Northwest Bancshares(NWBI) - 2024 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements The unaudited consolidated financial statements for Northwest Bancshares, Inc. as of March 31, 2024, show total assets of $14.51 billion, a slight increase from $14.42 billion at year-end 2023, and Q1 2024 net income of $29.16 million, down from $33.68 million in Q1 2023 Consolidated Statements of Financial Condition (in thousands) | | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total assets | $14,510,263 | $14,419,105 | | Loans receivable, net | $11,376,349 | $11,289,566 | | Total deposits | $12,071,644 | $11,979,902 | | Total liabilities | $12,957,814 | $12,867,788 | | Total shareholders' equity | $1,552,449 | $1,551,317 | Consolidated Statements of Income (in thousands) | | Quarter ended March 31, 2024 | Quarter ended March 31, 2023 | | :--- | :--- | :--- | | Net interest income | $103,238 | $112,464 | | Provision for credit losses - loans | $4,234 | $4,870 | | Total noninterest income | $27,963 | $23,969 | | Total noninterest expense | $90,024 | $87,450 | | Net income | $29,163 | $33,679 | | Diluted earnings per share | $0.23 | $0.26 | Consolidated Statements of Cash Flows (in thousands) | | Quarter ended March 31, 2024 | Quarter ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $70,701 | $29,843 | | Net cash used in investing activities | $(143,587) | $(130,157) | | Net cash provided by financing activities | $69,945 | $57,446 | | Net decrease in cash and cash equivalents | $(2,941) | $(42,868) | Notes to Consolidated Financial Statements The notes detail accounting policies, marketable securities, loans, credit losses, goodwill, borrowed funds, derivatives, and a subsequent event involving a strategic securities portfolio repositioning - The company's marketable securities portfolio totaled $1.9 billion, with available-for-sale securities at a fair value of $1.09 billion and held-to-maturity securities at an amortized cost of $801 million as of March 31, 2024[23][24] - Total gross loans receivable were $11.5 billion at March 31, 2024, with Personal Banking loans comprising $6.7 billion and Commercial Banking loans comprising $4.8 billion[32] - The allowance for credit losses on loans was $124.9 million as of March 31, 2024, a slight decrease from $125.2 million at year-end 2023, with the provision for credit losses for Q1 2024 at $4.2 million[35] - In April 2024, the Company announced a plan to reposition its securities portfolio by selling up to 15% of its available-for-sale securities, expecting to recognize losses up to $40 million ($30 million after-tax) to reinvest proceeds at higher yields[122] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q1 2024 net income decrease to lower net interest income from higher deposit costs, while total assets grew slightly due to organic commercial loan growth, maintaining strong capital ratios - Total assets increased by $91 million (1%) to $14.5 billion at March 31, 2024, primarily due to organic growth in commercial loans[129][131] - Net income for Q1 2024 was $29 million, a 13% decrease from $34 million in Q1 2023, mainly due to a $9 million (8%) drop in net interest income[160] - Net interest margin (FTE) decreased by 36 basis points to 3.10% compared to Q1 2023, reflecting higher interest-bearing deposit costs and a shift in funding mix[163] - The company maintained capital ratios well above the 'well capitalized' requirements, with a CET1 capital ratio of 12.63% at the holding company level as of March 31, 2024[142] Comparison of Financial Condition Total assets grew to $14.5 billion as of March 31, 2024, driven by increased gross loans, especially commercial, and a rise in total deposits with a notable shift towards higher-cost time deposits - Gross loans receivable increased by $86 million, or 1%, to $11.5 billion, driven by a $170 million (4%) growth in the commercial banking portfolio, with Commercial and Industrial (C&I) loans specifically increasing by $116 million, or 7%[131] - Total deposits increased by $92 million, or 1%, to $12.1 billion, driven by a $184 million (7%) increase in time deposits, partially offset by a $127 million (2%) decrease in demand deposit accounts as customers shifted to higher-yielding products[133] Uninsured Deposits as of March 31, 2024 (in thousands) | Category | Balance | Percent of total deposits | Number of relationships | | :--- | :--- | :--- | :--- | | Uninsured deposits per Call Report | $2,806,650 | 23.25% | 4,965 | | Less intercompany deposit accounts | $1,019,792 | 8.45% | 12 | | Less collateralized deposit accounts | $408,083 | 3.38% | 255 | | Uninsured deposits (excluding intercompany/collateralized) | $1,378,775 | 11.42% | 4,698 | Comparison of Operating Results Q1 2024 net income decreased by $5 million to $29 million, primarily due to an 8% drop in net interest income as interest expense surged 154%, partially offset by a 17% increase in noninterest income - Net interest income (FTE) decreased by $9 million to $104 million in Q1 2024 compared to Q1 2023, with the net interest margin compressing by 36 basis points to 3.10%[163] - Interest expense on deposits surged by $36 million from the prior-year quarter, driven by higher rates and a shift in deposit mix towards time deposits[168] - The provision for credit losses decreased by $2 million (31%) from Q1 2023, reflecting changes in economic forecasts and the timing of commercial loan funding[180] - Noninterest income increased by $4 million (17%), primarily due to a $2 million rise in service charges and fees[185] - Noninterest expense increased by $3 million (3%), mainly from a $5 million (11%) increase in compensation and employee benefits, partially offset by a $2 million decrease in merger and restructuring expenses[188] Quantitative and Qualitative Disclosures about Market Risk The company manages interest rate risk via a simulation model, projecting a 200 basis point upward shift would decrease net income by 8.9% over one year, remaining within established risk tolerance Simulated Impact of Parallel Shift in Interest Rates over 12 Months | Parallel shift in interest rates | +100 bps | +200 bps | +300 bps | -100 bps | -200 bps | -300 bps | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Projected % change in net income | (4.0)% | (8.9)% | (13.8)% | (3.4)% | (15.1)% | (28.4)% | | Projected % change in market value of equity | (8.1)% | (16.5)% | (24.5)% | 6.6% | 8.7% | 8.1% | - The company has established guidelines for interest rate risk, stating that for a 200 bps shift, estimated net income may not decrease by more than 20% and the market value of equity may not decrease by more than 30%[194][195] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[198] - No changes in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[199] PART II OTHER INFORMATION Legal Proceedings The company is subject to various claims in the normal course of business, with management not anticipating material adverse effects on consolidated financial statements from pending or threatened legal proceedings - The company believes that any potential liability from ongoing legal proceedings, beyond what is already accrued, will not materially impact its financial statements[200] Risk Factors No material updates or additions to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K have occurred - No material changes to the risk factors disclosed in the 2023 Form 10-K have occurred[201] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock during Q1 2024, with 2,261,130 shares remaining available under the existing repurchase program that has no expiration date - No shares of common stock were repurchased during Q1 2024[203] - A maximum of 2,261,130 shares remain authorized for repurchase under the current program, which was approved on December 13, 2012[203] Exhibits This section lists exhibits filed with the Form 10-Q, including an employment agreement and CEO/CFO certifications pursuant to the Sarbanes-Oxley Act, along with XBRL data files - Key exhibits filed include an employment agreement for Douglas M. Schosser and CEO/CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[209]