Northwest Bancshares (NASDAQ:NWBI) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Northwest Bancshares reported record revenue of $185 million and net interest income of $149 million for Q3 2026, marking over 9% year-over-year growth.
The company opened its second financial center in Columbus and plans to open two more by year-end, with a fifth in early 2027.
Strategic initiatives include a multi-year sponsorship with the Columbus Crew MLS team and continued focus on growing C&I loan portfolios, which saw a 31% year-over-year increase.
GAAP EPS was $0.34, with adjusted EPS at $0.35, reflecting a slight decline from the previous quarter.
The company expanded its deposit balances by $113 million, with a stable cost of deposits at 1.44%.
Net interest margin decreased slightly to 370 basis points, but future rate hikes are expected to benefit margins.
Noninterest income grew by 11.6% year-over-year, driven by service charges and wealth management business.
The company maintained its focus on expense management, achieving a 184 basis point improvement in adjusted efficiency ratio year-over-year.
Future outlook includes continued organic growth, operational optimization, and a focus on positive operating leverage.
Management remains cautious about deposit competition but confident in their loyal and granular deposit base.
Full Transcript
OPERATOR
Good morning. Thank you for joining us and welcome to Northwest Bancshares’ third quarter 2026 earnings call. This session is being recorded and a playback will be available on Northwest’s investor relations website. All participants are currently in listen-only mode. Following prepared remarks, we will host a question-and-answer session. Now I would like to introduce Michael Perry, Northwest’s Managing Director of Corporate Development and Strategy and Investor Relations.
Michael Perry (Managing Director of Corporate Development and Strategy and Investor Relations)
Good morning everyone and thank you. Welcome to Northwest Bancshares’ third quarter 2026 earnings call. Joining me today are Lou Torchio, President and CEO of Northwest Bancshares, Doug Schosser, our Chief Financial Officer, and T.K. Creole, our Chief Credit Officer. During this call we will refer to information included in the supplemental third 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
Louis Torchio (President and Chief Executive Officer)
Good morning everyone. Thank you for joining us today to discuss our third quarter 2026 results. I’ll let Doug take you through the details of our third quarter performance in a moment, but first I’d like to reflect on several important milestones, including record revenue and record net interest income, and how they have contributed to our achievements and momentum in the third quarter, positioning us well for continued growth for the remainder of 2026 and into next year.
We recently held the official grand opening of our second financial center in Columbus and we expect our third and fourth financial centers to open by the end of the year. We also plan to add a fifth in this market by the first quarter of 2027. Our new financial centers bring to life the hospitality and personal, advice-led approach that Urich and his team have embedded across the consumer bank. The most recent opening is next to The Ohio State University’s Columbus campus and the design incorporated feedback from students on what is most important to them in a bank relationship.
In addition, we recently announced a multi-year sponsorship agreement with the Columbus Crew MLS team. We appreciate our relationship with the Crew that we have developed through our sports vertical and our Ohio-based middle market teams. We continue to be excited about the growth opportunities that this relationship will bring to our headquarters market. Now turning to slide 4, you can see some of the financial highlights of the third quarter 2026. We delivered $185 million in revenue and $149 million in net interest income for the third quarter, both records in the company’s history, each resulting in more than 9% year-over-year growth. Also, we delivered another strong quarter with diluted earnings per share of $0.34 on a GAAP basis and $0.35 on an adjusted basis. We continue to drive strong momentum in our C&I business with $201 million of average C&I loan growth in the third quarter representing 31% year-over-year growth.
As we’ve highlighted previously, we continue to grow our nationwide business verticals in a very disciplined manner and are pleased with the performance of these verticals which are led by experienced and highly networked industry leaders. Collectively, they now represent approximately 30% of our commercial lending portfolio. In addition, we continue to focus on investing in and growing our in-market, regional and middle market commercial banking businesses.
We achieved these results while continuing to invest in talent, technology and new financial centers to support our future growth. None of these results would be possible without the hard work and dedication of our 2,200 associates. I’m very pleased with our results and I’m proud of the team for their continued commitment to driving strong core performance across the bank. And in the third 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 128th consecutive quarter in which the company has paid a cash dividend. As we look ahead for the rest of 2026, we continue to focus on organic growth initiatives, further optimizing our operations and driving improved financial performance, expanding our financial center network and serving our core customers and communities. With that, I’ll turn it over to Doug to review our third quarter results in more detail.
