Q2 2025 Northwest Bancshares Inc Earnings Call
Operator: Good morning. Thank you for joining us and welcome to Northwest Bancshares' second quarter 2025 earnings call. This session is being recorded, and a playback will be available on Northwest Investor Relations' website. All participants are currently in a listen-only mode. Following prepared remarks, we will open the call for a question-and-answer session. Now, I would like to introduce Michael Perry, Northwest Managing Director of Corporate Development and Strategy and Investor Relations.
Good morning. Thank you for joining us, and welcome to Northwest Bancshares' second quarter 2025 earnings call. This session is being recorded, and a playback will be available on Northwest's investor relations website.
All participants are currently in a listen-only mode.
Following prepared remarks, we will be, we will open the call for a question and answer session.
Now, I would like to introduce Michael Perry, Northwest managing director of corporate development and strategy.
And investor relations.
Michael Perry: Good morning, everyone, and thank you, operator. Welcome to Northwest Bancshares' second quarter 2025 earnings call. Joining me today are Louis Torchio, President and CEO of Northwest Bancshares, Doug Schosser, our Chief Financial Officer, and Thomas Creal, our Chief Credit Officer. During this call, we will refer to information included in the supplemental second quarter earnings presentation, which is available on our Investor Relations website. If you would like to read our forward-looking and other related disclosures, you can find them on slide two. Thank you. Now, I will hand it over to Lou.
Good morning everyone and thank you. Operator. Welcome to Northwest Bank shares. Second quarter, 2025 earnings call joining me today are Lou Toreo president and CEO of Northwest Bank shares, Doug, schosser our Chief Financial Officer and TK, Krill our chief credit officer.
During this call, we will refer to information included in the supplemental. Second quarter earnings presentation.
Which is available on our investor relations website.
If you'd like to read our forward-looking and other related disclosures, you can find them on slide 2.
Thank you. And now I'll hand it over to Lou.
Louis Torchio: Good morning, everyone. Thanks for joining us today to discuss our second quarter results. First, I would like to start by welcoming Penns Woods Bancorp's customers, employees, and shareholders to Northwest Bancshares Inc, and Richard Grafmeyer, Penns Woods Bancorp's former CEO, to our Board of Directors. We completed the legal close of Penns Woods Bancorp's merger after the conclusion of business on Friday, July 25, and subsequently began the customer and data conversion and financial center rebranding over the weekend. As of 8:00 A.M. Monday, July 28, the former Jersey Shore State Bank and Luzerne Bank financial centers began operating under the Northwest Bank name.
Discuss our second quarter results. First. I'd like to start by welcoming Penns, Woods customers employees and shareholders, to Northwest, and Richard graphml to our board of directors.
We completed the legal close of pennwoods merger, after the conclusion of business on Friday, July 25th and subsequently began the customer and data conversion and financial center rebranding over the weekend.
As of 8:00 a.m. Monday July 28th, the former Jersey Shore State Bank and Luzerne Bank Financial Centers began operating under the Northwest Bank name.
Louis Torchio: Closing the largest transaction in our company's history while continuing to deliver strong operational and financial performance is a result of the cumulative effort of many months of hard work by our team. I am grateful to everyone for their dedication to making this merger and conversion successful. I would also like to note that the key metrics relating to the merger, including expected cost reductions, are on target or better than our original expectations. Our focused execution exemplifies our commitment to disciplined but opportunistic growth. You can see that trajectory on the bottom of page five. Northwest Bancshares Inc now ranks as one of the nation's 100 largest bank holding companies, with total assets of approximately $17 billion. We now have more than 150 financial centers across Pennsylvania, New York, Ohio, and Indiana, further enhancing our scale for driving sustainable forward momentum and revenue.
Closing the largest transaction in our company's history while continuing to deliver strong operational. Financial performance is a result of the cumulative effort, of many months of hard work by our team.
I'm grateful to everyone for their dedication to making this merger and conversion successful.
I'd also like to note that the key metrics relating to the merger, including expected cost reductions, are on target or better than our original expectations.
Our focused execution, exemplifies our commitment to disciplined, but opportunistic growth.
You can see that trajectory on the bottom of page 5.
Northwest now ranks as 1 of the nation's, 100 largest bank holding companies with total assets of approximately 17 billion dollars.
Louis Torchio: Together, we are better positioned to deliver value to our shareholders and to offer an expanded range of products and services to customers and communities across our Pennsylvania footprint. Although we are always evaluating acquisition opportunities for additional scale and strategic benefit, with the Penns Woods Bancorp acquisition and conversion just behind us, we are primarily focused on optimizing the operations and financial performance of the newly combined entity. We continue to enhance our capabilities, expand our footprint through de novo branch openings, and provide personalized services and expertise to our customers and the communities we serve. In June, we opened our first new full-service financial center in six years in Fishers, Indiana, and we have plans to open additional new financial centers in key locations in the high-growth Columbus and Indianapolis metro areas over the next 12 to 18 months.
We now have more than 150 financial centers across Pennsylvania, New York, Ohio, and Indiana, further enhancing our scale for driving sustainable growth, momentum, and revenue.
together, we are better positioned to deliver value to our shareholders and to offer an expanded range of products and services to customers and communities across our Pennsylvania footprint,
Although we are always evaluating acquisition opportunities for additional scale and strategic benefits with the Penns Woods, acquisition and conversion. Just behind us, we are primarily focused on optimizing the operations and financial performance of the newly combined entity.
We continue to enhance our capabilities, expand our footprint through de novo branch openings, and provide personalized services and expertise to our customers and the communities we serve.
In June, we opened our first new full service Financial Center in 6 years in Fischer, Indiana.
And we have plans to open additional new Financial Centers in key locations in the high growth Columbus and Indianapolis metro areas over the next 12 to 18 months.
Louis Torchio: Turning to our second quarter, I will address some of the quarter's highlights on slide six. I am very pleased with our performance this quarter as we balance preparing for the acquisition and conversion of Penns Woods Bancorp while maintaining our focus on executing our strategy and delivering on our commitment to sustainable, responsible, and profitable growth. Overall, we built on a strong start to the year, including continued strength in our net interest margin and improved fee income, which together resulted in $150 million of revenue for the second quarter. We continue to exercise prudent expense control, and we reported GAAP net income of $33.7 million and earnings per diluted share of $0.26 compared to $0.04 in the second quarter of 2024.
