First Commonwealth Financial - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 delivered stronger profitability: diluted EPS rose to $0.39 (+$0.08 YoY, +$0.07 QoQ) on NIM expansion to 3.92% and disciplined expenses; core EPS was $0.39.
• EPS missed Wall Street consensus by $0.02 ($0.39 vs $0.41); total revenue was slightly below Street by ~$0.3M on our comparable definition (company total revenue $135.96M vs consensus $136.3M); results were driven by lower funding costs and loan growth, offset by higher provision tied to an isolated dealer floorplan issue.
• Management signaled near‑term NIM pressure (~5 bps) from Fed cuts in Q4, then stabilization around ~3.9% in 2026; expenses guided ~+3% in 2026; loan and deposit growth targeted mid‑single digits.
• Capital and liquidity remain solid (CET1 12.0%; total risk-based capital 14.4%); buybacks continue with $20.7M remaining authorization at quarter‑end; quarterly dividend maintained at $0.135.
• Potential stock reaction catalysts: resolution of the floorplan credit in Q4, confirmation of deposit mix improvement, equipment finance momentum, and clarity on NIM trajectory and rate‑cut path.

What Went Well and What Went Wrong

What Went Well

• Net interest margin expanded 9 bps QoQ to 3.92% (36 bps YoY), driven primarily by an 8 bps improvement in cost of funds; NII (FTE) increased $4.9M QoQ to $111.5M.
• Efficiency improved: core efficiency ratio fell to 52.3% (−176 bps QoQ; −436 bps YoY), reflecting disciplined expense management and spread income improvement.
• Asset quality metrics improved: nonperforming loans fell $10.8M QoQ to $88.7M (0.91% of loans), with criticized loans down $6.7M; ACL/loans remained robust at 1.34%.
  • CEO: “We delivered strong net interest income growth, maintained disciplined expense management, and improved asset quality metrics.”

What Went Wrong

• Provision and charge-offs rose: provision increased to $11.3M (+$2.4M QoQ) and net charge‑offs to $12.2M (0.51% of avg loans), largely due to an isolated dealer floorplan charge‑off and sale of five acquired loans.
• Fee income was flat YoY and slightly lower QoQ excluding securities gains, reflecting softer gain on sale of other loans and OREO‑related gains in the prior quarter; card‑related interchange remains structurally lower post‑Durbin.
• Linked‑quarter loan growth headwinds from CRE payoffs persisted; management highlighted competition and more aggressive agency/permanent markets compressing yields ~25 bps in metro markets.

Transcript

Operator (participant)

Thank you for standing by. My name is Danielle, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Commonwealth Financial Corporation conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star one, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Ryan Thomas. Please go ahead.

Ryan Thomas (VP of Finace and Investor Relations)

Thank you, Danielle, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's third quarter financial results. Participating on today's call will be Mike Price, President and CEO, Jim Reske, Chief Financial Officer, Jane Grebenc, Bank President and Chief Revenue Officer, Brian Sohocki, Chief Credit Officer, and Mike McCuen, Chief Lending Officer. As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page. We have also included a slide presentation on our Investor Relations website with supplemental information that will be referenced during today's call. Before we begin, I need to caution listeners that this call will contain forward-looking statements.

Please refer to our forward-looking statements disclaimer on page three of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statement. Today's call will also include non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our report results are prepared in accordance with GAAP. Reconciliation of these measures can be found in the appendix of today's slide presentation. With that, I will turn the call over to Mike.

Mike Price (President and CEO)

Hey, thank you, Ryan. Our performance in the third quarter reflects broad-based momentum across our regions and lines of business. Key highlights include a return on assets improved to 1.34% and our core pre-tax, pre-provision ROA grew 10 basis points to 2.05%. Net interest margin expanded 9 basis points to 3.92%, marking another quarter of improvement. Average deposits increased 4%, reflecting balanced growth across all of our geographies. The cost of deposits declined 7 basis points to 1.84%, underscoring effective pricing discipline balanced with growth. Loans were up $137 million or 5.7%, despite some payoff headwinds in commercial real estate. Loan growth saw meaningful contributions from equipment finance, commercial banking, indirect, and home equity lending. Mortgage lending provided a headwind to balance sheet growth, although some of that runoff was by design, and the outlook for the business is improving.

