Northwest Bancshares, Inc. 2Q 2026 Earnings Call

Thank you for standing by. My name is Prilla and I will be your conference operator today. At this time, I would like to welcome everyone to the Northwest Bank Shores Inc. Q2 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After this speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. And if you would like to involve your question, please press the star one again. Thank you. I'd now like to turn the conference over to Michael Perry, Northwest Managing Director of Corporate Development and Strategy and Investor Relations. You may begin.

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

Good morning, everyone. Thank you for joining us today to discuss our second quarter 2026 results. I'll let Doug take you through the details of our second quarter performance in a moment. But first, I want to reflect on several important milestones, including record net income and how they have contributed to our achievements and momentum in the second quarter, positioning us well for continued growth in 2026. We recently passed the one-year anniversary of the closing of the Penns Woods acquisition, which has been a very successful accretive transaction for us. And on a static basis, we have achieved the full tangible book value earnback within one year and expect to achieve the full earnback on a crossover basis by the end of 2026, significantly ahead of our expectations when we announced the transaction. This quarter, we achieved our fourth consecutive quarter of improvement in both our net interest margin and adjusted efficiency ratio, evidence of the growing momentum and continuing transformation at Northwest. Also, tomorrow, we have the official grand opening of our first DeNovo financial center in Columbus. This is the first of our four new financial centers that we plan to open in Columbus this year, with more to follow in 2027. We are excited about the growth opportunities that our expansion will bring to our headquarters market. On a personal note, with more than three decades in the banking industry, I can say with confidence that our new financial center takes the customer experience to a completely different level. It is aesthetically striking and brings to life the hospitality-led approach York and his team have embedded across our consumer bank. Now, turning to slide four, you can see some of the financial highlights of the second quarter of 2026. We delivered $54 million in net income for the second quarter, a record in the company's history, resulting in more than 59% year-over-year growth in net income. Also, other than the second quarter of 2021, when we divested our insurance business for a large gain, we delivered diluted earnings per share of $0.36 in the second quarter, which is also a record for the bank. Momentum in our C&I business continued with $148 million of average C&I loan growth in the second quarter, representing 32% year-over-year growth. We continue to grow our nationwide business verticals in a very disciplined manner, and collectively, they now represent approximately 27% of our commercial lending portfolio. We are pleased with the performance of these verticals, which are led by experienced and highly networked industry leaders. In addition, we continue to focus on investing in and growing our in-market regional and middle market commercial lending business. We are also growing our SBA lending business both locally and nationally, including several key new hires this year with significant industry experience to further build on our momentum from earning a spot among the top 50 originators in the U.S. by volume in 2025. We recorded net interest margin of 375 basis points in the second quarter of 2026, benefiting from our deposit franchise, which continues to be one of Northwest's core strengths. We achieved our fourth consecutive quarter of lower deposit costs, one of the best in class among our peers. Our record net income in the second quarter of 2026 drove strong returns with a ROAA of 1.27 percent and ROTCE of 14.9 percent, and an adjusted ROAA of 1.28 percent and adjusted ROTCE of 15.03 percent. We achieved these results while continuing to invest in talent, technology, and new financial centers to support our future growth. I am very pleased with our results, and I am proud of the team for their continued commitment to driving strong core performance across the bank. As I highlighted earlier, we continue to execute on our plans to transform the consumer bank, including our financial center network. In addition, we recently announced the hiring of our new chief information officer and three new hires into leadership roles in our consumer bank to strengthen how we engage customers across our network, digital platforms, and product lines. And in the second quarter of 2026, we delivered on our commitment to our shareholders, returning more than half of our profits through a quarterly dividend of $0.20 per share. This is the 127th consecutive quarter in which the company has paid a cash dividend. Also, I'm pleased to announce that Northwest was recently recognized as one of times America's best companies for 2026. None of this would be possible without the hard work and dedication of our 2,200 associates. I am proud to lead this team. As we look ahead for the rest of 2026, we continue to focus on organic growth initiatives, further optimizing our financial performance, expanding our financial center network, serving our core customers and communities. With that, I'll turn it over to Doug to review our second quarter results in more detail.

