Conferencia de resultados del T3 de 2026 de S&T Bancorp (STBA): BPA récord y NIM del 4,06%

Puntos clave

• S&T Bancorp registró un beneficio por acción récord en el tercer trimestre de 2026 de 1,09 dólares, un aumento de casi el 20% interanual y de casi el 7% respecto al trimestre anterior. Los ingresos trimestrales alcanzaron la cifra récord de casi 108 millones de dólares.
• El margen de interés neto se amplió 7 puntos básicos con respecto al trimestre anterior, alcanzando el 4,06%, impulsado por mayores rendimientos de los préstamos y una mejor combinación de financiación. La dirección prevé que el NIM se mantenga por encima del 4% de cara a 2027 si los tipos de interés continúan elevándose.
• Los saldos de los préstamos al cierre del periodo fueron ligeramente inferiores, aunque los préstamos medios aumentaron 61 millones de dólares. La dirección prevé un crecimiento nulo o de un dígito bajo en los préstamos para el cuarto trimestre, lo que refleja la disciplina en la fijación de precios, menores originaciones de C&I y una suscripción más estricta de CRE.
• La calidad de los activos se mantuvo favorable. Los activos morosos cayeron 3,7 millones de dólares hasta situarse justo por encima de los 36 millones de dólares, o el 0,45% de los préstamos más OREO, mientras que los fallidos netos fueron de 2,1 millones de dólares, o el 0,10% del total de préstamos.
• El perfil de financiación mejoró, con una reducción de los depósitos intermediados de más de 180 millones de dólares en lo que va de año y sin que quede ninguno en el balance. Los depósitos a la vista representaron el 28% del total de depósitos.
• La dirección está considerando reanudar la recompra de acciones en el cuarto trimestre bajo su autorización existente de 100 millones de dólares, sujeto al precio de las acciones y a las condiciones del mercado.

Datos financieros clave

Desempeño comercial y operativo

Los saldos de los préstamos se mantuvieron prácticamente estables, ya que S&T Bancorp priorizó la rentabilidad y el margen neto de intereses frente al volumen. El saldo medio de los préstamos aumentó en 61 millones de dólares, pero los saldos al cierre del periodo disminuyeron ligeramente.

Los saldos de bienes raíces comerciales aumentaron 65 millones de dólares, principalmente debido a que los proyectos de construcción totalmente financiados pasaron a la categoría CRE. La dirección prevé que la financiación de la construcción y el crecimiento de CRE se mantengan relativamente constantes durante el cuarto trimestre y el primer trimestre.

Los saldos de C&I cayeron aproximadamente 50 millones de dólares. La caída reflejó una menor utilización de las líneas de crédito renovables, la salida de varios créditos deteriorados y una originación de préstamos inferior a la esperada. Los banqueros de C&I recientemente contratados aún están desarrollando sus carteras de clientes, y muchos de ellos están superando las restricciones de no captación.

Los depósitos medios aumentaron en más de 56 millones de dólares, incluyendo 24 millones de dólares de crecimiento en depósitos a la vista medios. Los depósitos al cierre del periodo disminuyeron ligeramente debido en gran medida a factores estacionales. S&T Bancorp completó una actualización de su banca en línea en el Q3 y prevé una actualización de su banca móvil en el Q4 como parte de su inversión en la franquicia de depósitos.

Los ingresos no procedentes de intereses se mantuvieron prácticamente sin cambios, disminuyendo aproximadamente $200.000 debido principalmente a partidas no recurrentes en el trimestre anterior. Los gastos no financieros disminuyeron 1,1 millones de dólares de forma secuencial, favorecidos por un menor gasto en marketing y contribuciones de carácter fiscal.

