Northwest Bancshares, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited results for the quarter ended March 31, 2022. Northwest Bancshares is a bank holding company whose subsidiary operates 170 community-banking offices across Pennsylvania, Western New York, Eastern Ohio and Indiana.
Financial performance and position
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Interest income | $96.4 million | $108.0 million in Q1 2021 |
| Net interest income | $90.6 million | $100.5 million in Q1 2021 |
| Net interest margin, GAAP | 2.73% | 3.16% in Q1 2021 |
| Noninterest income / expense | $25.7 million / $81.9 million | $32.0 million / $86.2 million in Q1 2021 |
| Net income / diluted EPS | $28.3 million / $0.22 | $40.2 million / $0.32 in Q1 2021 |
| Total assets | $14.411 billion | $14.502 billion at Dec. 31, 2021 |
| Loans receivable, gross | $10.139 billion | $10.016 billion at Dec. 31, 2021 |
| Deposits | $12.320 billion | $12.301 billion at Dec. 31, 2021 |
| Shareholders’ equity | $1.524 billion | $1.584 billion at Dec. 31, 2021 |
- Cash flow: Operating activities used $22.5 million, investing activities used $72.7 million, and financing activities used $23.1 million. Cash and cash equivalents declined $118.3 million to $1.161 billion.
- Credit and asset quality: The allowance for credit losses was $99.3 million, or 0.98% of loans, down from $102.2 million, or 1.02%, at year-end. Nonaccrual loans were $124.2 million, or 1.22% of loans, versus $158.5 million, or 1.59%, at year-end. Nonperforming assets totaled $125.5 million.
- Debt and liquidity: Borrowed funds were $121.4 million; subordinated debt was $123.7 million and junior subordinated debentures were $129.1 million. The bank’s liquidity ratio was 19.2%. Additional stated borrowing capacity was $3.526 billion at the FHLB, $91.4 million at the Federal Reserve and $110.0 million at correspondent banks.
- Regulatory capital: Northwest Bank reported total risk-based capital of 14.24%, CET1 of 13.41% and a Tier 1 leverage ratio of 9.43%, each above the filing’s stated well-capitalized thresholds.
Material changes and management commentary
- Net income fell 29.7% year over year. Management attributed the decline mainly to lower net interest income and noninterest income, partly offset by lower expenses and taxes.
- Net interest income decreased 9.8%; the GAAP net interest margin fell to 2.73% from 3.16%, reflecting lower earning-asset yields and a greater weighting of cash and investments. Average earning-asset yield declined to 2.91% from 3.40%.
- Noninterest income declined 19.4%, chiefly because mortgage banking income fell to $1.5 million from $6.0 million and insurance commissions ended following the 2021 sale of the insurance business. Service-charge and trust income increased.
- Noninterest expense declined 4.9%, although merger, asset disposition and restructuring expense rose to $1.4 million, related to branch optimization announced in Q4 2021.
- Loans grew 1.2% from year-end. The quarter included purchases of a $72.7 million equipment-finance pool and a $138.1 million jumbo-mortgage pool; indirect auto loans also grew. Management said paydowns, payoffs and $32.1 million of PPP forgiveness offset other portfolio growth.
- Deposits increased slightly, with growth in savings and money-market accounts partly offset by declining time deposits as customers shifted toward checking and savings.
- Shareholders’ equity declined 3.8%, primarily due to a $64.9 million increase in accumulated other comprehensive loss from investment-security valuation changes and $25.3 million in dividends, partly offset by quarterly earnings. Management said securities losses primarily reflected rising rates, not credit concerns, and it did not expect to need to sell the securities before recovery.
Outlook, risks and unusual items
- Management expected a 2022 effective tax rate of 21%–23%. The filing provides no earnings or revenue guidance.
- Interest-rate simulations estimated net interest income changes over 12 months of +1.1%, +1.7% and +2.2% for upward parallel shifts of 100, 200 and 300 basis points, respectively, and −4.2% for a 100-basis-point decline. These are model estimates subject to assumptions, not forecasts.
- The available-for-sale portfolio had $161.5 million of gross unrealized losses at quarter-end, versus $42.2 million at year-end; held-to-maturity securities had a fair value $60.4 million below amortized cost. Management attributed losses principally to interest rates and reported no credit-loss allowance for these securities.
- Key disclosed risks include economic and borrower-credit deterioration, inflation and interest-rate movements, securities and credit-market conditions, funding access, cybersecurity, competition, regulatory change, and execution or integration challenges.
- Standby letters of credit had a maximum potential payment exposure of $45.7 million, of which $35.9 million was fully collateralized. Management did not expect pending or threatened legal proceedings to result in material aggregate liability; a prior insurance-related verdict remained subject to post-trial proceedings, and no award was accrued.
- The quarterly dividend was $0.20 per share, with a 90.9% payout ratio. The board declared another $0.20-per-share dividend payable May 16, 2022.
Most important facts for investors to verify
- Whether margin pressure persists as rates change, and how deposit pricing and asset repricing affect net interest income.
- The collectability and collateral support of commercial real estate nonaccrual loans, and whether the lower allowance remains adequate as forecasts and credit conditions evolve.
- The duration and potential capital impact of unrealized securities losses, including whether liquidity needs could require securities sales.
- Whether loan growth from purchased pools and auto lending can offset paydowns and PPP runoff without weakening underwriting quality.
- The sustainability of earnings and the dividend given lower EPS and the 90.9% quarterly payout ratio.