NWBI - NASDAQ

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., Q3 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Michael Perry, Managing Director, Corporate Development and Strategy and Investor Relations. You may begin.

Good morning, everyone, and thank you, operator. Welcome to Northwest Bancshares Third Quarter 2025 Earnings Call. Joining me today are Lou Torchio, President and CEO of Northwest Bancshares; Doug Schosser, our Chief Financial Officer; and T.K. Creal, our Chief Credit Officer. During this call, we will refer to information included in the supplemental third quarter 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. And now I'll hand it over to Lou.

Thank you, Michael, and good morning, everyone. Thank you for joining us today to discuss our third quarter results. It was a busy and productive third quarter, and I'm pleased with our results and the team's performance. At the end of July, we closed the Penns Woods merger, the largest transaction in our company's history and completed customer and data conversion, and financial center rebranding. This is Northwest's first quarter as a combined entity with about 2/3 of a full quarter of combined company results. Deal synergies are as expected and the various financial impacts of the merger, including cost savings are all on target or better than expected. I would like to thank and congratulate our team on the successful execution and integration of this merger. In early August, in celebration of that achievement and joining the ranks of the nation's 100 largest bank holding companies, we rang the NASDAQ opening bell in New York City. During the third quarter, we continued to make strategic additions to our leadership team. We welcomed a new Chief Legal Officer, Treasurer and the Head of Wealth Management, a new role to lead our expanding wealth management team. We now have more than 150 financial centers across Pennsylvania, New York, Ohio and Indiana. And yesterday, we had an official groundbreaking ceremony for our first de novo financial center in the Columbus market, and we're joined by the Mayor of New Albany and the Chair of its Chamber of Commerce. This is the first of 3 new financial centers we'll be opening in the Columbus market next summer. We're already building out our Columbus de novo teams to support local deposit gathering, customer acquisition and developing business relationships for a fast ramp-up when we open our doors. Our newest de novo financial center in Fishers, Indiana, which we opened in June, is performing well and on target. And as we look out over the next 12 to 18 months, we expect to open additional new financial centers in key locations in the high-growth Columbus and Indianapolis markets. I'll now walk through some of the highlights of the third quarter, directing everyone to Slide 4. I'm pleased with the performance of our first quarter as a combined company with the team staying focused on executing our strategy and delivering on our commitment to sustainable, responsible and profitable growth. The merger enhanced our balance sheet scale. At quarter's end, we had $16.4 billion in total assets, $13.7 billion in deposits and $12.9 billion in loans. We delivered more than 25% year-over-year average commercial C&I growth with strong progress on our continuing strategic rebalancing of the portfolio. We're in the third year of our commercial banking transformation, and we're seeing the benefits of that focus and investment with progress in our specialty verticals, commercial deposits and continued growth in SBA lending. Northwest was recently named as a top 50 SBA lender nationally by volume. We delivered $168 million in revenue for the third quarter, a record in the company's history, resulting in more than 20% year-over-year revenue growth. Net interest margin improved 9 basis points quarter-over-quarter to 3.65%, benefiting from higher average loan yields and purchase accounting accretion. Our EPS on a GAAP basis was up $0.08 or 15% for the 9 months ended September 30, 2025, and our adjusted EPS increased $0.16 or 21% for the same period. Turning to credit, which we know is currently a topic of significant interest across the industry. For the record, we have no direct exposure or known indirect exposure to any of the companies with high-profile credit issues that have recently been referenced in the media coverage on regional banking. The headline is that we continue to manage risk tightly, and our credit costs continue to be in line with our expectations. We're happy with our progress in reducing the level of our criticized and classified loans that we highlighted last quarter. Prior to accounting for acquired loans, which resulted in an increase of $9 million to classified loans of the combined company, legacy Northwest classified loans decreased by $74 million this quarter, and we've seen further improvement post quarter end as we continue to manage our loan book in a focused and methodical manner. And finally, as we have for the previous 123 quarters, the Board of Directors has declared a quarterly dividend of $0.20 per share to shareholders of record as of November 6, 2025. Based on the market value of the company's common stock as of September 30, 2025, this represents an annualized dividend yield of approximately 6.5%. This quarter's results are the product of an extremely talented team's hard work. I want to thank our entire Northwest team for their continued dedication to our company's success. Looking forward to the final quarter of 2025, we continue to focus on managing the factors within our control, serving our core customers and communities, building on our strong financial foundations and maintaining tight cost controls and risk management discipline. Now I'll hand it over to Doug Schosser, our Chief Financial Officer. Doug?