Orientación de la directiva

• La directiva prevé un crecimiento de los préstamos plano o de un solo dígito bajo en el cuarto trimestre, donde es probable que la disciplina en la fijación de precios y la concesión de riesgos limite el volumen a corto plazo.
• Si los tipos de interés siguen subiendo, la directiva prevé que el margen de interés neto se mantenga por encima del 4% de cara a 2027. Se espera que el aumento de tipos de la Reserva Federal de septiembre añada un par de puntos básicos al margen del cuarto trimestre, aunque la competencia en la fijación de precios de depósitos y préstamos podría afectar al resultado.
• Se prevé que los ingresos trimestrales por comisiones se sitúen en aproximadamente 14 a 15 millones de dólares hasta finales de año y de cara a 2027.
• S&T Bancorp no prevé superar el umbral de activos de 10.000 millones de dólares antes de finales de año. La directiva señaló que esto retrasaría el impacto de la Enmienda Durbin hasta mediados de 2028 como muy pronto.
• La directiva prevé limitar el crecimiento de los gastos no financieros para 2027 a aproximadamente un 3% interanual, lo que implica una tasa de ejecución trimestral orientada hacia 59 a 60 millones de dólares a lo largo del año.
• La empresa está evaluando la reanudación de la recompra de acciones en el cuarto trimestre mientras busca mantener los niveles de capital actuales.

Riesgos y aspectos a vigilar

La competencia tanto por préstamos como por depósitos se ha intensificado. La directiva señaló que la remuneración de los depósitos incrementales se sitúa en general en el rango bajo del 4%, con algunas ofertas por encima de ese nivel, lo que podría elevar los costes de financiación.

Los mayores tipos de interés y tasas de capitalización están afectando a las tasaciones inmobiliarias comerciales (CRE) y al análisis de flujos de caja. S&T Bancorp está exigiendo más capital a los prestatarios en lugar de reducir el precio de los préstamos para viabilizar las operaciones, lo que respalda el margen y la disciplina crediticia, pero limita el crecimiento.

Los activos bajo observación y clasificados aumentaron aproximadamente un 7% durante el tercer trimestre. El aumento se produjo principalmente en los préstamos bajo observación, mientras que los préstamos clasificados se mantuvieron estables. La directiva espera que las gestiones de resolución y regularización acerquen estos saldos a los niveles del segundo trimestre a lo largo del cuarto trimestre.

Los tipos más altos también aumentaron las pérdidas acumuladas en otro resultado global asociadas a la cartera de valores. El movimiento resultante en el AOCI redujo el valor contable tangible en 0,66 dólares por acción durante el trimestre.

Puntos destacados del turno de preguntas y respuestas con analistas

La directiva indicó que la cartera de préstamos en negociación era similar a su nivel al inicio del segundo trimestre. Las conversiones de construcción de inmuebles comerciales (CRE) deberían seguir respaldando los saldos, pero un crecimiento significativo de la cartera C&I llevará tiempo mientras los gestores contratados recientemente desarrollan relaciones con los clientes.

En cuanto a la dinámica del margen, la directiva señaló que el 36% de los préstamos se reprecian en el plazo de un mes. Se espera que esta exposición a tipo variable aporte un apoyo a los ingresos netos por intereses más significativo que el menor volumen de préstamos de nueva producción a tipo fijo o variable. Los diferenciales de los préstamos CRE en el tercer trimestre fueron de aproximadamente 230 puntos básicos sobre una referencia a cinco años, lo que generó rendimientos en el rango medio-alto del 6%.

Se prevé que la cartera de valores genere alrededor de 150 millones de dólares de flujo de caja anual. Aproximadamente 100 millones de dólares en reajustes de préstamos comerciales a tres y cinco años están programados para 2027, estimando la directiva un aumento potencial del rendimiento de 200 puntos básicos o más en dichos reajustes.

La directiva sigue considerando las adquisiciones bancarias como una prioridad estratégica cuando el precio, el momento, la afinidad cultural y la estructura son adecuados. Enfatizó que las decisiones de M&A se mantienen independientes de la gestión de la empresa en torno al umbral de activos de 10.000 millones de dólares.

Transcripción completa de la conferencia de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Welcome to the S&T Bancorp Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Now I would like to turn the call over to Chief Financial Officer, Mark Kochvar.

Mark Kochvar

Thank you. Good afternoon, everyone. Thank you for participating in today's earnings call. Before beginning the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors. This statement provides the cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation.

[Operator Instructions] You can also obtain a copy of these materials by visiting our Investor Relations website at stbancorp.com.

