NASDAQ:NWBI Northwest Bancshares Q3 2024 Earnings Report $12.52 +0.05 (+0.36%) As of 02:15 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Northwest Bancshares EPS ResultsActual EPS$0.26Consensus EPS $0.26Beat/MissMet ExpectationsOne Year Ago EPS$0.31Northwest Bancshares Revenue ResultsActual Revenue$199.21 millionExpected Revenue$140.80 millionBeat/MissBeat by +$58.41 millionYoY Revenue GrowthN/ANorthwest Bancshares Announcement DetailsQuarterQ3 2024Date10/29/2024TimeBefore Market OpensConference Call DateTuesday, October 29, 2024Conference Call Time9:00AM ETUpcoming EarningsNorthwest Bancshares' Q2 2025 earnings is scheduled for Tuesday, July 22, 2025, with a conference call scheduled at 9:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Northwest Bancshares Q3 2024 Earnings Call TranscriptProvided by QuartrOctober 29, 2024 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Northwest Bancshares Inc. 3Q 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. Operator00:00:16After the speakers' remarks, there will be a question and answer session. I would now like to turn the call over to Joseph Canfield, Executive Vice President, Chief Accounting Officer. You may begin. Speaker 100:00:40Good morning, everyone, and thank you, operator. Welcome to Northwest Bancshares' 3rd quarter 2024 earnings call. Joining me today are Louis Tortio, President and CEO of Northwest Bancshares Inc, the holding company for NorthWest Bank Douglas Schatzert, our Chief Financial Officer and T. K. Creel, our Chief Credit Officer. Speaker 100:00:59During this call, we will refer to information included in the supplemental earnings release presentation, which is available on our Investor Relations website. This presentation includes our forward looking statements and other data, including non GAAP measures. Please note that actual results may differ materially from the forward looking statements made today, October 29, 2024. These statements will not be updated after today's call. Thank you. Speaker 100:01:24And now I will hand it over to Lou. Speaker 200:01:27Good morning, everyone. Thank you for joining us to discuss our quarterly results. We delivered solid returns and I'm pleased with our core financial performance, which Doug will cover momentarily. I'm particularly pleased with our NIM expansion, quarter over quarter revenue growth and continued improvement in our efficiency ratio. This clearly demonstrates that we are delivering on prior commitments made. Speaker 200:01:53Though modest, we continue to see deposits rise even with the near best in class cost of funds. In addition, we continue to see positive results from the security portfolio restructure executed last quarter, which continues to positively position Northwest for the upcoming quarters and years ahead. I want to thank every team member for their talent and dedication in producing these results. I'm proud of your hard work and focus on our customers and communities. I'd like to take a moment to discuss the increasingly dynamic M and A environment within our markets. Speaker 200:02:30As previously stated, Northwest and our Board are steadfast in our commitment to responsible growth, both organically and through acquisitions. I'm in frequent discussion with other bank leaders and investment bankers positioning Northwest advantageously for future opportunities. Our leadership team remains dedicated to enhancing our performance, thereby strengthening our financial standing and bolstering our acquisition potential. Finally, as we have for the past 120 quarters, on behalf of the Board of Directors, I'm pleased to declare a quarterly dividend of $0.20 per share to our shareholders of record as of November 8, 2024. Now it's my pleasure to introduce Doug Schosser, Northwest Bank's Chief Financial Officer, who will take us through our financial results. Speaker 300:03:21Thank you, Lou, and good morning, everyone. Before we dive in today's presentation, I'd like to welcome Joe Canfield, who you already heard from at the top of the call. Joe recently joined NorthWest as our Executive Vice President and Chief Accounting Officer. Additionally, we've named a new Treasurer this quarter, Sean Morrow, who's been with the firm for over 7 years and was formerly our Assistant Treasurer and was promoted with Jeff Madigan's departure. He was unable to join this call, but will be on future calls. Speaker 300:03:51Let's begin on Page 4 of the earnings presentation for our Highway Northwest financial results for the Q3 of 2024. We reported net income of $33,600,000 or $0.26 per diluted share. Our net interest margin expanded by 13 basis points for this quarter to 3.33 percent aided partially by an interest recovery on a non accrual loan, which added 4 basis points to that margin. We continue to see our margin increase due to our continued pricing discipline across our balance sheet, including our deposit portfolio and our newly originated loans and supported by a more favorable interest rate environment. Compared to the same quarter last year, our loan portfolio was essentially flat and deposits grew by 3.2%. Speaker 300:04:41Excluding a $39,000,000 loss on the sale of the securities as we repositioned our balance sheet, non interest income decreased by $3,000,000 due to a loss on an equity method investment, lower gains on the sale of SBA loans and a loss on the sale of some bank owned real estate acquired from past acquisition activity. Non interest expense decreased by nearly 2% or approximately $2,000,000 from the 2nd quarter. Credit quality remains strong. Overall allowance coverage slightly increasing to 1.11 percent of loans from 1.10 last quarter and a year ago quarter. Finally, our capital position remains strong with an estimated Tier 1 capital to risk weighted assets of 13.7% at ninethirty. Speaker 300:05:28Now let's delve into additional details. On Page 5, you'll see that our commercial and industrial loans grew by 2.8% since last quarter and 25.7% year over year, while residential mortgages declined by $190,000,000 or 5.5% since last year. This shift underscores our focus on commercial banking transformation. Our commercial real estate portfolio shrank by just 1% since last quarter, reflecting a more desirable loan mix with higher share of C and I compared to CRE. Our loan yields have steadily increased over the last 5 quarters, now standing at 5.6%. Speaker 300:06:07Moving to Page 6, deposits remained largely flat since last quarter and up 3.2% year over year. Our cost of deposits only increased by 2 basis points, the lowest rate in the past 5 quarters. Most deposit growth occurred in interest bearing demand products with modest growth in consumer savings and money market accounts. The current cost of deposit stands at 1.78 percent, which is near best in class relative to our peers. On Page 7, we cover the net interest margin, which now stands at 333 basis points, a 13 basis point improvement from the 2nd quarter and 10 basis points higher than the same quarter last year. Speaker 300:06:47Fully tax equivalent net interest income grew by approximately 4% from $108,000,000 last quarter to $112,000,000 This marks our 2nd consecutive quarter of net interest income growth and NIM improvement, reflecting reduced borrowings, higher loan yields and no growth in our cost of funds. We ended the quarter with the cost of funds at 2.39%, one basis point lower than the prior quarter. We have included some additional information on Speaker 100:07:15the margin on the next few slides. Speaker 300:07:17Now moving to Slide 10. Non interest income decreased quarter ended September 30, 2023 due to a $3,000,000 decrease in income from bank loan life insurance resulting from death benefits received in prior periods. Excluding the $39,000,000 loss on the sale of securities last quarter, non interest income decreased by $3,000,000 from the prior quarter due to a loss on the equity method investment, lower gains on the sale of SBA loans and a loss on the sale of real estate that was part of some previously acquired banks and was largely vacant. On Slide 11, details of our non interest expense. Our efficiency ratio improved to 64.8%, reflecting a nearly $2,000,000 reduction in expenses for the quarter. Speaker 300:08:02We continue to in source work previously handled by more expensive third party firms to reduce overall costs and increase the quality of that work. We remain focused on finding additional cost reductions without impacting core operations or diminishing the service levels our customers expect. Regarding credit quality on Page 12, our