Morning, everyone. My name is Danny Tamayo. I'm the Research Analyst that covers our next company, Northwest Bancshares. It's a $17 billion asset bank based in Columbus, Ohio. Northwest's headquarters is in Ohio, most of the bank's operations are in Pennsylvania, Western New York, and Indiana. It completed the acquisition of Penns Woods Bancorp last year, which added $2 billion in assets and increased its penetration in Central and Northeast Pennsylvania. With us from Northwest today are President and CEO, Lou Torchio; CFO, Doug Schosser; and Head of Corporate Development and Strategy, Michael Perry. We're gonna start with a short presentation from management and then move into a fireside chat. First, thanks to Lou, Doug, and Michael for being here today. Lou, the floor is yours.
Thank you, Danny, and good morning, everyone. Thank you for joining us this morning to hear the Northwest transformation story. We're excited about the opportunity to share what we've been up to for the last three and a half years at Northwest Bank. For those not familiar with the bank, we're a $17 billion bank, as Danny has said, headquartered in Columbus, Ohio. We operate the primary franchise in four states, New York, Pennsylvania, Ohio, and Indiana. As well, we operate six national commercial verticals. I want to share a few highlights from the 2025 year in which was quite transformational for Northwest Bank. We closed on our largest acquisition to date with the organization. We achieved record revenues of $655 million.
We drove strong year-over-year commercial C&I growth of 26%, all while continuing to expand the bank's net interest margin. We drove double-digit EPS growth. It was quite a record year for the organization and is and demonstrates the transformation that we've been going through for the last three and a half years since I became CEO. Since taking over the role in 2026, we've made meaningful changes to the executive group. In fact, we've recruited some of the highest potential regional bank executives that have joined us at Northwest to lead the transformation with a high degree of experience and acumen. As you can see here by these results, a few key highlights. We grew revenue by 23%, outperforming our peers.
Our net interest margin improved by 16%, and our expense focus drove our efficiency ratio down to a near all-time low of 59%. We achieved adjusted EPS growth of almost 17%, significantly outperforming our peers. We've improved both the ROA and the ROE in the organization. In the last three years, we've closed the gap in almost every meaningful financial metric to our peers. We are truly driving to be a best-in-class regional bank. I'm enthused about what we did in 2025, and I look forward to 2026. As our jump-off point post-acquisition, as Danny pointed out, is quite significant. We really like the position we're in, the earnings that we can drive in 2026.
The acquisition is on schedule, and we believe it's gonna be meaningfully accretive to our shareholders. With that, I'd like to turn the presentation over to Doug. He's gonna fill in some other key financial metrics. Doug, would you like to come up?
Thanks, Lou. Appreciate the intro, Danny. I'm just gonna go back really quickly. Slide two covers our forward-looking statements and other related disclosures that we're making today. I just wanted to cover that for my compliance friends. Okay. I plan to share some additional details today about our ongoing transformation taking place across the bank, specifically focusing on our consumer and our commercial businesses. As Lou mentioned, our branch coverage area includes the states of Pennsylvania, New York, Ohio, and Indiana. The map on this page shows counties shaded in green within our existing branch footprint before the acquisitions of Penns Woods. The orange-shaded counties are those that we entered into with our bank acquisition last year, which added a net 20 financial centers and helped connect our East and Central Pennsylvania markets. Northwest Bancshares, Inc.
Is headquartered in Columbus, Ohio, which as you may know, is a large, high-growth Midwestern market with very strong demographics, where we currently have no operating financial centers. We also have existing financial centers and opportunities to drive growth in another high-performing new Midwestern market in the Indianapolis MSA and surrounding counties. 2025 marked a transition within our consumer business that will be focused on driving growth rather than simply managing costs. Last year, we opened our first new branch in 6 years in the Indianapolis MSA in Fishers, Indiana. We now have a complementary de novo branch strategy to build out our consumer business and support our commercial growth in other markets. Specifically, the counties shaded in blue are areas that we're targeting for organic de novo branch opportunities.
We've broken ground on our first Columbus, Ohio financial center. We expect to open this summer, and we have three additional branches planned by the end of 2026. On slides six and seven, we're providing some additional details about our commercial business, which is focused on both targeted national business coverage and in-footprint coverage surrounding our retail branch network. Our in-market commercial businesses cover CRE, middle market, and regional commercial relationships, while our national commercial coverage includes our five new verticals and legacy corporate finance. Our five new verticals were all started since 2023 and achieved strong growth as they've matured over the last few years. As of year-end 2025, we had $1.3 billion in loans in these five verticals.