Thank you, Lou, and good morning, everyone. As Lou indicated, we are pleased with our financial performance. This is the product of the efforts of our entire team working tirelessly to deliver these results while also ensuring that our merger and conversion activities went smoothly for our new customers and associates. Now let's continue on Page 5 of the earnings presentation, where I'll walk you through the highlights of Northwest's financial results for the third quarter of 2025. As a reminder, we closed our merger on July 25. So this quarter includes approximately 2 months benefit from the merger. The fourth quarter will be our first full quarter of reporting as a combined entity. Given the overall size of this transaction, our fully completed conversion and opportunities as a combined organization, we don't intend to disaggregate results unless doing so would aid in the explanation in this first combined quarter of reporting. Our GAAP EPS for the quarter was $0.02 per share, which reflects the merger and restructuring charges related to the merger. On an adjusted basis, our EPS was $0.29 per share for the third quarter. Net interest income grew $16.5 million or 14% quarter-over-quarter with the net interest margin improving to 3.65%, benefiting from higher average loan yields, increased average earning assets and the benefit from purchase accounting accretion. Noninterest income increased by $1.3 million or 4% quarter-over-quarter, driven primarily from an increase in service charges. These items combined drove total revenue to a record of $168.1 million in the quarter, a $17.7 million increase quarter-over-quarter. Additionally, we saw an increase in our adjusted pretax pre-provision net revenue, which came in at almost $66 million, an 11.5% increase quarter-over-quarter and a 36% improvement from third quarter 2024. And finally, our adjusted efficiency ratio of 59.6% in third quarter '25 improved by 80 basis points quarter-over-quarter and 520 basis points year-over-year. Turning to Page 6, I'll spend a moment covering the highlights of our Merger. We successfully completed all remaining merger conversion activities in third quarter 2025. All acquired branches are operating under the Northwest Bank name. All associates have been onboarded and the strong cultural fit is as we anticipated. All customers are converted and are being served under the Northwest brand. Deal synergies are on target and our capital position remains strong. Tangible common equity to tangible assets of 8.6% at quarter end is better than originally projected. This is a good time to cover a few other points that are important. First, I'd like to cover our liquidity position that is very strong. We have readily available incremental sources of liquidity that would cover approximately 250% of the company's uninsured deposits, net of collateralized and intercompany deposits at quarter end. As for capital, we have disclosed our current preliminary CET1 ratio at 12.3%, which is only about 60 basis points lower than the level recorded in second quarter 2025 and significantly in excess of the levels required to be considered well capitalized for regulatory purposes. Turning to Page 7 and the Purchase Accounting Impacts. Loan mark accretion was $2.7 million in the third quarter of 2025 and based on projected contractual cash flows is expected to be $1.9 million in the fourth quarter of 2025. We provided some additional information covering contractual accretion for 2026 and 2027. Actual results will vary with customer activity. Day 1 non-PCD and unfunded provision expense was $20.7 million, and our core deposit intangibles or CDI, were $48 million with $1.6 million of CDI amortization in the third quarter of 2025. The preliminary goodwill created was $61.2 million. On Page 8, we cover Loan Balances. Average loan balances grew $1.32 billion quarter-over-quarter, benefited from the acquired loan balances. Loan yields increased to 5.63% in third quarter 2025, growing by 8 basis points quarter-over-quarter. We have provided information by loan category throughout our investor presentation. I will also note that the increase in CRE balances did not meaningfully change our overall regulatory CRE concentration. On Page 9, we cover Deposit Balances. Deposit balances similarly benefited from the acquired balance sheet as average total deposits grew by $1.14 billion quarter-over-quarter, while broker deposits decreased $2.2 million quarter-over-quarter. Cost of deposits remained flat at 1.55%, benefiting from proactive management of the overall portfolio and still near best-in-class relative to our peers. We saw growth of deposit balances in most categories while maintaining reasonable deposit costs, and we are pleased with our progress here. We also saw no appreciable change in our deposit mix other than small increases in demand deposits, offset by minor reductions in borrowings. Moving to Slide 10 and our Net Interest Margin. Net interest income increased 13.8% quarter-over-quarter or $17 million, inclusive of the benefit from purchase accounting accretion, with NIM expanding 9 basis points to 3.65% in third quarter 2025. Purchase accounting accretion net impact equated to 6 basis points of our margin expansion. This continues our track record of growing both net interest income and improving our net interest margin by focusing on our loan pricing and our funding cost as the rate environment has been more favorable in 2025. Securities portfolio yields continue to increase as we reinvest cash flows at higher yields than the current portfolio. This is clearly a bright spot for our bank and will further improve many of our key profitability and return metrics. Slide 11 provides some details on our Earning Asset & Funding Mix. You will notice