Thank you, Lou, and good morning, everyone. As Lou indicated, we are very pleased with our strong financial performance in the second quarter. This is the product of all the efforts of our entire team working together to deliver these results, and I want to thank them for their tireless efforts. Now, let's continue on slide five of the earnings presentation, where I'll walk you through the highlights of Northwest financial results for the second quarter. Our gap EPS for the quarter was $0.36 per share, and on an adjusted basis, our EPS was $0.37 per share, an improvement on the prior quarter of $0.02 per share on both a gap basis and an adjusted basis, driven by growth in average earning assets, accrued fee income, and a decrease in our cost of deposits. Total revenue was $181.2 million for the second quarter, which represented a 3.5% increase quarter over quarter and a 20.5% increase year over year. Also, we are very pleased that we achieved significant positive operating leverage, 330 basis points, quarter over quarter, and we maintained our focus on exercising tight expense discipline. This also translated into an improvement in our adjusted efficiency ratio to 56.2%, which was 158 basis point improvement quarter over quarter, all of which created an improvement in our pre-tax pre-provision net revenue in the second quarter, 2026, which increased to $77.3 million, an 8% increase from the first quarter of 2026, and a 31% increase year-over-year on an adjusted basis. Turning to slide six, I'll spend a moment covering our loan balances. We achieved our third consecutive quarter of period-end loan growth in the second quarter, with period end loans increasing by $174 million to $13.2 billion, while our average loans grew $10 million. Our performance this quarter was from organic loan growth in both our commercial and consumer businesses as we continue to experience runoff in our residential mortgage and legacy CRE portfolios. Our loan yield was relatively stable, decreasing by one basis point to 5.61% in the second quarter. Our C&I loan growth continued with strong performance in many of our new verticals and in our other commercial loan portfolios. Average C&I loans increased $148 million, or 5.6% quarter-over-quarter, and $678 million, or 32.2% year-over-year. Our recent CRE loan production levels have been strong, but continue to be offset by elevated levels of runoff in the CRE portfolio. Our overall interest rate sensitivity position continues to remain slightly asset sensitive with continued growth in floating rate commercial loans. However, we feel we are appropriately positioned for the current and expected interest rate environment in 2026. In addition, there is an opportunity to restructure our sub-debt by extinguishing it within the next quarter as it already received a 20% regulatory capital haircut last September and will lose an additional 20% of its regulatory capital treatment this September. This action should add approximately two basis points to net interest margin going forward, and we would expect all of our regulatory capital ratios to remain strong and above well capitalized levels. Moving to slide seven and our deposit balances, which continue to be a source of strength and stability, our average total deposits grew by 87 million quarter over quarter, partially benefiting from growth in money market and savings accounts and deepening customer relationships. Our granular diversified deposit book has an average balance of $19,800 with customer deposits consisting of over 716,000 accounts with an average tenure of more than 12 and a half years. For the third consecutive quarter, our cost of deposits declined. Down five basis points to 1.43%, a product of our proactive management of the overall portfolio. 34% of the CD portfolio matured in the second quarter of 2026 at a weighted average rate of 340 basis points. New volumes, which are coming on with rates in the low 3%, are driving an overall decline in CD costs, supporting an overall decline in deposit costs. On slide 8, we show our fourth consecutive quarter of net interest margin improvement, with net interest margin increasing by basis points to 3.75% in the second quarter of 2026, benefiting from increased investment security yields and a further improvement in funding costs. Turning to our securities portfolio on slide 9, new security purchases in the quarter were consistent with the current composition of the portfolio and continue to strengthen an already strong source of our portfolio yield continues to increase as new security purchases came on at higher yields than the runoff portfolio. 24% of this portfolio is held to maturity to protect tangible common equity. Turning to slide 10, our non-interest income increased $1.6 million quarter over quarter, driven by growth in our wealth management business, resulting in an increase in trust and financial services income. Non-interest income increased $3.3 million or 10.6% year-over-year, benefiting from an increase in trust and other financial services income and an increase in service charges and fees regarding non-interest expenses detailed on slide 11. We achieved our fourth consecutive quarter of improvement in our adjusted efficiency ratio, which was 56.2% in the second quarter of 2026. Continuing our expense management focus, overall expenses, excluding merger and restructuring expenses, remained relatively flat, benefiting from a decrease in non-personnel expenses, including a $3.2 million decrease in FDIC insurance premium. FDIC insurance premium expense in the second quarter was lower due to a prior period assessment rate change driven by the amendment of prior period call reports. On a year-over-year basis, expenses in the second quarter of 2026 were higher, but the year-ago quarter did not include the acquired Pennswoods operations. On slide 12, you'll see our overall ACL coverage was relatively flat at 1.13% in the second quarter of 2026, down two basis points from the first quarter. Our quarterly annualized net charge-offs of 15 basis points were below the low end of our full year guidance. Our NPAs remained mostly flat this quarter, and while our classified loans did increase this quarter, we have no expectation that the increase would result in higher overall charge-offs. Turning to credit quality on slide 13, our credit risk metrics remain within internal expectations given the impact of the loans we acquired. Our total delinquency declined from 1.30% to 0.90% quarter over quarter, primarily as a result of a 30-day month effect on the mortgage portfolio and payoffs in the healthcare portfolio. Our 90-day-plus delinquencies increased from 34 basis points to 49 basis points quarter over quarter, while MPAs were flat at 70 basis points of average loans in the quarter. Taking a deeper dive into the breakdown of our credit quality on slide 14, in the second quarter of 2026, we experienced an increase in classified loans as a percentage of total loans and on an absolute basis, which was attributable partly to the continued migration of acquired loans to our credit administration standards and downgrades in the healthcare book. As we've discussed on earlier calls, our strategy with respect to classified loans has continued to work them down over time. Finally, on slide 15, we'd like to provide a current full-year outlook for 2026, specifically. For loan and deposit growth, our outlook remains unchanged. For revenue, we would expect to be in the middle of our stated range. For net interest margin, we expect to be in the 373 to 375 basis points range, assuming that the Fed funds rate is unchanged. For non-interest income, we expect to be at the high end of our range. For non-interest expense, we expect to be in the middle of our range. And for net charge us, based on current economic conditions, we expect to be in the low to middle of our range. We expect the tax rate to drift up to 24% based on stronger earnings. We remain very confident about Northwest business and are excited about our prospects for the rest of the year. Now I will turn the call over to the operator who will open up the lines for a live Q&A session.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press a star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press a star 1 again. With that, our first question comes from the line of Daniel Tamayo with Raymond James. Please go ahead.

