Participants

Michael Perry; Managing Director and Investor Relation; Northwest Bancshares Inc

Louis Torchio; President, Chief Executive Officer, Director; Northwest Bancshares Inc

Douglas Schosser; Chief Financial Officer; Northwest Bancshares Inc

Daniel Tamayo; Analyst; Raymond James Financial Inc

Tim Switzer; Analyst; Keefe, Bruyette & Woods Inc

Matthew Breese; Analyst; Stephens Inc

Presentation

Operator

Thank you for standing by. At this time, I would like to welcome everyone to the Northwest Bancshares Inc. first quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and. Session. If you'd like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. I would now like to turn the conference over to Michael Perry, Northwest managing director of corporate Development of strategy and Investor relations. Please go ahead

Michael Perry

Good morning, everyone and thank you operator. Welcome to Northwest Bank Shares first quarter of 2025 earnings call. Joining me today are Louis Torchio, President and CEO of Northwest Bank Shares, Douglas Schosser, our Chief Financial Officer, Sean Morrow, our treasurer, and TK Creel, our Chief Credit Officer. During this call, we will refer to information included in the supplemental first 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 too. Thank you, and now I'll hand it over to Louis.

Louis Torchio

Good morning everyone. Thanks for joining us today to discuss our first quarter results. I'm pleased with our performance in the first quarter of 2025 as we continue to execute our strategy and deliver on our commitment to sustainable, responsible, and profitable growth. Doug will discuss the details of our core financial performance shortly, but I will address some of the highlights on slide 4. Overall, we had a strong start to the year, delivering $156 million of revenue while controlling our overall expenses to deliver net income of $43 million an increase of $14 million or 48% compared to the same quarter last year, and earnings per diluted share of $0.34 compared to $0.23 per diluted share in the first quarter of 2024.
This represents record earnings in a first quarter and one of the best quarters in Northwest's history. We continued our strategic shift towards commercial lending with a 20% increase in average commercial CNI loans in the last year. In addition, our successful focus on deposit gathering, while maintaining near best in class cost of funds provides a quality and stable funding base for the organization. Additionally, we delivered a significant improvement in our net interest margin as well as in our efficiency ratio, and we reduced our exposure to classified loans, further minimizing our balance sheet risk. And as we have for the previous 121 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 May 8, 2025.
Our strong performance this quarter is a result of our continued rigorous focus on execution, cost control, and risk management discipline. We continue to enhance our capabilities, expand our footprint, and provide personalized services and expertise to our customers, companies, and the communities we serve.
Our renewed focus on enhancing our retail banking franchise continues. Additionally, we are making good progress with the Novo branch opportunities throughout our existing footprint, particularly in Columbus and Indianapolis. I look forward to sharing more details in the upcoming months. Regarding acquisitions. In December of last year, we announced a merger with Penz Woods Bank Corp, the parent company of Jersey Shore State Bank and Luzerne Bank. Headquartered in Williamsport, Pennsylvania.
I'm pleased to report that we have now received all required regulatory approvals, and at a special meeting last week, Pence Wood shareholders voted to approve the merger. Integration activities are well underway, and we are working closely together to ensure a seamless transition. The strong cultural fit between our two organizations is evident as forward thinking, employee and customer centric banks, and a rich history focused on community banking. I am pleased to share that we expected to close the merger and convert the bank systems by late July of this year. Upon closing the largest merger in our bank's history, Northwest will be in the top100 banks in the United States by asset size, further enhancing our scale for driving sustainable forward momentum and revenue. This quarter's strong results can be attributed to the talent, hard work, and thought put forth each day by our Northwest team. I want to thank them for their continued dedication to our company's success.
The current operating environment with significant market volatility and uncertainty over the economic outlook may be somewhat challenging. However, we continue to focus on managing the factors within our control, such as serving our core customers and communities, building on strong financial foundations, maintaining prudent cost control and risk management discipline, and being prepared to capitalize on opportunities aligned with our strategy. Now it's my pleasure to introduce Douglas Schosser, our Chief Financial Officer, who will take us through our financial results. Doug.