a few changes from last quarter. We've seen a modest shift in our earning asset mix as the acquired loans drove changes in our fixed and periodic repricing categories, while our funding mix was largely unchanged. You'll also note our time deposits have a very short duration, allowing us to continue to benefit from future repricing opportunities in a falling rate environment and lower interest expense. We hold a granular diversified deposit book with an average balance of over $18,000. Customer deposits consist of over 728,000 accounts with an average tenure of 12 years. The similar average customer balance and tenure pre and post-merger illustrates the similar high quality and granularity of the acquired deposit book. On Slide 12, our securities portfolio continues to be a strong source of liquidity for us. The yield on our securities portfolio continues to increase as we continue to reinvest cash flows at higher yields in the runoff portfolio, yields increased 10 basis points to 2.82% in the quarter. Slide 13 contains details on our noninterest income, which increased $1.3 million from last quarter, driven by an increase in service charges and fees benefiting from a larger customer base resulting from our acquisition and other operating income, primarily from a gain on equity method investments. Noninterest income increased 15.7% or $4.4 million year-over-year, driven by a $3 million increase in other operating income and continued growth across other fee income categories. Slide 14 details our noninterest expense. We incurred approximately $133 million of expenses on a GAAP basis, which included about $31 million of merger-related costs this quarter. Core expenses of $102 million are up $11 million from quarter 2 levels, resulting from higher levels of compensation and other expenses from the newly acquired employees and facilities. Additionally, core expenses also increased in the third quarter as we incurred additional expenses related to accruals for performance-based compensation. Our adjusted efficiency ratio of 59.6% after excluding those merger and restructuring expenses is an improvement from the 64.8% in the prior year period. This reflects our continued focus on managing expenses without an impact on our core operations or sacrificing customer service while still investing in talent to support future growth. On the next few slides, we'll cover credit quality. On Slide 15, you can see our overall allowance coverage ratio has increased to 1.22%, up slightly from second quarter of 2025 with provision expense of $11.2 million, net of day 1 non-PCD impacts versus $11.5 million in the second quarter of 2025 due to individual assessments within the commercial portfolio. Our annualized net charge-offs of 29 basis points for the quarter are in line with expectations and guidance. We believe our coverage is appropriate, prudent and in keeping with our rigorous credit risk management approach. On Slide 16, you will note that our 30-day plus loan delinquencies increased slightly from 1% to 1.10%, mostly from acquired loans within the consumer book. This increase does contain some more administrative consumer delinquencies as customers need to manage certain changes in online bill pay and other electronic payment methods resulting from impacts from the conversion. We expect this trend to decline over time. NPAs increased by $26.3 million, approximately $17 million of which is attributed to the acquired loans. Our NPAs as a percentage of loans outstanding plus OREO has increased to 100 basis points. We provide some additional details on the drivers of this change on that slide. Turning to Page 17. We've included some additional information on changes within the classified loans reported this quarter. The third quarter 2025 increase in our classified loans is a result of the acquired loan book, but overall classified loans declined as a percentage of total loans. Northwest legacy classified loan book decreased $74 million quarter-over-quarter, resulting primarily from payoffs. Net charge-offs remained within guidance at 7 basis points or $9.2 million for the quarter or 29 basis points annualized. We included our commercial loan distribution and CRE concentration information on a slide in the appendix. As Lou alluded to earlier, we have no direct exposure or known indirect exposure to Tricolor, First Brands or Cantor Group. Regulatory CRE concentration is approximately 156% of target Tier 1 plus ACL, up slightly from the prior quarter at 152%. On Slide 18, we have provided an updated perspective on our outlook. We continue to be confident about Northwest business and would expect to maintain our net interest margin at the third quarter 2025 levels of the mid-360s. Future NIM will be a bit more volatile as prepayments of the acquired loans will accelerate purchase accounting accretion, making it difficult to forecast. We are effectively reaffirming the rest of our previous fourth quarter 2025 guidance, including noninterest income expected to be $32 million to $33 million, noninterest expense expected to be in the range of $102 million to $104 million, tax rate expected to remain flat at the 2024 tax rate. And finally, net charge-offs to average loans expected to end the year at the low end of the 25 to 35 basis point range, which could mean net charge-offs up to $13 million in the fourth quarter of 2025. As a reminder, we said last quarter, we will not have fully realized all the cost savings from the merger in the fourth quarter of 2025, but expect to achieve 100% of the savings by second quarter 2026. We will provide full year 2026 guidance during our fourth quarter 2025 earnings release call in January 2026. Now I'll turn the call over to the operator, who will open the lines for a live Q&A session.

