To The Moon

$Northwest Bancshares(NWBI)$

Northwest's performance has been quite strong compared to 2024. Total net income saw a significant increase due to higher yields on interest-earning assets and a large non-accrual interest recovery in the first quarter of 2025, which added approximately $9.4 million in after-tax income. What also helped boost net income was the lower expenses due to a decline in the average balance of borrowings and a higher cost of brokered CDs (Certificates of Deposit).

It's important to note that during the first six months ending June 30, 2024, the bank sold investments at a loss to reinvest the proceeds into those higher-yielding assets, which are now generating returns.

The increase in provision for credit losses was due to a downgrade in commercial real estate loans, which means more loans were judged to be riskier. The increase in classified loans (problematic loans) was from 2.26% in 2Q24 to 4.57% of total loans in 2Q25, nearly double in a year, which is a red flag.

Over the past year, the bank implemented a strategy to expand its commercial loans portfolio. This expansion naturally led to an increase in provisions. So as the volume of loans grew, a larger proportion of them were classified as risky or downgraded.

In the 6 months ending in June, Northwest paid out $51.194 million in dividends, which represents a 66% payout ratio.

Balance Sheet

Year-over-year

• Average loans receivable was at $11.2 billion, dropped by 1.1%

• Average deposits were at $12.1 billion, increased by 0.6%

• Average borrowed funds were at $208 million, decreased by 35.5%

Average loans receivable decreased due to cash flows from the personal banking portfolio being reinvested in the commercial portfolios.

Average deposits have increased both quarter-over-quarter and year-over-year, mainly due to rises in money market, interest-bearing checking, and savings account balances. Many customers had CDs (Certificates of Deposit) that matured, and instead of renewing them, they moved funds into these other deposit products, which offered better interest rates.

Average borrowed funds decreased due to the strategic pay-down of wholesale borrowings using the proceeds from their investment portfolio restructuring in the second quarter of 2024.

Non-Performing and Delinquent Loans

Non-performing loans experienced a sharp increase of 73% quarter over quarter, but year over year, they decreased by 1.7%.

The delinquent loans (loans with missed payments but not yet considered a loss) continue to show us poor borrower creditworthiness. There was an increase of 4.8% quarter over quarter and 72% year over year to $117 million, where the biggest increase was in the loans delinquent for 90 days or more (from $20.4 million to $64.5 million). The biggest risks are concentrated on healthcare, some larger commercial & industrial (C&I), and construction sectors.

The delinquency percentage of the total portfolio stayed steady at 1%, which means that even though the dollar amounts are rising, the poor credit quality is being absorbed by the growth in total loans.

In the Commercial real estate loans portfolio, the delinquency by 90 days or more is at 1.5%, compared to 0.2% in 2Q24. That’s a 7.5x increase in the rate, which explains the absurd increase in provision for credit losses and reflects how much the bank’s credit quality is deteriorating over time.

Security Portfolio

The bank is becoming more profitable as it reinvests in bonds, treasuries, and other securities at higher rates because older securities with lower rates are maturing, and newer ones are paying more due to the current high-rate environment. The security portfolio yield increased 8bps to 2.72%.

The portfolio's effective duration is 5 years, which means that if interest rates go down, the portfolio could go up about 5% (that’s a rule of thumb). This indicates that the portfolio is considered to be at moderate interest rate risk.

35% of the portfolio is held-to-maturity (HTM), which means they are booked at amortized cost, instead of marked-to-market. This avoids recognizing unrealized losses from interest rate fluctuations in their earnings, or in simpler terms, it cushions reported capital from rate volatility.

ROE & Efficiency Ratio

The bank’s return on equity (ROE), which measures how good they are at converting equity financing into profits, was at 9.56% from 4.41% for the six months ended June period the year before.

The efficiency ratio, which measures whether the bank is generating strong revenue compared to its costs, was at 61.74% down from 79.60%. In this case, the lower the better.

Here’s a comparison table between Northwest and some of the largest banks in the US:

Highlights:

June 2025

• Opening of a full-service financial center of approximately 1,320 square feet in Fishers, Indiana. The space features a mix of private meeting rooms and open areas, as well as access to digital services through its ATMs. This marks the first center opening in six years, indicating that the bank is returning to a growth mode. The area is known as a fast-growing suburb of Indianapolis, with its thriving business and life science sector.

• Northwest released its Annual Report of Employee Stock Plans, which shows a reduction in employee stock ownership from 3.6% in 2023 to 3.1% in 2024. Which means participants withdrew or sold more stock than the company contributed. It’s always important to review these numbers to assess dilution risk potential, and in this case, it is low.

July 2025

• Completion of Penns Woods Bancorp acquisition, which will add 21 branch locations across North Central and Northeastern Pennsylvania after the consolidation. Northwest will operate 151 financial centers across Pennsylvania, New York, Ohio, and Indiana, with total assets of $16.8 billion. The total equity paid for the merger was $230 million, which was $30 million less than the equity consideration disclosed in the deal signed in December 2024.