Douglas Schosser (Chief Financial Officer)
Thank you Lou and good morning everyone. As Lou indicated, we are very pleased with our strong financial performance in the third quarter. Now let’s continue on slide 5 of the earnings presentation where I’ll walk you through the highlights of Northwest’s financial results for the third quarter. Our GAAP EPS for the quarter was $0.34 per share and, on an adjusted basis, our EPS was $0.35 per share, a slight decline from the prior quarter of $0.02 per share.
On both a GAAP basis and an adjusted basis, total revenues were $185 million for the third quarter which represented a 2% increase quarter over quarter and a 9.9% increase year over year. While our GAAP efficiency ratio was 58.9%, our adjusted efficiency ratio was 57.8% for the third quarter and, although higher than last quarter, did represent a 184 basis point improvement year over year. Our record revenue in the third quarter of 2026 drove solid returns with a return on average assets of 1.18% and an ROTCE of 13.9% on both a GAAP and adjusted basis. Our pre-tax pre-provision net revenue in 3Q26 was $76 million, down 1.5% quarter over quarter but represented a 15.5% increase year over year on an adjusted basis.
Turning to slide 6, we achieved our fourth consecutive quarter of period-end loan growth with period-end loans increasing by $164 million to $13.3 billion, representing a 5% annualized growth rate. While our average loans grew $208 million quarter over quarter, our C&I loan growth continued with strong performance in many of our national verticals and in our other commercial loan portfolios. Average C&I loans increased $201 million, or 7.2% quarter over quarter, and $702 million, or 30.8% 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 loan yield was relatively stable, decreasing by 2 basis points to 5.59% in the third quarter. Our overall interest rate sensitivity position continues to remain slightly asset sensitive with continued growth in floating rate commercial loans. We expect to see a fourth quarter benefit from the latest rate hike and our outlook is for at least one more rate hike later in this year or early in 2027.
Moving to slide 7 and our deposit balances, our period-end deposit balances grew by $113 million in the third quarter representing an annualized growth rate of 3.2%, and our average total deposits grew by $6 million quarter over quarter, partially benefiting from growth in money market and demand accounts. We grew primary deposit relationships on a net basis in the third quarter resulting from improved digital marketing and account opening, employee enablement programs, and our Columbus expansion.
For the third quarter, our cost of deposits remained relatively stable, up 1 basis point to 1.44%. Product of our proactive management of the overall portfolio, 37% of the CD portfolio matured in the third quarter 2026 at a weighted average rate of 310 basis points with new volume coming on at a weighted average rate of 297 basis points. Our granular, diversified deposit book has an average balance of $19,900 with customer deposits consisting of over 715,000 accounts with an average tenure of more than 12 and a half years.
On slide 8 we show our net interest margin performance, with NIM decreasing 5 basis points to 370 basis points in 3Q26, resulting from an increase in borrowings with a 4 basis point negative impact and a 2 basis point negative impact from a decline in purchase accounting accretion. Although we redeemed our sub debt in the third quarter which has a positive net impact on borrowing costs, this action occurred late in the third quarter so our results do not reflect a full quarter impact of that benefit, which we estimate to be two basis points.
Turning to our securities portfolio on slide 9, our portfolio yield continues to increase as new security purchases came on at higher yields than the runoff portfolio, resulting in a yield increase of 7 basis points to 3.34% in the quarter. Turning to slide 10, our noninterest income increased $1.7 million quarter over quarter and $3.7 million, or 11.6%, year over year, driven by growth in service charges and fees and growth in our wealth management business, resulting in an increase in trust and other financial services income. Our investment in building out the wealth management business has resulted in a 25.7% growth in trust and other financial services income over the last year.
Regarding noninterest expense, as detailed on slide 11, we continue to focus on expense management with adjusted efficiency ratio at 57.8% in 3Q26, representing a 184 basis point improvement year over year. Overall expenses excluding merger and restructuring expenses increased quarter over quarter, impacted by an increase in nonpersonnel expenses of $4 million due to an increase of $3 million in FDIC insurance premiums, as 2Q26 included a benefit related to the prior period assessment rate changes.
