FIBK 2026年第3四半期決算説明会：マージンが10四半期連続で拡大

FIBKが発表した第3四半期純利益は、前四半期に店舗取引益が含まれていたことから減少したものの、純利息収入と純金利マージンは引き続き改善しました。経営陣は、収益戦略の主な牽引役として、コア預金の増加、資産の再価格設定（リプライシング）、および積極的な株主還元を強調しました。

主要なポイント

• 2026年第3四半期の純利益は6,220万ドル（希薄化後1株当たり0.65ドル）となり、2026年第2四半期の8,390万ドル（同0.87ドル）から減少しました。
• 純利息収入は前四半期比2%増の2億620万ドルとなりました。完全課税相当ベースの純金利マージンは7ベーシスポイント上昇して3.55%となり、10四半期連続の拡大を記録しました。
• 貸出金は、間接貸出の減少、営業エリア外与信の削減、および住宅ローンポートフォリオの縮小を反映し、2億9,600万ドル減少しました。経営陣は、第4四半期に商業ローンの返済がさらに増加すると予想しています。
• 預金総額は5,280万ドル減の214億ドルとなりましたが、高コストで完全担保付きの大口顧客1社の離脱を除くと、前四半期比で増加しました。無利息預金は2四半期連続で増加しました。
• FIBKは第3四半期中に約200万株を約7,600万ドルで自社株買いを行いました。2025年8月に同プログラムを開始して以来、自社株買いは累計で約1,000万株、3億4,700万ドルに達しました。
• 経営陣は、第4四半期の純利息収入が業績予想の中央値で増加すると予想していますが、前四半期比でのマージン改善幅は第3四半期よりも小さくなると見込んでいます。

主要財務データ

事業および業績の動向

FIBKはリレーションシップ・バンキングを中心に、貸借対照表と地理的拠点の再構築を継続しました。非戦略的と判断した一部の市場から撤退し、営業エリア外での貸出を削減するとともに、地域の成長機会に応じて店舗の開設や統合を推進しました。

第3四半期の貸出金は2億9,600万ドル減少しました。減少の内訳は、間接貸出が4,770万ドル、保有する営業エリア外ポートフォリオが6,490万ドル、住宅ローンが3,680万ドルとなっています。経営陣は、予想されていた返済の一部が第4四半期初頭にずれ込んだと説明しました。

預金総額の減少が報告されたものの、預金構成は改善しました。高コストの大口顧客1社の離脱は、第3四半期のマージン拡大に約3ベーシスポイント寄与し、純利息収入に重大な影響は及ぼしませんでした。経営陣によると、顧客獲得は特にロッキー山脈地域で引き続き堅調であり、新規取引により営業預金や関連サービスがもたらされているとのことです。

資産のリプライシング（再価格設定）は引き続き収益の牽引役となっています。経営陣は、新規貸出利回りが6%台半ばであったことを示し、投資ポートフォリオの5年超のセグメントで約40〜50ベーシスポイントの利回り向上（ピックアップ）があったと言及しました。9月の月間有利息預金コストは1.51%となり、四半期全体の1.49%から上昇しました。

与信指標は概ね安定して推移しました。要管理債権は前四半期比で210万ドル（0.2%）増加したものの、前年同期比では19%減少しました。不良資産（NPA）は当四半期中に6%減少しました。未実行の建設融資コミットメントの増加により未実行引当金が増加しましたが、経営陣は対象となるプロジェクトについて、適正な価格設定と適切な構造を備えていると説明しています。

FIBKは2027年上半期にコロラド州で2店舗を開設し、2026年第4四半期に3店舗を統合する計画です。経営陣は、現在のリレーションシップ・マネージャーの能力、テクノロジー、インフラによって、大幅な追加投資を伴うことなく計画された成長を支援できるものの、通常のインフレによる費用の増加は見込まれると述べています。

経営陣の業績予想（ガイダンス）

経営陣は、第4四半期見通しの中央値において、資産のリプライシング、収益資産の安定化、および無利息預金の比較的堅調な推移に支えられ、前四半期比での純利息収入の増加を想定していると述べました。

同社は、第4四半期の純金利マージンの前四半期比での改善幅が第3四半期よりも小さくなると見込んでいます。9月の利上げに伴う預金価格の改定は第4四半期により本格的に反映される一方で、高コストの大口預金の離脱による効果はすでに第3四半期に取り込まれているためです。

