Northwest Bancshares, Inc. Aktie

Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Northwest Bancshares, Inc. Q1 2026 Earnings Call. [Operator Instructions]I would now like to turn the conference over to Michael Perry, Northwest Managing Director of Corporate Development Strategy and Investor Relations. You may begin.

Good morning, everyone, and thank you, operator. Welcome to Northwest Bancshares' First Quarter 2026 Earnings Call. Joining me today are Lou Torchio, President and CEO of Northwest Bancshares; Doug Schosser, our Chief Financial Officer; and T.K. Creal, our Chief Credit Officer. During this call, we will refer to information included in the supplemental first quarter 2026 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.

Good morning, everyone. Thank you for joining us today to discuss our first quarter 2026 results. I'll let Doug take you through the specifics of our first quarter performance. But first, I want to reflect on the growing momentum and continuing transformation at Northwest and how our achievements in the first quarter have positioned us for continued growth in 2026. On Slide 4, you can see some of the financial highlights of the first quarter 2026. We delivered $51 million in net income for the first quarter, a record in the company's history, resulting in more than 16% year-over-year net income growth. Momentum in our C&I business continued with $191 million of average C&I loan growth in the first quarter, representing a 28% year-over-year growth.

We have continued to grow our nationwide business verticals in a disciplined manner. The first of these was launched in 2023, and collectively, they now represent approximately 23% of our commercial lending portfolio. These verticals are led by experienced and highly networked industry leaders, giving us a strong point of distinction in these specialty finance areas. We continue to focus on growing our SBA lending business, both locally and nationally in 2026, building on our momentum from earning a spot among the top 50 originators in the U.S. by volume in 2025.

We recorded a net interest margin of 370 basis points in the first quarter of 2026, benefiting from our deposit franchise, which is one of Northwest's core strength. We achieved our third consecutive quarter of lower deposit costs, one of the best-in-class among our peers. Our ongoing expense management discipline allowed us to achieve another quarter of improved performance with our efficiency ratio at 59.4% and our adjusted efficiency ratio of 57.8% for the quarter. And we have now fully recognized all the expense benefits from our recent acquisition. Our record net income in the first quarter of 2026 drove strong returns with an ROAA of 1.22% and ROTCE of 14.6%.

In addition, with all the recent headlines surrounding credit, I wanted to highlight that we saw our nonperforming assets and overall delinquencies decline this quarter, and we recorded a lower annualized net charge-off ratio of 16 basis points for the quarter, which is below the low end of our full year guidance. We achieved these results while continuing to invest in talent, technology and new financial centers to support our future growth. I'm pleased with our results, and I'm proud of the team for driving a strong core performance across the bank. As we've highlighted on previous calls, we continue to execute on our plans to transform the consumer bank. With the opening of our first new financial center since 2018 in the Indianapolis MSA last year, we debuted our new financial center design focused on customer hospitality. And we're continuing to build out our presence in our Columbus headquarters market with five new financial centers now under development and due to open later this year in key locations.

We expect to open the first of these by the time we have our next earnings call in July. And in the first quarter of 2026, we delivered on our commitment to our shareholders, returning more than half of our profits through a quarterly dividend of $0.20 per share. This is the 126th consecutive quarter in which the company has paid a cash dividend. Looking ahead for the rest of 2026, we continue to focus on delivering organic growth and strong financial performance, expanding our financial center network, serving our core customers and communities and delivering growth across our consumer and commercial lines of business. With that, I'll turn it over to Doug to review our first quarter results in more detail. Doug?

Thank you, Lou, and good morning, everyone. As Lou indicated, we're pleased with our financial performance in the first quarter. This is the product of the efforts of our entire team working tirelessly to deliver these results, and I am grateful to the team for their efforts. Now let's continue on Slide 5 of the earnings presentation, where I'll walk you through the highlights of NorthWest's financial performance for the first quarter. Our GAAP EPS for the quarter was $0.34 per share. And on an adjusted basis, our EPS was $0.35 per share, an improvement on the prior quarter of $0.31 per share and $0.33 per share, respectively, primarily driven by expense management discipline and a decrease in our overall provision for credit losses.

Net interest income grew $300,000 or 0.2% quarter-over-quarter with net interest margin improving to 370 basis points, benefiting from an increased securities portfolio yield and a decrease in our cost of deposits. On a year-over-year basis, net interest income improved 11.5% -- noninterest income decreased by $5.2 million quarter-over-quarter, driven by a higher BOLI benefit recorded in the fourth quarter of 2025. On a year-over-year basis, noninterest income improved 14.9%. Total revenue was $175.1 million for the first quarter, which represented a slight decline quarter-over-quarter due to a higher BOLI benefit recognized in the fourth quarter of 2025, but represented a 12.1% increase year-over-year.

However, I would also point out that we achieved significant positive operating leverage of 560 basis points quarter-over-quarter in the first quarter of 2026 as we maintained our focus on exercising tight expense discipline and saw the last of our Penns Woods acquisition expense savings materialize. This also translated into an improvement in our adjusted efficiency ratio of 57.8% which was a 170 basis point improvement quarter-over-quarter, all of which created an improvement in our pretax pre-provision net revenue in the first quarter of 2026, which increased to $71.7 million, a 1.5% increase from fourth quarter 2025 and a 9.3% increase year-over-year on an adjusted basis. Turning to Slide 6. I'll spend a moment covering our loan balances.

Average loans grew $102 million quarter-over-quarter, benefiting from organic loan growth in both our commercial and consumer businesses as we continue to experience runoff in our residential mortgage and legacy CRE portfolios. We achieved our second consecutive quarter of period-end loan growth in the first quarter with period-end loans increasing by $49 million to $13.1 billion, laying a strong foundation for continued growth in 2026. Our loan yield decreased to 5.62% or 3 basis points in the first quarter as we saw the impact of the December 2025 rate cut become fully priced into our loan portfolio. Our C&I loan growth continued with strong performance in several of our new verticals and in our other commercial loan portfolios. Average C&I loans increased $191 million or 7.8% quarter-over-quarter and $579 million or 28.2% year-over-year.

Our overall interest rate sensitivity position remains slightly asset sensitive with continued growth in floating rate commercial loans. However, we feel we are appropriately positioned for the current and expected interest rate environment in 2026 based on what we know now. Moving to Slide 7 and our deposit balances, which continue to be a source of strength and stability.

Our average total deposits grew by $276 million quarter-over-quarter, partially benefiting from continued focus on commercial growth and deepening consumer relationships. Our granular diversified deposit book has an average balance of more than $19,500 with customer deposits consisting of over 719,000 accounts with an average tenure of more than 12 years. Our cost of deposits decreased 5 basis points to 1.48%, a product of our proactive management of the overall portfolio. As an example, 43% of our CD portfolio matured in the first quarter of 2026 at a weighted average rate of 3.60%. New volumes came on at a weighted average rate of 3.12%, supporting an overall decline in deposit costs. On Slide 8, we show net interest margin increased 1 basis point to 370 basis points in the first quarter of 2026, with purchase accounting accretion net impact equating to 7 basis points. Turning to our securities portfolio on Slide 9.

New security purchases in the quarter were consistent with the current composition of the portfolio and continue to strengthen an already strong source of liquidity. Our portfolio yield continues to increase as new securities purchased came on at a higher yield than the runoff portfolio, resulting in a yield increase of 4 basis points to 3.15% in the quarter. 26% of this portfolio is in held to maturity to protect tangible common equity. Turning to Slide 10. Our noninterest income decreased $5.2 million quarter-over-quarter, driven by a decrease in bank-owned life insurance income due to a higher BOLI benefit in the fourth quarter of 2025. Noninterest income increased $4.2 million year-over-year, benefiting from an increase in service charges and fees and a gain on equity method investments. Regarding noninterest expense, as detailed on Slide 11, as previously referenced, the adjusted efficiency ratio was 57.8% in the first quarter of 2026, representing our third consecutive quarter of improvement, continuing the expense management focus over the last year.

Overall expense, excluding merger and restructuring expenses, was lower quarter-over-quarter due to the lower compensation and benefits expenses driven by the completion of and recognition of all the cost and benefits of the Penns Woods acquisition, combined with more normalized performance-based incentive compensation expenses. On a year-over-year basis, expenses in the first quarter of 2026 were higher, but the year ago quarter did not include the acquired Penns Woods operations. On Slide 12, you'll see our overall ACL coverage remained flat at 1.15% in the first quarter of 2026, driven by lower net charge-offs in the current period. Our quarterly annualized net charge-offs of 16 basis points were below the low end of our full year guidance. Our NPAs declined this quarter, while our classified loans did increase this quarter, we have no expectation that the increase would result in higher overall charge-offs. Turning to credit quality on Slide 13.

Our credit risk metrics remain within internal expectations given the impacts of loans that we acquired. Our total delinquency declined from 1.50% to 1.30% quarter-over-quarter, primarily as a result of the planned runoff in the CRE criticized portfolio. Our 90-day plus delinquency declined from 51 basis points to 34 basis points quarter-over-quarter and NPAs decreased by $16.5 million quarter-over-quarter to 70 basis points of average loans and is only slightly above the levels of Q1 2025, mostly due to the payoff of a long-term health care facility. Taking a deeper dive in the breakdown of our credit quality on Slide 14. In the first quarter of 2026, we did experience an increase in classified loans as a percentage of total loans and on an absolute basis, which was attributed partially to two C&I borrowers. As we've discussed on earlier calls, our strategy with respect to classified loans is to continue to work with our borrowers and preserve our market relationships.

In addition, as we highlighted in the earnings release, the Board of Directors reviewed our share repurchase program, and we now operate with a buyback authorization of up to $50 million. This action, when combined with the renewal of our shelf registration is simply some additional and appropriate capital management. Our capital priorities remain unchanged. And finally, on Slide 15, we are maintaining our previous outlook for the full year 2026. We continue to be confident about Northwest's business, and we're excited about the prospects for the year ahead. Now I'll turn the call over to the operator, who will open up the lines for a live Q&A session.

[Operator's Instructions]Your first question comes from the line of Daniel Tamayo with Raymond James.

Maybe starting on the balance sheet growth on the loan side. Just kind of walk us through the expectation, I guess, for the pay-down side. Maybe if you can talk a little bit about what was driving those in the first quarter and thoughts on kind of the pace of slowing of the paydowns going forward and how that balances against origination activity in the commercial book?

Yes, Danny, thanks for the question. So again, first quarter, we're continuing to, as you know, as we've talked about in prior calls, work through our criticized classified asset book. So there's always going to be a little bit of downward pressure as a result of payoffs there. Additionally, there was some additional payoffs in CRE. I would just point back to a few years ago, we stopped originating a lot of construction commercial construction loans, those are now slowly moving into the permanent market. So we continue to have a little bit there, and we're not necessarily back into that space in a significant way. So some of those dynamics are going to continue in the book.

One of the reasons we are reiterating and keeping our guidance consistent is we do believe there's some opportunity around a slowing mortgage -- residential mortgage loan payoffs that can help. And we continue to see good pipelines in all of the commercial verticals and commercial businesses. So generally speaking, we're pretty comfortable with the forward look on low to mid-single-digit loan growth for the year.

Great. That's helpful. And maybe kind of related, you talked about -- and it was a good quarter from a credit perspective in terms of NPAs coming down and the net charge-off activity was lower. You touched on the increase in the criticized and classified. I think you made a comment that you're not expecting any higher net charge-offs from that. Maybe just comment on why that would be if there's anything specific about the inflows that gives you confidence they won't come through?

No. I mean, again, we're constantly reevaluating the internal ratings on our loan portfolio. In addition to that, obviously, if we thought that there was loss content, they would have to migrate into the lower levels of charge-offs. So we just, as we sit here today, don't see that as a high probability. And we continue to work with our borrowers kind of through the cycle so that we try to make sure we can preserve those market relationships and also help them work their credits out in a positive way, both for the borrower and for the bank. So there was nothing in that in that increase that gave us a lot of pause.

Your next question comes from the line of Jeff Rulis with D.A. Davidson.

