as rates increase. And as you would expect, Michael can talk about a tremendous amount of competition for deposits and rates are climbing up on what our competitors are offering. But also we are going to benefit from the accretion in yield, not only coming from the new production.

Speaker #4: Sure, sure. First

Speaker #3: First of all, thank you again for joining our call. We appreciate it. You're right. I think on a fully GAAP-equivalent basis, 389 was stable, but what was nice to see was on a core basis, excluding purchase accounting, we accrued our margin to 375, which was really nice to see.

Speaker #3: Our expectation, honestly, is for us to maintain a stable margin in the fourth quarter and into next year. I think if we do that, it's a success for us.

Speaker #3: Of course, we might see some increase in deposit rates in the near future here as rates increase. And as you would expect, Michael can talk about a tremendous amount of competition for deposits and rates, all climbing up based on what our competitors are offering.

Speaker #3: But we're also going to benefit from the accretion and yield, not only coming from the new production. Michael can talk about our yield right now.

Tito Lima: Michael can talk about our yield right now. I think Q3, our new volume yield was somewhere at 6.3%, which is higher than our portfolio. I think we expect that to increase, right, Michael? I think new business coming up right now is higher than that. Also, I think on our investment portfolio right now, we are investing somewhere, Michael, did you on a 4.5%, 5%? That portfolio is going to continue to accrete for us as well. So, I think if you were thinking a stable margin next year, it would be a good place, I think. I think we are expecting that much from our new growth and existing portfolio.

Speaker #3: I think in the third quarter, our new volume yield was somewhere around 6.3%, which is higher than our portfolio yield. But I think we expect that to increase, right, Michael?

Speaker #3: I think new business coming up right now is higher than that. But also, I think on the investment portfolio, investment portfolio right now, we're investing somewhere like the division on a 4.5–5%.

Speaker #3: That portfolio is going to continue to accrue for us as well. So, I think if you were thinking a stable margin next year, it would be a good place, I think.

Speaker #3: I think we're expecting that much from our new growth and existing portfolio.

Adam Kroll: Got it. Tito, how are you thinking about your interest-bearing deposit beta in this potential hiking cycle? Maybe more broadly, just speak to the competitive environment on the funding side of things.

Speaker #5: Got it. And Tito, how are you thinking about your interest-bearing deposit beta in this potential hiking cycle? And maybe more broadly, could you speak to the competitive environment on the funding side of things?

Tito Lima: Honestly, I think we were in prior periods, somewhere in that 40% range is where we were. Honestly, I think right now there is Michael can maybe a little more detail here, Michael. But there are some crazy offerings out there right now. Folks are above 4%. We have held our line. It was nice to see again that we grew our portfolio loans, grew in deposits without the corporate strategies, and still decreased rates. Cannot repeat that, but I think honestly that 40% range should be our beta, I think.

Speaker #3: I think, honestly, when we were in prior periods, somewhere in that 40% range is where we were. Honestly, I think right now, you know, Michael can maybe give a little more detail here—Michael—but there are some crazy offerings out there right now.

Speaker #3: Folks are above 4%. We have held our line. It was nice to see, again, that we grew our portfolio and loans grew in deposits without the corporate strategies and still decreased rates.

Speaker #3: Can't repeat that, but I think, honestly, that 40% range should be our beta, I think.

Adam Kroll: Perfect. Thanks for taking my questions.

Speaker #5: Perfect. Thanks for taking my questions.

Tito Lima: Thank you.

Michael Peduzzi: Thanks, Adam.

Speaker #3: Thank you.

Speaker #2: Thanks, Adam.

Operator: Thank you. Again, if you have a question, please press star then one. The next question comes from Emily Lee with KBW. Please go ahead.

Speaker #1: Thank you again. If you have a question, please press * then 1. The next question comes from Emily Lee with KBW. Please go ahead.

Emily Lee: Hey, everyone. This is Emily on for Tim Switzer. Thanks for taking my question.

Speaker #6: Hey everyone, this is Emily on for Tim Switzer. Thanks for taking my question.

Michael Peduzzi: Hi, Emily.

Speaker #3: Hey, Emily.