当面の貸出金残高は、商業ローンの返済、間接貸出の継続的な償還、ならびに取引関係のない与信および営業エリア外与信からのさらなる撤退により、圧迫を受け続ける見込みです。質疑応答において、経営陣は第4四半期の貸出金は減少傾向、預金は横ばいから増加傾向になると特徴付けました。

固定金利資産のリプライシングと投資ポートフォリオからのキャッシュフローは、2027年に向けて収益資産の利回りを下支えすると期待されています。経営陣は、ローンの満期到来により2027年にはリプライシング効果がより顕著になる可能性があると述べましたが、正式な2027年のガイダンスは提示しませんでした。

リスクおよび注視すべき点

• 商業ローンの追加返済や営業エリア外与信からの撤退により、報告上の貸出金残高が引き続き減少させられ、収益資産の構成が圧迫される可能性があります。
• 金利の上昇は、既存の借入人や今後の満期到来に影響を与える可能性があります。経営陣は、高金利に対する借り換えのストレステストを実施し、要管理債権を定期的に見直していると述べています。
• 第3四半期中に金利が上昇したことで投資ポートフォリオの含み損は拡大しましたが、見込まれる元本キャッシュフローは期間延長が限定的であり、比較的安定して推移しました。
• 第4四半期の預金の季節性は、四半期前半に強く後半に弱くなる傾向があり、年末の残高に不確実性をもたらしています。
• 純貸倒損失額は990万ドルへとわずかに増加した一方、貸倒引当金繰入額には執行済み貸出金および未実行の建設融資コミットメントに対する引当金の増加が含まれています。

アナリスト質疑応答の要点

預金の増加：公表された業績予想に僅かな修正があったものの、根底にあるコア預金の見通しに変更はないと経営陣は述べました。無利息預金残高および顧客数の増加が、同社の預金基盤に対する自信を支えています。また、同社は預金増強のために金利プロモーションを行っていないことも強調しました。

純利息収入：2025年第4四半期および2026年第2四半期の店舗取引によって削減された約10億ドルの預金を調整した後、経営陣はFIBKが純利息収入の拡大フェーズに入ったと考えています。継続的な資産のリプライシングと預金の安定化がこの傾向を後押しすると見込まれています。

資本配分：経営陣は、FIBKが依然として余剰資本の状態にあり、積極的な資本配分を継続する意向であると述べました。貸借対照表の拡大（バランスシート成長）が資本の最優先かつ最も利益成長に寄与する活用方法であり続けますが、四半期ごとの自社株買い目標は提示されませんでした。

貸出金の増加：商業ローンの新規実行額は前年同期比で大幅に増加したものの、根底にある商業ローンポートフォリオはほぼ横ばいからわずかに減少しています。経営陣は、当行が転換点（インフレクション・ポイント）に近づいており、成長を支えるための十分なリレーションシップ・マネージャーのキャパシティを備えていると考えています。

効率性：経営陣は、将来の成長に向けた大幅な投資不足はないと見ています。通常の昇給やインフレに伴い経費が増加する可能性はありますが、店舗の最適化とスケールの改善は引き続き最優先の取り組み事項です。

決算説明会文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

After today's prepared remarks, we will host a question and answer session. [Operator Instructions] I will now hand the conference over to Nancy Vermeulen. Please go ahead.

Unknown Speaker

Thank you, Megan. Good morning, and thank you for joining us for our third quarter earnings conference call. As we begin, please note that the information provided during this call will contain forward-looking statements. Actual results or outcomes might differ materially from those expressed by those statements. I'd like to direct all our listeners to read the cautionary note regarding forward-looking statements contained in our most recent quarterly report on Form 10-K filed with the SEC and in our earnings release, as well as the risk factors identified in the quarterly report and our more recent periodic reports filed with the SEC. Relevant factors that could cause actual results to differ materially from any forward-looking statements in the earnings release and in our SEC filings. The company does not undertake to update any of the forward-looking statements made today. A copy of our earnings release, which contains non-GAAP financial measures, is available on our website at fibk.com. Information regarding our use of the non-GAAP financial measures may be found on the body of the earnings release, and a reconciliation to their most comparable GAAP financial measures is included at the end of the earnings release for your reference. Again this quarter, along with our earnings release, we've published an updated investor presentation that has additional disclosures that we believe will be helpful. The presentation can be accessed on our investor relations website, and if you have not downloaded a copy yet, we encourage you to do so. Please also note that as we discuss our financials today, unless otherwise noted, all of the prior period comparisons will be with the second quarter of 2026. Joining us from management this morning are Jim Reuter, our Chief Executive Officer, David De La Camera, our Chief Financial Officer, and other members of our management team. Now, I'll turn the call over to Jim Reuter. Jim.

