FIBK 2026년 3분기 실적 발표회: 10분기 연속 마진 확대

FIBK는 전분기에 지점 매각 이익이 포함되었던 여파로 3분기 순이익이 감소했으나, 순이자이익과 순이자마진은 개선세를 이어갔다고 발표했습니다. 경영진은 핵심 예금 성장, 자산 재가격 책정, 적극적인 자본 환원을 실적 전략의 주요 동인으로 강조했습니다.

핵심 요약

• 2026년 3분기 순이익은 6,220만 달러(희석 주당순이익 0.65달러)로, 2026년 2분기의 8,390만 달러(희석 주당순이익 0.87달러) 대비 감소했습니다.
• 순이자이익은 전분기 대비 2% 증가한 2억 620만 달러를 기록했습니다. 완전 과세등가 기준 순이자마진은 7bp 상승한 3.55%로, 10분기 연속 확대세를 기록했습니다.
• 대출 잔액은 간접 대출 상환, 관할 구역 외 신용공여 축소, 주택 대출 포트폴리오 축소를 반영해 2억 9,600만 달러 감소했습니다. 경영진은 4분기에 상업용 대출의 추가 상환이 있을 것으로 예상합니다.
• 총예금은 214억 달러로 5,280만 달러 감소했으나, 고비용 완전담보 제공 대형 고객 1곳의 이탈을 제외하면 전분기 대비 증가했습니다. 무이자예금은 2분기 연속 성장했습니다.
• FIBK는 3분기 동안 약 7,600만 달러를 들여 약 200만 주를 자사주 매입했습니다. 2025년 8월 자사주 매입 프로그램이 시작된 이래 누적 매입 규모는 약 1,000만 주, 3억 4,700만 달러에 달합니다.
• 경영진은 4분기 순이자이익이 가이던스 중간값 수준에서 증가할 것으로 예상하지만, 전분기 대비 마진 개선 폭은 3분기보다 작을 것으로 보고 있습니다.

주요 재무 데이터

사업 및 영업 성과

FIBK는 관계형 금융 중심으로 재무제표와 지역적 거점을 지속적으로 재편해왔습니다. 회사는 일부 비전략적 시장에서 철수하고 관할 구역 외 대출을 축소했으며, 지역별 성장 기회에 따라 지점 확장 또는 통폐합을 추진했습니다.

3분기 중 대출 잔액은 2억 9,600만 달러 감소했습니다. 세부적으로는 간접 대출 4,770만 달러, 잔여 관할 구역 외 포트폴리오 6,490만 달러, 주택 대출 3,680만 달러가 줄었습니다. 경영진은 예상된 대출 상환 중 일부가 4분기 초로 이월되었다고 밝혔습니다.

보고된 총 잔액 감소에도 불구하고 예금 구조는 개선되었습니다. 고비용 대형 고객의 이탈은 3분기 마진 확장에 약 3bp 기여했으며 순이자이익에는 실질적인 영향을 미치지 않았습니다. 경영진은 특히 로키산맥 지역을 중심으로 신규 고객 유치가 견조하게 유지되었으며, 새로운 고객 관계를 통해 영업예금과 관련 금융 서비스 유입이 이뤄졌다고 말했습니다.

자산 재가격 책정은 계속해서 실적의 주요 동인 역할을 하고 있습니다. 경영진은 신규 대출 금리가 6%대 중반을 기록했으며, 유가증권 포트폴리오의 5년 이상 만기 구간 수익률이 약 40~50bp 개선되었다고 밝혔습니다. 9월 한 달간 이자부 예금 비용은 1.51%로, 분기 평균인 1.49%보다 높았습니다.

건전성 지표는 대체로 안정적이었습니다. 요주의 이하 대출(Criticized loans)은 전분기 대비 210만 달러(0.2%) 증가했으나 전년 동기 대비로는 19% 감소했습니다. 부실자산(NPA)은 분기 중 6% 감소했습니다. 미인출 건설 약정 증가로 미인출 충당금이 늘어났으나, 경영진은 해당 프로젝트들의 가격과 구조가 양호하다고 설명했습니다.

FIBK는 2027년 상반기에 콜로라도주에 2개 지점을 개설하고 2026년 4분기 중 3개 지점을 통폐합할 계획입니다. 경영진은 통상적인 인플레이션에 따른 비용 증가 가능성은 있지만, 기존의 관계형 금융 담당 인력 역량과 기술, 인프라를 통해 대규모 추가 투자 없이도 계획된 성장을 지원할 수 있다고 언급했습니다.

