Northwest Bancshares Q3 2024 Earnings Report

Northwest Bancshares EPS Results

• Actual EPS: $0.26
• Consensus EPS: $0.26
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.31

Northwest Bancshares Revenue Results

• Actual Revenue: $199.21 million
• Expected Revenue: $140.80 million
• Beat/Miss: Beat by +$58.41 million
• YoY Revenue Growth: N/A

Northwest Bancshares Announcement Details

• Quarter: Q3 2024
• Date: 10/29/2024
• Time: Before Market Opens
• Conference Call Date: Tuesday, October 29, 2024
• Conference Call Time: 9:00AM ET

Northwest Bancshares (NASDAQ:NWBI) is a bank holding company for Northwest Bank, a full-service community bank serving consumers, businesses and organizations. The company’s banking activities include accepting deposits and providing residential and commercial real estate loans, consumer loans, commercial and industrial financing, and other credit products.

Northwest Bank also offers checking and savings accounts, certificates of deposit, online and mobile banking, treasury management, and other payment and cash-management services. Through affiliated or related businesses, the company provides wealth management, investment, trust and insurance-related services, subject to applicable availability and regulatory requirements.

Northwest Bank traces its history to 1896 and has expanded from its Pennsylvania roots to serve communities across Pennsylvania, Ohio, New York and Indiana. Northwest Bancshares is headquartered in Columbus, Ohio, and emphasizes relationship-based community banking through its branch network and digital banking channels.

Northwest Bancshares Q3 2024 Earnings Call Transcript

Key Takeaways

• Recorded net income of $33.6 million (EPS $0.26) with net interest margin expanding 13 bps quarter-over-quarter to 3.33%, driven by pricing discipline and an interest recovery on a non-accrual loan.
• Noninterest income declined by $3 million versus Q2, including a $39 million loss on the sale of securities and additional losses on equity investments and bank-owned real estate.
• Deposits grew 3.2% year-over-year while the cost of deposits rose only 2 bps to 1.78%, maintaining near best-in-class funding costs.
• Efficiency ratio improved to 64.8% thanks to nearly $2 million in expense savings through insourcing and cost controls.
• Declared a quarterly dividend of $0.20 per share and reiterated commitment to responsible growth via targeted M&A and potential de novo expansion in high-growth Midwest markets.

Presentation

[Operator]

Thank 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. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star and one. I would now like to turn the call over to Joseph Canfield, Executive Vice President, Chief Accounting Officer. You may begin.

[Joseph Canfield, Executive Vice President and Chief Accounting Officer at Northwest Bancshares Inc]

Good morning, everyone, and thank you, Operator. Welcome to Northwest Bancshares' third quarter 2024 earnings call. Joining me today are Louis Torchio, President and CEO of Northwest Bancshares, Inc., the holding company for Northwest Bank, Douglas Schosser, our Chief Financial Officer, and T.K. Creal, our Chief Credit Officer. During this call, we'll 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, and now I will hand it over to Lou.

[Louis Torchio, President and CEO at Northwest Bancshares Inc]

Good 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. Though 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 securities 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&A environment within our markets.

[Louis Torchio, President and CEO at Northwest Bancshares Inc]