James Reuter

Thank you, Nancy, and thank you for joining us on our earnings call today. In the third quarter of 2026, we continued to execute against our multiyear strategic plan, further improving the long-term earnings power of the franchise. Net interest margin expanded for the 10th consecutive quarter and non-interest-bearing deposits continued to increase, reflecting our focus on relationship growth. We maintained our disciplined approach to long-term value creation, investing in the markets where we see the greatest opportunity to deepen customer relationships and grow core deposits, while enhancing shareholder returns through additional share repurchases. The execution of our multi-year strategy has required deliberate changes to both the composition of the balance sheet and our geographic footprint. We have exited certain non-strategic markets, initiated a long-term branch optimization program that includes both targeted expansion and consolidation and refocused lending activities to customers that align with our relationship banking model. Our primary objective is to protect and strengthen the quality of the deposit franchise and add new customers. As we expected, new client acquisition remained strong in the Rocky Mountain region. New production continued to be concentrated among relationship-based clients represented by operating deposits and associated services. Going forward, our capital, talent, and branch investments will increasingly follow markets where we have an existing franchise advantage or an attractive opportunity for relationship growth. We believe the current expense base supports a production level that would stabilize earning asset mix when producing at capacity. While we expect our new teams to follow a typical ramp-up period, we believe the banking organization now has the capacity and market coverage required to support growth. This improvement operating model strengthens one of our key differentiators, combining the relationship focus, local decision making and high touch service of a profitable community bank with the sophisticated treasury, commercial banking and wealth management solutions of a larger institution. We have seen meaningful improvement in criticized loan levels over the past 12 months, which reflects our long-term commitment to disciplined credit decision making. Credit was stable in the third quarter, with little change in criticized loans and a modest reduction in nonperforming assets. Effective risk management continues to be a priority for us as strong credit discipline combined with a high quality customer deposit foundation will support performance in all economic cycles. We believe our low cost deposit base, which is granular across a large number of customers and geographies, provides a competitive advantage over the long term. In the third quarter, we also continued to optimize our capital structure through prudent execution of our share repurchase program. We repurchased approximately 2 million shares during the quarter, bringing total repurchases to approximately 10 million shares since the program began in late August 2025. Together with our dividend, repurchases are an important component of our total shareholder return. Through ongoing fixed asset repricing, capital deployment, operating model optimization, and continued focus on relationship banking, we are building a more efficient organization. We remain confident in our ability to continue to deliver improved earnings over time. And with that, I will hand the call over to David. David.

