Financial Data and Key Metrics Changes - The company achieved record quarterly adjusted net income of $37 million, or $2.17 per diluted share, reflecting strong performance across core businesses [20] - Earnings per share grew by 26% compared to the second quarter [4] - Net interest income increased by $3 million, or 18% annualized, supported by net interest margin (NIM) expansion and exceptional loan growth [20] - NIM on a tax-equivalent yield basis increased by five basis points from the second quarter [20] - Non-interest income totaled $37 million for the third quarter, driven primarily by capital markets revenue [24] Business Line Data and Key Metrics Changes - Capital markets revenue rebounded to $24 million, up $14 million from the prior quarter [20] - Wealth management revenue surpassed $5 million, an 8% increase over the prior quarter, with year-over-year growth of 15% annualized [24][9] - Loan growth accelerated significantly, increasing by $286 million, or 17% annualized, with a 15% increase net of planned runoff from M2 Equipment Finance loans and leases [5][26] Market Data and Key Metrics Changes - Core deposits grew at an annual rate of 6% for the quarter, totaling $410 million, or 8% annualized year to date [6][27] - Total criticized loans improved during the quarter, decreasing 9% year to date [18] - Total provision for credit losses was $4 million, slightly up from the previous quarter, due to loan growth partially offset by improved credit quality [28] Company Strategy and Development Direction - The company operates through three primary lines of business: traditional banking, wealth management, and LIHTC lending platform, all of which delivered improved performance [6] - The digital transformation initiative is on track, with key milestones achieved, including the successful conversion of the core operating system for the first charter [8] - The company is increasing guidance for capital markets revenue to a range of $55 million to $65 million over the next four quarters [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about sustaining loan growth momentum, guiding for gross annualized loan growth in a range of 10% to 15% for the fourth quarter [6] - The company remains committed to maintaining strong regulatory capital while assessing its capital structure to support growth objectives [31] - Management noted that the demand for affordable housing remains high, positioning the LIHTC lending business for growth [10] Other Important Information - The company returned $10 million of capital to shareholders through share repurchases [18] - A new share repurchase program was approved, authorizing the repurchase of up to 1.7 million shares of outstanding common stock [19] - The effective tax rate for the quarter was 9.5%, up from 5% in the prior quarter, primarily due to higher pre-tax income [32] Q&A Session Summary Question: Margin guidance and rate cuts - Management confirmed that the margin guidance of three to seven basis points of expansion does not include any rate cuts, and each 25 basis point cut could see an additional 2 to 3 basis point increase [35][36] Question: Future buybacks - Management indicated that they will remain active in buybacks due to higher earnings per share and reduced need to retain capital for organic growth [36] Question: Securitization appetite and timing - Management anticipates a large permanent loan securitization in the first half of next year, targeting around $350 million [41] Question: NII impact from loan sales and securitizations - Management stated that any give-up in net interest income (NII) from loan sales would likely be replaced by improved capital markets revenue [45] Question: Loan growth expectations for next year - Management expects loan growth to continue in the double digits, with a more accurate guide to be provided in January [50] Question: One-time costs related to conversions - Management indicated that there will be $4 to $5 million of NII expense in 2025 related to conversions, expected to decrease in subsequent years [58] Question: Reserves trend - Management does not expect the allowance for credit losses to drop significantly, as recent reductions have been due to resolving non-performing assets [61]

Financial Data and Key Metrics Changes - The diluted EPS for the current quarter was $1.38, down $0.01 from the linked June quarter, but up $0.28 from the same quarter a year ago [5] - Net interest margin for the quarter was 3.57%, up from 3.47% in the linked quarter and from 3.34% in the year-ago quarter [7] - Non-interest income decreased by 9.7% or $707,000 compared to the linked quarter, but was offset by a 3.6% decrease in non-interest expense [6][25] Business Line Data and Key Metrics Changes - Gross loan balances increased by $91 million or 2.2% during the first quarter, with a year-over-year increase of $225 million or 5.7% [8] - The growth in loans was led by non-owner occupied commercial real estate, one to four family residential, commercial and industrial, and multifamily loans [8] - Deposit balances were relatively flat compared to the linked quarter but increased by $240 million or 5.9% over