Ladies and gentlemen, thank you for joining us, and welcome to the First Commonwealth Financial Corporation third quarter 2026 earnings release conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.
Thank you, Jonathan, and good afternoon, everyone. Thanks for joining us today to discuss First Commonwealth Financial Corporation's third quarter financial results. Participating on today's call will be Mike Price, President and CEO, Jim Reske, Chief Financial Officer, Brian Sohocki, Chief Credit Officer, and Mike McCuen, Chief Lending Officer. As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the investor relations link at the top of the page. We have also included a slide presentation on our investor relations website with supplemental information that will be referenced during today's call. Before we begin, I need to caution listeners that today's call will contain forward-looking statements.
Please refer to our forward-looking statements disclaimer on page three of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statement. Today's call will also include non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. Reconciliation of these measures can be found in the appendix of today's slide presentation. With that, I will turn the call over to Mike.
Hey, thank you, Ryan. Good afternoon, everyone. Core earnings per share totaled $0.45 for the third quarter. There were two unrelated offsetting financial events this quarter. These results included $4.7 million of one-time energy tax credits, equivalent to $6 million on a pre-tax basis. These tax credits helped offset provision expense that came in at $14.2 million. The provision figure includes $3.5 million associated with the unfunded loan commitments reflective of strong production this quarter in committed lines. The other $10.7 million represents provision for loan losses, driven principally by approximately $7.7 million of specific reserves associated with three previously identified credits. Non-performing loans increased, but the increase was also concentrated in a limited number of previously identified relationships rather than broad-based portfolio deterioration. Beyond those two events, the operating trends of our core businesses are strong.
The net interest margin increased to 4.11%, supported by a decline in deposit cost to 1.67% and the impact of the Fed's latest hike on our variable rate loan portfolio. Additionally, consumer and commercial loan originations throughout the third quarter increased year-over-year. Loan payoffs also slowed for the first time in five quarters, leading to annualized loan growth of 2.6% in the quarter. Together with current backlogs, these trends support the outlook for loan growth within our mid-single-digit guidance. Our three principal areas of focus for the near term include better credit performance, generating profitable growth, and controlling expenses to create positive operating leverage. The latter becomes vital to investment in the future of our company. Our 2027 investment plan includes opportunities with technology, talent, marketing, fraud prevention, and improved banker productivity, lead generation, and financial analysis.
Lastly, we believe a mission-driven community bank of our size remains important and relevant to our customers, communities, employees, and investors. With that, I'll turn it over to Jim.
Thanks, Mike. Mike provided the broad brushstrokes of our financial performance this quarter, including credit. I'll spend my time drilling down into our results to help you get a better understanding of the long-term run rate of our financial performance. The credit story is important, but I don't want it to overshadow positive trends in our net interest margin, spread income, balance sheet growth, and our fee income trajectory. Before I walk you through those things, however, I want to spend a moment addressing the impact of the tax credits and the buyback on the quarter. First, the tax credits. We have for many years purchased credits against our income tax, but this was our first foray into federal energy tax credits. We started looking at these tax credits in the second quarter of this year, and we purchased just over $50 million in credits in the third quarter.
Those credits will be applied towards our federal tax liability for tax years 2025 and 2022. That resulted in the recognition of $4.7 million in tax benefits in the third quarter. We intend to purchase credits going forward, including for tax year 2026. With that purchase, we'll purchase additional credits that we could carry back to 2023 and 2024. Once that's done, and assuming the laws affecting the transferability of federal renewable energy tax credits don't change, we'll likely settle into a rhythm of purchasing tax credits like this every year. We think this could bring our effective tax rate down by approximately one to two percentage points, which might be worth about $0.02 per share per year, but it's heavily dependent on the terms of each deal.
The other major event of the quarter we are talking about was the full execution of the previously announced $75 million buyback program. We came into the quarter with about $13 million of share repurchase authority from our previous program, and combined with the new authorization, repurchased approximately $88 million in stock during the quarter at an average price of $21.18. That helped rightsize the tangible common ratio from 9.9% last quarter to 9.2% this quarter. That, in turn, contributed to the expansion of our core return on average common equity to 15.90%, up 24 basis points from last quarter, despite the elevated provision expense this quarter. We are also pleased to announce that our board has authorized an additional $25 million in repurchase authority. We intend to recommence share repurchases next week, once we come out of blackout.