Geographically, we had strong loan contributions from all markets in Ohio and Pennsylvania. Fee income remained resilient post-Durbin, representing 18% of total revenue. A healthy quarter-over-quarter improvement in our wealth business was offset by slower gain on sale income. The third quarter efficiency ratio improved to 52.3% from 54.1% in the second quarter, reflecting good expense control. Tangible book value grew 11.6% annualized on a linked quarter basis and 9.1% year-over-year. On the credit side, core provision expense increased by $2.4 million quarter-over-quarter, reaching $11.3 million. As disclosed last quarter, we had a $31.9 million dealer floor plan customer who was out of trust. In the second quarter, we set aside $4.2 million in reserves for this relationship. In the third quarter, a receiver was appointed to liquidate the collateral. The out-of-trust amount and related liquidation costs rose as the process evolved.

During the third quarter, $5.5 million was charged off. An additional $3.1 million was added to reserves, resulting in a net provision impact for this relationship of $4.4 million in the third quarter. This recent dealer floor plan fraud is isolated and we expect it to be largely resolved by year-end. As of September 30, our floor plan exposures totaled $122 million across 21 traditional auto and RV relationships, with individual exposures ranging from $2 million to $18 million. Net charge-offs for the quarter were $12.2 million, primarily driven by the aforementioned $5.5 million dealer floor plan charge-off and $2.8 million associated with the sale of five recently acquired CenterBank loans. This was an opportunistic sale utilizing the allocated loan mark from the acquisition with only $100,000 in provision expense. These two items accounted for 34 basis points of the quarter's 51 basis points of net charge-offs.

With the dealer floor plan relationship now at $16 million, non-performing loans declined to 0.91% compared to 1.04% in the prior quarter. Our loan portfolio maintains negligible exposure to private credit funds, equipment finance firms, NDFIs, or subprime lenders. Our recent CenterBank acquisition in Cincinnati is exceeding our customer retention expectations. We're grateful for the opportunity that acquisition has given us to accelerate the build-out of that region. On the digital front, we see good growth in services and high digital satisfaction in survey results. We continue to add customer-facing features to our platform and to improve productivity through the use of RPA and AI. We are excited about the outlook for First Commonwealth and the confluence of profitable growth, a regional focus leading to better low-cost deposit gathering and higher fee income, coupled with lower credit costs in the future.

With that, I'll turn it over to Jim Reske, our CFO.

Jim Reske (EVP, CFO, and Treasurer)

Thanks, Mike. This quarter's core results show you what a little bit of NIM expansion and loan growth can do. Pre-tax, pre-provision net revenue, or PPNR, was up by $4.3 million over last quarter, and nearly every financial metric improved. An increase in spread income overcame a modest decline in fee income and a negligible increase in expenses, leading to improvements in core EPS, NIM, core ROA, core ROTCE, and efficiency. Even though provision and charge-offs are up, as Mike mentioned earlier, the key asset quality measures of non-performing loans and classified loans improved from last quarter as well. Let's look at the details. Spread income improved by $4.9 million over last quarter on balance, loan, and deposit growth. The net interest margin, or NIM, expanded by 9 basis points from 3.83% last quarter to 3.92% this quarter.

The expansion was primarily driven by a 7 basis point decrease in the cost of deposits to 1.84%. Loan yields were largely flat this quarter, as a 3 basis point decrease in purchase accounting marks was mostly made up for by a $25 million macro swap that matured on August 25th, as well as the continued upward repricing of fixed-rate loans. Fourth quarter NIM will feel the full effect of the Fed's September cut and potentially today, as well as any further cuts during the quarter offset by the continued upward repricing of fixed-rate loans, as well as the expiration of $75 million of macro swaps in the fourth quarter. Plus, there's usually a seasonal decline in deposits this time of year, which we would need to replace with more expensive borrowings if the past predicts the future.