allowance to loan coverage increased slightly to 1.1% with net charge offs at just 18 basis points for the quarter. Page 13 shows that overall credit performance remains strong with an improvement in non performing assets. While 30 day loan delinquency saw a slight increase of 70 basis points, classified loans also increased slightly to 2.83% of total loans. Speaker 300:08:45Slide 14 highlights our commercial loan concentration, showcasing a diverse portfolio. Strong underwriting has helped us avoid many CRE specific issues and we have minimal exposure to large metro areas, large metro offices or rent controlled markets. Finally, let's discuss our outlook for the remainder of the year. We will continue to focus on responsible and profitable loan growth in the commercial space, particularly CMI lending. We anticipate low single digit loan growth and expect deposits to remain largely flat. Speaker 300:09:16We will manage deposit costs while balancing client expectations and market pressures allowing for modest net interest margin expansion. We expect non interest income to grow by the mid single digits off of the 9.30 base given some of the one time items this quarter. We continue to keep expenses in the low single digit growth per quarter positively impacting our efficiency ratio. Both our tax rate and net charge offs are expected to normalize closer to the Q3 rate for taxes and towards our long term average for charge offs. On behalf of the entire leadership team and the Board of Directors, thank you for joining us this morning. Speaker 300:09:53I will now turn the call over to the operator who will facilitate the live Q and A session. Operator00:10:06Our first question comes from the line of Daniel Tamo with Raymond James. Your line is open. Speaker 400:10:15Hey, good morning, everyone. Thanks for taking my questions. Maybe first just starting on the fee income guidance. Just curious, it looks like it's a little bit lower number than what I was looking for and then you had the losses in the mark to market in the Q4 within the other. So I'm curious if that is still a good number kind of going forward, that $1,000,000 given you're talking about the guidance off of the $27,000,000 $27,800,000 number in the Q3 going forward as kind of we get into 2025 or if that's going to go back to a number similar to what we saw in prior quarters maybe in the $2,000,000 or $3,000,000 range per quarter? Speaker 300:11:04Yes. We'll provide more guidance for 2025 when we go through the full Q4 results sometime in January. So we'll update that guidance. But for now, we're just guiding to sort of a more normalized level after you account for some of the one time losses that we had for the Q4. Speaker 400:11:23So just to be clear then, you're expecting a number similar to the $1,000,000 number level in the 4th quarter? Speaker 300:11:32Yes, I would say we're expecting a number closer to where we were at in the Q3 after you adjust for the security or the second quarter after you adjust for the security losses. So again, if you're going to rebound back to mid single digits, you're going to pick up another couple of $1,000,000 on that line item, dollars 1,500,000 to $3,000,000 somewhere in that range. So we should expect to get back to that kind of level, that core level of $29,000,000 $30,000,000 something like that. Speaker 400:11:58Okay. So when you say mid single digits, you're not saying annualized, you're talking about, I guess, stated mid single digit from the Q3. I think that may be Speaker 100:12:07the confusion. Got it. Okay. Speaker 400:12:09All right. Thank you. And then also, I guess, maybe looking at the credit side, so looks like your normalized net charge off guidance went up from last quarter. So curious kind of what drove that thought? And then if there was visibility into kind of the path of getting there, if that when you say, you're getting trending towards that, if that's because you see something near term that's going to take you into that range or if that's more of a, just we expect to be there at some point? Speaker 400:12:46Thanks. Speaker 300:12:47Yes, it's more of the latter, right? We're just trying to guide to what a normalized level of charge offs would be for the firm over a long period of time. So we're obviously in really, really good credit quality environment right now. So, I think most banks are saying the same thing, right? We do expect this environment will normalize and it will get closer to those long term averages. Speaker 300:13:06We're not suggesting that we expect any 1 quarter to be significantly different. It's more you're going to see some volatility in it as individual credits can create a bit of volatility when you're at these low levels. Speaker 400:13:20Okay, understood. And in terms of the increase in the normalized guidance from last quarter, what was the driver there? Speaker 300:13:28I think that was just more me getting clarification from credit partners as to what that longer term normal would be. So last quarter, we were guiding a little bit lower than that, which is true. We haven't really changed our credit outlook, although the guide is a little bit higher. Again, it is not indicative of a single quarter. It's indicative more of a long term trend. Speaker 300:13:49So just getting a little bit more consistent with where internally we are. Speaker 400:13:54Okay, thanks. Speaker 300:13:55I appreciate all the feedback. I will add too, as we continue to rebalance towards more commercial, you're going to expect a little bit of a different profile going forward. But again, we're talking longer term trends, not a specific quarter that I'm guiding to. Speaker 400:14:10Understood. All right. Thanks, Doug. Appreciate all the color. Speaker 500:14:14Yes. Operator00:14:16Your next question comes from the line of Manuel Neves with D. A. Davidson. Your line is open. Speaker 600:14:24Hey, can you remind us some of your targets in M and A kind of financial hurdles, geographies that you might be finding intriguing and size of targets and opportunities that you're looking for? Just kind of reset that for us. Speaker 700:14:39Yes. Good morning, Emmanuel. How are you? Speaker 200:14:44Good. Yes. So, similar to last quarter, I would say that, 1st of all, we're focused in market in our 4 state footprint. And the opportunities that come up to us really fall into a couple of different categories, sort of an end market deal, something that probably looks more like the geography in Columbus and Indianapolis growth markets that we happen to be in and around. And then, and finally, maybe strategic from a product or a diversification standpoint. Speaker 200:15:26But I would say that the most important thing for us is really how accretive it is, what it's going to cost us to acquire. We're really in tune with that. And then I think strategically some of the end market stuff is since we haven't really had an acquisition since the COVID era, we'd be looking at doing something that we're confident we can execute on, right? Highly accretive, from a size perspective, more of what you expected in the past, the $1,000,000,000 to $3,000,000,000 range and something that we feel highly confident in executing on making the deal accretive. The other note there is in the 2 fast growing markets being Columbus and Indianapolis, we're going into strategic planning here in a month and we're evaluating de novo strategy, branch expansion in those areas. Speaker 200:16:32We've already hired some commercial lenders. We've got some business bankers and we're looking at the viability of using some capital to expand in those in 2 fastest growth markets in the Midwest from a de novo strategy. So So as I stated in my statement, the market is picking up. I'm out in the marketplace meeting with other bank CEOs. We're having some conversations. Speaker 200:17:03But we're going to be very prescriptive and very careful to make sure that our transaction is going to be highly accretive. Speaker 300:17:12Hey, Manny, the only thing I would add to is we are looking for similar low cost granular deposit basis as well. So we'll be looking for deals that will add to the strengths that we already have within this franchise. Speaker 600:17:29I appreciate that color. That's interesting about the LPO development. That leads to kind of my next question is, can you go into where you had strength on the commercial side kind of on business line and regionally and kind of where did you have strengthened commercial regionally? Speaker 300:17:53Yes. I mean, I would say that the overall model for commercial