With me today are Chris McComish, S&T's CEO; and Dave Antolik, S&T's President. I'd now like to turn the call over to Chris.

Christopher McComish

Great. Mark, thank you, and good afternoon, everyone, and thank you for joining us today. We certainly appreciate the analysts and investors being with us. And as always, we look forward to your questions. Before we get into the numbers, I would like to take a moment and talk a little bit about our company and reflect on who we are as an organization. While we're obviously here to deliver results for shareholders, and we're very proud of those results, banks like ours also exist to make broader impact. We focus our company on the value -- our values. The values drive our culture and our culture drives our financial performance.

And not only is our financial performance strong, but once again, we were honored with an award most recently by the American Bankers Association for supporting military families. This marks the second year in a row we received this recognition. Our People Forward purpose is about making positive impact in the lives of those we serve, and this award is a powerful example of that purpose and action. We're proud to support military families and grateful to our employees for helping create stronger communities through the -- through their commitment and service. So to everyone who has contributed to our efforts to support military families, thank you. Your work continues to make a meaningful difference and is helping us build on our shared future together.

Now talking about the third quarter. Our results reflect another strong quarter of disciplined financial performance. We delivered record earnings per share of $1.09, up nearly 20% from a year ago and almost 7% from last quarter and record revenue of nearly $108 million for the quarter. Return metrics were also strong with ROA of 1.55%, ROE of just under 11% and a return on average tangible shareholders' equity of 14.81%. Further, PPNR increased 12 basis points to 2.01% for the quarter. Our results demonstrated the strength and consistency of our core earnings engine, producing higher profitability and stronger returns.

Our operating performance was also strong. Net interest margin expanded 7 basis points from the linked quarter to 4.06%, supported by higher loan yields and an improved funding mix. Importantly, we are seeing positive year-to-date operating leverage as well. Through the first 9 months of the year, revenue growth has outpaced expense growth, and our efficiency ratio has improved to 54.65% compared to 56.35% for the first 9 months of 2025. Asset quality trends remained favorable for the quarter with net charge-offs of $2.1 million or 10 basis points of total loans and nonperforming assets declined again this quarter by $3.7 million to just over $36 million or 0.45% of total loans plus OREO.

Turning now to Slide 4 and our balance sheet. Loan balances were essentially flat during the quarter. Growth was impacted by our decisions to balance overall profitability and net interest margin against loan volume. We also experienced lower line utilization during the quarter. While period ended loan balances were down slightly, average loan balances for the quarter were actually up $61 million. Deposits declined modestly during the quarter, largely reflecting seasonal trends. Similar to loans, period ending deposit balances were down, but average deposit balances were up over $56 million, including $24 million of average DDA growth compared to June 30, 2026.

Importantly, our funding profile remains a source of strength and has improved significantly this year. Demand deposits continue to represent a significant component of our deposit base at 28% of total deposits. As a reminder, we reduced brokered deposits by over $180 million year-to-date and currently have no brokered deposits on the balance sheet. Tangible book value increased $0.10 per share to $29.28 despite a significant increase in AOCI related to the impact of higher interest rates on our bond portfolio, which reduced tangible book value by $0.66 a share.

In summary, our third quarter performance demonstrates record results. We produced record earnings per share and revenue, expanded margins, achieved higher returns, delivered positive operating leverage and maintained favorable credit quality. These results reflect the disciplined execution of our strategy and most importantly, the dedication of our employees across the organization. As we move forward into the final quarter of the year, we remain focused on driving profitable growth, maintaining strong credit discipline, enhancing our operating efficiency and continue to create long-term value for our shareholders. I'm going to turn it over to Dave to provide more details on the balance sheet and customer activity as well as asset quality, and I look forward to your questions. Dave?

Dave Antolik

Great. Thank you, Chris. And continuing on Page 4 with the overview of the balance sheet. I'll start by emphasizing something that Chris just reflected on, which was our deliberate decisions to balance volume and margin. This is being done in support of our continued strong earnings performance. At the same time, we recognize that the competitive environment for both loans and deposits continues to evolve in response to changes in both the economic landscape and the interest rate environment. We remain committed to investing in our deposit franchise as the primary driver of both profitability and growth here at S&T. As an example of that commitment, we completed a significant upgrade to our online banking platform for all customers in Q3, and we'll roll out a similar significant upgrade for our mobile banking platform in Q4.