Douglas Schosser

Thank you, Lou, and good morning, everyone. As indicated, we are pleased with our performance. Now let's begin on page five of our earnings presentation where I'll walk you through the highlights of Northwest's financial results for the first quarter of 2025. We reported net income of $43 million or $0.34 per diluted share, and we expanded our net interest margin by 45 basis points from the prior quarter to 3.87% due to lower cost of funds and increased asset yields inclusive of a 39 basis point interest recovery.
This marks the fourth quarter in a row of improved margin for the company as we continue to manage our loan pricing and deposit costs. Non-interest income decreased by $11.7 million with the majority of the quarter-on-quarter change arising from two fourth quarter transactions, including a $5.9 million dollar gain on the sale of our Visa B shares and a $4.3 million dollar gain on a low-income housing tax credit investment. Overall, we did post 1.2% linked to quarter revenue growth and 19% revenue growth compared to the first quarter of 2024. Our non-interest expense declined 3.8% or $4 million compared with the prior quarter, driven by a reduction in processing expenses and merger-related costs, and continued disciplined expense management. Pre-tax, pre-provision net revenue was $64.5 million which was a 9% improvement from the fourth quarter 24 and a 56% increase from the first quarter 24 based on factors previously mentioned.
Now I will highlight some additional details on our quarterly results. Turning to page six and our loan portfolio, we saw some modest growth in end of period loans excluding loans held for sale of $36 million over the quarter compared to the contraction we've been experiencing. For the quarter, we capitalized on stronger consumer demand for indirect loans to offset a potentially slower start on the commercial side, and that did pay off. We continue to shift our portfolio mix more towards commercial and industrial loans as part of our longer-term strategy. Average commercial loans increased $121 million or 6.2% compared to the fourth quarter. Despite some significant payoffs, these increases were effectively offset by the declines in our CRE portfolio, which was down 3.5%. And our residential mortgage and home equity portfolios, which were down 1.9% and 1.3% respectively.
Loan yields increased quarter on quarter by 44 basis points to 6.0%. Again, benefiting from an interest recovery where we are up 4 basis points on a normalized basis, despite recent Fed cuts as we have been focused on pricing discipline. On to slide seven in the bedrock of our financial strength and stability, namely our deposit base. Deposit balances remain strong, with average total deposits increasing $60 million quarter over quarter. And growing 1.7% or $200 million versus the first quarter of 2024. Consumer non-brokered average deposits increased $68 million quarter over quarter, while brokered deposits decreased $8 million over the same period and the pace of volumes into higher cost CDs continued to slow.
The cost of deposits decreased 9 basis points quarter over quarter. As the impacts of Fed rate cuts flowed through, along with proactive management of the overall portfolio, our current cost of deposit stands at 1.59%, still near best in class relative to our peers.
Moving to slide 8 and our net interest margin. We have already covered our Nim improvement for the quarter in the summary, but I also want to highlight that the yield on our security portfolio has continued to improve as we continue to reinvest cash flows at higher yields than the current portfolio, and we have seen a reduction in our total cost of funds by 12 basis points this quarter. The next two pages provide some additional details on our funding mix and securities portfolio.
Moving on to slide 11, non-interest income, as I mentioned earlier, decreased $11.7 million from the last quarter as it returned to more typical levels following the previous quarter's asset sale gins. Not interest income increase approximately $400,000 compared to a year ago, driven by higher SBA loan sales and improvements in market sensitive revenue streams like trust income, compared to prior year periods.
By 12 details are non-interest expense. In the first quarter we incurred approximately $92 million of expenses, which was up 2% from the first quarter of 2024. About $1.1 million of that increase was merger related. So, excluding that line item, expenses dropped to around $91 million consistent with the expense run rate in the second and third quarters of 2024. Our adjusted efficiency ratio improved to 57.7%, an improvement from the 59.6% in the prior quarter. 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 page 13 you can see our overall coverage ratio is at 1.09%, up slightly from fourth quarter 24, due to growth within the commercial lending portfolio and changes within the macroeconomic forecasts. Our overall coverage is in line with the first through third quarters of 2024, and we believe this is appropriately prudent given the overall level of market concern and general uncertainty over tariffs. Our annualized net charge-offs of 8 basis points for the quarter returned to historic levels after the fourth quarter write downs of loans sold and transferred to held for sale, and we booked an $8.3 million dollar provision expense. As we have previously indicated in our 25 outlooks, we expect the longer term over the cycle level of net charge-offs will be in the range of 25 to 35 basis points.
Turning to page 14, our credit risk metrics remained stable and well within historic levels. As previously reported, we took several de-risking actions in the fourth quarter, including the sale and transfer of certain loans from our books. We saw improvement in both non-performing loans and non-performing assets at 53 basis points and 52 basis points of loans and assets respectively, both at five quarter lows. The 30 days plus delinquency increased 10 basis points in the quarter. And is attributed to one commercial real estate loan that had previously been identified as classified and on non-accrual. The increase of 5 basis points in classified loans over the prior quarter was primarily driven by a few small commercial CRE and business banking loans. Flights 15 and 16 highlight our commercial loan distribution, showcasing a diverse portfolio and some detail on our CRE concentration, including our healthcare sector focus. In short, our diverse portfolio and strong underwriting has helped us avoid many industries theory specific issues, and we have minimal exposure to large metro office or rent control markets. We have no significant maturity or interest rate rollover risk.
I'd like to now review our 2025 outlook which we shared earlier in the year and which can be found on slide 17. As a reminder, our outlook excludes any impact from the previously announced Pinewood’s acquisition. As Liu mentioned, the operating environment is one of significant market volatility, and there is uncertainty over the economic outlook for the remainder of the year. At this time, we are not modifying the outlook we provided on last quarter's call, and we will continue to monitor economic trends and how they impact our firm. I would say we can expect our margin to perform at or somewhat above the high end of our range, assuming one to three Fed cuts occur in the back half of the year.
Our fee income will likely be at the lower end of the range. We may not fully achieve that level. Loan growth will also be dependent on the broader economic environment, which is again unpredictable. We'll focus on controlling expenses in light of the uncertainty. I will now turn the call over to the operator who will open the lines and facilitate the live Q&A session.

