Northwest Bancshares (NWBI) Q3 2026 earnings review
Northwest Bancshares grows its business loans, but funding costs rise
Northwest Bancshares, a regional bank across Pennsylvania, New York, Ohio and Indiana, grew its revenue while quarterly profit slipped. Total sales rose 10% from a year ago to $185 million as Chief Executive Louis J. Torchio expanded business lending, and profit per share excluding one-offs climbed 21% after lapping last year's Penns Woods acquisition costs. However, profit fell from last quarter because deposit costs stopped declining and a one-time insurance credit did not repeat.
| Total revenue | $184.9M +9.9% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $0.35 +21% from a year ago; $0.37 last quarter |
| Net interest margin | 3.70% down from 3.75% last quarter |
| Quarterly dividend outlook | $0.20 unchanged for a 128th quarter |
⚖️ Verdict: 🔴 Bearish
The story got worse because funding pressure and early loan stress hit the bank's main growth drivers. Net interest margin — the spread between loan yields and funding costs — fell to 3.70% as stalled deposit growth forced the bank to rely on wholesale borrowings, while past-due and non-paying business loans jumped. On the bright side, payoffs reduced problem commercial real estate loans by 11%.
The question now is whether the third-quarter margin dip and business loan delinquencies are a one-quarter blip or the cost of rapid commercial growth. Bulls point to the payoff of expensive subordinated debt and falling real estate problem loans; skeptics point to stalled deposit gathering and rising business loan stress. Fourth-quarter deposit flows and the delinquency roll-rate will decide.
🐂 Bull Case
Business Lending Outruns Commercial Real Estate Paydowns
Northwest is shifting its loan book toward commercial and industrial (C&I) loans, which are working-capital and equipment loans to businesses, while letting older commercial real estate and home mortgage loans pay down. Last quarter, ending loans grew only because of a late push, so average loan balances barely moved. In the third quarter, the growth showed up in both average and ending balances.
- Commercial and industrial loans: up $164 million from last quarter to $3.06 billion, or 32.4% from a year ago
- Average commercial and industrial loans: up 30.8% from a year ago to $2.98 billion
- Commercial real estate loans: down $57 million from last quarter to $2.93 billion
- Average total loans: up $208 million from last quarter to $13.30 billion
This shift matters because business loans paid an average yield of 6.48% this quarter, compared with 4.06% on residential mortgages. Adding higher-yielding business loans kept the bank's overall loan yield steady at 5.59%, down just 0.02 percentage points from last quarter, even as yields inside the business loan book came down.
What to watch: fourth-quarter ending loan balances against the full-year loan growth target of low to mid single digits. Another quarter of $150 million or more in new business loans would confirm that commercial lending can carry the whole balance sheet while real estate loans shrink.
Payoffs Cut Problem Real Estate Loans by 11%
A major concern for the bank has been the rise in classified loans, which are loans showing credit weakness that could turn into losses. Classified balances had climbed for two straight quarters after the purchase of Penns Woods Bancorp last year, reaching $524 million in the second quarter. In the third quarter, that trend reversed.
Classified loans dropped by $55 million, or 10.5% from last quarter, to $469 million. They now make up 3.50% of total loans, down from 3.96% three months ago. The bank said the drop came "primarily due to the payoff of classified loans during the quarter" inside its commercial real estate book, where nonaccrual loans (loans no longer paying interest) also fell by $7.1 million.
Meanwhile, net charge-offs — loans written off as uncollectible, expressed as a yearly share of average loans — held at 0.15% for a second straight quarter. That is still below the 0.20% to 0.27% full-year range management gave on prior calls, so the feared jump in real estate write-offs did not arrive this quarter.
What to watch: fourth-quarter net charge-offs. Because the first nine months ran at an annualized 0.15%, staying inside the prior full-year range would require a jump in fourth-quarter write-offs, while another low reading would show that real estate workouts are resolving without heavy losses.
🐻 Bear Case
Deposit Costs Stopped Falling and Squeezed the Margin
Chief executive Louis J. Torchio said the bank "benefited from the strength of our retail deposit franchise and low deposit costs, one of the best-in-class among our peers." For five straight quarters, falling deposit rates had lifted net interest margin (the gap between what the bank earns on loans and pays on funding, adjusted for tax-free income). In the third quarter, that tailwind stopped.
- Net interest margin: 3.70%, down 0.05 percentage points from 3.75% last quarter
- Average cost of total deposits: 1.44%, up 0.01 percentage points from 1.43% last quarter
- Average cost of interest-bearing deposits: 1.85%, up from 1.83% last quarter
- Average borrowed funds: $618 million, up 62.8% from $379 million last quarter
Average deposits grew by only $6 million during the quarter, so Northwest took on $238 million in new average borrowings "due to average loan and investment growth exceeding the rate of average deposit growth". Those borrowings cost 3.94%, more than double the rate on deposits. Even though the bank paid off $114.8 million of expensive 7.68% subordinated debt before quarter-end, a "decline in the accretion of acquired loan fair value marks coupled with a change in portfolio mix" and higher funding costs pushed the margin down.
What to watch: fourth-quarter net interest margin, which will capture a full quarter without the subordinated debt expense. If the margin does not rebound toward the 3.73% to 3.75% full-year target, it will mean borrowing needs and deposit competition have capped the bank's spread.