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

Maybe we start on the loan growth side. I don't know if I heard any commentary on loan growth expectations. But as you address that, just curious if you could talk about the new de novo branches that you're adding in Indianapolis and Columbus and how that kind of fits into the loan growth guidance?

Okay. I'll start, and then I'll let Lou comment on the new branches and expansion. So this quarter, we would have had a big impact from the acquisition, and we didn't disaggregate all of that movement. But I would say for next quarter, we are looking, again, to hold the balance sheet stable. To the extent there's opportunities to create some balance sheet growth on the loan side, of course, we'll take advantage of that, but the overall environment has been pretty good, our pipelines look pretty good. But again, closings in any given quarter are a little bit hard to predict. So certainly looking to continue to grow the franchise, and we'll look to that in the fourth quarter as well.

Daniel, it's Lou. Thanks for calling in. On the de novo strategy, we're already out in the market. We've hired commercial real estate business bankers. We're recruiting for the wealth team, and we'll start the deposit gathering sometime in '26 in anticipation of the new launches. We did break ground yesterday at the -- in the high-growth suburb of New Albany, Ohio. As you know, we opened suburban Indianapolis last quarter and so yes, we would -- we look to plan to grow in-market that it will be -- and use our national verticals that we created to be complementary. And again, in January, we'll give '26 guidance on loan growth, but we feel really comfortable with all the different levers that we have and where our pipelines currently are, including our commercial pipeline.

That's helpful. I guess just to dig in a little bit more. I know you're not giving guidance in '26 yet, but you're thinking it was -- legacy growth was pretty flat in the third quarter, and you're saying flat again in the fourth quarter. I'm assuming you're hoping to grow in '26. I mean, is that a fair statement? Is it -- should we be looking for something in the low to mid-single-digit range? Or do you think you can do a little bit better than that?