Turning to our second quarter, I'll address some of the quarters. Highlights on slide 6.
I'm very pleased with our performance this quarter as we balance preparing for the acquisition and conversion of Pennwood.
While maintaining our focus on executing our strategy and delivering on our commitment to sustainable responsible and profitable growth.
Overall, we build on a strong start to the year, including continued strength in our net interest margin and improved fee income, which together resulted in $150 million of revenue for the second quarter.
We continue to exercise prudent expense control and we reported gaap, net income of 33.7 million dollars and earnings per diluted share of 26 Cents compared to 4 cents in the second quarter of 2024.
Louis Torchio: If we adjust our second quarter 2025 results for the impact of one-time merger-related expenses on a non-GAAP basis, we are reporting net income of $38.2 million and earnings per diluted share of $0.30 compared to net income of $35.5 million and $0.27 per diluted share in the second quarter of 2024, which has also been adjusted for the impact of the previously disclosed securities restructuring. This, impressively, would represent a 10% increase in earnings per share compared to the year-ago quarter. We made further solid progress on our balance sheet strategy while continuing momentum from our strategic shift towards commercial lending. We drove a 19% increase in average commercial and industrial loans compared to the same period last year. In addition, the team's focus on deposit gathering continues.
If we adjust our second quarter 2025 results for the impact of one-time merger-related expenses on a non-GAAP basis, we are reporting net income of $38.2 million and earnings per diluted share of $0.30 compared to net income of $35.5 million and $0.27 per diluted share in the second quarter of 2024.
Which has also been adjusted for the impact of the previously disclosed Securities. Restructuring.
This impressively would represent a 10% increase in earnings per share compared to the year ago quarter.
We may further solid progress on our balance sheet strategy while continuing momentum from our strategic shift towards commercial lending.
We drove a 19% increase in average cni loans compared to the same period last year.
Louis Torchio: We maintained our near best-in-class deposit franchise with a fourth consecutive quarter of reduced cost of funds, which provides us with a high-quality, stable funding base and improving net interest margin. Our credit costs continue to be in line with our expectations. We increased our ACL coverage while reporting modest credit losses with net charge-offs below our guidance range and no increase in total delinquency percentage this quarter. Finally, as we have for the previous 122 quarters, on behalf of the Board of Directors, I am pleased to declare a quarterly dividend of $0.20 per share to shareholders of record as of August 8, 2025. This quarter's strong results and the successful closing conversion of our largest acquisition to date are the product of an extremely talented team's hard work. I want to thank our entire Northwest team for their continued dedication to our company's success.
In addition, the team's focus on the positive Gathering continues. We maintained our near best-in-class deposit. Franchise with a fourth consecutive quarter of reduced cost of funds, which provides us with a high quality stable funding base and improving net interest margin.
Continue to be in line with our expectations. We increase our ACL coverage, while reporting modest credit losses with net, charge offs below our guidance range and no increase in total delinquency percentage this quarter.
And finally, as we have for the previous 122 Quarters on behalf of the board of directors, I'm pleased to declare a quarterly dividend of 20 cents per share to shareholders of record as of August 8th 2025.
This quarter strong results and the successful closing conversion of our largest acquisition to date are the product of an extremely talented teams. Hard work, I want to thank our entire Northwest team for their continued dedication to our company success.
Louis Torchio: Looking forward to the rest of the year, we continue to focus on managing the factors within our control, serving our core customers and communities, building on our strong financial foundation, and maintaining cost control and risk management discipline. Now, it's my pleasure to introduce Doug Schosser, our Chief Financial Officer, who will take us through our financial results. Doug?
Looking forward to the rest of the year. We continue to focus on managing the factors within our control, serving our core customers and communities. Building on our strong financial foundations, and maintaining cost control and risk management disciplines.
Now, it's my pleasure to introduce Doug, shahzor our Chief Financial Officer who will take us through our financial results.
Doug Schosser: Thank you, Lou, and good morning, everyone. As Lou indicated, we are pleased with our Q2 financial performance. This is the product of the efforts of our entire team working tirelessly to deliver these results while also ensuring that our merger and conversion activities went smoothly for our new customers and colleagues from Penns Woods Bancorp. Regarding our Penns Woods Bancorp acquisition, I would like to provide an update on the total equity consideration paid for this transaction. Based on our stock's closing price July 25, 2025, of $12.63 per share, the total equity consideration paid calculated to be $230 million, which was $30 million less than the equity consideration disclosed at the deal signing in December of 2024. Other key financial metrics are in line with our original expectations, and one-time merger charges and cost savings remain on target. See slide five for more details.
Doug.
Thank you, Lou and good morning, everyone.
As Lou indicated, we are pleased with our second quarter financial performance.
This is the product of the efforts of our entire team working tirelessly to deliver these results. While also ensuring that our merger and conversion activities went smoothly for our new customers and colleagues from Penns Woods.
Regarding our pens with acquisition, I would like to provide an update on the total Equity consideration page for this transaction.
Based on our stocks closing price, July 25th, 2025 of 12.63 cents per share, the total Equity consideration paid calculated to be 230 million which was 30 million less than the equity consideration, disclosed at the deal signing in December of 2024.
Doug Schosser: Now, let's continue on slide seven of the earnings presentation, where I'll walk you through the highlights of Northwest Bancshares Inc's financial results for the Q2 of 2025. We reported GAAP net income of $33.7 million or $0.26 per diluted share, inclusive of $4.5 million of after-tax merger-related costs, a decline of approximately $10 million quarter over quarter on a GAAP basis. As you recall, we did have a significant non-accrual interest recovery in the Q1, which added approximately $9.4 million or $0.08 in after-tax income in that period. We reported a net interest margin of 3.56% for Q2 2025, which would compare favorably to the prior quarter's adjusted margin of 3.48% after adjusting for a 39 basis point interest recovery benefit recorded in the Q1. We continued to manage our funding costs and maintain our loan yields, driving improved margin performance.
Other key financial metrics are in line with our original expectations and 1 time. Merger charges and cost savings remain on target. See slight 5 for more details.
Now, let's continue on. Slide 7 of the earnings presentation where I'll walk you through the highlights of Northwest Financial results for the second quarter of 2025
We reported GAAP net income of $33.7 million, or $0.26 per diluted share, inclusive of $4.5 million of after-tax merger-related costs.