Speaker #6: So, hi. Would you be able to discuss how the bank is approaching investments in technology and AI? And could you maybe outline any plans for the utilization of AI down the road, whether that's on the internal side or the client-facing side?

Emily Lee: Hi. Would you be able to discuss maybe how the bank is approaching investments in specifically technology and AI, and maybe discuss any plans for the utilization of AI down the road, if that is on the internal side or more client-facing side? Just any specific use cases, and potential to improve efficiency within the organization.

Speaker #6: Just any specific use cases and, you know, potential to improve efficiency within the organization.

Michael Peduzzi: Sure. We have an internal task force focused on this. I will give you an internal use case we have right now, which went for a really good test for us to understand how to properly have our employee pool access it. We have an internal training AI mechanism we call Harmony that allows our employees to access not only all of our internal policies and procedures, but also protocols and things to follow for disclosures on a very active basis. We had the example of one of our newer teams in ESSA having a customer coming in shortly after systems conversion, and it helped them walk through how to do the processes and protocols. One person, I think, had it up while the other one used that as guidance. It does not speak to them. It provides them the information in a nice sequential way to handle it.

Speaker #3: Sure. We have an internal task force focused on this, but I'll give you an internal use case we have right now, which was a really good test for us to understand how to properly have our employee pool access it.

Speaker #3: We have an internal training AI mechanism we call Harmony, that allows our employees to access not only all of our internal policies and procedures, but also protocols and things to follow for disclosures.

Speaker #3: On a very active basis, we have the example of one of our newer teams in ESSA having a customer come in shortly after systems conversion, and it helped them walk through how to do the processes and protocols.

Speaker #3: One person, I think, had it up while the other one used that as guidance. It doesn't speak to them; it provides them the information in a nice, sequential way to handle it.

Michael Peduzzi: We found that to be very valuable and very well used by our internal footprint. Of course, the external uses are heavily driven by the privacy requirements that we have to maintain. We are in contact with our core provider, COCC, which is built on a Fiserv platform, and some of our other folks to understand how they are managing that process so that as we get to do further testing of how we are utilizing that or want to utilize that, we are prepared to make sure that secure first, functionality second. In the interim, though, Emily, I would suggest we are using a lot of things, RPAs and other things that are very similar to what AI would probably do on a much faster basis. We use a small business model for scoring and underwriting that is very heavily evaluated and has been very successful for us.

Speaker #3: And we found it to be very valuable and very well used by our internal footprint. Of course, the external uses are heavily driven by the privacy requirements that we have to maintain.

Speaker #3: So, we're in contact with our core provider, COCC—which is built on a Fiserv platform—and some of our other folks to understand how they are managing that process. This way, when we get to do further testing of how we're utilizing that or want to utilize that, we're prepared to make sure that it's secure first, functionality second.

Speaker #3: In the interim, though, Emily, I would suggest we're using a lot of things—RPAs and other tools—that are very similar to what AI would probably do on a much faster basis.

Speaker #3: We use a small business model for scoring and underwriting that's very, very heavily evaluated and has been very successful for us. So we're doing a lot of things on an active basis that aren't yet the full adoption of AI.

Michael Peduzzi: We're doing a lot of things on an active basis that are not yet the full adoption of AI. But we are also investing in a lot of tokens that we are using in what we would call our sandbox or our test environment, where there is, again, no external opportunity. But where our experts inside are using that to evaluate how we can best potentially turn that on when that day comes. I would not say the investment is heavily material at this point in time, but it is absolutely focused on staying on the leading edge. We are not going to be the alpha or betas. We will let the JP Morgans and the larger organizations who really have that capacity do that, but we will not be far behind.

Speaker #3: But we are also investing in a lot of tokens that we are using in what we would call our sandbox or our test environment, where there's, again, no external opportunity.

Speaker #3: But where our experts inside are using that to evaluate how we can best potentially turn that on when that day comes. So, I wouldn't say the investment is heavily material at this point in time, but it is absolutely focused on staying on the leading edge.

Speaker #3: We're not going to be the alpha or the betas. We'll let the JPMorgans and the larger organizations, who really have that capacity, do that. But we won't be far behind.

Emily Lee: Yeah. Sounds great. Sounds like you got a lot of initiatives under your belt. Really nice to hear. But thanks for taking my question. I will step back now.