Yes. I mean I definitely think we're going to -- when we provide that guidance, you would expect to see a loan growth number that would look pretty comparable to GDP growth. So I think that's fair kind of thinking right now. I think the other thing to keep in mind is we are working through the criticized classified assets that's obviously going to have an impact on our ability to show growth as well. So as those refinance off the book, of course, that creates a little bit of a tailwind to actually showing growth in the portfolio. So I would just mention that as well. Again, as we talked about last quarter and we kind of continue the conversation this quarter, we're hoping to see a good amount of movement on that portfolio. In our opening comments, we talked about, that was $75 million of change this quarter alone.

And then maybe just touching on the expenses here, the number was better than I was looking for in the third quarter and guidance looks pretty good for the fourth quarter. Again, you talked about continued cost savings coming through the beginning of next year. How should we think about expense numbers going forward? If that run rate is still -- what is it -- is it stabilis, you think, off of the fourth quarter number into 2026? Or because you've got the hirings or the de novo branches opening that you'll be growing expenses at a decent clip next year?

So I think that's a good way to think about it. Again, we'll get into more details when we do guidance for '26. But I think the way Lou and I think about it right now is we really want to focus on continuing to manage positive operating leverage. So -- and we want to continue to invest for growth. So the de novos being a good example of that. So I think next year, we need to take a look at where our revenue growth is going to be, and then we want to continue to invest to grow. So we would definitely hold some level of ability to think about our expenses in that way, but we're certainly not talking about a significant increase from here. And then we will have the benefit of those costs on the Penns Woods side starting to become a little bit more rationalized as we get into the third quarter, again, so we've got some opportunities there as well. But I think the way you're thinking about it around does it make sense to kind of hold them at these levels? Yes, but we'll obviously try to do better than that.

Your next question comes from the line of Brian Foran with Truist Securities.

Just on the tangible common equity ratio and CET1 coming in better than expected post the acquisition, could you just give us your updated thoughts on kind of the levels you think you would target over time? And as you look to next year, how you're thinking about trade-offs between buybacks, potential acquisitions, maybe just running with a little bit of excess, just how we should think about managing that capital position in the next 12 to 18 months?

Yes, sure. I mean, clearly, we're at -- we're well in excess of regulatory minimums for capital, and we like that position. I think that just helps support safe and sound banking franchise. The other thing I would say is it also -- as we want to be able to take advantage of any opportunities in the market, we would hold that capital level there. We've never gotten into capital level targets per se, but I think we're significantly comfortable with the capital levels that we carry now. And as we find opportunities to deploy that capital because obviously, that would -- your returns on tangible common equity would be benefited if you had a little bit less capital, similar returns, we obviously think about that. But I wouldn't say that you're looking at a massive change in the capital position for the company, just kind of normal operating. But we like having a strong capital base certainly to operate from.

And then on the margin commentary, I definitely heard you on the -- I think the word used was volatile, but the difficulty managing or forecasting purchase accounting accretion, outside of the quarter-to-quarter moves and paydowns in the PAA book, does it feel like the second half of this year is kind of a good run rate? Or should we build in a little bit of haircut as PAA and rate cuts and all that factors through?

Yes. No, I think we said that there was about 6 basis points impact from the purchase accounting side, so that would take our core margin, if you will, to like a 359 bps level. So when I sort of guided to that mid-360s bps, that was conceptually thinking about that 359 bps. We feel pretty good about that and being able to maintain that. You'll get a couple of basis points here or there depending on a quarter-over-quarter, if you had more paydowns and purchase accounting acceleration in one quarter versus another, that was the fees of the volatility I was thinking about. But I think we're pretty well positioned as it relates to kind of rates and are comfortable that we can keep that 360 bps core, like right around 360 bps and then we have some -- a little bit of movement from purchase accounting here or there. Does that help?

