Northwest Bancshares, Inc. (NWBI) Earnings

Management highlights

### One-Year Penns Woods Acquisition Milestone - The acquisition closed one year prior to this call, and management achieved full tangible book value earn-back on a static basis within 12 months, significantly ahead of original expectations. - Full earn-back on a crossover basis is expected by the end of 2026. - Tangible book value per share is now $9.88, up from $9.85 before the acquisition announcement. ### Core Financial Milestones - Achieved four consecutive quarters of improvement in net interest margin (NIM) and adjusted efficiency ratio, marking consistent operational progress. - Q2 2026 delivered record net income of $54 million, representing 59% year-over-year net income growth. - Diluted GAAP earnings per share (EPS) of $0.36, and adjusted EPS of $0.37, both $0.02 higher quarter-over-quarter, representing a record excluding the 2021 insurance business divestiture gain. - Return metrics: ROAA of 1.27%, adjusted ROAA of 1.28%, ROTCE of 14.9%, adjusted ROTCE of 15.03%, all driven by record net income. ### Strategic Growth Initiatives - Opening the first of four planned new De Novo Financial Centers in Columbus in 2026 (one delayed to February 2027 due to permitting issues), with additional expansion planned for 2027, to capture growth in the bank's headquarters market. - Nationwide commercial verticals are growing in a disciplined manner, led by experienced industry leadership, and now contribute 27% of the total commercial lending portfolio, up from lower levels one year prior. - Growing SBA lending both locally and nationally, after ranking among the top 50 SBA originators in the U.S. by volume in 2025, with several key experienced new hires added in 2026 to further growth. - Recently hired a new chief information officer and three new consumer bank leadership roles to strengthen customer engagement across digital platforms and product lines. - The bank has paid a cash dividend for 127 consecutive quarters, with a current quarterly dividend of 20 cents per share, returning over half of Q2 2026 profits to shareholders. ### Balance Sheet and Operational Strength - The deposit franchise remains a core strength, with the bank achieving four consecutive quarters of declining deposit costs, a top-tier performance among peer banks. Cost of deposits declined 5 basis points to 1.43% in Q2 2026. - Non-interest income grew $1.6 million quarter-over-quarter, driven primarily by growth in wealth management and trust/financial services income, with a 10.6% year-over-year increase in total non-interest income. - Adjusted efficiency ratio improved 158 basis points quarter-over-quarter to 56.2%, marking four consecutive quarters of improvement, with 330 basis points of positive operating leverage quarter-over-quarter driven by tight expense discipline. - ACL coverage remained stable at 1.13% of total loans, down just 2 basis points quarter-over-quarter. Annualized net charge-offs were 15 basis points in Q2, below the low end of full-year guidance.

Guidance

- Full-year 2026 guidance for total loan and deposit growth remains unchanged, with low single-digit deposit growth targeted. - Net interest margin (NIM) is expected to land in the 373 to 375 basis points range, assuming the Fed funds rate remains unchanged; this is a modest upward revision from prior market expectations of 371 to 372 basis points. - Full-year total revenue is expected to land in the middle of the bank's previously stated range, balancing higher-than-expected NIM and non-interest income with upward pressure on expenses. - Non-interest income is expected to land at the high end of the previously stated range, driven by strength in wealth management and SBA lending fee income. - Non-interest expense is expected to land in the middle of the previously stated range, with a second-half annualized run rate of approximately 107 to 109 million, driven by planned investments in Columbus branch expansion and growth initiatives; the bank still expects to deliver full-year positive operating leverage year-over-year and a reduced full-year efficiency ratio. - Net charge-offs are expected to land in the low to middle of the previously stated range, based on current economic conditions. - The full-year effective tax rate is expected to drift up to 24%, driven by higher-than-expected earnings performance. - The bank remains on track to hit the full tangible book value earn-back for the Penns Woods acquisition on a crossover basis by the end of 2026.

Segment performance

This earnings call does not break out financial performance across distinct product segments with separate absolute revenue figures or revenue contribution percentages. The only portfolio-level breakdown provided is within commercial lending: nationwide business verticals now represent 27% of the total commercial lending portfolio, with the remaining 73% held by in-market regional and middle market commercial lending. Key aggregate loan segment performance is as follows: - Average C&I (commercial and industrial) loans: increased $148 million quarter-over-quarter (5.6% QoQ growth), and $678 million year-over-year (32.2% YoY growth), with 148 million in average C&I loan growth in Q2 2026. - Period-end total loans: increased $174 million quarter-over-quarter to $13.2 billion; legacy residential mortgage and commercial real estate (CRE) portfolios continue to experience runoff, offsetting organic growth in commercial and consumer loan segments. - Overall average total deposits: grew $87 million quarter-over-quarter, with an average deposit balance of $19,800 across over 716,000 total customer accounts, and an average customer deposit tenure of more than 12.5 years.