the last twelve months [9] Market Data and Key Metrics Changes - The company experienced strong growth in its East Region, particularly in agricultural activity, with the South Region also showing good growth [8] - The loan pipeline anticipated to fund in the next ninety days remains strong, totaling about $195 million as of September 30 [8] Company Strategy and Development Direction - The company is optimistic about achieving mid-single-digit loan growth in the fiscal year despite expectations of a slowdown in loan growth due to seasonal factors [9] - The management is focusing on improving credit quality and has been proactive in working with borrowers to assess their positions and plan for restructuring where necessary [20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the performance in the new fiscal year, citing good momentum on pre-provision net revenue [5] - The company is monitoring economic conditions closely and has increased reserves for watch list agricultural borrowers due to prolonged weakness in the agricultural segment [20] Other Important Information - Tangible book value increased to $43.35 per share, up $5.9 or 13.3% over the last twelve months, attributed to earnings retention and improvements in the bank's unrealized loss in the investment portfolio [10] - The company repurchased just over 8,000 shares at an average price of just under $55, totaling $447,000 [10] Q&A Session Summary Question: Outlook for provision expense and charge-offs - Management expects charge-off activity to drop from the levels of the last two quarters, indicating a return to more historical delinquency levels [36][37] Question: Bank's rate sensitivity and margin expansion - The bank remains overall liability sensitive but anticipates a net benefit of 1% to 3% net interest income per 100 basis points of rate cuts [39] Question: Update on loan pipeline and growth expectations - The loan pipeline remains consistent, with expectations for mid-single-digit growth for the fiscal year, though seasonal slowdowns are anticipated [47] Question: Buyback activity and M&A discussions - Management anticipates being more aggressive in share buybacks given current pricing and has ongoing discussions regarding potential M&A opportunities [53]

Financial Data and Key Metrics Changes - For Q3 2025, the company reported net earnings of $52.6 million or $0.38 per share, an increase from $50.6 million or $0.37 per share in Q3 2024, marking a $2 million quarter-over-quarter increase primarily due to a $4 million growth in net interest income [5][6][12] - The return on average tangible common equity was 14.11% and return on average assets was 1.35% for Q3 2025 [6] - Pretax pre-provision income was $70 million, up $1.2 million or 2% compared to Q3 2024 [6] Business Line Data and Key Metrics Changes - Net interest income for Q3 2025 was $115.6 million, compared to $111.6 million in Q2 2025 and $113.6 million in Q3 2024 [15][16] - Non-interest income was $13 million in Q3 2025, which was $1.7 million lower than Q2 2025, but increased by $260,000 when excluding legal settlements and losses [8][10] - Total loans at September 30, 2025, were $8.47 billion, reflecting a $112 million or 5% annualized increase from Q2 2025, driven by growth in various loan categories [10][11] Market Data and Key Metrics Changes - Total deposits and customer repurchase agreements totaled $12.6 billion, a $170 million increase from Q2 2025 and $108 million higher than Q3 2024 [8][9] - Non-interest bearing deposits grew by $108 million compared to Q3 2024, while interest-bearing non-maturity deposits and customer repos increased by an additional $100 million [10] Company Strategy and Development Direction - The company continues to focus on banking small to medium-sized businesses and their owners through all economic cycles, maintaining a strong commitment to profitability and dividend payments [75] - The company is actively pursuing M&A opportunities, having recently hired a team of bankers to open a new office in the Temecula Murrieta area, indicating a strategy to expand its market presence [32][62] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining low single-digit loan growth for the year, with strong pipelines and opportunities despite competitive pressures in pricing [37][41] - The economic forecast indicates lower GDP growth and a slightly lower unemployment rate, with expectations of continued challenges in the commercial real estate market [19] Other Important Information - The company experienced a legal settlement of $6 million, which was offset by an $8.2 million loss on the sale of low-yielding AFS securities [6][20] - The allowance for credit loss was $79 million at September 30, 2025, representing 0.94% of gross loans, reflecting a slight increase from the previous quarter [17] Q&A Session Summary Question: Interest bearing deposit costs and beta cycle - Management noted that the recent rate cuts have not yet fully impacted deposit costs, but they plan to match Fed rate decreases with reductions in money market rates [29][30] Question: Update on M&A dialogue - Management confirmed ongoing discussions regarding M&A