We have maintained our focus on managing personnel expenses, with compensation and benefits increasing 72 basis points quarter over quarter and only 1.5% over the last year. On slide 12 you’ll see our overall ACL was stable at $149.6 million and our coverage ratio declined 1 basis point to 1.12% in the third quarter of 2026. Our quarterly annualized net charge-offs of 15 basis points were below the low end of our full-year guidance again this quarter. Turning to credit quality on slide 13, our credit risk metrics remain within internal expectations. Our total delinquency remained relatively stable, increasing 1 basis point from 86 to 87 basis points quarter over quarter.
Our 90 day plus delinquency declined from 49 basis points to 36 basis points quarter over quarter, while NPAs increased to 76 basis points of average loans in the third quarter. Taking a deeper dive into the breakdown of our credit quality on slide 14, in third quarter 2026 we experienced a decrease in classified loans as a percentage of total loans and on an absolute basis, which was attributable partially to payoffs and upgrades in the portfolio.
As we discussed on previous calls, our strategy with respect to classified loans is to continue to work them down over time. And finally, on slide 15, we’d like to provide an update to our outlook for 2026. Specifically for loan and deposit growth, our outlook remains unchanged. For revenue, we would expect to be at the high end of our stated range. For net interest margin, we expect to be at 373 basis points for the fourth quarter 2026, and would expect to be at 371 basis points for the full year of 2026. For noninterest income, we expect to exceed the high end of our range.
For noninterest expense, we expect to be at the high end of our range. For net charge-offs, based on current economic conditions, we expect to be at the low end of our range. Finally, we expect the tax rate to drift up to 24% based on stronger earnings. We remain very confident about Northwest’s business and we’re excited about our prospects for the remainder of the year. Now I’ll turn the call over to the operator who will open the lines for a live Q&A session.
OPERATOR
We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality if you are muted locally. Please remember to unmute your device. Please stand by while we compile the Q and A roster. Your first question comes from the line of Jeff Rulis with DA Davidson. Your line is open, Jeff. Please go ahead.
Jeff Rulis (Analyst)
Thanks. Good morning. Maybe I could just, I’ll hop off the slide that you just went over, Doug. Appreciate it. Really good detail. But on the margin, just understanding the puts and takes, it sounds as if the timing of the sub debt, that benefit, you are asset sensitive. Maybe a little benefit there. So just the lift in the margin, I guess as we kind of ease into the next year, would you expect the borrowing side to lighten up in Q4 with core deposit growth? And then just kind of, if you wouldn’t mind, kind of walking through the margin puts and takes as you kind of enter into the next year.
Douglas Schosser (Chief Financial Officer)
Yeah, thanks for the question, Jeff. So yeah, I think we talked a little bit about it in the prepared comments. So on the positive side for the margin, we have the rate hike that just happened in late September will translate through. And because we’re slightly asset sensitive, that should be a net benefit. Additionally, we will get the benefit of the sub debt payoff, which again we’re thinking is about two basis points. So that gets you from the 370 to around 373.
Obviously purchase accounting is one of those things with the way the loan portfolio transitions over the quarter, that could be a little bit of benefit, could be no more than it was this quarter. So that’s a little bit of the wild card. And then I think you could assume that, as we indicated, if there is another rate hike, maybe you get another benefit from that. Don’t know as to timing, but I think right now the market is thinking there might be one late in the fourth quarter. So that would probably be the setup for next year.
Jeff Rulis (Analyst)
Okay. And then it sounds fairly stable.
Douglas Schosser (Chief Financial Officer)
Yeah, deposits. So I do think that we would have some potentially incremental deposit growth as we head into the fourth quarter to lighten up on some of the other borrowings, as you had asked in your question.
Jeff Rulis (Analyst)
Okay, great. And maybe I’ll just do one other one just from a strategic standpoint. And maybe for Lou, just, you know, a year removed from the Penns Woods closing and obviously the Columbus focus on opening those locations, you’ve got a few more coming. I just kind of taking a step back and thinking about acquisition versus de novo and kind of where you see as, again peering into 27, the focus, or is it sort of balanced on acquisition versus de novo?
