Northwest Bancshares, Inc 2026 Q3 Earnings Call

Good morning, everyone, and thank you, operator. Welcome to Northwest Bancshares' third quarter 2026 earnings call. Joining me today are Lou Torchio, President and CEO of Northwest Bancshares, Doug Schosser, our Chief Financial Officer, and TK Creal, our Chief Credit Officer. During this call, we will refer to information included in the supplemental third 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. Now I'll hand it over to Lou.

Good morning, everyone. Thank you for joining us today to discuss our third quarter 2026 results. I'll let Doug take you through the details of our third quarter performance in a moment. First, I'd like to reflect on several important milestones, including record revenue and record net interest income, and how they have contributed to our achievements and momentum in the third quarter, positioning us well for continued growth for the remainder of 2026 and into next year. We recently held the official grand opening of our second financial center in Columbus, and we expect our third and fourth financial centers to open by the end of the year. We also plan to add a fifth in this market by the first quarter of 2027. Our new financial centers bring to life the hospitality and personal advice-led approach that Urich and his team have embedded across the consumer bank.

The most recent opening is next to the Ohio State University's Columbus campus, and the design incorporated feedback from students on what is most important to them in a bank relationship. In addition, we recently announced a multi-year sponsorship agreement with the Columbus Crew MLS team. We appreciate our relationship with the Crew that we have developed through our sports vertical and our Ohio-based middle-market teams. We continue to be excited about the growth opportunities that this relationship will bring to our headquarters market. Now turning to slide 4, you can see some of the financial highlights of the third quarter 2026. We delivered $185 million in revenue and $149 million in net interest income for the third quarter, both records in the company's history, each resulting in more than 9% year-over-year growth.

Also, we delivered another strong quarter with diluted earnings per share of $0.34 on a GAAP basis and $0.35 on an adjusted basis. We continue to drive strong momentum in our C&I business with $201 million of average C&I loan growth in the third quarter, representing 31% year-over-year growth. As we've highlighted previously, we continue to grow our nationwide business verticals in a very disciplined manner and are pleased with the performance of these verticals, which are led by experienced and highly networked industry leaders. Collectively, they now represent approximately 30% of our commercial lending portfolio. In addition, we continue to focus on investing in and growing our in-market, regional, and middle-market commercial banking businesses. We achieved these results while continuing to invest in talent, technology, and new financial centers to support our future growth.

None of these results would be possible without the hard work and dedication of our 2,200 associates. I am very pleased with our results, and I am proud of the team for their continued commitment to driving strong core performance across the bank. In the third 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 128th consecutive quarter in which the company has paid a cash dividend. As we look ahead for the rest of 2026, we continue to focus on organic growth initiatives, further optimizing our operations, and driving improved financial performance, expanding our financial center network, and serving our core customers and communities. With that, I will turn it over to Doug to review our third quarter results in more detail.

Doug? Thank you, Lou, and good morning, everyone.

As Lou indicated, we are very pleased with our strong financial performance in the third quarter. Let us continue on slide 5 of the earnings presentation, where I will walk you through the highlights of Northwest's financial results for the third quarter. Our GAAP EPS for the quarter was $0.34 per share, and on an adjusted basis, our EPS was $0.35 per share, a slight decline from the prior quarter of $0.02 per share on both a GAAP basis and an adjusted basis. Total revenues were $185 million for the third quarter, which represented a 2% increase quarter-over-quarter and a 9.9% increase year-over-year. While our GAAP efficiency ratio was 58.9%, our adjusted efficiency ratio was 57.8% for the third quarter, and although higher than last quarter, it did represent 184 basis point improvement year-over-year.

Our record revenue in the third quarter of 2026 drove solid returns, with a return on average assets of 1.18% and an ROTCE of 13.9% on both a GAAP and adjusted basis. Our pre-tax, pre-provision net revenue in the third quarter of 2026 was $76 million, down 1.5% quarter-over-quarter, but represented a 15.5% increase year-over-year on an adjusted basis. Turning to slide 6, we achieved our fourth consecutive quarter of period-end loan growth, with period-end loans increasing by $164 million to $13.3 billion, representing a 5% annualized growth rate while our average loans grew $208 million quarter-over-quarter. Our C&I loan growth continued with strong performance in many of our national verticals and in our other commercial loan portfolios. Average C&I loans increased $201 million, or 7.2% quarter-over-quarter, and $702 million or 30.8% year-over-year.