Thank you. Good morning, everybody.

Good morning.

Maybe starting on the deposit book. So, you know, we saw a little bit of a decline this quarter, and you mentioned where the new CD rates are coming on, and obviously got some loan growth coming in the back half of the year. Just curious how you're seeing deposit growth expectations in the back half of the year. I see the guidance for the low single digit, but as the loan-to-deposit ratio moves up a little bit, where's the comfort rate there, and how do you kind of think that could impact deposit pricing? It's kind of a lot there, but just looking into deposits.

Yeah, happy to answer that question, Danny. So the first thing I would point out is when you're looking at spot balances, right, very volatile metric, given a lot of the things that can happen at the end of the last day of the month. We look at more critically sort of average deposits, which were up six-tenths of a percent for the quarter, $87 million. But to dissect the decline in spot balances a little bit between 331 and 630, we'd have been down, we would have been up for customer deposits and our brokered CDs would have been slightly down. And that was an intentional shift where we took advantage of some lower funding costs on the FHLB desk than we had in our broker deposit book. So again, if you exclude that, the balances would actually have been up $19 million from customer deposits and the only decline really was in brokered CDs. So we continue to look favorably on the rest of the year. That guidance was thoughtfully contrived to make sure that we got to that 2% rate. The other thing I would say is we have more activity that we expect in the last half of the year as we continue to open our branches in the Columbus market, which is a very high growth market.

