Earnings Call Transcript - NWBI Q3 2025

Operator, Operator

Hello, and thank you for joining us. My name is Bella, and I will be your conference operator today. I would like to welcome everyone to Northwest Bancshares, Inc., Q3 2025 Earnings Call. I will now turn the conference over to Michael Perry, Managing Director, Corporate Development and Strategy and Investor Relations. You may begin.

Michael Perry, Managing Director, Corporate Development and Strategy and Investor Relations

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.

Louis Torchio, President and CEO

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 two-thirds 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 were joined by the Mayor of New Albany and the Chair of its Chamber of Commerce. This is the first of three 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 is 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 nine 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?

Douglas Schosser, Chief Financial Officer

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 two months of 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, benefitting 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 in 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 the 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 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 points 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, Operator

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

Daniel Tamayo, Analyst

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?

Douglas Schosser, Chief Financial Officer

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.

Louis Torchio, President and CEO

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 broke ground yesterday in the high-growth suburb of New Albany, Ohio. As you know, we opened suburban Indianapolis last quarter, and we look to plan to grow in-market using our national verticals that we created to be complementary. 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.

Daniel Tamayo, Analyst

That's helpful. I would like to explore this further. I understand that you are not providing guidance for '26 yet, but it seems that legacy growth was fairly flat in the third quarter, and you're anticipating it to be flat again in the fourth quarter. I assume you are aiming for growth in '26. Is that correct? Should we expect something in the low to mid-single-digit range, or do you believe you can achieve better than that?

Douglas Schosser, Chief Financial Officer

Yes, I definitely think when we provide that guidance, you would expect to see a loan growth number that looks quite similar to GDP growth. I believe that's a reasonable expectation at this point. It's also important to note that we are addressing the criticized classified assets, which will impact our ability to demonstrate growth. As those assets are refinanced, it should provide a boost to our portfolio growth. I want to highlight that too. As discussed in the last quarter and continuing this quarter, we anticipate significant progress in that portfolio. In our opening comments, we mentioned a $75 million change this quarter alone.

Daniel Tamayo, Analyst

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 stable, 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?

Douglas Schosser, Chief Financial Officer

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. We want to continue to invest for growth. 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 hold them at these levels? Yes, but we'll obviously try to do better than that.

Operator, Operator

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

Brian Foran, Analyst

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 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?

Douglas Schosser, Chief Financial Officer

Yes, we're well above the regulatory minimums for capital, which we appreciate as it supports a safe and sound banking franchise. Additionally, we want to maintain that capital level to take advantage of market opportunities. While we haven't set specific capital level targets, we are quite comfortable with our current capital levels. When we find opportunities to deploy that capital, it could improve our returns on tangible common equity, as having slightly less capital would be beneficial in that regard. However, there won't be a significant change in our capital position; it's more about normal operations. We value having a strong capital base to operate effectively.

Brian Foran, Analyst

Regarding the margin commentary, I understood your point about volatility, but I would like to know if it's challenging to manage or forecast purchase accounting accretion, aside from the quarter-to-quarter movements and paydowns in the PAA book. Do you think the second half of this year will present a stable run rate, or should we anticipate some adjustments due to PAA and rate cuts?

Douglas Schosser, Chief Financial Officer

Yes. We mentioned that there was approximately a 6 basis points impact from purchase accounting, which would adjust our core margin to around 359 basis points. So when I referred to a mid-360s basis points range, I was considering that 359 basis points. We feel quite confident in maintaining that level. There may be some fluctuations depending on quarterly performance due to variations in paydowns and purchase accounting acceleration, which is the volatility I was referring to. Overall, we believe we are well positioned regarding rates and are comfortable sustaining that core margin around 360 basis points, with slight adjustments from purchase accounting. Does that clarify?

Brian Foran, Analyst

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?

Douglas Schosser, Chief Financial Officer

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, while 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.

Operator, Operator

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

Timothy Switzer, Analyst

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 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 activity and behavior just because there's been some noise around the health of the consumer, particularly at 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?

Douglas Schosser, Chief Financial Officer

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, being able to reestablish their payment channels through new online portals, and other things, 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. 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; it is a super prime book, and we have not seen a meaningful change in those delinquency rates between the second and third quarter. The only other thing I might comment on is I don't think we're seeing any significant impact from any of the government shutdown 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.

Timothy Switzer, Analyst

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 five years or so? 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?