I wanted to check in on -- I appreciate the outlook on the loan growth side. I think you covered that well, kind of a below to mid-single digit sounds optimistic to be on the high side of that. I guess the -- on the securities purchases in the quarter, added quite a bit there. And I guess, checking in on more of an earning asset sort of growth pace. Do you feel like you've still got appetite to where maybe earning asset growth outpaces loan growth? Are you still interested in building that side of the balance sheet?

No, you're seeing a couple of dynamics that are rolling through that book. So one of them is we did talk about last quarter growing the overall size of the book because we were a little bit low relative to peers, but that wasn't meaningful growth. We also are taking advantage of sort of what we think the rate market is going to do. So in the beginning of the quarter, when we thought rates were likely to go through a couple of cuts, we thought that we would go out and make some opportunistic purchases for paydowns that were known to be occurring in the second quarter. and later in the first quarter. So you'd see the book grow a little bit from that, but then we just aren't going to reinvest new cash flows when they come off. They've already been sort of reinvested. So it's just more of a little bit more precise tactical position that we're taking in treasury as opposed to anything where we are materially changing the composition of the balance sheet.

Got it. So maybe a little lumpier this quarter, but if you smooth out for the year, pretty balanced percentages.

Correct. We'll probably continue to take advantage of some prefunding if we see those cash flows and we see opportunities to get out in the market, but we're not anticipating growth in the overall percent of that portfolio as a percent of earning assets.

Okay. And staying on the line of kind of consistent loan growth where you're at and given the charge-off outlook that you've outlined, is all things being equal, the reserve level at 1.15%, is that kind of a -- the provision came in this quarter, but trying to think about -- do you think you manage reserves look roughly near that level? Is that the expectation?

Yes. I mean they came in a couple of hundred thousand. I mean they weren't a material change. And at the moment, we're pretty comfortable with the 1.15% coverage. So again, -- it's all about CECL models and economics that come out in the future. But assuming all of that is stable, you would see our reserves be a component, both obviously, of charge-offs and then loan growth. So to the extent that we have some loan growth, we would have some more reserving to do. But again, keeping that overall kind of 1.15%-ish is probably pretty likely.

Great. And one quick last one. You kind of touched on this with the capital discussion towards the end of the prepared remarks. With the buyback, I assume that's just a widening of tools to use. It didn't -- that's not an indication that the M&A outlook is any more dour or disappointed in opportunities there. I guess the question being, if you want to touch on M&A opportunities, if that any indication there?

Yes. Let me -- I'll answer the buyback and then Lou will take the M&A piece. So we had an authorization before. It was 2012. It was pretty stale. We thought it was good corporate practice and good governance to get out and ask the Board to reauthorize and then to share that with the Street. It really should be looked at just as another tool in the capital management toolbox, much like the shelf registration one. So no change in capital priorities as a result of that move. I'll turn it to Lou on the M&A side.

Sure. Yes. So as we sort of messaged in our commentary earlier on the call, what we're most pleased with is the core growth, really clean quarter. And our focus throughout '26 is going to be just that, continuing to execute post acquisitions, continuing to scale our businesses, continuing to improve our financial returns, ROA, ROTCE and as you might imagine, I would just say, anecdotally, given all the uncertainty in the marketplace, macro, oil war, interest rates, Fed share, it just seems that the -- certainly, the whisper around M&A has slowed. That would be my sort of anecdotal answer around that. Notwithstanding, we are laser-focused on core organic back-to-back quarter results. And so that's sort of where we'll be focused throughout '26.

Your next question comes from the line of Tim Switzer with KBW. Mr. Switzer, your line might be on mute.

My first question is on deposit competition. There's been some reports that certain markets have been a little bit more competitive than others recently, particularly as it now looks like the Fed isn't lowering rates until later this year, if at all. Could you guys maybe talk about what you're seeing in your markets, if any are more competitive than others or like if different deposit categories are a little bit more intense?

We continue to see a very strong competitive set for deposits. It's been that way for a while. We don't necessarily see that changing. And we have some other things that are happening around branch openings and other things for our deposits where certain markets will be priced differently than other markets when you're in a heavy acquisition campaign versus maintenance. But again, we're not seeing a lot of let-up in deposit competition, and we continue to operate sort of with that as our mindset.

Got you. Okay. And then can you help us think about the expense trajectory over the course of the year? It seems like pretty good progress on the expense saves this quarter. Like where do you think we'd be sitting kind of at the end of this year heading into 2027?

Again, we are -- as we said on the comments, we're really happy that we got all the expense saves pretty much behind us now on the Penns Woods acquisition. So I wouldn't expect there to be sort of any opportunities to reduce expenses as a result of that activity any longer. And now it will just be sort of a consistent path of managing the expense growth. Obviously, with stronger levels of performance, there's going to be some stronger potential costs around incentives and other things for our producers, et cetera. But again, we haven't changed our guide. So we're slightly below an annualized level on the low end of that guidance, but we've given ourselves some room on the expense side. And again, we're going to continue to manage the positive operating leverage. So we won't -- we'll continue to keep the expense growth in line with the revenue growth. So those would be sort of the expense trajectory comments.

Your next question comes from the line of Brian Foran with Truist.

I think you mentioned the national commercial verticals are now 23% of loans, and you had a helpful slide in your mid-quarter deck, giving some breakdown on balances, growth and people. Maybe two related questions. One, what's the appetite? Is there an upper limit or a range where you're comfortable letting that get to in terms of a percentage of the total loan book? And then two, as you look in the year ahead, is there anywhere you flag either adding to the existing teams or any appetite to add additional verticals?

Yes. I'll start and I'll turn it over to Lou as well. So first question is, is there an upper limit? No, not necessarily, there's not an upper limit. I think we continue to take very a very prudent credit stance across all of those verticals. They are newer. They have not gone through cycles. So we're mindful of that. But you wouldn't necessarily see us in any specific like the growth is capped now for X, Y or Z. We're also looking at, in general, a balanced kind of commercial opportunity. So we would like to see some of the CRE paydowns clearly slow a bit. We have a new leader in that group. We're optimistic that, that is a business. We're still like 130% Tier 1 capital on CRE. So there's room there. So again, I think there's opportunities across the commercial spectrum. We don't have to rely so heavily on any one. But when there's opportunities, for us in those verticals to make smart strategic adds, we're willing to do so. Lou, I don't know if you...

Yes. I would just add, I mean, from my perspective, those national verticals give us some differentiation amongst our peers. It allows the diversification of risk. We've gone out and we've been able to procure industry experts. We're scaling them prudently, and we're watching the vintages, as you might imagine. To Doug's point, I think that we'd like more complementary growth in our core, which is markets in the 4 states that we operate in, in lower middle market and even business banking. And so we are focused there. We would like to mitigate some of the CRE runoff with a focus there as well, mostly on light industrial away from construction multifamily. And so we really like our position right now.

We're seeing good growth. But we -- given the uncertainty in the economy, we certainly are maintaining hurdle rates from a yield perspective and certainly prudent underwriting. So we're -- we think it's -- we think those are complementary businesses. I don't think that we would ever be in a position where those were the primary drivers and overtake portfolio balances. So really couldn't be more pleased with what we've been able to do with those. And I know we've been messaging to you guys over the last few years. And so we're now -- from a pipeline standpoint, if you look at the year ago pipeline, we're in a much better position, and it's a large part as a result of scaling those verticals.

That's really helpful. On the commercial real estate, I appreciate the color. I think you mentioned things like construction lending slowing a few years ago, so that's now refinancing away. I guess is competition getting to a point where there's any just kind of pricing or structures you're seeing in the market where you're having to pass on deals? How big a factor is just kind of feeling like everyone's back in commercial real estate?

I mean there's certainly competition out there. I think we've been able to still find spaces where we can be relevant to our customers and still maintain good pricing and good structures. If we ever got to the point where we felt that was differently, we would probably have to kind of reevaluate whether we were doing the deals. But right now, we haven't had that be a binding constraint for us. But that is not to suggest that it's not extremely competitive out there. Everybody's got out there loan growth that's not dissimilar from ours. And I think you didn't see a lot of loan growth come in the first quarter. But no, we're not seeing structure give right now. There might be a little bit of give on pricing here and there. But again, for well-structured deals for the right customers, we get full relationships, that's just part of the game.

Your next question comes from the line of Navas Manuel.

The net charge-off performance was really strong. Is there potential for a lower guidance eventually? And the guidance was already below your long-term net charge-off rate. Could you kind of be looking at a maybe lower long-term rate?

So the long-term rates were kind of through the cycle to accommodate the common economic transitions and all of that. So no, I don't think we're changing the long-term projections because those were always designed to be through the cycle. We are really happy with the 16 basis points we had this quarter. It's way too early, I think, to pull back on the guide that we gave, which is why we didn't change it. We'll be checking in a couple more times this year every quarter. So if we get to that point, we'll certainly talk about it. But there's still a lot of things that can, as you know, go wrong with the loan portfolio. So I think keeping that guidance out there makes sense. Again, we had a pretty wide range. So right now, we're definitely thinking it's probably towards the lower side of the range, but we're not pulling out the range just yet.

Okay. Shifting over to the NIM near term. Can you talk about kind of the moving parts to it? Where do you kind of see loan yields from here? What's kind of new pricing coming at? And then can deposit costs decline more? I know you're bringing down CDs at maturity, but you had some nice declines in other account pricing. So I'm just kind of wondering, without a Fed rate cut, can funding costs keep coming down and kind of where could you see that push down. So if you could help out with those couple of questions in there.

Yes. So first, on the asset yield side, right, without a rate cut, we feel pretty good that we can kind of maintain that. There's always a -- there's a push and pull, right? So we had loans that were originated now that are coming to be paid off at a higher rate environment than we have today. So that's going to be a pressure. But what we're seeing right now is the loans that are coming on are still priced a few basis points better than the loans that are coming off on average. So there's a little bit of opportunity there, especially with rates being unchanged. Similarly, on the deposits, we've been originating deposits now in a lower rate environment. So and shorter-term CDs at that. So you are going to have less opportunity as it relates to as that book rolls.

There's still opportunity, but it's not going to be as big as it's been. So again, that's kind of why we said that we would expect to have pretty stable margin performance in the low 370s. Because you got all those dynamics and then you have competition as well. So there's not a lot that's going to drive the margin different from this point forward. We're working very hard to maintain that margin that we have right now, and it's just going to become sort of more of a grind, I would say. So you're not going to see big costs in it one way or the other. Does that answer your question? I think it addresses what you're looking for.

I think it does. I just want to kind of follow up. You do have some new branches opening. You talked about maybe pricing being a little different in different geographies. Do you have room -- you have planned or room in your NIM guide to kind of win market share in those new branches?

Yes. We do. Again, they're all going to be opening throughout the course of the year. So the good thing is what happens in them is still going to be a relatively small percentage of the total, and there is room in there to make that work. So we'll continue to focus on it. But you definitely see different pricing by market. And certainly, when you're opening five branches in one market, you're going to expect to see marketing that goes along with that as well as acquisition pricing on that portfolio.

I appreciate that. Can you speak to a little bit where you could have eventual fee synergies from the Penns Woods acquisition kind of places where perhaps as you get the C&I loan growth, you can shift to generating more fees from that customer base. Can you just speak to that trajectory on the fee side?

Yes, I'll have some comments and Lou might come in also on that. But we're certainly excited about the prospect for growing our wealth business. We've made some investments there. We've added a new Head of Wealth, and we still have opportunities around there, particularly when we make acquisitions like Penns Woods, you'd be going into markets that didn't have that kind of opportunity that weren't leveraging that opportunity. And as commercial continues to grow and we get the opportunity to make connections with our wealth team and our commercial lending teams as there are liquidity events that occur in the life of those business owners, we'd like to be there to provide the opportunity to manage those. So that's an opportunity for us. And when I say wealth, too, let's not confuse that with -- we know we're not going to compete against the big wealth shops, but we have a nice spectrum of opportunities from brokerage platforms all the way up to and including trust. So we've got the full gamut. We're excited about sort of those opportunities going forward. And then the last thing I would comment on the fee trajectory side is we have done a nice job with SBA and SBA continues to be an opportunity as well. You have some fee generation capacity over there that I think we still have some room to run. Lou if you have anything.