These factors could put some short-term downward pressure on the NIM in the fourth quarter. We expect it to recover in 2026 to roughly the level of the quarter just ended, or about 3.9%, give or take 5 basis points as usual. In 2026, the expiration of $175 million in macro swaps and the expected continuation of upward fixed-rate loan repricing helps to blunt the effect of falling short-term rates on loan yield. That projection assumes that we'll have two more rate cuts this quarter and four next year, resulting in a steepening yield curve. It also assumes that we continue our mid-single-digit loan and deposit growth, along with projected improvements in the deposit mix that we expect will bring the cost of deposits down, in keeping with the projected decline in loan yields. Core fee income, excluding securities gains, declined slightly from last quarter by $261,000.

As Mike mentioned, we had lower gain on sale income, which was due to some REO gains in the second quarter, and a $400,000 decrease in SBA gain on sale income. These decreases were somewhat offset by improved performance in our wealth management division, with trusts up $0.5 million and brokerage up $0.4 million from last quarter. We expect fee income to gradually increase in 2026. Core non-interest expense, or NIE, excluding merger expense, was up slightly from last quarter by $350,000, largely due to salary expense driven by increased incentive accruals based on recent performance of loan growth. Looking forward, we currently expect that expenses will grow by approximately 3% next year. We repurchased approximately 625,000 shares in the third quarter at an average price of $16.81.

We had $20.7 million of share repurchase authorization remaining at quarter-end, most of which we intend to execute on in the remainder of 2025, assuming our share price remains close to current levels. With that, we'll take any questions you may have.

Operator (participant)

We will now begin our question and answer portion. If you would like to ask a question, press star then the number one on your telephone keypad. Thank you. Our first question is from Daniel Tamayo of Raymond James. Please go ahead.

Daniel Tamayo (VP)

Thank you. Good afternoon, everyone. Maybe we just start on the credit side. It seems like everything was kind of ring-fenced for the most part around the credits you referenced, the floor plan and the credits from Center. Let me just make sure I have this right. The floor plan relationship at quarter-end is $16 million? You gave some info on the floor plan in total, $122 million, I think, Mike. The floor plan relationship with the fraud is $16 million now? Do you have the, that's right? Sorry.

Mike Price (President and CEO)

That's correct. It went from $31.9 million to $16 million this past quarter, and $122 million overall floor plan exposure.

Daniel Tamayo (VP)

Okay. The remaining stress in that particular relationship, you expect to be resolved in the fourth quarter? Did I not hear that?

Mike Price (President and CEO)

Yeah, largely we're just unwinding it.

Daniel Tamayo (VP)

Okay. What are reserves on that loan now, did you say?

Mike Price (President and CEO)

They're 4.4.

Daniel Tamayo (VP)

Okay. The relationship from the Center acquisition that is driving these, what are the numbers on that? I don't know if I have those.

Mike Price (President and CEO)

Yeah, there were five recently acquired CenterBank loans. We had an opportunity to sell those loans with a minimal hit. I don't know if you want to expand upon that.

Brian Sohocki (Chief Credit Officer)

Yeah, sure, Mike. This is Brian. There were five loans. They were all marked at our original time of acquisition. As Mike mentioned, the charge-off of $2.8 million resulted in only a provision of just over $100,000 for the quarter. They were PCD loans, and the mark did not reduce the carrying value. You see the charge-off, but you don't see the impact on provision.

Daniel Tamayo (VP)

Okay. Thank you. Those have been sold now, and they're gone?

Brian Sohocki (Chief Credit Officer)

Correct.

Daniel Tamayo (VP)

All right. Great. As it relates to the rest of the portfolio, back in the kind of historical range for charge-offs, or do you have any thoughts on where net charge-offs or provision, whatever is easier to discuss, moves here?

Brian Sohocki (Chief Credit Officer)

Yeah, no change from prior comments. From a charge-off perspective, the expectation is to operate in the mid to high 20 basis points range. Last quarter, we said 25 basis points-30 basis points. Similarly, from a provision basis, that'll grow with our loan growth, respectively.