Louis Torchio (President and Chief Executive Officer)
Yeah, so thanks, Jeff. I think that as we move forward, as we, you know, sort of stated in the past, to the extent we have opportunities around acquisitions that fit our geography, fit our strategic direction and are highly accretive, we certainly are in position to act on those, notwithstanding. And I would just comment that I think the market is pretty soft right now and it’s pretty quiet out there. We’ll have just a few boulders going into next year to drive financial performance and we’ll be inwardly focused on evaluating our launch here in the retail space in Columbus, which so far is exceeding our expectations and going well.
But we will measure that as those branches roll out and then we’ll be ultra focused on optimizing our core and organic performance through 27. And then just for clarity, we expect to have two branches opened—sorry, two additional branches open in the fourth quarter with one that’ll be opening in February of 27. So we’ll have all five branches fully open by the end of the first quarter next year.
Jeff Rulis (Analyst)
Okay, thanks Doug and Lou, appreciate it.
OPERATOR
Your next question comes from the line of Daniel Tamayo with Raymond James. Your line is open, Daniel. Please go ahead.
Daniel Tamayo (Analyst)
Thank you. Good morning, everybody. Maybe, yeah, maybe just starting on the fee income guidance. So you know, obviously nice progression this year. You guys are well above your initial guidance, but I guess so far above that I’m asking for a little clarity, if you will, on where that could land. Maybe if we just zero in on the fourth quarter. Is last quarter’s run rate relatively stable? I mean, if you can walk us through if there’s anything that you think is kind of unusual that would drive a decline in the fourth quarter number.
And maybe as we think about going forward, how we should think about what would be a decent run rate in terms of annual growth rate for the fee income as a whole. Thanks.
Douglas Schosser (Chief Financial Officer)
Yeah, thanks for the question. So I think we tried to point it out. So if you look on slide 10, kind of broke those bars out into the components of fee income. So I would say the service charges and fees, right, that is all dependent on customer behavior. So I think that’s a fairly stable source of revenue. As we add customers, obviously we would say that’s, you know, a potential there to grow it. But again, it all kind of depends on customer behavior.
And I think going into the fourth quarter generally tends to be where you get a decent amount of the opportunities from your customers. So, you know, assume that’s pretty stable. We broke out the trust and other financial services—you can see that was $8 million up to 10. A lot of that is annuitized business. So again, assuming markets hold up, asset values hold up, you could expect that to be pretty recurring. The other noninterest income you can see has a bit more volatility and that has everything in it from, you know, gains on BOLI and other things.
So that’s a little bit harder to predict. But again, if you look at our trend, you would definitely be in, you know, seven to eight million dollars range as sort of the quarterly expectation. Hopefully that gives you the color. So again, we feel really good about the fee performance and we feel like it is a positive. And that was why we were indicating if you start looking at the performance and kind of thinking about that being stable, that would exceed the range that we provided last year.
Louis Torchio (President and Chief Executive Officer)
And I would just say, Daniel, strategically, right, we may have signaled this in the past that we’ve invested in that wealth business and we think there’s opportunity there. I would also point out in those fee numbers, you know, mortgage banking is somewhat non-existent at this point, right. So, you know, we really like the momentum, the trajectory that we’ve established, and it’s certainly part of the strategy going forward. I think also we would also highlight SBA business—that’s a national business, that’s one of our national verticals and continues to contribute nicely to that line item.
So again, that’s another driver of the income. And then finally, Dan, well, just one more point I’d like to make around that is we’re, you know, that product, that wealth offering we are layering in and have had success post Penns Woods acquisition to the new marketplace. So again, we were really happy with the way we executed, what we’ve achieved on cost saves, the accretion of that deal. In addition to that, we’re now starting to layer in various products and services to the marketplace that otherwise weren’t offered through the smaller franchise.
And so we think that’s a positive trend as well.
Daniel Tamayo (Analyst)
Great. And then I guess maybe on the expense side. So, you know, assuming that the fourth quarter kind of takes us into the middle of your range and you’re kind of settling the 425 range. Just thoughts on that number being a decent run rate going forward and just a little bit higher than maybe we were looking for coming into the quarter. It’s around a 109 number.
