Northwest Bancshares outlines stable net interest margin and plans de novo expansion amid Penns Woods integration

Earnings Call Insights: Northwest Bancshares, Inc. (NWBI) Q3 2025

MANAGEMENT VIEW

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Louis Torchio, President, CEO & Director, opened by highlighting the closure of the Penns Woods merger, the largest transaction in the company's history, and confirmed that "deal synergies are as expected and the various financial impacts of the merger, including cost savings are all on target or better than expected." He emphasized Northwest's entrance into the ranks of the nation's 100 largest bank holding companies and described ongoing expansion, including the groundbreaking for the first of three new financial centers in Columbus and performance on target for the newly opened Fishers, Indiana branch. Torchio also announced strategic leadership hires, including a new Chief Legal Officer, Treasurer, and Head of Wealth Management.

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Torchio noted, "We delivered more than 25% year-over-year average commercial C&I growth," and cited record quarterly revenue of $168 million, more than 20% higher year-over-year. He remarked, "Net interest margin improved 9 basis points quarter-over-quarter to 3.65%, benefiting from higher average loan yields and purchase accounting accretion." He confirmed continued risk discipline, stating, "For the record, we have no direct exposure or known indirect exposure to any of the companies with high-profile credit issues that have recently been referenced in the media coverage on regional banking." The board declared a quarterly dividend of $0.20 per share, representing an annualized dividend yield of approximately 6.5%.

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Douglas Schosser, Chief Financial Officer, stated, "Our GAAP EPS for the quarter was $0.02 per share, which reflects the merger and restructuring charges related to the merger. On an adjusted basis, our EPS was $0.29 per share for the third quarter." Schosser highlighted net interest income growth of $16.5 million quarter-over-quarter and a net interest margin improvement to 3.65%. He added, "Total revenue to a record of $168.1 million in the quarter, a $17.7 million increase quarter-over-quarter."

OUTLOOK

* Management expects to "maintain our net interest margin at the third quarter 2025 levels of the mid-360s." The outlook for noninterest income in the fourth quarter is $32 million to $33 million, with noninterest expense expected in the range of $102 million to $104 million and the tax rate expected to remain flat. Net charge-offs to average loans are expected "to end the year at the low end of the 25 to 35 basis point range, which could mean net charge-offs up to $13 million in the fourth quarter of 2025." The company reiterated that full cost savings from the Penns Woods merger are expected by the second quarter of 2026, with full-year 2026 guidance to be provided in the next earnings release.

FINANCIAL RESULTS

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Third quarter GAAP EPS was $0.02, with adjusted EPS of $0.29. Net interest income increased by $16.5 million quarter-over-quarter, and net interest margin improved to 3.65%. Noninterest income rose by $1.3 million driven by increased service charges and other operating income. Total revenue reached a record $168.1 million, up $17.7 million from the previous quarter. Adjusted pretax pre-provision net revenue was nearly $66 million, reflecting an 11.5% increase quarter-over-quarter. The adjusted efficiency ratio improved to 59.6%. Tangible common equity to tangible assets was 8.6% at quarter end, and the CET1 ratio was 12.3%.

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Average loan balances grew by $1.32 billion quarter-over-quarter due to the merger, and average total deposits increased by $1.14 billion. Cost of deposits remained flat at 1.55%. Provision expense, net of day 1 non-PCD impacts, was $11.2 million with annualized net charge-offs of 29 basis points. 30-day plus delinquencies rose slightly to 1.10%, attributed mainly to acquired loans.

Q&A

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Daniel Tamayo, Raymond James: Asked about loan growth expectations and de novo branch impact. CFO Schosser responded that next quarter will see a focus on balance sheet stability, with possible growth if opportunities arise, and CEO Torchio explained that deposit gathering campaigns for the Columbus branches would begin in 2026.

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Tamayo followed up on loan growth for 2026. Schosser indicated guidance would align with GDP growth and noted, "we are working through the criticized classified assets that's obviously going to have an impact on our ability to show growth as well."