continues as we've done our expansion. So I think we've talked about it before. So we have some new verticals that have come online. Several of them actually started this year. Speaker 300:18:08So you've got sports finance, you've got sponsored finance, franchise finance. We've got a corporate finance team and we have equipment finance. So as you continue to see all of those businesses mature, equipment finance, corporate finance being the longest term ones, you're just starting to see our folks build pipelines and get more at that, which we expect that progress to continue. So in talking a little bit to J. D. Speaker 300:18:35Marteau, he's seeing his pipelines grow anywhere from 10% to 20%. That's in the highly probable categories. And again, I think it's just a matter of maturation as these businesses are on the ground longer, as our credit teams and business leaders are out getting more confidence in the type of deals that will get approved, you're going to start to see some more consistent growth. So I would say it is relatively broad based across all of those verticals and we continue to look forward to those particular verticals maturing over the course of 2025. Speaker 600:19:14Any regions stand out more than others? I Speaker 300:19:19don't know that I've seen any major I don't know that I've seen any major concentration in any one of our regions in terms of opportunities or actual credits that we've approved. Speaker 600:19:28Okay. And then just a quick follow-up on the NIM. What are you kind of assuming in terms of initial deposit betas in your guidance or initial loan betas for the Q4? And where can they go for the full cycle? Just kind of talk through that a little bit. Speaker 300:19:48Yes. Again, I think we'll provide a little bit more color on that going into 2025 in terms of what our margin guidance will be. I will just say that this last rate cut, some of our deposit pricing changes didn't go in until the very end of September, like literally on the 27th September. So we still have some opportunity there and we're not suspecting that there is going to be significant additional Fed cuts this year. We have 1 25 basis point cut in November, in the guide that we provided. Speaker 300:20:17But again, we're still going to pick up benefit from the last cuts that had some deposit changes that came late in this cycle. Speaker 600:20:27How successful were you to lower deposit rates? Do you have like an end of period deposit costs level to disclose? How are you doing into October? Has there been pushback on deposit declines? Speaker 300:20:44Yes. So we're not providing an end of month guidance. As you've seen, we had very, very low deposit growth this quarter, deposit cost growth. Given the fact that I just said we had rates that went in as of 9.27, you can expect that that deposit cost will continue to trend down next quarter. We have been pleasantly surprised and comfortable with the deposit renewal rates that we've been seeing in the book and in our ability to maintain our deposits with this pricing. Speaker 300:21:16So again, I believe we kind of continue to have a very reasonable pricing stance within our markets and against our competition. And we have seen our customer base respond accordingly without having significant levels of runoff as a result of those, in line with market price changes that we made. Speaker 600:21:37I really appreciate the discussion. Thank you. Speaker 100:21:41Yes. And Operator00:21:43your next question comes from the line of Matthew Breese with Stephens Inc. Your line is open. Speaker 300:21:48Hey, good morning. Speaker 700:21:50Good morning, Matt. Good morning. Speaker 800:21:51I was hoping you could help me out with a couple of things. The first one is just could you break out for us what pure floating rate loans are as a percentage of total loans, meaning priced off so far or fine? If you have it, what the yield is on that book versus everything else, the adjustable and fixed rate book? Speaker 300:22:12Yes. So if you go into our deck on Slide 8, we provided although we didn't give you the rate index that they were off of, we did provide fixed and floating percentage across our earning assets. So the aggregate book is showing 24% floating, 68% fixed and you can see it broken down across our categories and we also provided some additional detail on the funding mix side of things and how those would tend to react over time. Speaker 800:22:41This is great. Thank you. Okay. I'll just go here. Do you have any idea on the fixed rate what the duration is or how much you expect to reprice over the next, probably, 12 months? Speaker 300:22:52I mean, again, our residential mortgage book is our single largest book and you can assume like everybody else that is a pretty long tenured book with relatively low yields. And then the 2nd largest book in that consumer, well not 2nd largest commercial real estate is the next largest. But if you look at consumer as well, that is a pretty sizable auto loan portfolio that's again going to have generally fixed rate duration, but of a much lower fixed rate loans of a lower duration. Speaker 500:23:25Okay. Speaker 800:23:28Could you talk a little bit about the pace of C and I growth? Obviously, that's kind of in the lion's share of where growth has come from recently. Should we expect this kind of pace to continue kind of mid to high single digits on a quarterly basis? And where do you want to bring C and I loans to as a percentage of total loans? Where do you feel like the appropriate level is? Speaker 800:23:49Yes, Speaker 300:23:51I don't know that we have a specific target of where that level would be. I think we like the C and I business. We've made some significant investments in that business over time. We plan to continue to grow the C and I portfolio as a percent of total. Again, we have a pretty significant amount of runoff in that consumer book that we would like to replace with some more commercial loans. Speaker 300:24:17And I would generally say, the commercial real estate book, although we're still in that market, we don't tend to significantly grow that. So the bulk of our commercial growth will be into C and I and we would tend to run down and support the funding of that by rundown of sort of mortgage and home mortgage, home equity and consumer just as natural cash flows in that portfolio occurred. Speaker 200:24:38And I would just add to that, this is Lou. I would just add to that, right. While we don't really have a target percentage, what we're looking for there is balance, right? And we're also looking for the ancillary economics that are going to be meaningful to us from a fee standpoint and a deposit standpoint to help us grow deposits. We're under indexed in the commercial deposit space. Speaker 200:25:05We have a real focus on not just giving out loans in the C and I space that eat up capital. So we're looking to gather deposits in our strategy. A number of our businesses like the sponsored finance business, the franchise business all come with deposits and fees, full deposit relationships. So, it's really strategic in that we want a better revenue stream, we want more balanced economics and we want a loan book that is consistent through various economic cycles. So I think you'll continue to see that remixing. Speaker 200:25:47But ultimately, we'll get to the equilibrium there. And I think it'll produce much better economic results for us, financial results. Speaker 800:25:58Understood. Okay. Last one for me, just along those lines, as we continue to remix into C and I, is it fair to assume the reserve as a percentage of loans increases as well? We haven't seen it really, at least on that metric, grow much year over year, but I'm curious as time goes on whether or not that 111 reserve will creep higher? Speaker 200:26:19Yes. So we're very in tune with that remixing and you're absolutely right. We will see an increase over time in the reserve prudently. We built internally, we built the infrastructure to make this transition. So we understand the risk adjusted returns and the increased risk in moving away from, say, residential mortgages into C and I lending. Speaker 200:26:48We've built in our risk enterprise, we've built the three lines of defense and we're investing in some Moody's risk rating software, etcetera. So yes, it's all part of the strategy and we've procured a number of the senior leadership who've been there, done that. So this isn't something that is novel for us. And so I think we understand the risk component of the transition and will prudently the reserve