Douglas Schosser (Chief Financial Officer)
Yeah. So again, I think as we continue to invest in the franchise, right, you’re going to see that slowly drift upwards. That’s just pretty natural. We obviously spend quite a bit of time trying to manage that down. We wanted to highlight the fact that the personnel costs within that we have managed pretty effectively and keep that from showing a lot of growth. There are going to be some incremental expenses. When you have incremental business, particularly on the wealth side, you tend to have commissions and incentives that get paid to those folks as well.
So there’s some volatility in it. But again, the core personnel has been pretty good and I think, yeah, given the way we laid out our guidance and things, you can start to think about that as a decent sort of quarterly expectation.
Louis Torchio (President and Chief Executive Officer)
And one thing to point out there as well is that, you know, we’re launching these de novo branches in Columbus and there’s a certain cost and investment associated with that. As you, I think everyone knows, about five months ago we hired a new CIO and we’re looking at the entire spectrum of how we run the company from investments and efficiencies and saves. So, you know, again, I think, Dan, this kind of goes back to my earlier comments about we are focused on optimizing internal.
We have plenty of things to do and we’re hyper focused on it to the extent, you know, there are no near-term opportunities on the acquisition side.
Daniel Tamayo (Analyst)
Okay, great. And, you know, this obviously depends on the rate environment next year. But, you know, just curious if you think you’re going to be able to produce positive operating leverage next year.
Douglas Schosser (Chief Financial Officer)
We would always target to produce positive operating leverage. Again, I think we’ve been pretty clear on that and we know that our efficiency ratio is a little bit high still, relatively speaking. So yes, we would look to do that again next year and we’ll obviously provide much more clarity on that when we get fourth quarter results released sometime in late January. And just to clarify, we target 200 basis points of positive operating leverage on an annual basis. So again, you’re not going to necessarily see it every quarter, of course, but you will if you look back, look at the full-year performance, and you should expect to see that.
Daniel Tamayo (Analyst)
All right, well, thanks for all the color, guys. Appreciate it.
OPERATOR
Thank you. Your next question comes from the line of David Bishop with Hovde Group. Your line is open, David. Please go ahead. As a reminder, please remember to unmute your device locally. We will move on to the next question from Brian Florin with Truist. Your line is open, Brian. Please go ahead.
Brian Florin (Analyst)
Hey, can you hear me?
OPERATOR
Yes, we can hear you, Brian.
Brian Florin (Analyst)
Good morning. Perfect. Good morning. I guess two separate questions, one on credit and just going back to the game we all have to do with backing out the fourth quarter from the full year. I mean, I appreciate losses are so low, you know, you’re probably getting down to forecasting individual loans, but is there anything line of sight that—I guess what I’m asking is you’re 15 bips year to date. To get to 20 bps for the full year, you’d have to be like over 30 in the fourth quarter.
So is there anything line of sight that you’re seeing that would push you into that low end of that range or is it just kind of, look, you know, we’re being a little conservative. If we end up beating, we’re beating.
Douglas Schosser (Chief Financial Officer)
Yes, I would say that’s a good characteristic. So we wanted to suggest that we’re going to be at the low end of the range. Obviously things happen in the fourth quarter and we look to see where we need to position various items. But yeah, I think right now you could safely say that, yeah, low end of the range. And that is a conservative estimate on our bias. I mean, again, deposits are always hyper-competitive and I think we are fortunate in the way we have a very loyal, very granular deposit base. We’re in a lot of markets that don’t have a significant amount of competition, so that plays to our advantage and we tend to service our clients well, and we feel that they’re happy with the offering that we have at the company.
But as we continue to look for opportunities to grow deposits as we move into new markets, you’re obviously going to have some upward push on that. We’ll break out the branch performance in the Columbus markets probably the middle of next year after at least one of them has been open for a full year. And again, we have to be reactive to the market and where it goes. But I think in general we would say deposits continue to be pretty competitive out there and we look to find opportunities in order to maintain our deposit costs and grow our deposits at the same time, which I think we’ve done pretty good.
But, you know, if you’re going to see a basis point or two of increase in that deposit rate on our behalf, I think we have it to give in order to get the right deposit growth so that we can support the lending franchise.
OPERATOR
We’ll now take a question from David Bishop with Hovde Group. Your line is open, David. Please go ahead.