Yes, I would concur with both of those. Those were on my list. In addition to that, we're able to offer a more robust commercial offering in the market, obviously, just from a size standpoint and products and services around the commercial bank. And so layering those offerings into the marketplace also will be advantageous for us. Reminding everyone that the Penns Woods acquisition was a little lower risk for us. That's a marketplace we're in. We understand, we know and fit nicely into our footprint. So just reiterating our focus there on transition, execution. We spent a lot of time in the market, and we think that we can even do better. And so we'll continue to spend time in the market with all of our products and services. But I think wealth, I think SBA and I think the commercial offering. And then obviously, from a more commodity like product, we feel like our mortgage banking and home equity offerings are pretty robust as well. And so we really like the forward-looking opportunities from the lending side in the marketplace, notwithstanding they aren't Columbus.

To your earlier point, we think there is significant opportunity and scale in market here where we are headquartered, where all of our executives can also go to market in conjunction with the retail branch offering. And we've kind of been out in front of the branch openings with hiring personnel across the commercial bank, small business, wealth, mortgage. So we're well into -- we don't have the branches open, but we're well into the market to support the branches in the coming months.

I appreciate that. A quick small modeling question. the BOLI run rate has been kind of jumping around. Is this quarter the right run rate? Or is it -- should it kind of reset even lower? What's kind of the right fee run rate there?

It's a little tricky question to answer given what drives BOLI. I think you're closer to the normal run rate for now. But even within that number, what we have $400,000 of benefit. So not materially different from where you're at on the core level, but it does pop around a little bit.

Your next question comes from the line of Daniel Cardenas with Brean Capital.

Just most of my questions have been asked and answered. Just maybe if you could give me a little bit of additional color on the increase in the classifieds. If I wrote it down correctly, I think you said two C&I credits accounted for that jump. Maybe some color as to what industries were they in? And is that indicative of maybe some bigger trends.

Yes. I think if you go to Slide 14, we offered a little bit of color on that. Again, nothing -- no one vertical, no one area, no one concentration that would give us concern about a portfolio or a book, still somewhat isolated in their incidences. But again, from a rating standpoint, as new financials come in and other things, there's going to be migrations in and out. But again, there was nothing that gave us a significant level of concern around emerging losses in future periods as a result of some of those changes.

Next question comes from the line of Kyle Gierman with Hovde Group.

This is Kyle on for Dave Bishop. I saw you guys had a nice uptick in C&I loans this quarter. I was wondering what verticals contributed to the most of that and then the outlook for new segments into 2026?

Yes. We don't really get that granular on what drives our loan growth. So we'll kind of take a pass on a specific answer there, although you do continue to see good momentum across our national verticals, which we're really happy about. And I would say that we haven't talked about right now nor do we have any intentions so we'd be adding new verticals in at the moment. So nothing new sort of on that front on how we go to market.

Last question comes from the line of Matthew Breese with Stephens Inc.

I'm sorry if this is a repeat or I'm forcing you to repeat yourselves. But the message on commercial real estate growth for the remainder of the year, I heard you on prepays and paydowns. Is the expectation that we start to see some stabilization in that portfolio or even growth? Or should we expect continued, albeit more moderate declines from here?

Yes. I don't know that we lean into growth necessarily. I think we are definitely focused on stabilization. And again, we've got some new leadership in that space, definitely working through a lot of the prior pressure from construction loans that are refinancing to perm, et cetera, that are coming off the book. So we are really focused on getting that to be more stable. And then we'll look to -- in future periods, we might offer guidance when it would turn around. But again, we have room in that space. We are relatively low on an overall concentration from a CRE perspective. And we know that, that's certainly a product in our markets that makes sense. So let's focus on stabilization for now.

Got it. Okay. And then I was hoping you could tell us a little bit about the pipeline on C&I loans. What is the yield on that? How are spreads holding up? And I'd love to hear a little bit more about whether there are notable differences C&I-wise between kind of local end market C&I lending spread-wise versus the national verticals?

Yes. So again, without getting into tons of detail that we don't normally discuss, I would say that the overall sort of composition of the pipeline from a spread perspective would be consistent with that, which has been going on the book. So not seeing notably massive levels of change. Obviously, within one of our verticals, you have SBA. Clearly, the spreads there are going to be higher with the risk profile of those accounts. But we're pretty comfortable with the overall sort of opportunity to continue to drive a similar level of loan spreads and/or yields on the book, what's in the pipeline versus where we've been. But again, it's going to vary.

I would say the in-market deals, generally speaking, can get competitive because you've got different players. And by different players, you've got lots of smaller in-market banks that might know those customers or have relationships that would create some pricing pressure on them. So those are always going to be a little bit more tricky, but those national verticals, particularly with some of those credits, you're getting a much more market kind of perspective on rates and spreads.

And I would just add that not all verticals created equal. Some of them have a broader opportunity for relationship for deposits, for fees and some are more transactional asset based. And certainly, while the yields in market, as Doug alluded to, it's competitive in the 4 states that we're in, a lot of large banks, a lot of small banks. While those yields might be a little skinnier, keep in mind just for the intrinsic value of the firm, the cross-sell opportunities, we're focused on growing that book because of -- we understand the market, the relationship to customers, and we really think that it's important to integrate multiple products per customer. And so we'll continue to focus on that. So both important to our strategy, but we certainly are highly focused in market right now to make sure that we're capturing at least our share.

That concludes our Q&A session. I will now turn the call back over to Lou Torchio, CEO, for closing remarks.

Thank you. On behalf of the entire leadership team and the Board of Directors, thank you for joining our call this morning. I'm excited about our momentum in 2026 as we are well positioned to capitalize on opportunities to drive profitable core growth. I look forward to speaking to you on our second quarter earnings call in the summer.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Everyone, have a great day.

Thank you for standing by. My name is Carolyn, and I will be your conference operator today. At this time, I would like to welcome everyone to the Northwest Bancshares Fourth Quarter 2025 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Michael Perry, Managing Director, Corporate Development and Strategy and Investor Relations. Please go ahead.

Good morning, everyone, and thank you, operator. Welcome to Northwest Bancshares Fourth Quarter 2025 Earnings Call. Joining me today are Lou Torchio, President and CEO of Northwest Bancshares; Doug Schosser, our Chief Financial Officer; and T.K. Creal, our Chief Credit Officer.

During this call, we will refer to information included in the supplemental fourth quarter and full year 2025 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.

Good morning, everyone. Thank you for joining us today to discuss our fourth quarter and 2025 full year results. I'll let Doug take you through the specifics of our strong fourth quarter performance. I would like to take a step back and reflect on a transformational year for Northwest and how our achievements position us for continued growth in 2026.

On Slide 4, you can see some of the financial highlights of 2025. We closed on a significant acquisition, drove record revenue of $655 million for the full year and continue to expand the firm's net interest margin. Coupled with our demonstrated expense management discipline due to the closing and integration of our sizable acquisition, we drove double-digit EPS growth, all while investing in the talent, technology and new financial centers and products to support our future growth prospects.

One of the high points of the year was the acquisition and successful integration of Penns Woods, bringing us into the ranks of the Top 100 banks in the U.S. by assets. As well as adding 20 financial centers to our existing Pennsylvania footprint, we welcome new team members and thousands of new customers to Northwest. I'm proud of the team for its successful execution of a seamless integration at scale while maintaining our distinct Northwest culture and driving a strong core performance across the bank.

We continue to transform our consumer bank moving from branch consolidation to expansion, opening our first new financial center since 2018 in the Indianapolis, Indiana MSA featuring our new design focused on customer hospitality. We're building out our presence in our Columbus headquarters market with new financial centers now under development and due to open later this year in key locations across the city. We've already added several new team members with strong local and business community ties to focus on building momentum in advance of opening our doors. We remain focused on excellence as an outstanding full-service neighborhood bank providing a highly personalized service.

I'm proud to share that we have just been recognized by Newsweek for the third consecutive year, as 1 of America's best regional banks. We continue to strengthen and diversify our commercial banking business with C&I momentum of 26% year-over-year average loan growth. In 2025, we introduced a new franchise finance vertical, rounding out our nationwide business verticals, each with experienced and well-connected industry leaders giving us a strong point of distinction in the specialty finance area.

We also materially grew our SBA lending activity in 2025, earning the spot among the top 50 originators in the U.S. And at the year-end, we closed on a significant funding for our Columbus-based business as we grow our SBA business both locally and nationally.

Our bank is reliant on outstanding talent for its success. Over the past 18 months, we've made significant investments in executive and regional leadership, hiring accomplished executives across consumer and commercial banking, wealth management, legal and finance from numerous other respective financial institutions. We have a highly experienced leadership team in place that's equipped to drive ongoing transformation and growth across our business.

In 2025, we delivered on our commitment to our shareholders, returning more than half of our profits through a quarterly dividend of $0.20 per share. This is the 125th consecutive quarter in which the company has paid a cash dividend.

Looking ahead, I'm confident in our trajectory. For 2026, we are providing full year guidance for another record year. Doug will provide all the details on our outlook.

Finally, as we have previously discussed, we have also significantly reduced our level of classified assets. 2025 was a fast pace and productive year. We've laid the foundation for a year of organic growth in 2026 as we maintain our focus on optimizing our operations, expanding our financial center network and delivering growth across our consumer and commercial lines of business.

With that, I'll turn it over to Doug to review fourth quarter results and provide more detail on our 2026 outlook.

Thank you, Lou, and good morning, everyone. As Lou indicated, we are pleased with our financial performance. We delivered a strong fourth quarter, and we successfully completed all remaining merger conversion activities on time and on budget. This is the product of all the efforts of our entire team working tirelessly to deliver these results while also ensuring that our merger and conversion activities went smoothly. I am grateful to the team for their efforts.

Now let's continue on Page 5 of the earnings presentation, where I'll walk you through the highlights of Northwest financial results for the fourth quarter. As a reminder, we closed our merger on July 25. As such, this is our first full quarter of reporting of a combined entity. Given the overall size of this transaction, our fully completed conversion and opportunities as a combined organization, we don't intend to disaggregate results now or in the future.

Our GAAP EPS for the quarter was $0.31 per share, and on an adjusted basis, our EPS was $0.33 per share an improvement on the prior quarter of $0.29 per share and $0.04 per share, respectively, driven by record revenue, net interest margin improvement and expense management discipline. Net interest income grew $6.2 million or 4.6% quarter-over-quarter with net interest margin improving to 3.69%, benefiting from higher average loan yields increased average earning assets from the acquisition and purchase accounting accretion.

Noninterest income increased by $5.5 million or 17% quarter-over-quarter, driven by an increase in bank-owned life insurance income due to higher debt benefit recorded in the fourth quarter supporting a total revenue increase of $11.8 million quarter-over-quarter or 7%. We also saw improvement in our pretax pre-provision net revenue in the fourth quarter 2025 which increased to $66.4 million, a 92% increase from the third quarter 2025 on a GAAP basis and was $70.6 million, a 7% improvement from third quarter 2025 on an adjusted basis. Our adjusted efficiency ratio of 59.5% in the fourth quarter improved by 10 basis points quarter-over-quarter and 9 basis points year-over-year as we continue to exercise tight expense discipline.

Turning to Page 6, I'll spend a moment covering our loan balances. Average loans grew $414 million quarter-over-quarter, benefiting from a full quarter impact from the acquired balance sheet and organic loan growth. More importantly, end-of-period loans grew by $66 million in the fourth quarter, ending the year at $13 billion, laying a strong foundation for 2026 continued growth. Our loan yield increased to 5.65% in the fourth quarter of 2025, growing by 2 basis points quarter-over-quarter, and our average commercial loans increased $162 million or 7.1% quarter-over-quarter and $509 million or 26% year-over-year.