That's great. Maybe one last one just on the credit slide. Just kind of comparing to last quarter, it seems like the nursing home book had some nice payoffs as you alluded to the fourth quarter, potentially seeing additional payoffs of classified loans. Is it still concentrated there? Is it spreading a little bit? And related to that, when you talk about up to $13 million of charge-offs, is that just a mathematical statement? Or are you kind of saying, look, we've got maybe a couple of larger resolutions we're working through and fourth quarter might be a little higher than 3Q?

It was a bit of both, right? I think what we wanted to clarify is when we came out in the second quarter, we said expect a couple of quarters in the $11 million to $13 million range and that we were expecting to have total charge-offs at around that low end of our guidance or 25 basis points of loans. In order to kind of be clear about what that could mean in the fourth quarter is that could mean $13 million, and we'd still hit all of that guidance. So we just didn't want anybody to sort of say, "Oh, $9 million and then $9 million." We wanted to say, "Yes, well, as we work through this book, we may have some elevated charge-offs for a period of time, but not elevated to the extent that we felt like we were going to be above or even within that sort of 25 bps to 35 bps range that we said." We said we'd be at the lower end of that range for around 25 bps. So it's more doing the math. I think there is a little bit of work to do on credit classified loans as we work some of them out. So we would expect that there'll be some impact there, but we feel pretty good that we're reserved for all of that. But again, when you hit a charge-off versus reserves, we just wanted to be clear.

Your next question comes from the line of Tim Switzer with KBW.

First question I have is a follow-up on the credit in terms of the consumer portfolio. I'd love to get an idea of like what trends you guys are seeing there? And then maybe even outside of the loan book, what you're seeing across your deposit accounts in terms of like activity and behavior just because there's been some noise around the health of the consumer, particularly at like the lower end of the credit spectrum, which I don't think you get that much exposure to, but if you could update us on that, too, please?

Sure. So first of all, on the consumer side, I think we referenced it in our comments that we have a little bit of elevated delinquencies as we brought on the Penns Woods customers and the acquired loans. However, some of that is definitely administrative in nature. So if you think about going through a conversion, be able to reestablish their payment channels through new online portals and other things. So you do tend to see a little bit of incremental activity there. We continue to see that sort of work its way through the system. So we don't see that as being a negative trend on the overall consumer book, just more a process of some administrative things that are going on with the customer base. So that would be one thing. I'd also say that we continue to be very comfortable with our consumer exposure beyond that. Our auto loan book is very high credit quality; super prime book, very low delinquencies on that book, and we have not seen a meaningful change in those delinquency rates between the second and third quarter. And then the only other thing I might comment on is I don't think we're seeing any significant impact from any of the government showdown -- slowdown activities, and we wouldn't have expected to see it this early either but generally speaking, I think we're seeing the consumers be very similar in the third quarter as they were in the second quarter sort of across the book.

And the other question I have is, I know you guys just closed Penns Woods, but how do you think about scaling up the bank from here? Is there a target size for the bank where you hit optimal efficiency or returns over the next 5 years or so? And you have a management team with a lot of experience at larger banks. So how would you like to get there through organic growth, de novo or M&A?

Yes. Tim, this is Lou. I'll take that. So as you know, at this point, we're looking at really maximizing the integration and the efficiency and then the accretion of the Penns Woods merger, which being the largest in franchise history is really important on the execution side. It's going extremely well. As you noted, we have -- we now have an executive management team that we're really comfortable with being able to go out to the market and do M&A. Notwithstanding an M&A strategy, I would say that's just -- it's complementary. We are focused on improving our financial returns, our metrics at the core organic bank. And I think that the de novo branching opportunity, while meaningful for us in higher-growth markets that we currently don't have a large presence in, i.e., Columbus, Ohio and Indianapolis, Indiana, will continue to be a focus of ours, but we will have to do complementary, whether it be look at acquiring a branch deal, opportunistically M&A in order to scale that. So I think that we're focused on, as we've stated in the past, a dual strategy, run the bank organically, continue to create efficiencies. We think there's some upside there and then look for M&A that's in and around our market that either fits us strategically, geographically that can add value to the franchise and then to the shareholder.