I want to point out we were very intentional and prescriptive on how we built these businesses by building the back office with proper policies and procedures for the nuances of the sector. We've hired industry experts to join our team across different roles in the back office, underwriting, portfolio management, and operations from the beginning, and we've prudently managed the growth. Today, these five verticals represent about 21% of our commercial loan businesses or commercial loan balances. Our legacy commercial business has $3.7 billion in loans as of year-end 2025. Another important note is we also offer small business banking products which are managed as part of our consumer businesses and are not included in these balances.
Slide seven, we've provided some additional details about each of the five new verticals, including the end-of-year balances and RM and sales FT that we have in each vertical. We have additional credit administration FTs focused on each new vertical that have not been included in the headcount numbers on this slide. I want to highlight a few points. SBA, we have a complementary in-market business along with a national vertical that we launched in 2023. We've grown that business to be a top 50 originator by volume. Equipment finance is our largest vertical by loan balances and is a lending vertical, not a leasing business. Franchise finance. In this vertical, we're lending to franchise owners with size and scale. Customers have over 10 units and exist primarily in the QSR or quick service restaurant sector. Sponsor finance.
In this business, we provide financing for private equity funds on specific deals which they where they're acquiring a business for their portfolio. Finally, sports finance. In this vertical, we lend to professional sports teams and leagues in the NFL, NHL, and MLS, for example. We also focus on other businesses in the broader sports arena. All five of these new verticals are contributing to our overall loan growth and all contribute to C&I asset classes as we diversify away from the real estate-backed loan. On slide eight, we've provided some additional market statistics for our bank. As Lou mentioned, we're excited about the ongoing transformation of our bank and opportunities in 2026 as we build out our consumer franchise in Columbus, we deepen relationships in our core markets, and we continue to build market share in our commercial line of businesses.
Danny, we look forward to answering your questions and anybody in the room. Thank you.
All right. Thank you, Lou and Doug. If anyone has questions, please feel free to just jump in. I'll just start us off and keep rolling. You know, on the loan growth side, we'll start there. You talked about it in the presentation, the investments you've been making into the verticals, you know, and the de novo branches in Indy and in Columbus. You guided to low- to mid-single digit loan growth this year. You know, talk about maybe where you're hoping to get to from a run rate loan growth perspective and, you know, if there's upside to that low- to mid-single digit, where that might be coming from.
Thanks. We look at loan growth as an opportunity to grow certainly with the broader economy. The low- to mid-single digit loan growth is sort of matched with what we kinda think GDP is gonna do this year. I would say that last year it was a little bit of a challenge given that we also had a large acquisition to convert. Last year, maybe we weren't as focused on delivering loan growth across the four quarters. This year, we expect that to normalize as we're now all focused on driving the $17 billion bank to better performance across the board. You know, we kinda look at the opportunities that we have in certain of our verticals maybe that shrunk a little bit.
We didn't have a stronger performance in commercial real estate last year or our middle market verticals. We believe those have nice opportunity to grow back. The other thing that we're looking at on the loan growth side is how do we balance off some of the commercial loan growth. One example, we have a mortgage portfolio that runs off over $200 million a year. As we open up new financial centers in a Columbus MSA or in Indianapolis, we have an opportunity perhaps to just offer what is a very traditional bank product to a whole host of new customers that could potentially reduce that runoff to a more reasonable level.
If we combine sort of the continued growth prospects we have in our, in our verticals with an in-market strategy that begins to normalize out and reduce the runoff in those portfolios, we believe those growth rates are very attainable with the staff and expense base we have today.
Yeah. I would also just like to underpin what Doug has said, to reiterate that in these national verticals, we were very prescriptive. It's very measured growth. We built the back office first. We have, you know, as the economy goes, currently with the uncertainty in the economy, we're very disciplined in our approach. If the market becomes more competitive, you know, we'll stick to our knitting. We think that the growth projection congruent with GDP. The other thing I'd like to point out is that what these verticals and our really diverse business allows us to do is we have many levers. We don't have to be over-concentrated in any one asset class.
That gives us a really broad view into the market and allows us to be appropriate in business development around depending on what the economy looks like.
Great. Thank you. you know, maybe on the, on the deposit side. you know, you guys have a, I'm sorry, a low cost of deposits, certainly I think than your peers on average. maybe this one is for you primarily, Doug, but just give us a sense for how you're thinking about where, you know, how much further room you have to cut deposit costs with rate cuts as we go here. you know, if there's any kind of, change that you're seeing in the market in terms of competition, anything like that.
Yeah. Certainly there's not as much room to go as we've seen over the last year with rates dropping. I would say right now we're looking at continued opportunity to reprice CDs. We have a fairly large CD book, and that CD book is relatively short in its maturity. There are opportunities to reprice that book down to more current market prevalent rates. That's probably, you know, anywhere from 5 to 10 to maybe a few more basis points depending on where competition goes. I think the one thing that's pretty clear is most banks are looking for loan growth rates that are either at where we've pegged or slightly ahead of that. You know, everyone has to fund that loan growth with deposit growth. Deposits are always a very, very aggressive business for banks.