A decline of approximately $10 million quarter over quarter on a gap basis.
As you recall we did have a significant, non-accrual interest recovery in the first quarter, which added approximately 9.4 million or 8 cents in after tax income in that period.
We reported net interest margin of 3.56% or quarter to 20225 which would compare favorably to the prior, quarter's adjusted margin of 3.48% after adjusting for a 39 basis. Point interest recovery benefits recorded in the first quarter.
Doug Schosser: Non-interest income increased by $2.6 million or 9.1% quarter over quarter, driven by improvements in fee income from seasonal changes and some increase in other operating income. Total revenue of $150 million for the Q2 represents a 53.5% increase on the prior year period on a GAAP basis, which included a $39.4 million loss resulting from a securities portfolio restructuring. This was slightly down from the $156 million of revenue reported last quarter, which included a $13 million benefit from an interest recovery. Our non-interest expense increased 6.3% compared to the prior quarter and increased 5.5% versus the second quarter of 2024 due to expenses related to the preparation for, closing of, and conversion of the Penns Woods Bancorp merger.
We continue to manage our funding costs and maintain our loan yields driving, improved margin performance.
Non-interest income increased by 2.6 million or 9.1% quarter of a quarter driven by improvements in fee, income from seasonal, changes and some increase in other operating income.
Total revenue of $150 million for the second quarter. Represents a 53.5% increase on the prior year period on a gap basis. Which included a 39.4 million loss. Resulting from a Securities portfolio. Restructuring.
This was slightly down from the 156 million of Revenue, reported last quarter, which included a 13 million benefit from an interest recovery.
Doug Schosser: Pre-tax pre-provision net revenue was $59.1 million, which was down from the first quarter of 2025, again due to the non-accrual interest recovery and a 26% increase from the second quarter of 2024, largely due to the impact of the securities repositioning. I will highlight some additional details on our quarterly results. Turning to slide eight and our loan portfolio, average loans grew $72 million quarter over quarter or 0.6% and were $120 million, or about 1% lower than in the second quarter of 2024. Again, we were opportunistic this quarter, taking advantage of some further consumer loan growth as interest rates remained supportive and we saw some demand returning to the commercial and industrial loans space.
Our non-interest expense increased 6.3% compared to the prior quarter and increased 5.5% versus the second quarter of 2024 due to expenses related, to the preparation for and closing of and conversion of the Penns Woods merger.
Pre-tax pre-provision net revenue with 59.1 million, which was down from the first quarter of 2025 again, due to the non-approval interest recovery.
And a 26% increase from the second quarter of 2024 largely due to the impact of the Securities repositioning.
Now, I will highlight some additional details on our quarterly results.
Earning to slide 8 and our loan portfolio.
And we're 120 million dollars or about 1% lower than in the second quarter of 2024.
Again, we were opportunistic. This quarter taking advantage of some further consumer loan growth.
Doug Schosser: We continue to proactively shift our portfolio mix more towards commercial and industrial loans as part of our longer-term strategy. Average commercial and industrial loans increased $49.1 million or 2.4% compared to the first quarter, while consumer loans from both our indirect business and our home equity loans portfolios also grew by $131 million combined. These increases were partially offset by the declines in our CRE portfolio, which was down 1.5%, and our residential mortgages portfolio, which was down 2%. Loan yields continue to be stable quarter over quarter at 5.55% for the second quarter, compared with 6.0% in the prior quarter, which was elevated due to the non-accrual loan recovery, and we maintain our focus on pricing discipline. On slide nine, we cover our deposit balances, which remained strong and stable over the prior quarter and prior year period.
As interest rates remain supportive, we saw some demand returning to the CNI space.
We continue to proactively shift our portfolio. Mix more towards commercial and Industrial loans as part of our longer term strategy.
Average cni loans, increased 49.1 million or 2.4% compared to the first quarter while Consumer loans, from both our indirect business and our home equity portfolios. Also grew by 131 million combined
these increases were partially offset by the declines in our CRA portfolio, which was down 1.5% and our Residential Mortgage portfolio, which was down 2%
Loan yields continue to be stable quarter over quarter at 5.55% for the second quarter compared with 6.00% in the prior quarter, which was elevated due to the non-accrual loan recovery, and we maintain our focus on pricing disciplines.
On slide 9.
Doug Schosser: Average deposits increased $66 million, or 0.5% quarter over quarter, and $67 million, or about 0.6% growth versus the second quarter of 2024. Customer average deposits increased $107 million quarter over quarter, while brokered deposits declined $41 million over the same period, resulting in a 0.5% overall deposit growth for the second quarter. We saw growth of deposit balances in most categories while maintaining reasonable deposit costs and are pleased with our progress here. Our cost of deposits decreased four basis points quarter over quarter through proactive management of the overall portfolio. As rates have been coming down during this declining interest rate cycle, our relative short maturity CDs are rolling into lower rates. Our current cost of deposits stands at 1.55%, still near best-in-class relative to our peers. Moving to slide 10 and our net interest margin.
We cover our deposit balances, which remain strong and stable over the prior quarter and prior year period.
Average deposits increased 66 million or half a percent quarter of quarter and 67 million or about 6% growth versus the second quarter of 2024.
Customer average deposits increased 107 million quarter over quarter while brokered deposits declined, 41 million over the same period resulting in a 0.5% overall, deposit growth for the second quarter.
We saw growth of deposit, balances in most categories, while maintaining reasonable deposit costs and are pleased with our progress here.
Our cost of deposits decreased 4 basis points quarter over quarter through ProActive Management of the overall portfolio. As rates have been coming down during this declining interest rate, cycle, our relative shorts maturity CDs are rolling into lower rates.
Our current cost of the deposit stands at 1.55%, still near best-in-class relative to our peers.
Doug Schosser: In the summary earlier, I touched on our net interest income and net interest margin performance for the quarter. The progress we've made on this front is a continuing highlight for us over the past year. In 2023 and in 2024, we reported full-year net interest income of $439 million. Based on our standalone second quarter 2025 performance, one would expect Northwest Bancshares Inc to report an annualized net interest income of $480 million, or an increase of 10%. We will further benefit from the last five months of Penns Woods Bancorp's net interest income and from the first quarter non-accrual interest recovery. This is clearly a bright spot for our bank and will further improve many of our key profitability and return metrics. Slide 11 provides some additional details on our earning asset and funding mix.