Moving to Page 7 and our deposit balances, which continue to be a source of strength and stability. Average total deposits grew by $475 million quarter-over-quarter, benefiting from the acquired balance sheet and organic growth. Our granular diversified deposit book as an average balance of $19,000 with customer deposits consisting of over 723,000 accounts with an average tenure of 12 years.

Customer nonbrokered average deposits increased $507 million quarter-over-quarter, while broker deposits decreased $32 million quarter-over-quarter. Our cost of deposits decreased 2 basis points to 1.53%, a product of our proactive management of the overall portfolio and benefit of late year rate cuts in 2025. 43% of our CD portfolio matures within the first quarter of 2026 at a weighted average rate of 3.6%, with new volumes at anticipated lower rates, this should drive an overall decline in CD costs. Although our overall interest rate sensitivity position remains fairly neutral, our balance sheet has become slightly more asset sensitive with the continued growth in floating rate commercial loans.

Turning to net interest margin on Page 8. Net interest margin increased 4 basis points to 3.69% in the fourth quarter of 2025 with purchase accounting accretions net impact equating to 4 basis points.

Turning to our securities portfolio on Page 9. We purchased $363 million of securities during the quarter, consistent with our existing portfolio risk metrics. This did not meaningfully change the portfolio's weighted average life, which remains at 4.9 years. Our new purchases were consistent with the current composition of the portfolio as we continue to strengthen an already strong source of liquidity. Our portfolio yield continues to increase as new security purchases, come on at higher yields than the runoff portfolio. Yields increased 29 basis points to 3.11% in the quarter. 29% of the portfolio is held to maturity to protect tangible common equity.

Turning to Page 10. Our noninterest income increased $5.6 million quarter-over-quarter, driven by an increase in bank-owned life insurance income due to higher debt benefit income in the quarter. Noninterest income decreased $2.3 million year-over-year. However, the prior year quarter included a gain on sale of Visa B shares and a gain on low income housing tax credit investment that did not recur in 2025.

Turning to Page 11. The overall expense, excluding merger and restructuring expenses was higher quarter-over-quarter, and year-over-year as fourth quarter 2025 included a full quarter of the acquired Penns Woods operations. Compensation and benefits increased in the fourth quarter of 2025 was driven by a full quarter of employees from the Penns Woods acquisition, combined with increased performance-based incentive compensation based on our strong financial performance in 2025. Additionally, adjusted efficiency ratio was 59.5% in the fourth quarter 2025 continuing the improvement in expense management over the last year.

On Page 12, you'll see overall ACL coverage at 1.15% is down from the third quarter of 2025, driven by net charge-offs in the current period which on an annualized basis were 40 basis points, as was guided and are elevated as a result of $9.2 million charge-off of the student housing loan. This loan was originated more than 10 years ago, has been in workout for several years prior to it being fully resolved this quarter. As a reminder, we have no meaningful concentration in student housing in our portfolio today, our 2025 net charge-offs of 25 basis points we're at the bottom end of a full year guidance of 25 to 35 basis points.

Turning to credit quality on Page 13. Our credit risk metrics are within internal expectations given the impact of the loans we acquired from the acquisition. Our total delinquency increased from 1.10% to 1.50% quarter-over-quarter, primarily as a result of mortgage loans in the 31-day month at quarter end. Our 90-day plus delinquencies declined from 0.64% to 0.51% quarter-over-quarter and NPAs decreased by $21 million for the third quarter.

Taking a deeper dive into the breakdown of our credit quality on Page 14, fourth quarter 2025 continued to see a decline in classified loans as a percentage of total loans and on an absolute basis, which was caused primarily by improvements within the CRE portfolio. As we discussed on earlier calls, we remain focused on reducing our classified loan balances.

Turning to Page 15. We are providing our full year outlook for 2026. We expect to see loan growth in 2026 in the low to mid-single digits and deposit growth in the low single digits. We expect revenues to be in the range of $710 million to $730 million and net interest margin in the low 370s. We anticipate noninterest income in the range of $125 million to $130 million and noninterest expense to be in the $420 million to $430 million range. We anticipate net charge-offs of between 20 to 27 basis points. We anticipate the tax rate to remain flat to 2025 rate at approximately 23%.

As we continue to grow in 2026, we will manage the business and drive positive operating leverage. As a reminder, we said last quarter, we had not fully recognized all of the cost savings from the merger. We are on track and expected to achieve 100% of the cost savings in the first quarter of 2026, which is ahead of schedule. That is fully reflected in our outlook.

I will turn the call over to the operator who will open up the lines for a live Q&A session.

[Operator Instructions] Your first question comes from Jeff Rulis with D.A. Davidson.

Just to follow on, Doug, I appreciate the commentary on the expenses and the cost saves. I guess, looking at the full year guide, call it, the midpoint at $425 million for expenses, I guess that's $106 million a quarter, I guess, if you just average. But typical seasonality and then if is Q1 maybe a little -- you start off a little heavier on that end. If you could just comment on any trend line with the expenses, that would be great.

Yes, happy to, Jeff, and thanks for the question. So a couple of things -- so yes, you're right. Seasonally, you will typically see some increases in expenses in the first quarter for like FICA resets and some other things. But I still think our overall guide, you're right in the way you think about it, right, if I've got the low end of the guide at about $105 million a quarter. We also would see increases typically in the second quarter for merit increases. So I think you're right to say that the first quarter might be a little bit elevated, but I would expect overall it not to be at the same level as we were at the fourth quarter.

Got you. And it seemed like -- is some of the performance based in Q4, a little onetime? I know that you've got the full quarter of Penns Woods, but is there a little bit of nonrecurring kind of performance year-end stuff in that figure?

Yes. Yes. As you true up all your incentive plans and production plans and other things in the year-end, you've got a little bit of a lift in the fourth quarter as well, correct.

Appreciate it. And one last one, just on the margin, similar kind of question. If the low 30 to 370 range. One, does that include accretion, assuming it does? And then two, kind of the rate assumptions underlying the...

Yes. So it does include sort of normal contractual purchase accounting accretion. So there would be some slight variation to that when you've got early pay downs or payoffs. So it's one thing to note. The other thing is we do have included in our guidance, 3 rate cuts internally. Now 1 of them was in January. We received a rate cut that we weren't expecting in December. So that effectively offsets it. So we would be thinking there's going to be 2 more rate cuts between here and the end of the year.

However, we are pretty neutrally positioned, drifting slightly asset sensitive, as I said in my remarks, but generally neutral. So our NIM guidance really is contingent on those 2 rate cuts, we would stick to that if there were only 1 rate cut or no rate cuts.

Your next question comes from Tim Switzer with KBW.

First one, a quick follow-up on the NIM and the purchase accounting. Can you clarify the overall net purchase accounting impact to NII this quarter? Because I think the slide deck referenced 4 basis points, but also $4 million. And my math on those don't quite add up to that. And then I guess just to clarify, is that also a good run rate going forward?

Yes, I'm not sure on the math piece. But yes, the $4 million and the 4 basis points was effectively what we were kind of going back and recalculating all of that, too. Again, I would say, generally speaking, we had pretty positive movements across the balance sheet, right? We did have a rate cut in there. So you had improvements in loan yields small, but they were there in the margin, you had improvement or you had lower deposit costs, and you also had improvements on the security portfolio. And then you had that 4 basis points impact from purchase accounting. But again, all of those underlying metrics were driving up. Income wise, of course, having a rate reduction in there sort of changes the income dynamic a little bit on the loan portfolio?

I get you. Okay. But is 4 basis points a good run rate for purchase accounting, obviously, dependent on prepayments and things like that?

Yes, probably. I mean, we would have had -- as we went through the fourth quarter, of course, we closed our merger in July, right? So by the time we got through the end, the first 2 quarters are a little bit bumpy because you're still kind of catching up on everything. But the guidance would fully incorporate those contractual purchase accounting. So I think if you kind of go with the low 370s guidance that were provided, that would be inclusive both of normal performance as well as the impact of purchase accounting. Again, it does not assume materially different levels of repayments.

Okay. Got it. And then I was looking for an update. You mentioned on the call, but on your SBA business, you mentioned about recently closing funding. Could you maybe provide a little bit more details there? And then what are your growth expectations for this business going forward? And how much of that volume will you be retaining on the balance sheet versus looking to sell?

Yes. Lou will answer some of that, and I'll give you some of that. First of all, one of the things that we had the opportunity to do is balance sheet a bit more of that because we had some opportunistic fee income as the [ BOLI ] proceeds come through, and we had the opportunity to not have to take as many SBA gains. We certainly did that within the quarter because obviously, those are very nice yielding loans, and we'd like to have them on our balance sheet.

And I think as we've talked about before, we do national originations in the SBA business, but for our in-footprint clients, we tend to want to keep them on the balance sheet. And the other thing that we'll tend to do is we'll manage a reasonable amount of growth in fee income from the SBA business as well as balance sheeting a reasonable portion of that business. I don't think we want to get into the cycle where we're booking all the gains on that constant treadmill. So as we continue to build out the SBA vertical, we're going to do both. We're going to balance sheet, and we're going to sell for gains as we kind of migrate through the process. And then again, we are really excited about the build-out of that team and the fact that we've now reached the top 40 in SBA volume -- top 40 originators type volume.

Yes, Tim, this is Lou. Just a follow-up on Doug's comments and your question. We really like the flexibility that this provides for us for commercial loan growth, spread income on the balance sheet with the flexibility and the lever to generate fee income. We are just now in the early innings of scaling this business. We've invested a lot in people a lot in the underwriting and due diligence and portfolio management around this. And our strategy really is to capitalize on quality business nationally but also and maybe more importantly, to focus on driving customers and customer retention in the footprint in the 4 states we operate in.

So we're going to layer this product, and we're looking at some other SBA products into our retail franchise. As we noted, we thought it was important to note in the call that the deal we did right here in Columbus. And so yes, we're really, really happy with the business. We'll be -- like we are with all these businesses, we'll scale them prudently. We're not in a hurry to get this top 10, so yes, really pleased with this. And most importantly, I think I'd like to drive the message that we've built the infrastructure to do this in a prudent manner.

Yes. Got it. I mean the strategy makes a lot of sense to me. You touched on it, if I could add one quick follow-up. There's been some disruption in the SBA space with the rising credit losses over the last few years and then some of the SOP changes over the summer. Where are you finding the talent you're hiring from? And how are you going forward, making sure that you guys are, as you mentioned, prudently running the business?

Yes. No, great question because it's very important, right? So as you know, we've kind of remade the executive suite here over the last couple of years and [ JD Marta ], who we formerly was GE TD Bank, Lending Club, when he came to the firm, he had contacts that he was able to bring. So we know the management we're bringing in. We know the performance level and and we understand what their acumen is and they have a long history of success. I wouldn't certainly want to name firms, but I would tell you, like all businesses, we've gone to the best and the best of the industry and recruited from those franchise. So we're really comfortable and have experience with the team.

Your next question comes from Daniel Tamayo with Raymond James.

This is Tim [indiscernible] on for Dani. So just wanted to switch over maybe to the balance sheet. You had mentioned in the release you had targeted the securities portfolio increased in the quarter. Could you maybe share some details on maybe when the timing of when the securities were purchased during the quarter and then kind of describe maybe your appetite to grow the security book relative to the asset base going forward.

Yes. So we looked at the opportunity. So again, I think we were -- keep growing our securities book a little bit because we were slightly underweighted if you sort of compare us to sort of peer banks and other things. We did take advantage of that a little bit earlier in the quarter, but not all of it. So basically, mid to late October and then there was a bit more done in November -- mid- to late November. And we'll continue to look at advantages for how do we sort of support that portfolio going forward. It's a very nice store of liquidity for us.

And also, as we've got an outlook for declining rates, we'll also do things like try to prepurchase some of the securities that we see maturing within the quarter earlier in the quarter versus late to try to pick up a little bit of yield benefit there as well.

So really, I would just say it's generally prudently managing the investment portfolio and growing it slightly just to keep it sort of in line with peers. So I think we're targeting around 17% of loans or assets into that bucket.

Okay. Great. And then maybe just one follow-up. CRE down this quarter. You guys obviously have the capacity to grow the portfolio going forward here. But in that low to mid-single-digit guidance for loan growth in 2026, how should we be thinking about CRE as a contributor to the loan growth this year?