Beyond the tax credits and the buyback, however, there are positive fundamental trends in our revenue that are worth talking about. Our net interest margin, or NIM, expanded by 10 basis points from 4.01% last quarter to 4.11% this quarter. We were able to decrease deposit costs by seven basis points last quarter. The September rate hike came too late to have much benefit on loan yields in the third quarter, but loan yields in the third quarter were held back by the reversal of accrued interest on non-accrual loans, which created a drag of approximately four basis points of NIM in the third quarter. Looking forward, with no further changes in rates, which means no hikes and no changes in the shape of the yield curve, we would expect our NIM to rise to around 4.20% in the fourth quarter and continue to rise into the mid-4.20s in 2027.
All those estimates are give or take five basis points as per usual. I would also point out that it is not only NIM that is a good story for us, but our net interest income increased as well by $3.9 million last quarter in annualized rate of approximately 13.7%. Fee income was unchanged from last quarter, but that is only because real progress in core fee items such as wealth, mortgage, and back-to-back interest rate swaps was offset by the loss of $1.3 million of second quarter one-time gains we did not have this quarter. Our previous guidance for fee income to range from $24 million- $25 million per quarter remains unchanged for the fourth quarter.
Expenses were up this quarter but were impacted by several discrete items. We incurred a $0.6 million write-down on the extension of a long-term lease, but it will save us money in the long run. In addition, we received a half-million-dollar reimbursement from the vendor last quarter that we obviously did not have this quarter. Those two items together accounted for about $1.1 million of the quarter-over-quarter swing in expenses. The other major increased expense items included incentive accruals, primarily related to increased loan production and our FDIC assessment costs. Looking ahead, our previous guidance of $74 million- $76 million per quarter remains unchanged for the fourth quarter. We will provide updated non-interest income and expense guidance for 2027 in January, as we have done in the past. With that, we will take any questions you may have.
We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimal 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 is from the line of Kelly Motta from KBW. Your line is now open. Please go ahead.
Hi, this is Meghan Lynch on for Kelly Motta. Thanks for taking my question. Your deposit cost trended lower. Very good trend. I was just wondering how sustainable you guys thought this was in a higher rate environment and with any competition. Last rising rate cycle, your deposit beta was just under 40%. Any thoughts on what you thought that was going to be in the next set of hikes?
Jim, why don't you start?
I'll just offer a couple thoughts on that. One is we do see deposit competition heating up, and our long-term goal is to grow our deposit base commensurate with our loan growth. So, we look for mid-single-digit loan growth. We would like to fund that consistently with deposit growth to keep our loan-to-deposit ratio where it is now in the low 90s percent. That means we have to pay market rates for those deposits. With the competition heating up in a rising rate environment, we expect our beta to be consistent with the way we calculated our historical beta of 25%. We calculate that on non-maturity deposits, interest-bearing deposits, not including time deposits.
We actually pay outside vendors to look at our deposit beta, kind of accurately assess where our deposit betas have been in the past so we can have a good estimate for the future. But that's the estimate we're using, about a 25% deposit beta. So, hope that at least answers some of your question. Mike, you want to add?
It's a bimonthly exercise. Every other week, we are getting together as a team and trying to understand the texture of exactly what you're talking about and where we might attract some money and also how we might manage it best for our margin. It's a fun conundrum.
Okay. Thank you. That was helpful. You had very strong non-interest-bearing deposit growth, and time deposits came down. Can you sort of provide more detail on the drivers of that as well as upcoming maturities and CDs in the next quarter and the rate they are maturing versus the new offering rate?
Yeah. A couple thoughts. The last 18 months or so, we had CDs at shorter term maturities, but every bank was doing that, so nothing really new there. We are kind of keeping rates short, term short, and that was working. Earlier this year, we started going a little bit longer. We had some doubts whether a 15-month CD would attract customers and balances because customers typically don't like to go beyond 12 months, but it worked very well for us, and that was probably because we had a very strong customer perception of a falling rate environment. If they saw a good rate at a longer term, even beyond 12 months, we were able to gather funds in those accounts. Now there is a shift in the customer sentiment towards a rising rate environment, so it is harder to get customers to do that.