Unknown Speaker

Thanks, Jim. I'll start with our results for the quarter. The company reported net income of $62.2 million, or $0.65 per diluted share, in the third quarter, compared to $83.9 million, or $0.87 per diluted share in the second quarter. Net interest income increased by $4 million compared to the prior quarter, or 2% to $206.2 million. Yield on average loans increased 5 basis points to 5.67% and total funding costs decreased 4 basis points compared to the second quarter. Deposit costs benefited from the exit of a large high cost fully collateralized customer where our long term return objectives were not being met. Excluding this balance, deposits increased during the quarter. This was a unique customer from both the size and pricing perspective. That exit contributed an approximately 3 basis point improvement to our net interest margin in the quarter and did not have a material impact on net interest income. Our fully taxable equivalent net interest margin was 3.55% for the third quarter compared to 3.48% during the second quarter and 3.36% during the third quarter of 2025. As Jim mentioned, this marks our 10th consecutive quarter of net interest margin expansion and fixed asset repricing should remain a tailwind to earning asset yields and underlying margin improvement into 2027. Over the past few years, we have used cash flows from the investment portfolio to eliminate wholesale borrowings, and since we began reinvesting in 2025, we have targeted shorter duration, reducing the balance sheet sensitivity to changes in interest rates. Based on our current interest rate risk modeling, the balance sheet is broadly neutral from a net interest income perspective in both the near term and over the next 12 months, while continued asset repricing and reinvestment at current market yields provide sequential support to earning asset yields. Non-interest income was $43.3 million, a decrease of $18.4 million from the prior quarter. This decrease primarily reflected the $19.5 million gain recognized in the second quarter from the Nebraska branch transaction. Non-interest expense was $157.1 million for the third quarter, a decrease of $1.8 million from the prior quarter. Moving to the balance sheet, loans decreased by $296 million in the third quarter. A number of payoffs we anticipated in the third quarter shifted into the early fourth quarter. As we look to the loan decline in the quarter, this was influenced by a $47.7 million decline in indirect lending loans, a $64.9 million decline in the retained out-of-market portfolio and a $36.8 million decline in the residential portfolio. While total deposits decreased $52.8 million to $21.4 billion in the quarter, when adjusted for the exit of the one large collateralized deposit, deposits increased quarter over quarter. Our deposit mix further improved in the quarter as non-interest-bearing balances extended the increase we experienced in the prior quarter. The ratio of loans held for investment to deposits was 65.4% at the end of the quarter compared to 66.6% at the end of the prior quarter and 70.1% at the end of the third quarter of last year. Turning to credit, net charge-offs increased by $0.2 million in the third quarter to $9.9 million, or 28 basis points of average loans. The company recorded a $10.5 million provision for credit losses in the third quarter, driven primarily by the charge-offs, a 2 basis point increase in funded loan ACL to 1.30% and higher unfunded allowance due mostly to an increase in unfunded construction commitments. Criticized loans were stable in the quarter with an increase of $2.1 million or 0.2% from the prior quarter and declined 19% from a year ago. Non-performing assets declined 6% during the quarter. We repurchased approximately 2 million shares in the third quarter, totaling approximately $76 million, and repurchases since the initiation of the program in August 2025 totaled about $347 million. Share repurchases remain a key capital allocation tool to drive shareholder value. The investment portfolio unrealized loss position increased with interest rates during the quarter, while expected principal cash flows remained relatively stable with limited extension. Our strategy diversifies risk through shorter maturities, floating rate products, and lower capital intensity instruments. Together with natural back book runoff, this improves our ability to manage interest rate exposure. While meaningful, the recent move in interest rates has not changed our near-term strategic capital deployment plans at this time, and all else being equal, should support asset repricing and medium-term earnings. Finally, we declared a dividend of $0.47 per common share, which equates to a 5% annualized yield based on the average closing price of the company's common stock during the third quarter. Our common equity tier one capital ratio ended the third quarter at 14.36%, a decrease of 18 basis points from the prior quarter. Our leverage ratio is 9.49% at the end of the third quarter, compared to 9.59% at the end of the prior quarter. Our capital levels provide us with the flexibility to enhance shareholder returns while supporting long-term accretive growth. Moving to our guidance. In line with the prior quarter, our balance sheet expectations continue to include more meaningful payoffs within our commercial loan portfolio in the fourth quarter and further success in exiting some non-relationship and out-of-market credits. On the deposit side, our guidance continues to incorporate the positive trends within customer acquisition. Our net interest income guidance at the midpoint assumes expansion in NII into the fourth quarter as we continue to benefit from meaningful repricing, a stabilization of earning assets, and relatively strong non-interest-bearing balance performance. The September rate increase benefited asset yields late in the third quarter, while the related deposit repricing will be more fully reflected in the fourth quarter. As a result of that, as well as the impact from the larger high-cost deposit exiting in the third quarter, we expect a smaller sequential margin benefit in the fourth quarter than we realized in the third quarter. Our expense forecast includes continued investment in areas that support our customer acquisition efforts, and as we referenced last quarter, we will be opening two branches in Colorado in the first half of 2027 and are consolidating three additional locations in the fourth quarter of this year. We will maintain our expense discipline and have been pairing noted investments with efficiencies. Over the prior 12 months, net interest margin has improved 19 basis points, and average deposits per average diluted share has improved approximately 3%. Average deposits per branch improved 6%, and net interest income per share improved 8% compared to the third quarter of 2025. With that, I'll hand the call back to Jim.