Daniel Tamayo (VP)

All right. Terrific. Finally, on the credit side, I'll step back here. The NPL is down at 92 basis points of loans. Does that feel like a relatively comfortable level for you guys? Maybe that's the wrong way to phrase it. Do you expect kind of stability from there? Do you expect that number continues to come down?

Mike Price (President and CEO)

We expect it to come down. We have a nice slide in our deck, our supplementary deck, that really shows historically where credit quality has been. If you look on page 10, bottom left quadrant there, you know we've just been really quite elevated from third quarter of last year, fourth quarter, and first quarter of 2025, where we were between $61 million and $76 million of non-performing assets.

Brian Sohocki (Chief Credit Officer)

Yeah, I just added.

Daniel Tamayo (VP)

I guess maybe those are.

Brian Sohocki (Chief Credit Officer)

I just add to Mike's comment that you know we'll have the tailwind of the majority of the dealer floor plan wind down in the fourth quarter, and then kind of normalization of cleanup of the portfolio from there.

Daniel Tamayo (VP)

Okay. Great. I appreciate all the color, guys. Thanks very much.

Mike Price (President and CEO)

Thank you.

Operator (participant)

Our next question comes from Karl Shepard from RBC Capital Markets. Please go ahead.

Karl Shepard (Assistant VP)

Hey, good afternoon.

Mike Price (President and CEO)

Good afternoon.

Karl Shepard (Assistant VP)

Just a quick one on the floor plan credit. I think you implied this, but as you see it today, no incremental provision from this in 4Q?

Mike Price (President and CEO)

That's correct.

Karl Shepard (Assistant VP)

Okay. Jim, I guess on the margin, I was a little surprised to not see loan yields tick up a little bit higher. I was hoping you could help us with what the fixed asset repricing was, what the accretion headwind was, and how you see loan yields trending.

Jim Reske (EVP, CFO, and Treasurer)

Yeah, the fixed asset repricing was still 87 basis points. That is a little in the third quarter. That was a little bit down from the second quarter, but it's partly reflective of the rate cut. Still positive. That led to a positive replacement yields for the portfolio of about 25 basis points overall. The fixed-rate production right now is running about a third of the total production. 87 basis points of positive on the fixed rate means the whole portfolio is repricing upward about 25 basis points. The fixed rate repricing, upward repricing, hopefully will persist even after there's a few more rate cuts.

Karl Shepard (Assistant VP)

Okay. Since you gave it, I guess I'll ask a little bit about the 2026 NIM expectations.

Mike Price (President and CEO)

Yeah.

Karl Shepard (Assistant VP)

In the past, we've talked about your models kind of shooting it up towards 4% or even higher for the margin. Is that still the case? Is this a reflection of maybe a little bit of conservatism or some expectation of competition? Just help us understand, you're pretty thoughtful about this stuff, but what do you see that gives you that 3.90% number? Thanks.

Jim Reske (EVP, CFO, and Treasurer)

Yeah, I appreciate the question. Happy to tell you everything or our thinking behind it, and then you can make your own judgments as usual. I don't know if it's a sense of conservatism, but we do have more rate cuts in this projection than we had in the past. There are two this year and then four by the end of next year. I would tell you that the pattern is not even. In the projection we have, which we get from a third party that is probably the same third party most banks use, the rate cuts are quarter by quarter next year, 28, 18, 9, and 40. They are kind of backloaded next quarter. All that does in the model in that kind of rate scenario is take the yield on loans overall down by 15 basis points.

Because rates are falling, we can take the cost of deposits down by about the same amount, 15 basis points. That ends up being a picture of NIM stability. The numbers that are pushing 4% probably just had a slightly higher rate forecast than we have this quarter. The other thing I just would note, it's not a parallel yield curve shift. It's a steepening curve, which is generally, you know, that's good for banks. That helps a little bit. It helps us on the short end. We feel the pain in the short end with our loans that are linked to short-term rates. We're able to bring the deposit cost down. If the mid to long-end part of the curve stays up or goes up a bit, that helps with the fixed asset repricing.

All that's going in the mix, and it's ended up looking, you know, pretty stable from here.