But the way we structure it, we have a number of CD maturities coming up soon. I wouldn't call it a cliff or anything that is unmanageable, but because those rates were short, now a lot of those CDs are maturing, and we are dealing with that as they come. Our CD retention rate has been fairly consistent over time, where I don't think it is that different from industry averages. We are able to retain about 80% of the CDs that mature. The 20% that don't generally tend to stay with the bank. They go into money market accounts or something else, as long as those rates are close. The 80% that do stay, about half of those will want the current special rate, whatever that is, and the other half will roll to the retention rate we are offering them.
That whole process works, and that is a lot of the way we manage the rate cost, the depository cost of the bank. That has worked well.
Yeah. I'd just add that the texture of our depository on the non-interest-bearing side is about two-thirds commercial.
And so a lot of that might be more seasonal. It's really overall, though, about two-thirds consumer when you consider time and non-interest-bearing now. That's really at an average size that's much smaller. So, it has a little less pressure there, and that's really good for us. So, we have really a consumer-oriented granular depository that's really served us well through the last two cycles.
Okay. That was really good color. Thank you. Just one more. You were active on the buybacks this quarter, and I know you said that you were going to resume them next week. Could you give any color on the run rate or put any numbers to it, or is that all we get?
Yeah. Because our board authorized a $25 million authorization. One of the reasons we do it in $25 million chunks like that, unlike the one we did last quarter, which was $75 million, is that allows us to do the repurchase just to the amount of retained earnings we have after paying a dividend to shareholders. We don't want to telegraph in advance because we don't always know in advance, and even if we do, we wouldn't want to say it, is the precise timing of when we do those kinds of buybacks. I just can tell you that we'll be back in the market next week. So, we'll be active with the buyback.
Okay, awesome. Thank you so much. That is it from me.
Thank you for the question.
Your next question comes from the line of Daniel Tamayo from Raymond James. Your line is now open. Please go ahead.
Yeah. Thank you. Good afternoon, Mike. Good afternoon, Jim. Maybe just starting on the credit side, if you can just kind of touch on your thoughts on the path of resolution for the increase in the NPLs and the classifieds.
Yeah. I will turn it over to Brian, but I would just share with this. We had three identified credits that made up the bulk of the specific reserves this quarter. They were identified. We still have probably about 20% of our criticized is really from our entrée into Central Pennsylvania. That is outsized, and we continue to work that down. The complexion of that is probably of that $60 million of $300 million or so of criticized. There is just one larger loan in there that is about 10 and probably one over five, and then after that, it is pretty granular. Brian, what would you add?
No, that is good comments, Mike. The classified increased specifically this quarter. It was the result of the migration of the two of the larger loans that moved into NPL and generated reserve. The third loan was already a non-performing loan that had some incremental reserve. As you look at the increase, it was specific to these identified credits. To your question specific to the future, the resolution of those is our key focus. That will drive the classified, the non-performing, and the reserves moving forward. To Mike's point, importantly, we are not seeing broad-based deterioration with new credits moving into the category. As you drill down into criticized loans and watch loans, our OAEM actually decreased by $25 million this past quarter while the classified increased by $26 million. It is there where you really see the transition, the migration from the criticized into the classified.
When you drill down further into the watch loans, we are down over $100 million year- to- date. So, we are seeing a good portfolio performance on the front end. Our focus here over the next coming quarters will be resolution of the non-performers. At quarter end, we felt that the reserve was appropriate based on the collateral valuations. Each of those loans, as you would expect, is in different stages of collection and resolution. That will be our short-term focus.
Okay. Thanks for that, Brian, and thanks for the color, Mike. I guess my follow-up would be just on the C&I loan growth side. We had, I guess, an inflection in growth this quarter. Just curious your thoughts around ability to continue the trend there as we look forward.
Yeah. We feel like we're turning the corner. I would say that, in fairness, some of that does include our equipment finance group, which has slowed down a bit. We do have traction in our regions. A focal point is C&I lending, both larger all down to small business and business banking. It also remains a focus because those are cornerstone relationships that have a replete with household value. That is where our ground game is focused and is a key for our growth. However, that being said, as we look to the future, we have six lending buckets. We have HELOC/HE loan out of the branches, we have mortgage, we have indirect auto. On the commercial side, we have CRE, C&I, and then equipment finance. We really want broad-based growth across all of those six categories and relationship value where we can get it.
We're not looking for 8% or 10% growth in some category to pick it up. We've had years here, we had two or three years where we grew every region and every product line. That's ideally how we'd like to grow it.