Speaker #6: Yeah, sounds great. Sounds like you've got a lot of initiatives under your belt. Really nice to hear. Thanks for taking my question. I'll step back now.

Michael Peduzzi: Thank you, Emily.

Speaker #3: Thank you, Emily.

Operator: Thank you. The next question comes from Jake Civiello with D.A. Davidson. Please go ahead.

Speaker #1: Thank you. The next question comes from Jake Saviello with D.A. Davidson. Please go ahead.

Jake Civiello: Hey, good afternoon, everyone.

Speaker #7: Hey, good afternoon, everyone. Hey, Jack. You know, Mike Nola talked about the loan growth by geography. Can you give us some perspective on deposit dynamics, maybe by division, in the quarter?

Michael Noah: Hi, Jake.

Michael Noah: Hey, Jake.

Jake Civiello: Michael Noah talked about the loan growth by geography. Can you give us some perspective on deposit dynamics, maybe by division in the quarter?

Michael Noah: Sure. This is Michael Peduzzi, Jake, and again, divisionally, same thing. We actually liked what we saw divisionally from a non-interest-bearing deposit standpoint. We saw that in a multiple divisional component here, what they provided in most of our divisions throughout the States. That really goes back to really the core relationships that we have talked about and trying to really get the additional treasury management relationship and furthering a robust relationship across the board. So from a divisional standpoint, we are very pleased with approximately 5% annualized growth in the non-interest-bearing side of things. Again, that was for most of our divisions providing that context and clarity there. The focus is really on the savings side. It is on the checking side. It is on the core account side. We will utilize CDs as needed as well.

Speaker #8: Sure. This is Mike Jake. And again, divisionally, same thing. We actually liked what we saw divisionally from a non-interest-bearing deposit standpoint. We saw that in multiple divisional components here, what they provided.

Speaker #8: And most of our divisions throughout the states—that really goes back to the core relationships that we've talked about and trying to get the additional treasury management relationship, and furthering a robust relationship across the board.

Speaker #8: So, from a divisional standpoint, we're very pleased with approximately 5% annualized growth in the non-interest-bearing side of things. And again, that was for most of our divisions, providing that context and clarity there.

Speaker #8: The focus is really on the savings side, on the checking side, and on the core account side. We'll utilize CDs as needed as well.

Michael Noah: That is more of a maintenance play, trying to maintain our balances and such, and trying to build off the core relationship with the other accounts. We have the ability to be very granular within our divisions as we need to try to respond to competition, whether it is coming from the community bank level or at the upper end regional side of things. So we have got the ability to be nimble and make decisions in real time to be able to react accordingly, which has helped us a lot.

Speaker #8: That's more of a maintenance play, trying to maintain our balances and such, and trying to build off the core relationship with the other accounts.

Speaker #8: But we have the ability to be very granular within our divisions as we need to, to try to respond to competition, whether it's coming from the community bank level or at the upper-end, regional side of things.

Speaker #8: So we've got the ability to be nimble and make decisions in real time to be able to react accordingly, which has helped us a lot.

Michael Peduzzi: Michael, if I can also add from a geographical standpoint, it was really nice to see FCBank. By the way, FCBank did well for us, Jake, on both loans and deposits. Nice pick up there.

Speaker #3: Michael, if I can also add, from a geographical standpoint, it was really nice to see FC Bank. And, by the way, FC Bank did well for us, Jake, on both loans and deposits.

Speaker #3: Nice, nice pickup there.

Michael Noah: Columbus, Ohio area.

Michael Peduzzi: In Columbus, Ohio. In Columbus, Ohio. ESSA had a nice deposit growth here this quarter, which was nice to see. We continue to benefit, as you know, Jake, from diversity in our geographies. When one is not as strong, the others are picking up, which was nice. Jake, this is Michael Peduzzi. I have one final point here. One of the keys to deposit growth is to not have deposit runoff. One of the things we did after the 2023 rapid rise in rates, and we were doing a lot to respond to that, is we put a lot of our bigger and longer-term relationships on index deposits so that as rates either go up or down, they do the same.

Speaker #2: It was a higher area.