will reflect that. Speaker 300:27:26Got it. That's all I had. Speaker 800:27:28Thank you for taking my questions. Speaker 100:27:29Thank you. Operator00:27:32And your next question comes from the line of Frank Schiraldi with Piper Sandler. Your line is open. Speaker 700:27:39Good morning. Hi, Frank. Good morning, Frank. You guys have obviously seen some pretty good commercial growth here. And I think Doug, you mentioned you talked about continued runoff on the consumer side of things. Speaker 700:27:55Just wondering, just thinking about 4Q, is the level we saw in terms of runoff in the consumer book in the Q3, is that a reasonable place to think about contraction in 4Q? Just trying to think about getting to that low single digit loan growth in the Q4 given the consumer side of things. Is it further ramp up in commercial? And any color you can just kind of provide there in terms of quarter over quarter growth? Thanks. Speaker 300:28:26Yes. So if you recall, there was quite a bit of there was a lower level overall vehicle sales, I believe in the Q3, they had a couple of different things that were working against them in terms of they had that technology matter. And then in general, there's just a bit lower demand. So we are looking at our pricing on the consumer book and trying to correct that with some better pricing to drive a little bit more consumer loan growth. So ideally, what we'd like to see is that overall level of decline slow so that we can show the modest loan growth that we're forecasting right now. Speaker 300:29:01So again, I mean, subject to the overall economy and what the market is giving us, we are doing things on our side to be priced competitively so that that run off slows a little bit or so that the net change in the portfolio is less negative and gives us an opportunity to show that 0% to 2% quarterly guide we're given our loan growth. Hopefully that answers your questions. Speaker 700:29:26Yes, that's great. And then just thinking credit obviously overall look pretty good. You had the increase in classifieds and you called out specific segment there, healthcare. And I just wondered if there was I think in the past you guys last quarter talked about some stabilization you're seeing in that segment. Just curious if the increase in classified reflects any sort of internal review in the quarter or just any more color there? Speaker 700:30:00Thanks. Speaker 900:30:03Sure. Yes, no, this is TK, Kirill. Thanks for the question, Frank. We are reviewing that majority of that portfolio quarterly. So the risk rating changes are reflective of that. Speaker 900:30:17That said, as we noted, we had a non performing asset, non performing loan payoff that was within that same portfolio. So, what we're seeing is transition of the portfolio through the criticized and classified. And then we are seeing a market for these as that non performing loan exited, the developer was able to find a suitor for us. So we do feel positive about the overall market slowly improving the sector. And then we actually had more number of loan upgrades than downgrades. Speaker 900:30:55It's just a couple of the downgrades were a larger one. So the dollar amount actually increased. Speaker 700:31:02Got you. Okay. That's helpful. And then just lastly, just want to make sure just clarification on part of the guide. When you guys talk about the low single digit growth in NIM linked quarter into the Q4, I just want to make sure I don't know if it's too fine a point. Speaker 700:31:23But anyway, you mentioned Doug before basis points on the interest recovery on the non accrual loan. So is that low single digits off of the reported number, off that 333 Speaker 300:31:35percent? No, it'd be off the 329 percent. That's why we wanted to highlight the 4 basis points like spike we had in interest income as we cleared that non accrual loan from the books. So you would adjust that down to 329% and then you do low single digit off of that. Speaker 700:31:50Great. Okay. Appreciate it. Thank you. Operator00:32:02The next question comes from the line of Daniel Cardenas with Janney Montgomery Scott. Your line is open. Speaker 500:32:10Good morning, guys. Speaker 700:32:12Hi, David. Good morning. Speaker 500:32:14Just a quick question in terms of thoughts on any additional balance sheet restructuring efforts coming into Q4 or into 2025? Speaker 300:32:29Yes, we don't have anything planned. I mean, there's still we're always evaluating the opportunities that the market would give us. But I think right where the current portfolio stands, we also as I mentioned at the beginning of the call, right, we had a change in our treasurer. So again, I think you should not expect to see anything dramatic from us in terms of restructures or things that we would be doing in the next quarter or 2, but we'll keep an eye out for opportunities. And if one becomes economically advantageous to us, we'll consider doing it. Speaker 500:33:06Okay. That's got it. And then with just going back to credit quality here quickly and the increase in the classified levels, Should we be thinking that maybe provisioning goes up a little bit if these classified levels can't come down? Is that kind of a good assumption here as we look into Q4? Speaker 900:33:32So the provisioning has occurred for those credits quarterly migrated. At this point, I would not expect material increases in the provisioning for the long term healthcare portfolio. Speaker 500:33:47Wonderful. And then how many credits made up that increase? Speaker 900:33:57Made up the increase in the classified loan level? Speaker 500:34:01Yes, sir. Yes, sir. Sorry about that. Speaker 700:34:07Here actually. Net, Speaker 900:34:12it was about 5 credits. But again, there were some that came in and some that went out. So we actually had more upgrades than downgrades. Speaker 500:34:25Okay. Any geographic concentration in those 5 credits? Speaker 300:34:30No. Okay. Speaker 500:34:33All right. And then quickly just one other question in terms of potential de novo in Columbus and Indy. How long do you guys think it takes or historically what has proven to be a kind of the breakeven period for de novos in your history? Speaker 300:34:56Yes. I would say, let us come back on that. So we're looking at that strategy right now. As you recall last time, Lou commented that we added Jirk Bauer to the team, long term P and C consumer bank specialist. I think we want to give in some opportunity to continue to look through that de novo strategy and talk to us about how he's going to execute that. Speaker 300:35:19So we are considering taking out and going through an Investor Day at some point over the course of next year, at which point we could talk a little bit about those plans more holistically. So, let's take a pass on that question for right now and we'll answer that with a little bit more detail when we're more ready to provide details on that strategy. Speaker 800:35:43Okay. Speaker 900:35:44Just to clarify my response on those numbers in classified, that was within the long term healthcare portfolio. So we can follow-up with other total migrations. Speaker 500:35:59All right. Perfect. Perfect. All right. That will do it for me. Speaker 500:36:02I'll step back right now. Thank you. Speaker 300:36:07Great. Thanks. Operator00:36:09And there are no further questions at this time. This does conclude today's conference call and you may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallNorthwest Bancshares Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Northwest Bancshares Earnings HeadlinesAnalysts Offer Insights on Financial Companies: Flushing Financial (FFIC), Northwest Bancshares (NWBI) and First Interstate Bancsystem (FIBK)May 3, 2025 | theglobeandmail.comNorthwest Bancshares Stock Sale by Chief Auditor!May 1, 2025 | tipranks.comThink NVDA’s run was epic? You ain’t seen nothin’ yetAsk most investors and they’ll probably tell you Nvidia is the undisputed AI stock of the decade. In 2023, it surged 239%. And in 2024, it soared another 171% on the year… But what if I told you there was a way to target those types of “peak Nvidia” profit opportunities in 24 hours or less?May 7, 2025 | Timothy Sykes (Ad)Analysts Offer Insights on Financial Companies: Farmers & Merchants Bancorp (FMAO), Northwest Bancshares (NWBI) and Deutsche Bank AG (DB)May 1, 2025 | theglobeandmail.comEarnings call transcript: Northwest Bancshares Q1 2025 beats estimates, shares riseApril 30, 2025 | investing.comNORTHWEST BANCSHARES Earnings Results: $NWBI Reports Quarterly EarningsApril 30, 2025 | nasdaq.comSee More Northwest Bancshares Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Northwest Bancshares? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Northwest Bancshares and other key companies, straight to your email. Email Address About Northwest BancsharesNorthwest Bancshares (NASDAQ:NWBI) operates as the bank holding company for Northwest Bank, a state-chartered savings bank that provides personal and business banking solutions. The company accepts various deposits, including checking, savings, money market deposit, term certificate, and individual retirement accounts. It also offers loan products comprising one-to-four-family residential real estate loans, shorter term consumer loans, and loans collateralized by multi-family residential and commercial real estate; home equity loans and lines of credit; commercial business and real estate loans; commercial loans; and consumer loans, including automobile loans, sales finance loans, unsecured personal loans, credit card loans, and loans secured by investment accounts, as well as investment management and trust services. The company operates community banking locations in Pennsylvania, Western New York, Eastern Ohio, and Indiana. Northwest Bancshares, Inc. was founded in 1896 and is headquartered in Columbus, Ohio.View Northwest Bancshares ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Archer Stock Eyes Q1 Earnings After UAE UpdatesFord Motor Stock Rises After Earnings, But Momentum May Not Last Broadcom Stock Gets a Lift on Hyperscaler Earnings & CapEx BoostPalantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's Earnings Upcoming Earnings Coinbase Global (5/8/2025)Monster Beverage (5/8/2025)Brookfield (5/8/2025)Anheuser-Busch InBev SA/NV (5/8/2025)ConocoPhillips (5/8/2025)Cheniere Energy (5/8/2025)McKesson (5/8/2025)Shopify (5/8/2025)Enbridge (5/9/2025)Petróleo Brasileiro S.A. - Petrobras (5/12/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 10 speakers on the call. Operator00:00:00Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Northwest Bancshares Inc. 3Q 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. Operator00:00:16After the speakers' remarks, there will be a question and answer session. I would now like to turn the call over to Joseph Canfield, Executive Vice President, Chief Accounting Officer. You may begin. Speaker 100:00:40Good morning, everyone, and thank you, operator. Welcome to Northwest Bancshares' 3rd quarter 2024 earnings call. Joining me today are Louis Tortio, President and CEO of Northwest Bancshares Inc, the holding company for NorthWest Bank Douglas Schatzert, our Chief Financial Officer and T. K. Creel, our Chief Credit Officer. Speaker 100:00:59During this call, we will refer to information included in the supplemental earnings release presentation, which is available on our Investor Relations website. This presentation includes our forward looking statements and other data, including non GAAP measures. Please note that actual results may differ materially from the forward looking statements made today, October 29, 2024. These statements will not be updated after today's call. Thank you. Speaker 100:01:24And now I will hand it over to Lou. Speaker 200:01:27Good morning, everyone. Thank you for joining us to discuss our quarterly results. We delivered solid returns and I'm pleased with our core financial performance, which Doug will cover momentarily. I'm particularly pleased with our NIM expansion, quarter over quarter revenue growth and continued improvement in our efficiency ratio. This clearly demonstrates that we are delivering on prior commitments made. Speaker 200:01:53Though modest, we continue to see deposits rise even with the near best in class cost of funds. In addition, we continue to see positive results from the security portfolio restructure executed last quarter, which continues to positively position Northwest for the upcoming quarters and years ahead. I want to thank every team member for their talent and dedication in producing these results. I'm proud of your hard work and focus on our customers and communities. I'd like to take a moment to discuss the increasingly dynamic M and A environment within our markets. Speaker 200:02:30As previously stated, Northwest and our Board are steadfast in our commitment to responsible growth, both organically and through acquisitions. I'm in frequent discussion with other bank leaders and investment bankers positioning Northwest advantageously for future opportunities. Our leadership team remains dedicated to enhancing our performance, thereby strengthening our financial standing and bolstering our acquisition potential. Finally, as we have for the past 120 quarters, on behalf of the Board of Directors, I'm pleased to declare a quarterly dividend of $0.20 per share to our shareholders of record as of November 8, 2024. Now it's my pleasure to introduce Doug Schosser, Northwest Bank's Chief Financial Officer, who will take us through our financial results. Speaker 300:03:21Thank you, Lou, and good morning, everyone. Before we dive in today's presentation, I'd like to welcome Joe Canfield, who you already heard from at the top of the call. Joe recently joined NorthWest as our Executive Vice President and Chief Accounting Officer. Additionally, we've named a new Treasurer this quarter, Sean Morrow, who's been with the firm for over 7 years and was formerly our Assistant Treasurer and was promoted with Jeff Madigan's departure. He was unable to join this call, but will be on future calls. Speaker 300:03:51Let's begin on Page 4 of the earnings presentation for our Highway Northwest financial results for the Q3 of 2024. We reported net income of $33,600,000 or $0.26 per diluted share. Our net interest margin expanded by 13 basis points for this quarter to 3.33 percent aided partially by an interest recovery on a non accrual loan, which added 4 basis points to that margin. We continue to see our margin increase due to our continued pricing discipline across our balance sheet, including our deposit portfolio and our newly originated loans and supported by a more favorable interest rate environment. Compared to the same quarter last year, our loan portfolio was essentially flat and deposits grew by 3.2%. Speaker 300:04:41Excluding a $39,000,000 loss on the sale of the securities as we repositioned our balance sheet, non interest income decreased by $3,000,000 due to a loss on an equity method investment, lower gains on the sale of SBA loans and a loss on the sale of some bank owned real estate acquired from past acquisition activity. Non interest expense decreased by nearly 2% or approximately $2,000,000 from the 2nd quarter. Credit quality remains strong. Overall allowance coverage slightly increasing to 1.11 percent of loans from 1.10 last quarter and a year ago quarter. Finally, our capital position remains strong with an estimated Tier 1 capital to risk weighted assets of 13.7% at ninethirty. Speaker 300:05:28Now let's delve into additional details. On Page 5, you'll see that our commercial and industrial loans grew by 2.8% since last quarter and 25.7% year over year, while residential mortgages declined by $190,000,000 or 5.5% since last year. This shift underscores our focus on commercial banking transformation. Our commercial real estate portfolio shrank by just 1% since last quarter, reflecting a more desirable loan mix with higher share of C and I compared to CRE. Our loan yields have steadily increased over the last 5 quarters, now standing at 5.6%. Speaker 300:06:07Moving to Page 6, deposits remained largely flat since last quarter and up 3.2% year over year. Our cost of deposits only increased by 2 basis points, the lowest rate in the past 5 quarters. Most deposit growth occurred in interest bearing demand products with modest growth in consumer savings and money market accounts. The current cost of deposit stands at 1.78 percent, which is near best in class relative to our peers. On Page 7, we cover the net interest margin, which now stands at 333 basis points, a 13 basis point improvement from the 2nd quarter and 10 basis points higher than the same quarter last year. Speaker 300:06:47Fully tax equivalent net interest income grew by approximately 4% from $108,000,000 last quarter to $112,000,000 This marks our 2nd consecutive quarter of net interest income growth and NIM improvement, reflecting reduced borrowings, higher loan yields and no growth in our cost of funds. We ended the quarter with the cost of funds at 2.39%, one basis point lower than the prior quarter. We have included some additional