Yes. So you're right. We do have some opportunities there, given the percentage of capital that we have related to our CRE book. It takes a while to turn turn that flow around, but we're definitely in the CRE business, and we continue to look for opportunities to sort of support that particular in our market. So again, it's not one of the businesses that we're aggressively growing nationally. But in our footprint, when there's good developers and operators, and we have opportunities to sort of lended those, we would.

Again, we also have some nonperforming assets that we -- or some criticized and classified assets that we talked about that are some real estate developers, so you're also seeing a little bit of that. Pressure on that overall line item. And again, we hope that, that continues to abate as we get through next year. So again, we're looking forward to turning that CRE business around to get it to more flat to slight growth, and that's an opportunity that we have coming up in the next year or 2.

Your next question comes from [ Kyle Garman ] with [indiscernible].

Yes. So loan growth was strong this quarter. I was wondering if you could provide some color on what segments and geographic areas are leading the way and how the pipeline is looking ahead into the new year?

Yes. So the pipeline is looking very good. So we've had a nice improvement in the portfolio actually throughout last year, and it continues into the first quarter. And I think I would say it's a broad-based level of growth. So we continue to see kind of growth in our national verticals where we're going to focus a little bit more is sort of in our 4-state footprint and in some of our businesses that we think we can continue to attract talent and develop some growth opportunities in market. But again, I would say it's generally broad-based.

There are some other things that might translate into some good business opportunities into '26 like some of the tax changes that went through last term, including the expensing of equipment is good for our equipment finance business, the full expensing that you get on the tax benefit. So again, everywhere that there are some opportunities and we like the credit profile and we like the returns that we're getting on those loans. We've got people who are out there and ready to do the business.

Awesome, and maybe a follow-up on that. Could you touch on the payoff and prepayment trends you are seeing in the quarter?

Yes. I mean, again, we've been focusing on the criticized classified assets and continue to manage that down. So that was a pretty significant source of our pay downs. And then again, with interest rates falling, there's going to be other clients that are going to look to refinance existing loans. Obviously, we're try to participate in those credits as well, but there's always a bit of a give and take in a rate environment that's changing. So I would just say there was nothing in particular that we point out on the paydown side, just sort of normal business flows.

I will say on coming off of the year that we had focusing on the merger. Now we're kind of back to business and running the bank more completely without having that distraction. So that will also be helpful.

Your next question comes from Matthew Breese with Stephens Inc.

Just a few for me. The first thing quick, what was the exact amount of the BOLI [ death ] benefit? I was assuming about $6.5 million.

Yes. I think that is a pretty good assumption because it was about $6.5 million.

Okay. And then, Doug, you had talked a little bit about TV costs and upcoming maturities. I think you said 43% maturing in the first quarter. As you're seeing the CD book kind of reprice mature, what is the blended new cost of CDs, including some of the higher-cost promotional stuff? I'm just trying to get a sense for where CD costs could go near term?

Yes. I think we're seeing probably about a 10 basis point opportunity. Again, it's all going to be based on competitive pressures at the time, but you're seeing that kind of an opportunity that evolves -- we also have got -- so we're not -- we've got other savings products as well, and we're attracting new money at times, and we have some of those promotional rates, all of which is helpful. But I would say, if you're kind of thinking about that 10 to 15 basis point opportunity on kind of the reprice with the markets coming down, that's probably fair.

Got it. And then the rest of the book. Obviously, you have a lot of lower cost categories, just given the environment, we're hearing a lot more about competitive conditions the core deposit book, how much more room is there to lower costs?

Yes. I mean, again, you're right. I think we're seeing that as well, and we're very focused on sort of managing kind of both the overall size of the deposit book to support growth as well as the overall cost of the book. And obviously, no one knows kind of where the rate count -- rate hikes and cycles are going to go. But I would tell you that I think what we're seeing is you're just seeing a little bit of a longer period of time between change in rates at the Fed and then sort of the reaction sort of of the banks in general. So I think we're kind of following that trend. So I don't not concerned that there's not an opportunity there, but that opportunity might just lag rate reductions a little bit longer than it had in the past. So call it, 30, 45 days before you're going to see sort of those rate reductions.

Got it. Okay. And then just last one is on M&A. Following the last deal, curious your appetite to participate in the whole bank M&A and whether or not there's active or ongoing or an increase in conversations?

Yes. This is Lou. I'll take that. I think we've signaled in the past, and it remains true that we stay focused now on the successful accretion and driving organic growth in '26 as a result of our acquisition. Certainly, we're open to conversations nothing imminent for us. We're really focused on making sure we execute the '26 plan and that we get the results that are correlated with the acquisition. We think it's going to be very additive. We like our jump-off point and we want to string together several quarters of strong results before we would entertain anything like that.

Again, notwithstanding given the regulatory environment and maybe some opportunistic deals as we get further along in this year and look into '27. We'll keep our options open. However, our goal is to find something that fits culturally that drives earnings and value for our shareholders and that fits into our geographic footprint. So we're not interested really in going out of market at this point.

[Operator Instructions] Our next question comes from Manuel Navas with Piper Sandler.

Can we swing back to the NIM for a moment. Could you just talk about the guide is pretty strong. I'm just wondering what are the drivers and progression of the NIM across the year? I hear you on the CD book repricing being a little bit more neutral. Security yields are benefiting and loan yields are benefiting. Just kind of where does that kind of set the path across the year?

Yes. I mean we're not giving into kind of all that guide, but I think it's safe to assume that we would have a slightly improving margin as you get some of the benefit of those rate cuts, which I think most people are projecting those to be later in the year, right? So that 370 mid or low 370s is pretty consistent with where we were at 369 for the quarter. And I think we're working to hold on to that. The trade-off, obviously, is we also want to have asset growth. So to the extent that there's competition out there, we're not going to price ourselves out of that competition, but we're not anticipating a significant downward pressure either.

So I think we're going to work to maintain that low 370s margin. And again, to the extent that it's going to have any sort of slope to it, it's going to be a little bit later in the year because you would expect to have some slightly lower funding costs that would benefit us.

I appreciate that. Another progression question. The net charge-off range is pretty solid. Kind of what are some assumptions in that progression? Or can you not get into that a bit?

I mean, yes, I think that we have -- so obviously, in the fourth quarter, and we talked about the guide last quarter, right, that $13 million that was largely focused on we had one significant credit that we knew we were working out, and we thought that there was going to be some loss concern. So now I think we're back into a much more normalized flow. So again, there may be a small peak or valley in 1 quarter given a credit or 2 that happens, and we're at a relatively overall low level. So you can get little spikes. But we're not anticipating it to be anything super material. So hopefully, we'll have that be a pretty steady charge-off rate throughout the year. And I guess the last guide is -- a guide for this year, also heartened back. We've kind of said our long-term guide always that $25 million to $35 million we're still anticipating being at the lower end of that kind of overall guidance.

That's great commentary. Switching back to loan growth for a moment. Can you talk about the mix spoke a little bit to CRE having some headwinds but some building potential there. But can you just talk about the different segments and where you see the most growth? I'm guessing C&I has the biggest drivers, but just kind of speak across the loan book for this year with that low single-digit to mid-single-digit guide?

Yes, you'll probably get a little bit of feedback both from Lou and I on this topic. I think we see some opportunities kind of across the book. So whether it be an indirect or even to the extent that we can start to think about the mortgage portfolio, how we slow some of that runoff, when we look at certainly what's going on in CRE and then when we see our national vertical. So we like the way we're positioned to do business across all of them, and we'll be looking to kind of just support that overall asset growth that we're targeting that low to mid-single-digit level.

So again, I don't know that we would say it's going to continue to be solely focused just on commercial, but certainly, we continue to have opportunity to grow commercial. And again, we've kind of talked about our overall mix. We're not targeting any specific thing. I think we're about 45% commercial, 55% consumer. We like that. We like it anywhere kind of in that 50%, 55%, plus or minus on either side. So think we like the shape of -- we look the way things are shaping up and having an inverted yield curve also is nice. So we have the opportunity to kind of blend out a little bit on longer end of that curve and pick up some yield that way as well. But Lou?

Yes, Manuel. I would concur with I would concur with Doug, right? So we're getting to the point of equilibrium where we're getting a lot of balance in the book. If you remember, a couple of years ago, we were heavy consumer with a large focus in mortgage and long on the curve as we continue to work that down, remix the sheet we're nearing a 50-50. And we kind of like that both from an interest rate risk and a credit risk standpoint. We are very diversified for a firm our size in that I think that helps with the risk profile. We're not particularly overweighted in any one business. We have a lot of different levers. We think that this year, consumer, both mortgage, home equity, are indirect will be strong.

And so driving -- I think we're driving growth in our budget across all those sectors. We really like the position we're in. We like the flexibility that we have. And I think it's -- we're unique in that we do have these commercial national verticals. As Doug pointed out, we have a renewed emphasis on in-market business banking, lower middle market. We have what's recognized in the 4 states is a very, very strong consumer franchise. So -- we like the diversification, and we like the ability to be able to pivot and we are focused on growth in '26 organically on the heels of a pretty significant acquisition that would also drive top line revenue.

There are no further questions at this time. I'll now turn the call back over to Lou Torchio, President and Chief Executive Officer, for closing remarks.

Thank you. On behalf of the entire leadership team and the Board of Directors, thank you for joining our call this morning. I'm exciting at our prospects in 2026 as we build out our consumer franchise in Columbus, Ohio, deepened relationships in our existing core markets and continue to build market share in our commercial lines of business. I look forward to speaking to you on our first quarter call in the spring.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Northwest Bancshares, Inc., Q3 2025 Earnings Call.

[Operator Instructions]

I would now like to turn the conference over to Michael Perry, Managing Director, Corporate Development and Strategy and Investor Relations. You may begin.

Good morning, everyone, and thank you, operator. Welcome to Northwest Bancshares Third Quarter 2025 Earnings Call. Joining me today are Lou Torchio, President and CEO of Northwest Bancshares; Doug Schosser, our Chief Financial Officer; and T.K. Creal, our Chief Credit Officer.

During this call, we will refer to information included in the supplemental third 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.

Thank you, Michael, and good morning, everyone. Thank you for joining us today to discuss our third quarter results. It was a busy and productive third quarter, and I'm pleased with our results and the team's performance. At the end of July, we closed the Penns Woods merger, the largest transaction in our company's history and completed customer and data conversion, and financial center rebranding. This is Northwest's first quarter as a combined entity with about 2/3 of a full quarter of combined company results.

Deal synergies are as expected and the various financial impacts of the merger, including cost savings are all on target or better than expected. I would like to thank and congratulate our team on the successful execution and integration of this merger. In early August, in celebration of that achievement and joining the ranks of the nation's 100 largest bank holding companies, we rang the NASDAQ opening bell in New York City.

During the third quarter, we continued to make strategic additions to our leadership team. We welcomed a new Chief Legal Officer, Treasurer and the Head of Wealth Management, a new role to lead our expanding wealth management team. We now have more than 150 financial centers across Pennsylvania, New York, Ohio and Indiana. And yesterday, we had an official groundbreaking ceremony for our first de novo financial center in the Columbus market, and we're joined by the Mayor of New Albany and the Chair of its Chamber of Commerce. This is the first of 3 new financial centers we'll be opening in the Columbus market next summer. We're already building out our Columbus de novo teams to support local deposit gathering, customer acquisition and developing business relationships for a fast ramp-up when we open our doors.

Our newest de novo financial center in Fishers, Indiana, which we opened in June, is performing well and on target. And as we look out over the next 12 to 18 months, we expect to open additional new financial centers in key locations in the high-growth Columbus and Indianapolis markets.

I'll now walk through some of the highlights of the third quarter, directing everyone to Slide 4. I'm pleased with the performance of our first quarter as a combined company with the team staying focused on executing our strategy and delivering on our commitment to sustainable, responsible and profitable growth. The merger enhanced our balance sheet scale. At quarter's end, we had $16.4 billion in total assets, $13.7 billion in deposits and $12.9 billion in loans.

