Business context and reporting period
Northwest Bancshares, Inc. filed this Form 10-K for the fiscal year ended December 31, 2021 (not a standalone fourth-quarter report). The company operates Northwest Bank, a community-oriented lender and deposit-taking institution with 170 locations in Pennsylvania, New York, Ohio and Indiana. Its principal businesses are residential, consumer and commercial lending, deposits, and trust and investment services.
Key financial metrics
Amounts below are for fiscal years ended December 31; balance-sheet amounts are as of year-end.
| Metric | 2021 | 2020 |
|---|---|---|
| Total assets | $14.50 billion | $13.81 billion |
| Net interest income | $391.3 million | $391.7 million |
| Net income | $154.3 million | $74.9 million |
| Diluted earnings per share | $1.21 | $0.62 |
| Net interest margin | 2.96% GAAP; 2.98% fully taxable equivalent | 3.34% GAAP; 3.36% fully taxable equivalent |
| Return on average assets / equity | 1.08% / 9.91% | 0.58% / 4.72% |
| Net cash provided by operating activities | $205.5 million | $140.4 million |
| Deposits | $12.30 billion | $11.60 billion |
| Loans receivable, net | $9.91 billion | $10.45 billion |
| Shareholders’ equity | $1.58 billion | $1.54 billion |
Cash and cash equivalents ended 2021 at $1.28 billion, up $543.0 million. The bank reported a 21.24% liquidity ratio and $3.61 billion of additional FHLB borrowing capacity, plus $101 million available from the Federal Reserve and $110 million from correspondent banks. Year-end debt included $139.1 million of borrowed funds, $123.6 million of subordinated debt and $129.1 million of junior subordinated debentures. The bank’s regulatory capital ratios were 14.89% CET1, 14.89% Tier 1 risk-based, 15.74% total risk-based and 10.30% leverage; it was categorized as well capitalized.
Material changes versus prior comparable period
- Net income more than doubled, primarily as the credit-loss provision shifted from an $84.0 million expense in 2020 to an $11.9 million credit in 2021. Management attributed the reserve release to improved economic forecasts and credit quality.
- Net interest income was essentially flat, while net interest margin fell as lower asset yields and increased low-yielding cash balances offset lower funding costs. Total interest income declined 3.6%; interest expense declined 35.6%.
- Noninterest income rose 8.0% to $142.9 million, including a $25.3 million gain on the sale of the insurance business. Trust and financial-services income grew; mortgage banking income fell 49.4% to $15.9 million, and service charges and fees declined.
- Noninterest expense edged down 0.7% to $344.9 million. Lower acquisition, restructuring and other costs were partly offset by higher compensation, processing and professional-services expenses.
- Deposits grew 6.1%, supported in part by stimulus-related balances, PPP funds and customer saving trends. Loans declined 5.1% overall as repayments and payoffs outpaced originations; consumer loans grew 21.9%.
- Net cash from financing was $570.5 million, including $701.9 million of deposit growth, $100.3 million of common dividends and $23.9 million of share repurchases. Investing activities used $233.0 million, largely reflecting securities purchases.
Outlook, commentary, risks and unusual items
The filing provides no quantitative earnings or financial guidance. Management describes ongoing priorities that include loan and deposit growth, technology and digital investment, and managing interest-rate, credit and liquidity risks. The company sold its insurance business in the second quarter of 2021; the transaction produced a $25.3 million accounting gain and $28.2 million in cash proceeds.
Asset quality warrants attention: nonperforming loans increased to $158.8 million, or 1.60% of net loans, from $103.4 million, or 0.99%. Management linked the increase mainly to hospitality loans placed on nonaccrual after deferral periods ended. Classified assets declined to $364.0 million from $491.6 million, and net charge-offs fell to 0.20% of average loans from 0.27%. The allowance for credit losses fell to $102.2 million, or 1.02% of gross loans, from $134.4 million, or 1.27%.
Commercial real estate and multifamily lending represented 407.4% of bank capital under the filing’s concentration measure. Other identified risks include COVID-19-related borrower stress, local economic conditions, deposit competition and potentially volatile municipal deposits ($742.7 million), cybersecurity and third-party service disruptions, interest-rate and securities valuation exposure, and the transition away from LIBOR. A modeled immediate 200-basis-point rate increase reduced market value of equity by 9.3%, while projected net interest income increased 1.9%; these are scenario estimates, not forecasts. The filing also reports $42.2 million of gross unrealized securities losses, attributed primarily to interest rates rather than credit impairment. Management reported no expected material effect from pending legal proceedings; a prior insurance-related lawsuit verdict remained subject to post-trial proceedings, with no associated award accrued.
The bank reported capital above regulatory requirements and effective internal control over financial reporting. KPMG issued unqualified opinions on the consolidated financial statements and internal controls.
Important facts for investors to verify
- Whether the improved earnings are sustainable without the unusually favorable credit-provision reversal and the insurance-sale gain.
- The cause, borrower and collateral details behind rising nonperforming loans, particularly hospitality exposure, and the adequacy of the reduced allowance.
- Commercial real estate concentration, large borrower exposures, and performance of loans following pandemic deferrals.
- Deposit stability and funding costs, including municipal deposits, uninsured balances, and sensitivity to competitors’ rates.
- Impact of rising rates on net interest margin, securities values, mortgage banking and borrower repayment capacity; compare modeled sensitivities with later results.
- Dividend capacity and capital effects, including the staged phase-in of CECL impacts to regulatory capital beginning in 2022.