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Northwest announces quarterly earnings

Northwest Bancshares, Inc., (the “Company”), (NasdaqGS: NWBI) announced net income for the quarter ended March31, 2020, of $7.9 million, or $0.07 per diluted share. This represents a decrease of $17.1 million, or 68.3%, compared to the same quarter last year when net income was $25.0 million or $0.24 per diluted share. The annualized returns on average shareholders’ equity and average assets for the quarter ended March31, 2020 were 2.37% and 0.30% compared to 7.96% and 1.03% for the same quarter last year.

The company also announced that its Board of Directors declared a quarterly cash dividend of $0.19 per share payable on May15, 2020 to shareholders of record as of May7, 2020.This is the 102ndconsecutive quarter in which the Company has paid a cash dividend. Based on the market value of the Company’s stock as of March31, 2020, this represents an annualized dividend yield of approximately 6.57%.

In making this announcement, Ronald J. Seiffert, Chairman, President and CEO, noted, “It goes without saying that we are operating in unprecedented times that were impossible to predict just two months ago. Similar to all individuals and businesses, we are trying to react to the daily challenges driven by the pandemic, the government mandates, and the recommendations of healthcare professionals while balancing the needs and expectations of our families, employees, customers, communities, and shareholders. To that end, we have taken every measure and precaution to protect our employees while continuing to service our customers. At the same time, we are being very mindful of the fiduciary responsibility that we have to our shareholders.”

Employees and Families

“First, we have made a commitment to our employees, our most important and valuable asset, that we will continue to provide full pay and benefits throughout this crisis. With the many stressors and distractions that they face on a daily basis, we want our employees to focus on servicing our customers without worrying about their own financial situation.

“We have limited our branch service model to drive-through only in order to reduce direct contact between our employees and customers. Our customers may also schedule a meeting within the office through our online/website portal or take advantage of the significant investment that we have made in technology through use of our alternative delivery channels. We have also closed a number of our offices that do not have drive-through capabilities and have reduced the number of employees servicing each office so that their hours can be reduced to accommodate their obligations at home.

“In addition to the above, we have provided gloves, masks and protective goggles to our front-line employees and we are currently installing teller shields in all of our offices for added precaution when branches re-open and lobby traffic resumes.

“Finally, we have established remote capabilities for our trust, brokerage, insurance, and lending representatives to work from home. Approximately 75% of our back-office and regional headquarter personnel are working virtually as well.”

Customers

“In order to provide relief to our customers in these unprecedented times, we have provided a number of fee concessions and changes to our lending programs. For example, we have waived minimum deposit balance fees, ATM fees and time deposit early withdrawal fees to ease customer access to their funds. In addition, we have approved over 4,500 requests for loan payment deferrals representing almost $1.0 billion in loan obligations.”

Communities and

Businesses

“Through the tireless efforts of our dedicated employees, we quickly established a system and process to accept over 3,500 Payroll Protection Program (PPP) loan applications for $430 million, of which approximately 30% were accepted by the SBA before the current program funding was exhausted. We also stand ready to submit the remaining applications to the SBA and to implement the Main Street loan program once the rules are published and implemented.”

Shareholders

“While earnings were greatly impacted in the first quarter due to CECL and the potential impact of COVID-19, we are well positioned to weather this storm similar to our financial condition during the great recession in 2008. We are addressing this crisis from a position of strength. Our capital position is robust with our common equity tier 1 capital at $1.113 billion or 13.3%, total delinquencies are low at $139.9 million, or 1.6% of total loans, and real estate owned balances continue to be at historically low levels at approximately $1.0 million. Our liquidity position is ample with 10% of our on-balance sheet assets in cash and investments of which 95% of our investments are backed by GSE’s. In addition, we have over $3.0 billion of borrowing capacity with the FHLB of Pittsburgh.”

