Northwest Bancshares, Inc. — Q1 2023 Form 10-Q
Business context and reporting period
Northwest Bancshares is a bank holding company whose primary subsidiary, Northwest Bank, operates 150 community-banking offices across Pennsylvania, western New York, eastern Ohio, and Indiana. This unaudited quarterly report covers the three months ended March 31, 2023; income and cash-flow comparisons are against Q1 2022, while balance-sheet comparisons are against December 31, 2022. Amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q1 2023 / March 31, 2023 | Comparable period / change |
|---|---|---|
| Net income | $33.7 million; diluted EPS $0.26 | $28.3 million; diluted EPS $0.22 in Q1 2022; net income increased 19.1% |
| Net interest income | $112.5 million | Up $21.8 million, or 24.1%, year over year |
| Net interest margin | 3.44% GAAP; 3.47% fully taxable-equivalent | 2.73% GAAP; 2.75% fully taxable-equivalent in Q1 2022 |
| Interest income / expense | $134.9 million / $22.5 million | $96.4 million / $5.8 million in Q1 2022 |
| Provision for credit losses | $5.0 million | $0.1 million net provision in Q1 2022 |
| Noninterest income / expense | $24.0 million / $87.5 million | $25.7 million / $80.3 million in Q1 2022 |
| Total assets | $14.19 billion | Up 0.6% from year-end 2022 |
| Loans / deposits | Gross loans $11.09 billion; deposits $11.54 billion | Loans up 1.6%; deposits up 0.6% from year-end 2022 |
| Allowance / nonperforming loans | $121.3 million, or 1.09% of loans; nonperforming loans $79.3 million | Allowance was $118.0 million, or 1.08%; nonperforming loans were $82.0 million at year-end 2022 |
| Cash and cash equivalents | $96.5 million | Down $42.9 million from year-end 2022 |
| Borrowed funds | $688.6 million | $681.2 million at year-end 2022 |
| Operating cash flow | $29.8 million provided | $22.5 million used in Q1 2022 |
| Capital | Holding company: total capital ratio 16.40%, CET1 13.02%; bank: 13.70% and 12.54%, respectively | All reported ratios exceeded the applicable well-capitalized thresholds |
Material changes versus the prior comparable period
- Higher market rates and loan growth lifted interest income, but interest expense rose sharply as deposit and borrowing costs increased. The average cost of interest-bearing liabilities rose to 0.96% from 0.25%.
- Gross loans grew $171.8 million from year-end, including growth in commercial loans and consumer lending. Deposits rose overall, but their mix shifted: time deposits increased $524.5 million, while demand, savings, and money-market balances declined.
- Q1 2023 noninterest expense rose 8.8% year over year. Increases included professional services, processing costs, FDIC premiums, and merger, asset-disposition, and restructuring expense.
- Noninterest income declined 6.9%, mainly from lower mortgage banking income and lower bank-owned life insurance income. Net income nevertheless increased as net interest income growth more than offset these pressures.
- The company reported $12.6 million of other comprehensive income in Q1 2023, principally reflecting a reduction in unrealized losses on available-for-sale securities. Shareholders’ equity increased 1.5% from year-end to $1.51 billion.
Outlook, management commentary, risks, contingencies, and unusual items
- No specific earnings or revenue guidance was provided. Management expects a 2023 effective tax rate of 22.5%–24.5% and cautioned that quarterly results are not necessarily indicative of full-year results.
- Management attributed the higher loan-loss provision and allowance partly to loan growth and deterioration in economic forecasts. The allowance rose to $121.3 million; nonperforming loans declined to $79.3 million, and classified loans fell to $208.6 million, mainly reflecting upgrades and payoffs in commercial real estate.
- Available-for-sale securities had $197.5 million of gross unrealized losses at March 31; held-to-maturity securities had fair value $115.7 million below amortized cost. Management attributed the declines primarily to interest rates, stated it did not intend to sell the available-for-sale securities, and said it was more likely than not it would not have to sell them before recovery. These valuations and the potential need for liquidity-related sales remain important risks.
- The Bank reported a 10.71% liquidity ratio and stated it had $3.041 billion of additional FHLB borrowing capacity, $304.6 million available from the Federal Reserve, and $105.0 million from correspondent banks. The $250 million FHLB overnight line had $183.7 million drawn. Five FHLB term advances totaling $403 million were due in April 2023, requiring repayment or refinancing.
- The filing identifies deposit stability, uninsured deposits, access to funding, interest-rate risk, securities values, credit quality, economic conditions, and possible U.S. government debt-ceiling effects as material risks. The excerpt does not provide a clear amount for uninsured deposits.
- Q1 costs included $2.8 million of merger, asset-disposition, and restructuring expense, associated with severance and fixed-asset charges from branch optimization and personnel reductions announced in late 2022. FDIC insurance premiums rose following an assessment-rate increase.
- Standby letters of credit had a maximum potential payment amount of $44.8 million, of which $31.2 million was fully collateralized. Management did not expect pending or threatened legal proceedings to result in a material aggregate liability.
- Interest-rate simulations estimated that a 300-basis-point increase would reduce net interest income 4.7% and net income 11.3% over 12 months; a 300-basis-point decrease would reduce them 11.0% and 28.5%, respectively. These are model estimates dependent on assumptions, not forecasts.
Important facts for investors to verify
- Deposit composition, uninsured-deposit exposure, deposit outflows, and the cost and availability of alternative funding.
- Repayment or refinancing of the $403 million of FHLB advances due in April, and subsequent borrowing levels and rates.
- Available-for-sale and held-to-maturity securities losses, liquidity needs, and whether any securities sales or additional collateral requirements occur.
- Commercial real estate concentrations, classified and nonaccrual loan trends, charge-offs, and the adequacy of the allowance as economic conditions change.
- Whether improved net interest margin persists as deposit pricing and wholesale funding costs adjust, alongside progress on restructuring costs and operating expenses.