Karl Shepard (Assistant VP)

Okay, thank you.

Jim Reske (EVP, CFO, and Treasurer)

Thank you.

Operator (participant)

Our next question comes from Charlie Driscoll from KBW. Please go ahead.

Charlie Driscoll (Equity Research Associate)

Hey, good afternoon. This is Charlie on for Kelly.

Mike Price (President and CEO)

Good to have you.

Charlie Driscoll (Equity Research Associate)

With a lot of the NIM expansion driven by the deposit repricing this quarter and then expecting basic cuts to increase here, can you kind of flesh out some of the deposit repricing dynamics going forward? Maybe just dive into the drivers behind like the near-term compression and then a little bit of the neutrality from there. Thank you.

Jim Reske (EVP, CFO, and Treasurer)

Yeah, I'll just give you a little color on the deposit. This is Jim. A little color on the deposit is what's happening in the quarter. We're really happy to see the deposit balances growing. That was really, we kept saying this, using this term, that was the knife edge this year to be able to grow deposit balances and still bring the cost of deposits down. We've been able to do that. What's happened is that we have grown this time deposit portfolio and kept that deposit portfolio, the time deposit portfolio, relatively short, like most banks. In the second quarter, for example, we had $400 and some million of CD maturities. In the third quarter, we had over $800 million. It's managing those maturities and managing them, being able to reprice them at maturity downward while still keeping the retention rate at an acceptable level.

The retention rates have been pretty good on time deposits. They always end up being around 80%, which we think is about the industry average anyway. If you look at other deposits like money markets or transaction accounts, our retention rates on those are actually over 90%, which we think is better than the industry average. We've kind of tracked that pretty closely. I'll give you one more fact, just if it helps you. On money market accounts, we've been able to reprice those as well. In the second quarter, on money market accounts, 83% of the money market accounts had a yield over 3%. 83% of the money market account balances had a yield over 3%. Now that has gone from 83% to 49%. We've been able to kind of manage the pricing of that while still maintaining and even growing deposit balances.

Hope that extra color answers your question. It's a little helpful.

Charlie Driscoll (Equity Research Associate)

Yeah, that's great color. I appreciate that.

Brian Sohocki (Chief Credit Officer)

Yeah, I would just.

Charlie Driscoll (Equity Research Associate)

This is Mike.

Brian Sohocki (Chief Credit Officer)

I would just add that for the people in the room, Mike McCuen, Jim Reske, Jane Grebenc, and Norm Montgomery, they monitor this every other week. They're looking at the loan and deposit volumes that come on. They're looking at the net impact on liquidity and also the impact on margin. This is something that we feel between our fingers every other week, and we make game-day decisions of where we're at, where we're going, and how we're going to get there. I just love the process. It also just keeps us informed in what's happening in the bank. By the way, all of us, speaking for all of us, we're supported by great teams of people, all of us, to kind of give us, feed us data, and help us keep our fingers on that pulse.

Charlie Driscoll (Equity Research Associate)

I appreciate the insight into the woodworks there. Regarding organic growth, it's coming pretty steady. Can you just speak to the expectations moving forward if payoffs are starting to pick up, maybe sizing up that headwind, and on the talent you got from CenterBank or anything in particular you're focusing on or excited about in terms of growth? Thank you.

Brian Sohocki (Chief Credit Officer)

Yeah, some of the payoffs that we've seen are really healthy commercial real estate projects, refinancing into permanent markets, non-recourse in the fives. That's not something we're going to do. That's some of the headwind that we see that's continued into the fourth quarter. However, we have a lot of offense between consumer, mortgage, equipment finance, indirect auto. Our loan growth is going to be more constrained by liquidity versus our ability to go out and execute. That's kind of going to be the check rein on all of this. Mike McCuen, anything you want to add?

Mike McCuen (EVP of Corporate Banking Executive)

I totally agree. I agree. I think the volumes, production volumes are good, tempered by some payoffs, but feel pretty good going into next year on production results.

Brian Sohocki (Chief Credit Officer)

Our guidance remains mid-single-digit. A surprising bright spot this past quarter is growing home equity loans, like $15 million or $16 million. We just have a lot of ways to get there.