Moving to slide 10 and our net interest margins.
In the summary earlier. I touched on our net interest income and net, interest margin performance for the quarter.
The progress we've made on this front is a continuing highlight for us over the past year.
In 2023 and in 2024, we reported full year net interest income of 439 million.
Based on our Standalone second quarter 2025 performance 1 would expect Northwest to report an annualized, net interest income of 480 million or an increase of 10%.
We will further benefit from the last 5 months of Penns Woods net interest income. And from the first quarter, non-accrual interest recovery. This is clearly a bright spot for our bank and will further improve many of our key profitability and return metrics
Doug Schosser: As you can see, we continue to grow our commercial loan portfolio and the proportion of floating rate earning assets. On the funding mix, you will note our time deposits have a very short duration, allowing us to continue to benefit from falling interest rates and lower interest expense. On slide 12, the yield on our securities portfolio also shows further ongoing improvement as we continue to reinvest cash flows at higher yield than the current portfolio and the benefit from the securities repositioning we completed in the second quarter of 2024. Slide 13 contains detail on our non-interest income, which increased $2.6 million from the last quarter, as most line items showed improvement from a normal seasonal rebound from the first quarter and an increase in other operating income, primarily from a gain on an equity method investment.
Slide 11 provides some additional details on our earning asset and funding mix. As you can see, we continue to grow our commercial loan portfolio and the proportion of floating-rate earning assets.
And on the funding mix, you'll note our time deposits, have a very short duration allowing us to continue to benefit from falling interest rates and lower interest expense.
On 512, the yield on our Securities portfolio. Also shows further ongoing improvements as we continue to reinvest cash flows at higher yields than the current portfolio and the benefit from the Securities repositioning we completed in the second quarter of 2024.
Slide 13 contains detail on our non-interest income, which increased 2.6 million from the last quarter. As most line items showed improvement from a normal seasonal rebound from the first quarter and an increase in other operating income primarily from a gain on an equity method investment.
Doug Schosser: Non-interest income increased $40 million year over year, driven by a $39 million loss on securities from the previously mentioned portfolio restructuring in the second quarter of 2024. Slide 14 details our non-interest expense. We incurred approximately $97.5 million of expenses on a GAAP basis for the second quarter. About $5.1 million of that increase from the prior quarter, and $4.3 million from the prior year was merger-related. Excluding that line item, expenses are generally consistent with the underlying expense run rate over the past year. Our adjusted efficiency ratio of 60.4% after excluding those merger and restructuring expenses is an improvement from the 65.4% in the prior year period, which has been adjusted for the impact from our securities restructuring and other restructuring charges.
Non-interest income increased 40 million dollars year-over-year driven by a 39 million dollar loss on Securities from the previously mentioned portfolio. Restructuring in the second quarter of 2024
slide 14 details are non-interest expense.
We incurred approximately 97 and a half million dollars of expenses on a gap basis. For the second quarter,
About 5.1 million of that increase from the prior quarter and 4.3 million from the prior year was merger related. So excluding that line item expenses are generally consistent with the underlying expense run rate over the past year.
Doug Schosser: This reflects our continued focus on managing expenses without an impact on our core operations or sacrificing customer service, while still investing in talent to support future growth. On the next few slides, we cover credit quality. On slide 15, you can see our overall allowance coverage ratio has increased to 1.14%, up slightly from the first quarter of 2025 due to downgrades within the commercial lending portfolio and offset by changes within macroeconomic forecasts. We believe our coverage is appropriate, prudent, and in keeping with our rigorous credit risk management approach. Our annualized net charge-offs of 18 basis points for the quarter were below guidance and in line with historic performance. On slide 16, you will note that our 30-day plus loan delinquencies remain stable at around 1% of outstanding loans.
Adjusted efficiency ratio of 60.4%, after excluding, those merger and restructuring expenses is an improvement from the 65.4% in the prior year period, which has been adjusted for the impact from our Securities, restructuring and other restructuring charges.
This reflects our continued focus on managing expenses without an impact on our core operations for sacrificing customer service while still investing in Talent to support future growth.
On the next few slides. We cover credit quality.
On site 15 you can see our overall allowance coverage ratio has increased to 1.14% up slightly from the first quarter of 2025 due to downgrades within the commercial lending portfolio and offset By changes within macroeconomic forecasts.
we believe our coverage is appropriate prudent and in keeping with our rigorous credit risk management approach
Our annualized net charge offs of 18 basis. Points for the quarter were below guidance and in line with historic performance
Doug Schosser: Our NPAs as a percent of loans outstanding plus ORIO have increased to 91 basis points, which is similar to the levels recorded in Q2 2024. We provide some details on the drivers of this change on that slide. Turning to slide 17, we have included some additional information on the changes within classified loans reported this quarter. The Q2 2025 increase in our classified loans is a result of three primary items. The remaining long-term healthcare loans held for sale were returned to held for investment. Given the specific circumstances of these borrowers and the market's currently dampened interest for loans in this sector, we believe managing these loans on our balance sheet will ultimately minimize incurred losses. Additionally, due to the current excess supply of multifamily units in the Columbus market, several construction projects aim onto the market with lease-up rates lower than projected.
On slide 16, you will note that our 30-day plus loan delinquencies remain stable at around 1% of outstanding loans. Our NPAs as a percent of loans outstanding plus OREO have increased to 91 basis points, which is similar to the levels recorded in Q1 2024. We provide some details on the drivers of this change.
On that slide.
Turning to slide 17.
We have included some additional information on the changes within classified loans reported this quarter.
The Q2 2025 increase in our classified loans is the result of three primary items.
The remaining long-term healthcare loans held for sale or return to held for investment.
Given the specific circumstances of these borrowers and the markets currently dampened interest. For loans. In this sector, We Believe managing these loans on our balance sheet will ultimately minimize incurred losses.
Doug Schosser: We expect demand to catch up with supply as market absorption rates continue to improve for these projects to exit successfully. The projects are all with strong, well-established developers who are invested in the community. Finally, there are a few larger commercial and industrial loans borrowers whose performance deteriorated based on current macroeconomic uncertainties with tariff policies and other industry-specific headwinds. Slide 18 highlights our $6.4 billion in commercial loan commitments by industry classification, showing a diverse portfolio and has some additional detail on our CRE concentrations. I would now like to review what we can currently disclose about the remainder of 2025, bearing in mind we just closed our Penns Woods Bancorp merger less than a week ago. We may release updated guidance for 2025 at a future date. On slide 19, we provided an updated perspective on our outlook.