Speaker #3: In the Columbus area, right, Mike—Mike, in Columbus, Ohio. Also, ESSA had nice deposit growth here this quarter, which was nice to see.

Speaker #3: So we continue to benefit, as you know, Jake, from a diversity in our geographies. And when one is not as strong, the other is picking up, which was nice.

Speaker #7: Jake, this is Mike Paduzio. I have one final point here. One of the keys to deposit growth is to not have deposit runoff. One of the things we did after the 2023 rapid rise in rates—and we were doing a lot to respond to that—is we put a lot of our bigger and longer-term relationships on index deposits.

Speaker #7: So that as rates either go up or down, they do the same. That's why, if you look at our shock that we disclosed in our 10-Qs or 10-K, you'll see that whether we go up 100, 200, or 300 basis points, or down, we're pretty neutral—very slightly asset sensitive, but pretty neutral.

Michael Peduzzi: That's why if you look at our shock that we disclose in our 10-Qs or 10-K, you'll see that whether we go up 100, 200, or 300 basis points or down, we're pretty neutral. Very slightly asset sensitive, but pretty neutral. That's really helped us because even with the most recent Fed raise, we didn't have any of those customers coming in asking us to reprice that. We had just as many assets that are variable rate repriced that same time to keep that in balance. As long as we don't have a really rapid increase that would require a lot of interaction, that helps us retain, and that's been really our key with treasury management. Our folks do a great job servicing those relationships. That's why you've seen that non-interest bearing keep going up.

Speaker #7: That's really helped us, because even with the most recent Fed raise, we didn't have any of those customers coming in asking us to reprice that.

Speaker #7: And we had just as many assets that are variable-rate repriced at that same time to keep that in balance. So, as long as we don't have a really rapid increase that would require a lot of interaction, that helps us retain.

Speaker #7: And that's been really our key with treasury management. Our folks do a great job servicing those relationships. That's why you've seen that non-interest-bearing keep going up.

Michael Peduzzi: Again, I think one of the keys to our growth is not losing the relationships that we've worked so hard to gain and then retain. That's been a big key for us as well.

Speaker #7: So again, I think one of the keys to our growth is not losing the relationships that we've worked so hard to gain and then retain.

Speaker #7: So that's been a big, big key for us as well. Great. Thanks for all that perspective. I just have one additional question. And given where we are with the potential for further interest rate tightening going forward, do you have any particular preference on utilization of borrowings or brokered deposits to kind of fill the gap if the deposit funding is on a short-term basis, doesn't come at the same time as loan growth?

Jake Civiello: Great. Thanks for all that perspective. I just have one additional question. Given where we are with the potential for further interest rate tightening going forward, do you have any particular preference on utilization of borrowings or broker deposits to kind of fill the gap if the deposit funding, on a short-term basis, doesn't come at the same time as loan growth?

Tito Lima: Jake, that is a great question. I think from my perspective, borrowings actually carry a lower cost of funding. Broker deposits have become very expensive as well because, again, I think a lot of our peers are having a challenge in continuing to grow their deposit base, then they are beginning to pay up, right? So that is also driving the broker deposit costs. You try to go on a broker here for a year, you are paying a lot for it. Also in our borrowing capacity, we have on an office, so $2 billion in borrowing capacity at the Federal Home Loan Bank. So tremendous amount of availability that we have and at a cheaper cost. So if we have to go to one of those sources, we will probably pick borrowings first, but also continue to look at other opportunities we have within our core deposit strategies.

Speaker #3: You know, Jake, that's a great question. I think, from my perspective, borrowings actually carry a lower cost of funding. Brokered deposits have become very expensive as well because, again, I think a lot of our peers are having a challenge and continue to grow their deposit base.

Speaker #3: And then they'll begin to pay up, right? So that's also driving the brokered deposit cost. So if you try to go on a broker here for a year, you're paying a lot for it.

Speaker #3: And also on our borrowing capacity, we have, on an office, $2 billion in borrowing capacity at the Federal Home Loan Bank. So, a tremendous amount of availability that we have.

Speaker #3: And at a cheaper cost. So if we have to go to one of those sources, we'll probably pick borrowings first, but also continue to look at other opportunities we have within our core deposit strategies. Michael's got a bunch of things that he's working on right now to see that we can continue to grow to fund loan growth.