James Reuter

Thank you, David. Our multi-year strategy continues to gain traction across the franchise and enhance our long-term earnings power. Our capital deployment remains disciplined, balancing investments in high-opportunity markets to support future growth with share repurchases. We believe that the continued growth and non-interest-bearing deposits that we saw in the third quarter provides encouraging evidence that our relationship banking efforts are resonating with clients. Our go-to-market strategy has increased scalability, improved market alignment, and expanded banker capacity to fulfill our primary objectives of enhancing our best-in-class deposit franchise. We are well positioned to execute on our strategy across a range of interest rate environments. We look forward to future earnings calls as disciplined relationship growth and earning asset yield expansion increasingly contribute to results. And now I would like to open the call for questions.

Operator

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. [Operator Instructions] 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&A roster. Your first question comes from the line of Robert Andrew Terrell with Stephens. Your line is open. Please go ahead.

質疑応答

Andrew Terrell

Good morning, Andrew. I wanted to start just on deposits. I appreciate the color around some of the moving pieces here in the third quarter. Looks like the fourth quarter guide or the full year guide kind of implies you step up from here. I think if I recall, there's usually some seasonal headwinds in the fourth quarter. Can you just talk through what you're seeing kind of boots on the ground from a deposit standpoint or deposit growth standpoint here in the fourth quarter? And what kind of gives you confidence about deposits maybe inching up?

Unknown Speaker

Yes, sure, Andrew. I think as you look to kind of the midpoint of that guide in the fourth quarter, that's generally implying about flat year over year when you back out some of those branch sales and that large deposit. And then as we look kind of to the underlying core, we're seeing that strength and non-interest-bearing. Our seasonality tends to be strong early in the fourth quarter, a little bit weaker late. So we think kind of putting those together, it's the right range for us to land in.

Andrew Terrell

Got it. Okay. And then, there's a question. I think you called out towards the end of your remarks, just the NII per share growth over the past 12 months. But when we look at it just straight NII dollars, it's down versus 3Q '25 when you look at it. When you look over the next 12 months, can you get NII growth without balance sheet growth just as a function of what you see in terms of margin expansion? Or do you really need to get back to balance sheet growth in order to drive actual dollar NII growth?

Unknown Speaker

I think if you look at major B-transact on the second one and you do a B-6, so those are not a B-6. So kind of adjusting. I think if you look back over the past year, there's a few different things. The two major being the branch transactions, right? So we had the branch transaction in 4Q '25 and then the second one in 2Q '26. And so those together took approximately $1 billion out of deposits. And so if you kind of adjust the NII for that, I think we're already at a point of expanding and then quarter over quarter, given the NII expansion there, and then our view that we think the deposit profile is stabilized, we view it as we're into the NII expansion part of the story.

Operator

Your next question comes from the line of Matthew Clark with Piper Sandler. Your line is open. Please go ahead.

Matthew Clark

Just on the asset repricing, the slide that you have in your deck is very helpful, but can you give us a sense for the pickup and spreads we should assume given where rates are today?

Unknown Speaker

Yes, sure. So investment portfolio side, I think about 5 year plus, we'll call it the 40 to 50 basis point ranges is right. We have a combination of again, variable and belly of the curve type of instruments. And so that's an approximate range on that front. On the lending side would point to third quarter, excuse me, new loan yields, kind of in that mid 6% range. There's of course been a lot of curve volatility, but that kind of can give you a broad understanding of where spreads are.

Matthew Clark

Got it. And then just on deposit costs. If we could get the spot rate at the end of September, given that large balance that left and then your deposit beta assumption on the way up here, I think you did 27% on the way down.

Unknown Speaker

Sure. And so on the cost of deposits, interest-bearing deposit cost for the full month of September was 151 versus 149 in the quarter. And then as we think about the forward expectation, I would view it as generally aligned with the disclosure we have in our Q and our NII modeling. And so I think that's the right way to think about it.

Operator

Your next question comes from the line of Jeffrey Rulis with D.A. Davidson. Your line is open. Please go ahead.