Additionally, due to the current excess supply of multi-family units in the Columbus market, several construction projects have come onto the market with lease-up rates lower than projected.
We expect demand to catch up with Supply as Market absorption rates continue to improve for these projects to exit successfully.
A projects are all with strong well-established developers who are invested in the community.
And finally, there are a few larger cni borrowers, whose performance deteriorated based on current macroeconomic uncertainties with tariff policies and other industry-specific headlines.
Flight 18 highlights are $6.4 billion in commercial loan commitments by industry classification, showing a diverse portfolio and including some additional detail on our CRA concentrations.
I'd now like to review what we can currently disclose about the remainder of 2025 bearing in mind, we just closed our Penns Woods merger less than a week ago.
We may release updated guidance for 2025, at a future date.
Doug Schosser: We continue to be confident about Northwest Bancshares Inc business and would expect to maintain our net interest margin at 350 basis points for the rest of the year before the accretive benefits of the Penns Woods Bancorp acquisition. We are not providing specific information on the third quarter, as we will need to work through our purchase accounting marks, book expenses related to changing control contracts, and many other one-time merger-related costs. We would expect to earn approximately two-thirds of a quarter's worth of revenue and income from the incorporation of Penns Woods Bancorp balance sheet and customers into Northwest Bank. For the fourth quarter of 2025, we expect to maintain Penns Woods Bancorp earnings power and current balance sheet level as we integrate their operations into Northwest.
On slide 19. We provided an updated perspective on our Alpha.
We can continue to be confident about Northwest business and would expect to maintain our net interest margin at 350 basis, points for the rest of the year. Before the accreted benefits of the pens was acquisition.
We are not providing specific information on the third quarter, as we will need to work through our purchase accounting. Marks book expenses related to changing control contracts and many other 1-time. Merger-related costs.
We would expect to earn approximately 2/3 of a quarter's worth of Revenue and income from the incorporation of Penns, Woods, balance sheet and customers into Northwest Bank.
Doug Schosser: On a combined basis, we would expect to achieve the following fourth quarter 2025 financial results: net interest income in the range of $139 million to $141 million, non-interest income in the range of $32 million to $33 million, non-interest expense in the range of $103 million to $105 million, a flat tax rate of 23%, net charge-offs of $9 million to $11 million per quarter, with full-year 2025 net charge-offs to average loans slightly below our previously disclosed range of 25 to 35 basis points. We will not have fully realized all cost savings from the Penns Woods Bancorp acquisition in the fourth quarter of 2025, but we expect to achieve 100% of the savings by the second quarter of 2026. I will now turn the call over to the operator who will open up the lines for live Q&A. Operator?
For the fourth quarter of 2025, we expect to maintain Penns Woods, earnings power and current balance sheet level. As we integrate their operations into Northwest.
On a combined basis, we would expect to achieve the following fourth quarter, 2025 Financial results.
Net interest income in the range of 139 million to 141 million.
Non-interest income in the range of $32,233 million.
Non-interest expense in the range of 103 million to 105 million.
A flat tax rate of 23%.
Net charge offs of 9 million to 11 million per quarter with full year, 2025 net, charge offs to average loans. Slightly below our previously disclosed range of 25 to 35 basis points
5 but we expect to achieve 100% of the savings by the second quarter of 2026.
I'll now turn the call over to the operator. We'll open up the lines for live Q&A.
Operator.
Operator: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from Daniel Tamayo with Raymond James.
At this time, I would like to remind everyone in order to ask a question. Press star, then the number 1 on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from Daniel Tamayo with Raymond James.
Thomas Creal: Good morning, Daniel.
Daniel Tamayo: Thank you. Hey, morning. Thanks for all the color in the prepared remarks there. That was really helpful. You covered a lot of my questions. On the expenses, I am just kind of thinking out loud. It sounds like you are going to be continuing to have cost savings next year through the second quarter. Maybe you could just give us a sense for once we get past that run rate of 103 to 105 in the fourth quarter, you know how much savings is left and as much as you can, the timing on that in the first half of next year?
Morning Daniel. Thank you.
Hey morning. Um,
Thanks for all the color uh, on the um, in the prepared remarks there, that was really helpful. You covered a lot of my questions. But, um,
So, on the expenses, sorry, I'm just kind of thinking out loud. It sounds like you're going to be, um, continuing to have cost savings next year through the second quarter. Um, maybe you could just give us a sense for, uh, once we get past that run rate of 103 to 105 in the fourth quarter. Um, you know, how much savings is left? Um, and, as much as you can, the timing on, uh, on that in the first half of next year.
Doug Schosser: I would put it this way, Daniel. We just closed this transaction, you know, 48 hours ago, 72 hours ago, whatever. We will provide much fuller guidance when we release Q4 earnings in January, like we would always do, at which point we will be able to give you much more color. I would just say originally we announced that we would have 40% cost savings as a result of the transaction. We originally had indicated that we would get about 75% of that in 2025, with the remainder coming through the Q2 of 2026. You would expect to get a little bit more efficient as we roll, but we will give more specific guidance on that aggregate expense number next year.
Yeah. So I would put it this way, Daniel, I mean we just closed this transaction, you know, 48 hours ago, 72 hours ago, whatever. Um, we'll provide much Fuller, guidance. When we release fourth quarter earnings in January, uh, like we would always do at which point we'll be able to give you uh much more color. I would just say originally we announced that we would have 40% cost savings as a result of the transaction. And we originally uh had indicated that we'd get about 75% of that in 2025 with the remainder coming through the second quarter of 26 so you would expect to get a little bit more efficient as we roll. But we'll give more specific guidance on that aggregate expense number next year.
Daniel Tamayo: Understood. Okay. Another one that maybe you might not have the full information on given the timing of the close, but just curious if you have an initial updated estimate on what the accretion might be in the margin. I know you touched on it, but just remind us if you can the core change to the core margin from the acquisition.
Understood. Okay.
Um,
and and another 1 that maybe you might might not have, uh, kind of the full information on given the, the, the timing of the clothes. Um, but just curious, if you have an initial, um, you know, updated estimate on, on what the accretion, might be in the margin and then I know you touched on it. But, um,
Just remind us if you can the the kind of the core uh the change to the core margin, um, from the acquisition.