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

I appreciate the details on Slide 11 regarding the funding mix. Just curious in terms of the short duration nature of the CD, maybe what you're seeing in terms of weighted average cost rolling off over the next year and what you sort of put on rate these days?

Yes. I don't know that I have that number right at my fingertips. So what I would say, though, over 90% of that CD portfolio will mature before the middle of next year. So that does give us quite a bit of flexibility around what the new rates would go on as the overall interest rate environment sort of goes down theoretically with these rate cuts. So we like the way that book is positioned right now. We don't have a ton of really long exposures there. So we should be able to take advantage of sort of the rate curve wherever it is and still be fairly priced for our customers.

And then in terms of the funding of expected loan growth, securities runoff expectations here in cash flows. Is that going to be securities funding that? Do you think deposit funding could cover the funding? Just curious how you're thinking about sort of the balance sheet ebbs and flows on sort of cash and securities.

Yes. I mean I think we would -- we have the ability to fund as much loan growth as we want. We have pretty low positions overall in brokered CDs. And in fact, we've been able to pay down a lot of that. So we've got plenty of funding capacity. Certainly, opening up some of these branches, we have to have that result in deposit growth. And we continue to focus on our ability to continue to help our customers on the commercial side with deposits. So we feel good about the opportunity to grow deposits organically. It's always super competitive, though, but we have other sources of funding, including the securities portfolio if we would need it. So I don't -- we don't have any real concerns or constraints in that place that we see right now.

Looks like the security is about 13% of assets. Do you think it holds around this level or maybe builds or fall slightly. Just curious how you see that trending over time?

Yes. We can provide a little bit more color on that. We don't really have a target that we've ever talked about publicly. But depending on what opportunities exist and how we want to manage our interest rate position and liquidity position, we'll make those determinations.

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

Doug, do you happen to have the most recent kind of spot rate of deposits either at quarter end or more recently? And then maybe I was hoping for some color or expectations for deposit betas over the next, call it, 12 to 18 months.

Yes. So we gave total cost of deposits at that 1.55% level, and they've been very stable. We actually were able to bring on some -- a good set of deposit mix from the acquisition, which helped. So again, I don't think we're seeing any upward pressure there. I think you're seeing -- money market promotional rates would be obviously higher than that, they might be in the 4s. But again, we're able to sort of manage that mix. And again, we operate in some really good markets that have a bit less competitive intensity than a lot of other markets. But again, we have to respond to market rates just like everybody else does. What was the second part of your question?

Just expectations for deposit betas, particularly given the low overall cost of deposits here?

Yes. We feel -- I think our overall deposit beta has been in the mid-20s through this rate cycle, and we don't see it. We still have room when we kind of think about our opportunities as -- because we have a generally fixed or periodic repricing on the asset side, we are able to benefit as rates go down and sort of hold those margins pretty comparable with the amount of funding that we have available on the deposit side that does pay rate like CDs, money market rates, et cetera. So we feel pretty neutral position right now for the next series of rate cuts.

And then you had also mentioned that pipelines were good or pretty good -- could you just better quantify for us what that looks like? And maybe within the pipeline, what are you seeing in terms of pockets of strength or areas that might grow a little bit more than other?

Yes. I mean I would say our pipeline commentary, we have nice developed pipelines in all of the national verticals that we support, and those continue to be strong. And again, that is an ability to pull from businesses sort of all around the country in those specialty areas that we have. Those would be sports finance, franchise finance, our equipment financing business, and a couple of others. We also feel pretty good about where our commercial real estate exposure is. There's obviously room there. So we would look to all of those businesses to drive some decent support. I think if you looked at our pipelines, you'll probably see a little bit more pipeline growth or support in the national verticals versus the end market, but that ebbs and flows over time. But I think that pipeline has been pretty consistent for the last couple of quarters.