Appreciate that, Mike. Then maybe lastly, just on that loan growth topic again, and probably more on the CRE side, but feel free to answer for any of the buckets. Just curious your thoughts on higher rates, kind of where we are and where we could be into next year, the impact that could have on the demand side.
I think it'll dampen demand. Mike McCuen, anything you want to add?
No. You're right, Mike. It'll dampen demand when it comes just to that question. Yeah.
Yeah. It'll dampen demand particularly on the commercial real estate side. I mean, half a point, a full point is going to just make some projects unfinanceable and/or maturing loans that much tougher. That being said, Jim, as the rates do continue to go up, there's a beta on the short end and also on the longer end of the curve on replacement rate, provided the volume can stay up there. Anything you would add?
Yeah. No. I mean, I think just on that topic, Danny, obviously that's what you're asking about. But the rate environment is a real Goldilocks for us right now. It does allow us to continue repricing up for the fixed rate loans. So even if we don't meet our loan growth targets in the single digits, and they've always been pretty modest. So we think they're achievable. That's what we're planning on now. But if we can't, we'll still reprice up for the book, which works in our favor.
That's good clarity from everybody. Appreciate your answers. Thank you.
Your next question comes from the line of Karl Shepard from RBC Capital Markets. Your line is now open. Please go ahead.
Hey, good afternoon.
Good afternoon, Karl.
I guess I wanted to start on the margin. Obviously a really strong performance again this quarter and a positive outlook. We can look at the numbers ourselves, but I am curious your view. Is there anything that stands out? Do you think a lot of this is execution? Is it the environment? Then just kind of what could maybe knock you off getting to 4.20% in 4Q and kind of holding that into 2027, knowing that deposit pricing is always the wild card?
I think our loan yields have been going up. I think on the higher yielding and the lower yielding, we have good loan mix. I think we have good deposit mix that we might be able to hang rate and still overall keep our cost to deposits relatively flat. I think we are in a nice place just because we have a granular depository, and we will test that. We actually will test it a couple times within a quarter with certain specials and products, the team. I think we are relatively well-positioned, but things tend to play out a little differently. That being said, granular consumer-oriented depository, particularly on the longer end, if you have a bunch of $5,000 and $10,000 CDs and the opportunity cost of not getting the highest rate, it is not in tens of thousands of dollars.
If it was $1 million, it is in hundreds of dollars instead. I think that portends well for us. We have 200,000 plus households in our consumer bank, and like I said, they are well over 60% of the overall depository. Then we have that non-interest-bearing. Majority of that is business, which I mentioned earlier. We are getting better and better. Our TM capabilities are getting better and getting some fee income. The team with that and having more solutions for our clients. We have a broad ground game. That is a little harder to manage sometimes, but there are benefits. I do not know what you had.
Yeah. Just to answer the question, is it strategic or is it good fortune? I think if you reflect back on the first quarter, we talked about the fact that we came across some liquidity from a loan sale. We felt that gave us the opportunity to change the mix a little bit of our whole portfolio. We started to price down a little bit the CD side, and we strategically really focused on non-interest-bearing. I think as we expected that time that we would have some good success on deposit pricing. That showed up now, and now we probably have to think about pivoting a little bit towards focusing more on the growth side now that we got ourselves in a good position.
Yeah. We do feel like, and Jim started off, we really feel like we need to be a profitable bank on the net interest margin side, but we also feel a pressure to grow net interest income. We have, and we feel like we can do better there, or we should do better.
Okay. That is helpful. Then just a follow-up question on the tax rate. Are you sort of pointing to a Q4 rate, kind of like this quarter then, if we just think about the benefits from, I guess, 2023 and 2024, and then 2026 from a similar type purchase of an energy credit? Is that a fair way to think about it? Or help us out, Jim, when we are else in the P&L when you show up.
Yeah. You bet. So what I am trying to get some clarity on is that it is going to be a little lumpy at first until it gets into a regular rhythm. Because these tax credits are newly transferable, we are kind of making up for lost time. We wanted to get this one in before we filed our 2025 return on October 15th. That is why we started in the second quarter, and we kind of got it done by the end of the third quarter. That took care of the 2025 liability. Now there is an opportunity to do 2026, but carry back to tax years 2023 and 2024. These tax credits, you can purchase them up to 75% of your federal tax liability. That number ends up being roughly $25 million per year for us, roughly.