You know, we wait and we'll see where the market allows us to take advantage of certain deposit rate gaps, to continue to keep that deposit growth down. We're certainly not focused on any one metric. We're not, you know, we've got pretty reasonable growth rates I think across the board, and we've got a pretty reasonable margin forecast in the low 3.70s%, and we were at 3.69% when we closed the fourth quarter. I think we'll be able to pull the levers that we need to kind of continue to maintain that guidance sort of irrespective of where the rate environment takes us outside of something that is dramatic and unexpected.
I'd like to touch on credit. We are a the bank industry after all, even though it's been a really strong run here for the industry. And you know, I have some questions here that we had a conversation outside and frankly the everyone's talking about private credit now. You put it the slide up with $300 million I think in sponsor finance loans. Maybe just remind everyone the difference in terms of what you're doing in that book relative to what we see in the headlines.
Yeah, sure. Again, that's a business that we've been building slowly over time. We have a pretty significant portfolio management in place to monitor that business. That business is typically pretty low leverage. We're the senior debt provider in the sponsor deals, the private equity deals. Those deals typically from an exposure standpoint probably on average for us are around $14 million. There's a lot of units there. We have a very experienced team that we were able to acquire from another bank a few years ago. We look at many, many deals that we pass on. We're not over-leveraged in that area. We're not concentrated in that area.
It's just a one of our levers as I described before, and it's a complementary business to what we do. We get deposits and we get fees with that business. It's a very profitable business for us. We're very prescriptive in how we go to market and how we underwrite that business. It's really for us not really a headline grabber.
That's great. Maybe looking at where, you know, kind of the broader book. You saw a material decline in criticized and classified loans in the fourth quarter after trending up for a few quarters and then guided to net charge-offs at a similar rate as a % of loans in 2026 as last year. Just curious kind of what buckets are driving the bulk of those charge-off expectations for this year?
If you looked at the range of charge-off guidance that we gave is pretty broad range. We expect to be sort of on the lower half of that range for sure. I think it's safe think about it as about 40% of that number comes from the consumer loan book that we have and about 60% of that will be made up from charge-offs on the commercial book. Again, very balanced in kind of how we look at it. Obviously there is more risk in commercial lending than there is in consumer lending where you have lots of units and lots of dispersion of the book.
Again, we're not seeing anything that would give us concern that those, charge-off rates as we sit here today with the economic outlook that we have are gonna be anywhere near the upper end of that kind of long-term range. Just as a reminder, our long-term range is 25-35. That's sort of through a cycle. Our guidance was I believe 20-28 basis points. Sort of again, if you're thinking about midpoint of that range, we'd still be sort of on the lower end of our historical charge-offs and that would be very comparable to the charge-off rate that we had this last year at 25 total.
I would just briefly add to Danny's comment about the increase in criticized assets. That was largely driven by top tier one developers and absorption rates across the commercial real estate cycle. We are working through all those credits. As we signaled in our earnings call, we expected to move those numbers down over time. We continue to do that. We've been successful in doing that. Most of these credits are with the developers that we would want to do business with again. We're pretty comfortable with what's transpired over the last couple quarters.
Yeah. The only minor thing to add too is there was some growth due to the acquisition. Obviously, with acquisition accounting, you're gonna have a little bit of an increase there as well. Those all kind of made up to the growth last year.
Maybe pivoting over to fee income. Fees have been about 20% of revenue for the last few years, maybe coming down depending on how things shake out after Penns Woods. How do you think about where you want high level fee income as a percentage of revenue, and where do you expect to see growth within, you know, line items?
Yeah, I'll start. I'm sure Lou will come in too. I think there's a nice opportunity for fee income, although it's gonna take a little bit of time to focus and build that book. We didn't guide any dramatic growth in fee income yet this year. However, we are making investments that we hope will see bearing fruit. We hired a new head of our wealth management group. We're looking at that as an opportunity to drive more business across the franchise with a more organized approach that focuses sort of on overall wealth needs of our consumer base. The other thing that you have seen is our new consumer leader really thinks a lot about how to take the business and create a more consumer-friendly fee business.
Rather than look for things that penalize a customer for making a mistake, like an overdraft, how do you provide services that customers might want to buy that could drive better fee experience and fee growth? Perhaps paying up to get early access to a deposit as an example. There's a lot of focus on fees, and there's a lot of focus on sustainable fees, and there's a lot of focus on making sure that our fees are consumer-friendly and that they're paying for value versus being penalized. A lot of opportunity there. Again, it's gonna take a little bit of time to build it all out. We are making those investments right now. As we add, of course, more consumers, you also get more opportunities on the fee side as we open up these new branches.