David Bishop (Analyst)
Hey, can you hear me now? Morning. Yeah, perils of AI, I guess. Hey, question was regarding the average origination yields on loans this quarter. Just curious what you’re seeing on that side of the ledger relative to the last quarter.
Douglas Schosser (Chief Financial Officer)
Yeah, I think the loan originations are pretty similar quarter over quarter. Again, it does tend to be a bit of a mix issue for us at times. I mean, you’ll have some very highly rated credits that’ll come in at relatively lower cost and then you’ll have some other credits that’ll be more normalized. And in any given quarter, you might have a little bit of a dynamic where you get a little bit more of those more competitive loans that come on the book.
We are seeing a lot of loan competition for growth out there as well. So again, we tend to, you know, we keep structures in place and other things, and price is the thing that is more apt to go rather than structural components of these loans. So we are going to see a little bit of pressure there. But again, with our margin guidance, we’re kind of suggesting another quarter of sort of similar performance.
Louis Torchio (President and Chief Executive Officer)
And I would just add that one of our strengths there is really our diversity across the national lines of business, the regional small business that’s in market, and a pretty distributed consumer book. So it gives us a lot of flexibility. And, you know, our discipline around the risk environment, especially currently, is that we’ll be very disciplined on structure and so we’ll continue to be very conscious of the macroeconomic environment that we’re going to be going through.
David Bishop (Analyst)
Got it. If we were trying to put a hard number on it, you think new origination yields coming in to low to mid-sixes? Is that sort of a good, good range to do so? Got it. And then you mentioned the payoffs still remaining pretty high on commercial real estate portfolio. Are you seeing any signs on the loan pipeline? Any fallout being impacted by the rise in interest rates and just, you know, inflation impacting some of the enthusiasm from some of your borrowers to launch new projects? Thanks.
Douglas Schosser (Chief Financial Officer)
Not yet. I think our pipelines have held up really well. We’ve had conversations with our commercial business heads and they’ve kind of concurred that right now it’s pretty, it’s a pretty good market out there. Also, on the commercial real estate portfolio, I do feel like we’re getting very close to an inflection point. So we have had a lot of runoff on that portfolio. Historically, the originations have been pretty good and I’m hopeful to see that overall net decline shrink and maybe turn slightly positive within the next quarter, certainly within the next two quarters.
So I think we’re feeling good that that business has reached a point of stabilization.
Louis Torchio (President and Chief Executive Officer)
I would also just point out there, just again, from a risk perspective, we’re not outsized in our construction loan pipeline. So, you know, we’re finding different opportunities inside the market.
David Bishop (Analyst)
Great. Appreciate the color.
OPERATOR
Your next question comes from the line of Emily Lee with KBW. Your line is open, Emily. Please go ahead.
Emily Lee (Analyst)
Hey everyone, this is Emily stepping in for Tim Switzer. Thanks for taking my question.
Michael Perry (Managing Director of Corporate Development and Strategy and Investor Relations)
Good morning. You’re welcome.
Emily Lee (Analyst)
So just on the loan growth side, can you maybe dig into which loan categories or geographies are seeing the most strength or greatest demand? And specifically on the national specialty vertical side, which areas are you most excited about?
Louis Torchio (President and Chief Executive Officer)
Yeah, I think we’ve seen really nice broad-based growth across the national vertical. So those I wouldn’t necessarily highlight anyone in particular. If you were looking at growth, you would see a lot of growth in, say, franchise, but that’s just because it has such a small base. But I think all of the verticals are doing well. There’s opportunities in all of them and we’re starting to see some of the regional commercial businesses and CRE, as I had said earlier, those are starting to stabilize as well.
So I think we feel pretty good about where we’re at on lending and we feel pretty good about the markets that are out there. So it’s just again, you know, it’s competitive on price and it is competitive on structure and in some of those cases we lose because we’re not willing to take the structural components that are required to win the deals.
Emily Lee (Analyst)
That’s helpful, thank you. And then just to touch on the NIM, given the asset-sensitive balance sheet, can you quantify the impact of one additional 25 basis point hike, what that means on NII or NIM?