Okay, thanks for that, Doug. And then I guess maybe on the expense guide, so you said middle of the range, that implies a pretty big step up in the back half of the year. Just curious Just how we should be thinking about, you know, besides the rebound and the FDIC premiums, where the drivers of that expense increase are. And, you know, if that run rate is kind of my numbers are shaking out around $109 million, correct me if I'm wrong, but it seems like that maybe takes, you know, the exit rate a little bit higher than we were thinking before. Thanks.

Yeah, I would tell you, if you just adjust for the FDIC benefit that we got in the corner, you would get to like $107 million. So I would say anywhere in that $107 to $109 range is fine. We were thinking, you know, more in the $108s as it continued to sample over. We continued to look at opportunities to optimize expenses. But as we said, we're investing in the business. We're going to have costs coming online for branches and other things. And we're going to continue to want to look at long-term growth opportunities, which is going to provide a little bit of upward pressure on those expenses. But for the full year, we still have every reason to believe that we're going to generate positive operating leverage year over year, reduce our efficiency ratio, and continue to be able to invest for the future.

Okay. Sounds like you're making some investments for the future. That's great. Thanks, Doug. Appreciate it.

Yep. Thanks, Danny.

And the next question comes from the line of Jeff Brulis with DA Davidson. Please go ahead.

On the loan side, just looking at, looks like period growth quite a bit above the quarterly Just looking at the timing of that, does that suggest that came on fairly late in the quarter?

Yes, we had a really strong late push in the quarter. The other thing I would point out is commercial real estate in particular. I think a lot of people have commented on it, but we saw some higher levels of runoff in that book. Again, combination of construction loans that end up getting the perm financing off the book, as well as some other of the borrowers that we've worked out, like in some of the more classified asset areas, contributed to that decline. We feel really good about the pipelines going forward, and we feel really good about sort of the outlook. So, again, with a little bit lower levels of runoff, particularly on CRE, everything else was shaken up pretty good. And we did start to see that production turn around on the last half of the quarter.

Got it. And then I guess a question on the margin, if I think about the three legs of the stool, you've got pretty stable loan yields, nice deposit costs. decline and increasing securities yield. So, you've got kind of a flattish sort of guide on the margin. I guess on all three fronts, you're expecting those to moderate. I guess the loan yields are fairly flat. Maybe those are coming in. But just the thought behind where margins sort of flatten out here, given the guide. Thanks.

Yeah. As you would know, it's a very competitive environment out there, both on the loan side. There's a lot of competition looking for loan growth. There's also a lot of competition looking for deposit growth. So I think we're being a little bit realistic on what it's going to take for growth going forward in all those areas. Obviously, when you're opening up new branches and you're attracting customers, you're doing that at relatively higher rates than you would on an existing book of business. So we benefit from the fact that we're new entrant into the markets in Columbus, but yet those are still going to come on at relatively higher rates. So I think what we're saying is there's a lot of moving parts. You should expect to see loan competition remain as it relates to rate because we're not really to compromise. We're not really willing to compromise on structure. And then you should expect to see deposit competition continue to be strong. We also, in the opening comment, suggested that we still have some opportunities on the liability side as it relates to our sub debt. So again, to your point, we are pulling all the levers to manage the margin, but we are also suggesting that, you know, 373 to 375 as sort of an exit is realistic. And that is above where we started kind of in the low 370s that people were thinking 371, 372, want to provide a little bit of clarity that we liked the 375 and we think that there's some opportunity to continue to support at those levels as we move forward.

Okay. And just to follow on just the securities yield side, that's of the three things, that's the one that maybe you can continue to see some incremental progress on that, at least in the short run. For sure.

As those older vintages run off, we are able to put them on at current market rates, which are materially higher. It's just a portfolio overall, only has so many cash-flowing items any given quarter, but we are able to invest those at higher rates, and we've been able to pull that up consistently quarter over quarter, and we would continue to expect that.

Okay. I appreciate it. Thanks.

And the next question comes from the line of Brian Foran. Please go ahead.

