Northwest Bancshares, Inc. — Q2 2021 Form 10-Q
Business context and period. Northwest Bancshares is a bank holding company operating Northwest Bank, with 170 community-banking offices across Pennsylvania, western New York, eastern Ohio and Indiana. This unaudited filing covers the quarter and six months ended June 30, 2021; balance-sheet comparisons are to December 31, 2020. Amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net interest income | $95.7 million | $98.1 million | $196.2 million | $185.3 million |
| Provision for credit losses | $0 | $51.8 million expense | ($5.6 million) credit | $79.4 million expense |
| Noninterest income | $54.7 million | $35.5 million | $86.7 million | $63.5 million |
| Noninterest expense | $86.3 million | $89.2 million | $172.5 million | $167.8 million |
| Net income (loss) | $49.0 million | ($6.2 million) | $89.2 million | $1.7 million |
| Diluted EPS | $0.38 | ($0.05) | $0.70 | $0.02 |
| Net interest margin, GAAP | 2.89% | 3.34% | 3.00% | 3.47% |
- Balance sheet at June 30: Assets were $14.30 billion, up 3.6% from year-end; cash and equivalents were $857.2 million. Total loans were $10.31 billion, down 2.6%, while deposits rose 4.2% to $12.09 billion.
- Cash flow, six months: Operating activities provided $105.0 million; investing activities used $415.6 million, largely reflecting securities purchases; financing activities provided $431.5 million. Cash increased $120.9 million to $857.2 million.
- Credit and allowance: The allowance for credit losses was $117.3 million, or 1.14% of loans, versus $134.4 million, or 1.27%, at year-end. Nonaccrual loans were $206.8 million, or 2.01% of loans; total nonperforming assets were $208.4 million.
- Debt and liquidity: Borrowed funds were $257.4 million, with $128.9 million of junior subordinated debentures separately reported. The bank’s liquidity ratio was 18.8%; disclosed additional borrowing capacity included $3.695 billion at the FHLB, $85.7 million at the Federal Reserve and $110.0 million with correspondent banks.
- Capital: At June 30, the company reported total risk-based capital of 17.087%, Tier 1 risk-based capital of 14.658%, CET1 of 13.416% and a Tier 1 leverage ratio of 10.265%. The bank’s corresponding ratios were 14.839%, 13.886%, 13.886% and 9.855%.
Material changes versus comparable periods
- Q2 net income improved by $55.2 million from the prior-year loss, chiefly because credit-loss provision expense fell from $51.8 million to zero. Six-month earnings also benefited from the $85.0 million year-over-year reduction in provision expense.
- Q2 noninterest income included a $25.3 million pretax gain from the April 30 sale of Northwest Insurance Services. Trust and financial-services income increased, while mortgage banking income fell to $3.8 million from $12.0 million amid less favorable secondary-market pricing.
- Net interest income declined 2.4% in Q2 even as interest expense fell, as lower yields reduced asset income. GAAP net interest margin declined to 2.89% from 3.34%.
- Nonperforming assets nearly doubled from year-end to $208.4 million. Management attributed the increase in nonaccrual loans primarily to hospitality borrowers placed on nonaccrual after deferral periods ended. Loans 90 days or more past due declined to $46.3 million from $61.0 million.
- Deposit growth was attributed in part to stimulus payments and PPP funds. Loans fell overall as paydowns, payoffs and PPP forgiveness exceeded originations; consumer loans, particularly indirect auto, grew.
Outlook, commentary and risks
- Management forecast a 2021 effective tax rate of 22%–24%; the filing provides no earnings or revenue guidance. The company anticipated a $4 million–$8 million pension contribution in 2021.
- Management said improved economic forecasts, including unemployment, growth and real-estate conditions, supported the lower provision and allowance. It cautioned that actual credit losses may differ materially from estimates.
- Management identified COVID-19 and economic conditions, asset quality, interest-rate and margin changes, securities and credit markets, cybersecurity, technology, third-party providers, competition, growth and acquisition integration among the risks that could affect results.
- Interest-rate simulations estimated that a 100-basis-point decline could reduce net interest income 3.2% and net income 9.0% over 12 months; a 100-basis-point increase was estimated to raise them 1.2% and 3.5%, respectively. These are assumption-dependent projections, not guidance.
- The company reported no expected material aggregate liability from pending or threatened legal proceedings, but noted uncertainty around litigation outcomes. It had not accrued any award related to a prior insurance-agency lawsuit verdict.
- The board declared a $0.20-per-share dividend payable August 16, 2021. The filing also reported $46.4 million of maximum potential standby-letter-of-credit payments, of which $38.0 million was fully collateralized.
Important facts for investors to verify
- How much of reported earnings reflects the one-time $25.3 million insurance-business sale gain and the unusually low or negative credit-loss provision?
- Whether the increase in hospitality-related nonaccrual loans results in further delinquencies, charge-offs or allowance changes.
- Whether deposit inflows persist and how the shift into low-yield cash and securities affects net interest margin as rates change.
- The sustainability of mortgage banking, trust and fee income after the insurance-business sale, alongside higher compensation, processing and professional-services costs.
- Whether liquidity, regulatory capital and dividend levels remain resilient under adverse credit, deposit or interest-rate conditions.