Doug Schosser: Yeah, so we're still working.
Daniel Tamayo: Sorry, do you have any balance sheet actions that you guys are going to be expecting to do as well? Sorry for that additional one.
Doug Schosser: Yeah, that's okay. We are still working through purchase accounting, accretion, and the mark. We cannot really update on margin guidance, which is why I tried to give you an idea of what the fourth quarter would look like aggregate net interest income. We have a couple of opportunities to update guidance over the course of the third quarter, including a few conferences that we are going to attend. If we do, we will obviously put out an 8K and a new investor deck to help with that. If you would not mind giving us a little bit more time to come up with that information so that it is accurate, I would appreciate it. The second part of your question, there will be some changes to the investment portfolio in particular when we moved Penns Woods Bancorp over.
Yeah, so we're still working through if you have any like uh, balance sheet, um, actions that you guys are going to be um expecting to do as well. Sorry for that additional 1. Yeah.
Doug Schosser: They had, like you would expect, some securities that did not meet our return profiles or our risk profiles. Those we will sell, we will immediately pay down some excess borrowings with that cash and then slowly kind of work through the rest of the book as we go. Again, we need a little bit more time to give you a lot more color on that, but that at least gives you some idea of where we are at. One other thing I wanted to mention on the call. On slide five, when we provided guidance, we used a term to suggest that things were either on target or creative. I just want to clarify, when we said accretive, we actually meant better than originally expected versus that the actual number itself would be accretive in the end. Just a slight clarification there for everybody on the call.
That's okay. Uh, so we're still working through purchase accounting accretion and the mark, so we can't really update on margin guidance. Which is why I try to give you an idea of what the fourth quarter would look like aggregate that interest income. But again, um, we have a couple of opportunities to update guidance over the course of the third quarter, including a few conferences that we're going to attend. Uh, if we do well obviously put out uh an AK and a new investor deck uh, to help with that. So if you wouldn't mind giving us a little bit more time to come up with that information, so that it's accurate. I'd appreciate it. Um, second thing, second part of your question. There will be some changes, uh, to the Investment Portfolio in particular. Uh, when we moved, uh, Pence was over. So they had, like, you would expect some Securities that didn't meet our return profiles or our risk profiles. Those will sell, we'll immediately pay down some excess. Borrowings with that, uh, with that cash, and then slowly kind of work through the rest of the book as we go. So, again need a little bit more time.
Time to give you a lot more color on that, but um, that at least gives you some idea of where we're at.
Oh, 1 other thing, I wanted to mention on the call. So, um, on slide 5, when we provide a guidance, we use the term to suggest that things will either On Target or creative. I just want to clarify when we set a creative, we actually meant better than originally expected versus that. The actual number itself would be a creative in the end. So, just a slight clarification there for everybody on the call.
Daniel Tamayo: Yeah, I appreciate that. This may be along the same lines, but just get all the questions out now. Then you can say this to give the same answer if that's the answer. Just on that topic, the tangible dilution, do you have an updated number or have any kind of approximate amount in terms of what the dilution might end up being relative to the 9% expected originally?
Yeah, I I appreciate that. Um,
This may be along the same lines, but just get all the questions.
Out now and then you can say this to give the same answer if that's the the answer. Um but just on that, on that topic. The the the tangible dilution do do you have a an updated number or have a uh, any kind of um,
You know, kind of approximate amount in terms of what the dilution might end up being relative to the 9% expected originally.
Doug Schosser: We don't. But again, we did give you an idea of where the equity consideration was, which was down pretty significantly from originally announced. In addition to that, there's some extra cash. In the original announcement, we suggested that total consideration would be around 270. We're probably closer to 235 by the time we factor in the cash that gets paid for options and partial shares. We do believe that the interest rate mark in the aggregate will be a bit lower. All of that would lead you to clearly some less goodwill in the aggregate and slightly less earnings accretion from those interest rate marks. We'll try to clarify that when we can.
Um, in addition to that, there's some extra cash. So in the original announcement, we suggested that total consideration would be around 270, um, we're probably closer to 235 by the time we factor in the cash that gets paid for options and partial shares. And then we do believe that the interest rate Market in the aggregate will be a bit lower. All of that would lead you to clearly some less Goodwill in the Aggregate and slightly less earnings, uh, accretion from those interest rate marks. But we'll try to clarify that when we can.
Daniel Tamayo: Okay. Well, thank you. I appreciate you taking all those questions. That is it for me.
Okay, well, thank you. I appreciate you taking all those questions. That's, uh, that's it for me.
Doug Schosser: Sure. Thank you, Daniel. Thank you, Daniel.
Sure, thank you, Daniel. Thank you, Daniel.
Operator: Our next question comes from Matthew Breese with Stephens Inc.
Your next question comes from Matthew Brie with Stevens Inc.
Thomas Creal: Hey, good morning.
Doug Schosser: Morning. I appreciate the detail on the increase in classifieds. I guess I just wanted to prod a little bit more and see how you felt about the potential for non-accrual creation or NPA creation on the back of the classified and then potential for lost content there. Do you feel like you are adequately reserved at this point?
Hey, you morning.
Morning, morning. Um, I appreciate the detail on the income.
I guess it just wanted to pro a little bit more and see how you felt about, you know, the potential for.
Non-accrual creation or NPA creation on the back of the, um,
uh,
On the classified and then potential for loss content there. Do you feel like you're adequately reserved at this point?
Thomas Creal: I do feel that we are adequately reserved for losses, so we will start there. We also do feel like there is going to be a decent amount of opportunity over the next six months. Of course, no one can see exactly what market conditions are going to be like, but we would expect to have some good opportunities to get some of those credits to repay over the course of the next six months. So we believe by the end of the year, we will make progress against the NPAs without material losses, and those levels will return much closer to where they were in the earlier periods this year.
Do you feel that? We're adequately reserved for losses, so we'll start there. Um, we also do feel like there's going to be a decent amount of opportunity over the next six months. Of course, no one can see exactly what market conditions are going to be like, but we would expect to have some good opportunities to get some of those credits to repay over the course of the next six months. So, we believe by the end of the year, we'll make progress against the MPAs without material losses.
Those levels will return much closer to where they were earlier periods this year.