We delivered more than 25% year-over-year average commercial C&I growth with strong progress on our continuing strategic rebalancing of the portfolio. We're in the third year of our commercial banking transformation, and we're seeing the benefits of that focus and investment with progress in our specialty verticals, commercial deposits and continued growth in SBA lending. Northwest was recently named as a top 50 SBA lender nationally by volume. We delivered $168 million in revenue for the third quarter, a record in the company's history, resulting in more than 20% year-over-year revenue growth.

Net interest margin improved 9 basis points quarter-over-quarter to 3.65%, benefiting from higher average loan yields and purchase accounting accretion.

Our EPS on a GAAP basis was up $0.08 or 15% for the 9 months ended September 30, 2025, and our adjusted EPS increased $0.16 or 21% for the same period.

Turning to credit, which we know is currently a topic of significant interest across the industry. 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 headline is that we continue to manage risk tightly, and our credit costs continue to be in line with our expectations.

We're happy with our progress in reducing the level of our criticized and classified loans that we highlighted last quarter. Prior to accounting for acquired loans, which resulted in an increase of $9 million to classified loans of the combined company, legacy Northwest classified loans decreased by $74 million this quarter, and we've seen further improvement post quarter end as we continue to manage our loan book in a focused and methodical manner.

And finally, as we have for the previous 123 quarters, the Board of Directors has declared a quarterly dividend of $0.20 per share to shareholders of record as of November 6, 2025. Based on the market value of the company's common stock as of September 30, 2025, this represents an annualized dividend yield of approximately 6.5%.

This quarter's results 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. Looking forward to the final quarter of 2025, 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 tight cost controls and risk management discipline.

Now I'll hand it over to Doug Schosser, our Chief Financial Officer. Doug?

Thank you, Lou, and good morning, everyone. As Lou indicated, we are pleased with our 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 associates.

Now let's continue on Page 5 of the earnings presentation, where I'll walk you through the highlights of Northwest's financial results for the third quarter of 2025. As a reminder, we closed our merger on July 25. So this quarter includes approximately 2 months benefit from the merger. The fourth quarter will be our first full quarter of reporting as a combined entity. Given the overall size of this transaction, our fully completed conversion and opportunities as a combined organization, we don't intend to disaggregate results unless doing so would aid in the explanation in this first combined quarter of reporting.

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. Net interest income grew $16.5 million or 14% quarter-over-quarter with the net interest margin improving to 3.65%, benefiting from higher average loan yields, increased average earning assets and the benefit from purchase accounting accretion.

Noninterest income increased by $1.3 million or 4% quarter-over-quarter, driven primarily from an increase in service charges. These items combined drove total revenue to a record of $168.1 million in the quarter, a $17.7 million increase quarter-over-quarter. Additionally, we saw an increase in our adjusted pretax pre-provision net revenue, which came in at almost $66 million, an 11.5% increase quarter-over-quarter and a 36% improvement from third quarter 2024. And finally, our adjusted efficiency ratio of 59.6% in third quarter '25 improved by 80 basis points quarter-over-quarter and 520 basis points year-over-year.

Turning to Page 6, I'll spend a moment covering the highlights of our Merger. We successfully completed all remaining merger conversion activities in third quarter 2025. All acquired branches are operating under the Northwest Bank name. All associates have been onboarded and the strong cultural fit is as we anticipated. All customers are converted and are being served under the Northwest brand. Deal synergies are on target and our capital position remains strong. Tangible common equity to tangible assets of 8.6% at quarter end is better than originally projected.

This is a good time to cover a few other points that are important. First, I'd like to cover our liquidity position that is very strong. We have readily available incremental sources of liquidity that would cover approximately 250% of the company's uninsured deposits, net of collateralized and intercompany deposits at quarter end. As for capital, we have disclosed our current preliminary CET1 ratio at 12.3%, which is only about 60 basis points lower than the level recorded in second quarter 2025 and significantly in excess of the levels required to be considered well capitalized for regulatory purposes.

Turning to Page 7 and the Purchase Accounting Impacts. Loan mark accretion was $2.7 million in the third quarter of 2025 and based on projected contractual cash flows is expected to be $1.9 million in the fourth quarter of 2025. We provided some additional information covering contractual accretion for 2026 and 2027. Actual results will vary with customer activity. Day 1 non-PCD and unfunded provision expense was $20.7 million, and our core deposit intangibles or CDI, were $48 million with $1.6 million of CDI amortization in the third quarter of 2025. The preliminary goodwill created was $61.2 million.

On Page 8, we cover Loan Balances. Average loan balances grew $1.32 billion quarter-over-quarter, benefited from the acquired loan balances. Loan yields increased to 5.63% in third quarter 2025, growing by 8 basis points quarter-over-quarter. We have provided information by loan category throughout our investor presentation. I will also note that the increase in CRE balances did not meaningfully change our overall regulatory CRE concentration.

On Page 9, we cover Deposit Balances. Deposit balances similarly benefited from the acquired balance sheet as average total deposits grew by $1.14 billion quarter-over-quarter, while broker deposits decreased $2.2 million quarter-over-quarter. Cost of deposits remained flat at 1.55%, benefiting from proactive management of the overall portfolio and still near best-in-class relative to our peers. We saw growth of deposit balances in most categories while maintaining reasonable deposit costs, and we are pleased with our progress here. We also saw no appreciable change in our deposit mix other than small increases in demand deposits, offset by minor reductions in borrowings.

Moving to Slide 10 and our Net Interest Margin. Net interest income increased 13.8% quarter-over-quarter or $17 million, inclusive of the benefit from purchase accounting accretion, with NIM expanding 9 basis points to 3.65% in third quarter 2025. Purchase accounting accretion net impact equated to 6 basis points of our margin expansion. This continues our track record of growing both net interest income and improving our net interest margin by focusing on our loan pricing and our funding cost as the rate environment has been more favorable in 2025. Securities portfolio yields continue to increase as we reinvest cash flows at higher yields than the current portfolio. 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 details on our Earning Asset & Funding Mix. You will notice a few changes from last quarter. We've seen a modest shift in our earning asset mix as the acquired loans drove changes in our fixed and periodic repricing categories, while our funding mix was largely unchanged. You'll also note our time deposits have a very short duration, allowing us to continue to benefit from future repricing opportunities in a falling rate environment and lower interest expense. We hold a granular diversified deposit book with an average balance of over $18,000. Customer deposits consist of over 728,000 accounts with an average tenure of 12 years. The similar average customer balance and tenure pre and post-merger illustrates the similar high quality and granularity of the acquired deposit book.

On Slide 12, our securities portfolio continues to be a strong source of liquidity for us. The yield on our securities portfolio continues to increase as we continue to reinvest cash flows at higher yields in the runoff portfolio, yields increased 10 basis points to 2.82% in the quarter.

Slide 13 contains details on our noninterest income, which increased $1.3 million from last quarter, driven by an increase in service charges and fees benefiting from a larger customer base resulting from our acquisition and other operating income, primarily from a gain on equity method investments. Noninterest income increased 15.7% or $4.4 million year-over-year, driven by a $3 million increase in other operating income and continued growth across other fee income categories.

Slide 14 details our noninterest expense. We incurred approximately $133 million of expenses on a GAAP basis, which included about $31 million of merger-related costs this quarter. Core expenses of $102 million are up $11 million from quarter 2 levels, resulting from higher levels of compensation and other expenses from the newly acquired employees and facilities.

Additionally, core expenses also increased in the third quarter as we incurred additional expenses related to accruals for performance-based compensation. Our adjusted efficiency ratio of 59.6% after excluding those merger and restructuring expenses is an improvement from the 64.8% in the prior year period. 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'll cover credit quality.

On Slide 15, you can see our overall allowance coverage ratio has increased to 1.22%, up slightly from second quarter of 2025 with provision expense of $11.2 million, net of day 1 non-PCD impacts versus $11.5 million in the second quarter of 2025 due to individual assessments within the commercial portfolio. Our annualized net charge-offs of 29 basis points for the quarter are in line with expectations and guidance. We believe our coverage is appropriate, prudent and in keeping with our rigorous credit risk management approach.

On Slide 16, you will note that our 30-day plus loan delinquencies increased slightly from 1% to 1.10%, mostly from acquired loans within the consumer book. This increase does contain some more administrative consumer delinquencies as customers need to manage certain changes in online bill pay and other electronic payment methods resulting from impacts from the conversion. We expect this trend to decline over time. NPAs increased by $26.3 million, approximately $17 million of which is attributed to the acquired loans. Our NPAs as a percentage of loans outstanding plus OREO has increased to 100 basis points. We provide some additional details on the drivers of this change on that slide.

Turning to Page 17. We've included some additional information on changes within the classified loans reported this quarter. The third quarter 2025 increase in our classified loans is a result of the acquired loan book, but overall classified loans declined as a percentage of total loans. Northwest legacy classified loan book decreased $74 million quarter-over-quarter, resulting primarily from payoffs. Net charge-offs remained within guidance at 7 basis points or $9.2 million for the quarter or 29 basis points annualized.

We included our commercial loan distribution and CRE concentration information on a slide in the appendix. As Lou alluded to earlier, we have no direct exposure or known indirect exposure to Tricolor, First Brands or Cantor Group. Regulatory CRE concentration is approximately 156% of target Tier 1 plus ACL, up slightly from the prior quarter at 152%.

On Slide 18, we have provided an updated perspective on our outlook. We continue to be confident about Northwest business and would expect to maintain our net interest margin at the third quarter 2025 levels of the mid-360s. Future NIM will be a bit more volatile as prepayments of the acquired loans will accelerate purchase accounting accretion, making it difficult to forecast. We are effectively reaffirming the rest of our previous fourth quarter 2025 guidance, including noninterest income expected to be $32 million to $33 million, noninterest expense expected to be in the range of $102 million to $104 million, tax rate expected to remain flat at the 2024 tax rate. And finally, net charge-offs to average loans 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.

As a reminder, we said last quarter, we will not have fully realized all the cost savings from the merger in the fourth quarter of 2025, but expect to achieve 100% of the savings by second quarter 2026. We will provide full year 2026 guidance during our fourth quarter 2025 earnings release call in January 2026.

Now I'll turn the call over to the operator, who will open the lines for a live Q&A session.

[Operator Instructions] Your first question comes from the line of Daniel Tamayo with Raymond James.

Maybe we start on the loan growth side. I don't know if I heard any commentary on loan growth expectations. But as you address that, just curious if you could talk about the new de novo branches that you're adding in Indianapolis and Columbus and how that kind of fits into the loan growth guidance?

Okay. I'll start, and then I'll let Lou comment on the new branches and expansion. So this quarter, we would have had a big impact from the acquisition, and we didn't disaggregate all of that movement. But I would say for next quarter, we are looking, again, to hold the balance sheet stable. To the extent there's opportunities to create some balance sheet growth on the loan side, of course, we'll take advantage of that, but the overall environment has been pretty good, our pipelines look pretty good. But again, closings in any given quarter are a little bit hard to predict. So certainly looking to continue to grow the franchise, and we'll look to that in the fourth quarter as well.

Daniel, it's Lou. Thanks for calling in. On the de novo strategy, we're already out in the market. We've hired commercial real estate business bankers. We're recruiting for the wealth team, and we'll start the deposit gathering sometime in '26 in anticipation of the new launches. We did break ground yesterday at the -- in the high-growth suburb of New Albany, Ohio. As you know, we opened suburban Indianapolis last quarter and so yes, we would -- we look to plan to grow in-market that it will be -- and use our national verticals that we created to be complementary. And again, in January, we'll give '26 guidance on loan growth, but we feel really comfortable with all the different levers that we have and where our pipelines currently are, including our commercial pipeline.

That's helpful. I guess just to dig in a little bit more. I know you're not giving guidance in '26 yet, but you're thinking it was -- legacy growth was pretty flat in the third quarter, and you're saying flat again in the fourth quarter. I'm assuming you're hoping to grow in '26. I mean, is that a fair statement? Is it -- should we be looking for something in the low to mid-single-digit range? Or do you think you can do a little bit better than that?