And then just on that last point, the specialized verticals, particularly the national one sports equipment finance. What is the total within C&I that you kind of consider in the national or specialty verticals? And how much of that or how much of those are participations versus kind of stand-alone relationships?

Yes. So those would be in the 20% range of the C&I book. And I would say generally not significant amounts of participations within that side. That would be more in our corporate finance book where we would have those, which is not one of the newer verticals that we built.

And I would just add that we're very prescriptive and very measured in how we're growing those businesses. I would, in general terms, describe them as complementary. We're scaling them. They're scaling nicely. The performance -- the credit performance is very good. As Doug mentioned, limited participation activity. What we're looking to do is notwithstanding the equipment finance group, we're looking to also gather deposits and fees in those businesses. We have hired experts that have long-standing reputations in those industries, and they include sponsor, restaurant, finance, SBA lending group, equipment and sports. So we're watching those closely. We're scaling them appropriately within our credit risk tolerances, and they're performing wonderfully to date.

Just last one, if I could sneak it in. On the pipeline, what are you seeing for overall blended loan yields? There have been others, perhaps your peers that are discussing a little bit of spread compression and I'm curious if you're seeing that as well.

Yes. I mean I would say overall rates coming on the book are in the 7s, low 7s. Certainly, it's competitive out there. As everyone is expecting rate reductions, obviously, we're pricing a lot of that on forward curve, so you would expect to see those yields get -- come under a little bit of pressure as well as you get into future environments that would have lower rates, but they're certainly not bad.

Your last question comes from the line of Daniel Cardenas, Janney Montgomery Scott.

So just a couple of quick questions here. On the expansion efforts, the de novo expansion efforts, do you have the talent already identified to run those new offices? Or is that kind of a search in progress right now?

Yes, Daniel, I would say that it is a search in progress. It's a little early. We have gone out to the market here in Columbus with tangent business partners. We're currently evaluating wealth talent, small business talent. We've hired in the commercial space, middle market, CRE. And then as I stated, in '26, when the calendar turns, we'll be out with some deposit gathering campaigns so that we can fully load the branches and when we open the doors hit the ground running. But as far as we have a few people internally identified that will lead the early retail efforts. And then, of course, it's a little early to go to the marketplace and hire the other staff that are needed for the branch development.

And then last question for me is just in terms of the Penns Woods transaction, can you provide any color as to, what the runoff on the loan and deposit portfolios is looking like? Is it in line with expectations, not as great as you thought? Or any color would be helpful.

Yes. No, it's definitely in line with our expectations. I would say maybe it's slightly better, but certainly not materially different from where we thought it would be. Again, I think new market, we have different credit standards than where the original franchise would have been. So that's going to take a little bit of time to work its way through the market, but we have not seen significant spikes that have concerned us at all. So I would say it's sort of steady as she goes, and we're comfortable with what we've seen come through thus far.

Yes. In addition to Doug's comments, we have been very focused on integration and execution. We spent a lot of time in the marketplace, our senior leadership. Culturally, it has developed exactly like we thought. We are -- as I think we pointed out both in the release and verbally, achieving the cost saves that we expect. We expect also to get to the marketplace with an improved product set, SBA lending, Penns Woods didn't have some other products and services, trust and wealth. So we're pleased with the upside that the future we think from the Penns Woods acquisition will bring from a value standpoint.

That concludes our Q&A session. I will now turn the call back over to Lou Torchio for closing remarks.

Thank you. On behalf of the entire leadership team and the Board of Directors, thank you for joining our call this morning. With strong and stable financial foundations, tight cost controls and risk management discipline that we've described, additional scale from a larger balance sheet, we are well prepared to capitalize on the opportunities for driving sustainable, responsible and profitable growth. I look forward to updating you on the progress on our fourth quarter earnings call early next year. Have a good day.