Doug Schosser: Got it. I was hoping for a little bit more in terms of deposit growth prospects, composition. How do you feel like you can grow deposits through year-end? Has the mix shift and changes in mix shift started to stabilize?
Got it.
and then um was hoping for a little bit more in terms of you know, deposit growth prospects composition, how do you feel like
Uh, you can grow deposits through year-end, and have we, um, has the mix shift, you know, and changes in mix shift started to kind of stabilize?
Thomas Creal: I would say the mix shift has started to stabilize. We have seen somewhat consistent, albeit relatively low deposit growth consistently since the beginning of the year. I wouldn't necessarily expect that to change. I think generally speaking, we are seeing a less competitive market for deposits. Online deposit-only deposit gathering sources have not been as active on the rate side. We feel pretty good about deposits going to the end of the year. Then, of course, we get the benefit of all the new Penns Woods Bancorp customers coming in and being able to see how we can handle that deposit portfolio over time.
Uh, I would say, the mix shift has started to stabilize. We have seen, you know, somewhat consistent. Albeit relatively low deposit growth, consistently since the beginning of the year, I wouldn't necessarily expect that to change. Um, I think generally speaking, we are seeing a less
Competitive market for deposits. So online, uh, deposit only deposit Gathering sources have not been as active on the right side. So we feel pretty good about the deposits going to the end of the year. Um, and then, of course, we get the benefit of, uh, all the new Penns Woods customers coming in, uh, and being able to see how we can handle that deposit portfolio over time.
Doug Schosser: A couple of business line-specific questions. Home equity loans this quarter, but the more recent trend of declining saw some growth. Is that a one-off, or is there a little bit of a change in strategy? A similar question with consumer loans, which for two quarters now has been growing versus previously shrinking.
And then a couple of business lines, specific questions.
Um, home equity loans, this quarter back to more recent trend of declining. So some growth
um, is that a 1 off or or is there a little bit of a change in strategy? And and then similar question with Consumer loans, which for 2 quarters now has been growing versus versus previously shrinking
Louis Torchio: Yeah, hi, this is Lou. I can address a couple of those questions. While we continue to remix the balance sheet towards a more equal-weighted consumer and commercial portfolio, we do have a pretty good consumer-generating machine established at the organization. We are starting to refocus in our branch network. We have created some congruency with the lending piece and Yurik Bauer, who now runs the consumer bank. So we have a more focused sales effort and different approach in the market there. Additionally, as you know, in the indirect book, we are able to sort of lever that up and down just based on the interest rate environment. We felt like we could grow that book this quarter and fix those assets, giving that in the second half of the year we may be facing a declining rate environment.
The address a couple of those questions. Um, while we continue to remix the balance sheet, uh to towards a more uh equal weighted uh consumer and Commercial portfolio, we do have a pretty good uh, consumer generating machine established at the organization. And so we're starting to refocus uh, in our Branch Network. We've created some congruence with the lending piece and, um, and York Bower who now runs the consumer Bank. Um, so we have, we have a more focused sales effort and and different approach in the market there. Uh, additionally, uh, as you know, in the indirect
Book. Um, we're able to sort of lever that up and down, uh, just based on the, uh, interest rate environment.
Louis Torchio: I think the good news that I would share with you is that we have a lot of levers both on the commercial side and the consumer side of the bank. We are balanced in our approach, and we will take what the marketplace will give us. We have been really pleased with our ability to pivot, notwithstanding, as you know, we have created a national SBA vertical that gives us some variability and optionality in holding loans and selling loans. We think we are in a really good spot to go to market with both a balanced approach to commercial and consumer lending.
And so, uh, we felt like we could uh, grow that book this quarter giving uh and and fix those, uh assets, uh, giving that in the second half of the year. We may be facing declining rate environment. So I think the, the good news that I, you know, would share with you is that we have a lot of levers, both on the commercial side and the consumer side of the bank, uh, we're balanced in our approach and we'll take what the marketplace will give us. Um, and so um, you know, we've been we've been really pleased with our ability to Pivot notwithstanding, as you know, we've created a national SBA vertical that gives us some variability and optionality in holding loans and selling loans. Um and so we're just we're we think we're in a really good spot to go to market.
Daniel Tamayo: Yeah, Matthew, I would just add to your question, home equity loan growth was a little bit later than normal for us. You might typically see that in the early spring. We saw it a bit later, and we did have some nice opportunity there, but not a change in strategy, more just being there for our clients when they ask Northwest Bank to provide funding for changes in their homes or what have you.
Approach to commercial land consumer Lending.
Yeah, Matthew I would just add um to your question, home equity, loan growth was a little bit later than normal for us. So you might typically see that in the early spring we saw it a bit later um and we did have some nice uh opportunity there but not a change in strategy. More just being there for our clients when they uh when they asked the bank to provide funding for, you know, changes in their homes or what have you.
Doug Schosser: Understood. My initial hunt was commercial loans. Balances are up, but the pace of growth has been slowing for a few quarters now. I was curious whether or not what we are seeing on the consumer fund, home equity loans, kind of responds to more competitive conditions for commercial loans. We have heard a lot about that this quarter, or just maybe some uncertainty from your customers. Curious how you respond to that.
Understood. Yeah my my initial hunt was you know commercial loans, you know balances are up by the pace of growth has been slowing for a few quarters now and I was curious whether or not
what we're seeing on the uh, consumer front home equity front is kind of response to
Daniel Tamayo: Yeah, I think that's why we tried to say we were as opportunistic as we could be in the beginning half of the year, given all of the uncertainty that Washington sort of interjected into everybody's businesses with tariffs and other things. So, to the extent that the back half of the year, as some of this stuff gets clarified, might give us some more opportunity for commercial loans, that would be great. To Louis Torchio's point, we can flex down certainly that indirect book pretty quickly. But if core home equity loans were still an option for our customers, we will be there for our customers in market, and we continue to extend those loans as well.
You know, more competitive conditions for commercial loans. We've heard a lot about that. This, this quarter, um, or just maybe some uncertainty from your customers, curious. What? How do you respond to that? Yeah.
Yeah, I think that's why we tried to say, uh, we were as opportunistic, as we could be in the beginning, half of the Year, given all of the uncertainty that, uh, Washington, sort of interjected, into everybody's businesses with tariffs and other things. So, um, you know, to the extent that the back half of the year is some of this stuff gets clarified, might give us some more opportunity for commercial loans that would be great. Um to lose point, we can Flex down. Certainly that indirect book pretty quickly. But, you know, it's core home equity was still an option for our customers. We will be there for our customers in market and we continue to extend those ones as well.