If you did 2026 and then 2023 and 2024, that is like $75 million worth of credit. What I am trying to telegraph is a lump like that coming through. Once that is done, then you get to 2027 and 2028, you start getting buying this every year as long as the law does not change. The law seems to be favored by both conservatives and liberals on both sides of the aisle for reducing taxes and promoting renewable energy. There is a good chance it will persist for a while. I am trying to give as much of an outlook as I can for you guys to help you with it or just use a modeling a tax rate. When I talk about 1 or 2 percentage points, when we talk about the annual tax rate, not the federal taxes rate is 21%.
Right now, our effective tax rate is a little hair over 20 because we have a very small muni portfolio. We have BOLI, and those two things are, as the balance sheet grows, they are not really adding to those things, and so proportionally less and less of the balance sheet. So effective tax rate a year or so ago is in the high 19s percent. Now it is in the low 20s percent, a little hair over 20%. These federal tax credits, if you start getting in that rhythm, it could really bring that down, which would fall right to the bottom line. So, trying to give as much clarity as I can without muddying the waters too much. I hope that helps.
Oh, that does. Appreciate it. Thank you.
Thanks for the question.
Your next question is from the line of Matthew Breese at Stephens Inc. Your line is now open. Please go ahead.
Hey, good afternoon.
Matt.
A few questions from me. Jim, on the NIM, I think you had said 2027, call it mid-2027, perhaps a NIM inching towards 4.20%, which is pretty incredible, especially without anything esoteric on the balance sheet. I also think I heard you say that is with no rate hikes, and it does feel like we are going to get anything from one to three hikes. How does that change kind of the NIM outlook?
Yeah. No, thanks for asking. I was trying to keep it high level so that you could take that information and apply your own rate forecast to it. Here is the thing, and I will try to do this without getting too much into the weeds. We purchase an outside rate forecast. It is the same rate forecast that most banks, I think, purchase. That rate forecast would have the short-term rates coming down to the Fed funds, like 3.62% by the end of next year. In fact, the entire yield curve experiencing a parallel downward shift. That assumes that inflation is under control, the Fed can cut rates, a whole bunch of things. In that scenario, the short-term rate, that actually has a December hike in it.
The short-term rate comes up, we benefit from that, the NIM expands, we peak in the first quarter, and then start trailing off. That is a lot of complexity to take into account, and this is a ton of assumptions on how the future is going to play itself out. So we try to simplify that to say, let us just assume nothing changes. The yield curve is frozen. We have got the September hike and nothing else. What happens? That is the Goldilocks scenario I mentioned earlier. That is really good for us. The yield curve has had some steepness to it. The repricing of the fixed-rate loan portfolio continues. It was really good in the third quarter, and that continues to reprice the whole fixed-rate book up. That is worth about five bps over the course of next year. The September hike gives us five.
I mentioned we do not talk about a core NIM, but I try to mention the prepared remarks that reversal the non-accrual accrued interest on the non-accrual loans this quarter cost us four. We posted 4.11%, and that cost us four. So, it is really easy to see with the full benefit of September hike getting to 4.20% in the fourth quarter. There is great visibility of that. If you can reprice up for given the state of the yield curve just frozen, you get another five basis points. Now, if the yield curve does have that downward shift, inflation is under control. The long end thinks so, the bond market thinks so, the Fed thinks so. Yeah, then we peak in the first quarter and it comes down.
But that is a mouthful, and I was trying to keep that out of prepared remarks and hoping to have a conversation like this with whoever asked. So thanks for asking.
Nope.
Hope that helps a lot.
Yeah. No, the other one I wanted to discuss was, this is not the first bank conference call this earning season. We are hearing a lot about high promo rates.
Yeah.
CDs, money market, and kind of the low- to mid-4s at this point.
Yeah.
But a lot of management teams similar to you pointing to deposit betas that kind of match the last cycle. I can't quite square those two narratives. So maybe help me out. Promo activity's really high, but we're—
Well, you—
Yeah.
It can—
Why is that? Help me make that sense.
Well, it is sensitive to that. That depends on your loan growth. If we have the kind of loan growth we have, and we are able to keep the deposit growth from that loan growth or the deposit growth, you have to price that at the market rate to keep up with that. We have had a historical 25% beta, but that is on the non-maturity deposits. Those include the time deposits, so you are right. If you offer those specials, and we have got 4.25% specials out there, so please go out and open a deposit account. We offer competitive rates, and we have to keep up with it. That will affect it. We are trying to put all those assumptions. The way we build it, to give you some insight, is we just use that historical beta on the NMDs, the non-maturity deposits.