opportunities but indicated that no imminent deals are in place [31] Question: Loan growth expectations - Management expressed confidence in maintaining low single-digit growth, with strong pipelines and opportunities, excluding seasonal impacts from dairy loans [36][38] Question: Pricing competition in loans - Management stated they are willing to compete on price for the right relationships, acknowledging aggressive competition from larger banks [40][58] Question: Impact of interest rate swaps - Management indicated that the current interest rate environment may negatively impact net interest income, but they plan to maintain their swap arrangements as a hedge [52] Question: Cash balances and deployment - Management acknowledged the buildup of cash balances and indicated potential deployment into bonds depending on market conditions [68][71] Question: Expense management heading into 2026 - Management confirmed a continued focus on closely managing expenses, with plans to invest in technology while maintaining low single-digit growth expectations [72][74]

Financial Performance - The company reported a net income of $100 million for Q3 2025, a 25% increase from $80 million in Q2 2025, with normalized earnings per share growing 13% year-over-year [4][11] - Return on average assets for the quarter was 2.1%, significantly higher than the previous quarter [11] - Net interest income reached $217.9 million, an 8% increase compared to Q3 2024, with a net interest margin of 4.57%, up 32 basis points over the last four quarters [14][15] Loan and Deposit Growth - Total loans grew by $181 million, or 5.6% annualized, surpassing $13 billion for the first time since 2010 [5] - Core franchise deposits increased by $140 million, with favorable trends in market flows despite higher competition [7] - The company experienced a slowdown in consumer credit demand, particularly in the auto industry, which saw a 7% decline in total retail sales year-to-date [6][9] Asset Quality and Credit Trends - Non-performing assets decreased by 7% with a reduction in charge-offs and stable credit trends [7][19] - The allowance for credit losses decreased to 1.89% of loans, reflecting improved loss severities in the residential mortgage portfolio [20][21] - Net charge-offs for the quarter were $19.9 million, representing 0.62% of average loans, slightly up from the previous quarter [20] Strategic Outlook and Market Conditions - The company plans to strategically deploy excess capital to support organic growth, particularly in commercial and residential mortgage lending [9][10] - The operating environment remains stable, with potential impacts from evolving trade dynamics and inflationary pressures being monitored [8] - The company expects loan growth for the year to be in the range of 3% to 4%, down from previous guidance of 5% [10][64] Management Commentary - Management expressed confidence in the resilience of the labor market in Puerto Rico and the positive impact of federal disaster funds on local economies [9] - The company is optimistic about the ongoing expansion of the manufacturing sector and its potential benefits for the franchise [9] - Management noted that competitive pressures in the deposit market are primarily from smaller players, with expectations for some reduction in deposit costs due to rate cuts [38][41] Other Important Information - The board authorized an additional $200 million share buyback program, continuing the strategy of returning 100% of annual earnings to shareholders [8][22] - The effective tax rate for 2025 is estimated to be around 22.2%, reflecting some expected improvements [84] Q&A Session Summary Question: Is the tax situation a one-time benefit? - Management confirmed that while there will be no further reversals of deferred tax assets at the same level, there will be ongoing benefits from normal operating losses [26] Question: What is the health of the consumer in Puerto Rico? - Management indicated that auto sales are normalizing and credit demand has been lower, but overall consumer credit trends remain stable [30] Question: What are the expectations for deposit costs with upcoming rate cuts? - Management expects some reduction in deposit costs, but noted that the timing of these reductions may lag behind floating asset products [41] Question: What is the outlook for loan growth into Q4? - The company maintains a loan growth guidance of 3% to 4% for the year, with a strong pipeline in commercial lending [64] Question: Can you elaborate on competitive pressures in the deposit market? - Management noted that competitive pressures are primarily from smaller players and that they are managing this by offering additional services beyond just deposit products [39]