Hey, just two following questions on the guidance slide on page 15. So, with the NIM a little higher and fees a little higher, but revenue is still at the middle of the range, is there something that is a little lower that's balancing those two out, or is it putting too fine a point on it because, you know, things round to the million, et cetera, just trying to see, you know, was there something balancing out the upgrade to NIM and fees, or is it just reading too fine a point into it to say the revenue is still in the middle of the range?

No, I think you're right on where revenue is going to be in the middle of the range. I think we're also making sure from an overall earnings standpoint that people look at the expenses and don't hold us into that $103, $104 million range that we had in the first two quarters that we would expect some upward pressure there. But again, right now, if we continue to have reasonable loan growth and a little bit more costly deposits going forward and a little bit pressure on the loan yield sides again not pressure relative to what's rolling on but just kind of keeping it consistent with where we're at you're going to end up in the middle of that revenue range and then i hate to ask about the tax rate but because it did change uh is 24 kind of what you would best guess as we uh fill out models in the future we could have drift higher or 25, just any best guess of like a tax rate into the end of this year and 27? Yeah, I mean, it's drifting. We're not all that upset it's drifting higher because it's drifting higher for the right reasons, which is we have better earnings. So yeah, we try to just clarify that as we earn more, that tax rate is going to be impacted as well. But that 24, that approximate 24 should be a good number for you guys to use.

If I could sneak in one last one, did you give an update or can you on just the growth from the specialty national industry verticals, kind of where they stand now, and maybe which ones are kind of having the most success in the current environment, both on growth and pricing?

Yeah, I think they're all doing quite well. They're right where we would want them to be. I think in the opening comments, Lou suggested they're now making up about 27% of the C&I portfolio, which is up from where it was. Again, they're well balanced. We're seeing success across all of those platforms. And as you would expect, since a number of them have been launched in the last couple of years, that growth should be expected as those sales forces come up to speed and we get our overall position in the market. better well-known. We also see benefits on the SBA side, of course, which doesn't really lead to balanced growth, but is supportive of the overall fee income generating capability that we have. So I think we're generally pretty happy with all of those vertical performances, and we see that opportunity continue in the future. I don't know, Lou, if you have anything to add.

No, I would agree with Doug. I think the important thing to notice is while the verticals are representing a larger percentage of our overall commercial book now. We remain disciplined. The growth is measured. We believe that our back office, our underwriting, our portfolio management in those areas is very sound, and we have experienced executives running those verticals. And so, you know, the pipelines going into the second half or going into the third quarter are are a little above the second quarter, and so we would expect to continue to see that same growth. Thanks so much.

And the next question comes from the line of David Bischoff with Hubday Group. Please go ahead.

Yeah, good morning. Hey, quick question. I may have missed it, but update on share repurchase activity and remind me where we are in the authorization stack.

Yes. No, you didn't miss it. So the authorization still stands at the $50 million that we had approved, and we haven't become active in that yet. Again, I direct you back to our prepared comments where we talked about next on the list is to work through the sub-debt that we have outstanding that continues to lose its capital treatment as we kind of get further out. And we believe that that will return approximately two basis points in margin performance. So that's where we're focused on now.

Got it. And then a little bit of an increase in the substandard sounds like maybe it's in the nursing home category, maybe just some color in terms of what drove that increase.

Yeah, if you go to sort of the credit quality side, you will see some inflows or some downgrades that were driving that about $146 million as disclosed on slide 14. And again, we're still working through our new customers from our Pencewoods transaction. And as they get more used to our credit standards and our expectations for documentation and other things, we tend to have a little bit more pressure on their credit grades. But we, again, continue to be happy with where our MPA performance has been, overall charge-offs. Those aren't drifting upward. So we continue to manage through that credit and classified book for the rest of the year.

Got it. Thank you.

And the next question comes from the line of Matthew Rees. We had Stephen C. Please go ahead.

Hey, good morning. I think I have what I need on the C&I growth outlook front. I guess what I was curious about, can you help me out with commercial real estate expectations? Understanding payoffs can be volatile and sounds like it's been a bit higher than expected, but just considering originations there, it sounds like you've turned them back on to a greater extent. What are your expectations on commercial real estate that category for the the rest of the year?