Yes. I mean I definitely think we're going to -- when we provide that guidance, you would expect to see a loan growth number that would look pretty comparable to GDP growth. So I think that's fair kind of thinking right now. I think the other thing to keep in mind is we are working through the criticized classified assets that's obviously going to have an impact on our ability to show growth as well. So as those refinance off the book, of course, that creates a little bit of a tailwind to actually showing growth in the portfolio. So I would just mention that as well. Again, as we talked about last quarter and we kind of continue the conversation this quarter, we're hoping to see a good amount of movement on that portfolio. In our opening comments, we talked about, that was $75 million of change this quarter alone.

And then maybe just touching on the expenses here, the number was better than I was looking for in the third quarter and guidance looks pretty good for the fourth quarter. Again, you talked about continued cost savings coming through the beginning of next year. How should we think about expense numbers going forward? If that run rate is still -- what is it -- is it stabilis, you think, off of the fourth quarter number into 2026? Or because you've got the hirings or the de novo branches opening that you'll be growing expenses at a decent clip next year?

So I think that's a good way to think about it. Again, we'll get into more details when we do guidance for '26. But I think the way Lou and I think about it right now is we really want to focus on continuing to manage positive operating leverage. So -- and we want to continue to invest for growth. So the de novos being a good example of that. So I think next year, we need to take a look at where our revenue growth is going to be, and then we want to continue to invest to grow.

So we would definitely hold some level of ability to think about our expenses in that way, but we're certainly not talking about a significant increase from here. And then we will have the benefit of those costs on the Penns Woods side starting to become a little bit more rationalized as we get into the third quarter, again, so we've got some opportunities there as well. But I think the way you're thinking about it around does it make sense to kind of hold them at these levels? Yes, but we'll obviously try to do better than that.

Your next question comes from the line of Brian Foran with Truist Securities.

Just on the tangible common equity ratio and CET1 coming in better than expected post the acquisition, could you just give us your updated thoughts on kind of the levels you think you would target over time? And as you look to next year, how you're thinking about trade-offs between buybacks, potential acquisitions, maybe just running with a little bit of excess, just how we should think about managing that capital position in the next 12 to 18 months?

Yes, sure. I mean, clearly, we're at -- we're well in excess of regulatory minimums for capital, and we like that position. I think that just helps support safe and sound banking franchise. The other thing I would say is it also -- as we want to be able to take advantage of any opportunities in the market, we would hold that capital level there. We've never gotten into capital level targets per se, but I think we're significantly comfortable with the capital levels that we carry now.

And as we find opportunities to deploy that capital because obviously, that would -- your returns on tangible common equity would be benefited if you had a little bit less capital, similar returns, we obviously think about that. But I wouldn't say that you're looking at a massive change in the capital position for the company, just kind of normal operating. But we like having a strong capital base certainly to operate from.

And then on the margin commentary, I definitely heard you on the -- I think the word used was volatile, but the difficulty managing or forecasting purchase accounting accretion, outside of the quarter-to-quarter moves and paydowns in the PAA book, does it feel like the second half of this year is kind of a good run rate? Or should we build in a little bit of haircut as PAA and rate cuts and all that factors through?

Yes. No, I think we said that there was about 6 basis points impact from the purchase accounting side, so that would take our core margin, if you will, to like a 359 bps level. So when I sort of guided to that mid-360s bps, that was conceptually thinking about that 359 bps. We feel pretty good about that and being able to maintain that. You'll get a couple of basis points here or there depending on a quarter-over-quarter, if you had more paydowns and purchase accounting acceleration in one quarter versus another, that was the fees of the volatility I was thinking about. But I think we're pretty well positioned as it relates to kind of rates and are comfortable that we can keep that 360 bps core, like right around 360 bps and then we have some -- a little bit of movement from purchase accounting here or there. Does that help?

That's great. Maybe one last one just on the credit slide. Just kind of comparing to last quarter, it seems like the nursing home book had some nice payoffs as you alluded to the fourth quarter, potentially seeing additional payoffs of classified loans. Is it still concentrated there? Is it spreading a little bit? And related to that, when you talk about up to $13 million of charge-offs, is that just a mathematical statement? Or are you kind of saying, look, we've got maybe a couple of larger resolutions we're working through and fourth quarter might be a little higher than 3Q?

It was a bit of both, right? I think what we wanted to clarify is when we came out in the second quarter, we said expect a couple of quarters in the $11 million to $13 million range and that we were expecting to have total charge-offs at around that low end of our guidance or 25 basis points of loans. In order to kind of be clear about what that could mean in the fourth quarter is that could mean $13 million, and we'd still hit all of that guidance. So we just didn't want anybody to sort of say, "Oh, $9 million and then $9 million."

We wanted to say, "Yes, well, as we work through this book, we may have some elevated charge-offs for a period of time, but not elevated to the extent that we felt like we were going to be above or even within that sort of 25 bps to 35 bps range that we said." We said we'd be at the lower end of that range for around 25 bps. So it's more doing the math. I think there is a little bit of work to do on credit classified loans as we work some of them out. So we would expect that there'll be some impact there, but we feel pretty good that we're reserved for all of that. But again, when you hit a charge-off versus reserves, we just wanted to be clear.

Your next question comes from the line of Tim Switzer with KBW.

First question I have is a follow-up on the credit in terms of the consumer portfolio. I'd love to get an idea of like what trends you guys are seeing there? And then maybe even outside of the loan book, what you're seeing across your deposit accounts in terms of like activity and behavior just because there's been some noise around the health of the consumer, particularly at like the lower end of the credit spectrum, which I don't think you get that much exposure to, but if you could update us on that, too, please?

Sure. So first of all, on the consumer side, I think we referenced it in our comments that we have a little bit of elevated delinquencies as we brought on the Penns Woods customers and the acquired loans. However, some of that is definitely administrative in nature. So if you think about going through a conversion, be able to reestablish their payment channels through new online portals and other things. So you do tend to see a little bit of incremental activity there. We continue to see that sort of work its way through the system. So we don't see that as being a negative trend on the overall consumer book, just more a process of some administrative things that are going on with the customer base. So that would be one thing.

I'd also say that we continue to be very comfortable with our consumer exposure beyond that. Our auto loan book is very high credit quality; super prime book, very low delinquencies on that book, and we have not seen a meaningful change in those delinquency rates between the second and third quarter. And then the only other thing I might comment on is I don't think we're seeing any significant impact from any of the government showdown -- slowdown activities, and we wouldn't have expected to see it this early either but generally speaking, I think we're seeing the consumers be very similar in the third quarter as they were in the second quarter sort of across the book.

And the other question I have is, I know you guys just closed Penns Woods, but how do you think about scaling up the bank from here? Is there a target size for the bank where you hit optimal efficiency or returns over the next 5 years or so? And you have a management team with a lot of experience at larger banks. So how would you like to get there through organic growth, de novo or M&A?

Yes. Tim, this is Lou. I'll take that. So as you know, at this point, we're looking at really maximizing the integration and the efficiency and then the accretion of the Penns Woods merger, which being the largest in franchise history is really important on the execution side. It's going extremely well. As you noted, we have -- we now have an executive management team that we're really comfortable with being able to go out to the market and do M&A.

Notwithstanding an M&A strategy, I would say that's just -- it's complementary. We are focused on improving our financial returns, our metrics at the core organic bank. And I think that the de novo branching opportunity, while meaningful for us in higher-growth markets that we currently don't have a large presence in, i.e., Columbus, Ohio and Indianapolis, Indiana, will continue to be a focus of ours, but we will have to do complementary, whether it be look at acquiring a branch deal, opportunistically M&A in order to scale that.

So I think that we're focused on, as we've stated in the past, a dual strategy, run the bank organically, continue to create efficiencies. We think there's some upside there and then look for M&A that's in and around our market that either fits us strategically, geographically that can add value to the franchise and then to the shareholder.

Our next question comes from the line of David Bishop with Hovde Group.

I appreciate the details on Slide 11 regarding the funding mix. Just curious in terms of the short duration nature of the CD, maybe what you're seeing in terms of weighted average cost rolling off over the next year and what you sort of put on rate these days?

Yes. I don't know that I have that number right at my fingertips. So what I would say, though, over 90% of that CD portfolio will mature before the middle of next year. So that does give us quite a bit of flexibility around what the new rates would go on as the overall interest rate environment sort of goes down theoretically with these rate cuts. So we like the way that book is positioned right now. We don't have a ton of really long exposures there. So we should be able to take advantage of sort of the rate curve wherever it is and still be fairly priced for our customers.

And then in terms of the funding of expected loan growth, securities runoff expectations here in cash flows. Is that going to be securities funding that? Do you think deposit funding could cover the funding? Just curious how you're thinking about sort of the balance sheet ebbs and flows on sort of cash and securities.

Yes. I mean I think we would -- we have the ability to fund as much loan growth as we want. We have pretty low positions overall in brokered CDs. And in fact, we've been able to pay down a lot of that. So we've got plenty of funding capacity. Certainly, opening up some of these branches, we have to have that result in deposit growth. And we continue to focus on our ability to continue to help our customers on the commercial side with deposits. So we feel good about the opportunity to grow deposits organically. It's always super competitive, though, but we have other sources of funding, including the securities portfolio if we would need it. So I don't -- we don't have any real concerns or constraints in that place that we see right now.

Looks like the security is about 13% of assets. Do you think it holds around this level or maybe builds or fall slightly. Just curious how you see that trending over time?

Yes. We can provide a little bit more color on that. We don't really have a target that we've ever talked about publicly. But depending on what opportunities exist and how we want to manage our interest rate position and liquidity position, we'll make those determinations.

Your next question comes from the line of Matthew Breese with Stephens Inc.

Doug, do you happen to have the most recent kind of spot rate of deposits either at quarter end or more recently? And then maybe I was hoping for some color or expectations for deposit betas over the next, call it, 12 to 18 months.

Yes. So we gave total cost of deposits at that 1.55% level, and they've been very stable. We actually were able to bring on some -- a good set of deposit mix from the acquisition, which helped. So again, I don't think we're seeing any upward pressure there. I think you're seeing -- money market promotional rates would be obviously higher than that, they might be in the 4s. But again, we're able to sort of manage that mix. And again, we operate in some really good markets that have a bit less competitive intensity than a lot of other markets. But again, we have to respond to market rates just like everybody else does. What was the second part of your question?

Just expectations for deposit betas, particularly given the low overall cost of deposits here?

Yes. We feel -- I think our overall deposit beta has been in the mid-20s through this rate cycle, and we don't see it. We still have room when we kind of think about our opportunities as -- because we have a generally fixed or periodic repricing on the asset side, we are able to benefit as rates go down and sort of hold those margins pretty comparable with the amount of funding that we have available on the deposit side that does pay rate like CDs, money market rates, et cetera. So we feel pretty neutral position right now for the next series of rate cuts.

And then you had also mentioned that pipelines were good or pretty good -- could you just better quantify for us what that looks like? And maybe within the pipeline, what are you seeing in terms of pockets of strength or areas that might grow a little bit more than other?

Yes. I mean I would say our pipeline commentary, we have nice developed pipelines in all of the national verticals that we support, and those continue to be strong. And again, that is an ability to pull from businesses sort of all around the country in those specialty areas that we have. Those would be sports finance, franchise finance, our equipment financing business, and a couple of others.

We also feel pretty good about where our commercial real estate exposure is. There's obviously room there. So we would look to all of those businesses to drive some decent support. I think if you looked at our pipelines, you'll probably see a little bit more pipeline growth or support in the national verticals versus the end market, but that ebbs and flows over time. But I think that pipeline has been pretty consistent for the last couple of quarters.

And then just on that last point, the specialized verticals, particularly the national one sports equipment finance. What is the total within C&I that you kind of consider in the national or specialty verticals? And how much of that or how much of those are participations versus kind of stand-alone relationships?

Yes. So those would be in the 20% range of the C&I book. And I would say generally not significant amounts of participations within that side. That would be more in our corporate finance book where we would have those, which is not one of the newer verticals that we built.