As depicted on the slide, loans were relatively flat during the quarter, reflecting reduced origination activity, particularly in the C&I banking space. Within commercial real estate, we saw balance growth of $65 million, driven primarily by construction projects that were fully funded and moved from commercial construction into the commercial real estate category. Construction loan funding remains an important contributor to the total loan growth, and we forecast funding levels and overall CRE growth to remain relatively consistent in Q4 and into Q1.

Balances in our C&I book declined by approximately $50 million in Q3. Impacting this result were a number of factors, including a slight reduction in revolving commercial utilization rates, the decision to exit several credits due to credit deterioration and lower-than-anticipated originations. Based on current pipeline activity, we anticipate flat to low single-digit loan growth in Q4.

Turning to Page 5. Asset quality metrics remained solid during the quarter. Our allowance for credit losses was stable at 1.16% of gross loans, reflecting the overall quality of the loan portfolio and our focus on maintaining improvements that we've made over the past several years. Nonperforming loans declined by $3.7 million, representing a very manageable 45 basis points of total loans plus OREO. Net charge-offs were modest at $2.1 million. Criticized and classified assets did increase during the quarter by approximately 7%.

However, it's important to note that the increase was primarily driven by growth in criticized loans, while classified loans remained stable. We view this distinction as important because it reflects proactive risk identification and monitoring rather than deterioration in our most severely rated credits. Overall, asset quality remains sound as we actively monitor the portfolio and adjust underwriting practices to reflect changes in the economic and interest rate environments.

I'll turn the program over to Mark.

Mark Kochvar

Thanks, Dave. Third quarter net interest income increased by $2.7 million or about 3% due to an additional day in the quarter and growth in average loan balances. That, combined with improvement in the yield on earning assets, up 9 basis points with both better loan and securities yields. Also a stable cost of funds, up just 1 basis point in the quarter. The net interest income and net interest margin improvement came with very little impact from the September Fed increase, which we expect will add a couple of basis points to margin in the fourth quarter. As our floating loan rate book will reprice within the month and deposit pricing -- repricing will lag some.

We expect net interest margin strength if rates continue to move higher and based on expectations for 2 to 3 additional rate increases over the year, the net interest margin rate should stay north of 4% into 2027. How much depends on the level of price competition on both loans and deposits, which we have seen increase over the past month or so. Noninterest income was essentially unchanged this quarter, down about $200,000.

Declines were mostly due to onetime items last quarter. Our expectations for fees as we close out the year and move into 2027 is approximately $14 million to $15 million per quarter. Given the slower loan growth this quarter, we don't expect to cross the $10 billion threshold before year-end, which would delay the Durbin impact to mid-2028 at the earliest.

Expenses were well controlled this quarter, decreasing by $1.1 million compared to second quarter. Marketing decreased due to higher promotional efforts in the second quarter and the favorable variance in other includes tax-related contributions, which were partially offset by an unfavorable variance in the Other Taxes line. We expect to manage our 2027 noninterest expense year-over-year increase to approximately 3%, which implies a quarterly run rate moving towards $59 million up to $60 million over the course of next year. The TCE ratio increased by 10 basis points this quarter as strong earnings and a slightly smaller balance sheet more than offset higher AOCI.

We paused share repurchases in the third quarter after the strong stock performance in late June and July and into July. But we do have a $100 million authorization in place and are evaluating a resumption of activity here in the fourth quarter with an eye towards at least maintaining current capital levels. Our regulatory ratios continue to be very strong with significant excess capital. We're comfortable that given -- even considering additional repurchases and further AOCI impact, we have more than sufficient current capital and generation capabilities to position us well for the environment and to enable us to take advantage of organic or inorganic growth opportunities that may arise.

Thanks very much. At this time, I'd like to turn the call back over to the operator to provide instructions for asking questions.

Operator

[Operator Instructions] Your first question comes from the line of Justin Crowley with Piper Sandler.