Risks & headwinds

- Increased classified loan balances in Q2 2026, driven partially by migration of acquired Penns Woods loans to the bank's stricter credit administration standards, and downgrades in the healthcare (nursing home) loan book. Management expects to work down classified balances over time and does not project materially higher overall charge-offs from this increase. - Elevated runoff continues in the legacy commercial real estate (CRE) portfolio, offsetting new CRE loan production in Q2 2026. The bank is retooling its CRE go-to-market strategy to mitigate future runoff and expects the CRE portfolio to be largely flat with a small decline by the end of 2026. - Persistent strong competition in both loan and deposit markets, which creates pressure on loan yields and deposit pricing, limiting potential further NIM expansion. - Expanding into the new Columbus de novo branch market requires attracting new customers at slightly higher deposit rates than the existing legacy deposit base, creating modest upward pressure on overall funding costs. - The bank's outstanding sub-debt will lose an additional 20% of its regulatory capital treatment in September 2026, following a 20% haircut in September 2025. The bank plans to extinguish the sub-debt to address this, but the capital treatment change creates near-term regulatory capital complexity. - Future reserve levels are dependent on forward-looking economic projections, which are highly uncertain and could require unexpected reserve build if economic conditions weaken.

Analyst Q&A

• Q: Daniel Tamayo (Raymond James) asked for clarification on Q2 spot deposit balance declines, deposit growth expectations for the second half of 2026, and the bank's comfort level with a rising loan-to-deposit ratio and any resulting impact on deposit pricing. /

  A: Doug Schosser explained that spot end-of-quarter balances are volatile, while average deposits (the bank's core metric) grew $87 million (0.6% QoQ). Excluding an intentional intentional reduction in brokered CDs (replaced with lower-cost FHLB funding), customer deposits were actually up $19 million from the prior quarter. He confirmed the low single-digit full-year deposit growth guidance remains in place, and new Columbus branch openings will drive additional customer deposit growth in the second half.

• Q: Jeff Brulis (DA Davidson) asked why NIM guidance flattens at 373-375 bps despite recent improvements from stable loan yields, falling deposit costs, and rising securities yields. /

  A: Schosser noted the bank is being realistic about ongoing competitive pressure for both loans and deposits. New Columbus branches attract new customers at slightly higher rates than the existing legacy deposit base, which offsets incremental NIM gains from higher-yielding new securities and falling legacy deposit costs. The sub-debt restructuring will add ~2 bps to NIM, supporting the guidance range, which is actually above prior market expectations. He confirmed securities yields will continue to incrementally rise as low-yielding older securities runoff and are replaced with higher-yielding new purchases.

• Q: Brian Ferron (Truist) asked for an update on the growth and performance of the bank's national specialty C&I verticals, and if they are also attracting deposit relationships. /

  A: Schosser confirmed the verticals are on track and now represent 27% of the total C&I portfolio, up from prior levels, with most of Q2 2026's $148 million C&I loan growth coming from these verticals. Lou Torchio added that growth remains disciplined and measured, with experienced leadership, strong underwriting and portfolio management, and pipeline activity for Q3 is slightly higher than Q2. Most verticals (excluding commercial finance) generate full relationship growth, including new deposit inflows alongside new loan production.

• Q: Manuel Navas (Piper Sandler) asked about capital deployment priorities after the planned sub-debt restructuring, and where M&A fits into the bank's strategy after the faster-than-expected Penns Woods earn-back. /

  A: Schosser said the bank's capital priorities are unchanged: first support organic growth, then maintain the dividend, then evaluate M&A and share repurchases based on market conditions. Torchio added management is open to strategic, geographically fitting M&A opportunities that are highly accretive to shareholder value, but the bank is currently focused on delivering on its post-Penns Woods commitment to optimize organic performance, deliver positive operating leverage, and drive core earnings growth. Management updated its M&A playbook with lessons from the Penns Woods transaction, including a focus on cultural fit, disciplined pricing, and preserving customer value during integration.

• Q: Brian Ferron (Truist) asked why full-year net charge-off guidance is guided to low-to-middle of the range, with an expected step-up in second half charge-offs from the very low Q2 level. /

  A: Schosser explained the expected step-up is mostly reversion to the mean, as the sustained very low Q2 charge-off level is not sustainable long-term. It also reflects a small amount of line-of-sight on expected resolutions of existing classified and non-performing assets, and general conservatism. Management does not expect charge-offs to hit the top end of the original guidance range, so low-to-middle is the most reasonable expectation at this time.