Tito Lima: Michael has a bunch of things that he is working on right now to see that we can continue to grow to fund loan growth.

Operator: Thank you. The next question comes from Tyler Cacciatori with Stephens. Please go ahead.

Speaker #1: Thank you. The next question comes from Tyler Cacciatore with Stevens. Please go ahead.

Tyler Cacciatori: Hey, good afternoon, guys. This is Tyler in from Stephens.

Speaker #5: Hey, good afternoon, guys. This is Tyler from Ebriés.

Tito Lima: Hey, Tyler.

Speaker #3: Hey, Tyler.

Tyler Cacciatori: Tito, do you mind repeating what you said you guys were targeting for the interest-bearing beta? I was also wondering if you guys maybe had the spot NIM or the spot cost of deposits today or in the month of September.

Speaker #5: Tito, do you mind repeating what you said you guys were targeting for the interest-bearing beta? And then, I was also wondering if you guys maybe had the spot NIM or the spot cost of deposits today, or in the month of September?

Tito Lima: Well, in September, going from memory, our margin was pretty stable throughout the quarter, so I do not think we are too far off for September. Cost of deposits came down. Michael, if you want to.

Speaker #3: For the month of September, I'm going from memory. We were somewhere where our margin was pretty stable throughout the quarter, so I don't think we were too far off for September.

Speaker #3: And the cost of deposits came down. Michael, if you want to.

Michael Peduzzi: We are 248 on the interest-bearing side for the quarter.

Speaker #8: We're at 248 on the interest-bearing side for the quarter.

Tito Lima: Yeah. For the quarter. I still think that we're somewhere in that maybe 40% on the high side on the beta, I think, for the cost of deposits. I think for us, I'll pick up on what Mike just said. We have about $1 billion of our deposits that are indexed, that are going to march along with what happens to the interest rates. The rest of it, I think we have, what, 84% or so, and when you take out non-interest-bearing deposits, maybe 60%, 70% of deposits are managed rates, right? So I think we've done a nice job in the past at dragging our feet on what happens when rates increase. I think honestly, about what, maybe 65% of our loans are either immediately repricing or they are repricing over a period of time here. So we'll see a nice pickup on that end.

Speaker #3: Yeah, for the quarter. So I think, I still think that we're somewhere in maybe 40% on the high side on the beta, I think.

Speaker #3: For the cost of deposits—and I think, for us, I'll pick up on what Mike just said—we have about $1 billion of our deposits indexed.

Speaker #3: That are going to march along with what happens to the interest rates. And the rest of it—I mean, I think we have, what, 84% or so in, or when you take out non-interest-bearing deposits, maybe 60% to 70% of our deposits are managed rates, right?

Speaker #3: So, we're going to—I think we've done a nice job in the past at dragging our feet on what happens when rates increase. I take honestly about, what, maybe 65% of our loans are either immediately repricing, or they are repricing over a period of time here.

Speaker #3: So we'll see a nice pickup on that end. We'll see a nice pickup on the investment portfolio side. So I think the deposit cost for us—we're going to manage really aggressively on balancing growth, but also not sacrificing the rate.

Tito Lima: We'll see a nice pickup on the investment portfolio side. So I think the deposit cost for us, we're going to manage it aggressively on balancing growth but also not sacrificing the rate.

Tyler Cacciatori: Great. Thank you. Mike, maybe one for you. Your guys' capital ratios are starting to build pretty nicely. If you could just update us on deployment strategies there as we head into the back half of the year and into 2027.

Speaker #5: Great, thank you. And then, Mike, maybe one for you. Your capital ratios are starting to build pretty nicely. If you could just update us on deployment strategies there?

Speaker #5: As we head into the back half of the year and into '27.

Michael Peduzzi: Well, we redeemed $50 million of the $85 million of sub-debt, and with rates going up and it's now past its initial five-year fixed period and being in the variable rate period. I would expect, at least in the very near term, even though the Fed didn't raise rates yesterday, that there's probably another rate hike in the cards in the next couple of months. Our goal ultimately is to call the remainder of that sub-debt. So that would be probably the first use of capital that we would say on a more material basis. As our earnings continue to grow, and as we've demonstrated in the past, we've had increases in our common stock dividend, and I would expect there would be some potential for that as well. That's subject to board approval, but they've shown that propensity when we've had the sustainable continuing earnings.