Douglas Schosser (Chief Financial Officer)
I would tell you that generally speaking, I think the asset sensitivity is going to add a couple of basis points to NIM, but it’s delayed and it also tends to be driven a lot by deposit pricing as well. So we get pretty much the first 30 days we get the benefit to the loan side and then it takes a little bit of time for the deposit cost to kind of translate through. So there’s a little bit of a lag in there. So if we get one late in the fourth quarter, it’s not going to, it’s not really going to add to margin at all. So pretty much we’re looking at the rate raise that we had in September to carry over and influence the fourth quarter, but the one that, you know, we sort of see as likely in late December is not going to have a meaningful influence on it.
Emily Lee (Analyst)
Understood, very helpful. Thank you so much.
OPERATOR
Your next question comes from the line of Matthew Breese with Stevens Incorporated. Your line is open, Matthew. Please go ahead.
Matthew Breese (Analyst)
Hey, good morning, everybody. C&I growth has been impressive. It looks like it’s on track to be up another 25-ish percent year on year. I’m just curious, think about the pipelines. How sustainable is that to 2027? And Doug, just kind of tying this together with your commercial real estate commentary. You know, if we do start to see stability in that portfolio, perhaps maybe even a little bit of growth, how does that change kind of the loan growth dynamics here? I mean, low to mid single digits for 2026, does that dynamic push you into like mid- to high-single digits for next year?
Curious there.
Douglas Schosser (Chief Financial Officer)
So the way I’ll kind of go through your question. Right. So I think, you know, are we going to get another 30% growth in commercial. That is a, that’s a lot of growth. And I think what we like to do is have a very balanced firm overall and see the growth become a bit more balanced. Although we are continuing to focus on reformulating the balance sheet. The big lever that we have is our indirect businesses. And we would reduce the growth in the indirect markets to offset the opportunity that we have to grow in the commercial space.
So we talk a lot about our overall mix. It’s about 45% commercial, 55% consumer. We would be happy if that were to drift up. I mean, it can stay where it’s at or it can move a little bit, but we would obviously keep the overall asset growth sort of more in line with the deposit growth over time. So in the near term, if we had nice opportunities, and we think we will because our pipelines continue to be strong on the commercial side, we would slow down the indirect verticals a little bit.
And even when I say that, we don’t just look at indirect auto, it’s some of the other indirect commercial businesses as well, where we don’t have the opportunity to gain more of a full relationship. So in that case, you know, perhaps think of an equipment finance deal or perhaps a participation in a larger syndication where the only opportunity is the lending side.
Matthew Breese (Analyst)
Got it. Okay, very helpful. And then do you have spot deposit cost at period end or into October? And then I’d be curious how you’re thinking about deposit betas through cycle.
Douglas Schosser (Chief Financial Officer)
Yeah, I don’t, we haven’t provided that level of transparency on deposit pricing. I don’t think we’ve seen it go up materially. But again, I don’t think we get into that level of detail. And then on deposit betas I don’t think we’ve also gotten to a lot of details there as well. And again a lot of it gets a little bit harder for us to see sometimes as we’re growing some of the higher-rate markets like Columbus.
Matthew Breese (Analyst)
Understood. Okay, I will leave it there.
Michael Perry (Managing Director of Corporate Development and Strategy and Investor Relations)
Thank you.
OPERATOR
Your next question comes from the line of Manuel Navas with Piper Sandler. Your line is open. Manuel, please go ahead.
Manuel Navas (Analyst at Piper Sandler)
Hey, just to kind of circle back up on the NIM, the sub-debt helps with two basis points. You have a little bit of benefit from the September hike. Were you kind of going into this fourth quarter a little bit below the average for the full quarter of 3.70? Is that, is that kind of why it’s not of a, kind of a bigger lift here in the fourth quarter?
Douglas Schosser (Chief Financial Officer)
Well, I mean again I think we’re also trying to accommodate for what’s purchase accounting impact going to be on the margin. So that was almost 2 basis points quarter over quarter. And again as you know it is all influenced by sort of which loans pay off early on the Penns Woods book, which is pretty difficult for us to know in advance. So I think we feel really good about the 3.73 based on the points that we made, and you just rearticulated, on the sub-debt benefit as well as the impact of the rate rise.
The piece that we don’t know and don’t tend to estimate is what the purchase accounting benefit could do. So could that be another little bit of upside? Yes. Could it be exactly where it was last quarter and provide no upside? Yes. So I think we’re always trying to get with guidance that’s pretty appropriate and pretty conservative and then we’ll explain sort of the puts and takes for the quarter as it goes. But I think that 3.73 is a pretty good expectation for the fourth quarter given everything we know.
