Northwest Bancshares, Inc. — Q3 2023 Form 10-Q
Business context and period. Northwest Bancshares is the bank holding company for Northwest Bank, which operated 142 community-banking offices across Pennsylvania, Western New York, Eastern Ohio, and Indiana. This unaudited filing covers the quarter and nine months ended September 30, 2023; income comparisons are year over year, while balance-sheet changes are generally versus December 31, 2022. Dollar amounts below are in millions unless stated otherwise.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net interest income | $108.4 | $112.7 | $329.4 | $303.6 |
| Net income | $39.2 | $37.3 | $105.9 | $99.0 |
| Diluted EPS | $0.31 | $0.29 | $0.83 | $0.78 |
| Net interest margin, GAAP | 3.21% | 3.40% | 3.29% | 3.05% |
Q3 interest income was $151.6 million, up 27.8%, while interest expense rose to $43.2 million from $5.9 million. Net income increased 5.1% in the quarter and 7.0% year to date. Q3 returns on average assets and equity were 1.08% and 10.27%; year-to-date returns were 0.99% and 9.37%.
Balance sheet and funding at September 30: Total assets were $14.36 billion, up 1.8% from year-end. Gross loans were $11.31 billion, up 3.6%, with commercial loans up 32.6% to $1.50 billion; personal loans declined 1.1%. Deposits totaled $11.79 billion, up 2.8%, including a $1.21 billion increase in time deposits. Demand deposits fell $307 million, and savings and money-market deposits fell a combined $573 million. Borrowed funds were $604.6 million, alongside $114.1 million of subordinated debt and $129.5 million of junior subordinated debentures.
Cash and cash equivalents were $162.0 million. For the first nine months, operating cash flow was $47.7 million, investing cash outflow was $178.3 million, financing cash inflow was $153.2 million, and cash increased $22.6 million. The Bank’s liquidity ratio was 9.66%; reported additional borrowing capacity was $3.119 billion with the FHLB, $302.4 million with the Federal Reserve, and $105.0 million with correspondent banks. Regulatory capital ratios exceeded the stated well-capitalized requirements: the Bank’s total capital ratio was 13.65%, CET1 ratio 12.50%, and leverage ratio 9.66%.
Credit and securities: The allowance for credit losses was $124.8 million, or 1.10% of loans, compared with $118.0 million, or 1.08%, at year-end. Nonaccrual loans were $76.7 million, or 0.68% of loans, down from $81.2 million, or 0.74%. Total nonperforming assets were $77.7 million. Gross unrealized losses on securities were $399.5 million at quarter-end; accumulated other comprehensive loss was $197.5 million. Management attributed securities losses mainly to higher interest rates, not credit deterioration, and said it did not expect to be required to sell the securities before recovery.
Material changes and notable items
- Q3 net interest income fell 3.9% year over year as sharply higher funding costs outweighed growth in loan interest income. Q3 net interest margin declined to 3.21% from 3.40%; the nine-month margin improved to 3.29% from 3.05%.
- Net provision expense was about $1.0 million in Q3, versus $11.3 million a year earlier, including a $3.0 million release for unfunded commitments. Nine-month provision expense was $14.9 million versus $17.4 million.
- Nine-month noninterest income included an $8.3 million gain from selling servicing rights on a $1.3 billion mortgage portfolio, an $8.3 million loss on securities sales, a $1.4 million gain on SBA loan sales, and higher bank-owned life insurance income, including death benefits. Management described the securities sale and reinvestment of proceeds in higher-yielding commercial loans as part of a pivot toward commercial banking.
- Nine-month noninterest expense rose 8.4% to $260.9 million. Drivers included processing, staffing and infrastructure investments, higher FDIC premiums, and $4.4 million of merger, asset-disposition, and restructuring expense related to branch optimization and personnel reductions.
- The Board declared a $0.20-per-share dividend payable November 14, 2023. The nine-month dividend was $0.60 per share.
Outlook, risks, and contingencies
Management gave no earnings or revenue forecast in the provided filing text; it expected a 2023 effective tax rate of 22.5%–24.5%. Management cited economic forecasts, loan growth, and potential deterioration in credit conditions in estimating the allowance, and cautioned that actual losses may differ from estimates. Principal disclosed risks include interest-rate and inflation changes, loan defaults and collateral values, deposit outflows and funding costs, liquidity, regulatory changes, competition, cybersecurity, and third-party performance.
The Company’s rate simulation estimated that a sustained 300-basis-point rate decrease could reduce net interest income by 10.8% and net income by 23.2% over 12 months; a 300-basis-point increase was modeled to reduce net income by 7.5%. These are scenario estimates based on assumptions, not forecasts. The filing reported no expected material aggregate liability from pending or threatened legal proceedings, while noting outcomes remain uncertain. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether deposit mix continues shifting toward higher-cost time deposits and borrowings, and the resulting path of net interest margin.
- Credit trends in commercial real estate and the rapidly growing commercial loan portfolio, including classified loans, delinquencies, charge-offs, and allowance adequacy.
- The impact of the $399.5 million gross unrealized securities losses on capital and liquidity if funding needs require asset sales.
- How much reported earnings relied on securities/servicing transactions, insurance death benefits, and restructuring or branch-optimization costs.
- Whether liquidity capacity, capital ratios, and modeled interest-rate sensitivity remain consistent with management’s assumptions.