Financial Data and Key Metrics Changes - The company reported a net income of $100 million for Q3 2025, a 25% increase from $80 million in Q2 2025, with adjusted earnings per share growing 13% year-over-year [4][11] - Return on average assets for the quarter was 2.1%, significantly higher than the previous quarter [11] - Net interest income reached $217.9 million, an 8% increase compared to Q3 2024, and net interest margin was 4.57%, up 32 basis points over the last four quarters [14][15] Business Line Data and Key Metrics Changes - Total loans grew by $181 million, or 5.6% annualized, surpassing $13 billion for the first time since 2010 [5] - The company experienced a slowdown in consumer credit demand, particularly in the auto industry, which saw a 7% decline in total retail sales year-to-date [6][7] - Commercial and construction lending segments showed growth, helping to mitigate the slowdown in consumer lending [7] Market Data and Key Metrics Changes - The company noted a 17% decrease in auto sales compared to Q3 2024, impacting overall loan origination in that sector [6] - The competitive landscape for deposits remains challenging, with higher competition for new flows, particularly from affluent customers [7][8] Company Strategy and Development Direction - The company plans to continue executing a growth strategy focused on organic growth and regional diversification [9][10] - A new $200 million share buyback program was authorized, reflecting the strategy of returning 100% of annual earnings to shareholders [8][22] - The company is exploring potential M&A opportunities in the Florida market, seeking franchises that complement its existing operations [45][68] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the resiliency of the labor market in Puerto Rico and the ongoing expansion of the manufacturing sector, which is expected to support local economies [9] - The company anticipates loan growth guidance for the year to be in the 3%-4% range, influenced by the evolving rate environment and auto sales normalization [10][65] - Management highlighted the importance of monitoring trade dynamics and potential impacts from federal government actions on the business environment [8][9] Other Important Information - The company reported a 7% reduction in non-performing assets and stable credit quality trends [7][19] - The effective tax rate for 2025 is estimated at 22.2%, reflecting expected improvements from operational changes [85] Q&A Session Summary Question: Is the tax situation a one-time benefit? - Management confirmed that while there will be no further reversals at the same level, there will be ongoing benefits from normal operating losses offsetting revenues [26] Question: What is the health of the consumer in Puerto Rico? - Management noted that while auto sales are normalizing, credit demand has been lower, but overall consumer credit trends remain stable [30] Question: What are the expectations for deposit costs with upcoming rate cuts? - Management expects some reduction in deposit costs, but noted that the timing of these reductions may lag behind asset repricing [41] Question: How does credit performance at other banks influence reserving? - Management stated that they maintain a firm risk appetite and focus on their own portfolio performance rather than industry-wide trends [42] Question: What is the outlook for loan growth into Q4? - Management reiterated guidance of 3%-4% loan growth for the year, with a strong pipeline in commercial lending [65] Question: Can you elaborate on competitive pressures in the deposit market? - Management indicated that competitive pressures are primarily from smaller players and that they are focusing on operational accounts and additional services to maintain relationships [38] Question: What is the expected impact of onshoring on Puerto Rico's economy? - Management believes that while short-term impacts may be limited, long-term benefits from onshoring will support the economy [56]

Financial Data and Key Metrics Changes - The company reported a one-time expense of $3.7 million from early bond redemption, impacting earnings per share (EPS) by approximately $0.57 after tax [3] - A discrete tax-related expense of $1.3 million from discontinued Mexico operations impacted EPS by approximately $0.26 after tax [3] - The total impact of these unusual events on EPS for the quarter was around $1.61 after tax [15] Business Line Data and Key Metrics Changes - New customer origination volume increased by approximately 40% year over year at the end of the second quarter [5] - Year-to-date new customer origination volume is up 35%, returning to pre-COVID levels [6] - The first payment default rate for new originations is in line with fiscal years 2019 and 2020, indicating improved credit quality [7] Market Data and Key Metrics Changes - The company experienced a 5.5% nominal growth in the portfolio compared to last year, with a 1.5% year-over-year increase at the end of the second quarter [8] - The first half of the fiscal year had a 14% higher loan volume than the previous year, marking the highest volume on record for that period [8] Company Strategy and Development Direction - The company is focused on customer base expansion, strong loan growth, and improving credit quality while maintaining low delinquency rates [10] - A new credit agreement allows for stock repurchases of up to 100% of net income, increasing from 50% in the prior agreement [9] Management's Comments on Operating Environment and Future Outlook - Management noted that while there are signs of