Charlie Driscoll (Equity Research Associate)

Awesome. Thank you. Thanks for taking my questions. I'll step back.

Operator (participant)

If you would like to ask a question, press star and the number one on your telephone keypad. Our next question comes from Matthew Breese from Stephens Inc. Please go ahead.

Matthew Breese (Managing Director and Senior Research Analyst)

Hey, good afternoon.

Jim Reske (EVP, CFO, and Treasurer)

Hey, Matt.

Mike Price (President and CEO)

Jim, you had mentioned that with the Fed cuts, you expect a little bit of near-term NIM pressure. To what extent might we see NIM pressure in the fourth quarter?

Jim Reske (EVP, CFO, and Treasurer)

Yeah, it's always hard to guess. I mean, even the standard guidance I was giving, I always say ±5 basis points because every model is imperfect. That's probably in that range. I don't think we go as far as 5 basis points-10 basis points, Matt. That'd be a little extreme for the one quarter and then bounce back. It's probably in the 5 basis point range.

Matthew Breese (Managing Director and Senior Research Analyst)

Okay. Is it possible, you know, let's just say we get a few cuts this quarter, we're down to 5 bps. Is it possible we get down another couple of basis points in the first quarter from bleed over and maybe an additional cut in the first quarter as well before we start to see some stabilization?

Jim Reske (EVP, CFO, and Treasurer)

Yeah. They're absolutely possible. I mean, so much, you know, we're trying to do a projection based on a rate forecast, which has the time to rate supplies within it. In our bank, we've just seen that the reality is there's a lag. If you do a rate, if there's a rate cut, it hits our prime portfolio and SOFR portfolio right away, and then there's a lag in how we price the deposit. There's always, it's never, it's never perfect. You get some of the effects right away, and then over time, the liability side catches up. There's seasonal change in deposits. I'm just throwing that out there so that people aren't surprised about that. We kind of see this every year. We saw it, you know, in different categories. Some of this is consumers doing holiday spending.

We kind of, and some of it goes from the fourth quarter to the first quarter with commercial accounts as well. If that happens, just like it does every year, we'll be borrowing at the marginal rate, and that's a little more expensive. That recovers over the early of the year next year.

Matthew Breese (Managing Director and Senior Research Analyst)

You'd also mentioned that you expect some improvement in deposit mix next year. What's behind that assumption, and maybe help us out with where you think we'll see some of the largest kind of mix shifts?

Jim Reske (EVP, CFO, and Treasurer)

We just have a real push towards transaction accounts. I gave some time deposit numbers a few minutes ago. We've grown the time deposits because we've had to do some of that just to raise the deposit balances. We have a deep, deep push towards transaction accounts across the bank, both in consumer and commercial chain. I don't know if you wanted to add to that because this is kind of your.

I can just reiterate it. You know, it's a grind. Transaction accounts are a grind, and we've been grinding at it for a couple of years now and starting to do improvements that labor. We'll just keep grinding.

Matthew Breese (Managing Director and Senior Research Analyst)

Got it. Okay.

Mike Price (President and CEO)

Yep, thank you.

Matthew Breese (Managing Director and Senior Research Analyst)

Maybe just a couple more.

Mike Price (President and CEO)

Yeah, please.

Matthew Breese (Managing Director and Senior Research Analyst)

Securities were down this quarter. We're now below 13% of total assets. It feels on the low side for you. Could we see some growth there in the coming quarters?

Mike Price (President and CEO)

Probably not. I think we're going to hold it about where it is. I mean, our plan right now is to replace the runoff. Runoff is really slow anyway, but replace it and really not grow that portfolio. Part of that thinking is that we just want to use that liquidity, use our liquidity for loan growth and not leverage up the bank by borrowing money to buy securities. Probably where you see it now is a level where we're going to plan to hold it probably through 2026.

Matthew Breese (Managing Director and Senior Research Analyst)

Great. Just on equipment finance, it continues to be a real driver of underlying CNI. Is plus 10% a quarter sustainable, or where do we start to see that revert to the mean?