information on Speaker 100:07:15the margin on the next few slides. Speaker 300:07:17Now moving to Slide 10. Non interest income decreased quarter ended September 30, 2023 due to a $3,000,000 decrease in income from bank loan life insurance resulting from death benefits received in prior periods. Excluding the $39,000,000 loss on the sale of securities last quarter, non interest income decreased by $3,000,000 from the prior quarter due to a loss on the equity method investment, lower gains on the sale of SBA loans and a loss on the sale of real estate that was part of some previously acquired banks and was largely vacant. On Slide 11, details of our non interest expense. Our efficiency ratio improved to 64.8%, reflecting a nearly $2,000,000 reduction in expenses for the quarter. Speaker 300:08:02We continue to in source work previously handled by more expensive third party firms to reduce overall costs and increase the quality of that work. We remain focused on finding additional cost reductions without impacting core operations or diminishing the service levels our customers expect. Regarding credit quality on Page 12, our allowance to loan coverage increased slightly to 1.1% with net charge offs at just 18 basis points for the quarter. Page 13 shows that overall credit performance remains strong with an improvement in non performing assets. While 30 day loan delinquency saw a slight increase of 70 basis points, classified loans also increased slightly to 2.83% of total loans. Speaker 300:08:45Slide 14 highlights our commercial loan concentration, showcasing a diverse portfolio. Strong underwriting has helped us avoid many CRE specific issues and we have minimal exposure to large metro areas, large metro offices or rent controlled markets. Finally, let's discuss our outlook for the remainder of the year. We will continue to focus on responsible and profitable loan growth in the commercial space, particularly CMI lending. We anticipate low single digit loan growth and expect deposits to remain largely flat. Speaker 300:09:16We will manage deposit costs while balancing client expectations and market pressures allowing for modest net interest margin expansion. We expect non interest income to grow by the mid single digits off of the 9.30 base given some of the one time items this quarter. We continue to keep expenses in the low single digit growth per quarter positively impacting our efficiency ratio. Both our tax rate and net charge offs are expected to normalize closer to the Q3 rate for taxes and towards our long term average for charge offs. On behalf of the entire leadership team and the Board of Directors, thank you for joining us this morning. Speaker 300:09:53I will now turn the call over to the operator who will facilitate the live Q and A session. Operator00:10:06Our first question comes from the line of Daniel Tamo with Raymond James. Your line is open. Speaker 400:10:15Hey, good morning, everyone. Thanks for taking my questions. Maybe first just starting on the fee income guidance. Just curious, it looks like it's a little bit lower number than what I was looking for and then you had the losses in the mark to market in the Q4 within the other. So I'm curious if that is still a good number kind of going forward, that $1,000,000 given you're talking about the guidance off of the $27,000,000 $27,800,000 number in the Q3 going forward as kind of we get into 2025 or if that's going to go back to a number similar to what we saw in prior quarters maybe in the $2,000,000 or $3,000,000 range per quarter? Speaker 300:11:04Yes. We'll provide more guidance for 2025 when we go through the full Q4 results sometime in January. So we'll update that guidance. But for now, we're just guiding to sort of a more normalized level after you account for some of the one time losses that we had for the Q4. Speaker 400:11:23So just to be clear then, you're expecting a number similar to the $1,000,000 number level in the 4th quarter? Speaker 300:11:32Yes, I would say we're expecting a number closer to where we were at in the Q3 after you adjust for the security or the second quarter after you adjust for the security losses. So again, if you're going to rebound back to mid single digits, you're going to pick up another couple of $1,000,000 on that line item, dollars 1,500,000 to $3,000,000 somewhere in that range. So we should expect to get back to that kind of level, that core level of $29,000,000 $30,000,000 something like that. Speaker 400:11:58Okay. So when you say mid single digits, you're not saying annualized, you're talking about, I guess, stated mid single digit from the Q3. I think that may be Speaker 100:12:07the confusion. Got it. Okay. Speaker 400:12:09All right. Thank you. And then also, I guess, maybe looking at the credit side, so looks like your normalized net charge off guidance went up from last quarter. So curious kind of what drove that thought? And then if there was visibility into kind of the path of getting there, if that when you say, you're getting trending towards that, if that's because you see something near term that's going to take you into that range or if that's more of a, just we expect to be there at some point? Speaker 400:12:46Thanks. Speaker 300:12:47Yes, it's more of the latter, right? We're just trying to guide to what a normalized level of charge offs would be for the firm over a long period of time. So we're obviously in really, really good credit quality environment right now. So, I think most banks are saying the same thing, right? We do expect this environment will normalize and it will get closer to those long term averages. Speaker 300:13:06We're not suggesting that we expect any 1 quarter to be significantly different. It's more you're going to see some volatility in it as individual credits can create a bit of volatility when you're at these low levels. Speaker 400:13:20Okay, understood. And in terms of the increase in the normalized guidance from last quarter, what was the driver there? Speaker 300:13:28I think that was just more me getting clarification from credit partners as to what that longer term normal would be. So last quarter, we were guiding a little bit lower than that, which is true. We haven't really changed our credit outlook, although the guide is a little bit higher. Again, it is not indicative of a single quarter. It's indicative more of a long term trend. Speaker 300:13:49So just getting a little bit more consistent with where internally we are. Speaker 400:13:54Okay, thanks. Speaker 300:13:55I appreciate all the feedback. I will add too, as we continue to rebalance towards more commercial, you're going to expect a little bit of a different profile going forward. But again, we're talking longer term trends, not a specific quarter that I'm guiding to. Speaker 400:14:10Understood. All right. Thanks, Doug. Appreciate all the color. Speaker 500:14:14Yes. Operator00:14:16Your next question comes from the line of Manuel Neves with D. A. Davidson. Your line is open. Speaker 600:14:24Hey, can you remind us some of your targets in M and A kind of financial hurdles, geographies that you might be finding intriguing and size of targets and opportunities that you're looking for? Just kind of reset that for us. Speaker 700:14:39Yes. Good morning, Emmanuel. How are you? Speaker 200:14:44Good. Yes. So, similar to last quarter, I would say that, 1st of all, we're focused in market in our 4 state footprint. And the opportunities that come up to us really fall into a couple of different categories, sort of an end market deal, something that probably looks more like the geography in Columbus and Indianapolis growth markets that we happen to be in and around. And then, and finally, maybe strategic from a product or a diversification standpoint. Speaker 200:15:26But I would say that the most important thing for us is really how accretive it is, what it's going to cost us to acquire. We're really in tune with that. And then I think strategically some of the end market stuff is since we haven't really had an acquisition since the COVID era, we'd be looking at doing something that we're confident we can execute on, right? Highly accretive, from a size perspective, more of what you expected in the past, the $1,000,000,000 to $3,000,000,000 range and something that we feel highly confident in executing on making the deal accretive. The other note there is in the 2 fast growing markets being Columbus and Indianapolis, we're going into strategic planning here in a month and we're evaluating de novo strategy, branch expansion in those areas. Speaker 