Northwest Bancshares, Inc. — 2023 Form 10-K
Business context and reporting period. Northwest Bancshares is a bank holding company whose primary subsidiary, Northwest Bank, provides consumer and business banking, lending, and trust services through 142 locations in Pennsylvania, western New York, eastern Ohio, and Indiana. This filing covers the fiscal year ended December 31, 2023; the figures below are annual, not standalone fourth-quarter results.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $435.7 million | $420.7 million |
| Net income | $135.0 million | $133.7 million |
| Diluted earnings per share | $1.06 | $1.05 |
| Net interest margin, FTE | 3.28% | 3.20% |
| Net interest rate spread, FTE | 2.86% | 3.11% |
| Noninterest income | $113.8 million | $110.8 million |
| Noninterest expense | $351.6 million | $329.5 million |
| Total assets | $14.42 billion | $14.11 billion |
| Loans, net | $11.29 billion | $10.80 billion |
| Deposits | $11.98 billion | $11.46 billion |
| Shareholders’ equity | $1.55 billion | $1.49 billion |
Profitability and margins. Net income rose 1.0%. Net interest income increased 3.6%, as higher asset yields and loan growth more than offset substantially higher funding costs. Interest expense increased to $152.2 million from $28.1 million; the average cost of interest-bearing liabilities rose to 1.56% from 0.30%. The FTE spread narrowed, while the FTE net interest margin improved. Return on average assets was 0.95% and return on average equity was 8.94%.
Credit costs and asset quality. Provision for credit losses was $22.9 million, down from $28.3 million; this included $18.7 million for loans and $4.2 million for unfunded commitments. The allowance for credit losses increased to $125.2 million, or 1.10% of loans, from $118.0 million, or 1.08%. Nonperforming loans rose to $97.1 million from $82.0 million; nonperforming assets were 0.67% of assets versus 0.58%. Net charge-offs were 0.11% of average loans, compared with 0.02%. Management cited commercial real estate-related nonaccrual growth and economic forecast assumptions as factors in its reserve estimate.
Cash flow and liquidity. Operating cash flow was $92.9 million, down from $175.4 million. Investing activities used $239.7 million; financing activities provided $129.7 million, primarily reflecting a $515.4 million deposit increase, partly offset by a $282.3 million net reduction in short-term borrowings and $101.7 million of dividends. Year-end cash and equivalents were $122.3 million. The Bank reported a 9.51% liquidity ratio and $3.286 billion of additional FHLB borrowing capacity, plus $297.5 million available at the Federal Reserve and $105.0 million at correspondent banks. Management stated that liquidity and capital should be sufficient for obligations over the next 12 months and foreseeable future.
Funding and debt. Deposits increased 4.5%, but mix shifted materially: time deposits grew by $1.551 billion as savings and money-market balances fell. The Company purchased $483.9 million of brokered certificates of deposit during 2023, at an average cost of 5.42%. Time deposits of $2.464 billion mature within one year. Deposits exceeding the FDIC insurance limit were reported at $1.835 billion; excluding intercompany and collateralized accounts, uninsured deposits were $1.402 billion, or 11.71% of deposits. At year-end, the balance sheet reported $398.9 million of borrowed funds, $114.2 million of subordinated debt, and $129.6 million of junior subordinated debentures. The Bank remained well capitalized; its CET1 ratio was 12.39%, total risk-based capital ratio 13.56%, and leverage ratio 9.70%.
Material changes versus the prior year
- Gross loans grew 4.5% to $11.415 billion. Commercial banking loans increased 17.1% to $4.633 billion, including 46.5% growth in commercial and industrial loans; personal banking loans declined 2.6%.
- Funding costs rose sharply amid higher rates and customer migration to time deposits. Despite deposit growth, the Company used $483.9 million of brokered CDs and increased its year-end time-deposit balance substantially.
- Borrowings declined from $795.0 million to $513.1 million in the MD&A borrowing schedule, as deposit growth enabled repayment of FHLB advances. The audited balance sheet separately presents borrowed funds of $398.9 million and subordinated and junior subordinated debt separately.
- Noninterest expense rose 6.7%, driven by compensation, processing, FDIC insurance premiums, professional services, and restructuring costs. The efficiency ratio increased to 63.98% from 62.00%.
- Available-for-sale securities were sold for $101.2 million, with an $8.3 million realized loss. The Company also sold mortgage servicing rights on approximately $1.3 billion of residential mortgages for an $8.3 million gain; management said the offsetting transactions had no impact on capital.
- Net unrealized losses on the securities portfolio were $312.2 million at year-end, compared with $343.6 million in 2022. Accumulated other comprehensive loss improved to $149.5 million from $171.2 million.
Outlook, commentary, risks, and unusual items
The filing provides no quantified earnings or balance-sheet guidance. Management highlighted ongoing competition for deposits and loans, elevated funding costs, inflation, and the effects of interest-rate movements. A hypothetical immediate, sustained 100-basis-point rate increase was modeled to reduce net interest income by 1.4% over the next 12 months; a 300-basis-point decrease was modeled to reduce it by 11.2%. These are model estimates subject to assumptions, not forecasts.
Commercial real estate and commercial lending are key risk areas. Multi-family and commercial real estate loans equaled 356% of total Bank capital under the regulatory concentration measure disclosed by the Company. Management noted sensitivity to property cash flows, vacancies, rents, collateral values, and economic conditions. The allowance estimate uses a weighted set of upside, baseline, and downside forecasts; weighting the baseline scenario alone would have reduced the quantitative allowance by approximately $15.3 million.
Other notable exposures include interest-rate sensitivity, $312.2 million of net unrealized securities losses, deposit outflows and reliance on higher-cost or wholesale funding, and operational, cyber, regulatory, and third-party risks. The Bank had $602.3 million of municipal deposits, which the Company identified as potentially more volatile. The filing reports no known cybersecurity incident that materially affected, or was reasonably likely to materially affect, the Company. Management said pending legal matters were not expected to have a material effect, while noting that outcomes remain uncertain.
Unusual or nonrecurring items included $6.7 million of merger, asset disposition, and restructuring expense; an $8.3 million mortgage servicing rights sale gain offset by an $8.3 million securities sale loss; and a $726,000 gain on sale of approximately $8.0 million of nonperforming loans. The Company paid $0.80 per share in regular dividends during 2023 and made no share repurchases.
Most important facts for investors to verify
- Whether commercial real estate and C&I loan growth is matched by stable underwriting, borrower performance, collateral values, and adequate loss reserves.
- How nonaccrual loans, delinquencies, charge-offs, and the allowance evolve, particularly in commercial real estate and consumer lending.
- Deposit stability and repricing: brokered CD usage, uninsured and municipal deposits, and the $2.464 billion of time deposits due within one year.
- Whether net interest margin can withstand funding-cost pressure and the interest-rate scenarios disclosed in the filing.
- The potential effects of securities losses if liquidity needs require sales, and the distinction between the balance-sheet borrowed-funds figure and broader borrowing schedules.
- Capital, liquidity, and dividend capacity, including regulatory constraints and the availability of contingent borrowing sources.
KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting; management also concluded that disclosure controls and internal control over financial reporting were effective as of year-end.