Question and Answer Session

Operator

Thank you. [operator instruction].
Our first question comes from the line of Daniel Tamayo from Raymond James, sir, please go ahead.

Daniel Tamayo

Thanks. Good morning, guys. Maybe starting just kind of drilling into the margin guidance a little bit, Doug. I was about to ask you about the conservative nature perhaps of the keeping the guide, and then you made the comment right at the end about at or above the range. So just curious kind of How you're thinking about that going forward I mean like kind of near term relative to the end of the year you've got the 1 to 3 cuts in there. I'm sorry, I think you sorry, if you could just clarify the number of cuts that you've got in there and then just thoughts on how you how that margin, the core margin may trend and if you've if you've got any updated thoughts on what the acquisition may do to the margin as well, that'd be great.

Douglas Schosser

Yes, thanks for the question, Danny Danielle. So, I think we closed the quarrion kind of on a core margin of 348. I think that it is safe too soon we'll kind of be at the high end of the range. We're leaving a little bit of room because the overall pricing is pretty aggressive right now. So to the extent that we want to continue to work through loan growth, that may deteriorate the margins slightly, but I wouldn't anticipate it to be material. There's also still some opportunity on the deposit portfolio as it relates to future rate cuts. We do have one to two rate cuts in our guidance. Again, if we end up with three rate cuts, assuming the last rate cut comes very late in the year, it's really not going to change our margin outlook at all. And we'll update, we'll provide more guidance as it relates to Pinewoods and the impact of the acquisition in the 2nd quarter after that deal will be closed and we'll have much better thoughts around where the loan marks came in as well as the purchase price. So, there wasn't a lot of reason to update the guidance given the fact that it really is only good for another quarter anyway and that the performance right now kind of was where it was.

Daniel Tamayo

Okay and then I guess just looking at the deposits, so kind of similar question related to the margin, but you had good really pretty strong money market growth in the quarter, curious the driver there, the overall average rates are still very low at 181 in the quarter. Just curious what you were bringing those on in in the first quarter and. You know where you're expecting to drive deposit growth going forward.

Douglas Schosser

Yes, so, well, we continue to have a lot of CDs that are coming due and then we have, we are trying to get those into more liquid pricing or more liquid products going forward. So you are seeing some of that transition from CDs in the money markets. I believe the CDs went on at 3.75% on average across the franchise, so that's the strategy we have seen really consistent, strong, stable deposit. And slight growth throughout our footprint, and we'll continue to augment that with our de novo strategy. We are opening a new branch this year in Fishers, Indiana. That'll be our first branch opening in like six years. So, I think there's a number of factors that are leading to that confidence and deposit growth, as well as the slowdown in the economy happens, you'll tend to see consumers hold deposits a bit longer anyway.

Daniel Tamayo

Okay, and it's safe to assume the new money market I mean money market rates going up basically but just moving out of CDs. I'm assuming those are in the three somewhere.

Douglas Schosser

CDs would be in would be higher than that. They'd be in the fours because they would have all gone on last year before the rate cuts came through and they're all relatively short, so it would be an improvement if they ended up in money market in terms of overall deposits.

Daniel Tamayo

I, yeah, just on the money market rates, the new money market rates.

Douglas Schosser

Yes, new money market rates are around 375.

Daniel Tamayo

Oh, got it. Okay, I understand. Okay, all right, thanks for taking my questions.