This is Lou. It will be largely flat. We'll continue to see a little decline. We're rotating out of maybe what more traditionally we have done on the CRE, but we certainly have a focus. We've hired a number of new folks, and we'd like to mitigate that runoff, and we think we're making strides in that area. And so by the end of the year, We think we'll be in position to where we won't see that continuous churn quarter over quarter. We're looking at a number of different venues there, products, and a different go-to-market strategy. So that business is sort of being retooled. And so we're very comfortable where it's at now. One of the reasons why we like our positioning across the commercial and consumer bank is we have a lot of different levers. and so we're able to continue our growth trajectory for the year while we still see some runoff in that in the second half. Got it.

Okay and then I'm sorry if I missed it but what was the dollar amount tied to the you know the national lines of business within C&I? What was that a year ago and I'm curious if you've had any success kind of you know doing both sides of the balance sheet of national lines in the business? How are deposits going there?

Yeah, so we did point out that we had $148 million increase in C&I loans, and you can assume that a very good portion of that comes from those national businesses. And yes, those tend to be pretty full relationships. So we do have a commercial finance business. That one, you're going to have a little bit less cross-sell on that side, but generally speaking for things like franchise or sports or our sponsor group, you are seeing full relationships with deposits coming in and continued opportunities on the deposit side there. So again, pretty happy with the way those businesses are shaking out and very happy with the relationship, the whole relationships that we get on those specialty lines.

Got it. Okay. A couple more. I hope you don't mind. Do you have the period end deposit costs? I know you kind of hinted at maybe higher costs on the come, but what were they at period end? And if you had to, you know, look at your crystal ball, should we be thinking about a couple of basis points a quarter in higher deposit costs? Is that the right way to kind of model it out?

You know, it's really hard to project it, as you know, right? There's a lot of moving parts with the deposit book. We didn't, I don't have off the top of my head what the period end costs where I'll tell you, though, you know, as you continue to think about, just think about the CD book. So with that being relatively short-term maturities, call it six months, as those roll off, they were in a bit of a higher rate environment than the ones that are rolling on. But we still have, sorry, they were at a higher rate, the ones that come on. But we're starting to lose that because now we put a bunch of those on in the first quarter. Those will be maturing. The rates been pretty consistent quarter for quarter. So I think you're more likely to lose sort of the opportunity for pricing for those kinds of wider pricing gaps, and you're going to replace with a little bit more competitive in a slightly more competitive environment. I think you saw pretty universally a lot of banks talk about more competitive deposit pricing, but we continue to think that it's going to be manageable. And like I said, we're doing other things to continue to support the margin, like thinking about the sub-debt and other opportunities that we have. In the event, we would have a little bit more deposit cost. I don't think it's going to be dramatic. I understand.

Last one for me. Talked within fee income. Your trust in other financial services income picked up pretty strong this quarter. It's up 9.6%.

It just seemed a little bit strong relative to market performance and i was curious what happened there if there's anything one time sustainability you know maybe talk about that line item a little bit yeah we're really happy with the with how that business has been performing for us i think on a long-term basis we've got some very strong uh very strong reps who work on our branches supported by lpl we also recently announced that we had hired a new wealth management leader so he continues to retool that business. And then the other thing we benefit from, of course, is higher overall market valuations in the stock market. And then as we earn annual fees off of those, that book, when it's bigger, we make more money there. So generally speaking, sort of pretty good performance across the board on all of those areas. And, you know, we continue to see some opportunity there. I think the next leg of the journey is going to be, you know, just how do we continue to fill out that business across all of our branches.

I'll leave it there. Thank you so much. Thank you.

And the next question comes from the line of Emily Lee with KBW. Please go ahead.

Hi, everyone. This is Emily stepping in for Tim Switzer. Thanks for taking my questions.

You're welcome. And good morning.

Yeah, good morning.