consumer weakness in the auto loan sector, they have not observed major signs of weakness in their portfolio [22] - The company has proactively tightened its credit criteria for new customers without significantly affecting overall approval rates [22] Other Important Information - The company repurchased and canceled $170 million of bonds, enhancing its capital position [9] - Long-term incentive compensation expenses increased by approximately $23.9 million year-over-year due to changes in compensation plans [5] Q&A Session Summary Question: Clarification on discrete items impacting EPS - Management confirmed the EPS impacts: $0.26 from Mexico, $0.57 from bond redemption, and $0.78 from increased provision due to new customer growth [15] Question: Inquiry about operating expenses and future projections - Management confirmed the increase in personnel expenses and provided a breakdown of expected future expenses [16][17] Question: Request for diluted share count information - The quarter ending share count was approximately 4.8 million, with dilution typically ranging from 100,000 to 200,000 shares [18] Question: Health of the underlying consumer and demand - Management acknowledged consumer weakness in the auto sector but stated no major signs of weakness in their portfolio [22] Question: Update on marketing efforts and competitive environment - Management discussed successful marketing strategies that reduced customer acquisition costs and aimed for modest growth in the portfolio [24][25]

Financial Data and Key Metrics Changes - The company reported a one-time expense of $3,700,000 from the early redemption of bonds, impacting earnings per share (EPS) by approximately $0.57 after tax [3] - A discrete tax-related expense of $1,300,000 from prior Mexico operations impacted EPS by approximately $0.26 after tax [4] - The total impact of these unusual events on EPS for the quarter was around $1.61 after tax [4][5] - The company experienced a year-over-year increase in new customer origination volume of approximately 40% at the end of the second quarter [6] - The portfolio nominally grew by 5.5% year-over-year, with a 1.5% increase compared to the previous year [9] Business Line Data and Key Metrics Changes - New customer origination volume for the year-to-date is up 35%, returning to pre-COVID levels [6] - The first pay default rate and delinquency rate for new originations are in line with fiscal years 2019 and 2020 [8] - Non-refinance originations increased by 15% year-over-year in the second quarter, marking the highest volume for that quarter except for fiscal year 2022 [8] Market Data and Key Metrics Changes - The company has seen a stable and improving delinquency rate while maintaining credit quality [10] - The company has proactively tightened its credit box for new customers multiple times this fiscal year, although no major signs of weakness in consumer performance have been observed [22] Company Strategy and Development Direction - The company is focusing on substantial customer base expansion, strong loan growth, and improved loan approval rates while maintaining credit quality [10] - Marketing efforts have shifted to a test-and-learn environment, successfully reducing the cost of acquisition for new customers [25] - The company aims for modest growth in marketing budgets, targeting mid to low single digits for portfolio growth and mid to high single digits for customer base growth [26] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the overall health of the consumer, noting that while there are signs of weakness in the auto loan sector, their portfolio remains stable [21][22] - The company is optimistic about returning enhanced value to shareholders through strong EPS growth and a declining share count [10] Other Important Information - The company repurchased and canceled $170,000,000 of bonds and established a $175,000,000 warehouse facility [9] - A new credit agreement was completed, increasing commitments to $640,000,000 and allowing for stock repurchases of up to 100% of net income [10] Q&A Session Summary Question: Clarification on the three discrete items impacting EPS - The impact on EPS was $0.26 from Mexico, $0.57 from bond redemption, and $0.78 from increased provision due to new customer growth [14] Question: Inquiry about operating expenses and personnel expense increase - The net difference in personnel expense was confirmed, with a decrease expected in future quarters [16] Question: Health of the underlying consumer and its impact on demand and credit - Management noted no major signs of weakness in their portfolio despite broader market concerns, with proactive credit tightening measures in place [22] Question: Update on marketing efforts and competitive environment - The company has successfully reduced acquisition costs through new marketing strategies and is seeing increased demand and application volume [26]