Speaker #7: Sure. Well, we redeemed $50 million of the $85 million of sub debt. And with rates going up, and it's now past its initial five-year fixed period and being in the variable rate period, I would expect at least in the very near term, even though the Fed didn't raise rates yesterday, that there's probably another rate hike in the cards in the next couple of months.

Speaker #7: And our goal ultimately is to call the remainder of that sub debt. So that would probably be the first use of capital that we would say, on a more material basis, as our earnings continue to grow.

Speaker #7: And as we've demonstrated in the past, we've had increases in our common stock dividend, and I would expect there would be some potential for that as well.

Speaker #7: That's subject to board approval, but they've shown that propensity when we've had sustainable, continuing earnings. As we look further down the line, we already have approved buyback capabilities from our board that are available and out there.

Michael Peduzzi: As we look further down the line, we already have approved buyback capabilities from our board that is available and out there. I would say that would have a lot to do with market dynamics and volatility. We have all our plans that we would typically use those buyback shares fully funded with excess shares right now. So we do not need to do that buying for any plan fulfillment. But it is a lever that we have out there if we need to use it. But I would say our higher priority is probably by June of next year. If things continue to roll as they do, our projections would indicate that we would redeem that sub-debt first at $35 million, and then evaluate other options from there, Tyler.

Speaker #7: I would say that has a lot to do with market dynamics and volatility. We have all of our plans that we would typically use for those buyback shares fully funded with excess shares right now.

Speaker #7: So, we don't need to do that buying for any plan fulfillment, but it's a lever that we have out there if we need to use it. But I would say our higher priority is probably by June of next year, if things continue to roll as they do.

Speaker #7: Our projections would indicate that we would redeem that sub debt first, at $35 million, and then evaluate other options from there, Tyler.

Tyler Cacciatori: Understood. That will be it for me. Thank you, guys.

Speaker #5: Understood. That will be it for me. Thank you, guys.

Tito Lima: Thanks, Tyler.

Michael Peduzzi: Thank you.

Speaker #3: Thanks, Tyler.

Speaker #7: Thank you.

Operator: Thank you. We have a follow-up from Adam Kroll with Piper Sandler. Please go ahead.

Speaker #1: Thank you. And we have a follow-up from Adam Kroll with Piper Sandler. Please go ahead.

Adam Kroll: Hey, guys. Maybe just a question on the expense run rate for Q4 and generally how you are thinking about balancing tech investments, other investments needing to potentially cross $10 billion, and just overall expense growth in 2027.

Speaker #6: Hey, guys. Maybe just a question on the expense run rate for the fourth quarter and generally how you're thinking about balancing tech investments and other investments, needing to potentially cross $10 billion, and just overall expense growth in '27.

Tito Lima: Sure. I think for Q4, first of all, one thing that happens a lot for us is we have our final evaluation of incentive comp. I am thinking that for Q4, it could be a bit of an increase because we are performing well here on earnings per share, efficiency ratio. I think that could be a little bit of an uptick in Q4. For next year, I think we see ourselves a reasonable increase like we have done in the past. As you think about your model, think about the Q4 run rate, maybe increase a little bit for, as you would expect for increases in merits and so forth. We do have some investments in technology, right, Michael? We are putting through in 2027. Maybe see if that helps a little bit.

Speaker #3: Sure. I think for the fourth quarter, first of all, one thing that happens a lot for us is we have our final evaluation of our incentive comp.

Speaker #3: So I'm thinking that for the fourth quarter, it could be a bit of an increase because we are performing well here on earnings per share and efficiency ratio.

Speaker #3: And so, I think that could be a little bit of an uptick in the fourth quarter. And for next year, I think we see ourselves with a kind of reasonable increase, similar to what we've done in the past.

Speaker #3: So as you think about your model, think about the fourth quarter run rate—maybe increase a little bit for, as you would expect, increases in merits and so forth.