Fast-Growing Business Loans Show Early Credit Stress
While older commercial real estate problems eased, new credit strain appeared in the commercial and industrial loan book that is driving the bank's growth. Total nonperforming loans — loans that have stopped paying interest or are 90 days past due — rose by $7.2 million from last quarter to $99.2 million, or 0.74% of total loans, up from 0.69%.
- Business nonaccrual loans: $34.5 million, up 57.0% from $22.0 million last quarter
- Business loans 60 to 89 days past due: $22.7 million, up from $5.8 million last quarter
- Doubtful business loans: $1.3 million, up from zero in the prior four quarters
- Quarterly credit loss provision: $9.1 million, up 37.4% from $6.6 million last quarter
Northwest said the $2.5 million jump in its credit loss provision came from "growth in our commercial lending portfolio, including unfunded commitments". However, the delinquency tables show that past-due and non-paying business loans rose much faster than the loan book itself, which reduced the bank's allowance coverage to 150.9% of nonperforming loans from 162.4% in the second quarter.
What to watch: whether the $22.7 million of 60-to-89-day delinquent business loans cure or move into nonaccrual status in the fourth quarter. A second jump in non-paying business loans would indicate that rapid commercial expansion is bringing weaker credit quality.
Insurance Costs and Bond Losses Weighed on Results
Profit per share excluding one-offs fell to $0.35 from $0.37 last quarter because operating costs normalized. In the second quarter, a prior-period adjustment gave the bank a $0.3 million credit on its federal deposit insurance premiums. This quarter, that expense returned to $3.2 million, lifting non-personnel costs by 1.8 percentage points of revenue and pushing the efficiency ratio excluding one-offs (operating expenses as a share of revenue) up to 57.8% from 56.2%.
On the balance sheet, paper losses on the bank's bond portfolio grew larger. Gross unrealized losses across available-for-sale and held-to-maturity securities reached $318.5 million. That pushed accumulated other comprehensive loss to $141.9 million from $82.6 million in June, which cut tangible book value per share (net worth per share excluding goodwill and intangibles) by 2.3% to $9.65.
What to watch: fourth-quarter noninterest expense and tangible book value per share. Management previously targeted a $108 million quarterly expense run-rate and promised to earn back the Penns Woods tangible book value dilution on a crossover basis by year-end.
Risks this quarter didn't answer
Three standing questions cannot be checked until the bank files its quarterly report on Form 10-Q or hosts its earnings call.
- Distressed commercial real estate loan modifications: jumped to $57.3 million in the second quarter's filing; the third-quarter modification table is only in the 10-Q.
- National specialty lending balances: Torchio cited growth in national verticals, but the release does not separate their dollar balances or delinquency rates from local business loans.
- Acquisition plans: no commentary in the release on whether management plans new bank purchases as Penns Woods integration finishes.
👓 Other Themes
Columbus Expansion Opens Its First Two Branches
"In the third quarter we opened our first two financial centers in Columbus, added talent in the Columbus market and to our senior leadership team," Torchio said. Total banking offices rose from 162 to 164 as the retail expansion got underway. Meanwhile, common shares outstanding rose slightly to 146.6 million from 146.4 million in June, showing that the bank's $50 million share buyback authorization remained unused while it paid off subordinated debt.
💲 Other KPIs
Fee income rose 5.0% from last quarter and 11.6% from a year ago, marking the third straight quarter of sequential growth. Trust and other financial services income led the gain, rising 7.0% from last quarter to $10.1 million on wealth management growth, while service charges and fees climbed 6.1% to $17.9 million.
The holding company's total regulatory capital ratio stepped down from 15.17% last quarter because Northwest paid off $114.8 million of subordinated debt, which previously counted as Tier 2 capital. Common equity tier 1 capital (core equity to risk-weighted assets) held nearly steady at 12.17% against 12.21% in June, well above the 7.00% minimum requirement.
Deposits above the $250,000 federal insurance limit, after stripping out internal bank accounts and pledged government accounts, rose from $2.07 billion in June and $1.96 billion at year-end. They now represent 15.4% of total deposits, up from 14.6% last quarter, with the ten largest uninsured customers holding $443 million, or 3.1% of total deposits.
🔮 Guidance
New. The board declared a $0.20 per share cash dividend for the fourth quarter, payable November 17, 2026. This marks the 128th straight quarter Northwest has paid a dividend, matching the $0.20 rate paid in every quarter over the past several years and representing a 57% payout of third-quarter profit per share excluding one-offs.
❓ Key Questions
Why was the full-year financial outlook omitted from the release?
On last quarter's call, management guided full-year revenue of $710–730 million and net interest margin of 3.73–3.75%. After the third-quarter margin slipped to 3.70% and 9-month revenue reached $541 million (leaving $179 million for Q4 at the midpoint by our math), does that plan still hold?
What caused the jump in past-due business loans?
Business loans 60 to 89 days past due nearly quadrupled to $22.7 million, and non-paying business loans rose 57% to $34.5 million. Are these problems coming from the newer national specialty lending verticals or from legacy local borrowers?
How did distressed commercial real estate modifications trend in Q3?
In the second quarter's filing, commercial real estate loan modifications to struggling borrowers jumped to $57.3 million. Did the $55 million payoff of classified loans in the third quarter clear those modified loans, or did modifications keep rising?
Will Columbus branches gather enough deposits to pay down borrowings?
Average deposits were nearly unchanged this quarter, forcing the bank to add $238 million in average wholesale borrowings at a 3.94% cost. What deposit balances and promotional rates are the first two Columbus centers seeing so far?