200:16:32We've already hired some commercial lenders. We've got some business bankers and we're looking at the viability of using some capital to expand in those in 2 fastest growth markets in the Midwest from a de novo strategy. So So as I stated in my statement, the market is picking up. I'm out in the marketplace meeting with other bank CEOs. We're having some conversations. Speaker 200:17:03But we're going to be very prescriptive and very careful to make sure that our transaction is going to be highly accretive. Speaker 300:17:12Hey, Manny, the only thing I would add to is we are looking for similar low cost granular deposit basis as well. So we'll be looking for deals that will add to the strengths that we already have within this franchise. Speaker 600:17:29I appreciate that color. That's interesting about the LPO development. That leads to kind of my next question is, can you go into where you had strength on the commercial side kind of on business line and regionally and kind of where did you have strengthened commercial regionally? Speaker 300:17:53Yes. I mean, I would say that the overall model for commercial continues as we've done our expansion. So I think we've talked about it before. So we have some new verticals that have come online. Several of them actually started this year. Speaker 300:18:08So you've got sports finance, you've got sponsored finance, franchise finance. We've got a corporate finance team and we have equipment finance. So as you continue to see all of those businesses mature, equipment finance, corporate finance being the longest term ones, you're just starting to see our folks build pipelines and get more at that, which we expect that progress to continue. So in talking a little bit to J. D. Speaker 300:18:35Marteau, he's seeing his pipelines grow anywhere from 10% to 20%. That's in the highly probable categories. And again, I think it's just a matter of maturation as these businesses are on the ground longer, as our credit teams and business leaders are out getting more confidence in the type of deals that will get approved, you're going to start to see some more consistent growth. So I would say it is relatively broad based across all of those verticals and we continue to look forward to those particular verticals maturing over the course of 2025. Speaker 600:19:14Any regions stand out more than others? I Speaker 300:19:19don't know that I've seen any major I don't know that I've seen any major concentration in any one of our regions in terms of opportunities or actual credits that we've approved. Speaker 600:19:28Okay. And then just a quick follow-up on the NIM. What are you kind of assuming in terms of initial deposit betas in your guidance or initial loan betas for the Q4? And where can they go for the full cycle? Just kind of talk through that a little bit. Speaker 300:19:48Yes. Again, I think we'll provide a little bit more color on that going into 2025 in terms of what our margin guidance will be. I will just say that this last rate cut, some of our deposit pricing changes didn't go in until the very end of September, like literally on the 27th September. So we still have some opportunity there and we're not suspecting that there is going to be significant additional Fed cuts this year. We have 1 25 basis point cut in November, in the guide that we provided. Speaker 300:20:17But again, we're still going to pick up benefit from the last cuts that had some deposit changes that came late in this cycle. Speaker 600:20:27How successful were you to lower deposit rates? Do you have like an end of period deposit costs level to disclose? How are you doing into October? Has there been pushback on deposit declines? Speaker 300:20:44Yes. So we're not providing an end of month guidance. As you've seen, we had very, very low deposit growth this quarter, deposit cost growth. Given the fact that I just said we had rates that went in as of 9.27, you can expect that that deposit cost will continue to trend down next quarter. We have been pleasantly surprised and comfortable with the deposit renewal rates that we've been seeing in the book and in our ability to maintain our deposits with this pricing. Speaker 300:21:16So again, I believe we kind of continue to have a very reasonable pricing stance within our markets and against our competition. And we have seen our customer base respond accordingly without having significant levels of runoff as a result of those, in line with market price changes that we made. Speaker 600:21:37I really appreciate the discussion. Thank you. Speaker 100:21:41Yes. And Operator00:21:43your next question comes from the line of Matthew Breese with Stephens Inc. Your line is open. Speaker 300:21:48Hey, good morning. Speaker 700:21:50Good morning, Matt. Good morning. Speaker 800:21:51I was hoping you could help me out with a couple of things. The first one is just could you break out for us what pure floating rate loans are as a percentage of total loans, meaning priced off so far or fine? If you have it, what the yield is on that book versus everything else, the adjustable and fixed rate book? Speaker 300:22:12Yes. So if you go into our deck on Slide 8, we provided although we didn't give you the rate index that they were off of, we did provide fixed and floating percentage across our earning assets. So the aggregate book is showing 24% floating, 68% fixed and you can see it broken down across our categories and we also provided some additional detail on the funding mix side of things and how those would tend to react over time. Speaker 800:22:41This is great. Thank you. Okay. I'll just go here. Do you have any idea on the fixed rate what the duration is or how much you expect to reprice over the next, probably, 12 months? Speaker 300:22:52I mean, again, our residential mortgage book is our single largest book and you can assume like everybody else that is a pretty long tenured book with relatively low yields. And then the 2nd largest book in that consumer, well not 2nd largest commercial real estate is the next largest. But if you look at consumer as well, that is a pretty sizable auto loan portfolio that's again going to have generally fixed rate duration, but of a much lower fixed rate loans of a lower duration. Speaker 500:23:25Okay. Speaker 800:23:28Could you talk a little bit about the pace of C and I growth? Obviously, that's kind of in the lion's share of where growth has come from recently. Should we expect this kind of pace to continue kind of mid to high single digits on a quarterly basis? And where do you want to bring C and I loans to as a percentage of total loans? Where do you feel like the appropriate level is? Speaker 800:23:49Yes, Speaker 300:23:51I don't know that we have a specific target of where that level would be. I think we like the C and I business. We've made some significant investments in that business over time. We plan to continue to grow the C and I portfolio as a percent of total. Again, we have a pretty significant amount of runoff in that consumer book that we would like to replace with some more commercial loans. Speaker 300:24:17And I would generally say, the commercial real estate book, although we're still in that market, we don't tend to significantly grow that. So the bulk of our commercial growth will be into C and I and we would tend to run down and support the funding of that by rundown of sort of mortgage and home mortgage, home equity and consumer just as natural cash flows in that portfolio occurred. Speaker 200:24:38And I would just add to that, this is Lou. I would just add to that, right. While we don't really have a target percentage, what we're looking for there is balance, right? And we're also looking for the ancillary economics that are going to be meaningful to us from a fee standpoint and a deposit standpoint to help us grow deposits. We're under indexed in the commercial deposit space. Speaker 200:25:05We have a real focus on not just giving out loans in the C and I space that eat up capital. So we're looking to gather deposits in our strategy. A number of our businesses like the sponsored finance business, the franchise business all come with deposits and fees, full deposit relationships. So, it's really strategic in that we want a better revenue stream, we want more balanced economics and we want a loan book that is consistent through various economic cycles. So I think you'll continue to see that remixing. Speaker 200:25:47But ultimately, we'll get to the equilibrium there. And I think it'll produce much better economic results for us, financial