Then every promo we think we are going to have to offer at that rate, whatever it is, if the going rate is 4.25% for 15, whatever it is. We put all those promos in to run the math on the actual promos we think we are going to do, and that is where you come up, that is where we kind of kept it forward NIM. Then we respond to reality as things change. If the market goes crazy, and we have to keep up, we keep up. It will change, and we would adapt our forward guidance as a result. But that is kind of the best visibility we have into it right now. You may recall, by the way, last quarter, I was really hesitant to call it and gave, like, "The model says this, but I think otherwise," because I saw that competition.
I was skeptical that we would be able to drop deposit rates in the third quarter. So, mea culpa on my part. We did it, and we were able to drop that. I am really pleased to see that, but we will definitely be keeping up with competitive rates.
Yeah. All right. Last one for me, just on credit trends. Mike, you had mentioned in your opening foray that you are really starting to pay attention. It is a high priority. The level of NPAs where they are at is starting to feel less fluky, less kind of one-off fraud situations that we had 12, 18 months ago. Could you maybe help us out? What are the top three NPAs? What are they geography-, asset class-wise? Is there any future loss content embedded in them? What are you doing to kind of reverse the trend here? Or is it a function of higher rates and a little bit more credit noise?
Yeah. Maybe I will start with what we have done. On the SBA, we have really stopped our out-of-footprint lending. That is about 20% of NPLs. Mike mentioned the loan sale in the eastern part of the state last year, and we have really closed that production office there. We have limited our leveraged finance and our dealer floor plan businesses. We have bolstered our portfolio management. At the end of the day, those are all good things. Right now, 20% of the texture of our classified, criticized, and if we look at our charge-off history the last several years, is really our entrée into central Pennsylvania. I mentioned we are now down to about $300 million there with about $60 million in criticized. That is a lot of work on a portfolio that when we acquired it was just under $1 billion.
At the same time, we have been able to be profitable and move forward. I have calculated the delta on that. The delta on that is 14- 15 basis points over where we would have been otherwise, which is real money. You and I have talked about that. I do feel like I said this a year ago, and I know you are reminding me of it, is we are in the latter innings of this. But I feel like we are in the latter innings of it. When you asked about the top three, I think of the central Pennsylvania C&I loan. I think of a downtown Pittsburgh-based multi-faceted development opportunity. The third one would be an Ohio student housing project. Each of those is-
I could give you the dollar amounts over 10, just under 10, and two just under 10. Brian, what would you add?
Yeah. I would just add a couple anecdotal comments to build on Mike's. So he mentioned the $60 million of criticized loans that we have on the books from the Centric acquisition. I think taking one step further into that, the positive about it is there is one loan over $10 million. There is very limited non-performing. So to your impaired question, there is about $5 million or $6 million of impaired in that portfolio. So once you get past the one larger criticized loan that is in that $60 million bucket, it is very granular and very manageable. I think we have been deliberate in the market.
We have added credit talent on top of the actions around the portfolio that Mike referenced. So not completely out of the woods with the headwind there, and there is always some variability with reducing that $60 million, but I feel it is granular and becomes manageable.
As you look at the top impaired loans in the non-performing bucket, overall, Mike referenced the three from this past quarter. Those are three of the top four loans in our impaired loan bucket. The larger C&I credit that came in this quarter at $16 million is the largest in that portfolio. The $5 million mixed-use Pittsburgh credit that came into non-accrual this quarter is one of those top four loans. So $21 million kind of flowed into the non-performing, non-accrual bucket this period and accounts for two of those top four. It is worth just providing a little more color. The one that was already in as one of the top non-performing, we added some provision and reserve to this period. That is in existence, an $11 million loan, and it is the second largest non-performer we have. It is also a Pittsburgh mixed-use multifamily property.
Hopefully that provides a little color. Once you move out of the top, the three loans are the only ones of magnitude from the fourth loan on through the 25th. It drops below $5 million and declines in size very quickly on a per loan basis. So, I feel, again, the granularity is a positive and to continue as we continue to work through it.
Yep. I appreciate all the detail. Thank you.
Thanks, Matt.