Financial Data and Key Metrics Changes - Year-to-date net income totaled $167.5 million, an increase of $31.9 million or 23.5% from the nine months ended 2024, while earnings per share totaled $2.90, an increase of $0.59 or 25.5% during the same period [6][13] - Return on assets (ROA) was 1.22%, and the efficiency ratio was 55% [3][6] - Total revenues in Q3 showed meaningful growth in both net interest income of $0.7 million and non-interest income of $1.2 million, resulting in overall pre-tax, pre-provision earnings of $70.5 million [13] Business Line Data and Key Metrics Changes - Commercial loan growth for the quarter was $268 million, over 10% annualized, with year-to-date growth of $699 million, over 9% annualized [8][9] - The consumer segment contributed $21 million of loan growth for the quarter, driven by residential mortgage, HELOC, and private banking relationships [9] - Non-interest income totaled $32.5 million, with customer-related fees of $29.3 million reflecting continued momentum [16] Market Data and Key Metrics Changes - Total deposits declined by $23 million in aggregate, but core relationship or operating account balances grew by 4.9% or $56 million [10] - Non-maturity deposit balances increased by $178 million, while maturity deposit balances decreased by $198 million year to date [9][10] Company Strategy and Development Direction - The company announced the acquisition of First Savings Financial Group, adding approximately $2.4 billion in assets and expanding its presence into Southern Indiana [3][4] - The strategy remains commercially focused across all business segments and primary markets of Indiana, Michigan, and Ohio [7] - The company aims to enhance fee income through SBA lending and HELOCs, leveraging the acquired portfolio [4][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining loan growth and increasing market share activities into the fourth quarter [8] - The company anticipates a mid-first quarter closing for the First Savings acquisition and a mid-second quarter integration [5] - Management expects to manage deposit costs effectively in response to anticipated rate cuts [28][36] Other Important Information - The tangible common equity ratio increased to 9.18%, providing meaningful capital flexibility [16] - The company repurchased 162,474 shares totaling $6.5 million during the quarter, bringing total share repurchases year to date to 939,271 shares, totaling $36.5 million [19] Q&A Session Summary Question: Expense outlook for Q4 and 2026 - Management expects Q4 core expenses to be relatively in line with Q3, with no meaningful increase anticipated [25][26] Question: Impact of potential rate cuts on margin - Management predicts a few basis points of margin compression in Q4 if rate cuts occur, with a historical model indicating a decline of about two basis points for each 25 basis point cut [27][28] Question: Deposit pricing and competition - Management noted that deposit costs increased due to competitive pressures, but they are hopeful for more rational pricing following recent rate cuts [29][36] Question: Future M&A ambitions - Management indicated that while they are focused on organic growth and the integration of First Savings, they are open to opportunities but do not prioritize additional M&A at this time [41][42] Question: Sustainability of loan growth - Management believes the current loan growth is sustainable, driven by normal business activity and a strong economic outlook in the Midwest [47][48] Question: Asset quality and reserves - Management explained that the reserve remains high due to a conservative approach in their quantitative model, despite positive credit migration [94][95]

Financial Data and Key Metrics Changes - Net interest income increased by $1.5 million compared to the second quarter and by $5 million year-over-year [4] - Net income rose by $3.5 million, or 43%, compared to Q3 of 2024 [5] - Return on average assets improved by 28 basis points to 1.16% compared to 0.88% in the third quarter of last year [5] - Earnings per share increased to $0.47 in the third quarter, a 46% increase compared to Q3 a year ago [5] - Return on tangible common equity was reported at 12.35% [5] Business Line Data and Key Metrics Changes - Loans increased by $47 million for the second quarter, or 5.6% annualized, and grew by $286 million, or over 9%, year-over-year [8] - C&I loans grew by $194 million, and owner-occupied commercial real estate loans increased by $40 million [8] - Specialized lending groups now constitute 16% of total loans, with no single niche exceeding 5% of total loans [5] - Non-performing assets declined to 36 basis points compared to 40 basis points at June 30 and 47 basis points one year ago [11] Market Data and Key Metrics Changes - Deposit balances increased by over $55 million during the quarter, or an annualized 7% [9] - Average cost of deposits declined by 3 basis points to 2.69% for the quarter [9] - Average non-interest-bearing deposits grew by $21 million during the quarter and by $52 million year-to-date [15] Company Strategy and Development Direction - The company is evolving into a middle-market commercial bank, focusing on relationship-driven strategies rather than growth for its own sake [19] - New branch openings and strategic closures are part of the company's efforts to optimize its branch network [17] - The company aims to maintain a balance