Preguntas y respuestas

Justin Crowley

Just want to start out on loan growth. I know line utilization can certainly swing around. But as far as the lower origination activity that you called out, what would you point to as the driver of that? Are you seeing more caution on the part of borrowers just given the level of rates? And how does that kind of get you thinking about growth? I know you gave some Q4 guide, but more medium term, especially if we get another couple of hikes out of the Fed?

Dave Antolik

Yes. Justin, it's Dave. I think there are a couple of factors, particularly from our side as we manage to this balance between volume and rate. So if I look at spreads on commercial loans -- newly originated commercial loans in Q3, they're very similar to Q4. We plan on maintaining that focus on maintaining spread in order to defend the net interest margin. So that will have an impact on growth.

At the same time, we continue to hire bankers in the C&I space. They're building their pipeline. So you saw C&I declines in Q3. We would expect a more active Q4 into Q1 and Q2 as we move into the new year with those new bankers on board. The other dynamic of being a CRE concentrated bank is as interest rates rise, cap rates do as well. So appraisal outcomes are being impacted by rising cap rates.

So that leaves us with a decision to reduce a spread in order to make a deal work from both a cash flow and loan-to-value perspective or to require additional capital from our borrowers. We've chosen to require the additional capital from our borrowers to make them fit. And we've adjusted our underwriting as well to include increased rates or elevated rates in our stress testing scenarios.

So staying disciplined around our underwriting and our desire to maintain the progress that we made relative to asset quality, along with this volume rate trade-off is going to impact us. And that's why we're guiding to slightly lower loan growth in Q4 and into the new year.

Justin Crowley

Okay. Got it. That's all super helpful. And I guess kind of along those lines, do you have any detail that you can sort of share on the pipeline, just kind of what that activity looks like through the quarter, where it ended the period? And then you made the comments about hiring C&I bankers and you've done plenty of that already. So just kind of curious what that mix looks like.

Dave Antolik

Yes. So the pipeline in total is very similar to where it was entering Q2. So end of Q2, beginning of Q2 and into Q3, very similar levels and here in early Q4. Again, we would expect the same momentum relative to CRE construction funding converting to permanent CRE balances. and then more emphasis on C&I. We just haven't seen significant pipeline growth in the C&I space. It just takes time for these new bankers to get up and running and start producing results.

Justin Crowley

Okay. Got it. And then maybe just one last one. You called out likely not crossing 10 by the end of this year. And I know you guys have been pretty clear in the past that you would be comfortable crossing organically. But I guess just maybe an update on the state of M&A, how you guys are thinking about that? And maybe just frame up for us just the opportunities out there and the sort of things that you're looking at.

Christopher McComish

Yes, Justin, it's Chris. We still -- our posture hasn't changed at all. We -- inorganic growth opportunities are things that represent a priority for us with the right structure with the right partner at the right time. And so our job is to continue to build relationships, which I think we've done an excellent job of and then be prepared, which we are for the opportunity as they present themselves.

So I think I've been pretty consistent every quarter is we kind of bifurcate this $10 billion asset threshold and M&A and we're going to grow the bank organically for the right reasons in the right way, which I think we've proven that we're doing. At the same time, we're going to continue to build relationships with partners that represent opportunities for inorganic growth, which I think we're doing very, very well. But those two things we don't think about in the same way. And so the market has not changed dramatically when you think about kind of the parts of the Midwest and the Mid-Atlantic that we're focused on. There have been a couple of transactions that have been announced. And our job is to continue to build relationships with the right opportunities.

Justin Crowley

Okay. And not that you guys are rushing to do a deal, I think you've made that very clear. But what would you say are some of the things that are maybe a hang-up in getting something? And again, I realize that's not the top priority, but just curious for color there.

Christopher McComish

What are some of the things that are a hang-up in what?

Justin Crowley

In terms of like in your conversations with sellers getting to the same place and being able to actually announce the transaction?

Christopher McComish

Yes. I mean it's the typical things that would be a hang-up in any situation. There's price, there's timing, there's qualitative factors, there's cultural fit. All of those things play into the discussion. So I can't say that there's anything -- any one thing. Obviously, the bank stock prices have run up and bank stock values have run up and people feel good about what they're doing and the way that they're running the company. So there's lots of external factors that could play into it as well.