As a reminder, if you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. Your next question is from the line of Manuel Navas from Piper Sandler. Your line is now open. Please go ahead.
Yeah. I appreciate all the commentary on credit, but what do you feel is the timeline for all that? Is there a best guess? We said a couple quarters of 30-32 basis points of maybe higher net charge-offs. Does that still hold? I know this quarter is a little bit better because of some recoveries, but just kind of thoughts on that go forward look of charge-offs or provisioning.
Yeah. We don't provide specific guidance to the future quarter reserve and provisioning. As we work through those specific credits we discussed, I do recognize that this quarter was heavy on reserve and light on charge-offs. We would expect to work through these credits in the next couple of quarters. We did allocate based on our collateral and our workout strategies on those loans. I would expect that barring unforeseen events, we kind of manage within our typical provision going forward. Mike, you have anything you'd like to add to that?
This quarter was, I think, our highest provisioning quarter we've had ever. $3.5 million of that was unfunded, which are primarily construction loans that'll get funded later. Still, it was the highest. I think we should hopefully get back down under $10 million, but we'll see. Manuel, I wish I had a crystal ball here.
Understood.
We will get it to converge towards peer numbers, and that's what we're focused on.
A component of the provision this quarter was those unfunded commitments. Does that mean that there's potential for stronger near-term growth, or is that kind of spread out over time?
No, the $3.5 million-
I didn't realize it was construction, but go ahead.
Yeah. $3.5 million would be committed lines, which would be primarily construction lending on the commercial side. Also, we have really had a nice year on HELOC lending out of branches. You would expect takedowns on both the HELOCs and the construction over the course of the next year to 18 months. That is the good cholesterol, if you will, in the provision expense, if there is such a thing.
Yeah. Sorry, Manuel . There was over $100 million of investment real estate construction growth in the quarter. As you would expect, those are going to fund over a 12 to 18-month period on average, usually an equity phase for the first ramp-up period. That construction portfolio has been growing over the course of 2026. We see nice incremental growth being funded out of that, and we will see kind of some more incremental benefit in about two quarters as you see those loans start to fund.
Yeah. Thanks.
We have been watching for a kind of a return to mid-single digits pace. I guess 3% kind of counts this quarter. Do you think that you accelerate near term, or is it just kind of a slow rise process from here into next year?
Well, I think prognostication probably, I think we can hopefully keep at that pace or a little higher in the fourth quarter. Beyond that, you talked a little bit about rising rates and what that might mean for family-owned businesses, consumers, and others. Our mortgage business, we've had a lot of gain on sale income this year. They've kind of battled through it, and they felt the rate increases in the volume in late August. I can almost remember the week where we were just kind of on fire for eight and a half months. Then we saw just a little downtick, but we were able to keep it up. But you worry a little bit about the state of the consumer and particularly the family and the small business and the impact on them. That's why a little tepid around. We're not in the Sun Belt.
We're in community Pennsylvania and Ohio, which is a little different texture. Quite frankly, there's a lot happening here with energy data centers in our backyard that could really propel us, even if we were to get into a thicket. You might not have a recession or the same kind of thicket in central and southern Ohio and western Pennsylvania that you might have in the rest of the country. That's another thing that we felt a little bit impervious through the last cycles. Both on our indirect auto book tended to perform really well, 30- 40 basis points of losses, even through some tough cycles. So, there is something about this area of the country, western Pennsylvania and Ohio, where they've performed well through the last couple cycles.
Thank you for the commentary. I'll step back into queue.
Sure.
There are no further questions at this time. I will now turn the call back to Mike Price for closing remarks.
As always, we appreciate the questions and the challenges, the encouragement. We also are excited about the future of our company. We have always been kind of sharp the last couple of years with fintech investments and things like that, and we will continue that. We are looking at some really capable tools that can help us with everything from next best product to data-driven insights, to call center efficiency, smarter ways to work, and done a lot with anti-fraud and information security and money movement. Just excited about continuing the pace of investment there. I think we have highlighted in some of our investor calls, we have 35 fintech partners. Just the democratization of technology and what it might mean for a company of our size and how we can compete.
Excited about that as we look to the future and try to bring the best of a community banking experience, but also just have a level of sophistication where we could remain relevant to our clients. Just thank you for your interest in our company and appreciate your questions today.
This concludes today's call. Thank you for attending. You may now disconnect.