Manuel Navas (Analyst at Piper Sandler)
Okay, you talked a little bit about being inwardly focused on the, a little bit on, on your new Chief Information Officer. Can you just speak a little bit more of what you’re doing to kind of optimize operations? Just add a little bit more on that piece.
Douglas Schosser (Chief Financial Officer)
Yeah. So, you know, bringing in new leadership with a broad acumen and deep experience working at the large super regionals, et cetera, gives us a perspective to come in, evaluate some of the legacy stuff, systems, and products that we’ve had. So we’re going through a pretty thorough evaluation of, you know, how we want to execute that strategy. And so over time we’ll roll that out. We hope that both, we’re going to realize both cost saves and through different sourcing of technology and workflows.
And in addition to that we’re going to continue to increase the customer experience, reduce friction in the process, which will also drive future revenues and gains. So, you know, we’re sort of hunkered down on a, you know, week-to-week meeting, if you will, evaluating all those opportunities and then figuring out, you know, which ones we can invest in in 27 and, you know, what that’s going to bring to our overall operating efficiency. So yes, the treasury management fee income would be part of that overall service charges, and we have seen some nice growth in there, again off a relatively small base. But I think we continue to find opportunities to grow commercial deposits with commercial relationships as the new verticals come in. And there does tend to be a little bit of a lag at times.
You bring the loan in and then it takes time to move operating accounts and other things over. So we do expect that transition to occur from once we end up with some of these relationships and then the time it takes to build it in. But it does look like there’s some opportunities in that space going into next year. And then we also have some—we are excited about the fact that we added a new member to the commercial team who’s got a kind of a debt capital markets specialty, and we think there’s some opportunities there going into next year as well for better overall fees on the commercial side.
OPERATOR
Your next question comes from the line of Daniel Tamayo with Raymond James. Your line is open. Daniel, please go ahead.
Daniel Tamayo (Analyst)
Yes, just a quick follow-up here. So I guess you’ve got the sub debt behind you now. The redemption, the buybacks haven’t been a part of the story for you guys but, you know, a lot of capital recognized. You’re obviously still making investments on the growth side, but, you know, are you closer now to where you would consider using buybacks as a capital deployment tool?
Douglas Schosser (Chief Financial Officer)
Yeah, I think we are closer. That doesn’t mean we’re going to do it in the fourth quarter, but I think now that we have our capital pretty well established again. I’d really like to understand where capital rules are going to go before we start making big commitments there. We’re still returning well over 50% of our earnings to our shareholders in the form of that dividend. That’s pretty high dividend payout ratio or high overall capital return. But, you know, I think we are getting to the point now where as capital rules become a little bit firmer and we can kind of look out at what we’re going to need and how much internal capital generation we have, we might want to think about sort of that buyback entering into the mix in 2027.
Daniel Tamayo (Analyst)
Is there a. Is there a total return number that you’re. I mean, there’s a lot of moving parts, I recognize, but, you know, given what you said about the dividend and obviously that’s. That’s always been, you know, pretty strong for you guys. Is there a total return percentage that kind of makes sense for you guys, or you want to see that still come down a bit, kind of longer term?
Douglas Schosser (Chief Financial Officer)
I definitely like to see the… I’d like to earn our way to the dividend. Overall payout going down. That would be ideal. You know, that’s the way we’ll do it, is we’ll do it through growing the firm. And then we are always working with the board and others on sort of setting those targets. So as we have more capital planning done and we have more insights into next year, we have better visibility to the capital rules and other things. I think that is the time that we’ll start talking more seriously about it.
And I think, you know, we have a $50 million authorization, so it’s not a huge amount, but I would like to see us start making some progress against that. Against that lever.
Daniel Tamayo (Analyst)
Okay, great. Thanks for that color, Doug.
OPERATOR
That concludes the question and answer portion of the call. I’ll hand it over to Mr. Torchio for closing comments.
Louis Torchio (President and Chief Executive Officer)
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 for the rest of 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 fourth quarter earnings call in January.
OPERATOR
This concludes today’s call. Thank you for attending. You may now disconnect.
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