Mr. Seiffert continued, “Despite the adversity caused by COVID-19, our team was able to successfully close and convert the merger with MutualBank this past weekend. We are so happy to welcome 348 new employees into the Northwest family and look forward to servicing 70,333 more households from our 36 full-service offices in Indiana.”

Mr. Seiffert concluded, “I am so very proud of our employees, management team and our Board of Directors who have all risen to the occasion during these extremely challenging times and have stood tall in the face of adversity to service our customers and communities.”

“Net interest income decreased by $754,000, or 0.9%, to $87.2 million for the quarter ended March31, 2020, from $88.0 million for the quarter ended March31, 2019, primarily due to a $1.3 million, or 12.4%, increase in interest expense on deposits. This increase was primarily due to an increase of $746.9 million in the average balance of interest-bearing deposits. Partially offsetting this decrease was a $415,000, or 19.2%, decrease in interest expense on borrowed funds due to a decline in market interest rates when compared to the prior year. The net impact of these changes caused the Company’s net interest margin to decrease to 3.66% for the quarter ended March31, 2020 from 3.97% for the same quarter last year.

The provision for loan losses increased by $21.2 million, or 327.4%, to $27.6 million for the quarter ended March31, 2020, from $6.5 million for the quarter ended March31, 2019. During the current quarter, the Company adopted ASU 2016-13, referred to as Current Expected Credit Losses (“CECL”), which requires that all financial assets measured at amortized cost be presented at the net amount expected to be collected inclusive of the entity’s current estimate of all lifetime expected credit losses. Due to the adoption of CECL, our allowance for loan losses, reserve for unfunded commitments and equity were negatively impacted by $10.8 million, $2.3 million and $9.6 million, respectively. In addition, the estimated economic impact of COVID-19 caused us to increase our provision expense for the quarter by approximately $23 million.

Noninterest income increased by $6.3 million, or 29.1%, to $28.0 million for the quarter ended March31, 2020, from $21.7 million for the quarter ended March31, 2019.This increase was primarily due to a $3.1 million, or 25.5%, increase in service charges and fees due to a change in fee structure initiated in the fourth quarter of 2019. We also recognized a gain of $1.3 million in the current quarter on the sale of approximately $49.5 million of one-to four-family mortgage loans from our portfolio.

“We chose to sell these loans as they were identified as most likely to refinance due to declining market interest rates and we redeployed the proceeds into shorter duration consumer and commercial loans at an equivalent yield. Also contributing to the increase was an increase in our mortgage banking income of almost $1.0 million due to continued efforts to expand our secondary market sales capabilities. In addition, there was an increase in trust and other financial services income of $806,000, or 19.2%, primarily due to new brokerage production.

“Noninterest expense increased by $7.2 million, or 10.1%, to $78.6 million for the quarter ended March 31, 2020, from $71.4 million for the quarter ended March 31, 2019. This increase resulted primarily from a $4.6 million, or 11.9%, increase in compensation and employee benefits due to both internal growth in compensation and staff as well as the addition of Union Community Bank employees at the beginning of March last year. In addition, acquisition expense increased by $532,000, or 27.6%, due to expenses incurred to date as a result of the acquisition of MutualFirst Financial, Inc. and processing expenses increased by $708,000, or 6.8%, as we continue to invest in technology and infrastructure. Partially offsetting this increase was a decrease in federal deposit insurance premiums of $706,000 due to the usage of the remaining assessment credit received during the quarter as a result of the deposit insurance fund becoming fully funded.

” The provision for income taxes decreased by $5.7 million, or 84.8%, to $1.0 million for the quarter ended March 31, 2020, from $6.7 million for the quarter ended March 31, 2019.

“This decrease was due primarily to the decrease in net income before taxes by $22.8 million, or 71.8%.

“In addition, due to the expansion of net operating loss carryback capabilities, a $764,000 benefit was recognized in order to increase the deferred tax asset associated with carrying back losses acquired through prior mergers to years with higher statutory income tax rates.”

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