As 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.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Thank you, Lou, and good morning, everyone. Before we dive into 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 seven 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. Let's begin on page four of the earnings presentation, where I'll highlight Northwest's financial results for the third quarter of 2024. We reported a net income of $33.6 million or $0.26 per diluted share.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Our net interest margin expanded by 13 basis points for this quarter to 3.33%, aided partially by an interest recovery on a non-accrual loan, which added four 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%. Excluding a $39 million loss on the sale of securities as we repositioned our balance sheet, non-interest income decreased by $3 million 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.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Non-interest expense decreased by nearly 2% or approximately $2 million from the second quarter. Credit quality remained strong, overall allowance coverage slightly increasing to 1.11% of loans from 1.10% last quarter and a year-ago quarter. Finally, our capital position remained strong, with an estimated Tier 1 capital to risk-weighted assets of 13.7% at 9/30. Now, let's delve into additional details. On page five, 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 million 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 a higher share of C&I compared to CRE. Our loan yields have steadily increased over the last five quarters, now standing at 5.6%.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Moving to page six, deposits remained largely flat since last quarter and up 3.2% year-over-year. Our cost of deposits only increased by two basis points, the lowest rate in the past five quarters. Most deposit growth occurred in interest-bearing demand products, with modest growth in consumer savings and money market accounts. The current cost of deposits stands at 1.78%, which is near best-in-class relative to our peers. On page seven, we cover the net interest margin, which now stands at 333 basis points, a 13-basis-point improvement from the second quarter and 10 basis points higher than the same quarter last year. Fully tax-equivalent net interest income grew by approximately 4%, from $108 million last quarter to $112 million. This marks our second consecutive quarter of net interest income growth and NIM improvement, reflecting reduced borrowings, higher loan yields, and no growth on our cost of funds.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

We ended the quarter with a cost of funds at 2.39%, one basis point lower than the prior quarter. We have included some additional information on the margin on the next few slides. Now, moving to slide 10, non-interest income decreased quarter-ended September 30, 2023, due to a $3 million decrease in income from bank-owned life insurance resulting from death benefits received in prior periods. Excluding the $39 million loss on the sale of securities last quarter, non-interest income decreased by $3 million 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 million reduction in expenses for the quarter.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

We continued to insource 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 remained strong, with an improvement in non-performing assets. While 30-day loan delinquencies saw a slight increase to 70 basis points, classified loans also increased slightly to 2.83% of total loans. Slide 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.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

We will continue to focus on responsible and profitable loan growth in the commercial space, particularly C&I lending. We anticipate low single-digit loan growth and expect deposits to remain largely flat. We 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 930 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 third quarter 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.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

I will now turn the call over to the Operator, who will facilitate the live Q&A session.

[Operator]

At this time, in order to ask a question, please press star, then the number one on your telephone keypad. Our first question comes from the line of Daniel Tamayo with Raymond James. Your line is open.

[Daniel Tamayo, Analyst at Raymond James]

Hey, 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 fourth quarter within the other. So I'm curious if that is still a good number kind of going forward, that $1 million, given you're talking about the guidance off of the $27 million, $27.8 million number in the third quarter 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 or $3 million range per quarter?

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Yeah, we'll provide more guidance for 2025 when we go through the full fourth quarter results sometime in January. So we'll update that guidance. But for now, we're just guiding to a sort of a more normalized level after you account for some of the one-time losses that we had for the fourth quarter.

[Daniel Tamayo, Analyst at Raymond James]

So just to be clear then, you're expecting a number similar to the $1 million level in the fourth quarter?

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Yeah, I would say we're expecting a number closer to where we were at in the third quarter 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 million dollars on that line at $1.5 million-$3 million, somewhere in that range. So we should expect to get back to that kind of level, that core level of 29, 30, something like that.

[Daniel Tamayo, Analyst at Raymond James]

Okay. So when you say mid-single digits, you're not saying annualized. You're talking about a stated mid-single digit from the third quarter. I think that may be the confusion.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Got it.

[Daniel Tamayo, Analyst at Raymond James]

Got it. Okay. All right. Thank you. And then also, I guess, maybe looking at the credit side, so it 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 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. Thanks.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Yeah, it's more the latter, right? We're just trying to guide to what a normalized level of charge-off would be for the firm over a long period of time. So we're obviously in a 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'll get closer to those long-term averages. We're not suggesting that we expect any one 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.

[Daniel Tamayo, Analyst at Raymond James]

Okay. I understood, and in terms of the increase in the normalized guidance from last quarter, what was the driver there?

[Douglas Schosser, CFO at Northwest Bancshares Inc]

I 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. So just getting a little bit more consistent with where internally we are.