Doug Schosser: Okay. Last one for me. Just maybe some idea of roll-on yields for commercial and the growing consumer categories versus roll-off and how accretive is that today? That is all I had. Thank you.
Daniel Tamayo: Yeah. Okay. So I think we are seeing commercial loans near 7%, a little bit up or down depending on the month. You would continue to see the consumer loans are going to be lower than that, but not different from what they are kind of coming off. So I would say on the consumer book, you are pretty, at least with indirects, because rates have come down, roll-on roll-off is pretty consistent. Then on the commercial book, we still have some opportunity there.
Okay, last 1 for me, just maybe some uh idea of role on yield for for you know, commercial and and and the growing consumer categories versus roll off and how a creative is at today. That's all I have. Thank you. Yeah.
So I think we're seeing, uh, commercial loans near 7, uh, a little bit up or down depending on the month. Uh, and you would continue to see, you know, the, um, the consumer loans are going to be lower than that. Um, but not, not uh,
Current from what they're kind of coming up. So, I would say on the consumer book, you're pretty at least, for with indirect, because rates have come down, roll on roll off is pretty, uh, consistent. And then on the commercial book, we still have some opportunity there.
Doug Schosser: Thank you. Appreciate that. Thank you.
Thank you, appreciate that.
Operator: Your next question comes from Daniel Cardenas with Janney Montgomery Scott.
Thank you. You're right.
Your next question comes from Daniel gardinas with Jaime Montgomery, Scott.
Thomas Creal: Morning.
Daniel Tamayo: Hi, Daniel.
Thomas Creal: Morning.
Hi, Daniel.
Daniel Tamayo: So, just returning to the increase in the classified loans on a sequential quarter basis, maybe a little bit of color on the construction projects that popped up here in the quarter. What are loan-to-values looking like for those projects? Maybe debt coverage ratios as well. Then on the commercial and industrial loans front, were there any industry concentrations on those fewer larger loans that popped up here?
Morning. So just returning to the um, to the increase in the classified loans, on a sequential quarter, uh, basis. Um, maybe a little bit of color on, on the construction projects that, that, uh, popped up here in the quarter. What what are loan to values? Uh, looking like for those for those projects, um, maybe get coverage ratios as well. Uh, and then on the cni front, uh, you know, were there any industry concentration?
Uh on those fewer larger loans that popped up here.
Thomas Creal: I think we tended not to provide all those details on the CRE side of things. So what we did want to talk through was there were a couple of developers with some sizable loans in Columbus, and those issues had more to do with absorption and some increase in supply that happened in the market. As we stated in our prepared comments, we do expect the market to be able to absorb those over long term. They are also with very good developers that are heavily invested in the Columbus market. We indicated in the slides that there was one in Philadelphia. Without getting into all of the specific details on every credit, T.K. might have something to add.
Yeah, I think we tended not to provide all those details.
Crescent side of things. So what we did want to talk through was there were a couple of developers some um, sizable loans in Columbus and those issues had more to do with absorption and some increase in Supply that happened in the market and as we stated in our prepared comments, we do expect
The market to be able to absorb those over long term there. Also with very good developers that are heavily invested in the Columbus Market. Um and then we indicated in the slides that there was 1 in Philadelphia. So without getting into all of the specific details on every credit,
Daniel Cardenas: Yeah, I will just comment. They are multifamily to give a little more color. We have reviewed the loan-to-values and the coverage. The coverages are just coming in close to one-to-one, given the interest rate pressure that these projects have seen over this period, and then it is coming onto market in a soft market. Demand, we see demand continuing. It is just a lot of supplies come on. So we will work through that here over some time. But there is equity in these projects still, and we expect them to be supported by the sponsors. So no concern in that regard.
DK might have something to add. Yeah, I'm just comment, you know they are multi-family to get a little more color. Um, we we have you know, reviewed the loan the values and the coverage, the coverages are just coming in close to 1 to 1, given the interest rate, um, uh, pressure that these projects have seen over this period and then coming on to Market and, and a soft Market. Its demand. We see demand continuing, it's just a lot of supplies, come on. Um, and so we'll, we'll work through that here over some time, but there is equity in these projects still and, and we expect them to be a supported by the sponsor. So, no concern. And then that regard
Daniel Tamayo: Are these higher-end type of projects, or are they kind of mid-market?
Are these higher-end type of of of um projects or are they kind of mid-market?
Daniel Cardenas: There's both in there.
there's both in their
Daniel Tamayo: Okay. All righty. Then on the commercial and industrial loans side, were there any concentrations by industry?
All right, and then on the on the cni side, were there any any concentrations, uh, by by industry?
Daniel Cardenas: No, no material concentrations. One larger one kind of in the electronics space, but not like an industry trend, I would say.
Kind of in the electronics space. Um, but uh, you know, not not like a an industry Trend, I would say.
Daniel Tamayo: Okay. All right. So yeah, all my other questions have been asked and answered. Thank you.
Okay. All right so yeah all my other questions have been asked and answered. Thank you.
Daniel Cardenas: Great. Thanks.
Great, thanks.
Operator: That concludes the question and answer portion of the call. I will now hand it back over to Northwest Bancshares Inc. for concluding remarks. Mr. Torchio?
That concludes the question and answer portion of the call, I'll now hand it back over to Northwest.
Chair for concluding remarks Mr. Torsio.
Louis Torchio: Thank you. On behalf of the entire leadership team and the Board of Directors, thank you for joining our call this morning. With strong and stable financial foundations and prudent cost control and risk management discipline, we are well prepared to capitalize on the opportunities for driving sustainable, responsible, and profitable growth. I look forward to updating all of you on our progress on our third quarter earnings call. Thank you and have a good day.
Thank you.
On behalf of the entire leadership team and the board of directors. Thank you for joining our call this morning with strong and stable, Financial foundations, and prudent cost control and risk management discipline. We are well, prepared to capitalize on the opportunities for driving sustainable responsible and profitable growth.
I look forward to updating all of you on our progress, on our third quarter earnings call, thank you and have a good day.
Operator: This concludes today's conference call. You may now disconnect.
this concludes today's conference call, you may now disconnect