Douglas Schosser

Thank you.

Operator

Thank you. Our next question comes from the line of Tim Switzer from KBW. Please go ahead.

Tim Switzer

Hey, good morning. Thank you for taking my questions. Hope you guys are doing well. Congratulations on getting the approvals for Pins Woods, are you guys able to provide any kind of guidelines on maybe the changes to tangible book value delusion and the expected purchase accounting accretion due to the change in rate since you guys have announced the deal.

Douglas Schosser

No, not specific. Generally speaking, rates have gone down, so that will tend to benefit us in terms of the marks that go on the portfolio, and the overall our stock price has been lower across the performance horizon, so we have a fixed exchange ratio, so that would yield. A lower purchase price, but again, both are volatile and variable, so we're not going to provide incremental guidance because we have to constantly update it because of that. So right now we would be in a better position relative to the originally announced metrics, but you know there is time between now and when we actually close the deal.

Tim Switzer

I got you. I understand. And are you able to provide a bit of an update on the credit trends you guys are seeing, particularly with a lot of the disruption from the tariffs and macro uncertainty, are there any industries particularly impacted by tariffs that you guys feel that you're exposed to and I'll have the conversations with those customers been?

Douglas Schosser

Yes, I mean, it's still pretty early and there hasn't been a lot of impact that I think has rolled through even the broader economy or us specifically. We have looked at the exposure and I think we would look at industries like manufacturing, transportation and warehousing and hospitality being potentially the most impacted from these current actions. The aggregate exposure to those industries is close to 8% of the loan portfolio, so not massive at this point, but certainly something that we're looking at.

Tim Switzer

Okay, I got it and last question for me, are you guys able to provide an update on the commercial loan build out you guys have been working on and any specific categories where you guys have, more recently been, taking chairing.

Douglas Schosser

I think we continue to take share in the newer verticals that we put on, so think about sports finance, franchise finance, etc. The overall mix of commercial businesses, it's the same 6 verticals or so that we had before. So again, we are able to pick some of that up just because those. Employees have been on now closer to a year. They've had more time to transition and they have more time to work their books again, we are part of this overall broader economic slowdown. It's anybody's guess where those volumes continue to go, but we are lucky in that we were building some of those into the softness, so there's a little bit of embedded growth through that.

Tim Switzer

Got it, thank you for all the colours.

Operator

Thank you. My next question comes from the line of [Manuel Nava.] Please go ahead.

This is, Sharon G on for the all. Good morning.

Douglas Schosser

Good morning.

Going, talking about the commercial book a little bit more, what do you pipelines look like right now?

Douglas Schosser

Again, we haven't seen a ton of slowdown just yet. It's still pretty early, and we do have some incremental pipeline growth again because we have the newer verticals out there. So the pipelines right now relative to the first quarter a year ago would show that they're a little bit stronger, but I still also think some of the tariff effects will continue to roll through the pipeline. So right, cautiously optimistic on our own pipelines is how I would phrase it.

Great, thank you. And then, one more question on credit. So, charge off right basis points. Thanks for the guidance, but could you give us updates on like your provision slash credit expectations going forward?

Douglas Schosser

Again, there's so much economic volatility, it's very hard to predict where those levels would be, we'll continue to operate under the current Cecil methodologies as everyone will, and we'll have to wait to see where the macroeconomic trends end at the end of the quarter.

Great, thank you.

Operator

Thank you. Our next question comes from the line of Matthew Breese from Stevens Inc. Please go ahead.

Matthew Breese

Hey, good morning. I was hoping you could talk a little bit about the competitive landscape. Where are you seeing the most spread compression, and then I would love to hear a bit about roll on versus roll off fields, across your lending category, where are you getting the most pick up? Thanks.

Douglas Schosser

Yes, so I don't know that I have a lot of colour to offer on the competitive, environment only because again we're not in many markets that other larger peers would be. So, I kind of refer you back to where they said, new commercial loan yields are coming on at 7.26% and they're rolling off at around 6.76%. I know that's part of your answer, so there's definitely a decent increase in rates there. But again, from as far as competitive intensity goes, I mean, it's still very competitive out there. You know as well as I do. Everybody was predicting asset growth, so that asset growth does become harder to come by, especially when things slow down, but no specific guidance there.

Louis Torchio

I might add for you though that really we're looking at being very disciplined in the credits we're looking at and the pricing that we want to maintain. So I just think naturally that might constrict and that's why our guidance hasn't really changed on the commercial side, notwithstanding, our pipelines are a little stronger than expected, and I think as Doug mentioned, what the pipelines are and what the pool through rates are might be different 60, 90 days from now. So, we, we're cautiously optimistic there.