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Tamayo inquired about expense trends. Schosser said, "we really want to focus on continuing to manage positive operating leverage...we're certainly not talking about a significant increase from here."

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Brian Foran, Truist Securities: Asked about target capital levels. Schosser replied, "we're well in excess of regulatory minimums for capital, and we like that position."

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Foran asked about net interest margin volatility. Schosser clarified, "we're pretty well positioned as it relates to kind of rates and are comfortable that we can keep that 360 bps core."

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Foran probed on credit and charge-offs. Schosser explained that $13 million in charge-offs could occur in Q4 but would remain within guidance.

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Timothy Switzer, KBW: Asked about consumer portfolio trends and deposit account behavior. Schosser attributed increased delinquencies to administrative issues from the acquisition and said, "Our auto loan book is very high credit quality; super prime book, very low delinquencies."

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Switzer asked about bank scaling and strategy. Torchio emphasized maximizing Penns Woods integration, with a dual focus on organic growth and M&A.

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David Bishop, Hovde Group: Asked about CD portfolio duration and funding loan growth. Schosser noted, "over 90% of that CD portfolio will mature before the middle of next year," providing flexibility for rate changes.

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Matthew Breese, Stephens Inc.: Asked about deposit costs and betas. Schosser confirmed cost of deposits at 1.55% and described overall deposit beta as mid-20s.

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Breese asked about pipeline strength and verticals. Schosser said, "those would be in the 20% range of the C&I book" and CEO Torchio described specialty verticals' growth as complementary and within risk tolerances.

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Daniel Cardenas, Janney Montgomery Scott: Asked about personnel for new branches and Penns Woods run-off. Torchio said hiring is in progress, and Schosser stated run-off is "in line with our expectations."

SENTIMENT ANALYSIS

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Analysts' tone was neutral to slightly positive, with questions focusing on details of growth strategy, expense discipline, and credit trends. There were no markedly negative or skeptical exchanges.

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Management maintained a confident and measured tone, repeatedly using phrases such as "we feel pretty good about that" and "we're comfortable" in response to analyst queries. The tone displayed assurance both in prepared remarks and the Q&A session.

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Compared to last quarter, analysts remained focused on integration, loan growth, and expenses, but the mood was steadier with less uncertainty around merger impacts. Management's confidence was consistent, with more emphasis on execution and outlook.

QUARTER-OVER-QUARTER COMPARISON

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The current quarter reflected a transition to reporting as a combined entity after the Penns Woods merger, whereas the previous quarter centered on the merger's completion and early integration. Guidance language this quarter reaffirmed stability in NIM and expenses, while last quarter was more tentative due to the timing of the merger close.

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Strategic focus shifted from merger execution to scaling operations and branch expansion. Analysts in both quarters probed on loan growth, expense run rate, and credit quality. However, this quarter's Q&A reflected greater clarity on integration progress and forward strategy.

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Key metrics such as revenue, net interest margin, and efficiency ratio improved sequentially. Management's tone remained confident, with a subtle increase in optimism about the full realization of merger synergies and growth prospects.

RISKS AND CONCERNS

* Management identified integration of the Penns Woods acquisition, credit quality in acquired consumer loans, and classified asset resolution as ongoing challenges. Delinquencies rose slightly due to administrative issues post-conversion, but management expects improvement. Analysts raised concerns about the pace of loan growth, expense control as new branches open, and the impact of future rate changes on deposit costs and margins. Management's mitigation efforts include tight risk management and proactive cost control.

FINAL TAKEAWAY

Northwest Bancshares delivered a strong first quarter as a combined company following the Penns Woods merger, reporting record revenue and improved net interest margin. The company reaffirmed its outlook for stable net interest margin and expense control, while emphasizing expansion in high-growth markets through new branch openings. Leadership signaled confidence in ongoing integration, disciplined risk management, and the ability to achieve full cost savings from the merger by mid-2026, positioning the company for profitable growth in the coming year.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/nwbi/earnings/transcripts]

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