Louis Torchio, President and CEO

Yes, Tim, this is Lou. I'll address that. Currently, we are focused on maximizing the integration and efficiency from the Penns Woods merger, which is significant since it's the largest in our franchise history. The execution is going very well. As you mentioned, we have a strong executive management team in place that is ready to pursue market opportunities in M&A. Alongside our M&A strategy, our primary goal remains to improve our financial returns and metrics within our core organic bank. The opportunity for new branches is also important to us, especially in high-growth markets where we currently have limited presence, like Columbus, Ohio, and Indianapolis, Indiana. We'll need to consider complementary options, including acquiring branches or pursuing M&A opportunistically to scale in those areas. We are committed to a dual strategy: running the bank organically while enhancing efficiencies, which we believe has potential for improvement. Additionally, we will explore M&A opportunities within our market that are strategic or geographic fits, which can provide added value to our franchise and shareholders.

Operator, Operator

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

David Bishop, Analyst

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?

Douglas Schosser, Chief Financial Officer

Yes. I don't know that I have that number right at my fingertips. However, 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 the rate curve wherever it is and still be fairly priced for our customers.

David Bishop, Analyst

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 cash and securities.

Douglas Schosser, Chief Financial Officer

Yes, we can support as much loan growth as needed. Our overall positions in brokered CDs are quite low, and we've been able to reduce a significant amount of that. Therefore, we have ample funding capacity. Opening new branches should lead to deposit growth. We are dedicated to assisting our commercial customers with deposits and feel positive about our ability to grow deposits organically. It remains highly competitive, but we have alternative funding sources, including our securities portfolio, if necessary. We don't have any significant concerns or constraints in this area at the moment.

David Bishop, Analyst

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

Douglas Schosser, Chief Financial Officer

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.

Operator, Operator

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

Matthew Breese, Analyst

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.

Douglas Schosser, Chief Financial Officer

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 a good set of deposit mix from the acquisition, which helped. So again, I don't think we're seeing any upward pressure there. 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?

Matthew Breese, Analyst

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

Douglas Schosser, Chief Financial Officer

We believe our overall deposit beta has remained in the mid-20s throughout this rate cycle, and we don't expect that to change. There is still potential for us to take advantage of our opportunities. Since we have a generally fixed or periodic repricing on the asset side, we can benefit as rates decrease while maintaining our margins in line with the funding available on the deposit side, which includes products like CDs and money market rates. Consequently, we feel neutral about our position regarding the upcoming series of rate cuts.

Matthew Breese, Analyst

You mentioned that pipelines were performing well. Could you provide more detail on what that looks like? Additionally, within the pipeline, what strengths or areas do you see that may grow more than others?

Douglas Schosser, Chief Financial Officer

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.

Matthew Breese, Analyst

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 many of those are participations versus kind of stand-alone relationships?

Douglas Schosser, Chief Financial Officer

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.

Louis Torchio, President and CEO

I would like to emphasize that we are very deliberate and thoughtful in how we are expanding those businesses. Generally, I view them as complementary. We are scaling them effectively, and their performance, particularly in terms of credit, is very strong. As Doug pointed out, there has been limited participation activity. In addition to the equipment finance group, we aim to increase deposits and fees in these businesses. We have brought on board experts with established reputations in various sectors, including sponsorship, restaurant finance, the SBA lending group, equipment finance, and sports. We are closely monitoring these areas, scaling them according to our credit risk tolerances, and they have been performing exceptionally well thus far.

Matthew Breese, Analyst

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.

Douglas Schosser, Chief Financial Officer

Yes. I mean I would say overall rates coming on the book are in the low 7s. Certainly, it's competitive out there. As everyone is expecting rate reductions, obviously, we're pricing a lot of that on the forward curve, so you would expect to see those yields 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.

Operator, Operator

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

Daniel Cardenas, Analyst

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?

Louis Torchio, President and CEO

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, and CRE. 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.

Daniel Cardenas, Analyst

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.

Douglas Schosser, Chief Financial Officer

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. I would say it's sort of steady as she goes, and we're comfortable with what we've seen come through thus far.

Louis Torchio, President and CEO

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 and Penns Woods didn't have some other products and services, trust and wealth. We're pleased with the upside that the future we think from the Penns Woods acquisition will bring from a value standpoint.

Operator, Operator

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

Louis Torchio, President and CEO

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.

Operator, Operator

Ladies and gentlemen, thank you all for joining, and you may now disconnect. Everyone, have a great day.