[Daniel Tamayo, Analyst at Raymond James]

Okay. Thanks.

[Daniel Tamayo, Analyst at Raymond James]

Yeah, I appreciate all the comments.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

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.

[Daniel Tamayo, Analyst at Raymond James]

Understood. All right. Thanks, Doug. Appreciate all the color.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Yep.

[Operator]

Your next question comes from the line of Manuel Navas with D.A. Davidson. Your line is open.

[Manuel Navas, Senior Research Analyst and Managing Director at D.A. Davidson]

Hey, can you remind us some of your targets in M&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.

[Louis Torchio, President and CEO at Northwest Bancshares Inc]

Yeah. Good morning, Manuel. How are you?

[Manuel Navas, Senior Research Analyst and Managing Director at D.A. Davidson]

Good.

[Louis Torchio, President and CEO at Northwest Bancshares Inc]

Good. Yeah. So similar to last quarter, I would say that first of all, we're focused in-market in our four-state footprint. And the opportunities that come up to us really fall into a couple of different categories: sort of an in-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 finally, maybe strategic from a product or a diversification standpoint. But 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 in-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?

[Louis Torchio, President and CEO at Northwest Bancshares Inc]

Highly creative from a size perspective, more of what you expected in the past, the $1 billion-$3 billion range, and something that we feel highly confident in executing on and making the deal creative. The other note there is in the two 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. We've already hired some commercial lenders.

[Louis Torchio, President and CEO at Northwest Bancshares Inc]

We've got some business bankers, and we're looking at the viability of using some capital to expand in the two fastest-growth markets in the Midwest from a de novo strategy, so as I stated in my statement, the market's picking up. I'm out in the marketplace meeting with other bank CEOs. We're having some conversations, but we're going to be very prescriptive and very careful to make sure that our transaction is going to be highly accretive.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

The only thing I would add too 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.

[Manuel Navas, Senior Research Analyst and Managing Director at D.A. Davidson]

I 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 by the business line and regionally, and kind of where do you have strength in commercial regionally?

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Yeah. 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. So you've got sports finance. You've got sponsor 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 bats, which we expect that progress to continue. So in talking a little bit to Jay DesMarteau, he's seeing his pipelines grow anywhere from 10%-20%. That's in the highly probable categories. And again, I think it's just a matter of maturation.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

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'll 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.

[Manuel Navas, Senior Research Analyst and Managing Director at D.A. Davidson]

Any regions stand out more than others?

[Douglas Schosser, CFO at Northwest Bancshares Inc]

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.

[Manuel Navas, Senior Research Analyst and Managing Director at D.A. Davidson]

Okay. 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 fourth quarter? And where can they go for the full cycle? Just kind of talk through that a little bit.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Yeah. 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, literally on the 27th of 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 125 basis point cut in November in the guide that we provided. But again, we're still going to pick up benefit from the last cuts that had some deposit changes that came late in this cycle.

[Manuel Navas, Senior Research Analyst and Managing Director at D.A. Davidson]

How successful were you to lower deposit rates? Do you have an end-of-period deposit costs level to disclose? How are you doing into October? Has there been pushback on deposit declines?

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Yeah. So we're not providing an end-of-month guide. 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. So 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.

[Manuel Navas, Senior Research Analyst and Managing Director at D.A. Davidson]

I really appreciate the discussion. Thank you.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Yep.

[Operator]

And your next question comes from the line of Matthew Breese with Stephens Inc. Your line is open.

[Matthew Breese, Managing Director at Stephens]

Hey, good morning.

[Daniel Tamayo, Analyst at Raymond James]

Good morning, Matt.

[Matthew Breese, Managing Director at Stephens]

Morning. I 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 SOFR or prime? If you have it, what the yield is on that book versus everything else, the adjustable and fixed-rate book?

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Yeah. So if you go into our deck on slide 8, although we didn't give you the rate index that they were off of, we did provide the 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.