You've got the election coming up in a couple of weeks. That could change things in Washington or if the perceptions that things are going to change in Washington, that could cause somebody to think differently tomorrow than they do about things. The interest rate impacts, right? You've got AOCI impacts today that you didn't have 6 months ago, and they may get more pronounced in the coming quarters. That could be an impact for a seller.

So there's lots of factors that go into it, succession planning issues for a leadership team. All of those things factor into the timing. The most important thing that we can do is run our company really well, prove to others that we know how to run a good bank and would be a great partner. And by delivering results that gives the people on the other side of the table confidence.

Operator

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

David Bishop

Just curious if you have a line of sight into maybe expected cash flows off the fixed rate loan portfolio maybe over the next year in securities and maybe what sort of spreads you might be looking at sort of roll-off yields versus roll-on yields?

Mark Kochvar

Over the past quarter or so, we've seen them be fairly even. A little bit of a pickup on the commercial side still, probably in the 10 to 15 basis points. The best turnover we're getting, although the volume is not heavy on the mortgage book where that's a good percent higher. Cash flow in the securities book over the next year, I mean, we have a fairly laddered portfolio, so it runs maybe $150 million or so a year on the securities book.

On the commercial loan side, I don't think we don't have any large concentrations that are coming off. We have some amount, I think it's in the $100 million range of kind of 3- and 5-year resets that will happen in '27. Pickup there is actually more significant, probably in the 200 or more basis point range. But on the fixed side, I don't think we have any walls coming at least we look at that from the credit perspective, there's nothing significant there.

David Bishop

Okay. Got it. And then I think you mentioned the recent C&I banker adds. Just curious if you were active this quarter in adding to the bench strength. And just curious if some of the recent hires are still sort of operating under non-compete or non-solicits they have to work through.

Dave Antolik

Yes. Yes, the majority of the hires have some kind of a non-solicit. It just takes time to work through those. We've also built within our business banking space. We've made several hires there to upgrade talent and to focus on the relationship strategy that we've taken in order to help emphasize the growth and strength of our deposit franchise.

Christopher McComish

Yes. So Dave, I mean, the activity has been both in commercial banking as well as on the business banking side.

David Bishop

Got it. And then maybe as you look at...

Christopher McComish

Your other question about the non-competes and non-solicit, typically, a banker would have something that comes with them for a period of time.

David Bishop

Got it. And then maybe looking at the -- I don't know if you guys track this, but the deposit pipeline, just curious how that maybe looks in terms of maybe near-term treasury management account wins, operating account wins.

Dave Antolik

Yes. We monitor that. Activity continues to be steady in that space. We're spending a lot of time focused in on capabilities in order to attract and retain deposit balances. So everything relative to payments -- we've got some leaders within the organization that are looking at additional capabilities. As I mentioned, the online banking update, the mobile rollout next quarter, doing things that build a competitive advantage on top of just table stakes, but doing things that we can get in front of our customers that can help them protect their cash, move money more quickly, more safely. And those are things that we're focused on from a fundamental perspective in order to help strengthen the deposit franchise.

Operator

Your next question comes from the line of Kelly Motta with KBW.

Kelly Motta

Maybe sticking along the lines of deposits, costs were really well controlled this quarter, granted growth is minimal, but interest-bearing deposit costs were only up 3 basis points with CD rates down. I'm just wondering what the incremental cost of new funding is at? And given the rate move later in the quarter, if there's -- how you're thinking through the incremental beta here on this next rate hiking cycle?

Mark Kochvar

Yes. So kind of, I mean, we do -- we have seen an increase in the competitive environment here, both on the CD side and on the money market side. There's a lot of kind of specials and back pocket specials out there. So we are defending our turf as much as we can there. So we're seeing at the increment kind of in the low 4s as a place where we can put a stake in the ground, but we are seeing some leaking higher than that. So we'll continue to evaluate that. But it's kind of in that low 4s where we have to spend to save the relationships in a lot of cases.