So I was wondering, do you have any levers to maybe pull on the expense front if say loan growth doesn't come in as strong as expected and maybe if you can talk about if you're planning on doing any other investments um maybe on the tech side uh just yeah puts and takes on the expense yeah like everybody we we have levers on the expense side that we can pull you know there is a pretty decent chunk of variable compensation expense within there that if the loan growth didn't come through there'd be some opportunity there and then in general there's always opportunities to sort of rebalance that so again right now we're not we're not suggesting that we think that's going to be an issue with the loan growth guide that we gave and then um you know again we always look for opportunities having the opportunity to get a bit of a refund on some of our fdic insurance premiums as an example so we'll continue to look for those items as well great thank you and then um you touched on SBA being supportive of fee income going forward, and you also mentioned trust.

Are there any other fee income lines you want to point out that could maybe provide upside or downside to your expectations?

No, I mean, those are the main ones. Obviously, as we get more consumers, we tend to see opportunities on the service charge side of the equation. So, I mean, that's viable as well, but that's more a component of how many customers we have and sort of what level of activity they have out as they spend or think about kind of their banking relationship. There's always some, you know, small gains that we have on our investments that are outside of what's managed in Treasury. But again, we don't really know how those things are going to shake out. We don't really forecast them. So, you know, there's always a little bit of upside here and there, but I would say the vast majority is sort of on those businesses that we're trying to scale and grow like trust.

Okay, great. Well, thank you for taking my question.

You're welcome. Thank you.

And the next question comes from the line at Manuel Navas with Piper Sandler. Please go ahead.

In discussing your Columbus plans of four new branches this year, you said that there were further plans after that.

Can you kind of just add some color on your plans for the market, if there's going to be more uh built out next year um and then any other regional focus areas as you look out towards 2027 yeah so we had always talked about having five columbus branches that were going to be opened this year we did update that to say four because one of our branches had some permitting issues that kind of drug construction out slightly longer so that one we would expect to open in february so that would get us to the five that we always talked about we haven't really gotten into future plans. And quite honestly, five branches for a firm that hasn't been opening a lot of branches is a lot. So we want to make sure that our strategies are successful, learn from the build of the five, and then be able to apply that to any future growth that we'd have. But I would just comment that the Columbus market is an exceptionally strong market, and there is likely plenty of room to continue to think about opportunities within that market.

But as of now, we haven't we haven't gone into any more details on what the future points are and i apologize if this was covered um yeah you talk it seems like the deployment capital deployment plans are first to to handle the sub debt uh but you're now a year past pens woods uh what what are you what would you consider um deployment priorities after that and and where does m a fit in yeah so So again, we really haven't changed our capital priorities, right?

So key is supporting organic growth. So we want to focus on that. And then we want to continue to maintain support for the dividend that we've already had. And everybody would expect to continue. And then between the next two opportunities, M&A and other opportunities for share buybacks, I think we're realistic to say that that environment is pretty volatile and it's hard to project. So we've got a couple of leverage there and we'll pull them as related. But I'll let Lou comment on the M&A side of the equation.

Yeah. Hey, Manuel. I would just say that, you know, from the M&A, we haven't really changed our perspective. We're always open for discussions and opportunities that fit our strategic plan, both from, you know, a geographical perspective and a strategy perspective. But we certainly are only going to enter into arrangements that are highly accretive, that have shareholder value, and that we feel we can execute on. I would just say that we have a very experienced team, senior leadership team, as it relates to M&A. And we have updated our playbook. You know, there were lessons learned in Pennswoods as well as that went. And as we executed at a high level, we think there are always lessons learned. So, you know, we continue to tool the organization to capitalize on opportunities as they come up. And certainly, as you can tell, it helps fuel future growth and gives us the opportunity to increase EPS and revenue. So, you know, we're but right now we're focused as an organization on continuing to optimize our own financial performance, positive operating leverage, you know, expense saves throughout the organization and driving core earnings and core growth, which is what last year after the acquisition, we told the market that we would do and we're fulfilling that promise. So we'll see how that goes.

Yeah. And just to double click on the M&A point, I would just say we're really excited. We mentioned it in the prepared comments that we have now reached the static payback in less than a year. So we're 11 months outside of the close as of 630. And we are now at 988 tangible book value per share. We were 985 before we announced. And Lou also foreshadowed the fact that we would expect to get the crossover valuation probably by the end of the fourth quarter. So, again, both of those would have been in, you know, a year or slightly over a year versus the 2.9-year payback period we stated up front. So, we're very happy with the way that transaction went and, you know, feel good about our capabilities there.