Jeff Rulis

Good morning. I wanted to check in maybe on the buyback appetite. If we think about 10 million shares roughly in the last year. I want to look forward to '27 and maybe the dynamics change as you as you turn to growth at some point, a resumption of. And so just want to kind of check in with that appetite level and understanding that that could alter over the course of the year, but just initial thoughts on, you know, roughly half that level or something matching it in any initial thoughts.

Unknown Speaker

Sure, Jeff. So I think a couple, couple things. I think near term, you know, we have what I would view as a holistic approach to capital planning. So kind of given the different factors, including visibility into the investment portfolio, cash flows, improving profitability, et cetera. We're, can we continue to be comfortable deploying capital. So I think, you know, we continue to be in that active part of the capital deployment plan. I think as we go forward, our levels continue to support meaningful deployment. Balance sheet growth is always going to be the first and most accretive option for capital allocation. And so as we see that low cost core deposit and lending growth, that would at some point impact capital deployment. But in the near term, we continue to be in an excess capital position. So we intend to continue deploying capital.

Jeff Rulis

David, just to kind of quantify that, 2 million shares, a quarter, 5 million shares, for the next couple quarters is sort of the view. And then thereafter, maybe lessening as as growth comes on. Is that oversimplifying?

Unknown Speaker

I think each quarter will depend on the facts and circumstances. We don't have a specific quarterly target. It'll depend on market factors, what we're seeing for balance sheet growth, et cetera. But I think I would just point you to, we continue to be and intend to be active, but facts and circumstances will develop over time.

Operator

Your next question comes from the line of Andrew Liesch with Benchmark Company. Your line is open. Please go ahead. Thank you. Andrew, can you check if your mic is muted, please?

Unknown Speaker

Can you hear me now? Oh, sorry about that. No, my question was really on the, it sounds.

Operator

Yes, we can. Thank you.

Unknown Speaker

Like there were some payoffs expected in the loan book in the third quarter that were pushed into the fourth. Can you maybe quantify that amount so we know where we're starting off with here at the in the fourth quarter for loan balances?

Unknown Speaker

Yes Andrew, I think I would just point you to kind of if you look to where our guidance is for year end, that's informed by some of our view of payoffs and we've seen some of those early October and so those have come through as expected. I think if you look at where those are coming from, we've talked about that out-of-market portfolio that continues to be a main driver and something we're looking at, actively working through and having success there. And then, you know, continue to see that indirect amortization as well as other activity. Not a specific figure there, but I think the midpoint of the loan guide is a reasonable point, and that's what we think is our best estimate.

Unknown Speaker

Got it. And then the commentary on earning assets stabilizing, is that really a comment on deposit growth and where deposit balances are? And I guess, how does deposit growth look here going into the fourth quarter and into next year? So should we start to see earning assets rise?

Unknown Speaker

Yes, so earning assets from here is a function of deposit growth, of course, being. I think from an underlying deposit perspective, we've seen our second consecutive quarter of non-interest-bearing expansion, both periodically and on a year-over-year basis when adjusted for the sold deposits. And so we're very pleased with that. It's an important part of our strategy. And if you look to how we're executing out in the market, it's a full relationship approach. And so that's where we think that's very important. And so yes, you're right, it is a function of deposit growth. And then I think too early to provide a '27 guide, but our focus continues to be on enhancing and growing that deposit franchise. And so our intent is to grow our assets.

Operator

Your next question comes from the line of Kelly Motta with KBW. Your line is open, please go ahead.

Kelly Motta

Hey, good morning. Thanks for the question. Maybe sticking on the topic of deposits, the guide was reduced slightly and I know we're maintaining deposit balances and relationships is really key for the longer term outlook for the franchise. Just wondering, looks like it was mostly on the rate side, but if you could speak to that drivers of the reduction in the deposit guide for the year.

Unknown Speaker

Yeah, I think just a couple comments. One, I would say just kind of tweaking is in zooming in as we get closer at the end of the year, but two we talked about that large deposit exiting. So our actual expectation and view of what we'll call the underlying core deposits hasn't changed. We're continuing to see strength there. And again, a couple quarters in a row if not in the next.

James Reuter

Interest-bearing growth. And Kelly, one thing I would add to it is we've seen an improvement in the growth and number of clients as well, which is, you know, I think a direct result of some branding efforts and also frankly our bankers doing a great job of expanding relationships and as you know, growth and number of clients begets growth and deposits in the long term and generates new fee income opportunities. We're happy with what we're seeing at the core of the bank.