[Matthew Breese, Managing Director at Stephens]

Oh, this 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 12 months?

[Douglas Schosser, CFO at Northwest Bancshares Inc]

I 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 second largest book in that consumer area, well, not second 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.

[Matthew Breese, Managing Director at Stephens]

Okay. Could you talk a little bit about the pace of C&I growth? Obviously, that's kind of been 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&I loans to as a percentage of total loans? Where do you feel like the appropriate level is?

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Yeah. I don't know that we have a specific target of where that level would be. I think we like the C&I business. We've made some significant investments in that business over time. We plan to continue to grow the C&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. And 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&I, and we would tend to run down and support the funding of that by rundown of sort of mortgage and home equity and consumer just as natural cash flows in that portfolio occur.

[Louis Torchio, President and CEO at Northwest Bancshares Inc]

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, a deposit standpoint to help us grow deposits. We're under-indexed in the commercial deposit space. We have a real focus on not just giving out loans in the C&I space that eat up capital. So we're looking to gather deposits in our strategy. A number of our businesses, like the sponsor 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.

[Louis Torchio, President and CEO at Northwest Bancshares Inc]

So I think you'll continue to see that remixing. But ultimately, we'll get to the equilibrium there. And I think it'll produce much better economic results for us, financial results.

[Matthew Breese, Managing Director at Stephens]

Understood. Okay. Last one for me, just along those lines as we continue to remix into C&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 1.11 reserve will creep higher.

[Louis Torchio, President and CEO at Northwest Bancshares Inc]

Yeah, 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. 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&I lending. In our risk enterprise, we've built the three lines of defense, and we're investing in some Moody's risk rating software, etc. 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 we'll prudently, the reserve will reflect that.

[Matthew Breese, Managing Director at Stephens]

Got it. That's all I had. Thank you for taking my questions.

[Louis Torchio, President and CEO at Northwest Bancshares Inc]

Thank you.

[Operator]

And your next question comes from the line of Frank Schiraldi with Piper Sandler. Your line is open.

[Frank Schiraldi, Managing Director at Piper Sandler]

Morning.

[Louis Torchio, President and CEO at Northwest Bancshares Inc]

Hi, Frank.

[Frank Schiraldi, Managing Director at Piper Sandler]

Morning.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Morning, Frank.

[Frank Schiraldi, Managing Director at Piper Sandler]

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. Just wondering, just thinking about 4Q, is the level we saw in terms of runoff in the consumer book in the third quarter a reasonable place to think about contraction in 4Q? Just trying to think about getting to that low single-digit loan growth in the fourth quarter 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.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Yeah, so if you recall, there was quite a bit of a lower level overall vehicle sales, I believe, in the third quarter. 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 was 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.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

So 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 runoff 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%-2% quarterly guide we're given on loan growth. Hopefully, that answers your question.

[Frank Schiraldi, Managing Director at Piper Sandler]

Yeah. That's great. And then, just thinking credit, obviously, overall looked pretty good. You had the increase in classifieds, and you called out a 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. Thanks.

[T.K. Creal, Chief Credit Officer at Northwest Bancshares Inc]

Sure. Yeah. No, this is T.K. Creal. Thanks for the question, Frank. We are reviewing that majority of that portfolio quarterly. So the risk-grading changes are reflective of that. That 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 it. 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. It's just a couple of the downgrades were a larger one. So the dollar amount actually increased.

[Frank Schiraldi, Managing Director at Piper Sandler]

Gotcha. Okay. That's helpful. And then just lastly, just want to make sure I just clarification on part of the guide. When you guys talk about the low single-digit growth in NIM linked quarter into the fourth quarter, I just want to make sure. I don't know if it's too far on a point, but anyway, you mentioned Doug the four basis points on the interest recovery on the non-accrual loan. So is that low single digits off of the reported number off of that 333?