between growing deposits and managing costs effectively [15] Management's Comments on Operating Environment and Future Outlook - The economic outlook remains uncertain, but the company is well-positioned for various rate environments [7] - Management is focused on maintaining credit quality despite some softness in the small business segment [6] - The company anticipates a modest increase in expenses due to new branches but aims to keep overall costs flat [35] Other Important Information - Non-interest income totaled $2.4 million in Q3 2025, down from $2.7 million in Q2 [12] - The efficiency ratio improved to 52%, remaining below 60% for the 25th consecutive quarter [13] - The company repurchased almost 120,000 shares at an average price of $14.91 during the quarter [7] Q&A Session Summary Question: Discussion on expenses and efficiency actions - Management highlighted ongoing focus on cost control while balancing investment opportunities, with no major new costs anticipated [32][34] Question: Margin and deposit cost adjustments following Federal Reserve cuts - Management indicated that adjustments to deposit costs will be made in response to Federal Reserve actions, aiming for a neutral impact on margins [38][39] Question: Capital levels and buyback considerations - The company maintains a soft limit on total risk-based capital ratio around 11.5% and is open to capital deployment through buybacks depending on market conditions [43][44]

Financial Data and Key Metrics Changes - The company achieved a net income of $21.9 million, translating to a diluted EPS of $1.13, with a return on average assets of 1.6% and return on average equity of 15.7% [9][12] - The net interest margin (NIM) increased to 4.11% from 4.07% in the previous quarter, indicating effective loan pricing and funding cost management [3][9] - Non-interest expenses decreased by $1.3 million compared to the prior quarter, leading to an efficiency ratio improvement from 60.3% to 56.4% [4][11] Business Line Data and Key Metrics Changes - Loan growth was strong, with an annualized growth rate of 4.9% in the third quarter, reflecting successful alignment of the acquired portfolio with the company's risk profile [3][7] - Fee income as a percentage of operating revenue remained stable at 20.8%, with non-interest income increasing to $13.4 million from $12.9 million in the previous quarter [4][10] - The loan portfolio reached nearly $4 billion with an average yield of 6.58%, and loan production during the quarter was $224 million [14][15] Market Data and Key Metrics Changes - The company experienced increased competition in both loan and deposit pricing, particularly in growth markets such as Baltimore, Lancaster, and Harrisburg [21][22] - The cost of deposits declined slightly, and the company adjusted deposit pricing downward to align with market rates [15][36] Company Strategy and Development Direction - The company is focused on maintaining credit quality while pursuing prudent growth, with a proactive approach to managing risk in its portfolio [5][8] - The management emphasized the importance of relationship banking, which allows for high engagement and local decision-making to meet client needs [7][22] - The company plans to continue investing in its future while managing expenses, with a target quarterly run rate around $36 million [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing successful execution of the merger with Kudor's Value as a key factor in current financial performance [4][17] - The company is aware of economic uncertainties and is focused on maintaining a solid foundation for future growth [8][12] - Management indicated that while NIM may face pressure from potential rate cuts, strategic pricing actions could help mitigate this impact [19][35] Other Important Information - The company redeemed $32.5 million of subordinated debt, which is expected to reduce interest expenses going forward [9][10] - The allowance coverage ratio was 1.21% at the end of the quarter, which management believes adequately addresses the risk of loss in the loan portfolio [12][13] Q&A Session Summary Question: What is the expected impact of Fed rate cuts on NIM? - Management indicated that while NIM may experience some downward pressure, competitive pricing and strategic actions could help maintain it within the 4.0% to 4.15% range [19][20] Question: Where is the competition in loan and deposit pricing coming from? - Competition varies by market, with larger competitors and those closer in size contributing to the competitive landscape [21][22] Question: Can you provide details on classified loans? - The largest classified loans total about $20 million, with some being in commercial real estate and other C&I credits [29][30] Question: What is the lending focus for next year? - The company plans to focus on commercial real estate and has recently hired additional talent in the C&I space to enhance its offerings [31][32] Question: What tools are available to mitigate NIM compression? - Management highlighted pricing adjustments on deposits and maintaining loan pricing as key strategies to offset potential NIM compression [35][36]