Kelly Motta

Got it. And I apologize if I missed it, but you weren't active on the buyback this quarter, which was telegraphed at the last quarter's call. I'm wondering given that capital is building with the balance sheet flat and your profitability, it's a high-class problem to have, but any incremental thoughts here on returning to market?

Mark Kochvar

Yes. I mean we are looking at it again. And again, the AOCI this quarter helped to keep the capital levels down, but we're certainly sensitive to keeping those in line and not letting those get too far ahead of us. So we're looking much more seriously at resuming the buybacks here in the fourth quarter. So we'll see how the price and if the market environment plays out, but it's under more consideration than it was in Q3.

Operator

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

Matthew Breese

A couple for me. The first, just I'm really interested in the whole NIM dynamics versus volume conversation. Could you talk a little bit about what on the spread front you're seeing, how much compression? I would have to imagine it's more than 50 bps for things to really kind of turn off. And then you had also mentioned kind of higher cap rates. I'm curious if you're seeing that already or if you're anticipating that? And what kind of moving cap rates do you expect?

Dave Antolik

Yes. I'll take the cap rate question. Yes, we're already seeing it impacting appraisal values. But more importantly, when we do our cash flow underwriting for commercial real estate deals, we stress test to the current rate environment. So you have seen this increase in term rates. So we apply a stress rate at 200 to 300 basis points above that, and that has had an impact on cash flow.

So again, we have decisions to make. We can say, well, we can live with a 120% cash flow coverage ratio where we might have a policy that says it needs to be 125%. So that we have an exception process if we need to do that. But we -- at this point, we've stayed disciplined because one -- the easiest way to make it work is to lower the rate on the loan. And that just hurts NIM, that hurts profitability.

And given the pressures that we have from a NIM perspective and pressures that we have to make sure that we're able to maintain the strong profitability that we've experienced, that has kind of outweighed the desire for growth for the sake of growth. So in the long run, we know we need to grow loans and deposits. That's key for us. But it starts with that deposit franchise and making sure that we're able to fund things efficiently and effectively. But yes, in the long term, we know we need to grow those bases, we need to grow loans and deposits.

Christopher McComish

Matt, I think if you look over -- it's Chris, over the past 12 to 15 months, you've seen more spread compression over that time in the commercial lending space, particularly within commercial real estate. The C&I business is more kind of event-driven customer-by-customer basis. But that's been fairly consistent contraction of margins from an origination standpoint. And then in this rising rate environment on the deposit side, you are seeing some more -- really more competitive intensity on the deposit side.

So I would say where a year ago, it was contraction on the loan side. Here, you're seeing it on both sides of the balance sheet more so than what we may have experienced in the past. So as Dave said, our job is to balance those two things. First of all, we're going to do everything we can to satisfy our customer relationship, retain a customer relationship and grow a customer relationship. But we also don't want to do things to stretch too far, certainly from a profitability standpoint as well as from a credit quality perspective. So it's a balance that we have to achieve.

We clearly feel really good about the income statement and the returns and everything. We're going to -- we need to continue to do work to balance the growth on the balance sheet.

Matthew Breese

Okay. And then maybe tying a couple of thoughts together. I think you answered Mr. Bishop's question with incremental cost of deposits is leaking into the 4% range. Is that to say that we're trying to push loan yields kind of into the 8% range, but competition spread compression is keeping it in kind of the 6%, 7% range, and that just doesn't work. Is that the right way to think about it? Incremental margins are tighter? What is the incremental margin today?

Mark Kochvar

Well, I said, I mean, incremental margin like on a commercial real estate deal, I mean, it's not -- we're not really match maturity that. I mean we're taking some interest rate risk on a nominal perspective, it's certainly way less than that. You're probably doing a commercial real estate loan at...

Christopher McComish

In and around 200 basis points.

Mark Kochvar

Yes. I mean it's -- for the quarter, it was 230. Yes. So 230 over, like, a 5-year, so you're looking at mid- to high 6s. If you think about it as funding off the front end of the curve, then you're looking at maybe a 250 incremental spread. But there's a lot more that goes into that.