Speaker #3: And we do have some investments in technology, right, Mike, that we're putting through in 2027. So maybe see if that helps a little bit.

Tito Lima: What was your other part of your question?

Speaker #3: What was the other part of your question?

Adam Kroll: Any necessary investments you are making to prepare to cross $10 billion?

Speaker #6: I mean, the necessary investments you're making to prepare to cross $10 billion.

Michael Peduzzi: Well, yeah, I think we are well anticipated that already, Adam. I am not saying that that would not have any impact at all. But I can tell you, especially as we took on ESSA and moved from $6 billion to $8.5 billion, part of that process was to be able to handle what would look like a $10 billion company. Our audit requirements, our internal audit requirements, and our structure meets those standards. We have all the liquidity and capital stress testing necessary to do that already. We have invested already in the lending software and stress testing capabilities that not only have invested in it, they are all actively running right now. So they have been subject to evaluation by our regulators and no concerns out there.

Speaker #3: Oh, yeah. I think we well anticipated that already, Adam. I'm not saying that that would not have any impact at all, but I can tell you, especially as we took on ESSA and moved from $6 billion to $8.5 billion, part of that process was to be able to handle what would look like a $10 billion company, or audit requirements, or internal audit requirements, and our structure meets those standards.

Speaker #3: We have all the liquidity and capital stress testing necessary to do that already. We've already invested in the lending software and stress testing capabilities.

Speaker #3: And not only have invested in it, they're all actively running right now. So they've been subject to evaluation by our regulators, and no concerns out there.

Michael Peduzzi: The bigger issue, Adam, will be the importance of, as we continue to look at these RPA and AIs, is to make sure that we are keeping up with the ability to not just hire people, but maybe deploy them to handle the extra capacity. We have excess capacity right now to handle $10 billion and beyond. That was one of the commitments we made as we bought ESSA to not just expand enough to handle that, but to do that. So you are already seeing that in our run rate, but there is always going to be new opportunities, and I think that would be balanced out by more opportunities and investments would probably reduce the amount of additional FTEs we have to hire. I do not think it will replace FTEs in terms of existing FTEs, but it will slow our run rate of hiring.

Speaker #3: The bigger issue, Adam, will be the importance of, as we continue to look at these RPA and AIs, making sure that we're keeping up with the ability to not just hire people, but maybe deploy them to handle the extra capacity.

Speaker #3: We have excess capacity right now to handle 10 billion and beyond. That was one of the commitments we made as we bought ESSA to not just expand enough to handle that, but to do that.

Speaker #3: So you're already seeing that in our run rate. But there's always going to be new opportunities. And I think that would be balanced out by more opportunities and investments would probably reduce the amount of additional FTEs we have to hire.

Speaker #3: I don't think it'll replace FTEs in terms of existing FTEs, but it'll slow our run rate of hiring.

Adam Kroll: Got it. Appreciate it, guys.

Speaker #6: Got it. Appreciate it, guys.

Michael Peduzzi: Thanks again, Adam.

Tito Lima: Thank you.

Speaker #3: Thanks again, Adam.

Speaker #7: Thank you.

Operator: Thank you. This concludes our question and answer session. I would like to turn the conference call back over to Michael Peduzzi for any closing remarks.

Speaker #1: Thank you. This concludes our question-and-answer session. I would like to turn the conference call back over to Michael Paduzzi for any closing remarks.

Michael Peduzzi: Thank you, and thank you all for joining us on this call this afternoon. We recognize that your time is valuable. We are hopeful that we provided some helpful perspective on our results and financial conditions. Gino, Mike, Greg, thank you for joining me. We greatly appreciate the financial commitment so many of you as our investors have made, and we remain focused on providing you meaningful returns on your valuable investment in our company. Again, thank you all for your time today.

Speaker #3: Well, thank you. And thank you all for joining us on this call this afternoon. We recognize that your time is valuable. We're hopeful that we provided some helpful perspective on our results and financial condition.

Speaker #3: Tito, Mike—great. Thank you for joining me. We greatly appreciate the financial commitment so many of you, as our investors, have made. We remain focused on providing you meaningful returns on your valuable investment in our company.

Speaker #3: So again, thank you all for your time today.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.