Northwest Bancshares, Inc. Q3 FY2024 earnings call

• Core financial performance was solid with net interest margin expansion, revenue growth, and improved efficiency ratio. Deposits continued to rise even with near best-in-class cost of funds, and security portfolio restructure had positive results.
• Focused on responsible growth both organically and through acquisitions, in frequent discussions with other bank leaders and investment bankers for future M&A opportunities.
• Declared a quarterly dividend of $0.20 per share to shareholders of record as of November 8, 2024.
• Detailed financial results including net interest margin, loan portfolio changes, deposit situation, noninterest income and expense, credit quality, and capital position.
• Future outlook includes focused commercial loan growth, deposit management balancing client expectations and market pressures, noninterest income growth, low single-digit expense growth to improve efficiency ratio, and normalization of tax rate and net charge-offs towards historical averages.

Northwest Bancshares Inc reported net income of $33.6 million or $0.26 per diluted share for the third quarter of 2024. The net interest margin expanded by 13 basis points to 3.33% for the quarter, aided in part by an interest recovery on a nonaccrual loan adding 4 basis points. The loan portfolio was essentially flat compared to the same quarter last year, while deposits grew by 3.2%. Noninterest income decreased by $3 million due to various losses, and noninterest expense decreased by nearly 2% from the second quarter. Credit quality remained strong with allowance coverage slightly increasing to 1.11% of loans. Capital position was strong with an estimated Tier 1 capital to risk-weighted assets of 13.7% at 9/30. Commercial and industrial loans grew by 2.8% quarter-over-quarter and 25.7% year-over-year, while residential mortgages declined by $190 million or 5.5% year-over-year. Commercial real estate portfolio shrank by 1% quarter-over-quarter. Loan yields stood at 5.6% after steadily increasing over the last 5 quarters. Deposits were largely flat quarter-over-quarter and up 3.2% year-over-year, with the cost of deposits only increasing by 2 basis points, standing at 1.78% which is near best-in-class relative to peers.

• Anticipates low single-digit loan growth and deposits to remain largely flat.
• Expect modest net interest margin expansion while managing deposit costs.
• Noninterest income expected to grow by the mid-single digits off the 9/30 base.
• Expenses to have low single-digit growth per quarter, positively impacting efficiency ratio.
• Tax rate and net charge-offs expected to normalize closer to the third quarter rate for taxes and towards long-term average for charge-offs.

• Credit quality may have volatility as the loan portfolio shifts, especially with the move towards more commercial lending.
• Noninterest income is affected by one-time items.
• M&A integration may present uncertainties.
• Interest rate environment changes could impact net interest margin.
• Deposit cost control faces market pressures.

Q: Daniel Tamayo asked about fee income guidance, including if the $1 million level in the fourth quarter is a good number going forward and the driver of the normalized credit charge-off guidance increase.

A: Doug Schosser said they'll provide more guidance for 2025 after full fourth quarter results, currently guiding to a more normalized level after onetime losses, and the credit charge-off guidance increase was due to getting more consistent with long-term normal expectations.

Q: Manuel Navas inquired about M&A targets, financial hurdles, geographies of interest, and size of targets.

A: Louis Torchio stated they're focused in their 4-state footprint, looking for accretive deals, end-market deals, and strategic product/diversification deals, with focus on highly accretive, $1 billion to $3 billion size deals in growth markets like Columbus and Indianapolis.

Q: Matthew Breese asked about pure floating rate loans as a percentage of total loans, fixed rate loan duration, C&I growth pace, and reserve as a percentage of loans.

A: Doug Schosser said floating rate loans make up 24% of earning assets, details on fixed rate duration were provided, C&I growth to continue with focus on balanced economics and deposit gathering, and reserve will increase prudently with portfolio remixing.

Q: Frank Schiraldi asked about consumer loan runoff, credit classified increase reason, and net interest margin guidance.

A: Doug Schosser said consumer loan runoff was due to lower vehicle sales, credit classified increase was from portfolio review with nonperforming asset payoff, and net interest margin guidance was based on adjusting for interest recovery on nonaccrual loans.

Q: Daniel Cardenas asked about balance sheet restructuring efforts, provisioning change, and de novo breakeven period.

A: Doug Schosser said no immediate balance sheet restructuring planned, provisioning not expected to materially increase for long-term health care portfolio, and de novo breakeven period details to be provided later with more strategy details.