Our recent CRE loan production levels have been strong but continue to be offset by elevated levels of runoff in the CRE portfolio. Our loan yield was relatively stable, decreasing by two basis points to 5.59% in the third quarter. Our overall interest rate sensitivity position continues to remain slightly asset sensitive, with continued growth in floating rate commercial loans. We expect to see a fourth quarter benefit from the latest rate hike, and our outlook is for at least one more rate hike later in this year or early in 2027. Moving to slide 7 and our deposit balances. Our period end deposit balances grew by $113 million in the third quarter, representing an annualized growth rate of 3.2%, and our average total deposits grew by $6 million quarter-over-quarter, partially benefiting from growth in money market and demand accounts.

We grew primary deposit relationships on a net basis in the third quarter, resulting from improved digital marketing and account opening, employee enablement programs, and our Columbus expansion. For the third quarter, our cost of deposits remained relatively stable, up 1 basis point to 1.44%, a product of our proactive management of the overall portfolio. 37% of the CD portfolio matured in the third quarter 2026, a weighted average rate of 310 basis points, with new volume coming on at a weighted average rate of 297 basis points. Our granular, diversified deposit book has an average balance of $19,900, with customer deposits consisting of over 715,000 accounts, with an average tenure of more than 12 and a half years.

On slide 8, we show our net interest margin performance, with NIM decreasing 5 basis points to 370 basis points in the third quarter of 2026, resulting from an increase in borrowings with a 4 basis point negative impact and a 2 basis point negative impact from a decline in purchase accounting accretion. Although we redeemed our sub-debt in the third quarter, which has a positive net impact on borrowing costs, this action occurred late in the third quarter, so our results do not reflect a full quarter impact of that benefit, which we estimate to be 2 basis points. Turning to our securities portfolio on slide 9, our portfolio yield continues to increase as new security purchases came on at higher yields than the runoff portfolio, resulting in a yield increase of 7 basis points to 3.34% in the quarter.

Turning to slide 10, our non-interest income increased $1.7 million quarter-over-quarter and $3.7 million, or 11.6% year-over-year, driven by growth in service charges and fees and growth in our wealth management business, resulting in an increase in trust and other financial services income. Our investment in building out the wealth management business has resulted in a 25.7% growth in trust in other financial services income over the last year. Regarding non-interest expense, as detailed on slide 11, we continue to focus on expense management with adjusted efficiency ratio at 57.8% in the third quarter of 2026, representing 184 basis point improvement year-over-year.

Overall expenses, excluding merger and restructuring expenses, increased quarter-over-quarter, impacted by an increase in non-personnel expenses of $4 million due to an increase of $3 million in FDIC insurance premiums, as the second quarter of 2026 included a benefit related to the prior period assessment rate changes. We have maintained our focus on managing personnel expenses, with compensation and benefits increasing 72 basis points quarter-over-quarter and only 1.5% over the last year. On slide 12, you'll see our overall ACL was stable at $149.6 million, and our coverage ratio declined 1 basis point to 1.12% in the third quarter of 2026. Our quarterly annualized net charge-offs of 15 basis points were below the low end of our full year guidance again this quarter. Turning to credit quality on slide 13, our credit risk metrics remain within internal expectations.

Our total delinquency remained relatively stable, increasing 1 basis point from 86 to 87 basis points quarter-over-quarter. Our 90-day-plus delinquency declined from 49 basis points to 36 basis points quarter-over-quarter, while NPAs increased to 76 basis points of average loans in the third quarter. Taking a deeper dive into the breakdown of our credit quality on slide 14, in third quarter 2026, we experienced a decrease in classified loans as a percentage of total loans and on an absolute basis, which was attributable partially to payoffs and upgrades in the portfolio. As we've discussed on previous calls, our strategy with respect to classified loans is to continue to work them down over time. Finally, on slide 15, we'd like to provide an update to our outlook for 2026. Specifically, for loan and deposit growth, our outlook remains unchanged.