Matthew Breese

Yeah, just to follow up on that last comment, if the pull through isn't as strong, one of the things we saw this quarter was consumer loan growth was a bit stronger than we've seen in a while. Is that a lever you might pull and as we think about the composition of growth this year, so we anticipate a bit more consumer growth.

Louis Torchio

Potentially, I mean, we're balancing that with what we think that, the future environment's going to be from a credit quality standpoint. We do have that lever and indirect. We currently are out with a home equity campaign pretty significantly throughout the franchise, but if we see that. The consumer credit starts to weaken, we can always pull that back. So obviously we're balancing growth and risk and yield, and so we're pretty active around that. And one of the benefits of the organization as we've constructed it in the last few years is we are very diversified and we do have a lot of levers, so there's constantly conversation around the strategy and how we go to market.

Matthew Breese

Got it. That's all I had. I appreciate you taking my questions. Thank you.

Louis Torchio

Thank you.

Operator

Our last question comes from the line of Brian [F ]from Piper Sandler. Please go ahead.

Morning. Just, on the, obviously, you already talked about Nim and, for the same token, the NII guide seems obviously quite conservative here at this point. I know Pinewood’s is going to change that anyway in the back half of the year, but Just trying to think through in terms of, you mentioned pipelines a little stronger here, that 2% to 3% loan growth assumption is that always kind of been, back loaded, is that still kind of the way to think about it, and is that always the assumption here, in terms of long growth for the year?

Douglas Schosser

I wouldn't say it was necessarily backloaded. I do think the way the economy started, it was definitely a slower start for commercial because there was a lot of uncertainty there, so we did lean a little bit more heavily to consumer as was discussed earlier. Also, just the way the rate curves going to play out. Lower duration consumer assets that are priced at the high at higher rates today than they would be in the third or fourth quarter seems to make some sense to manage the margins. So, for all those reasons you saw us pivot and lean a little bit more heavily into the available consumer loan volume, and then, towards the back half of the year. If things settle down with tariffs and you get a little bit more certainty out there and commercial customers are going to start borrowing, we would hope to take advantage of that as perhaps the consumer, if there was a pull through of consumer demand up front, obviously that lever would sort of slow down for us and everybody. So, we're just trying to be very active in the environment that that presents itself.

Okay, and then, now is probably not going to be the time you start doing it, but, just curious for modelling purposes, if in the past, have you, did you provide any sort of guidance on how the Pinewood’s acquisition would impact men going forward?

Douglas Schosser

No, if you go back to what we had originally published, I don't think we've provided specific guidance there. Again, it's so volatile with rates. It's very difficult to put guidance out there until we get closer to the closing. So again, with an anticipated close later in July when we come to this call in July, we should be able to provide much more clarity around Pinewood’s and its impact.

Great. Okay. And then that's fair. And then just on M&A in general, obviously you've got the one that's still closed, but seems like, at this point, seem pretty confident, makes sense, given you've gotten, approvals and so forth to close this thing. Just trying to think through, how open you are to additional fields. You mentioned this is a larger acquisition, and the rate picture has been very volatile, which makes obviously to your point, marks difficult, on an even day to day basis to calculate, but we've seen some banks come back and do deal after deal and just curious how open you guys could be to additional M&A in the back half of this year. Is that something probably far out at this point?

Louis Torchio

Yes, hi, this is Lou. I, in the current environment, I think it's, sort of very tepid, right, given what's going on with stock prices and the volatility. But certainly, as we've sort of communicated to you before, we have a dual strategy in the interim until the M&A market really becomes more active again.
We'll be focused internally on our discipline, on efficiency, on execution, on growing the commercial verticals, so we've got plenty to do. Having said that, I'm still engaged in conversations with other CEOs and taking meetings, and we will look for transactions in the future that are highly accretive. To our revenue arc, our earnings per share, and add value to the firm for us for our shareholders. So, I think, from my perspective, the strategy is still in place, but certainly in this environment there's a law.

Okay, I Appreciate it thanks guys.

Louis Torchio

Thank you.

Operator

Thank you. This concludes our question-and-answer session. I would like to turn the call back to Mr. Louis for closing remarks.

Louis 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 tight cost controls and risk management discipline, we are ready and well prepared to capitalize on opportunities for driving sustainable, responsible growth when and where they arise in the coming months. I look forward to updating all of you on our progress on our second quarter earnings call later this year.