To The Moon

$Northwest Bancshares(NWBI)$ , founded in 1896, is a full-service financial institution. They offer business and personal banking products, employee benefits, and wealth management services. 

As of September 30, 2025, Northwest operated 151 full-service financial centers and ten free-standing drive-up facilities in Pennsylvania, New York, Ohio, and Indiana.

The bank has approximately 60% of its total outstanding loans distributed across around 30 property types, resulting in a diverse portfolio that helps it avoid industry concentration issues.

Income Statement 

The bank's EPS (Earnings Per Share) was $0.61 for the year ended September 2025. So far, it has distributed $0.60 in dividends, representing a 98.36% payout ratio. 

Total income 

Noninterest income increased due to better performance in the trust, wealth management, and fee-based services. It's important to note that the 2024 numbers were impacted by securities sold at a loss, which makes the 2025 numbers look much better. 

Net interest income increased due to higher yields (loans and securities earning higher rates) and the higher overall balance on loans and investments.  

Total expenses 

Noninterest expense increased mostly due to one-time costs related to the Penns Wood acquisition (e.g., system conversions, branch integration, legal and professional fees). There was also an increase in compensation and employee benefits (more staff equals a higher base salary). This increase was expected and tends to disappear once the merger is complete. 

Interest expense decreased due to the reduction of wholesale borrowings (funding from Federal Home Loan Bank, brokered deposits, and other institutional banking). The proceeds used to reduce the borrowings came from an investment portfolio restructuring done in 2Q24. This decrease was not enough to offset the increase in noninterest expenses. 

Provision for credit losses 

Increased mainly from loans ($26 million), where $20 million of the increase was from the initial Day 1 provision from the Penns Woods acquisition.  

It's important to note that when a bank acquires another bank, it must record an immediate provision (Day 1) for the expected lifetime losses on the acquired loan portfolio. So, it doesn't necessarily mean that it's a new deterioration in credit quality. 

Besides the Day 1 position, the underlying provision for credit losses still increased, driven by higher net charge-offs (loans written off as uncollectible) and individually assessed loans (specific large loans showing signs of weakness). 

The overall Allowance for Credit Losses (ACL) is currently 1.22% of total loans, which is a slight increase from the previous quarter. The amount of loans increased with the Penn Woods acquisition, so the ACL reserves increased proportionally. 

Balance Sheet   

Year-over-year 

Average Loans Receivable 

Increased by 12% to $12.5 billion due to the Penns Woods acquisition. The increase will positively affect net interest income in the future quarters, assuming loans are performing (borrowers are paying on time). 

An important factor that comes with the higher number of loans receivable is a higher exposure to credit risk, which would cause an increase in the allowance for credit losses.   

Average Deposits 

Increased by 9.9% to $13.2 billion, caused by an increase in interest-bearing account balances (accounts that pay interest), primarily due to the addition of the Penns Woods deposit accounts. 

Deposits are the primary source of funding for the bank's lending and investment activities, so the bank now has more cash it can use to make loans, buy securities, or even pay down other liabilities. 

It is important to note that interest-bearing deposits cost more to the bank since interest is paid on the balances. Therefore, the cost of funds will increase, and the net interest margin could be reduced if the bank is unable to lend the money at higher rates.   

Average Borrowed Funds 

Increased by 57.4% to $374 million due to the acquisition of long-term borrowings from Penns Woods. 

Borrowings are a liability, so it means the bank now owes more money to other lenders. This will increase their interest expense (higher cost of funds) and reduce their net interest margin, unless those borrowed funds are supporting higher-yielding assets or their rates are low. 

Goodwill 

Northwest recorded a total goodwill of $57.4 million as a result of the acquisition of Penns Woods. The direct costs of the merger were $36 million during the 9 months ended September 2025. 

Non-Performing and Delinquent Loans 

The bank saw a sharp increase in classified loans to $527 million (4.07% of total loans) from $320 million (2.83% of total loans) in 3Q24. These are loans that show signs of higher risk, and most of them came from the commercial real estate (CRE) portfolio, indicating a deterioration in credit quality. 

The annualized net charge-offs (loans written off minus recoveries) for the 3Q25 were 0.29% of average loans, and year-to-date are still 0.19% (below the full year guidance). 

The total delinquency is currently sitting at 1.10%, and most of it comes from the consumer book (0.70%). 

The bank also reassured that they have no exposure to Tricolor, First Brands, or Cantor Group, which have been in the news recently for credit stress in certain loans. 

Security Portfolio 

The security portfolio yields continue to increase as cash flow is reinvested at higher yields, increasing by 10bps to 2.82% in 3Q25. It remains a strong source of liquidity (investments can be sold, pledged, or used for borrowing). 

The portfolio WAL (Weighted Average Life) is 4.9 years, which means the cash flow (principal) returns are in about 5 years. This is considered a moderate-duration portfolio. 

The biggest portion of the portfolio is Agency CMO (government-backed) at 65.5%, which is considered very safe (minimal credit risk), and normally, defaults are guaranteed by the agencies. There are still structural risks, though, such as when homeowners refinance or repay mortgages early, especially when interest rates fall. This means that the bank would get cash back right when investment yields are lower/unattractive rates. 

33% of the portfolio is classified as HTM (held-to-maturity), which means that they are not marked to market, so it reduces volatility when interest rates change.

ROE & Efficiency Ratio 

The bank’s return on equity (ROE), which measures how good they are at converting equity financing into profits, was at 6.36% from 5.80% for the nine months ended September of the year before. The efficiency ratio, which measures whether the bank is generating strong revenue compared to its costs, was at 67.99% down from 74.18%. In this case, the lower the better. 

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

2025 Outlook Guidance 

Other Highlights: 

October 9th 

• Northwest has announced the appointment of Ein Siegfrid as Chief Legal Counsel. She previously served as Deputy General Counsel for Huntington National Bank, a position she held for over seven years. Huntington National Bank has a market capitalization of $24.86 billion, while Northwest's market cap stands at $1.80 billion. This comparison highlights her extensive experience in advising large and complex organizations within the banking industry.