경영진 가이던스

경영진은 자산 재가격 책정, 이자수익자산의 안정화, 무이자예금의 비교적 견조한 실적에 힘입어 4분기 전망치 중간값 기준으로 순이자이익이 전분기 대비 증가할 것으로 가정하고 있다고 밝혔습니다.

회사는 4분기 순이자마진 개선 폭이 3분기보다는 작을 것으로 예상합니다. 9월 금리 인상에 따른 예금 금리 재조정 영향이 4분기에 본격 반영되는 한편, 고비용 대형 예금 이탈로 인한 이점은 3분기에 이미 반영되었기 때문입니다.

단기 대출 잔액은 상업용 대출의 상환, 간접 대출의 지속적인 상각, 비관계형 및 관할 구역 외 신용공여의 추가 이탈 등으로 인해 압박을 받을 것으로 예상됩니다. Q&A 섹션에서 경영진은 4분기 대출은 감소세를, 예금은 보합 내지 증가세를 보일 것으로 전망했습니다.

고정금리 자산의 재가격 책정과 유가증권 포트폴리오의 현금흐름이 2027년까지 이자수익자산 수익률을 뒷받침할 것으로 예상됩니다. 경영진은 대출 만기 도래로 인해 2027년에 재가격 책정 수혜가 더 의미 있게 나타날 수 있다고 말했으나, 공식적인 2027년 가이던스는 제공하지 않았습니다.

리스크 및 주시 영역

• 추가적인 상업용 대출 상환과 관할 구역 외 신용공여 이탈로 인해 보고되는 대출 잔액이 지속적으로 감소하고 이자수익자산 구성에 압박을 가할 수 있습니다.
• 고금리는 기존 차주와 만기 도래 대출에 영향을 줄 수 있습니다. 경영진은 만기 연장 시 고금리에 대한 스트레스 테스트를 실시하고 요주의 이하 대출을 정기적으로 점검하고 있다고 밝혔습니다.
• 3분기 중 금리 상승으로 유가증권 포트폴리오의 미실현 손실이 증가했으나, 예상 원금 현금흐름은 만기 연장이 제한적인 수준에 그치며 비교적 안정적으로 유지되었습니다.
• 4분기 예금 계절성은 분기 초에 강하고 분기 말에 약해지는 경향이 있어 연말 잔액에 대한 불확실성을 유발합니다.
• 순상각액은 990만 달러로 소폭 증가한 반면, 대손충당금 전입액에는 인출 대출 및 미인출 건설 약정에 대한 충당금 증가분이 반영되었습니다.

애널리스트 Q&A 하이라이트

예금 성장: 경영진은 발표된 가이던스가 소폭 조정되었음에도 불구하고 기저의 핵심 예금에 대한 기대치는 변하지 않았다고 밝혔습니다. 무이자 예금 잔액과 고객 수의 증가가 예금 기반에 대한 신뢰를 뒷받침합니다. 회사는 또한 예금 성장을 유도하기 위해 금리 프로모션을 활용하지 않고 있음을 강조했습니다.

순이자이익: 2025년 4분기 및 2026년 2분기 지점 매각 거래를 통해 제외된 약 10억 달러의 예금을 조정하고 나면, 경영진은 FIBK가 순이자이익 확장 국면에 진입한 것으로 보고 있습니다. 지속적인 자산 재가격 책정과 예금 안정화가 이러한 추세를 뒷받침할 것으로 기대됩니다.

자본 집행: 경영진은 FIBK가 여전히 잉여 자본 상태를 유지하고 있으며 적극적인 자본 집행 기조를 이어갈 계획이라고 밝혔습니다. 대차대조표 성장이 최우선이자 주주가치를 가장 많이 제고하는 자본 활용처로 유지될 것이지만, 분기별 자사주 매입 목표는 제시되지 않았습니다.

대출 성장: 상업용 대출 신규 취급액은 전년 동기 대비 실질적으로 증가했으나, 기저의 상업용 대출 포트폴리오는 거의 보합이거나 소폭 감소한 수준을 유지하고 있습니다. 경영진은 은행이 변곡점에 더 가까워졌으며 성장을 지원할 수 있는 충분한 관계형 금융 담당 인력 역량을 갖추고 있다고 보고 있습니다.

효율성: 경영진은 향후 성장을 위해 부족하거나 추가로 필요한 대규모 투자 요구사항은 없는 것으로 판단하고 있습니다. 일반적인 임금 인상 및 인플레이션으로 인해 비용이 상승할 수는 있지만, 지점 최적화와 규모의 경제 개선은 지속적인 우선 과제로 남아 있습니다.

실적 발표 컨퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

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.

질의응답

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.

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