Yeah, just briefly, the wealth piece that Doug talked about, we have a pretty nice franchise in the footprint as it is, and we're scaling that and expanding that. Our consumer leader came from a very large regional in which formerly he was the CFO of the wealth bank there. We have sort of that going on. Certainly, we have a very efficient, very technology-forward mortgage banking operation to the extent that that ever turns around. It's obviously been dormant. That will provide some upside fee income. Then we are probably in the early stages of scaling this SBA business, which will give us actually optionality where we can balance sheet some of that paper and should also drive incremental fee income.
Danny, we're really focused on the fee piece given how we're oriented to spread income, and we wanna diversify and be able to add meaningfully to that in the future.
Terrific. Maybe thinking about the expense side then. You, you talked about Penns Woods cost savings being fully baked in by the end of the first quarter. You talked about in the presentation the de novo and the growth expectations in Columbus and Indianapolis. The specialty finance business is still growing. How do you think about branch growth and investment in the business relative to the potential for optimization going forward? Is positive operating leverage the governor of that? Like, net branch count? I mean, how... what's the internal thought there?
Yeah. Hopefully you've heard Lou and I both comment there is a lot of opportunity at Northwest Bank in a lot of different areas, all of which takes investment and takes money. I think what we are exceptionally focused on is right now positive operating leverage. How do we continue to make investments in the franchise while growing the revenue base in order to support it? We're very proud of getting the efficiency ratio down to a more reasonable level at the 60s. I don't think we're looking to dramatically improve the efficiency ratio by cutting out some of these growth opportunities. You'll see us scale our investments against both the opportunity set that we see as well as the opportunity that we have to fund those with internal growth. It really is an operating leverage game.
I think if you were to look at our guidance even, we had what would have seemed to be some decent expense growth in there. We cautioned on our call that, Hey, we're not gonna end up at the low end of the revenue and the high end of the expense guide. That's not how we're running the company. We will continue to pace our investments and pace our expenses against the overall revenue growth to continue to maintain the levels of profitability and returns that we think are appropriate.
All right. We're 24 minutes in. We haven't talked about M&A yet. Let's go there.
Any questions from the audience? Just if you wanna... No.
CET1 now 12%, which is great. you know, I just didn't frame it from a capital perspective, you know, just give us an update, Lou, on how you think about the M&A strategy as it fits into the overall growth strategy and how much capital you're trying to keep, or if that's not the primary governor?
Give us your update on M&A, if you will.
Great. Thanks, Danny. As we signaled early on before we did the Penns deal or shortly after we did the Penns Woods deal, we're focused on integration. We have again, a very experienced team. We were very efficient. We spent a lot of time in the market. We were very prescriptive around how we would integrate the bank. We're ahead of schedule on cost savings. We feel that we're in really good position. We like how the acquisition compares to our pro forma. Having said that, you know, we're now focused on running the best $17 billion bank that we can. As to your point, Danny, we're focused on positive operating leverage. We're focused on. We think there's upside to continue to streamline, automate, innovate with the bank.
We're very excited about where we're at. From an M&A standpoint, you know, we'll be opportunistic when it presents ourselves, when it's gonna be accretive to shareholders, and when it fits strategically. We are focused mainly around, you know, the Midwest, Ohio, Indiana. You wouldn't see us jump over several states to do an acquisition. We don't feel like we need to do one. We feel like we have a lot of raw fuel now. We've got a complete transformation going on at Northwest Bank. For those of you who are here today in attendance, if you go back and you look at that 3-year performance and you look at our current guidance, it's quite substantial transformation. I think it's what differentiates us maybe from the typical bank story.
You know, we are focused head down in 2026 about making sure that we produce the earnings that we that we promised, and we feel very good about that. You know, we're always talking, we're always listening. You know, we're looking for book value recapture and we're focused on earnings this year and not so much acquisitions. I don't know, Doug, if you have anything to add.
Only thing I would add is I think that that amount of capital gives us a lot of comfort that we can weather the storm, whatever storm that is. If you just look at what happened, whether it was COVID in 2020, and then it was SVB in 2023, and now it's a potential maybe there's a private credit blip or there's some other factors internationally that cause the markets to slow down. I think that capital gives us a lot of confidence that we can continue to do our thing. I don't think we're looking to put out a targeted capital level.
I don't think we're looking to do anything other than, you know, right now let's just get the entire company operating the way that we think it can, and then let's keep that capital in reserve until we find an opportunity to deploy it that makes sense.
While we're at that capital level, we're also paying out, you know, north of 6% dividend. We are returning money to the shareholder and we think, you know, certainly, with solid performance we'll see the proper relationship to our stock price. You know, we feel pretty good about where we're at now.
If we don't have any questions from the audience, I think we will go ahead and wrap it there. Thank you, guys. Appreciate you being here.
All right.
Great, Danny. Thank you.
Thanks.
Thanks, everyone.