Yeah, I was going to bring that up, too. The payback is faster than expected. What are some of the lessons you've learned, though? So you brought that up and I just kind of wanted to, in light of that kind of successful take a book value return, what are some things you've learned from this transaction?

Yeah, maybe I'll start and I'll let Lou back clean up on that one. I mean, I think the first thing is being very disciplined in the target and the pricing of the transaction is pretty important, right? So I think finding the right cultural fit and then being able to do the deal with reasonable levels of costs mean a lot. And then I think it's all about how you move into these markets and appropriately remove costs from the old organization and then make sure that you're keeping connected with the customers of that organization and transitioning. So, you know, there's always opportunities to do a better job there. And I think we had our fair share of learnings from that. But generally speaking, I think we liked the way the rest of the deal progressed.

Yeah, I would just add, man. You know, my experience, I've been with a number of firms and we've done a lot of M&A. And, you know, I think the one thing to keep top of mind when you're going into the deal is not to destroy a value that you just paid for. Right. So we we were very intentional. We spent a lot of time in the market with the employees. We spent a lot of time with the customers. And so, you know, I think that you've got to make sure that you can properly integrate when you are able to obtain the cost saves. And so we were very laser focused on maintaining value. And now we are well into the stage of how do we build on the marketplace that we just acquired? So how do we layer our products and services and personnel in so that we can provide future growth both in the retail and commercial banks? So there was a lot of good work done. I think that, you know, one of the lessons learned was that in the new environment is speed and data and information and communication are going to be key. And so we are, you know, we're very happy with the way Pennswoods ended up.

I really appreciate that.

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

Good morning, guys. So most of my questions have been asked and answered. Just one question on reserve level. So given, you know, the continued change in your loan portfolio, the more commercial-like in nature, how likely is it that we could see some buildup in reserve levels on a go-forward basis, especially given the charge-off history that's been, you know, fairly well-behaved?

Yeah, I mean, again, there's there's a lot that goes into those reserve calculations, not the least of which is sort of the outward look on the economy and sort of future levels of reserves are going to have a lot to do with sort of where those numbers come in. And that is a very difficult, very difficult thing to forecast. So right now, I would say things look pretty good. Things have been pretty stable. We've gotten through a number of shocks, right, whether it was tariffs early on or whether it was the conflicts overseas. So we continue to just sort of be patient and wait for all those things. But generally speaking, I think we feel pretty comfortable with our overall levels of reserves and pretty comfortable with the guidance that we provided on sort of net charge loss for the year.

But it is a very tricky thing to get too far out on. okay appreciate it all right guys thank you very much good quarter thank you thank you and we do have a follow-up question coming from brian foran with truist please go ahead hey just one last one on credit um just the charge-offs required to get to the low to middle end of the range in the back half i think are kind of in the 10 million a quarter range you know when you think about the step up versus the five million a quarter uh recently i'm just wondering is it like you can't run rate five million a quarter forever one loan could double that or is it you know something you're seeing like with the classifies picking up or you know how much of that is reversion to the mean general conservatism and how much of that is line of sight on um maybe some resolutions you have in the pipeline yeah so i would say it's Definitely a bit of both, but it's reversion to the mean mostly, right?

We can't continue to run at those levels of charge-offs forever. We're still working through some credits. We obviously know what our MPAs are right now, and we can see the resolution of some of those. And we just want to make sure that we're being very square with everybody around where the charge-offs could be in the back end of the year. But we also wanted to provide some guidance that we don't expect to see them at the top end of that range, but some are operating in the middle part to lower part of that we think is reasonable at this point.

Thank you so much.

And I'm showing no further questions at this time. I would like to hand it back to the CEO, Lou Torsher, 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. I'm excited about our momentum in 2026 as we are well positioned to continue to optimize our financial performance and to capitalize on opportunities to drive profitable core growth. I look forward to speaking to you on our third quarter earnings call in the fall. Thank you.

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