Kelly Motta

Yes, yes, totally, totally understood. I think switching to credit cards is a credit quality. You know, criticized remain elevated, although overall we haven't seen much by way of increased credit costs and the charge-offs have been within guide. Just wondering if you're starting, if it how it how you're thinking about the overall outlook for the health of the portfolio in the higher rate environment, if there's anything at the margins where you're seeing incremental stress, and then also wondering, you guys have been so proactive on the credit front, if that's been overall incrementally probably helpful here as we go into this rate cycle.

James Reuter

Yeah, thanks for the question, Kelly. Yeah, you're right. We saw less improvement in credit quality when compared to the previous quarter. However, I think I mentioned it in my opening comments were down in criticized loans 18% year over year and you know as I said on previous calls it's a dynamic part of the bank so it won't move in a straight linear path quarter to quarter but directionally over the long term, we anticipate continued improvement in that area and you know we remain focused on that primary source of repayment and you know, that focuses on whether the property and or businesses performing as expected. As to the higher rates, that's a good question. And, you know, just offer a few thoughts on that front. There's no doubt higher rates can impact existing loans on the books. You know, as to the criticized loans, these loans are consistently reviewed by our bankers and credit teams to discussed and so you know, confident we have a good handle on the impact of higher rates across all economic risk factors. And then in addition, we stress upcoming maturities for higher rates. Becomes part of the renewal conversation with borrowers as we approach the maturity date, so you said it. I'm a big believer in proactive credit risk management and I think you've seen that over the past two years because that's what sets you up to perform well in all economic cycles.

Kelly Motta

Great. Thank you so much for the callers. I'll step back.

Operator

Your next question comes from the line of Timothy Coffey with Janney Montgomery Scott LLC. Your line is open, please go ahead.

Timothy Coffey

Thank you. Derek, can we follow up on the kind of topic on the mix of earning assets? Because as we see in the last several quarters, the percentage of loans and earning assets has come down, and now you've built up a securities portfolio that's putting off regular cash. Is it possible we could start to see the mix of earning assets to start to turn towards more loans relative to the sources of liquidity?

Unknown Speaker

I think near term that's not our expectation, you know, in the fourth quarter. So the guidance, our loans decline, deposits, you know, flat to higher in the fourth quarter. And so, you know, I think into '27. It'll just be depend on pace of lending versus deposit growth. Of course, we're not going to provide a forecast today or a guide today on '27. But we're seeing good underlying activity in lending. But I think near term, we would expect continued pressure on the mix. Long term, our intent is to stabilize or improve that.

Timothy Coffey

Okay. And then a question about the chart on page six, the average deposits per branch. In the current rate environment, I mean, is that is $79 million the right number per branch given that the break-even point for a branch is probably higher since interest rates are higher?

James Reuter

Yeah, I mean, the break-even rate per branch depends on the cost of the branch and if you look at our footprint, we would have some pretty low cost branches in the mix. You know, I think the median peers about $150 million, and you know, we've always said given our footprint of higher mix of some rural and mid markets, our average branch size will not look like that of the peers. But like I said, the underlying expense structure is also different. But, you know, the branch optimization efforts you've seen us deploy here, whether it's closing and consolidating, that's helped improve that about 10% over the last 18 months. And, you know, our goal would be to improve that number over time.

Timothy Coffey

All right, great. Thanks, gentlemen.

Operator

Your next question comes from the line of Samuel Varga with UBS. Your line is open. Please go ahead.

Samuel Varga

Hey, good morning. I just wanted to go back to the comments you just made on the earning asset mix and how it's shifting towards securities in 4Q. I guess in that sort of backdrop, the implications of margin? What is the true incentive for pushing deposit growth?

Unknown Speaker

So I think deposit growth is always going to be our number one priority that's what creates near and long term franchise value and so I think across all environments will look to drive customer acquisition and deposit growth and then the mix again fourth quarter is just our view that we see some near term payoffs, especially in that out-of-market and other portfolios. And so that we think drives reported lending balances around the fourth quarter.

James Reuter

Yes, and I would just add that we're not running rate promotions to grow deposits. That's why we called out its two consecutive quarters of growth in non-interest-bearing deposits. That's the granular, low-cost funding that I think is the power of the franchise, and we're going to keep building on that.