results. Speaker 800:25:58Understood. Okay. Last one for me, just along those lines, as we continue to remix into C and I, is it fair to assume the reserve as a percentage of loans increases as well? We haven't seen it really, at least on that metric, grow much year over year, but I'm curious as time goes on whether or not that 111 reserve will creep higher? Speaker 200:26:19Yes. So we're very in tune with that remixing and you're absolutely right. We will see an increase over time in the reserve prudently. We built internally, we built the infrastructure to make this transition. So we understand the risk adjusted returns and the increased risk in moving away from, say, residential mortgages into C and I lending. Speaker 200:26:48We've built in our risk enterprise, we've built the three lines of defense and we're investing in some Moody's risk rating software, etcetera. So yes, it's all part of the strategy and we've procured a number of the senior leadership who've been there, done that. So this isn't something that is novel for us. And so I think we understand the risk component of the transition and will prudently the reserve will reflect that. Speaker 300:27:26Got it. That's all I had. Speaker 800:27:28Thank you for taking my questions. Speaker 100:27:29Thank you. Operator00:27:32And your next question comes from the line of Frank Schiraldi with Piper Sandler. Your line is open. Speaker 700:27:39Good morning. Hi, Frank. Good morning, Frank. You guys have obviously seen some pretty good commercial growth here. And I think Doug, you mentioned you talked about continued runoff on the consumer side of things. Speaker 700:27:55Just wondering, just thinking about 4Q, is the level we saw in terms of runoff in the consumer book in the Q3, is that a reasonable place to think about contraction in 4Q? Just trying to think about getting to that low single digit loan growth in the Q4 given the consumer side of things. Is it further ramp up in commercial? And any color you can just kind of provide there in terms of quarter over quarter growth? Thanks. Speaker 300:28:26Yes. So if you recall, there was quite a bit of there was a lower level overall vehicle sales, I believe in the Q3, they had a couple of different things that were working against them in terms of they had that technology matter. And then in general, there's just a bit lower demand. So we are looking at our pricing on the consumer book and trying to correct that with some better pricing to drive a little bit more consumer loan growth. So ideally, what we'd like to see is that overall level of decline slow so that we can show the modest loan growth that we're forecasting right now. Speaker 300:29:01So again, I mean, subject to the overall economy and what the market is giving us, we are doing things on our side to be priced competitively so that that run off slows a little bit or so that the net change in the portfolio is less negative and gives us an opportunity to show that 0% to 2% quarterly guide we're given our loan growth. Hopefully that answers your questions. Speaker 700:29:26Yes, that's great. And then just thinking credit obviously overall look pretty good. You had the increase in classifieds and you called out specific segment there, healthcare. And I just wondered if there was I think in the past you guys last quarter talked about some stabilization you're seeing in that segment. Just curious if the increase in classified reflects any sort of internal review in the quarter or just any more color there? Speaker 700:30:00Thanks. Speaker 900:30:03Sure. Yes, no, this is TK, Kirill. Thanks for the question, Frank. We are reviewing that majority of that portfolio quarterly. So the risk rating changes are reflective of that. Speaker 900:30:17That said, as we noted, we had a non performing asset, non performing loan payoff that was within that same portfolio. So, what we're seeing is transition of the portfolio through the criticized and classified. And then we are seeing a market for these as that non performing loan exited, the developer was able to find a suitor for us. So we do feel positive about the overall market slowly improving the sector. And then we actually had more number of loan upgrades than downgrades. Speaker 900:30:55It's just a couple of the downgrades were a larger one. So the dollar amount actually increased. Speaker 700:31:02Got you. Okay. That's helpful. And then just lastly, just want to make sure just clarification on part of the guide. When you guys talk about the low single digit growth in NIM linked quarter into the Q4, I just want to make sure I don't know if it's too fine a point. Speaker 700:31:23But anyway, you mentioned Doug before basis points on the interest recovery on the non accrual loan. So is that low single digits off of the reported number, off that 333 Speaker 300:31:35percent? No, it'd be off the 329 percent. That's why we wanted to highlight the 4 basis points like spike we had in interest income as we cleared that non accrual loan from the books. So you would adjust that down to 329% and then you do low single digit off of that. Speaker 700:31:50Great. Okay. Appreciate it. Thank you. Operator00:32:02The next question comes from the line of Daniel Cardenas with Janney Montgomery Scott. Your line is open. Speaker 500:32:10Good morning, guys. Speaker 700:32:12Hi, David. Good morning. Speaker 500:32:14Just a quick question in terms of thoughts on any additional balance sheet restructuring efforts coming into Q4 or into 2025? Speaker 300:32:29Yes, we don't have anything planned. I mean, there's still we're always evaluating the opportunities that the market would give us. But I think right where the current portfolio stands, we also as I mentioned at the beginning of the call, right, we had a change in our treasurer. So again, I think you should not expect to see anything dramatic from us in terms of restructures or things that we would be doing in the next quarter or 2, but we'll keep an eye out for opportunities. And if one becomes economically advantageous to us, we'll consider doing it. Speaker 500:33:06Okay. That's got it. And then with just going back to credit quality here quickly and the increase in the classified levels, Should we be thinking that maybe provisioning goes up a little bit if these classified levels can't come down? Is that kind of a good assumption here as we look into Q4? Speaker 900:33:32So the provisioning has occurred for those credits quarterly migrated. At this point, I would not expect material increases in the provisioning for the long term healthcare portfolio. Speaker 500:33:47Wonderful. And then how many credits made up that increase? Speaker 900:33:57Made up the increase in the classified loan level? Speaker 500:34:01Yes, sir. Yes, sir. Sorry about that. Speaker 700:34:07Here actually. Net, Speaker 900:34:12it was about 5 credits. But again, there were some that came in and some that went out. So we actually had more upgrades than downgrades. Speaker 500:34:25Okay. Any geographic concentration in those 5 credits? Speaker 300:34:30No. Okay. Speaker 500:34:33All right. And then quickly just one other question in terms of potential de novo in Columbus and Indy. How long do you guys think it takes or historically what has proven to be a kind of the breakeven period for de novos in your history? Speaker 300:34:56Yes. I would say, let us come back on that. So we're looking at that strategy right now. As you recall last time, Lou commented that we added Jirk Bauer to the team, long term P and C consumer bank specialist. I think we want to give in some opportunity to continue to look through that de novo strategy and talk to us about how he's going to execute that. Speaker 300:35:19So we are considering taking out and going through an Investor Day at some point over the course of next year, at which point we could talk a little bit about those plans more holistically. So, let's take a pass on that question for right now and we'll answer that with a little bit more detail when we're more ready to provide details on that strategy. Speaker 800:35:43Okay. Speaker 900:35:44Just to clarify my response on those numbers in classified, that was within the long term healthcare portfolio. So we can follow-up with other total migrations. Speaker 500:35:59All right. Perfect. Perfect. All right. That will do it for me. Speaker 500:36:02I'll step back right now. Thank you. Speaker 300:36:07Great. Thanks. Operator00:36:09And there are no further questions at this time. This does conclude today's conference call and you may now disconnect.Read morePowered by