[Douglas Schosser, CFO at Northwest Bancshares Inc]

No. It'd be off that 329. That's why we wanted to highlight the four basis points 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'd do low single digit off of that.

[Frank Schiraldi, Managing Director at Piper Sandler]

Great. Okay. Appreciate it. Thank you.

[Operator]

And again, if you would like to ask a question, please press star and the number one on your telephone keypad. The next question comes from the line of Daniel Cardenas with Janney Montgomery Scott. Your line is open.

[Daniel Cardenas, Director and Equity Research Analyst at Janney Montgomery Scott]

Excuse me. Good morning, guys.

[Daniel Tamayo, Analyst at Raymond James]

Hey, Daniel. Morning.

[Daniel Cardenas, Director and Equity Research Analyst at Janney Montgomery Scott]

Just a quick question in terms of thoughts on any additional balance sheet restructuring efforts coming into fourth quarter or into 2025?

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Yeah. We don't have anything planned. I mean, there's still I mean, 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 two. But we'll keep an eye out for opportunities, and if one becomes economically advantageous to us, we'll consider doing it.

[Daniel Cardenas, Director and Equity Research Analyst at Janney Montgomery Scott]

Got it. 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?

[T.K. Creal, Chief Credit Officer at Northwest Bancshares Inc]

So 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.

[Daniel Cardenas, Director and Equity Research Analyst at Janney Montgomery Scott]

Wonderful. And then how many credits made up that increase?

[T.K. Creal, Chief Credit Officer at Northwest Bancshares Inc]

Made up the increase in the classified loan level?

[Daniel Cardenas, Director and Equity Research Analyst at Janney Montgomery Scott]

Yes, sir. Yes, sir. Sorry about that.

[T.K. Creal, Chief Credit Officer at Northwest Bancshares Inc]

Net here, actually. Net, it was about five credits. But again, there were some that came in and some that went out. So we actually had more upgrades than downgrades.

[Daniel Cardenas, Director and Equity Research Analyst at Janney Montgomery Scott]

Okay. Any geographic concentration in those five credits?

[T.K. Creal, Chief Credit Officer at Northwest Bancshares Inc]

No.

[Daniel Cardenas, Director and Equity Research Analyst at Janney Montgomery Scott]

Okay. All 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 kind of the break-even period for de novos in your history?

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Yeah. I would say let us come back on that. We're looking at that strategy right now, as you will recall last time we commented that we added York Bauer to the team, long-term PNC consumer bank specialist. I think we want to give him some opportunity to continue to look through that de novo strategy and talk to us about how he's going to execute that. 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. We'll 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.

[Daniel Cardenas, Director and Equity Research Analyst at Janney Montgomery Scott]

Okay.

[T.K. Creal, Chief Credit Officer at Northwest Bancshares Inc]

Just to clarify my.

[Daniel Cardenas, Director and Equity Research Analyst at Janney Montgomery Scott]

Yes, sir.

[T.K. Creal, Chief Credit Officer at Northwest Bancshares Inc]

Well, just 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.

[Daniel Cardenas, Director and Equity Research Analyst at Janney Montgomery Scott]

All right. No, perfect. Perfect. All right. That'll do it for me. I'll step back right now. Thank you.

[Douglas Schosser, CFO at Northwest Bancshares Inc]

Great. Thanks.

[Operator]

And there are no further questions at this time. This does conclude today's conference call, and you may now disconnect.

Participants

Executives

• Louis Torchio, President and CEO
• Joseph Canfield, Executive Vice President and Chief Accounting Officer
• T.K. Creal, Chief Credit Officer
• Douglas Schosser, CFO

Analysts

• Frank Schiraldi, Managing Director at Piper Sandler
• Daniel Cardenas, Director and Equity Research Analyst at Janney Montgomery Scott
• Daniel Tamayo, Analyst at Raymond James
• Matthew Breese, Managing Director at Stephens
• Manuel Navas, Senior Research Analyst and Managing Director at D.A. Davidson