Samuel Varga

Thank you for that. And just a quick one on unfunded commitments. Could you give us an update for how those trended in 3Q and what the pipelines look.

Unknown Speaker

Sure. So we saw an increase in the third quarter in that construction line, and we noted that as a driver of the increase in unfunded provisions. So we were pleased with that. Those were a variety of well-priced, well-structured projects. And so it's an example of some of that underlying improvement we're seeing in customer acquisition in production, that'll of course fund more as a '27 impact, but we're seeing some encouraging signs there. Again, would point to that unfunded provision increase.

Samuel Varga

Thank you for taking my question.

Operator

Your next question comes from the line of Terence McEvoy with Wells Fargo. Your line is open. Please go ahead.

Terence McEvoy

Great. Good morning. First question, underneath the planned loan payoffs and paydowns, what is the underlying growth? And I'm trying to get a sense for what you refer to on your guidance slide as improved commercial production. And is that component, is that growth accelerating and can that accelerate? Acceleration of growth continue into next year. We'd love to have some context behind that.

Unknown Speaker

Sure, so I'll start with a couple of comments. I think as we look year over year, we have seen a material increase in commercial production. I think there's one more increase we're looking for to have that underlying portfolio grow. But from a reported perspective and noted it a little bit in the prepared remarks, there are a series of portfolios in the near term impacting reporting balances with reported balances, excuse me, which points to that underlying commercial book being closer to flat but still modestly declining at this point as we look to '27, would note the addition of RMs and capacity we think sits in the business and so. You know, we're not today giving a specific point. We think that turns, but we think we are closer than further away. And we think we have the right capacity in the business.

Terence McEvoy

Great, thank you. And that's what I was looking for. And then maybe as a follow up, what are the remaining opportunities to improve efficiency? And basically, do you think you can generate positive operating leverage next year without meaningful balance sheet growth?

Unknown Speaker

Sure. So, I would say again, still too early to provide a '27 guide, but I think as we look to our margin, think through '27, there's continued fixed asset repricing. I think there it actually could become a little bit more meaningful in 2027 as you look to the quantity of loan maturities and then continued significant cash flow in the investment portfolio and a supportive yield curve and then stability and modest growth in the underlying core low cost deposit franchise is helpful. The combination of those we think is very powerful to NII, and again, just from a high level perspective, there's a significant quantity of trapped earnings in those assets that are curing currently and through '27 and on. And so we think we're well positioned. Again, don't want to provide a '27 guide today, but we think there are some very strong underlying factors supporting '27 and forward.

Terence McEvoy

Appreciate that. Thanks for taking my questions.

Operator

Your next question comes from the line of Jeffrey Rulis with D.A. Davidson. Your line is open. Please go ahead.

Jeff Rulis

Thanks, Jim. I just wanted to circle back to a comment you made in the prepared remarks about the expense-based supporting earning asset growth from here. You've had the branch sales in the rear view and you've kind of been bouncing non-interest expense in that $157 million, $158 million a quarter. Maybe trying to get a sense for what expense growth looks like. I mean that maybe that comment implies that you kind of hold the line and can grow off that. Any other detail to help on what I think what you meant by that would be helpful.

James Reuter

Yeah, thanks, Jeff. First, I just mentioned we'll be providing '27 guide in January in the first quarter. But what that statement meant is, for the growth we want to go get, we have what we need in terms of RMs, technology, infrastructure. So there's no step up needed from an investment standpoint to grow the bank beyond where we are today.

Jeff Rulis

OK, appreciate the no guidance. Effectively, well, yes, I'll step back.

Unknown Speaker

Jeff, would just add, I think year over year and again, we won't provide the '27 figure, but it is not reasonable to expect normal inflationary factors on our expense base, so we wouldn't be holding to a nominal figure year over year when you get normal merit and things like that. But again, we don't view there's a significant missing piece of investment needed outside of normal factors.

Jeff Rulis

Okay, helpful. Thank you, David.

James Reuter

All right. Well, thank you for joining the call today and thank you for the questions. And as always, we welcome calls from investors and analysts. So please reach out if you have any follow-up questions and thank you for tuning into the call today. Have a good day.

Operator

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

This live transcript is auto-generated without human intervention or review.