Mike Price (President and CEO)

We're probably about a year away. This is Mike Price. We've been really pleased. We've been pleased with the yields and also with the credit performance. We also have a team that's been doing this for about 25 years. We feel good about that. Mike, anything you want to add?

Mike McCuen (EVP of Corporate Banking Executive)

No, I think there's some incentives this year when it comes to depreciation, and expect that to impact and benefit equipment finance. At least for the next few quarters, we feel pretty good about that growth. Yeah.

Matthew Breese (Managing Director and Senior Research Analyst)

That's all I had. I'll leave it there. Thanks for taking my questions.

Mike Price (President and CEO)

Thank you.

Operator (participant)

Our next question comes from Danielle Cardenas from Janney Montgomery Scott. Please go ahead.

Danielle Cardenas (Director)

Hey, good afternoon, guys.

Mike Price (President and CEO)

Hey, Danielle.

Danielle Cardenas (Director)

Could you provide some color on the competitive factors on the lending side right now? I've heard a lot of give on structure and pricing in various markets, wondering if you're seeing the same thing within your footprint.

Mike Price (President and CEO)

I do think it depends on the market, Dan. I'll let Mike take this. This is his. I think there's a big difference between Columbus, Ohio, and rural Pennsylvania. Mike, what would you add?

Mike McCuen (EVP of Corporate Banking Executive)

I would say yields, margin on the yields has probably dropped 25 basis points over the course of the year. We really haven't changed much in our structure approach, but that's hurt the yields, your earlier question. I would say some of the metro markets are much more competitive than the rural markets, as Mike just said. On structure, it's gotten more aggressive. We mentioned the permanent markets, the agency lending. Those are very aggressive right now. It's not something we do, but it does impact our balance sheet.

Mike Price (President and CEO)

Is that helpful, Dan?

Danielle Cardenas (Director)

Yes, sir. Yes, appreciate that. Maybe a color on the M&A front. I mean, we've seen activity pick up a little bit here recently. Wondering what you're seeing come across your desk if chatter's picked up or if it's slowed down from the last quarter.

Mike Price (President and CEO)

I think there's more conversations. I think for us, you know, we really wanted to help our depository and our liquidity. We've had a lot of conversations that were pretty prudent, maybe too prudent at times, as I said last quarter. We're hopeful that we can grow through acquisition. We've been stuck at about $12.5 billion. Crossing $10 billion, you normally lose a lot of your mojo as it relates to your profitability. We've been able to maintain that really with an eye to realistically get to $14.0 billion. We fell a little short this quarter because of credit on the ROA side. It's not an excuse. We need to have a great NIM, and we need to have a great ROA, irrespective of the size.

Certainly, if we had a right acquisition or two that could get us down the road a couple billion dollars more, that would be terrific. Our bias is generally smaller because of the risk, better, and make sure that it's a good depository that can help our liquidity and help fund the bank. I don't know if that's particularly helpful, Dan.

Danielle Cardenas (Director)

Yeah, it is. All my other questions have been asked and answered. I'll step back.

Operator (participant)

That concludes our Q&A session. I will now turn the conference back over to Mike Price for closing remarks.

Mike Price (President and CEO)

Yeah, thank you. Appreciate your interest in our company. I would just add that we've really shifted to deliver the bank regionally. We really expect the payoff of that to be not just to better deliver the mission, but better grow households and low-cost deposits in the depository, and also better grow our fee income. We do feel like we can grow the loans. The other thing that's kind of interesting and exciting, I think, is as we look at, as an executive team, 30 operating plans for our lines of business, for our business units, for our geographies, as part of our strategic planning process, we really feel there's probably, you know, one, two, or three ways that we can continue to get more efficient using technology, like RPA or AI or just better straight-through processes.

We just have bright people that can look at their operation and make it better. There's just a lot of things that we're excited about the company to move the company forward and make it better. We also have a pretty talented team, up and down throughout the organization. Thank you again. Look forward to being with a number of you over the course of the ensuing weeks, and just appreciate you.

Operator (participant)

This concludes our conference call. You may now disconnect.