For example, on the probably the biggest thing to impact us here as we move into the fourth quarter is just the Fed move at 25 basis points because there, we have 36% of our loans that are going to reprice within a month. And so there's a lot of activity there. There, we might only pass on 30% to 40% of that from a beta perspective to only a portion of our customers. So the pickup there on the margin side from a dollar perspective is much more significant than the amount of volume, which is just a fraction of that, that's happened out the curve where we have this tighter incremental spread.

So from a margin management perspective, we'll make a lot more margin and net interest income dollars by that repricing on the front of the curve because we've got $2 billion, $3 billion that reprice versus maybe $100 million or $150 million during the quarter on that fixed or ARM side that has that tighter incremental spread.

Matthew Breese

Okay. No, that's really great answer. If this continues...

Mark Kochvar

If you follow all of that, you're getting the question of the day award.

Matthew Breese

Yes. If this dynamic continues for, let's call it, the next 6 months into '27, I never really considered it, but is there the possibility that you stay under 10 for '27 as well?

Christopher McComish

We don't -- we're not thinking that way. We know we've got to be able to run this company in the low to mid-single-digit asset growth that's the markets that we're in, that's the opportunity. That's $0.5 billion of loan growth over a year, and that gets us meaningfully over $10 billion. So certainly, in the short term between now and the end of the year, we're so close, we would be -- it wouldn't make sense for us to go over right now. So regardless of it, we'll continue to manage the company appropriately where it stands today.

But our job is to appropriately grow the company. It's an interesting time, rising rate environment. The economy is what it is. There's certainly a lot of positives there, but we're just trying to -- we're working really hard to stay balanced. And we feel -- again, we feel really good about our performance. And we want to continue that and not meaningfully sacrifice it in the sake of volume.

Operator

Your next question comes from the line of Nicholas Holowko with Raymond James.

Nicholas Holowko

Most of them have been answered so far, given all the color. But maybe just a couple of follow-ups. It doesn't sound like there's any kind of credit concerns on the horizon, but just as you observe the trends within criticized and classified, is there anything that you would call out as something worth paying attention to as you're thinking about the impact of higher rates at this point? And I guess, as a side, how you're thinking about the direction of charge-offs from here, obviously, at a very low level year-to-date, but any color there would be great.

Dave Antolik

Yes. Sure, Nick. This is Dave. We don't see anything in the credit rating stack that would lead us to believe that credit results would deteriorate. We are closely monitoring the impact of inflation and interest rate movements on the portfolio. So we actively stress test at underwriting through the annual review process and through our diligent credit review process. So nothing that would lead us to believe that there would be some kind of a surprise relative to credit moving forward.

I did mention that there was a slight uptick in C&C assets in Q3, but we believe we have resolution or rehabilitation plans that will drive those levels back down to a more moderate level or more close to what they were in Q2 through the results of our activities in Q4. So nothing that stands out, Nick.

Nicholas Holowko

Perfect. And maybe as a follow-up, I think we've run through most of the key line items, but any thoughts on where fee income kind of trends from here and into next year, especially now that we shouldn't be anticipating the Durbin impact until 2028?

Mark Kochvar

Yes. So I mean, just from a run rate basis, we would expect to stay pretty similar to where we're at. We're kind of in that mid-$14 million to pushing on $15 million. So over the course of the year, we'd expect to see us kind of move forward through to that level. Again, to the extent we were thinking that the cross would happen in '26 and the Durbin would roll off kind of halfway through '27, we don't think that's going to happen. So that supports a better, more consistent run rate, at least in '27 for the full year. But other than that, we don't have any significant plus or minus on the fee side.

Operator

There are no further questions at this time. I would now like to turn the call over to Chief Executive Officer, Chris McComish for closing remarks.

Christopher McComish

Great. Well, listen, thanks, everybody, for being on the call with us and your interest in our company and the really good and thoughtful questions. Again, as I said, we're really proud of the performance we delivered in Q3. And we're going to continue to run this company in a way that, as I started out with and aligned with the values that we have that builds our culture that delivers the results. And we look forward to closing out the year strong and connecting with you over the coming weeks. So have a great rest of the day.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.