And I would just add that we're very prescriptive and very measured in how we're growing those businesses. I would, in general terms, describe them as complementary. We're scaling them. They're scaling nicely. The performance -- the credit performance is very good. As Doug mentioned, limited participation activity. What we're looking to do is notwithstanding the equipment finance group, we're looking to also gather deposits and fees in those businesses. We have hired experts that have long-standing reputations in those industries, and they include sponsor, restaurant, finance, SBA lending group, equipment and sports. So we're watching those closely. We're scaling them appropriately within our credit risk tolerances, and they're performing wonderfully to date.

Just last one, if I could sneak it in. On the pipeline, what are you seeing for overall blended loan yields? There have been others, perhaps your peers that are discussing a little bit of spread compression and I'm curious if you're seeing that as well.

Yes. I mean I would say overall rates coming on the book are in the 7s, low 7s. Certainly, it's competitive out there. As everyone is expecting rate reductions, obviously, we're pricing a lot of that on forward curve, so you would expect to see those yields get -- come under a little bit of pressure as well as you get into future environments that would have lower rates, but they're certainly not bad.

Your last question comes from the line of Daniel Cardenas, Janney Montgomery Scott.

So just a couple of quick questions here. On the expansion efforts, the de novo expansion efforts, do you have the talent already identified to run those new offices? Or is that kind of a search in progress right now?

Yes, Daniel, I would say that it is a search in progress. It's a little early. We have gone out to the market here in Columbus with tangent business partners. We're currently evaluating wealth talent, small business talent. We've hired in the commercial space, middle market, CRE. And then as I stated, in '26, when the calendar turns, we'll be out with some deposit gathering campaigns so that we can fully load the branches and when we open the doors hit the ground running. But as far as we have a few people internally identified that will lead the early retail efforts. And then, of course, it's a little early to go to the marketplace and hire the other staff that are needed for the branch development.

And then last question for me is just in terms of the Penns Woods transaction, can you provide any color as to, what the runoff on the loan and deposit portfolios is looking like? Is it in line with expectations, not as great as you thought? Or any color would be helpful.

Yes. No, it's definitely in line with our expectations. I would say maybe it's slightly better, but certainly not materially different from where we thought it would be. Again, I think new market, we have different credit standards than where the original franchise would have been. So that's going to take a little bit of time to work its way through the market, but we have not seen significant spikes that have concerned us at all. So I would say it's sort of steady as she goes, and we're comfortable with what we've seen come through thus far.

Yes. In addition to Doug's comments, we have been very focused on integration and execution. We spent a lot of time in the marketplace, our senior leadership. Culturally, it has developed exactly like we thought. We are -- as I think we pointed out both in the release and verbally, achieving the cost saves that we expect. We expect also to get to the marketplace with an improved product set, SBA lending, Penns Woods didn't have some other products and services, trust and wealth. So we're pleased with the upside that the future we think from the Penns Woods acquisition will bring from a value standpoint.

That concludes our Q&A session. I will now turn the call back over to Lou Torchio for closing remarks.

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, tight cost controls and risk management discipline that we've described, additional scale from a larger balance sheet, we are well prepared to capitalize on the opportunities for driving sustainable, responsible and profitable growth. I look forward to updating you on the progress on our fourth quarter earnings call early next year. Have a good day.

Ladies and gentlemen, thank you all for joining, and you may now disconnect. Everyone, have a great day.

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. [Operator Instructions]. Now I would like to introduce Michael Perry, Northwest's Managing Director of Corporate Development and Strategy and Investor Relations.

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 T.K. 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'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 Louis.

Good morning, everyone. Thanks for joining us today to discuss our second quarter results. First, I'd like to start by welcoming Penns Woods customers, employees and shareholders to Northwest and Richard Grafmyre, Penns Woods former CEO, to our Board of Directors. We completed the legal close of Penns Woods 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. 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'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 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.

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 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. Turning to our second quarter. I'll address some of the quarter's highlights on Slide 6. I'm very pleased with our performance this quarter as we balance preparing for the acquisition and conversion of Penns Woods 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.

If we adjust our second quarter 2025 results for the impact of onetime 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 C&I loans compared to the same period last year. In addition, the team's focus on deposit 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. 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.

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 $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. 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 discipline.

Now it's my pleasure to introduce Doug Schosser, our Chief Financial Officer, who will take us through our financial results. Doug?

Thank you, Louis, and good morning, everyone. As Louis 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 Penns Woods acquisition, I would like to provide an update on the total equity consideration paid for this transaction. Based on our stock's closing price on 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 onetime merger charges and cost savings remain on target. See Slide 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's 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 GAAP basis. As you recall, we did have a significant nonaccrual interest recovery in the first quarter, which added approximately $9.4 million or $0.08 in after-tax income in that period. We reported net interest margin of 3.56% for quarter 2, 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 first quarter.

We continue to manage our funding costs and maintain our loan yields, driving improved margin performance. Noninterest 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 second quarter 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 noninterest 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.

Pretax pre-provision net revenue was $59.1 million, which was down from the first quarter of 2025, again, due to the nonaccrual 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. Turning to Slide 8 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 remain supportive, and we saw some demand returning to the C&I space. We continue to proactively shift our portfolio mix more towards commercial and industrial loans as part of our longer-term strategy. Average C&I 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 CRE 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 6.0% in the prior quarter, which was elevated due to the nonaccrual loan recovery, and we maintain our focus on pricing discipline. On Slide 9, we cover our deposit balances, which remained strong and stable over the prior quarter and prior year period.

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 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 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. 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 stand-alone second quarter 2025 performance, one 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 nonaccrual 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. 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 Slide 12, the yield on our securities portfolio also shows further ongoing improvement 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 noninterest 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.

Noninterest 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 noninterest 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. So 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. 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 remained stable at around 1% of outstanding loans, our NPAs as a percent of loans outstanding plus OREO has increased to 91 basis points, which is similar to the levels recorded in 2Q, 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, '25 increase in our classified loans is a result of 3 primary items. The remaining long-term health care 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 came on the market with lease-ups 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. The projects are all with strong, well-established developers who are invested in the community. And finally, there are a few larger C&I 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'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.

On Slide 19, we provided an updated perspective on our outlook. We 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 accretive benefits of the Penns Woods 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 change in control contracts and many other onetime 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. 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; noninterest income in the range of $32 million to $33 million; noninterest 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 acquisition in the fourth quarter of 2025, 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, who will open up the lines for live Q&A. Operator?

[Operator Instructions]. Your first question comes from Daniel Tamayo with Raymond James.

Thanks for all the color on the -- in the prepared remarks there. That was really helpful. You covered a lot of my questions. But -- so on the expenses, sorry, I'm just kind of thinking out loud. It sounds like you're going to be continue 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 million to $105 million in the fourth quarter, how much savings is left and as much as you can, the timing on that in the first half of next year?

Yes. So I would put it this way, Daniel. I mean we just closed this transaction 48 hours ago, 72 hours ago, whatever. We'll provide much fuller guidance when we release fourth quarter earnings in January, like we would always do, at which point we'll 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. And we originally 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.

Understood. Okay. And another one that maybe you might not have kind of 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? And then I know you touched on it, but just remind us if you can, the kind of the core -- the change to the core margin from the acquisition.

Yes, so we're still working...

Sorry, if you have any like balance sheet actions that you guys are going to be expecting to do as well? Sorry for that additional one. Yes.

That's okay. So we're still working through purchase accounting accretion and the marks. 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 net interest income.

But again, 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. If we do, we'll obviously put out an 8-K and a new investor deck 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. Second thing -- second part of your question, there will be some changes to the investment portfolio, in particular, when we moved Penns Woods over. So they had, like you would expect, some securities that didn't meet our return profiles or our risk profiles. Those will sell, 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.

So 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're at. One other thing I wanted to mention on the call. So on Slide 5, when we provided guidance, we used the term to suggest that things were either on target or accretive. 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. So just a slight clarification there for everybody on the call.

Yes. I appreciate that. This may be along the same lines, but just get all the questions out now and then you can say to give the same answer if that's the answer. But just on that topic, the tangible [ book ] dilution, do you have an updated number or have any kind of approximate amount in terms of what that dilution might end up being relative to the 9% expected originally?

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. So in the original announcement, we suggested that total consideration would be around $270 million. We're probably closer to $235 million 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 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, but we'll try to clarify that when we can.

Your next question comes from Matthew Breese with Stephens Inc.

I appreciate the detail on the increase in classifieds. I guess I just wanted to [ prompt ] a little bit more and see how you felt about the potential for nonaccrual creation or NPA creation on the back of the -- on the classified and then potential for loss content there. Do you feel like you're adequately reserved at this point?

I do feel that we're adequately reserved for losses, so we'll start there. And we also do feel like there's going to be a decent amount of opportunity over the next 6 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 6 months. So we believe by the end of the year, we'll make progress against the NPAs without material losses [Technical Difficulty] those levels will return much closer to where they were in the earlier periods this year.

Got it. And then 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? And have we -- has the mix shift and changes in mix shift started to kind of stabilize?

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. So online deposit-only deposit gathering sources have not been as active on the rate side. So we feel pretty good about deposits going to the end of the year. And then, of course, we get the benefit of all the new Penns Woods customers coming in and being able to see how we can handle that deposit portfolio over time.

And then a couple of business line-specific questions. Home equity loans this quarter talked a more recent trend of declining, saw some growth. Is that a one-off? Or is there a little bit of a change in strategy? And then similar question with consumer loans, which for 2 quarters now has been growing versus previously shrinking?

Yes. This is Louis. 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. And so we're starting to refocus in our branch network. We've created some congruency with the lending piece and Urich Bowers, 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're able to sort of lever that up and down just based on the interest rate environment. And so we felt like we could grow that book this quarter and fix those assets given that in the second half of the year, we may be facing a declining rate environment.

So 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're balanced in our approach, and we'll take what the marketplace will give us. And so 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. And so we're just -- we think we're in a really good spot to go to market with both a balanced approach to commercial and consumer lending.

Matthew, I would just add 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, and we did have some nice opportunity there, but not a change in strategy, more just being there for our clients when they ask the bank to provide funding for changes in their homes or what have you.

Understood. Yes. My initial hunch was commercial loans, balances are up, but 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 consumer front, home equity front is kind of response to more competitive conditions for commercial loans. We've heard a lot about that this quarter or just maybe some uncertainty from your customers. Curious what -- how do you respond to that?

Yes. 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 point, we can flex down certainly that indirect book pretty quickly. But if 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 loans as well.

Okay. Last one for me. Just maybe some idea of roll-on yield for commercial and the growing consumer categories versus roll-off and how accretive is that today? That's all I have.

Yes, so I think we're seeing commercial loans near 7%, a little bit up or down depending on the month. And you would continue to see the consumer loans are going to be lower than that, but not different from what they're kind of coming off. So I would say on the consumer book, you're pretty -- at least with indirect because rates have come down, roll on, roll off is pretty consistent. And then on the commercial book, we still have some opportunity there.

Your next question comes from Daniel Cardenas with Janney Montgomery Scott.

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?

And then on the C&I front, were there any industry concentrations on those fewer larger loans that popped up here?

Yes. 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, some 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. They're also with very good developers that are heavily invested in the Columbus market. And then we indicated in the slides that there was one in Philadelphia. So without getting into all of the specific details on every credit -- T.K. might have something to add.

Yes. I'd just comment, Daniel, 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 1:1 given the interest rate pressure that these projects have seen over this period and then coming on to market in a soft market. It's demand -- we see demand continuing. It's just a lot of supplies come on. And so we'll 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.

Are these higher-end type of projects? Or are they kind of mid-market?

There's both in there.

Okay. All right. And then on the C&I side, were there any concentrations by industry?

No, no material concentrations. One larger one kind of in the electronics space, but not like an industry trend, I would say.

That concludes the question-and-answer portion of the call. I'll now hand it back over to Northwest [Technical Difficulty] for concluding remarks. Mr. 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.

This concludes today's conference call. You may now disconnect.